Most Recent Action
Comptroller's Office Seeks Comment on Revisions to Debt Reporting Form
The Comptroller of the Treasury, through its Office of State and Local Finance, is seeking comment on revisions to a form that a local government is required to complete when it borrows money.
The proposed revisions to the form CT-0253 can be viewed online at: http://www.comptroller.tn.gov/sl/pubdebt.asp
The comment period will last from October 1 through November 15. After all the comments have been reviewed, the Comptroller's staff may make additional revisions to the form before presenting it at the State Funding Board's December meeting for approval.
Effective January 1, 2014, a local government has 45 days after the issuance of debt to submit the new version of the form to its legislative body, and file a copy with the Comptroller's office. Each local government is required to keep a copy of the completed form on file for public review.
The local government must provide information including a description of the debt issue, debt cost, debt type, general descriptions of what the debt will finance, and whether the debt complies with the local government's written debt management policy. The purpose of the form is to provide clear and concise information to members of the governing or legislative body who authorize and are responsible for debt that has been issued. The proposed revisions are mostly format changes to make it easier for a local government to complete.
"It's important that governments be very transparent to the public when issuing debt," Comptroller Justin P. Wilson said. "This form will provide some basic information for people who wish to review debt transactions. We are hoping the comments we receive will help us determine whether any changes need to be made to the form before it is finalized."
Comments on the proposed revisions to the form should be sent by e-mail to: IGpublic.Finance@cot.tn.gov or by mail to:
Tennessee State Funding Board17th Floor, James K. Polk Building505 Deaderick StreetNashville, TN 37243Attn: Ann Butterworthlast updated 10/3/2013
New Form Required for Public Debt Report
The State Funding Board recently approved a revised form, guidelines and procedures for filing a Public Debt Report.
State law requires any public entity issuing debt to file a Public Debt Report within forty-five (45) days of issuing or executing a debt obligation, with a copy (including attachments, if any) filed with the Director of the Office of State and Local Finance. Failure to file this Report will result in the offending issuer being barred from entering into any further debt obligations until they have complied.
A copy of the revised form, guidelines and procedures may be found here. More information including instructions on how to complete and file the CT0253 form can be found here. In addition, cities may complete the Public Debt Report form online and submit it by email to LocalFinance.PublicDebtForm@tn.gov If you have any questions please contact TML or MTAS.
last updated 1/26/ 2011
Funding Board Clarifies Debt Policy Requirements
Local governments in Tennessee will no longer be able to employ financial advisors who also underwrite bonds or broker other debt transactions for them, under new policy requirements set to take effect by the end of this year.
Last year, the State Funding Board agreed to require all local governments in Tennessee to adopt debt management policies by Dec. 31, 2011. State Funding Board members also agreed that those policies should include some minimum standards developed by the Comptroller's office that are intended to increase transparency of debt transactions and decrease potential conflicts of interest.
Initially, those minimum standards would have allowed a local government's financial advisor to also serve as its bond underwriter, provided the dual roles were adequately disclosed and certain other conditions were met.
However, since those state standards were developed, the federal Municipal Securities Rulemaking Board placed new restrictions on financial advisors or underwriters serving in more than one capacity in debt transactions.
As a result, the State Funding Board approved the revised minimum standards proposed by Comptroller's staff to adhere to the stricter federal requirements. The updated minimum standards can be found at:
http://www.comptroller1.state.tn.us/sl/PDF/20110706AttachmentARequireme…
last updated July 20, 2011
Background
State Funding Board approves Comptroller's Model Debt Policy
Cities must adopt a model policy by Jan 1, 2012
On Dec. 15, 2010, Comptroller Justin P. Wilson recommended to the State Funding Board a model debt management policy for governmental entities throughout Tennessee.
The Funding Board adopted the Comptroller's recommendations, which directs state and local governments and other government entities that borrow money to draft their own debt management policies by Jan. 1, 2012, using the state's model policy as a guideline.
The state's model policy was developed after months of input by state and local government officials and professionals familiar with public debt transactions. Comptroller Wilson's staff made revisions based on the comments to the model policy before finalizing the version that will be presented to the Funding Board for consideration.
The model policy urges Tennessee governments to follow four guiding principles while developing their own policies:
- Debt transactions should be clearly understood by the decision-makers
- Citizens should be able to get clear explanations about transactions
- Steps should be taken to avoid conflicts of interest among the parties involved in transactions
- Costs and risks associated with transactions should be clearly disclosed
- The model policy contains some minimum requirements for governments. For example, deferral of debt payments is only allowed if specific justification is provided - and no payments of principal or interest may be extended beyond the useful life of any asset financed through debt.
The model policy recommends that governments set limits on their total debt and the variable rate debt they will assume.
In August 2010, Comptroller Wilson released a revised draft statement on debt management and asked for input from local governments by Sept. 15, 2010.
On behalf of Tennessee municipalities, the Tennessee Municipal League compiled the cities' comments and submitted them to the Comptroller for review.
To view those comments and concerns submitted by the Leaue, click here.
