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RES-11245 Update Debt Issuance, Management Policy & Continuing Disclosure Compliance ProceduresRESOLUTION NO. 11245 A RESOLUTION OF THE CITY COUNCIL TO THE CITY OF ORANGE ADOPTING AN UPDATED DEBT ISSUANCE AND MANAGEMENT POLICY AND CONTINUING DISCLOSURE COMPLIANCE PROCEDURES AND TAHING RELATED ACTIONS. WHEREAS, the City of Orange and its related entities (such as the Successor Agency to the Orange Redevelopment Agency, the Orange City Public Facilities Financing Authority, City- formed communiTy facilities districts) (collectively, the"City") have issued or may issue bonds or other financing obligations ("Local DebP')that aze subject to requirements for the filing of reports to the Califomia Debt and Inveshnent Advisory Commission ("CDIAC") pursuant to California Government Code Section 8855 ("Section 8855"); and WFI REAS, under Secrion 8855, a municipal issuer of Local Debt must file a report(the Report of Proposed Debt Issuance") at least 30 days before the sale of any Local Debt issue; and WHEREAS, Section 8855, as amended in 2017, requires the Report of Proposed Debt Issuance to include a certification that the municipal issuer has adopted a local debt policy and the contemplated Local Debt issuance is consistent with such local debt policy; and WHEREAS, Section 8855(i)(1) requires that the local debt policy must include the following elements: 1) The purposes for which the debt proceeds may be used; 2) The types of debt that may be issued; 3) The relationship of the debt to, and integration with, the issuer's capital improvement program or budget, if applicable; 4) Policy goals related to the issuer's planning goals and objectives; and 5) The internal control procedures that the issuer has implemented, or will implement, to ensure that the proceeds of the proposed debt issuance will be directed to the intended use; and WHEREAS, in connection with Section 8855(i)(1), the City previously adopted a"Debt Issuance and Management Policy(the"Policy")pursuant to Resolution No. 11072,adopted by the City Council on April 10, 2018; and WHEREAS,the City desires to update the Policy, in the form set forth in Exhibit A; and WHEREAS, the Policy, as updated, will incorporate, as Appendix I thereto, compliance procedures in connection with the City's undertaking of continuing disclosure obligations pursuant to Rule 15c2-12 (the "Municipal Securities Disclosure Rule")promulgated by the U.S. Securities and Exchange Commission under the Securities Exchange Act of 1934, including amendments to the Municipal Securities Disclosure Rule which became effective on February 27, 2019. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Orange as follows: 1.The above recitals aze true and correct and aze a substantive part of this Resolution. 2.The Policy, as updated, in the form set forth Eachibit A, is hereby approved and adopted. The Policy, as so updated, shall be applicable to Local Debt issued by or on behalf of the City (including its related entities such as, but not limited to,the Successor Agency to the Orange Redevelopment Agency, the Orange City Public Facilities Financing Authority and City-formed community facilities districts). The Policy, as so updated, shall supersede any prior debt policy covering the same matters previously adopted by the CiTy. 3.The City Council hereby determines and finds that the Updated Policy complies with the requirements of Section 8855(i)(1). 4.The Mayor, the Mayor Pro Tem, the City Manager, the Assistant City Manager/Administrative Services D'uector, the Assistant Finance Director and other officers of the City aze hereby authorized and d'uected,jointly and severally,to execute such instruments and do any and all things wluch they may deem necessary or advisable to effectuate this Resolution and any such actions previously taken by such officers and staff aze hereby ratified and confirmed. ADOPTED this 9th day of June 2020. i- Maz . Murphy, Mayor, City f range ATTEST: Q vrt oa wn Pamela Coleman, City Clerk, City of Orange Resolu[ion No. 11245 2- STATE OF CALIFORNIA ) COUNTY OF ORANGE ) CITY OF ORANGE I, PAMELA COLEMAN, City Clerk of the City of Orange, Califomia, do hereby certify that the foregoing Resolution was duly and regulazly adopted by the CiTy Council of the CiTy of Orange at a regulaz meeting thereof held on the 9th day of June 2020, by the following vote: AYES:COiJNCILMEMBERS: Alvazez, Murphy, Nichols, Monaco NOES:COiJNCILMEMBERS: None ABSENT: COiJNCILMEMBERS: None ABSTAIN: COiJNCILMEMBERS: None t,,D-.C. Pamela Coleman, City Clerk, City of Orange Resolution No. 11245 3- EXHIBIT A Updated Debt Issuance and Management Policy see attached) Resolution No. I 1245 4- CITY OF ORANGE DEBT ISSUANCE AND MANAGEMENT POLICY updated per Resolution No. 11245, adopted on June 9, 2020) A. PURPOSE The purpose ofthis Debt Issuance and Management Policy(this"Policy")is to establish guidelines and parameters for the effective governance, management and adminisuarion of debt and other financing obligations issued by the City of Orange and its related entiries (such as the Successor Agency to the Orange Redevelopment Agency, the Orange City Public Facilities Financing Authority and City-formed community facilities districts). As used in this Policy, "City" shall mean the City of Orange and/or its related entities, as the wntext may require. As used in this Policy, "debY' shall be intetpreted broadly to mean bonds, notes, certificates of participarion, financing leases or other financing obligations, but the use of such term in this Policy shall be solely for convenience and shall not be interpreted to characterize any such obligation as an indebtedness or debt within the meaning of any statutory or constitutional debt limitation where the substance and terms of the obligation fall within exceptions to such limitation. Tlus Policy shall apply to all debt issued or sold to third party lenders or investors and does not pertain to City intemal interfund borrowings or any employee benefit obligations. B. BACKGROUND The City and its related entities are committed to fiscal sustainability by employing long-term financial planning efforts,maintaining appmpriate reserves levels and employing prudent practices in govemance,management,budget administration and financial reporting. Debt levels and their related annual costs aze important long-temt obligarions that must be managed within available resources. A disciplined thoughtful approach to debt management includes policies that provide guidelines for the City and its related enrities to manage their collective debt program in line with those resources. Therefore, the objective of this policy is to provide written guidelines and restrictions conceming the amount and type of debt and other financing obligations issued by the City and its related entities and the ongoing management of the debt portfolio. This Policy is intended to improve the quality of decisions, assist with the detemtination of the structure of debt issuance, identify policy goals and demonstrate a commitment to long-tenn financial planning, including a multi-year capital plan. Adherence to a Debt Issuance and Management Policy signals to rating agencies and the capital mazkets that a government is well managed and should meet its obligations in a timely manner. C. CONDITIONS AND PURPOSES OF DEBT ISSUANCE 1. Acceptable CondiHons for the Use of Debt The City believes that prudent amounts of debt can be an equitable and cost- effective means of financing infrastructure, and capital asset and project needs of the City. Debt will be considered to finance such projects if: a) The project has been, or wil]be, included in the Ciry's capital improvement plan or has otherwise been coordinated with the City's planning goals and objec6ves. b) The project can be financed with debt not exceeding the term specified in Section E.1 of this Policy, to assure that long-term debt is not issued to finance projects with a short useful life. c) It is the most cost-effective funding means available to the City, taking into account cash flow needs and other funding altematives. d) It is fiscally prudent and meets the guidelines of this Policy. Any consideration of debt financing shall consider financial alternatives, including pay-as-you-go funding, proceeds derived from development or redevelopment of existing land and capital assets owned by the City, and use of existing or future cash reserves, or combinations thereof. 