CLARK COUNTY WATER RECLAMATION DISTRICT, NEVADA DEBT MANAGEMENT POLICY IN ACCORDANCE WITH NRS (1) (C)

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1 CLARK COUNTY WATER RECLAMATION DISTRICT, NEVADA DEBT MANAGEMENT POLICY IN ACCORDANCE WITH NRS (1) (C) JUNE 30, 2014

2 TABLE OF CONTENTS DEBT MANAGEMENT POLICY NRS Subsection (1) (c)...1 Ability to Afford Existing, Future and Proposed General Obligation Debt...2 Operation Costs and Revenue Sources for Projects in Capital Improvement Plan...6 Debt Capacity...7 Debt Comparison (per capita and assessed valuation)...9 Policy Statement for Sale of Debt...10 Miscellaneous Items...18 CHIEF FINANCIAL OFFICER INFORMATION NRS Subsection (1) (e) APPENDIX Procedures for Debt Issuance / Timetables... 20

3 SECTION I DEBT MANAGEMENT POLICY NRS Subsection (1) (c) Listed below are excerpts from the Nevada Revised Statutes which requires local governments to submit a debt management policy: NRS Except as otherwise provided in this section, on or before August 1 of each year, the governing body of a municipality which proposes to issue or has outstanding any general obligation debt, other general obligations or special obligations, or which levies or proposes to levy any special elective tax, shall submit to the department of taxation and the commission: (c) A written statement of the debt management policy of the municipality, which must include, without limitation; (1) A discussion of its ability to afford existing general obligation debt, authorized future general obligation debt and proposed future general obligation debt; (2) A discussion of its capacity to incur authorized and proposed future general obligation debt without exceeding the applicable debt limit; (3) A discussion of its general obligation debt that is payable from property taxes per capita as compared with such debt of other municipalities in the state; (4) A discussion of its general obligation debt that is payable from property taxes as a percentage of assessed valuation of all taxable property within the boundaries of the municipality; (5) Policy regarding the manner in which the municipality expects to sell its debt; (6) A discussion of its sources of money projected to be available to pay existing general obligation debt, authorized future general obligation debt and proposed future general obligation debt; and (7) A discussion of its operational costs and revenue sources, for the ensuing 5 fiscal years, associated with each project included in its plan for capital improvement submitted pursuant to paragraph (d), if those costs and revenues are expected to affect the tax rate. This document is intended to meet the requirements of NRS subsection 1 (c); it is not a review of the Clark County Water Reclamation District s (the District ) total financial position. Required Property Tax Abatements In its 2005 session, the Nevada legislature (the "Legislature") approved two bills (Assembly Bill 489 ("AB 489") and Senate Bill 509 ("SB 509")) that require reductions ("abatements") of ad valorem taxes imposed on property in certain situations. AB 489 and SB 509 are referred to together as the "Abatement Act." Generally, through adoption of the Abatement Act, the Legislature determined that increases in property tax bills exceeding 3% over the prior year for owner-occupied residential property and 8% for all other property constitute a severe economic hardship to homeowners that the State constitution permits the Legislature to prevent. That hardship provision also applies (as a charitable exemption) to commercial property that qualifies as low-income rental housing. This limitation could negatively impact the finances and operations of the taxing entities in the State, including the District, to an extent that cannot be determined at this time. The District does not levy an ad valorem tax for the payment of Bonds or other obligations because District revenues have been sufficient to pay debt service on all of the District's bonds and obligations secured by such revenues. The District does not anticipate the impact of this legislation to adversely affect its ability to continue to pay the principal of or interest on all outstanding bonds as and when due. However, caps on property tax revenue could limit the District s issuance of additional general obligation bonds in the future under certain circumstances. 1

4 Ability to Afford Existing, Future and Proposed General Obligation Debt Response to NRS (1) (c): (1) A discussion of its ability to afford existing general obligation debt, authorized future general obligation debt and proposed future general obligation debt; and (6) A discussion of its sources of money projected to be available to pay existing general obligation debt, authorized future general obligation debt and proposed future general obligation debt Existing General Obligation Bond Indebtedness Supported by Sewer Revenues Security for the District's Bonds - The District's general obligation/revenue supported bonds (the "Bonds") constitute direct and general obligations of the District, and the full faith and credit of the District is pledged to the payment of principal and interest due thereon, subject to Nevada constitutional and statutory limitations on the aggregate amount of ad valorem taxes. The Bonds are payable from general ad valorem taxes on all taxable property in the District. The Bonds are additionally secured by certain pledged revenues derived by the District after operation and maintenance expenses ( Net Pledged Revenues ). The District does not levy an ad valorem tax for the payment of Bonds or other obligations because District revenues have been sufficient to pay debt service on all of the District's bonds and obligations secured by such revenues. [Remainder of page intentionally left blank] 2

