On March 3, 1998, the Board of Supervisors adopted a Borrowing Policy for the County as recommended by the Auditor-Controller (Minute Order 98-110). Since then, the credit market and the economic environment have changed considerably. Furthermore, the County has engaged in a long-term financial planning process that entails a wholesale revision of financial policies to strengthen fiscal sustainability. This is the sixth financial policy that is being revised in this context.
The new Policy on Borrowing, Debts and Obligations (Att. A - Debt Policy) provides guidance on borrowing, financing and debt management activities in the County and seeks to demonstrate fiscal responsibility and promote fiscal sustainability. This latter concept, fiscal sustainability, is the ultimate goal of the County's long-term financial planning effort. This policy is a key ingredient that helps to ensure the success of this effort.
Staff developed this policy consistently with the best practices of the Government Finance Officers Association (GFOA), the pronouncements of the Government Accounting Standards Board (GASB) and the public finance criteria used by the international rating firm Standard & Poor's.
In comparison with the current policy, the new policy updates concepts and terminology used in public finance, introduces new restrictions and metrics (Att. B - Debt Ratios) that steer the County toward fiscal sustainability, recognizes the responsibility to reduce long-term financial obligations, and expands its scope to cover not just transactions resulting in hard debts but any type of borrowing or obligation that may have a material effect on the County's fiscal sustainability.
The gist of the policy is summarized in these seven governing principles:
1) A healthy debt capacity shall be built and preserved.
2) No borrowing shall be made to fund on-going operations.
3) All borrowing shall follow a long-term financial plan.
4) The term of a debt shall never exceed the asset’s life.
5) No inter-generational transfer of obligation shall be created.
6) Borrowing shall never be done for speculative purposes.
7) No obligation shall be incurred unless there is a realistic plan to pay it off. |