- Management of Bond Proceeds
When bonds are issued, the proceeds are deposited in various accounts, which may include a construction fund, debt service fund, and an escrow fund in a refunding. Monies allocated to these funds are invested until needed. The investment strategy for each fund will depend, in part, on federal and state statutes and regulations governing the types of instruments permitted to be used, the yield permitted for the fund, and the anticipated drawdown of bond proceeds. Investment of bond proceeds shall comply with College policy, the Public Funds Investment Act (PFIA) (Texas Government Code 2256), the Public Funds Collateral Act (Texas Government Code 2257), federal and state laws according to the cash flow schedule for capital projects. The College’s Financial Advisor may not bid on investment products. Interest income generated from bond proceeds will be transferred from the Capital Project Fund(s) to the Debt Service Fund for the purpose of paying principal and interest costs on current and future debt.
The College will incur within six months of the date on which proceeds are issued, a binding obligation to a third party to expend at least five percent of the sale proceeds of the Bonds on a Bond Project. The College reasonably expects that work on or acquisition of the Project will proceed with due diligence to completion and that the proceeds of the Bonds will be expended on the Project within reasonable dispatch. The College reasonably expects that 85 percent of the sale Proceeds of the Bonds will have been expended on the Project prior to the date that is three years after the Issue Date. Any Sale Proceeds not expended prior to the date that is three years after the Issue Date, will be either invested at a yield not “materially higher” or make yield restriction payments, not less often than every fifth anniversary date of the delivery of the Bonds and within 60 days following the final maturity of the Bonds.
- Management of Debt Service Fund – The College has created or continued a debt service fund (the “Debt Service Fund”) and the proceeds from all taxes levied, assessed, and collected for and on account of bonds are to be deposited in such Fund. The College will manage the Interest and Sinking portion of its tax rate to assure that taxes levied, assessed and collected for and on account of voted debt will be sufficient each year to pay such debt service. The investment objective for the Debt Service Fund will be to achieve a proper matching of investment maturities with principal and interest requirements within each bond year
- Interest Earnings – Interest earnings in the Debt Service Fund will be used for the purpose of paying principal, interest costs, and related fees on current and future debt.
- Unreserved, Undesignated Fund Balance - The College shall target a minimum debt service fund balance of 25% of the annual debt service requirements on all outstanding debt issuance.
- I&S Tax Rate:
- Stabilization – The College will call or defease variable rate bonds as required by the bond order. The College may also call or defease additional variable rate bonds in order to stabilize the I&S tax rate or the total tax rate. This process will be conducted in the spring or early summer of each year.
- Increases – When required, tax rate increases associated with the issuance of new bonds will be implemented in the current and succeeding fiscal year. Due to construction fund interest earnings being used and other factors, the variable rate bonds of the College may need to be called or defeased to manage fund balance.
- Compliance with Statutory Regulations – The College will comply with all statutory regulations in the issuance and structuring of debt obligations.
- Federal Arbitrage and Rebate Compliance – The arbitrage rules are statutory rules set forth in the Internal Revenue Code of 1986, as interpreted from time to time by regulations promulgated by the U. S. Treasury Department and rulings by the Internal Revenue Service. Generally, the rules fall into two broad categories, investment rules and rebate rules. The investment rules limit the amount that can be earned by investing bond-related money. The rebate rules are designed to require the local governmental issuer to pay to the United States certain amounts of “arbitrage profit” that may be earned under the investment rules. Both sets of rules require compliance. The College will take all necessary steps to comply with the requirements that “rebate arbitrage earnings” on the investment of “gross proceeds” of bonds, within the meaning of section 148(f) of the Code be rebated to the federal government. Specifically, the College will (a) maintain records regarding the investment of the “gross proceeds” of bonds as may be required to calculate such “rebatable arbitrage earnings” separately from records of amounts on deposit in the funds and accounts of the College which are allocable to other bond issues of the College, (b) calculate at such intervals as may be required by applicable Regulations, the amount of “rebatable arbitrage earnings,” earned from the investment of “gross proceeds” of bonds and (c), pay, not less often than every fifth anniversary date of the delivery of bonds and within 60 days following the final maturity of bonds, or on such other dates required or permitted by applicable Regulations, all amounts required to be rebated to the federal government. The College will maintain a copy of any such calculations, and all documentation necessary to produce such calculations or necessary to establish qualification for an exemption from the need to produce such calculations, for at least six years after the close of the final calendar year during which any bond is outstanding. In addition to bond counsel, the College has contracted with a third party arbitrage compliance specialist to insure that the College maintains compliance with arbitrage rules.
- Issuers of municipal bonds with an aggregate of $10 million or more in outstanding debt are required by SEC Rule 15c2-12 as amended, to annually disclose certain operating data as well as audited financial statements. The required secondary market or ongoing disclosure documents are due to the state information depository (SID) and each nationally recognized municipal securities information repository (NRMSIR) within six months of the fiscal year end. For San Jacinto College District, the deadline is February 28th following the fiscal year end of August 31st. Accurate and timely filing of ongoing disclosure information is important as it relates to the liquidity of the College’s bonds and insures that the College has the best results when accessing the capital markets.
- Reporting to Committee/Board – The Vice Chancellor of Fiscal Affairs and the College’s Financial Advisor will provide summary debt management reports to the Board Audit and Budget Committee at a minimum annually or with every bond sale. The Debt Management Policy will be reviewed on an annual basis and updated as needed.
(Effective April 7, 2008)