5 Bonded Indebtedness The following table sets forth the District s outstanding general obligation bonded indebtedness supported by sewer revenues as of June 30, GENERAL OBLIGATION BONDS SUPPORTED BY SEWER REVENUES As of June 30, 2014 GENERAL OBLIGATION SEWER REVENUE SUPPORTED BONDS Issuance Date Original Amount Amount Outstanding Water Reclamation Bonds, Series /30/07 $ 55,000,000 $ 53,675,000 Water Reclamation Bonds, Series /20/08 115,825, ,400,000 Water Reclamation Bonds, Series 2009A 04/01/09 135,000, ,750,000 Water Reclamation Bonds, Series 2009B 04/01/09 125,000, ,675,000 Clean Water SRF American Recovery and Reinvestment Act loan, Series 2009C 10/16/09 5,744,780 4,813,194 State Revolving Fund, Series 2011A 03/25/11 40,000,000 39,137,559 State Revolving Fund, Series 2012A 07/13/12 30,000,000 30,000,000 1/ TOTAL $ 496,450,753 1/ This total represents the total amount of the authorization. At June 30, 2014, $4,709,531 had been drawn down for this project. The District will draw against this authorization until the maximum amount has been drawn or the project is completed. SOURCE: Current and Proposed General Obligation Bonds Supported by Sewer Revenues The District does not propose to issue additional debt during FY However, if an unanticipated need arises, the District reserves its authority to pursue additional debt consistent with applicable Nevada Revised Statutes. [Remainder of page intentionally left blank] 3

6 The following table includes the debt service to maturity on the District's outstanding Bonds. CURRENTLY OUTSTANDING GENERAL OBLIGATION DEBT SERVICE SUPPORTED BY SEWER REVENUES Clark County Water Reclamation District As of June 30, 2014 Fiscal Year Current Ending June 30, Principal Interest Total 2015 $10,641,866 $23,832,868 $34,474, ,827,689 23,688,751 35,516, ,101,915 23,165,498 36,267, ,673,509 22,594,742 36,268, ,277,901 21,989,774 36,267, ,910,176 21,359,925 36,270, ,575,417 20,694,752 36,270, ,283,713 19,987,094 36,270, ,025,153 19,243,281 36,268, ,814,832 18,457,092 36,271, ,642,845 17,624,987 36,267, ,519,290 16,749,134 36,268, ,439,271 15,826,921 36,266, ,412,890 14,855,716 36,268, ,435,257 13,831,349 36,266, ,366,219 12,748,029 36,114, ,356,154 11,598,393 35,954, ,551,656 10,405,551 32,957, ,515,000 9,234,931 30,749, ,720,000 8,031,938 30,751, ,000,000 6,753,706 30,753, ,350,000 5,399,119 30,749, ,790,000 3,963,594 30,753, ,300,000 2,446,675 30,746, ,920, ,688 30,803,688 TOTAL $496,450,753 $365,367,506 $861,818,259 Totals may not agree due to rounding. SOURCE: Clark County Water Reclamation District 4

