Missouri Municipal League - Submitted 11/6-08 (continue to use till updated Missouri County Record - Submitted 2/28/08 (continue to use till updated) By offering answers to these questions in a written debt management policy, governments can protect themselves from a number of legal, policy and financial complications. Debt Administration Process deals with the city’s process for selling bonds in both competitive and negotiated sales, as well as requirements for underwriters and bond counsel. Recently, concerns about misunderstanding debt transactions, corruption and excessive costs have lead some state and local governments to hone in on the duties of those responsible for debt-related issues. Their debt management policies now contain reporting, transparency and accountability requirements under either a code of conduct section or a similar conflict of interest provision. Some states have gone a step further and passed legislation mandating debt management policies. For example, since Jan. 1, 2012, all public entities incurring or issuing public debt in Tennessee have been required to have a debt management policy on record with the state. The goal behind the mandate is to promote understanding of debt transactions, explain to citizens what is being considered, avoid conflicts of interest, and disclose all costs and risks. As such, an acceptable policy must address transparency, conflicts of interest, professionals (disclosure of their compensation), and specific justifications for deferring principal repayment. Tennessee also strongly recommends creating a maximum level of debt; specific parameters for variable rate debt; a process for decision making and debt issuance; a procedure for managing and monitoring debt; and a plan for regular review of the policy. Debt management policies, however, should be sufficiently flexible to permit governments to take advantage of market opportunities or to respond to changing conditions without jeopardizing essential public services. For example, many debt management policies recommend fixed rates as opposed to variable rates. The predictability of a fixed rate enables an entity to accurately predict future financial needs and obligations and issue debt accordingly without exposing itself to unnecessary risks. In addition, fixed rates ensure www.mocities.com
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that the community members’ expectations regarding their financial responsibilities are met. Nevertheless, variable rate debt can be a valuable borrowing tool in certain economic climates. It can reduce the overall cost of debt by providing flexibility, and for that reason it should be at the government’s disposal should the right circumstances arise. Accordingly, a well-drafted debt management policy would outline a protocol to follow when seeking to exceed policy limitations or employ financial tools that are generally avoided. Debt management policies are, therefore, guidelines for general use, and must allow for exceptions in extraordinary conditions. For more information on debt management policies, please visit the website for the Government Finance Officers Association at http://www. gfoa.org.
An Elected Official’s Guide to Debt Issuance, Second Edition, Government Finance Officers Association. Tigue, P. (1998). A Guide to Preparing a Debt Policy. Government Finance Officers Association. Joan Jadali is the director of finance and administration for the city of Webster Groves. Currently she serves as the past president of the GFOA of Missouri. For more information, contact her at 314-963-5323 or via email at jadalij@webstergroves.org. Joan wishes to thank Bob Ballsrud with Gilmore and Bell for his assistance, insight and guideance in completing this article.
Resources: Best Practice. Debt Management Policy (1995 and 2003) (DEBT) found online at http:/www.gfoa.org [Click on “Best Practices and Advisories" on left-hand side of screen.] Joseph, J. (1994). Debt Issuance and Management, A Guide for Smaller Governments, Government Finance Officers Association. Kurish, J.B. & Tigue, P. (2005).
The Missouri Municipal Review
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