2. Acceptable Uses of Debt and Proceeds of Debt The primary purpose of debt is to finance one of the following: a) The City will consider long-tenn financing for the acquisition, substantial refurbishment, replacement, or expansion of capital assets (including but not limited to land improvements, infraslructure projects, equipment and water rights) for the following purposes: i.Acquisition and or improvement of land, right-of-way or long-term easements. ii. Acquisirion of a capital asset with a useful life of three or more years. iii. Construction or reconstruction of a facility. iv. Although not the primary purpose of the financing effort, project reimbursables that include project planning design, engineering and other preconstrucrion efforts; project-associated fumiture fixtures and equipment; capitalized interest (prefunded interest), original issue discount,underwriter's discount,and other costs of issuance. b) Refunding, refinancing or restructuring debt (including without limitation the refinancing or advance funding of City pension obligarions), subject to refiutding objectives and parameters discussed in Section G. 3.Short-Term Debt a) In the event of temporary shortfalls in cash flow for City operation costs due to timing of receipt of revenues and the lack of cash on hand to wver the tecnporary deficit,the City may consider interim or cash flow financing, such as anticipation notes. In compliance with applicable state law, any such notes shall be payable either: (i)not later than the]ast day of the fiscal yeaz in which it is issued, or(ii)during the fiscal year succeeding the fiscal year in which issued, but in no event]ater than 15 months aRer the date of issue, and only if such note is payable only from revenue received or accrued during the fiscal year in which it was issued. b) Short-tecm debt may also be used to finance short-lived capital projects, such as lease-purchase financing or equipment. c) Prior to issuance of any short-term debt, a reliable revenue source shall be identified for repayment of the debt. 4. Internal Control Procedures Concerning Use of Proceeds of Debt One of the City's priorities in the management of debt is to assure that the proceeds of the debt will be directed to the intended use for which the debt has been issued. In furtherance of this priority,the following procedures shall apply: a) The Finance Director shall retain, for the applicable period specified in Section H.4. oF this Policy, a copy of each annual repoct filed with the Califomia Debt and Investment Advisory Commission ("CDIAC' pursuant to Section 8855(k)of the California Govemment Code conceming debt authorized during the applicable repoRing period (whether issued or not), (2) debt outstanding during the reporting period, and (3) the use during the reporting period of proceeds of issued debt. b) In wnnection with the prepararion of each annual report to be filed with CDIAC pursuant to Section 8855(k) of the Califomia Govemment Code, the Finance Director shall keep a record of the original intended use for which the debt has been issued, and indicate whether the proceeds spent during the applicable one-year reporting period for such annual report compoR with the intended use (at the time of original issuance or as modified pursuant to the following sentence). If a change in intended use has been authorized subsequent to the original issuance of the debt, the Finance Department shall indicate in the record when the change in use was authorized and whether the City Council, City Manager or another City official has authorized the change in intended use. The Finance Director or the Finance Director's designee shall repoR apparent deviations from the intended use in debt proceeds to the City Manager for further discussion, and if the City Manager determines appropriate in consultation witte legal counse] (which may be bond counsel, if applicable, or the City Attorney), to the City Council. c) If the debt has been issued to finance a capital project and the project timeline or scope of project has changed in a way that all or a portion of the debt pmceeds cannot be expended on the original project, the Finance Director shal] consult with the City Manager and legal counsel (which may be bond counsel, if applicable, or the City Attomey) as to available alternatives for the expenditure of the remaining debt proceeds (including prepayment of the debt). D. TYPES OF FINANCING INSTRUMENTS; AFFORDABILITY AND PLANNING POLICIES The City recognizes that there are numerous t}pes oF financing structures and funding sources available, each with specific benefits,risks and costs. Al] potentia] funding sources aze reviewed by management within the wntext of this Policy and the overall portfolio to ensure that any financial product or structure is consistent with the City's objecrives. Regardless of what financing structure(s) is utilized,due diligence review must be perfortned for each transaction, including the quantification of potenHal risks and benefits and analysis of the impact on City creditworthiness and debt affordability and capacity. Prior to the issuance of debt or other financing obligations to finance a project, the City will cazefully consider the overall long-term affordability of the proposed debt issuance. The City shall not assume more debt or other financing obligations without conducting an objective analysis of the City's ability to assume and support additiona] debt service paytnents. The City will consider its long-tecm revenue and expenditure trends, the impact on operational flexibility and the overall debt bwden on the taxpayers. The evaluation process shall include a review of generally accepted measures of affordability and will strive to achieve and or maintain debt levels consistent with its current operating and capita] needs. 