7 The following table illustrates the District's Net Pledged Revenues and debt service coverage for the outstanding Bonds. HISTORICAL AND BUDGETED NET PLEDGED REVENUES STATEMENT OF REVENUES, EXPENSES AND NET INCOME Fiscal Year Ended June 30, (Actual) (Actual) 7/ (Actual) (Estimated) (Budget) REVENUE Sewer service charges 1/ $ 132,127,719 $ 136,534,923 $ 143,955,260 $ 141,072,750 $ 142,662,500 Sewer service credit 0 (2,748,402) 2/ System Development fees 9,218,329 10,549,916 18,972,735 16,150,000 15,500,000 Effluent Sales 2,086,213 2,274,004 2,195,074 2,195,100 2,275,000 Investment Earnings 3/ 6,440,537 5,708,943 (1,232,445) 4,860,000 5,250,000 Other 4/ 540, ,893 1,408, , ,000 Total Operating Revenues $ 150,413,408 $ 152,610,277 $ 165,299,024 $ 164,695,850 $ 166,277,500 OPERATING EXPENSES 5/ $ 64,846,147 $ 60,847,355 $ 62,938,368 $ 64,676,225 $ 79,988,825 NET PLEDGED REVENUES $ 85,567,261 $ 91,762,922 $ 102,360,656 $ 100,019,625 $ 86,288,675 DEBT SERVICE 6/ $ 29,967,644 $ 30,330,601 $ 30,783,413 $ 33,151,567 $ 34,474,736 COVERAGE 2.86 x 3.03 x 3.33 x 3.02 x 2.50 x Amounts may not add due to rounding. 1/ Includes revenues collected to pay sewer service charges, pretreatment fees and septage charges. 2/ Represents refunds to all sewer service customers of unused Clean Water Coalition ( CWC ) operating revenues. 3/ Includes both restricted and unrestricted investment earnings. 4/ Includes, but is not limited to: Water Quality Billing, Lien Fees, auction payments (vehicles, equipt., etc), Damage Charges (insurance claims for damages). 5/ Does not include depreciation and amortization expense. Also does not include interest expense on Bonds and other non-operating expenses. 6/ Represent the actual debt service paid in each year. For the Budget Year, represents the highest debt service for the outstanding debt which will occur in fiscal year / Certain data was revised per the Government Accounting Standards Board pronouncement-s33, 16 and 18, as detailed in the District s Comprehensive Annual Financial Report for the year ended June 30, Source: Derived from the District's Comprehensive Annual Financial Report for the years ended June 30, 2011 through 2013, and the Clark County Final Budget for FY Compiled by the Financial Advisors. 5

8 Operation Costs and Revenue Sources for Projects in Capital Improvement Plan Response to NRS (1) (c): (7) A discussion of its operational costs and revenue sources, for the ensuing 5 fiscal years, associated with each project included in its plan for capital improvement submitted pursuant to paragraph (d), if those costs and revenues are expected to affect the tax rate. As illustrated in the table with Historical and Budgeted Net Pledged Revenues Expenses and Net Income in this document, operational costs are funded with operating revenues. The District does not levy a tax rate, therefore, operations costs associated with any project in the Capital Improvements Program (the CIP ) will be supported within existing revenue resources. The District s CIP is a plan for the rehabilitation, replacement and capacity expansion of existing infrastructure and building new facilities to meet demands from customer use impacts, technological improvements, and wastewater discharge requirements. It is used to link the District s physical development planning with fiscal planning. The District s CIP includes major projects requiring the expenditure of District resources, over and above annual operating expenses, for the purchase, construction, rehabilitation or replacement of the physical assets. Major capital projects are normally non-recurring (e.g., new buildings, investment in new technology, etc.). The CIP program identifies project costs associated with the planning/design/engineering, land acquisition, and construction of new facilities and/or major asset rehabilitation and replacement projects. The CIP project submittal process also requests and evaluates information relating to any ongoing operation/maintenance costs associated with projects. (These expenses are not included in the total project cost.). Some CIP projects reduce operational and maintenance costs. Many infrastructure rehabilitation projects will reduce long-term operational and maintenance costs and may extend the useful life of the assets. Certain projects in the technology/equipment/process upgrade categories may also reduce annual operating and maintenance costs by automating functions, increasing process efficiencies, or reducing energy use. Project evaluation by the District s Staff includes consideration of the operations and maintenance impacts of each project. New conveyance or treatment facilities can have a direct and long-lasting impact on the District s operating budget. New facilities call for additional operating and maintenance costs including, but not limited to, staff, computers, equipment, utilities, and other maintenance costs. Increased expenditures must be anticipated for not only the direct costs associated with the new facility, but for any additional indirect costs that will be incurred. 6

