Financial records of the school district shall be maintained in accordance with generally accepted accounting principles (GAAP) as required or modified by law. School district monies shall be received and expended from the appropriate fund and/or account. The funds and accounts of the school district may include, but will not be limited to, the following:
Governmental fund type:
- General fund
- Special revenue fund (management levy fund, public education and recreation levy fund, student activity fund)
- Capital projects fund (physical plant and equipment levy fund
- Debt service fund
- State penny sales tax fund
- SAVE fund
Proprietary fund type:
- Enterprise fund (school nutrition fund, child care fund)
- Internal service fund
Fiduciary funds:
- Trust or agency funds (expendable trust funds, nonexpendable trust funds, agency funds, pension trust funds)
Account groups:
- General fixed assets account group
- General long-term debt account group
As necessary the board may, by board resolution, create additional funds within the governmental, proprietary and fiduciary fund types. The resolution shall state the type of fund, name of the fund, and purpose of the fund.
The general fund is used primarily for the education program. Special revenue funds are used to account for monies restricted to a specific use by law. Proprietary funds account for operations of the school district operated similarly to private business, and they account for the costs of providing goods and services provided by one department to other departments on a cost reimbursement basis. Fiduciary funds are used to account for monies or assets held by the school district on behalf of, or in trust for, another entity. The account groups are the accounting records for fixed assets and long-term debt.
703A Governmental Fund Balances
General
The board strives to maintain adequate fund balances and reserves in order to:
- Provide sufficient cash flow for daily financial needs;
- Secure and maintain investment-grade bond ratings;
- Offset significant economic downturns or revenue shortfalls; and
- Provide funds for unforeseen expenditures related to emergencies.
Reporting Fund Balances
The board shall engage in accounting and financial reporting procedures in compliance with the Governmental Accounting Standards Board’s Statement No. 54 (“GASB 54”).
Pursuant to GASB 54, governmental fund balances shall be identified for purposes of reporting as one of the following types of funds:
- “Nonspendable” – fund balances that can never be spent because the balances are either not in spendable form because they cannot currently be spent or cannot ever be spent (i.e., supply inventory funds, prepaid items, long-term loans receivables (including from loans to other funds of the District) and non-financial assets held for resale) or the District is legally or contractually required to maintain the balances in-tact (i.e., principal of an endowment fund).
- “Restricted” – fund balances that can be used only for the specific purposes permitted in externally enforceable legal restrictions, including, but not limited to, the constitution, enabling legislation or external resource providers (i.e., PPEL funds, Debt Service funds, Capital Project funds, state grant carryover funds, categorical funds (including Teacher Salary Supplement funds, special education funds, drop-out prevention funds)).
- “Committed” – fund balances that can be used only for the specific purposes determined by a formal action of the Board.
- “Assigned”– fund balances that are constrained by the District’s intent to use the funds for specific purposes determined by the Board and/or designee, but which are neither restricted nor committed (i.e., cash flow fund, funds for book fairs or field trips that are within the general fund).
- “Unassigned” – fund balances that have not been restricted, committed or assigned (i.e., residual classification for the general fund or a deficit balance from overspending for specific purposes for which amounts have been restricted, committed or assigned for other funds).
Governmental fund balances shall first be distinguished based upon whether the fund balance is nonspendable, as defined above, and then shall be distinguished based upon whether the fund balance is restricted, classified, assigned or unassigned, all as defined above.
Governmental fund balances shall be identified at the highest category of identification possible, regardless of whether the fund balance also fits into a lower category of identification (i.e., a PPEL fund balance should be reported as “restricted,” even if a separate Board action “committed” a portion of the PPEL fund balance to a specific purpose).
Governmental fund balances identified as committed fund balances after the end of the fiscal year, the amount shall be reflected as assigned on the balance sheet for that year.
Authority to Commit or Assign Fund Balances
The Board shall have the authority to determine whether a governmental fund balance in the District’s general fund is committed and/or assigned, both as defined above. The Board delegates to the [superintendent and/or the Board secretary] the authority to assign a fund balance in the District’s general fund to be used for a specific purpose.
The Board shall take formal board action prior to committing a fund balance, modifying the commitment of a fund balance or removing the commitment of a fund balance. The Board shall approve by a majority vote the commitment of a fund balance, the modification of the commitment of a fund balance and the removal of the commitment of a fund balance. The Board shall take action to commit a fund balance prior to the end of each fiscal year in which the original committed amount is determined. The Board may take action to commit a fund balance without determining the exact amount of the committed fund balance prior to the end of the fiscal year, provided the intended committed purpose is identified prior to the end of the fiscal year and the exact amount of the committed fund balance is determined after the end of the fiscal year.
Spending Fund Balances
Pursuant to GASB 54 and absent any other specific direction in place at the District, the District shall spend and/or reduce governmental fund balances in the following order: restricted fund balance, committed fund balance, assigned fund balance and unassigned fund balance.