After receiving input from governments and interested parties, Comptroller Wilson will consider making recommendations to the State Funding Board regarding debt management. The State Funding Board has authority to adopt a model debt policy for Tennessee governmental debt issuers. In addition to the draft debt management statement, Comptroller Wilson released a guide and checklist on best practices in debt management, which includes examples from current debt policies. To further assist debt issuers, the comptroller also released a list of recommended sources and resources
Under the revised draft statement, many of the mandates have been removed; however, the revised statement is not devoid of mandates. The revised draft requires each municipality to adopt a debt management policy no later than January 1, 2012. Moreover, each city's policy would be required to contain specific, mandated language relating to these four guiding principles.
First Draft: One-Size-Fits-All Approach
You will recall that an earlier version of a draft model debt management policy was widely criticized by TML and local governments as mandating a one-size-fits-all approach to local government finance. The comptroller acknowledged the criticism in remarks accompanying the release of the revised draft stating, "Each local government's debt policy should address each of the four guiding principles. Beyond that, it is not advisable or practical to try to create a ‘one-size-fits-all' debt management policy," Comptroller Wilson said. "Cities and counties throughout our state have different needs and different challenges relating to debt management. Once the basics are met, I believe it is best to create a general framework for sound debt management, but give governmental debt issuers the flexibility to adopt policies tailored to their specific needs. I want the Comptroller's office to serve as a clearinghouse for the sharing of ideas about what works and what doesn't."
The Comptroller first developed a Model Debt Policy last year and asked for input from municipal governments.
On behalf of Tennessee's municipalities, the Tennessee Municipal League compiled the cities' comments and submitted them to the Comptroller for consideration.
To view those comments and concerns submitted by the Leaue, click here.
The Comptroller reviewed the comments and acknowledgesdthat local governments raised some "legitimate concerns," that warranted a rewrite of the proposed Model Policy.
In a letter to city officials, Comptroller Wilson said, "Based upon the comments we have already received, there will be a new draft Model Policy that we will present for public comment. Only then will we consider submitting a proposal to the State Funding Board; this is the body that will decide if any policy will be adopted and what that policy shall contain."
To view the Comptroller's letter, click here.
To see the draft of the model debt policy click here
Summary of Key Provisions of the initial draft:
The proposed debt policy pertains to all municipalities, counties, utility districts, and other local governmental entities
Requires borrowers to hire financial advisor for all transactions; except capital outlay notes with level debt service
Precludes an individual or company from representing more than one party in a local government bond transaction. For example, a local government's financial advisor would be banned from also serving as the local government's bond underwriter or bidding on the debt. Requires that governmental entities select these professional through either RFP or RFQ process.
Requires independent feasibility study and review before financing economic development projects
Prohibits deferment of principal on projects that do not produce revenue.
Seeks to eliminate "balloon payments" or practice of deferring payment of principal for an extended period of time. Concern is that language not be so restrictive as to preclude legitimate debt leveling transaction.
Caps the total amount of debt that may be held by a governmental entity in variable rates of interest at 25%
Requires either level principal or level debt service amortization with a goal of paying off loan within 20 years, but provides that no debt may be amortized for more than 25 years.
Requires 50% amortization of principal within 10 years.
Reduces the period of time over which debt may be amortized to the "life" of the shortest lived asset funded under the loan.
Precludes financing of projects not included in the current year's capital budget adopted by the governmental entity.
Forbids capitalized interest on general obligation bond issues
Mandate or Guideline?
TML has received a number of inquiries from cities seeking clarification concerning the comptroller/funding board's intent. Staff has spoken with individuals involved in the development of the model and was not provided a definitive response to the question of mandate v. guidelines. Therefore, we are encouraging all cities to make the comptroller aware of your views on this question.
The introduction of the original draft speaks of "encouraging" and "recommending" that local governmental entities adopt their own Model Debt Management Policy and implies that the draft proposal is intended to serve as guidelines to assist in the development of such policies.
However, recent comments and press accounts suggest the State Funding Board's intent may be moving from one of guidelines and recommendations to one of mandates and prescribed one-size fits all policies. For example, a recent article in The Tennessean stated, "the comptroller's proposals, if adopted by the State Funding Board, would be binding, and his office believes it has sufficient authority to enforce the policies."
Begs the question: is the intent to require that local governmental entities adopt their own debt management policies, utilizing the model policy as a guideline, or is the intent to require local governmental entities to adopt the guidelines verbatim? In one case, local governmental entities are required to adopt a policy. In the other case, local governmental entities are told what policy they must adopt. There is certainly a meaningful distinction between the two possibilities.
Every municipality is different. Every city has differing circumstances and experiences. Taxing capacity, economic potential, revenue base, financial management history, capital needs, ready reserves and existing debt portfolios differ from city to city. A one-size fits all policy will not work.
Municipal officials are elected by the members of the community to represent the interest of the community and are entrusted with the authority to and the responsibility of managing local finances, including deciding how and when to borrow funds. Mandating these policies would significantly limit the role of the local elected officials in managing their own debt and turn over responsibility for many of these decisions to the appointed members of the State Funding Board. Moreover, the cascading effects of the implementation of these policies would certainly affect officials' ability to manage other local responsibilities and could dictate local decisions concerning the use of tax authority.