9 Debt Capacity Response to NRS (1) (c): (2) A discussion of its capacity to incur authorized and proposed future general obligation debt without exceeding the applicable debt limit (NRS (b)(2)). Introduction and Purpose Analysis of the District s debt position is important, as growth in the service area has resulted in an increased need for capital financing. The District s debt capacity analysis is premised on the idea that resources, as well as need, should drive the District s debt issuance program. Proposed long-term financings are linked with the economic, demographic and financial resources expected to be available to pay for that debt. The primary emphasis of the analysis is the impact of the District s projected capital financing requirements on the credit quality of its debt obligations. The District strives to ensure that, as it issues further debt, its credit quality and market access will not be impaired. Debt Limit State statutes limit the aggregate principal amount of the District's general obligation debt to fifty (50%) percent of the District's total reported assessed valuation. Neither the County Assessor nor the State maintain assessed valuations attributable to the District. Accordingly, the District has calculated its assessed valuation for each year by deducting the assessed valuation of the five incorporated cities, and the estimated assessed value of the Coyote Springs General Improvement District (the CSGID ) from the County s total assessed valuation, including the Clark County Redevelopment District. The County s total assessed valuation for FY is $55,357,200,207 (including the Clark County Redevelopment District in the amount of $136,562,458). The total assessed valuation of the five cities and the CSGID is $25,910,476,414. The assessed valuation of the District is therefore calculated to be $29,446,723,793. The District is limited to general obligation indebtedness in the aggregate amount of $14,723,361,897. As of June 30, 2014, the District has $536,450,453 of general obligation debt outstanding. The following table illustrates the District's general obligation statutory debt limitation. STATUTORY DEBT CAPACITY June 30, 2014 Statutory Debt Limitation 1/ $14,723,361,897 Outstanding General Obligation Indebtedness 536,450,753 Additional Statutory Debt Limitation $14,186,911,144 1/ Based upon the assessed valuations for Property Tax Rates for Nevada Local Governments for Fiscal Year and estimates provided by the Clark County Assessor. SOURCE: Ad Valorem Tax Rates for Nevada Local Governments, Department of Taxation; Clark County Water Reclamation District, Clark County Assessor 7

10 The following table presents a record of the District's outstanding general obligation indebtedness with respect to its statutory debt limit. The District s assessed valuation for purposes of the following table has been calculated as described below. Because the District has never levied an ad valorem property tax, neither the State nor the County Assessor prepares an official assessed valuation for the District. The District s boundaries encompass all of the unincorporated areas of the County (including the assessed valuation attributable to the Clark County Redevelopment District (the CCRDA )but excluding the assessed valuations of the incorporated cities within the County and the property included in the Coyote Springs General Improvement District (the CSGID ) formed in May 2006). Accordingly, the District has calculated its assessed valuation for each year by deducting the assessed valuation of the five incorporated cities and the estimated assessed value of the CSGID from the County s total assessed valuation. Pursuant to its Service Plan, the CSGID does not have the power to levy general, ad valorem taxes to finance its activities and as a result, the County Assessor does not maintain an assessed valuation for it. The District has requested that the County Assessor provide estimated assessed valuations for the CSGID each year; the amount of the assessed valuation reported for any year is dependent on the date on which the County Assessor reviews the data for individual parcels. Those values may be adjusted over time due to abatement, valuation protests or other assessor action. The values provided by the County Assessor do not include any centrally assessed values attributable to the parcels in the CSGID, which would be developed by the State. Fiscal Year Ended June 30 STATUTORY DEBT LIMITATION Clark County Water Reclamation District As of June 30, 2014 Outstanding General Obligation Debt Additional Statutory Debt Capacity Assessed Valuation 1/ 2/ Debt Limit 2009 $ 60,824,151,863 $ 30,412,075,932 $ 457,150,000 $ 29,954,925, ,538,719,447 25,769,359, ,784,780 25,312,574, ,791,500,049 17,395,750, ,364,780 16,905,385, ,630,340,124 15,315,170, ,319,251 14,831,850, ,668,192,691 14,334,096, ,848,723 13,828,247, ,446,723,793 14,723,361, ,450,753 14,186,911,144 1/ Neither the County Assessor nor the State maintains an assessed valuation attributable to the District. Accordingly, the assessed valuation of the District has been calculated as described in the paragraph preceding this table. 2/ For purposes of calculating the assessed value of the District, the County Assessor has provided estimated net assessed values for the CSGID for fiscal years through based upon the tax roll as of May 30, The values do not include any centrally assessed valuation within the CSGID which would be developed by the State, nor does this number include unsecured property. SOURCE: Ad Valorem Tax Rates for Nevada Local Governments, Department of Taxation; Clark County Water Reclamation District, Clark County Assessor 8

