i.3.4 Organizational Responsibilities

MAKE PRUDENT DECISIONS – For public agencies, the costs of making a bad decision with regard to the use of debt financing are significant. As a result, the agency and its elected and appointed officials must make prudent business decisions when debt financing. A prudent decision is one that a prudent person would make when considering the costs of the decision to the agency’s constituents, including employees, customers, and financial partners. In other words, when seen in hindsight, a prudent person would make the same decision given the same set of facts and circumstances.

To make prudent decisions the agency must develop and administer an analytical process to:

Identify the agency’s program and financing goal(s).
Gather the information required to make a prudent decision.
Identify alternative decisions taking into account program and budgetary outcomes.
Select the alternative that achieves the agency’s goals. Review the decision and establish outcome measures to track success or re-evaluate alternatives in the future.

ADOPT THE RIGHT ORGANIZATIONAL APPROACH – Unfortunately, most public agencies operate within the discrete silos created by the organization’s design. This limits the open exchange of ideas and analyses. To avoid this, particularly when making debt financing decisions, public agencies must develop an organizational approach that intends to break down soiled thinking. Forming work groups composed of multidisciplinary teams to develop goals, gather information, and identify alternatives is one way to do this. When making debt financing decisions, the agency should build that team with representatives from legal, financial, and facilities operations and engineering units.

LEARN ABOUT DEBT FINANCING – Elected and appointed public officials are subject to securities law and are held to a fiduciary standard when acting in an official capacity. Both of these requirements impose a standard of care and expertise that can only be achieved through a deliberate, ongoing effort to analyze, understand, and evaluate alternative courses of action. Concerning the use of debt financing, this implies that elected and appointed officials will seek to educate themselves, and when necessary, obtain the best, objective guidance in order to make decisions that legally and fairly implement the mission of the public agency. Before issuing debt, therefore, elected and appointed officials should understand the agency’s financing needs, its alternative financing strategies, the implication of each on the agency’s mission and its financial well being, and the agency’s capacity to meet its long term financial and administrative responsibilities if debt is the chosen alternative.

Appendix C of the Guide provides a comprehensive list of educational and informational resources for elected and appointed officials.