1. General Fund-Supported Debt—General Fund Supported Debt generally include Certificates of ParticipaGon ("COPs") and Lease Revenue Bonds ("LRBs") which are lease obligations that are secured by a lease-back azrangement between the City and another public entity. Typically,the City appropriates available Genera] Fund moneys to pay the lease payments to the other public entity and,in tum, the public enrity uses such lease payments received to pay debt service on the bonds or Certificates of Padicipation. General Fund Supported Debt may also include bonds issued to refund obligations imposed by law, such as judgments (judgment obligation bonds ("JOBs")) or unfunded accrued actuarial liabilities for pension plans (pension obligation bonds POBs")). T'hese obligations do not constitute indebtedness under the state constitutional debt limitation and, therefore, aze not subject to voter approval. Without ]imiting the foregoing, the City may also enter into operating leases and lease purchase agreements on an as-needed basis without voter approval. Payments to be made under valid leases are payable only in the yeaz in which use and occupancy of the leased property is available, and lease payments may not be accelerated as a default remedy. Lease financing requires the fair mazket rental value of the leased property to be equal to or greater than the required debt service or lease payments. The lessee(the City)is obligated to include in its Annual Budget and appropriate the rental payments that are due and payable during each fiscal yeaz the lessee has use of the leased property. The City should strive to maintain its net General Fund-backed annual debt service at or less than 8%of available annually budgeted revenue. This ratio is defined as the City's annual debt service requirements on Geaeral Fund Supporced Debt including, but not limited to, COPs, LRBs, JOBs, and POBs) compazed to total annual General Fund Revenues net of interfund transfers out. 2. Revenue Bonds—Long-term obligarions payable solely from specific special fund sources, in general, aze not subject to a debt limitation. Examples of such long- term obligations include those which aze payable from a special fund consisting of restricted revenues or user fees (e.g., enterprise revenues) and revenues derived om the system of which the project being funded is a part. In detemuning the affordability of proposed revenue bonds, the City will perfoim an analysis comparing projected annual net revenues (exclusive of depreciation which is a non-cash related expense) to esfimated annual debt service. 'Che City should strive to maintain an annual wverage ratio of 110%(or such higher coverage ratio included in the City's exisring financing documents), using historical and/or projected net revenues to cover annual debt service for bonds. To the extent necessary, the City shall undertake pmceedings for a rate increase to cover both operations and debt service costs, and create debt service reserve funds to maintain the required coverage rario. 3. Special Districts Financing — 7'he City has formed and, if the City determines appropriate,it may undertake proceedings to form additional,CommunityFacilities Dishicts pursuant to the Mello-Roos Community Facilities District Act of 1982 or assessment districts pursuant to the [mprovement Act of 1911, the Municipal Improvement Act of 1913,or other applicable law. The City will wnsider requests for special district formation and debt issuance when such requests address a public need or provide a public benefit. Each application will be wnsidered on a case by case basis, and the Finance Deparhnent may not recommend a financing if it is determined that the financing wuld be detrimental to the debt position or the best interests of the City. 4.General Obligation Bonds — Norivithstanding their name, General Obligation Bonds aze not general obligations of the City,but instead they aze payable from and secured by a dedicated, voter-approved property tax override rate (i.e., a property tax in excess of the ]%basic ad valorem property tax rate which has received the approving two-thirds vote of the City's electorate). While the dedicated revenue stream to repay the debt makes General Obligation Bonds an attractive option, additional considerations for this financing mechanism include the time and expense of an election,the possibility that the electorate will not approve the ballot measure, and the legal bonding capacity limit of the assessed value of all taxable property within the City. (At the time of the adoption of this Policy, the legal bonding capacity limit for a California general law city is 3.75% of the assessed value of all taxable propeRy within the City.). 5. Tax Increment Financing — Tax increment financing is a financing method whereby a portion of ad valorem property taxes (commonly called the "tax incremenY') that are allocated to an entity, such as a successor agency to redevelopment agency("Successor Agency"),an enhanced infrastructure financing district ("EIFD"), a community revitalization and investment authority ("CRIA") or an infrastructure and revitalization financing district("IRFD"), and the entity is permitted to incur debt payable from and secured by the tax increment revenues. While tax inaement debt for redevelopment agencies and Successor Agencies is enritled to the benefits of Ar[icle XVI, Section 16, of the Califomia Constiturion, no similaz provision exists for EIFDs, CRIAs and IRFDs at the time of adoption of this Policy. Therefore, when considering EIFD, CRIA or IRFD financing or other types of tax increment financing which may be permitted by law in the future, debt limit concerns should be analyzed with respect to the proposed structure and taken into account in determining the practical viability of the proposed financing. 6. Conduit Debt — Conduit financing provides for the issuance of securiries by a government agency to finance a project of a third party, such.as a non-profit organization or other private entity. The City may sponsor conduit financings for those activities that have a general public purpose and aze consistent with the City's overall service and policy objectives. Unless a compelling public policy rationale exists, such conduit financings will not in any way pledge the City's faith and credit. E. STRUCTURE OF DEBT 1. Term of Debt — In keeping with Intemal Revenue Service regulations for tax- exempt financing obligations,the weighted average maturity of the debt should not exceed 120% of the weighted average usefiil life of the facilities or projects to be financed, unless specific circumstances exist that would mirigate the extension of time to repay the debt and it would not cause the City to violate any covenants to maintain the tax-exempt status of such debt, if applicable. 2. Rapidity of Debt Payment; Level Payment—To the extent practical, bonds will be amortized on a level repayment basis, and revenue bonds will be amortized on a level repayment basis considering the forecasted available pledged revenues to achieve the lowest rates possible. Bond repayments should not increase on an annual basis in excess of 2% without a dedicated and supporting revenue funding stream. Accelerated repayment schedules reduce debt burden faster and reduce tota] borrowing costs. The Finance Director will amortize debt through the most financially advantageous debt structure and to the extent possible,match the City's projected cash flow to the anticipated debt service payments. "Backloading" of debt service will be considered only when one or more of the following occur: a) Natural disasters or extraordinary or unanticipated extemal factors make payments on the debt in eazly years prohibitive. b) The benefits derived from the debt issuance can cleazly be derrtonsuated to be greater in the future than in the present. c) Such structuring is beneficial to the City's aggegate overall debt payment schedule or achieves measurable interest savings. d) Such structuring will allow debt service to more closely match projected revenues, whether due to lower project revenues during the euly years of the project's operation, inflation escalators in the enterprise user rates, or other quantifiable reasons. 