county of muskegon michigan jail and juvenile transition center project plan of finance (series...

County of MuskegonMichigan

Jail and Juvenile Transition Center ProjectPlan of Finance (Series 2013)

December 6, 2012

Prepared by:Muskegon County Finance and Management Services Department

and

Member FINRA & SIPC © 2012 First

Southwest Company

2

Table of Contents

1. Bond Ratings

2. Additional Debt Capacity Analysis

3. Municipal Bond Market Update

4. Summary of Existing Debt

5. Summary of Tax-Supported Existing Debt

6. Series 2013 Plan of Finance

7. Proposed Schedule of Events

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Muskegon County, MichiganJail and Juvenile Transition Center Project

Plan of Finance (Series 2013)

Bond Ratings

4

Bond Ratings

• The County’s unlimited tax debt is currently rated “Aa2” by Moody’s (the voted Series 2009 Building Authority Bonds)

• The County’s limited tax debt is currently rated “Aa3” by Moody’s and “AA” by Standard and Poor’s

• Standard and Poor’s revised the County’s management practices under S&P’s Financial Management Assessment (FMA) methodology from “good” to “strong” in May 2011

• Additionally, the last short term rating for the Delinquent Tax Anticipation Notes was “SP-1+” by Standard and Poor’s (highest category)

• Over the last 15 years the County’s bond ratings have been upgraded several notches: from “Baa1/A” to “Aa2/AA” for unlimited tax pledge and from “A3/A” to “Aa3/AA” for the limited tax pledge

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S&P’s “AA” Long Term Credit Assessment (April 2012)

• “Stable and diverse local economy and participation in the greater Grand Rapids and Kent County, Mich. economies;”

• Taxable base per capita still strong despite recent contractions since 2010.

• County’s median household and per capita incomes at 80% and 74% of national level are adequate.

• “Very strong financial position, demonstrated by very strong reserves and additional liquidity outside the general fund…”

• History of general fund surpluses and balanced budgets in challenging times.

• “We consider the county's overall net debt burden (excluding self-supporting enterprise and Michigan Transportation Fund debt) to be moderate…”

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S&P’s “AA” Long Term Credit Assessment (April 2012)

• “Overlapping debt is a significant portion of the County's debt profile.”

• “Carrying charges as a percent of total governmental funds expenditures less capital outlay were what we consider low at 1.4% in fiscal 2011.”

• County has addressed pension unfunded liabilities and instituted a defined contribution plan.

• “Strong” Financial Management Assessment (S&P’s highest category)– Long term planning– Capital improvement plans– Board receives monthly updates from Staff– Board approved a debt management policy in 2011– General Fund reserves targets have historically been met

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Limited Tax Bond Ratings

Long Term Short Term (less than 3 years)

Hig

her

quality

cre

dit

Low

er q

uality

cre

dit

Moody’s Fitch / S&P Moody’s

MIG 1

MIG 2

MIG 3

SG

Aaa

Aa1

Aa2

Aa3

A1

A2

A3

Baa1

Baa2

Baa3

Ba1

Ba2

S & P

SP-1+

SP-1

SP-2

SP-3

F1 (+ or -)

F2 (+ or -)

F3 (+ or -)

B (+ or -)

Fitch

Ratings below the line are speculative grade.

AAA

AA+

AA

AA-

A+

A

A-

BBB+

BBB

BBB-

BB+

BB

Muskegon County

Stable Outlook from S&P, no expectation of rating change within 2 year outlook as of April 2012.

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Michigan Counties Bond Ratings Comparison

County S&P Moody's Fitch *LT = Limited Tax

Kent AAA Aaa (LT) Not Rated *UT = Unlimited Tax

Oakland AAA Aaa (LT) Not Rated

Ottawa AA Aaa (LT) AAA

Ingham AA+ Aa2 (LT) Not Rated

Washtenaw AA+ Aa1 (LT) AA+

Allegan AA Aa3 (LT) Not Rated

Jackson AA Aa2 (LT) Not Rated

Kalamazoo AA Aa2 (LT) Not Rated

Grand Traverse AA Aa2 (LT) Not Rated

Muskegon AA Aa2 (UT) / Aa3 (LT) Not Rated

Newaygo AA- Not Rated AA

Oceana A+ Not Rated Not Rated

Genesee A A1 (LT) Not Rated

Wayne BBB+ Baa2 (LT) BBB+

State of Michigan AA- Aa2 AA-

Sorted based on S&P rating (except for Ottawa County since its S&P rating is outdated)

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Additional Debt Capacity

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Additional Debt Capacity

• Legal Debt Capacity = 10% of State Equalized Valuation

2012 State Equalized Valuation $4,746,485,450

Debt Limit (10% of State Equalized Valuation) $474,648,545Less: Amount of Outstanding Debt as of 12/6/12 $144,045,000

Legal Debt Capacity as of 12/6/12 $330,603,545

• Market Driven Debt Capacity = Interest Cost/Ratings

• County’s Willingness to Pay = Actual Debt Capacity

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Summary of Existing Debt

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• The County currently has $144,045,000 of outstanding debt secured by the taxing powers or appropriation pledge of the County.

• The amount stated above include the County’s Road Commission Michigan Transportation Fund Notes and the assumption that the Michigan Finance Authority commitments have been drawn in full.