703B Debt Fund Policies
General
The District seeks to maintain the highest possible credit ratings for all categories of short- and long-term general obligation and revenue bond debt that can be achieved. Sound fiscal management practices of all management and timely reporting to the board of directors are required in order to achieve the highest possible credit rating.
Debts issued by the District shall fund capital improvement projects. The District shall include in the financing budget the sum of all expected costs necessary to complete the capital improvement project plus all bonding related costs, offset by any cash on hand in the Capital Projects Fund. All costs necessary to complete the capital improvements project includes, but is not limited to, actual cost of construction, engineering, architectural, construction management and similar services, site and right of way acquisition, site replacement and landscaping, parking facilities as necessary, and all furnishings, fixtures & equipment necessary to occupy and use the capital improvement as intended.
Disclosure and Ongoing Continuing Disclosure
The District is committed to full and complete financial disclosure, and to fully cooperate with ratings agencies, institutional and individual investors, other levels of government, and the general public to share comprehensive and accurate financial information. The district is also committed to meet secondary or continuing disclosure requirements on a timely and comprehensive basis, as promulgated by the Securities Exchange Commission.
The official statements accompanying debt issues, certified annual financial reports, annual fiscal audits, and continuing disclosure statements will meet the standards articulated by the appropriate regulatory body, including but not limited to, Government Accounting Standards Board (GASB), Generally Accepted Accounting Principles (GAAP), the Securities Exchange Commission (SEC), and Internal Revenue Service (IRS). The District may hire a consultant firm to assist with continuing disclosure statements as required by the state and federal regulatory bodies. Any significant financial reports affecting or commenting upon the District will be forwarded to rating agencies and any material events will be reported.
The issuance of securities subjects the District to regulation and risk regarding disclosure provided to investors. The District is committed to providing timely, accurate and complete disclosure. The District shall assess the risk based on the type of security being issued and the type of offering contemplated, and shall hire third-party professionals, experts in their field, to assist the District with the bond sale process and assist with risk mitigation. In the event that the District is selling securities in a full public offering, the District shall engage legal counsel (whether Bond Counsel, Disclosure Counsel or both) whose engagement shall include an opinion (often called a 10b-5 opinion) regarding the accuracy and completeness of the offering materials (often called the bond official statement). Bond Counsel’s legal opinion shall cover all material legal and tax-related representations of the District.
The District shall weigh the merits and costs of hiring other third party professionals, including financial advisors, underwriters, bank trustees, registrar & paying agent and continuing disclosure dissemination agents on a case by case basis. The District notes that each potential professional offers specific skill set not generally available to the District that may be advantageous to the District with respect to the specific offering being contemplated.
Annual Audit
The District notes that the dissemination of timely audited financial statements is a critical factor in developing and maintaining relationship of trust with investors and rating agencies. To that end, the Treasurer shall take all steps necessary to procure an audited financial statement that can be made publicly available to investors, regulators and the Auditor of the State of Iowa, within 180 days of the end of each fiscal year. Requests for waivers of this timeline by auditor firms shall be rejected unless it can be determined that the reason for the request for timeline extension is (a) a result of actions taken by the District, (b) failure of the District to provide timely information to the auditor, or (c) events outside of the control of the auditor or the District, such as acts of God, labor disruption, declaration of war etc.
Method of Sale of Securities
The District may consider financings that include: sealed bid public offerings, negotiated public offerings, private placements and direct bank loans. With each financing, the Treasurer shall evaluate, for each potential financing structure, the costs associated, the likely interest rates, the likelihood of success, the time required for completion, the amount of staff and Board of Directors time required for completion, and the risk if interest rates move. Based on this evaluation, the Treasurer shall prepare a recommendation regarding the offering structure to be pursued, and shall retain professionals sufficient to ensure that said offering structure can be pursued as efficiently as possible, with as little risk to the District as can be reasonably incurred. The Treasurer shall have the authority to execute agreements on behalf of the District to retain third party professionals, as necessary, in order to execute the sale of securities, other than the Board of Directors shall approve all resolutions and related documents committing the District to sell and issue securities.
Restrictions Surrounding All Indebtedness of the District
No zero-coupon bonds shall be authorized or issued.
No capitalized interest shall be used other than to capitalize the interest cost between the date of issuance of the bonds and the beginning of the following fiscal year, if a levy has not been put in place at the time of bond issuance sufficient to fund interest cost on bonds prior to the start of the following fiscal year.
All bonds shall be fixed-rate. Draw-down bond anticipation project notes, maturing not later than six months after completion of construction of the Project for which the note was incurred, may be issued with a variable interest rate tied to an index that is regularly reported that can be independently verified.
No variable rate, auction rate or other short-term obligations (other than bond anticipation notes).
No swaps or interest rate lock agreements may be entered into.
The District notes that there may be instances where it is in the District’s advantage to lock an interest rate on one particular date for an obligation that will occur on another date, more than 90 days later (a “forward purchase bond”). A forward purchase bond may be issued with a fixed interest rate, so long as the forward purchase obligation cannot be terminated by either party. No collateral or cash investment shall be available to be provided as security toward any forward purchase bond.