3. Serial Bonds, Term Bonds, and Capital Appreciation Bonds — For each issuance,the City will select seria]bonds or term bonds, or both. On the occasions where circumstances warrant, Capital Appreciarion Bonds("CABs")may be used. The decision to use term bonds, serial bonds, or CABs is driven based on mazket conditions. However, the use of CABs should be used as a last resort unless a wmpelling financing need is presented and acceptable rates and tem s can be secured. 4. Reserve Ftinds — To the extent that the ase of available City moneys to fund a reserve fund provides an economic benefit that offsets the cost oF financing the reserve fund from bond proceeds (as determined by the Finance Director in wnsultation with the City's municipal advisor and, if applicable, the underwriter for the bonds), the City may vse legally permitted moneys to fund a reserve fund in cash or through the purchase of a debt service reserve surety bond or insurance policy) for the proposed bonds,up to the maximum amount permitted by applicable law or regulation. Typically, this amount is equal to the least of: (i)maximum annual debt service on the bonds, (ii) 10%of the principal amount of the bonds (or 10% of the sale proceeds of the bonds, within the meaning of Section ]48 of the federal Intemal Revenue Code),or(iii) 125%of average annual debt service on the bonds. F. USE OF ALTERNATIVE DEBT INSTRUMENTS Altemative debt instruments and financing structures sometimes can provide a lower cost of borrowing in the short run,but may involve greater medium-tertn or long-term risk. Due diligence review must be performed for each transaction, including the quantification of potenHal risks and benefits, analysis of the impact on City creditworthiness and debt affordability and capacity, and an evaluation of the ability of the City to withstand the medium-term or long-term risk attendant to alternarive debt instruments, including the feasibility of exit strategies. 1. Variable Rate Debt Variable rate debt affords the City the potential to achieve a lower cost debt depending on mazket conditions. However, the City will seek to limit the use of variable-rate debt due to the potential risks of such instrucnents. a) Purpose The City shall wnsider the use of variable rate debt for the purposes of: i.Reducing the costs of debt issues. ii. Increasing flexibility for accelerating principal repayment and amortization. iii. Enhancing the management of assets and liabilities(matching short- term"priced debY'with the City's short-term inveshnents). b) Considerations and Limitations on Variable-Rate Debt The City may consider the use of all altemative structures and modes of variable rate debt to the extent pernussible under State law and will make determinations among different types ofmodes of variable rate debt based on cost,benefit,and risk factors. 'The Finance Direc[or shall consider the following factors in considering whether to utilize variable rate debt: i.With respect to General Fund supported debt, one of the following two criteria should be met as determined by the Finance Director in his or her discretion: 1) any variable rate debt should not exceed 20% of total City General Fund supported debt; or 2) annual debt service on any variable rate debt should not exceed 5%of the annual General Fund Revenue. ii. Any variable rate debt should be fully hedged by expected future cagital fund reserves or unrestricted General Fund reserve levels,as applicable. iii. Whether interest cost and market conditions (including the shape of the yield curves and relative value considerations) aze unfavorable for issuing fixed rate debt. iv. The likelihood of projected debt service savings when comparing the cost of fixed rate bonds. v.Costs, implementation and administration are quantified and considered. vi. Cost and availability of liquidity facilities (lines of credit necessary for variable rate debt obligations and commercial paper in the event that the bonds are not successfully remazketed) are quantified and considered. vii. Whether the ability to convert debt to another mode(daily,monthly, fixed)or redeem at par at any time is pemtitted. viii. Cost and availability of derivative products to hedge interest rate risk. ix. The findings of a thomugh risk managetnent assessment. c) Risk Management Any issuance of variable rate debt shall require a rigorous risk assessment, including, but not limited to factors discussed in this section. Variable rate debt subjects the City to additional financial risks(relative to fixed rate bonds),including interest nte risk,tax risk, and certain risks related to providing liquidity for certain types of variable rate debt. The City will properly manage the risks as follows: i.lnterest Rate Risk and Tax Risk—The risk thaf mazket interest rates increase on variable-rate debtbecause ofmazket conditions,changes in taxarion of municipal bond interest or reductions in tax rates. Mitigalion—Limit total variable rate exposure per the defined limits, match the variable rate liabilities with short term assets, and/or purchase appropriate derivative pmducts to hedge against the risk see also Section F.2 below). ii. Liquidity/Remarketing Risk—The risk that holders of variable rate bonds exercise their"puY' option,tender their bonds, and the bonds cannot be remarketed requiring the bond liquidity facility provider to repurchase the bonds. This will result in the City paying a higher rate of interest to the facility provider and the potential rapid amortization of the repurchased bonds. Mitigation - Limit total direct variable-rate exposure. Seek liquidity facilities which allow For ]onger (5-10 yeazs) amortization of any draws on the facility. Endeavor to secure credit support facilities that result in bond ratings of the highest short-teim ratings and long-term ratings not lower than the second tughest rating category(without taking into account numerical or plus/minus sign modifiers). If the City's bonds are downgraded below these levels (or such other rating levels as provided in the applicable financing documents) as a result of the facility provider's rarings, a replacement provider shall be sought. iii. Liquidity/Rollover Risk—The risk that arises due to the shorter term of most liquidity provider agreements (1-5 years) relative to the longer-term amortization schedule of the City's variable-rate bonds. Liquidity and rollover risk includes the following risks: (1)the City may incur higher renewal fees when renewal agreements are negoriated,and(2)the liquidity bank mazket may constrict such that it is difficult to secure third party liquidity at any interest rate. Mitigation — Negotiate longer terms on provider conh acts to minimize the number of rollovers. 