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2025-009 Annual Review of Commercial Paper Authority, Debt Management, and Investment Policies Date: Nov. 22, 2024 Report No. 2025-009 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: Annual review of the Commercial Paper Authority, Debt Management, and Investment Policies. 24-2198 General Obligations Commercial Paper Annual Refunding Authority 24-2199 Utility System Revenue Commercial Paper Annual Refunding Authority 24-2200 Debt Service Management Policy Annual Review 24-2201 Investment Policy Annual Review BACKGROUND: The Finance Department has included the administrative items listed below on the Consent Agenda. These items will appear on the Dec. 3, 2024, City Council Meeting Agenda under Consent. The item numbers, item names, and a general description of changes are listed below. Where applicable, the authority to make the changes is listed as well. DISCUSSION: ■ 24-2198 General Obligations Commercial Paper Annual Refunding Authority Following the issuance of the 2019 Bond Program, the City established a Commercial Paper Program to begin Bond Projects, which started prior to the summer debt issuance. This program, in conjunction with the Refunding Ordinance, allows the City to begin construction and enter contracts with vendors; this prevents projects from being delayed due to the summer debt issuance. The program authorizes the City to issue up to $100 million dollars of commercial paper. After the issuance of commercial paper, the City has 270 days to roll the paper issuance into long-term debt. Utilizing this program with the annual Bond issuance ensures that projects are started, completed, and funded when needed. The city council reviews this item Annually. There have been no changes to the program since 2023, when it was revised to include the 2023 Bond Program. This is a standard program recorded in the City's debt portfolio, and its usage,when needed, is approved by the Council. ■ 24-2199 Utility System Revenue Commercial Paper Annual Refunding Authority Prior to Winter Storm Uri, the City established a Commercial Paper Program to fund utility capital projects outside of Bond Programs. This program, in conjunction with the Refunding Ordinance, allows the City to begin construction and enter into contracts with vendors, which prevents projects from being delayed due to the summer debt issuance. When Winter Storm Uri occurred, ERCOT required multi-million-dollar payments Date: Nov. 22, 2024 Report No. 2025-009 throughout the week to allow DME to continue to provide power. The Council renews this program annually. The only program change from inception in 2021 is the increase from $100 million to $300 million in the same year as established. This program, like the General Obligations Commercial Paper Annual Refunding Authority, is to fund utility capital projects outside of the Bond Programs. As listed above, it may also be used in an emergency like Uri. Within 270 days of the issuance of commercial paper, the City refunds the issuance into a long-term investment vessel, like our Summer Debt issuance. The program allows for issuance of up to $300 million dollars, with approval of this Council. ■ 24-2200 Debt Service Management Policy Annual Review The City's Debt Service Management Policy was originally developed in 1995 and adopted by the City Council on March 5, 1996. On April 20, 2010, the Council adopted revisions to the policy, including the requirement that the policy be reviewed at least annually to ensure compliance with statutory and Securities and Exchange Commission (SEC)requirements. The Debt Service Management Policy provides general guidelines by which the City will issue debt and addresses the issues of process, use, and limitations. After reviewing the existing Debt Service Management Policy with the City's Financial Advisor, Bond Counsel, and internal Investment and Debt Management Committee, the following revisions are being proposed: Administrative Maintenance: ■ Removal of Controller from Debt Committee The removal of the Controller from the committee came following a discussion of internal control. This position, in completion of its duties, should remain outside of this Committee. For that reason, the Controller is removed from the Committee. This leaves the Committee with four members: the City Manager, the Chief Financial Officer, the Assistant Director of Finance, and the Treasury Manager. Consultants to the committee are the City's investment advisor and bond counsel. When needed, a representative of the City's legal department will act as a legal advisor; the City's internal auditor serves as a non-voting member. ■ Add language to solidify the annual completion of the Conflict-of-Interest form The language is added to this contract to solidify the annual completion of Conflict- of-Interest forms. ■ 24-2201 Investment Policy Annual Review The Public Funds Investment Act in the state of Texas requires all public entities to maintain and review an investment policy in accordance with the provisions of the Public Funds Investment Act of Tex. Gov't. Code Chapter 2256. The Public Funds Investment Act seeks to ensure the security of public funds during investment activities. This policy Date: Nov. 22, 2024 Report No. 2025-009 outlines how the City will invest funds and helps align our investment strategy with the following prioritized objectives under Texas Gov't. Code Sec. 22556(d). This policy is reviewed for compliance by the City's financial advisor and is further reviewed by the Government Treasurers of Texas. The changes to this policy include: 1. Administrative Maintenance a. Remove Controller from Investment Committee b. Update quorum requirement to three members c. Add language to solidify the annual completion of the Conflict-of-Interest form 2. Selection of Banks, Broker/Dealers, and Investment Advisors a. B Investment Broker/Dealers i. Revise language to clarify the broker/dealer's ability to perform. ii. Remove language considered normal investment activity, "sustained realized losses." The changes to this policy, Administrative Maintenance, are covered in the information provided for the Debt Services Policy as the two policies complement one another in this area. The additional changes relate to language changes to increase clarity; these changes do not substantially change the intent or purpose of this policy; they simply align the city's language with that of the marketplace. If you have any questions or need additional information, please let me know. STAFF CONTACT: Jessica Williams, Chief Financial Officer Jessica.JWilliams(2cityofdenton.com (940) 349-8244 REOUESTOR: Staff initiated. PARTICIPATING DEPARTMENTS: Finance Department STAFF TIME TO COMPLETE REPORT: 1.5 hour