Page 435 - NRH FY20 Approved Budget

DEBT SERVICE FUNDS

DEBT MANAGEMENT

Debt Issuance – The City issues debt only for the purpose of acquiring or constructing capital assets for the
general benefit of its citizens, and to allow it to fulfill its various missions as a City. Debt may be issued for the
purposes of purchasing land or right-of-way and/or improvements to land, for construction projects to provide for
the general good, for capital equipment, or for refunding existing debt. The City will uphold all related bond
covenant agreements associated with bond issues. Bond issues will be conducted after consultation with an
external financial advisor. The City will maintain good communications with bond rating agencies, financial
advisors, independent auditors, investors, and citizens regarding its financial condition.

General Obligation Bonds (GO’s) – General Obligation Bonds are used to fund capital assets of
the general government such as facilities, streets, and drainage, and to refund existing debt. They
are not to be used to fund operating needs of the City. A general obligation bond is a legal debt
instrument used to finance permanent projects within the City limits. The tax base and the City’s
ability to tax for repayment of indebtedness back the bond. The full faith and credit of the issuing
government also back the bond. State law requires an incorporated city to submit the proposed
bond issue to a public referendum and to receive voter authorization prior to issuance of bonds.

Revenue Bonds (RB’s) – Revenue Bonds are issued to provide for the capital needs of an activity
that requires continuation or expansion of a service that produces revenue, and for which the
asset may reasonably be expected to provide for a revenue stream to fund the debt service
requirements. A revenue bond is a legal debt instrument used to finance permanent public
projects. Unlike the GO bonds, the revenue bond does not require voter approval. The City
Council is authorized to approve the bond issue and set user rates at a sufficient amount to pay
the annual principal and interest as well as operating needs.

Certificates of Obligation (CO’s) – Certificates of Obligation are used to fund capital requirements
that are not otherwise covered under either Revenue Bonds or General Obligation Bonds. Debt
Service for CO’s may be either from general revenues or backed by a specific revenue stream or
streams, or by a combination thereof. Generally, CO’s are issued for the acquisition or
construction of capital assets.

Analysis of Financial Alternatives – Staff will explore alternatives to the issuance of debt for capital acquisitions
and construction projects. These alternatives include, but are not limited to: (1) grants-in-aid, (2) use of reserves,
(3) use of current revenues, (4) contributions from developers and others, (5) leases, and (6) impact fees.

Disclosure – Full disclosure of operations will be made to the bond rating agencies and other users of financial
information. City staff, with the assistance of financial advisors and bond counsel, will prepare necessary
materials for presentation to the rating agencies, aid in the production of Official Statements, and take
responsibility for the accuracy of all financial information released.

Federal Requirements – The City will maintain procedures to comply with arbitrage rebate and other Federal
requirements.

Debt Limit – The State of Texas limits the ad valorem tax rate to $2.50 per $100 valuation. The City Charter limits
the ad valorem tax rate to $1.50 per $100 valuation of taxable property within the City. North Richland Hills’
adopted rate of $0.572 falls well below this limit.

431