2. Derivatives The use of certain derivafive products to hedge variable rate debt, such as interest rate swaps, may be considered to the extent the City has such debt outstanding or under consideration. The City will exercise extreme caution in the use of derivative instruments for hedging purposes, and will consider their utilization only when sufficient understanding of the products and sufficient expertise for their appropriate use has been developed. A comprehensive derivative policy will be adopted by the City prior to any urilization of such instnunents. G. REFUNDING GUIDELINES The Finance Director shal] monitor all outstanding City debt obligations for potential refinancing opportunities. The City will consider refinancing of outstanding debt to achieve annual savings or to refinance a bullet payment or spike in debt service. Except for instances in which a bullet payment or spike in debt service is being refinanced, absent a compelling reason or financial benefit to the CiTy, any refinancing should not result in an increase to the weighted average life of the refinanced debt. Except for instances in which a bullet payment or spike in debt service is being refinanced or another City policy objective is being accomplished, the City will generally seek to achieve debt service savings which, on a net present value basis, aze at least 3% of the debt being refinanced. The net present value assessment shall factor in all costs,including issuance,escrow,and foregone interest eamings of any contributed funds on hand. Any potential refinancing shall additionally consider whether an altemative refinancing opportunity with higher savings is reasonably expected in the future. Refundings which produce a net present value savings of less than 3°/a will be considered on a case-by-case basis. Notwithstanding the foregoing, a refunding of Successor Agency bonds shall be determined based on the requirements of Health and Safety Code Section 34177.5. H. MARKET COMMUNICATION,ADMINISTRATION,AND REPORTING 1. Rating Agency Relations and Annual or Ongoing Surveillance — The Finance Director shall be responsible for maintaining the City's relationships with the major rating agencies that rate municipal bond issues(such as S&P Global Ratings,Fitch Ratings and Moody's Investors Service). These agencies' rating criteria often change and the City cannot control the decisions made by any rating agency. However, for each debt issue that the City will seek a rating assigunent, the City will strive to obtain and maintain the highest possible underlying,uninsured raring. In addition to general communication,the Finance Director shall: a) Ensure the rating agencies are provided updated financial statements of the City as they become publically available. b) Communicate with credit analysts at each agency as may be requested by the agencies. c) Prior to each proposed new debt issuance, schedule meetings or conference calls with agency analysts and provide a thorough update on the City's financial position, including the impacts of the proposed debt issuance. 2. Council Communication — The Finance Director should report feedback from rating agencies, when and if available,regazding the City's financial strengths and weaknesses and azeas of concem relating to weaknesses as they pertain to maintaining the City's existing credit ratings. 3. Continuing Disclosure Compliance —The City shall remain in compliance with Rule I Sc2-12,promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934,by filing(to the extent required by the applicable continuing disclosure undertaking). To that end, the "Continuing Disclosure Compliance Procedures,"attached as Appendix I, is hereby incorporated as part of this Policy. 4. Debt Issue Record-Keeping—A copy of all debt-related records shall be retained at the City's offices. At minimum, these rewrds shall include all official statements, bond legal documents/transcripts, resolutions, trustee statements, leases, and ritle reports for each City financing (to the extent available). Such records shall be retained while any bonds of an issue are outstanding and during the six-year period following the final maturity or redemption of the bond issue or, if later, while any bonds that refund bonds of that original issue are outstandin and for the six year period following the final maturity or redemption date of the latest refunding bond issue. 5. Arbitrage Rebate — The use of bond proceeds and their investments must be monitored to ensure compliance with all azbifrage rebate requirements of the lnternal Revenue Code and related Intemal Revenue Service regulations, in keeping with the covenants of the City and/or related entity in the ta c certificate for any federally tax-exempt financing. The Finance Director shall ensure that all bond proceeds and investments aze hacked in a manner which facilitates accurate calculation; and, if a rebate payment is due, such payment is made in a timely manner. I.CREDIT RATINGS The City will consider published ratings agency guidelines regarding best financial practices and guidelines for structuring its capital funding and debt strategies to maintain the highest possible credit ratings consistent with its current operaring and capital needs. J. CREDIT ENHANCEMENT Credit enhancement may be used to improve or establish a credit raNng on a City debt obligation. Types of credit enhancement include letters of credit,bond insurance and surety policies.T'he City, in consultation with the City municipal advisor, may determine the use of a credit enhancement, for any debt issue,if it reduces the overall cost of the proposed financing or if the use of such credit enhancement furthers the City's overall financing objectives. K. SB 1029 COMPLIANCE Senate Bill 1029, signed by the State Govemor on September 12, 2016, and enacted as Chapter 307, Statutes of 2016, requires issuers to adopt debt policies addressing each of the five items below: i. The purposes for which the debt proceeds may be used. Section C.2 (Acceptable Uses of Debt and Proceeds of Debt) and Section C.3 Short-Term Debt) address the purposes for which debt proceeds may be used. ii.The types of debl that may be issued. Section C.3 (Shoct-Tetm Debt), Section D (Types of Financing Instmments; Affordable and Planning Policies),Section E(Structure ofDebt)and Section F(Use of Alternative Debt Inshuments)aze among the provisions that provide infocmafion regazding the types of debt that may be issued. iii. The relationship of the debt to, and integration with, the issuer's capital improvement program or budget, if applicable. Section C.I (Acceptable Conditions for the Use of Debt) provides information reguding the relationship between the City's debt and Capital Impmvement Progam. iv. Policy goals related to the issuer's planning goals and objectives. As described in Section B (Backgound), Section D (Types Of Financing; Affordability and Planning Policies) and other sections, this Policy has been adopted to assist with the City's goal of maintaining fiscal sustainability and financial prndence. v.The internal control procedures that the issuer has implemented, or will implement, to ensure that the proceedr of the proposed debt issuance will be directed to the intended use. Section C.4 (Intemal Control Procedures Concerning Use of Proceeds of Debt) provides informarion regazding the City's intemal control procedures designed to ensure that the proceeds of its debt issues are spent as intended. GLOSSARY Ad Valorem Tax: A tax calculated "according to the value"of property. In Califomia, propeRy which is subject to ad valorem taxes is classified as "secured" or "unsecured." The secured classification includes proper[y on which any property ta c levied by a county bewmes a lien on