Debt Management

GFOA recommends that Issuers minimize their involvement in the selection of underwriter’s counsel. However, it is appropriate for the issuer to ensure that underwriter’s counsel is competent, has no conflicts of interest, and that costs are reasonable.

Issuers often engage with a variety of legal advisors as part of the financing team when undertaking the issuance of municipal bonds. Issuers should be aware of the different roles played by the types of counsel involved in a bond transaction. In addition, issuers should clearly communicate with the various legal advisors to determine the scope of services to be provided by each to avoid duplication or omission of key services and reduce costs. Issuers should discuss any potential conflicts of interest with the team, especially if one firm is playing multiple roles in a bond transaction.

Issuers should hire a municipal advisor (MA) prior to the undertaking of debt financing unless the issuer has sufficient in-house expertise and access to current bond market information, and issuers should select municipal advisors on the basis of merit using a competitive process and that issuers review those relationships periodically.

Issuers should select bond counsel on the basis of merit using a competitive process and review those relationships periodically.

Unless the issuer has sufficient in-house expertise and access to current market information, it should hire an outside municipal advisor prior to undertaking a negotiated debt financing in order to assist the government with evaluating proposals from underwriters, selecting the underwriter(s) for the transaction, and executing the bond sale.

State and local governments should carefully consider whether issuing taxable debt is the best financing option for their proposed project and develop a thorough understanding of the differences between tax-exempt and taxable markets before proceeding with a planned sale.

GFOA recommends that governments, considering the possibility of entering into bank loans, develop policies and procedures related to these debt obligations.

Governments contemplating the sale or securitization of property tax liens should undertake a careful analysis of benefits and risks both in the current fiscal year and over the long-term.

State and local governments should exercise caution in the use of derivative instruments.

State and local governments should not issue POBs.

Governments who plan to issue variable rate debt should exercise caution and carefully evaluate their objectives. Governments should consider how this debt, and the various risks associated with it, will be managed over the long term.

GFOA recommends that organizations pursuing tender refunding of municipal bonds establish policies and procedures around the tender refunding transaction that include specific guidance on articulating the intended goals, picking a financing team, calculating attributable costs, ensuring a clear understanding of fair pricing and determination of goal attainment.

Issuers should include guidelines and criteria in their debt management policies that address when a refunding is permitted based on potential debt service savings or other criteria, preservation of future refunding flexibility when issuing any new money debt, and monitoring of refunding opportunities on outstanding debt.

Finance officers should be aware of the parties likely and necessary to be involved in the transactions and be prepared to select these parties in a manner that ensures that needed services are obtained at a fair and reasonable cost.

State and local government issuers should establish at the beginning of the bond negotiation process what expenses will be directly paid by the issuer or as part of the underwriter spread.

State and local governments should carefully consider whether issuing taxable debt is the best financing option for their proposed project and develop a thorough understanding of the differences between tax-exempt and taxable markets before proceeding with a planned sale.

State and local government issuers strive for the best balance between the yield for each maturity and the takedown to achieve the lowest overall cost of financing.

Issuers should hire a municipal advisor (MA) prior to the undertaking of debt financing unless the issuer has sufficient in-house expertise and access to current bond market information, and issuers should select municipal advisors on the basis of merit using a competitive process and that issuers review those relationships periodically.

Issuers should evaluate the need for obtaining one or more credit ratings and develop appropriate policies and procedures for selecting and managing credit rating agencies.

Issuers should not include underwriter disclaimer language in official statements.

Governmental bond issuers should consider developing an investor relations program in conjunction with their continuing disclosure policy.

Finance officers responsible for their government’s debt management program should develop a thorough continuing disclosure policy and adhere to the following best practices.

Bond issuers should use technology – including both their own websites and additional features of the EMMA platform – to disseminate information to the municipal securities market regarding their debt, financial condition and other related information

Issuers should establish clear policies and procedures for compiling information before issuing debt.

This best practice addresses voluntary disclosure, which is information an issuer provides to the municipal market relating to its obligations, credit quality, or operating conditions that is NOT required under any continuing disclosure undertaking (commonly referred to as Continuing Disclosure Agreements). Voluntary disclosure information is provided to give investors more timely information regarding an issuer’s obligations, financial condition, or operating performance.

GFOA recommends that governments critically evaluate the potential benefits and associated costs of formally designating bonds as having positive social, environmental, sustainable or other impacts.

The GFOA recommends that Governments adopt comprehensive written debt management policies that reflect applicable local, state, and federal laws and regulations. The GFOA also recommends that Governments review their debt management policies periodically for necessary updates.

Issuers should include guidelines and criteria in their debt management policies that address when a refunding is permitted based on potential debt service savings or other criteria, preservation of future refunding flexibility when issuing any new money debt, and monitoring of refunding opportunities on outstanding debt.

GFOA recommends that governments have an Investment Policy which takes into consideration all inherent risks, and which also includes specific policies for the investment of bond proceeds to ensure that legal and regulatory requirements are met, fair market value bids are received, and issuer objectives for various uses of proceeds are attained. This best practice is focused on the investment of bond proceeds. For best practices regarding a comprehensive Investment Policy see the reference list of GFOA best practices below.

Issuers of bonds or other debt obligations should develop and adopt formal, written post-issuance compliance policies and procedures to assist in meeting compliance requirements and in preventing, identifying and correcting possible violations that might occur during the term that bonds are outstanding.

The GFOA recommends that governments establish a plan for budgeting, allocating, and investing debt service funds to ensure that principal and interest payments are made timely, accurately, and in a cost-effective manner.

Governments that issued BABs or other direct subsidy bonds should be acutely aware of their ongoing responsibilities associated with these bonds and be cognizant of Internal Revenue Service (IRS) actions related thereto.