8.1 A Framework for Managing Bond Funds

8.1 A Framework for Managing Bond Funds

The proceeds of a bond sale should be understood to be governmental funds that are subject to the same administrative, policy, and financial management practices imposed on all funds under the public agency’s control. The unique nature of bond funds as moneys subject to federal and state regulations imposes additional requirements on the public agency. The public agency must address these additional requirements in its post issuance debt management strategy. That means the public agency must create an administrative process to implement the terms of the bond documents, including the control of bond funds and complying with federal and state tax and disclosure requirements. On a parallel track, the public agency’s debt management practices should address transparency and accountability.

Public agencies should develop and administer guidelines, policies, procedures, and plans for the use of bond funds that take into consideration the set of laws, regulations, and contractual obligations that apply to bond funds. What is appropriate for a given public agency will vary depending on the complexity of the financings, the number of bond issues to be monitored, and the types of bond issues involved. For some public agencies, the coordination of compliance may be made the responsibility of a single individual.

In the case of public agencies that frequently issue tax exempt bonds, including conduit issuers of private activity bonds, adopting policies and compliance practices that are integrated within the day to day practices of the entity may be advisable. A process for doing so may include the following:

  • Form a working group of all individuals assigned legal, administrative, or program responsibilities concerning bond funds. The group should include the public agency’s legal and executive departments, representatives from the agency’s accounting, budget and program areas, and the agency’s bond counsel. If the bond funds are earmarked for capital improvements the group may include project managers from the department overseeing public works or facilities. The group may also include those assigned responsibilities for auditing these funds.

  • Identify the fundamental requirements and obligations imposed on the use of bond funds and the issuer by laws and regulations as well as contracts and agreements. This includes identifying the commitments made by the issuer to adhere to covenants regarding budgets, revenues, or additional debt. Relevant federal and state laws that direct the administration and expenditure of bond funds include the following:
  • Translate these requirements and obligations into operational terms that may direct administrative, program, or financial decisions. For example, if the public agency has promised not to allow debt service costs to exceed a set percentage of revenues requires establishing, a rate setting process is required to ensure compliance.

  • Amend existing guidelines, policies, procedures, and plans to incorporate the needed administrative, program, and financial responsibilities identified by the working group to meet the legal and regulatory requirements and obligations imposed on the issuer for the use of bond funds. Issuers are encouraged to add these to existing documents and not to create separate guidelines, policies, procedures, and plans to reduce the risk that guidelines policies, procedures, and plans unique to bond funds will not be consistently applied.

  • Formally review and adopt these guidelines, policies, procedures, and plans. Because these documents constitute legal and financial commitments made by the issuer they should be approved by the issuer’s leadership.

  • Create and share access to a document library containing the bond documents and agreements. The final and executed versions of bond documents (including Official Statements (OSs), IRS filings, and other legal, regulatory and financial documents) relating to a debt financing can be found in an official closing transcript for the transaction. Typically, bond counsel provides the issuer with an electronic PDF version of an official closing transcript, usually within 3 or 4 weeks from date of bond closing. Additionally, the issuer should receive at least one transcript maintained in an agency’s official files consisting of final bond documents with original signatures. All transcript copies should be consistently maintained in a safe, yet accessible location so that staff responsible for post issuance debt management and other bond related duties can easily locate bond financing resources when necessary .