Debt Issuance Strategies

Ridgeline offers comprehensive municipal financing support, from debt needs assessment and capacity calculation to financing process management and post-issuance compliance.

Debt Planning and Issuance

Ridgeline is an independent registered municipal advisor to public agencies in California. A municipal advisor is the only party in the municipal financing process that has a fiduciary duty – codified in the law – to act in the best interest of the public agency that is issuing debt. The Government Finance Officers Association (GFOA) recommends that issuers retain a municipal advisor before taking on debt. We take this responsibility to heart.

Issuing municipal bonds is a complex process. Our services are designed to make municipal financing simpler. We help you quantify financing needs, identify debt refunding opportunities, determine sources and uses of funding, develop and assess financing alternatives, and navigate municipal financing markets. We also take special care to ensure that our clients’ staff and governing bodies receive proper assessment of risks, opportunities, and ongoing compliance obligations.

Our team members have participated in over 150 municipal debt issues that generated approximately $1 billion in funding proceeds, including general obligation bonds, lease revenue bonds, water/wastewater revenue bonds, certificates of participation, tax increment/tax allocation bonds, land-secured bonds, bank loans, lines of credit, and equipment financing.

We are intimately familiar with the municipal credit rating criteria and methodologies utilized by market participants. This allows us to lay out customized strategies based on the specific fiscal situation of each agency we work with. To help you prepare for municipal debt issuance, we look out for any credit weaknesses that need to be proactively addressed. During the financing process, we help you educate your governing body and the public, and gather and present information to rating agencies, investors and lenders to secure appropriate credit rating, and minimize financing costs.

‍Contact Ridgeline to find out how we can help you in your municipal financing journey.

Girl with Bull on Wallstreet - Municipal Debt Issuance
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Debt Needs Assessment and Financing Program Development
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Debt Needs Assessment and Financing Program Development
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Debt Needs Assessment and Financing Program Development
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Education of Governing Bodies and General Public
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Financing Structure and Strategy Development
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Debt Needs Assessment and Financing Program Development
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Debt Needs Assessment and Financing Program Development
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Financing Team Formation and Coordination
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Evaluation of Financing Proposals
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Debt Needs Assessment and Financing Program Development
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Debt Needs Assessment and Financing Program Development
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Documentation Review
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Credit Rating / Enhancement or Lender Due Diligence Support
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Debt Needs Assessment and Financing Program Development
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Debt Needs Assessment and Financing Program Development
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Debt Sale Process Coordination
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Ongoing Post-Issuance Support
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Debt Needs Assessment and Financing Program Development

Continuing Disclosure and Reporting Compliance

Continuing Disclosure Compliance
‍Municipal debt issuance often comes with extensive continuing disclosure obligations imposed by the SEC Rule 15c-12(b)(5), as well as by investors and lenders. Ridgeline can help you prepare and file the necessary reports. Our services include the following

  • Documentation of Continuing Disclosure Requirements
  • Notification of Filing Deadlines and Material Events
  • Preparation, Review, and Filing of Continuing Disclosure Reports
  • Monitoring of Credit Ratings Services
  • Compliance Training for Your Staff

Annual Debt Reporting Compliance
The California Senate Bill 1029 requires California public agencies with outstanding municipal bonds to file the Annual Debt Transparency Report with the California Debt and Investment Advisory Commission for all bonds issued after January 20, 2017. The report needs to include the following information:

  • Authorized debt obligations, including amounts issued, lapsed, and not yet issued.
  • Outstanding debt obligations, including beginning and ending balances and amount of repaid principal.
  • New debt obligations, including available proceeds and amount spent and purposes for which it was spent.

Ridgeline can work with your staff and trustees to collect the necessary data and to file the reports.

California Debt and Investment Advisory Commission

Types of Financing

Local public agencies have many ways of obtaining financing. Various short- and long-term municipal financing structures exist that can be repaid through tax revenues, customer fees, or special assessments.

Larger capital projects, such as infrastructure improvements, buildings, and major equipment purchases, are most commonly financed with long-term debt. While interest costs make such projects more expensive, borrowing allows local governments to build or acquire capital facilities and equipment in a more timely manner, to get ahead of the construction cost escalation, to achieve cash flow predictability, and to allocate project costs to their beneficiaries.

Temporary cash flow deficits and bridge funding during the construction period can be covered by issuing short-term debt.

Federal laws set rules for the tax-exempt status of public debt and the process for issuing and disclosing debt obligations, while state constitutions and statutes dictate debt capacity and limitations.

Long-Term Debt

‍Long-term credit facilities typically do not mature for more than a decade and often extend to a 30- and even to 40-year term. The types of long-term financing vary widely, depending upon the nature of the project.

Municipal bonds are often used for larger projects that require long-term repayment period. Private placements, or bank loans, can be an attractive alternative to municipal bonds for smaller agencies and projects with relatively shorter repayment terms.

