These financial policies have been developed and approved by City Council to ensure continuity and understanding about the City's financial decisions. The policies outline the steps the City of Terrell Hills will follow when making all necessary financial decisions. These policies are to be reviewed and updated on an annual basis. It is important that the policies provide continuity among leadership of the City in an effort to achieve long term goals and fulfill the City's mission.
(a) 
The budget year for the City of Terrell Hills is January 1 to December 31. The charter states that the "City Council shall on the 1st day of October of each year, or as soon after as practicable, prepare a budget to cover all proposed expenditures of the City for the succeeding year." In practical terms, the City staff will ensure the budget is prepared for City Council review at the October budget workshop and approval consideration in the December council meeting of each year.
(b) 
Staff will use the following process to prepare the budget:
(1) 
The effective tax rate is calculated in late July by Bexar County. That effective tax rate will be compared against the valuations and the current year's budget to determine the tax rate needed by the City to fund operations. The tax rate will to be set at an amount sufficient to cover budgeted Maintenance and Operations (M&O) and Interest and Sinking (I&S)/Debt Obligations. The tax rate will normally be set at the September council meeting. Because the City's fiscal year begins January 1, the tax rate set by council at the September council meeting will cover expenditures in the current tax year, not the upcoming tax year. For example, the 2015 effective tax rate is calculated in July of 2015. The City will set its 2015 tax rate at the September council meeting and that rate goes into effect for taxes collected from October 1, 2015 to December 31, 2015. The tax rate set at the September 2015 council meeting must be sufficient to meet M&O and debt obligations for the 2015 tax year. In effect, City staff is collecting taxes starting October 1, 2015 for money that has been spent since January 1, 2015.
(2) 
Staff begins the budget process in late July of each year. The City Manager and department heads meet, pass out the current year budget, and determine the appropriate budget for the upcoming budget year. This data, with supporting documentation for equipment and any new programs, is submitted in late August.
(3) 
The City Manager receives all the budget data by late August and begins preparation for the first Council workshop. This workshop should introduce Council members to the new budget. The City Manager should have a "rough draft" of the budget with numbers in sufficient detail to brief Council on any major new acquisitions or proposed programs. The Manager may present multiple options in the event that Council decides to be more or less conservative with the finances. The City Manager should review and incorporate data relating to the City's goals and mission statement, and answer any questions Council may raise. The desired outcome of the first budget workshop should be a mutual understanding of the major programs/financial direction of the city. The City Manager takes these results and incorporates them into the budget for the second workshop.
(4) 
The City Manager conducts the second workshop with City Council in mid-October. The final budget data is presented to Council and any further questions answered. At this point Council will narrow the budget to a final option that can be fine-tuned in preparation for a budget hearing and final passage.
(5) 
The City Manager finalizes the budget and prepares for its possible passage at the December Council meeting. Appropriate ads are placed in the newspaper in advance of the public hearing per State Law. The Council will hold a public hearing and take public input at the December meeting. If there is extensive input by the public, the Council should consider tabling the budget and sending back to the City Manager for consideration in a Special City Council meeting. The budget must be passed prior to the new fiscal year beginning January 1.
(6) 
The City Manager will prepare a budget document in sufficient detail to describe the programs funded. The document should include sections highlighting the programs in each department. A separate section of the budget document is devoted to personnel programs, capital improvement programs and the debt schedule. The final budget is prepared in accordance with best practices from Government Finance Officers' Association (GFOA).
(a) 
The City establishes the following policy concerning the issue and management of debt. This debt policy, as presented to City Council and the citizens, was established to ensure the quality of decisions in relation to the City's financing activities, provide a comprehensive view of the City's long-term debt picture and make it easier for decision-makers to understand issues concerning debt issuance and management.
(b) 
Conditions of debt issuance.
(1) 
Debt should be issued for the purpose of meeting the needs of the community through funding of capital projects and equipment but without constituting an unreasonable burden to taxpayers.
(2) 
Long-term debt is only issued to finance the acquisition and/or construction of capital improvements with an economic or useful life greater than five years and the term of the debt. Additionally, only capital needs identified in the capital improvement program will be considered. Refunding bonds will only be issued if the present value of debt service savings exceeds three percent of the outstanding par value of the refunded bonds. Debt for other purposes, such as acquisition of capital assets, is covered separately in this policy.
(c) 
Types of debt.
(1) 
General obligation bonds.
General Obligation Bonds may only be issued with a majority approval of a popular vote. The use of the proceeds from GO Bonds is limited to the acquisition or improvement of real property and other uses allowed by law and applicable bond ordinances. City facilities, parks and public safety facilities are examples of facilities that could be financed with GO Bonds. To the extent that property tax revenues are used to fund debt service, a separate property tax will be levied.
(2) 
Refunding obligations.
Pursuant to the Government Code and various other financing statutes applicable in particular situations, the City Council is authorized to provide for the issuance of bonds for the purpose of refunding any long-term obligation of the City. Absent any significant non-economic factors, a refunding should produce minimum net debt service savings (net of reserve fund earnings and other offsets) of at least 3% of the then-outstanding par value of the refunded bonds, unless staff determines that a lower savings percentage is acceptable for issues or maturities with short maturity dates.
(3) 
Tax anticipation notes.
Proceeds from Tax Anticipation Notes are used to fund projects whose source of payment is future tax revenues. These instruments have a term of one to three years and are for a specific purpose such as temporary financing for capital improvements, cash flow needs and major equipment leasing.
(4) 
Tax increment financing bonds.
The City may use these bonds to finance capital improvements within the tax increment reinvestment zone. Repayment is from property taxes generated within the zone.
(5) 
Leases.