that property. A tax levied on unsecured property does not become a lien against the unsecured property,but may become a lien on certain other property owned by the taxpayer. AnnuaJ Coverage Ratio: With respect to any bonds that are secured by a particulaz source of revenue for a particulaz 12 month period, the ratio obtained from dividing the estimated dollaz amount of the revenue during such period by the scheduled principal and interest payment for the bonds during such period. Anticipadon Notes: Short term notes (such as Tax and Revenue Anticipation Notes, Grant Anticipation Notes and Bond Anticipation Notes) issued to provide interim Snancing anticipated to be paid off from sources to be received at or before the maturity date of the anticipation notes such as tax revenues, grant fitnds,proceeds of long-term bonds). Arbitrage: The gain that may be obtained by borrowing funds at a lower(often tax-exempt) rate and investing the proceeds at higher(often taxable) rates. The ability to eam azbitrage by issuing ta c-exempt securities has been severely curtailed by the Intemal Revenue Code of 1986, as amended. Assessed Voluation: The "value" of property as set by a taxing authority (such as the county assessor) on the ta:c roll for purposes of ad valorem taxation. Bond: A security that represents an obligation to pay a specified amount of money on a specific date in Ute future,typically with periodic interest payments. Bond Anticipation Notes: Short-term notes issued usually for capital projects and paid from the proceeds of the issuance of long-term bonds. Provide interim financing in anticipation of bond issuance. Bond Counsel: A specialized, qualified attomey retained by the issuer to give a legal opinion conceming the validity of securities. The bond counsel's opinion usually addresses the subject of tax exemption. Bond counsel typically prepazes and/or advises the issuer regarding legal structure, authorizing resolurions, trust indentures and the like. Bond lnsurance: A type of credit enhancement whereby an insurance company indemnifies an investor against default by the issuer. In the event of failure by the issuer to pay principal and interest in full and on time, investors may call upon the insurance company to do so. Once issued, the municipal bond insurance policy is generally irrevocable. The insurance company receives its premium when the po]icy is issued and this premium is typically paid out of the bond issue. Capital Appreciation Bond: A municipal security on which the invesrinent return on an initial principal amount is reinvested at a stated compounded rate until maturity, at which time the investor receives a single paytnent representing both the initial principal amount and the total investment return. CDIAC: Califomia Debt and Investment Advisory Commission. Certificates of Participation: A financial instrument representing a proportionate interest in payments (such as lease paymenu)by one party(such as a city acting as a lessee) to another party often a JPA or non-profit). Competitive Sale: A sale of bonds in which an undenvriter or syndicate of underwriters submit sealed bids to purchase the bonds. Bids are awarded on a true interest cost basis (TIC), providing that other bidding requirements are satisfied. Comperitive sales aze recommended for simple financings with a strong underlying credit rating. This type of sale is in contrast to a Negotiated Sale Continuing Disclosure: An issuer's obligations under its conHnuing disclosure agreements executed in connecrion with its bond issues. See "Rule 15c2-12"below. Under each conrinuing disclosure ageement, the issuer agees to periodicaliy provide certain relevant information and make such infomiation available to the investing mazket. The info xnation is generally required to be posted on MSRB's Elecfronic Municipal Market Access(EMMA)website. Credit Enhancement: An insUvment (such as a bond insurance policy, a debt service reserve insurance policy or surety bond, a letter of credit) which may be purchased to provide additional assurance that the repayment of the debt will be honored, and hence may enhance the credit rating for the debt issue. Credit Ratingftgency: A company that rates the relative credit quality of a bond issue and assigas a letter rating. These rating agencies include Moody's Investors Service, Standazd &Poor's, and Fitch Ratings. Debt Limit: The maximum amount of debt that is legally permitted by applicable charter, constitution, or statutes. Debt Service: The amount necessary to pay principal and interest requirements on outstanding bonds for a given yeaz or series of years. Default: The failure to pay principal or interest in full or on rime and, in some cases, the failure to comply with non-payment obligations after notice and the opportunity to cure. Derivative: A financial instrument which derives its own value from the value of another instrument, usually an undeclying asset such as a stock, bond, or an underlying reference such as an interest rate index. Disclosure Counse[: A specialized, qualified attomey retained to provide advice on issuer disclosure obligations,to prepare the official statement and to prepare the continuing disclosure undertaking. Discount: The difference between a bond's par value and the price for which it is sold when the atter is less than paz.Also lmown as"underwriter discount,"this is the fee paid to the underwriter its banking and bond mazketing services. Enterprise Activiry: Specific activity that generates revenues. Common examples include water, wastewater and solid waste enterprises. A use of revenues generated by an enterprise activity for pucposes unrelated to that enterprise is often subject to restrictions imposed by law. Debt service on bonds issued to finance facilities or projects for an enterprise is usually paid with the revenues of such enterprise. Frnancing Team: The working group of City staff and outside consultants necessary to complete a debt issuance. Indenture: A contract between the issuer and the trustee stipulating the characteristics of the financial inshument, the issuer's obligation to pay debt service, and the remedies available to the trustee in the event of default. Issuance Costs: The costs incurred by the bond issuer during the planning and sale of securities. These costs include by aze not limited to municipal advisory,bond counsel, disclosure counsel, printing, advertising costs, credit enhancement, rating agencies fees, and other expenses incurred in the mazketing of an issue. Lease: An obligation wherein a lessee agrees to make payments to a lessor in exchange for the use of certain property. The term may refer to a capital lease or to an operating lease. Lease Reversue Bands: Bonds that are secured by the revenue from lease payments made by one party to another. Maturiry Date: The date upon which a specified amount of debt principal or bonds matures, or becomes due and payable by the issuer of the debt. Municipa(Advisor. A wnsultant who provides the municipal issuer with advice on the structure of the bond issue, timing, terms and related matters for a new bond issue. Municipa[Securities Rulemaking Board(MSRB): A self-regulating organization established on September 5, 1975 upon the appointment of a 15-member board by the Securities and Exchange Ageement. The MSRB, wmprised of representatives from investment banking firms, dealer bank