11 Debt Comparison (per capita and assessed valuation) Response to NRS (c): (3) A discussion of its general obligation debt that is payable from property taxes per capita as compared with such debt of other municipalities in the state. (4) A discussion of its general obligation debt that is payable from property taxes as a percentage of assessed valuation of all taxable property within the boundaries of the municipality. taxes. The District does not currently have any outstanding bonds payable directly from ad valorem [Remainder of page intentionally left blank] 9

12 Policy Statement for Sale of Debt Response to NRS (1) (c): (5) Policy regarding the manner in which the municipality expects to sell its debt. Administration of Policy The General Manager is the Clark County Water Reclamation s (the District ) chief executive officer and serves at the pleasure of the Board of County Commissioners acting as the Board of Trustees of the District (the BOT or Board ). The General Manager is ultimately responsible for administration of District financial policies. The BOT is responsible for the approval of any form of District borrowing and the details associated therewith. Unless otherwise designated, the Finance Manager coordinates the administration and issuance of debt. The Finance Manager is also responsible for the attestation of disclosure and other bond related documents. References to the "General Manager or his designee" in the document are hereinafter assumed to be assigned to the Finance Manager as the "designee" for administration of this policy. Initial Review and Communication of Intent All capital funding requests are communicated to the General Manager or his designee during the annual budget process. Requests for projects, which may require a new bond issue, must be identified as a part of a Capital Improvements Program (the CIP ) request. Project justification and costs must be presented as well as the proposed timing of the project(s). The District s Executive Management Team will evaluate each proposal comparing it with other competing interests or needs within the District. All requests will be considered in accordance with the District's overall adopted priorities. If it is determined that proposals are a Districtwide priority, and requires funding, the Finance Manager will coordinate the issuance of debt including size of issuance, debt structuring, repayment sources and determination of mix (e.g., debt financing versus pay-as-you-go) and method of sale. Additionally, opportunities for refunding shall originate with, or be communicated to, the General Manager or his designee. Debt Management Commission In Nevada, governments must present their general obligation debt proposals, (with exception of medium-term obligations issued under NRS 350), to the County Debt Management Commission (the Commission ). The Commission reviews the statutory debt limit, method of repayment and possible impact on other underlying or overlapping entities. When considering the possible impact on other entities, the Commission generally considers the property tax rate required versus others need for a tax rate - all of which must fall at or below the statutory $3.64 property tax cap. The $3.64 is not usually a limiting factor in Clark County. However, the cap will become an issue when local governments within Clark County begin levying a property tax that is closer to $3.64. The Debt Management Commission does not generally make judgments about a proposal s impact on the debt ratios of all the affected governments. 10

13 The District has not levied an ad valorem tax for the payment of Bonds or other obligations because the District revenues have been sufficient to pay debt service on all of the District s Bonds and obligations secured by such revenues. Types of Debt General Obligation Bonds - Under NRS , the District may issue as general obligations any of the following types of securities: 1. Notes 2. Warrants 3. Interim debentures 4. Bonds and 5. Temporary bonds A general obligation bond is a debt that is legally payable from general revenues, as a primary or secondary funding source of repayment, and is backed by the full faith and credit of the District, subject to certain constitutional and statutory limitations. The Nevada Constitution and State statutes limit the total taxes levied by all governmental units to an amount not to exceed $5.00, and $3.64 per $100 of assessed valuation, respectively, with a priority for taxes levied for the payment of general obligation indebtedness. Any outstanding general obligation bonds, or temporary general obligation bonds to be exchanged for such definitive bonds and general interim debentures, constitute outstanding indebtedness of the District and exhaust the debt-incurring power of the District. Nevada statutes require that most general obligation bonds mature within 30 years from their respective issuance dates. Bonding should be used to finance or refinance capital improvements, long-term assets, or other costs directly associated with financing a project, which has been determined to be beneficial to a significant proportion of the rate payers in the District, and for which repayment sources have been identified. Bonding should be used only after considering alternative funding sources such as project revenues, federal and state grants, and special assessments. Voter-approved general obligation bonds issued under this heading are used when a specific property tax is the desired repayment source. General Obligation/Revenue Bonds - Such bonds are payable from taxes, and are additionally secured by a pledge of revenues. If pledged revenues from the projects financed are not sufficient, the District is obligated to pay the difference between such revenues and the debt service requirements of the respective bonds from ad valorem taxes. 11