Leases may be used to finance major capital purchases, other than infrastructure, including fleet, major system upgrades and large equipment purchases. The useful life of the asset should not exceed the term of the lease.
(6) 
Other obligations.
There may be special circumstances when other forms of debt are appropriate and may be evaluated on a case-by-case basis. Such other forms include, but are not limited to limited tax notes, non-enterprise revenue bonds, bond anticipation notes, grant anticipation notes and judgment or settlement obligation bonds.
(d) 
Restrictions on debt issuance.
(1) 
The City will not use long-term debt to finance current operations or normal maintenance.
(2) 
General obligation debt will not be issued if other, more financially efficient financing sources are available such as certificates of obligation, limited tax notes, leases or revenue bonds.
(3) 
Short-term debt will not be used to refinance long-term debt.
(4) 
All debt issuances shall be approved by the City Council.
(5) 
Before any debt may be issued, the City will perform an analysis of the requirements to determine the impact on future budgets, the sufficiency of revenues to fund the debt service requirements and additional operating costs of the capital asset acquired. The analysis will ensure that debt service payments funded by the General Fund shall be not greater than 1% of current property valuations.
(e) 
Characteristics of debt issuance.
When the City finances capital projects by issuing bonds, it will pay back the bonds in a period not exceeding the expected life of those projects. Other standard terms shall include the following:
(1) 
Term may be up to 30 years depending on cash flow assumptions, and useful life of asset being financed.
(2) 
Call provisions will be shortest possible optional call consistent with optimal pricing.
(3) 
The City will seek level or declining debt repayment schedules and will avoid issuing debt that provides for balloon principal payments reserved at the end of the term of the issue.
(4) 
The City will avoid variable-rate debt due to the potential volatility of such instruments.
(5) 
Debt service reserve will be in conformity with bond covenants.
(6) 
Commercial insurance or other credit enhancements to the bond rating shall be considered when cost-effective.
(f) 
Debt issuance process.
(1) 
The City will maintain good communications with bond rating agencies about its financial condition and will follow a policy of full disclosure on every financial report and bond prospectus. The City will also comply with all federal tax law provisions, including arbitrage requirements.
(2) 
The City shall utilize the services of independent financial advisor(s) on debt financing when deemed prudent. Although not required, the City may utilize an RFP-selected pool of such financial advisors to mitigate time constraints and reduce overhead costs of the City in procuring such services. Bond counsel will be used for each transaction.
(3) 
City staff shall review each debt issuance transaction on a case-by-case basis to determine the most appropriate method of sale.
(A) 
Competitive sale.
In a competitive sale, bids for the purchase of the bonds are opened at a specified place and time and are awarded to the underwriter (or syndicate) whose conforming bid represents the lowest true interest cost to the City (TIC). This method is most advantageous when the debt to be issued is less complex, the municipal bond market for high-grade credits is stable, and the sale of the City's bonds is assured.
(i) 
Bond sales shall be cancelable at any time prior to the time bids are to be received.
(ii) 
Upon award to the bidder whose conforming bid represents the lowest true interest cost, the City may restructure the bonds in accordance with the Official Notice of Sale. The City shall reserve the unfettered right to reject all bids or waive bid irregularities.
(B) 
Negotiated sale.
In a negotiated sale, the City chooses the initial buyer of the bonds in advance of the sale date. The initial buyer is usually an investment banking firm, or a syndicate of investment banking firms interested in reoffering the bonds to investors through an underwriting process. This type of sale allows the City to discuss different financing techniques with the underwriter in advance of the sale date. This method is most advantageous when the debt issue is complex, debt structuring flexibility is required (as would be the case in a bond refunding) or the municipal bond market is unstable or uncertain.
(C) 
Private placement.
In a private placement, the City may select a private purchaser willing to bid a below market rate. Such placements often allow debt to be issued more efficiently by eliminating the need for bond ratings and other associated issuance costs. Such financing will be analyzed on a case-by-case basis, depending primarily on rates prevailing in the placement market from time to time.
(4) 
Professional services used in conjunction with a bond issuance may be obtained using a request for proposal (RFP). If an RFP is used, selection will be based on experience in the type of issuance and municipal bond activities, ability to perform needed services, conflicts of interest, fees and fee structure.
The City will employ the following internal controls to make sure that all financial transactions are handled appropriately:
(1) 
The Executive Secretary serves the accounts payable function for the City. He/she prepares all checks and deposits. The City Manager signs the checks and ensures that all expenditures are valid and legal. Additionally, check registers will be provided to City Council monthly for their review.
(2) 
The Executive Secretary makes necessary journal entries, processes payroll and reconciles the bank statements on a monthly basis. The City maintains the following bank accounts: General Fund - Checking (for all non-payroll transactions), Money Market Fund (for all bank deposits, interest and sinking debt payments and for capital project deposits and expenditures) and the General Fund-Payroll (for all payroll transactions).
(3) 
The Executive Secretary maintains the petty cash fund to ensure money is available for small expenditures. The City Manager reviews the expenditures of these funds on a monthly basis.
(4) 
Every expenditure must be approved by a Department Head or the City Manager. This is indicated by initials and date on every invoice the City receives. The City Manager reviews these initials prior to approving checks for payment.
(5) 
The Executive Secretary deposits money as quickly as possible and ensures that money received is secured to ensure safety. In no case will cash be left undeposited by the City for longer than five business days.
The City receives payment monthly via the State Comptroller for sales tax revenues. One-fourth of one-percent of collections has been designated for Street Maintenance by the voters of the City of Terrell Hills. As such:
(1) 
The appropriate amount is calculated monthly and moved via transfer to the City's Capital Fund to be allocated for street maintenance.