representatives, and public representatives,is enhusted with the responsibility of writing rules of conduct for the municipal securities market. The MSRB hosts the EMMA website, which hosts information posted by issueis under their continuing disclosure undertakings. Negotiated Sale: A sale of securities in which the terms of the sale are determined through negotiation between the issuer and the purchaser, typically an underv riter, without competitive bidding. The negotiated sales process provides control over the financing structure and issuance timing. NegoHated sales aze recommended for unusual financing terms, period of mazket volatility and weaker credit quality. A thorough evaluation,usually with the assistance of the City's Municipa] Advisor, of the proposed bond's credit characteristics in conjunction with market conditions will be performed to ensure reasonable fina] pricing and underwriting spread. Net Present Yalue (NPi—A financial measurement whereby savings of a transaction aze discounted back to money into a"today's"dollars equivalent. Often the discount rate used is the true interest cost(TIC--see definition below)rate on the proposed new bond issuance. Typically, in the municipal mazket place it is common to then divide the NPV value by the outstanding paz amount of the bonds that aze to be refunded to develop a percentage value. O cia!Statement(Prospectus): A document published by the issuer in connection with a primary offering of securities that discloses material informafion on a new security issue including the purposes of the issue,how the securities will be repaid,and the financial, economic and social characterisrics of the security for the bonds. Investors may use this information to evaluate the aedit quality of the securities. Par f alue: The face value or principal amount of a security. Pension Obligation Bonds: Financing inshuments used to pay some or all of the unfunded pension liability of a pension plan. POBs are issued as taxable instruments over a 10-40 yeaz term or by matching the term with the amortization period of the outstanding unfunded actuarial accrued liability. Premium: The excess of the price at which a bond is sold over its face value. Present I a[ue: The value of a future amount or stream of revenues or expenditures. Private Placemenr A bond issue that is structured specifically For a small number of purchasers or a single purchaser. Private placements are typically carried out when extraneous cimumstances preclude public offerings. A private placement is considered to be a negoriated sale. Redemption: Depending on an issue's call provisions, an issuer may on certain dates and at cer[ain premiums,redeem or call specific outstanding maturities. When a bond or certificate is redeemed, the issuer is required to pay the mahuities' paz value, the accrued interest to the call date,plus any premium required by the issue's call provisions. Refunding: A procedure whereby an issuer refinances an outstanding debt issue by issuing a new debtissue. Rule ISc2-l2: Rule adopted by the Securiries and Exchange Commission setting forth certain obligations of(i)underwriters to receive, review and disseminate official statements prepazed by issueis of most primary offering of municipal securities, (ii) undenvriters to obtain continuing disclosure a eements from issuers and other obligated persons to provide ongoing annual financial information on a continuing basis, and(iii) broker-dealers to have access to such continuing disclosure in order to make recommendarions of municipal securities in the sewndary market. Reserve Fund: A fund established by the indenture of a bond issue into which money is deposited for payment of debt service in case of a shortfall in current revenues. Revenue Bond: A bond which is payable from a specific source of revenue and to which the full faith and credit of an issuer is not pledged. Revenue bonds aze payable from idenrified sources of revenue, and do not permit the bondholders to compel a jurisdiction to pay debt service from any other source. Pledged revenues often are derived from the operation of an enterprise. Secondary Markeh. The mazket in which bonds aze sold afrer their inirial sale in the new issue mazket. Serial Bonds: Bonds of an issue that mature in consecurive years or other intervals and are not subject to mandatory sinking fund provisions. Tax and Revenue Anticipation Notes (TRANS): Short term notes issued in anticipation of receiving tax receipts and revenues within a fiscal year. TRANs allow the municipality to manage the period of cash shortfalls resulring from a mismatch between timing of revenues and timing of expendihues. Term Bonds: Bonds that come due in a single maturity but where the issuer may agree to make periodic payments into a sinking fund for mandatory reclemption of term bonds before maturity and for payment at maturity. True Interest Cost(TIC): Under this method of computing the interest expense to the issuer of bonds, true interest cost is defined as the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the new issue of bonds. Interest is assumed to be wmpounded semi-annually. TIC computations produce a figure s]ightly different from the net interest cost (NIC) method because TIC considers the time value of money while NIC does not. Trustee: A bank retained by the issuer as custodian of bond proceeds and officia]representative of bondholders. The trustee ensures compliance with the indenture. In many cases, the trustee also acts as paying agent and is responsible for transmitting payments of interest and principal to the bondholders. Underwriter: A broker-dealer that pwchases a new issue of municipal securities from the issuer for resale in a primary offering. The bonds may be purchased either through a negotiated sale with the issuer or through a competitive sale. i3'eighted Average Usejul Life: In reference to a pazticulaz bond issue,the weighted average useful life of the assets financed with the proceeds of the bonds is calculated by giving weight to both the relative dollaz amount spent on each asset and the useful life of that asset. Yield: The net rate of retum, as a percentage,received by an investor on an investment. Yield calculations on a fixed income investment, such as a bond issue,take purchase price and coupon into account when calculating yield to maturity. APPENDIXI CONTINUING DISCLOSURE COMPLIANCE PROCEDURES 1. BACKGROUND AND TRAIIYING Rule 15c2-12, promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, requires certain information be disclosed to the municipal bond mazketplace. The SEC has stated that it has a mandate "to adopt rules reasonably designed to prevent fraudulent, deceptive or manipulative acts or practices in the mazket for municipal securities." The SEC has taken the position that material non-compliance by an issuer with past continuing disclosure obligations may warrant, without wrrective actions, an undenvriter being prohibited from underwriting the issuer's bonds, and thus prevent the issuer from accessing the municipal bond marketplace. The following procedures will help ensure compliance by the City of Orange and its related public entities such as, but not limited to, the Successor Agency to the Orange Redevelopment Agency and the Orange City Public Facilities Financing Authority) (collectively, the City") with Rule 15c2-12 and its continuing disclosure obligations under continuing disclosure a eements or similar instruments executed in connection with its municipal bond offerings. Certain capitalized terms herein will have the meanings ascribed to them in the respective continuing disclosure agreements or similaz instruments. 