14 Interim Debentures - Under NRS , the District is authorized to issue general obligation/special obligation interim debentures in anticipation of the proceeds of taxes, the proceeds of general obligation or revenue bonds, the proceeds of pledged revenues or any other special obligations of the District and its pledged revenues. These securities are often used in anticipation of assessment district bonds. Revenue Bonds - Under NRS , the District may issue as special obligations any of the following types of revenue securities: 1. Notes 2. Warrants 3. Interim debentures 4. Bonds and 5. Temporary bonds Securities issued as special obligations do not constitute outstanding indebtedness of the District nor do they exhaust its legal debt-incurring power. Bonding should be limited to projects with available revenue sources whether self-generated or dedicated from other sources. Adequate financing feasibility studies should be performed for each revenue issue. Sufficiency of revenues should continue throughout the life of the bonds. Medium-Term General Obligations - Under NRS , the District may issue negotiable notes or bonds. Those issues, approved by the Executive Director of the Nevada Department of Taxation, are payable from all legally available funds (General Fund, etc.). The statutes do not authorize a special property tax override. The negotiable notes or bonds: 1. Must mature no later than 10 years after the date of issuance. 2. Must bear interest at a rate that does not exceed by more than 3 percent the Index of Twenty Bonds that was most recently published before the bids are received or a negotiated offer is accepted. 3. May, at the option of the District, contain a provision that allows redemption of the notes or bonds before maturity, upon such terms as the Board determines. 4. Term of bonds may not exceed the estimated useful life of the asset to be purchased with the proceeds from the financing, if the maximum term of the financing is more than five years. 5. Must have a medium-term authorization resolution approved, which becomes effective after approval by the Executive Director of the Nevada Department of Taxation. 12

15 Certificates of Participation/Other Leases - Certificates of participation are essentially leases that are sold to the public. The lease payments are subject to annual appropriation. Investors purchase certificates representing their participation in the lease. The equipment or facility being acquired serves as collateral. These securities are most useful when other means to finance are not available under State law. Refunding - A refunding is generally the underwriting of a new bond issue whose proceeds are used to redeem an outstanding issue. Key definitions follow: 1. Advance Refunding - A method of providing for payment of debt service on a bond until the first call date or designated call date from available funds. An advance refunding is accomplished by issuing a new bond, or using available funds, and investing the proceeds in an escrow account in a portfolio of U.S. government securities that are structured to provide enough cash flow to pay debt service on the refunded bonds. 2. Current Refunding - The duration of the escrow is 90 days or less. 3. Gross Savings - Difference between the debt service on refunding bonds and refunded bonds less any contribution from a reserve or debt service fund. 4. Present Value Savings - Present value of gross savings discounted at the refunding bond yield to the closing date, plus accrued interest less any contribution from a reserve or debt service fund. Prior to beginning a refunding bond issue, the District will review an estimate of the savings achievable from the refunding. The District may also review a pro forma schedule to estimate the savings assuming that the refunding is done at various points in the future. The District will generally consider refunding outstanding bonds if one or more of the following conditions exist: 1. Present value savings are at least three percent of the par amount of the refunding bonds. 2. The bonds to be refunded have restrictive or outdated covenants. 3. Restructuring the debt is deemed to be desirable. The District may pursue a refunding that does not meet the above criteria if: 1. Present value savings exceed the costs of issuing the bonds. 2. Current savings are acceptable when compared to savings that could be achieved by waiting for more favorable interest rates and/or call premiums. 13