No obligation may be issued that could be interpreted to be an investment and that is not permitted under Iowa Code Chapter 12B or 12C.
No derivative bond structures shall be considered.
General Obligation Bonds
General Obligation debt shall mature in not more than 20 years from original issuance.
All outstanding general obligation debt shall have an average maturity at all times of not greater than 12 years. In the event where bonds from one election are to be sold in multiple sales over multiple years, the weighted average maturity shall be calculated based on the entire principal amount outstanding upon completion of the bond sales associated with the referendum.
Debt issued wrapped around existing debt shall be permitted.
Working Capital Financings
No working capital financing should be required so long as the District is in compliance with its unassigned general fund and restricted cash flow reserve policies herein. In the extreme instance where (a) changes in resources occur during a year in which levies are previously certified and cannot be amended, and (b) changes in budgetary expenditure practices cannot be made due to the previous commitment to employee contracts and supplies purchases, a cash flow borrowing may be incurred, with the final maturity not longer than the expected date on which all revenues due to the District for said budget year are in hand. Working capital financing may not be used as a means of funding structural deficits in the general operating fund. Interest expenses of the cash flow borrowing are a cost to the general fund. SBRC spending authority shall be sought to reimburse the District for any cash flow borrowing costs associated with the working capital borrowing.
Sales Tax Revenue Bonds
Revenue Bonds may be issued secured by the Secure an Advanced Vision for Education (“SAVE”) sales tax (the “Tax”)
Prior to issuing revenue bonds, the District shall prepare a comprehensive cash-flow estimate of the Tax that includes reasonable assumptions regarding enrollment and statewide available revenue per student (RevPS). If enrollment declines are reasonably expected, the collections from the sales tax shall be adjusted downward to reflect the decline, and coverage shall be based on the adjusted income. The cash flow must ensure that, with the proposed bonds to be issued, cash balances of the Tax fund remain positive over the life of the proposed bonds using a no-growth RevPS assumption. If cash flows cannot remain positive factoring in the proposed bonds and all other items to be funded from the Tax, then the proposed bonds shall not be issued.
Senior lien Revenue Bonds must assume coverage of at least 1.20x based on income available at the time of issuance. No inflation may be assumed in sales tax income unless provided for by statute. Subordinate lien Revenue Bonds may be issued with coverage lower than 1.20x. Revenue Bonds must be repaid within the life of the Tax, and shall not have an average maturity of longer than 10 years. A fully funded reserve fund (as that term is allowed by the IRS) is required on all publicly offered revenue bonds; bonds issued in a private placement with a sophisticated investor may exclude a reserve fund if permitted by that investor.
Refundings
Periodic reviews of all outstanding debt will be undertaken to determine refunding opportunities. Refunding will be considered (within federal tax law constraints) if and when there is a net economic benefit of the refunding or the refunding is essential in order to release restrictive bond covenants, which affect the operations and management of the District.
Advance refundings for economic savings will be undertaken either (a) when a net present value savings of at least four percent of the refunded debt can be achieved; or (b) if the escrow structure results in a material negative arbitrage (i.e., the cost of the escrow is more expensive than the permitted cost of the escrow using then-current IRS rules), the net present value savings must be at least 5% of the refunded debt. Current refundings, which produce a net present value savings of less than 3% will be considered on a case-by-case basis taking into consideration bond covenants and general conditions. Refundings with negative savings will not be considered unless there is a compelling public policy objective.
Arbitrage Compliance
The District will maintain a system of record-keeping, reporting, and compliance procedures, with respect to all federal tax requirements which are currently, or may become, applicable throughout the lifetime of all bonds in accordance with all arbitrage rules and rebate requirements.
Such issues of compliance to review should include, but are not limited to
- Consult with financial advisors and rebate analyst to identify bond proceeds or applicable debt service allocations that must be invested with a yield-restriction and shall monitor the investments of any yield-restricted funds to ensure that the yield on such investments does not exceed the yield to which such investments are restricted. These investments shall meet the requirements of the district’s investment policy.
- Review with financial advisors that investment of bond proceeds is performed in compliance with arbitrage rules and rebates.
- Consult with financial advisors to determine whether the district is subject to rebate requirements of Section 148(f) of the Code and related Treasury Regulations with respect to each issue of bonds.
- Consult with rebate analyst to determine rebate liability.
- Consult with financial advisors and rebate analyst to determine whether the district is eligible for any temporary periods for unrestricted investments and is eligible for any of the spending exceptions to the rebate requirements.
- Consult with the rebate analyst, and if appropriate bond counsel, prior to the fifth anniversary date of issuance of each issue of bonds of the district and each fifth anniversary thereafter to arrange for calculations and reports of rebate requirements with respect to such bonds.
- If a rebate payment is required to be paid by the district, the business manager shall request the Form 8038-T be prepared by bond counsel in order to be submitted to the Internal Revenue Service (IRS).
- If the district is authorized to recover a rebate payment previously paid, the business manager shall consult with the trustee or bond counsel to prepare the appropriate form (Form 8038-R) with the Internal Revenue Service (IRS).