General Obligation Bonds
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General obligation bonds are secured by a pledge of the agency’s taxing power and generally require voter approval. Cities, counties, special districts and school districts issue general obligation bonds to fund police and fire stations, libraries, parks, school campuses, and other major capital improvement projects. The debt service is typically paid from a direct assessment on property tax bills.
Revenue Bonds
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Revenue bonds can be issued by self-supporting enterprise funds of public agencies or by stand-alone public enterprises. They are generally used to finance water and wastewater projects, utility and stormwater systems, airports, parking garages, solid waste and transportation facilities, and other revenue-generating projects. Debt service payment on revenue bonds comes from customer and user fees. The issuance of revenue bonds is often limited by the revenue-generation capacity of the enterprise and requires maintenance of a certain debt-service coverage ratio.
Lease-Purchase Agreements and Certificates of Participation
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Lease-purchase agreements and certificates of participation allow public agencies to fund capital improvement projects and acquisition of property or equipment with tax-exempt financing without having to obtain voter approval by pledging an asset (such as a vehicle or a building) under the lease, with periodic payments broken down into principal and interest components. This type of financing structure is often utilized to fund city halls, administration buildings, courthouses, fire and police stations, community centers, libraries, convention centers, airport and port improvements, recreational projects and parks, as well as educational, health care, correctional, power generation and solar facilities. Equipment leases can finance fire engines, ambulances, police vehicles, school buses, computer and communication equipment, etc.
Assessment and Special District Bonds
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Local and regional infrastructure and community facility improvements – such as streets, water and sewer, storm drain, utilities, landscape corridors and street lights, schools and libraries, public safety, recreational facilities and parks, bridges and highway interchanges, etc. – can be funded through assessments and special taxes levied against properties that receive the benefit of the improvements. The special taxes and assessments are usually collected on the property tax bill and pledged for the repayment of the long-term bonds issued to fund the improvements. Common funding mechanisms in this type of financing include different types of Assessment Districts, Landscaping and Lighting Districts, Mello-Roos Community Facilities Districts, etc.
Tax Increment Financing
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Municipal governments can utilize various forms of tax increment financing, also known as tax allocation bonds, to stimulate economic development in specific geographical areas through funding of redevelopment projects. As assessed values within these areas grow with the improvements, future property tax revenue increases (referred to as the tax increment) are pledged and used for the repayment of the bonds. While traditional tax increment financing is now limited in California, municipalities are beginning to explore redevelopment funding through Enhanced Infrastructure Financing Districts and other similar structures.
Pension Obligation Bonds
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Issuance of pension obligation bonds and other pension liability refunding strategies can help public agencies reduce their overall pension costs and achieve greater cash flow and budgetary flexibility by taking advantage of the difference between the discount rate of the pension plan and market interest rates for municipal debt. Special care is required with this type of financing due to the complexity of the issues involved. However, for many agencies, leaving things the way they are is becoming less and less of an option because of stagnant revenues and rapidly escalating unfunded accrued liability payments.
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Ridgeline takes a comprehensive approach to pension liability management, with financing being only one part of the equation. We help our clients develop holistic strategies that not only get their current pension issues under control, but also position them for efficient response to future pension cost increases.
Federal and State Government Loans
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Government loans are an important source of infrastructure financing. Federal and state subsidization programs, such as the State Revolving Fund (SRF), the United States Department of Agriculture (USDA) Rural Development, the Water Infrastructure Finance and Innovation Act (WIFIA), and the Transportation Infrastructure and Innovation Act (TIFIA), offer communities low-cost financing solutions for water and wastewater, storm drainage, solid waste, and transportation projects, as well as for essential community facilities (city halls, police and fire facilities, courthouses, schools, medical clinics and hospitals, libraries, etc.). Such financing can take on the form of bonds, certificates of participation, direct loans, guaranteed and insured loans, and/or grants.

For example, the Rural Development Program of the USDA provides loans for rural communities to upgrade and modernize their water and wastewater facilities. A limited number of loans is available annually for “community facilities,” or public safety projects and equipment, as well as municipal services buildings such as city halls and maintenance facilities.

The favorable financing terms of such programs come with complicated layers of complexity and oversight, which need to be closely monitored and carefully managed.
Short-Term Debt
Short-term credit facilities can be used to cover temporary cash flow deficits or working capital requirements, and they can be used as a source of interim financing until permanent debt can be issued. Short-term borrowing is typically for time periods of six months to two years.
Short Term Notes (TANs, BANs, RANs, and GANs)
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TANs (tax anticipation notes), BANs (bond anticipation notes), RANs (revenue anticipation notes), and GANs (grant anticipation notes) are the four types of short-term credit facilities available to local municipalities. Such obligations are repaid with the funds in anticipation of which they were issued, as well as from any source of funds otherwise legally available for this purpose.
Lines of Credit
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Bank lines of credit are an alternative to short-term notes and can be an effective and flexible source of bridge financing. Usually, the municipality has to secure the line of credit with enterprise fund revenues or make it an obligation of the general fund.

Recommended Resources

1 Bond Issuance Guide for Small & Mid-Sized Municipalities by Governing Institute
‍2 GFOA Best Practice: Bank Loans and Direct Placements
‍3 GFOA Best Practice: Selecting and Managing Municipal Advisors