16 Debt Structuring Maturity Structures - The term of District debt issues should not extend beyond the useful life of the project or equipment financed. The repayment of principal on tax supported debt may not extend beyond thirty years. Debt issued by the District should be structured to provide for either level principal or level debt service. Deferring the repayment of principal should be avoided except in select instances where it will take a period of time before project revenues are sufficient to pay debt service. Ascending debt service should generally be avoided. Bond Insurance - Bond insurance is an insurance policy purchased by an issuer or an underwriter for either an entire issue or specific maturities, which guarantees the payment of principal and interest. This security provides a higher credit rating and thus a lower borrowing cost for an issuer. Bond insurance can be purchased directly by the District prior to the bond sale (direct purchase) or at the underwriter's option and expense (bidder's option). The District will attempt to qualify its bond issues for insurance with bond insurance companies rated AAA by Moody's Investors Service and Standard & Poor's Corporation. The decision to purchase insurance directly versus bidder's option is based on: volatile markets, current investor demand for insured bonds, level of insurance premiums, or ability of the District to purchase bond insurance from bond proceeds. When insurance is purchased directly by the District, the present value of the estimated debt service savings from insurance should be at least equal to or greater than the insurance premium. The bond insurance company will usually be chosen based on an estimate of the greatest net present value insurance benefit (present value of debt service savings less insurance premium). Reserve Fund and Coverage Policy - A debt service reserve fund is created from the proceeds of a bond issue and/or the excess of applicable revenues to provide a ready reserve to meet current debt service payments should monies not be available from current revenues. Coverage is the ratio of pledged revenues to related debt service for a given year. For each bond issue, the Finance Manager shall determine the appropriate reserve fund and coverage requirements, in accordance with the District s reserve policy. The Finance Manager has determined that it is fiscally prudent for the District to maintain a reserve of approximately one year s principal and interest for its General Obligation Bonds (additionally secured with pledged revenues) and any other obligations. 14

17 Interest Rate Limitation - Under NRS , the maximum rate of interest must not exceed by more than 3 percent: 1. for general obligations, the Index of Twenty Bonds; and 2. for special obligations, the Index of Revenue Bonds (which was most recently published before the bids are received or a negotiated offer is accepted. Method of Sale There are two ways bonds can be sold: competitive (public) or negotiated sale. Competitive and negotiated sales provide for one or more pricing depending upon market conditions or other factors. Either method can provide for changing issue size, maturity amounts, term bond features, etc. The timing of competitive and negotiated sales is generally related to the requirements of the Nevada Open Meeting Law. Competitive Sale - With a competitive sale, any interested underwriter(s) is invited to submit a proposal to purchase an issue of bonds. The bonds are awarded to the underwriter(s) presenting the best bid according to stipulated criteria set forth in the notice of sale. The best bid is usually determined based on the lowest overall interest rate. Competitive sales should be used for all issues unless circumstances dictate otherwise. Negotiated Sale - A negotiated sale is an exclusive arrangement between the issuer and an underwriter or underwriting syndicate. At the end of successful negotiations, the issue is awarded to the underwriters. Negotiated underwriting may be considered upon recommendation of the Finance Manager based on one or more of the criteria set forth in NRS (2) and one or more of the following criteria: 1. Extremely large issue size; 2. Complex financing structure (i.e., variable rate financings, new derivatives and certain revenue issues, etc.) which provides a desirable benefit to the District; 3. Comparatively lesser credit rating; and 4. Other factors that lead the Finance Manager to conclude that a competitive sale would not be effective. Underwriter Selection for Negotiated Sale 1. Underwriter selection for bonds issued pursuant to NRS 271, which are not secured by a pledge of the taxing power and general fund of the District, may be approved via the District s guidelines for such bonds. 2. The Finance Manager will solicit proposals from underwriters who have submitted bids, in their own name or as part of a syndicate, for District competitive bond issues during the past three years. All such firms will have an equal opportunity to be selected to the District s negotiated underwriting pool. The review of proposals shall include, but not be limited to, the requirements of NRS

18 3. Before selling bonds at a negotiated sale, underwriters in the District s pool may be contacted to provide additional information including, but not limited to, requirements outlined by NRS The book-running senior manager and other members of the underwriting syndicate for a particular issue or project will be designated by the Finance Manager and ratified by the BOT. It is the District's intent, once a team is established, to provide equal opportunity for the position of book-running senior manager. The Finance Manager will rotate the book-running senior manager on a deal-by-deal basis as appropriate for the particular bond issue or project. 5. The underwriting team should be balanced with firms having institutional, retail and regional sales strengths. Qualified minority and/or woman-owned firms will be included in the underwriting team and given an equal opportunity to be senior manager. 6. The size of an issue will determine the number of members in the underwriting team and whether more than one senior manager is desirable. Underwriting Spread Before work commences on a bond issue to be sold through a negotiated sale, the underwriter shall provide the Finance Manager with a detailed estimate of all components of his/her compensation. Such estimates should be contained in the Request For Proposal, or provided immediately after an underwriter is designated. The book-running senior manager must provide an updated estimate of the expense component of gross spread to the Finance Manager no later than one week prior to the day of pricing. 16

