Office of Origin: Chief Financial Officer
Date Originally Adopted: 03-23-11
Dates Reviewed: 01-15-12, 01-11-18
Last Date Modified & Approved: 01-11-18, 4-17-18
This policy provides an overarching framework under which financing decisions are made. In general, the College commits to the following:
- Pursuing overall financial outcomes and ratios that are consistent with maintaining appropriate cash reserves and a strong financial profile and solid credit rating (i.e., AA or above) in order to access financial markets at the most favorable terms.
- Considering of the impact of strategic decisions on College credit ratings (e.g., potential to negatively impact credit rating and increase borrowing costs.)
- Evaluating all funding/financing options to determine the best structure for obtaining the lowest cost of capital while still achieving strategic goals.
- Coordinating funding/financing planning with capital planning to optimize debt and investment management strategies (e.g., accelerating the start or completion of projects.)
- Generally favoring debt financing only for projects that are critical to attaining strategic goals or for projects with identified, quantifiable revenue streams for repayment of debt costs.
- Ensuring debt issuances are in compliance with all Federal and State laws and regulations.
- Full and timely payment of principal and interest on all outstanding debt.
- Reviewing annually the mix of College’s debt portfolio (i.e., short-term, long-term, fixed-rate, floating-rate, variable-rate, traditional, synthetic, leases, off-balance sheet, on-balance sheet, etc.) to ensure the most favorable capital cost and borrowing terms.
- Using the services of qualified internal staff and outside advisors, including bond counsel and financial advisors, to assist in the analysis, evaluation, and decision processes.
- Maintain transparency and open communications with bond rating agencies to ensure complete and clear understanding of the creditworthiness of the College.
- Ensuring post-issuance compliance controls and procedures related to the College’s financial and legal obligations are understood and adhered to.
- Following a policy of full, complete, and accurate disclosure of financial conditions and operating results in all financial reports and bond official statements (if issued.)
Project Financing Analysis
Although the use of debt can play a critical role in financing capital plans, as well as at times providing source of funding for other purposes, College philosophy views debt as a limited resource that must be undertaken thoughtfully and managed strategically to best support College priorities.
Towards that end, the College will assess all alternatives for funding capital improvements prior to issuing debt. “Pay-as-you-go” financing (i.e., self-funding) should be considered before issuing any debt, as should grant funding, Lake Michigan College Foundation contributions, State of Michigan Funding, and public/private partnerships. Once the College has determined that other sources are not feasible financing options, the College may use short-term or long-term debt for financing.
If management determines it is appropriate to consider debt, the Chief Financial Officer (CFO) will assess the College’s ability to issue new and repay existing and future debt. This assessment will include analysis of long term financial and capital plans, current financial position and financial policy to assess the College’s ability to issue and repay its debt. The CFO will recommend how much new debt, if any, the College may authorize.
If management determines it is appropriate to pursue financing, all potential funding sources will be considered, including consideration of costs, benefits, and risks as well as ongoing compliance requirements. The College will recommend to the Board of Trustees the financing method that achieves the financial goals of the College while minimizing financing costs.
Authority to Issue Debt & Special Considerations
All debt issued by the College must be authorized in advance through a Board of Trustees resolution whereby the financing parameters for each debt issuance are established.
Special considerations of certain types of debt financing are as follows.
- If tax-exempt bonds are to be issued, the Board of Trustees should approve Reimbursement Resolution that declares the official intent to reimburse qualified expenditure with proceeds of the debt. An issuer may reimburse itself for certain expenditures made up to 60 days prior to the date of the reimbursement resolution.
- Bond issuances may be through competitive, negotiated, or private placement, subject to statute.
- Tax-exempt debt is generally the preferred manner of financing due to perceived cost savings. When tax-exempt debt is issued, the College will strictly comply with Internal Revenue Service regulations governing such.
- Taxable debt may be considered when capital projects do not qualify for tax-exempt debt or when other considerations such as cost, expediency, liquidity, etc. are prevalent.
- Alternative, non-traditional financing structures may also be considered, including third-party financing, developer-based financing, sale-leasebacks, capital leases, and off-balance sheet financings, as allowed by Federal and State regulations. Under no circumstances will any financing be employed that is not understood fully by the Board of Trustees.
In connection with the issuance of certain bonds, notes, and other municipal securities, the College is required to issue certain disclosure information in order to comply with Rule 15c2-12 required by the Securities & Exchange Commission (SEC) under the Securities Exchange Act of 1934. These requirements include continuing disclosure of annual financial information and notices of certain material events. Accordingly, the College will establish appropriate controls to ensure that all such requirements are met on a fully and timely basis.
Responsibility: Chief Financial Officer