• The County’s debt is supported by the following sources of revenue:1. Operating ad valorem tax revenue2. Quality of Life ad valorem tax revenue3. Special assessment revenue from townships within the County4. Delinquent tax revenue5. Water Supply System revenue6. Wastewater System revenue7. Michigan Transportation Fund revenue

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Operating Ad Valorem Taxes 17,070,000$ Quality of Life Ad Valorem Taxes 4,655,000 Special Assessments 28,470,000 Delinquent Taxes 8,000,000 Water Revenue 14,700,000 Wastewater Revenue 70,750,000 MI Transportation Fund Revenue 400,000

144,045,000$

11.85%3.23%

19.76%

5.55%

10.21%

49.12%

0.28%

Debt Composition by Repayment Source

Operating Ad Valorem Taxes Quality of Life Ad Valorem Taxes Special Assessments

Delinquent Taxes Water Revenue Wastewater Revenue

MI Transportation Fund Revenue

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$-

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

Period Ending 9/30

Debt Service Composition by Repayment Source

Operating Taxes Quality of Life Taxes Special Assessments Delinquent Taxes

Water Revenue Wastewater Revenue MI Trans Fund Revenue

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Summary of Operating Tax-Supported Existing Debt

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Summary of Operating Tax Supported Existing Debt

• The County currently has $17,070,000 of outstanding debt being paid by operating tax revenues. (Excludes quality of life and delinquent tax debt)

• The County’s operating tax-supported debt is as follows:– Muskegon County Building Authority Debt ($10,415,000)

• Mental Health Facility Bonds• Muskegon County Michael E. Kozba Hall of Justice and Heritage Landing

Bonds

– Governmental Activities Tax Supported Debt ($6,655,000)• Energy Conservation Bonds

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Existing Tax Supported Debt Service

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

$2,000,000

Period Ending 9/30

Existing Operating Tax Supported Debt Service

Operating Taxes

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Municipal Bond Market Update

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• Tax-exempt municipal bond rates are at historical lows.

• The Federal Reserve’s monetary policy is expected to remain unchanged until mid-2015.

• Investors’ “flight to quality” has contributed to the low rates in high quality investment grade bonds.

• Expectation of income tax increases contributes to higher demand for tax-exempt bonds.

• Low supply of tax-exempt bonds and high demand for such securities has contributed to lower interest rates.

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The Bond Buyer General Obligation index hit the lowest rate since records began in the 1960s.

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Bond Buyer GO Index25 Year History

Weekly Actual as of 11/30/2012

Bond Buyer GO Index

Current 3.29%

This graph depicts historical interest rates and their respective relationships. Future interest rates are dependent upon many factors such as, but not limited to, interest rate trends, tax rates, the supply and demand of short term securities, changes in laws, rules and regulations, as well as changes in credit quality and rating agency considerations. The effect of changes in such factors individually or in any combination could materially affect the relationships and effective interest rates. These results should be viewed with these potential changes in mind as well as the understanding that there may be interruptions in the short term market or no market may exist at all.

Current: 3.29%Average: 5.44%Max: 8.10%Min: 3.29%

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Muskegon County Cost of Funds as of 12/5/2012

1.260%

2.310%

3.128%

3.630%

3.911%

1.260%

2.310%2.480%

2.780%

3.000%

0.000%

0.500%

1.000%

1.500%

2.000%

2.500%

3.000%

3.500%

4.000%

4.500%

Maturity

Muskegon County, MichiganCost of Funds

As of December 5, 2012

10yr par callable bonds Non callable bonds

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Plan of Finance

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Plan of Finance

• The Project will be funded with a $7,000,000 cash contribution plus Limited Tax Bonds payable from the County’s operating tax revenues.

• Operational changes by eliminating positions open budgetary capacity between $503,000 and $1,177,000 (6 to 15 positions).

• Changes in insurance providers and past equity investments of the general fund in self-insurance activities (reducing annual expenditures by approximately $800,000).

• Realization of actual administrative expenses from County funds.

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Financing Alternatives

Option 1d Base w/Craig

School

Option 1dBase w/Craig School plus

Alternates 1 & 2

Option 1c Base w/Craig

School

Option 1cBase w/Craig School plus

Alternates 1 & 2

Mean Project Cost $25,405,268 $34,968,983 $31,816,027 $37,791,080

Less:Cash Contributionfrom General Fund ($6,130,000) ($5,685,000) ($5,820,000) ($5,560,000)

Net Project Cost $19,275,268 $29,283,983 $25,996,027 $32,231,080

Jail Beds 480 beds 582 beds 544 beds 576 beds

Juvenile Trans Ctr Beds 16 beds 32 beds 16 beds 32 beds

Estimated Bond Funds(including bond premium) $16,545,169 $29,618,301 $26,304,632 $32,580,317

Amortization 25 years 25 years 25 years 25 years

Average Life of Bonds 19.01 years 19.33 years 19.82 years 18.98 years

“AA” Rated All-in Cost as of 12/5/12 3.66% 3.68% 3.71% 3.66%

Budget Impact in Dollars$831,383(FY 2015)

$1,326,883(FY 2015)

$1,126,333(FY 2015)

$1,509,233(FY 2015)

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Proposed Schedule of Events

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Proposed Schedule of Events

• December 2012– Finalize costs scenarios and recommend Project alternative

• February 2013– Presentation of Final Plan of Finance and key dates to the Board of

Commissioners– Begin preparation of bond sale (legal and financial analysis and due diligence)

• March/April 2013– Bond Rating meetings/conference calls

• April-August 2013– Issuance of Series 2013 Bonds– Closing and delivery of funds to the County

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