19 Establishment of a Selling Group When deemed appropriate by the Finance Manager, a selling group will also be established to assist the underwriting team in the marketing of the bond issue. Priority of Orders The priority of orders to be established for negotiated sales follows: 1. Nevada Investors 2. Group Orders 3. Designated Orders 4. Member Orders For underwriting syndicates with three or more underwriters, a three-firm rule for net designated orders will be established as follows: Retentions 1. The designation of takedown on net designated orders is to benefit at least three firms of the underwriting team. 2. No more than 50 percent of the takedown may be designated to any one firm. No less than 10 percent of the takedown will be designated to any one firm. If the use of retentions is desirable, the Finance Manager will approve the percentage (up to 30 percent) of term bonds to be set aside. The amount of total retention will be allocated to members of the underwriting team in accordance with their respective underwriting liability. Allocation of Bonds 1. The book-running senior manager will be responsible for ensuring that the overall allocation of bonds meets the District's goals of obtaining the best price for the issue and a balanced distribution of the bonds. 2. The Finance Manager must approve the final bond allocation process with input from the book-running senior manager. 17

20 Miscellaneous Items Secondary Market Disclosure In November 1994, the Securities and Exchange Commission (the SEC ) amended Rule 15c2-12 (the Rule ) to prohibit any broker, dealer, or municipal securities dealer from acting as an underwriter in a primary offering of municipal securities unless the issuer promises in writing to provide certain ongoing information (unless the offering satisfies certain exemptions). The District will comply with the Rule by providing the secondary market disclosure required in any case in which the Rule applies to the District as an obligated person as defined in the Rule. MBE/WBE Statement It is a continuing goal of the District to actively pursue minority-owned business enterprises (MBE) and women-owned business enterprises (WBE) to take part in the District's procurement and contracting activity. MBE and WBE enterprises will be solicited in the same manner as nonminority firms. The District encourages participation by minority and women-owned business enterprises, and will afford full opportunity for bid submission. MBE and WBE will not be discriminated against on the grounds of race, color, creed, sex, or national origin in consideration for an award. Bond Closings All bond closings shall be held in Clark County unless circumstances dictate otherwise. Gift Policy Employees will not directly or indirectly solicit, accept, or receive any gift whether in the form of money, services, loan, travel, entertainment, hospitality, promise, or any other form. Unsolicited gifts must be returned, shared with other employees, or given to charity. Gifts, which may influence a reasonable employee in the performance of his/her duties, will be refused. An unsolicited payment of meals with a value less than $50 may be accepted provided the acceptance of the meal is not intended to influence the employee s performance, to reward official action, or create a potential for a perception of impropriety. Employees must disclose this information to the General Manager or his designee. Tickets provided to employees for events that may provide an opportunity to build relationships within the community must be disclosed to the General Manager or his designee. Tickets that have the potential to influence a reasonable employee in the performance of his/her duties, or appear to be intended as a reward for any official action on the employee s part, or create a potential for a perception of impropriety as determined by the General Manager or his designee, will be refused. 18

21 Chief Financial Officer Information Response to NRS (1) (c) A statement containing the name, title, mailing address and telephone number of the chief financial officer of the municipality. The Clark County Water Reclamation District financial reporting responsibilities are performed by the Finance Manager. NAME: TITLE: ADDRESS: Bridgette McInally Finance Manager Clark County Water Reclamation District 5857 E. Flamingo Road Las Vegas, NV TELEPHONE: (702)

22 Appendix Procedures for Debt Issuance/Timetables (See attached sample schedules) General Obligation Revenue Bonds Revenue Bonds 20

23 General Obligation Revenue Bonds Sample Schedule Number of Weeks From Start Event 1 Board adopts Debt Management Commission (the "DMC") Notice Resolution 3 DMC meets and adopts Approval Resolution 5 Board adopts Resolution of Intent and Resolution calling hearing of Resolution of Sale Resolution 6 Publish Notice (Begin 90-day Petition Period) and Notice of Public Hearing 9 Hold Public Hearing 19 End of 90-day Petition Period 20 Due diligence meeting to review the official statement 21 Board adopts Bond Resolution 23 Bond Sale 21

24 Number of Weeks From Start Event 0 Board adopts Sale Resolution 3 Due Diligence Meeting 5 Board adopts Bond Resolution 10 Bond Sale 13 Bond Closing Revenue Bonds Sample Schedule 22

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