2.DESIGNATION OF RESPONSIBLE OFFICER The Responsible OfScer will be the officer or other employee responsible for compiling and filing Annual Reports (as defined in the continuing disclosure agreements) and notices regazding enumerated events ("Event Notices"), if requued to be filed pursuant to the continuing disclosure agreements or similar instruments. The initial Responsible Officer shall be the City's Finance Director. From time to time, the City Manager may designate a different person to serve as the Responsible Officer. 3. RESPONSIBLE OFFICER TO BECOME FAMILIAR WITH EMMA" AND FILING REQUIREMENTS UNDER CONTINUING DISCLOSURE AGREEMENTS A. T'he Responsibie Officer will take such acrion as may be necessary or appropriate to become familiaz with the Municipal Securities Rulemaking Boazd's Electronic Municipal Mazket Access ("EMMA") website. The Responsible Officer should understand how to locate on EMMA the filings made by the City in connection with bonds issued by the City. If the City is serving as its own Dissemination Agent,the Responsible Officer will establish a user identification and password for EMMA and become familiar with uploading documents onto EMMA. B. For each sepazate issue of the City's outstanding bonds, the Responsible Officer wil] read the related continuing disclosure a eement or similar insUvment and identify the following: i) The date by which the Annual Report must be filed; ii) The contents needed to be included in the Annual Report; iii) The Event Notices that must be filed; and iv) When Event Notices aze required to be filed. C. The Responsible Officer should be aware of the types of events (the "Listed Events")that would require the filing of an Event Notice. If clarification is required regazding what is meant by a Listed Event, the City's bond counsel or disclosure wunsel should be contacted to seek such clarification. 4.PREPARATION AND FILING OF ANNUAL REPORTS AND EVENT NOTICES A. The City will strive to begin the process of completing its audited financial statements as soon as practicable after the close of each Fiscal Year. Such audited financial statements should be completed in Hme to be submitted to the City Council (or other goveming boazd)before the date that the Annual Report must be filed. B. The Responsible Officer will identify any information that is required to be included in the Annual Report but is not part of the City's audited financial statements, and contact the sources necessary to compile such informarion as soon as possible after the close of each Fiscal Year. T'he Responsible Officer will consider adding any information required by its continuing disclosure agreements or similaz instrument not already included in its audited financial statements into a supplementary information secrion of audited financial statements. C. Following the compilation of the information that is to be included in the Annual Report, the Responsible OfFicer will (or will cause the Dissemination Agent to) submit the Annual Report to EMMA on or before the date on which the Annual Report must be filed. D. Each yeaz, by no later than the date that the Annua] Report is required to be filed on EMMA,the Responsible Officer will review the EMMA website to wnfirm that the Annual Report has been posted with respect to all applicable securities. If the Annual Report has not been posted,the dissemination agent will be notified,or the Responsible Officer will file the Annual Report, as applicable. E. T'he Responsible Officer will identity,or with the assistance of consultants engaged to monitor compliance will idenrify, the occurrence of a Listed Event and prepare, or have prepazed, the appropriate Event Disclosure. The Responsible Officer will file (or will cause the dissemination agent to file) Event Notices on EMMA in a timely manner,when so required by the continuing disclosure agreements or similar instrument. The Responsible Officer will contact the City's bond counsel or disclosure wunsel if there aze any questions regazding whether an event constitutes a Listed Event, and whether such occurrence will require the filing of an Event Notice. F. In connection with amendments to Rule 15c2-12 adopted in 2018, for any new conrinuing disclosure agreement executed on or after Februazy 27, 2019 with respect to a debt issue(the"DebY'), the Responsible Officer shall, before the Debt issuance date, review the City's financial records and create a list of the City's existing financial obligations (as such term is defined by Rule 15c2-12) (the Financial Obligations LisY'). The Financial Obligations List shall be continuously updated by the Responsible Officer. Whenever the City prepazes to enter into a new financial obligation or modify the terms of an existing financial obligation,the Responsible Officer shall determine whether the incuaence of such financial obligation or modification of tertns would require an Event Notice under the continuing disclosure agreement. If a determination is made that an Event Norice would be required,the Responsible Officer,in consultation with legal counsel,shall cause the Event Notice to be filed on a timely basis, when so required by the continuing disclosure agreements or similar instrument. G. Certain Listed Events aze qualified by a materiality standazd. Materiality is determined according to SEC guidance available at the time. If clarification is required regazding materiality on any potential Listed Event, the Responsible Officer shall contact the City's bond counsel or disclosure counsel to seek clarification. The Responsible Officer's determination of materiality will depend on the facts and circumstances su[rounding the event and wil] take into consideration many factors including,but not limited to, the following: Source of security pledged for repayment of the financial obligation, Ri ts associated with such a pledge(e.g., senior versus subordinate), Principal amount or notional amount(in the case of a derivative inshnment or gttarantee of a derivative instrument), Covenants, Events of default, Remedies, Other similaz tenns that affect security holders to which the issuer agreed at the time of incurrence, Size of the overall balance sheet, Size of existing obligations,and Size of the overall bond portfolio. 5.RETENTION OF RECORDS A. The documents identified below should be retained for a period of at least six years following the termination of the City's ob(igations(i.e.,the legal defeasance, prior redemption or payment in full of the related issue of municipal securities) under a continuing disclosure agreement or similaz instrument. B. The City will retain,in its records,the transcripts containing the documents related to each issue of.bonds or other obligations of the City. C. The City will retain copies,in paper or electronic focm,of each Listed Event Notice submitted to EMMA. D. 'fhe City will retain copies, in paper or electronic fonn, of each Annua] Report submitted to EMMA. E. To the extent that the content of an Annual Report is based on source materials created or obtained by the City, the City will retain in its records, such source materials created or obtained by the City.