Resolution 2012-49 was unanimously passed to amend the debt policy to competitively bid all debt issues and justify in writing the reasons for not doing so.
All six resolutions had to do with amending the city’s debt management policy which was previously established and in Resolution 2011-104, adopted Nov. 14, 2011.
The policy is a written guideline affecting the amount and type of debt, fixed or variable rate, that can be issued by the city; and the process of issuing and managing the city’s debt.
Debt policy established a guideline limiting the amount of variable rate debt to no more than 50 percent of the total.
The stated purpose of the 27-page debt policy is to improve the quality of management and legislative decisions, and to provide justification for the structure of debt.
It was also the intent of the city to signal credit rating agencies, investors and the capital markets that the city is well-managed and prepared to meet its obligations in a timely manner. The debt policy was required by the state to be implemented before Jan. 1.
Resolution 2012-48 would have amended the city policy by deleting the phrase “financial professionals, if any” and replacing it with “financial advisor.”
The City Council voted in July 2011 to terminate its contract with Morgan Keegan, the city’s previous financial adviser. The original motion to terminate the contract was made by Councilman Richard Banks after citing reports of Morgan Keegan on the front pages of newspapers relating to a $200 million settlement in its mutual fund division. The action was taken against the advice of City Manager Janice Casteel.
Second District Councilman Bill Estes and Vice Mayor Avery Johnson voted in favor of the resolution. At-Large Councilmen Richard Banks and George Poe, 1st District Councilman Charlie McKenzie, 4th District Councilman David May, and 5th District Councilman Dale Hughes lined up against the measure.
Resolution 2012-50 would have required city policy to limit the percentage of variable rate debt to not exceed 25 percent.
The city of Cleveland and Cleveland Utilities have about $131 million in long-term debt. Of that amount, 21 percent is variable rate. Most of the variable-rate debt is tied to swap agreements with Deutche Bank. The net effective rate of variable debt is 4.43 percent, according to City Clerk Mike Keith. Most of the fixed-rate debt will average 4 percent.
Councilman Bill Estes said he asked for the resolution because the city is responsible for Cleveland Utilities’ debt, which is all fixed. He said passing the resolution action would give the city more flexibility in the variable-rate market by including CU rather than 50 percent of the city’s debt.
The resolution failed by a vote of 5-2. Voting in favor were Estes and Johnson.
Resolution 2012-51 would have added the legal debt limit of 10 percent of assessed property tax to the debt management policy. Casteel said the city has been using 10 percent as a guideline as long as she can remember. Estes made the motion, but it died without a second.
Resolution 2012-52 would have amended the debt management policy to include the targeted reserve percentages for the General and Debt Service funds.
The General Fund targeted balance would have been set at 25 percent of expenditures and transfers, for example, to city schools. The Debt Service Fund balance would have been set at 100 percent of expenditures.
“I made a major change to this one,” Casteel said of the Debt Service Fund. “In the past, you’ve had 25 percent. I wish we could have 100 percent or one year’s total budget in the Debt Service Fund.”
The city already meets the 25 percent requirement. General Fund reserves equal about 26 percent and Debt Service Fund reserves equal approximately 53 percent.
Estes made a motion to bring the resolution to a vote, but it died without a second.
Resolution 2012-53 would have amended the City’s Debt Management Policy to include the city of Chattanooga’s after-sale evaluation and investment of debt.
Casteel said the amended resolution would cause some procedures to take place.
“They’re going to explain to us the market conditions at the time of the sale, an evaluation of all the borrowing costs — things we are not getting right now,” Casteel said. “It’s just so you know exactly were after-sale occurred.”
Estes and Johnson voted in favor of the resolution. May, Hughes, Banks, Poe and McKenzie voted against the measure.
