Muskegon Co Proposed Jail Financing Plan

Report
County of Muskegon
Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013) Update
February 21, 2013
Prepared by:
Muskegon County Finance and Management Services Department
and
Member FINRA & SIPC © 2012
First Southwest Company
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
2
Bond Ratings
Muskegon County, Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
3
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
4
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…”
5
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
6
Limited Tax Bond Ratings
Long Term
Moody’s
S&P
Fitch
Aaa
AAA
MIG 1
SP-1+
F1 (+ or -)
Aa1
AA+
MIG 2
SP-1
F2 (+ or -)
Aa2
AA
MIG 3
SP-2
F3 (+ or -)
Aa3
AA-
SG
SP-3
B
A1
A+
A2
A
A3
A-
Baa1
BBB+
Baa2
BBB
Baa3
BBB-
Ba1
BB+
Ba2
BB
(+ or -)
Ratings below the line are
speculative grade.
Lower quality credit
Higher quality credit
Moody’s Fitch / S&P
Short Term (less than 3 years)
Muskegon County
Stable Outlook from S&P, no expectation
of rating change within 2 year outlook as
of April 2012.
7
Additional Debt Capacity
Muskegon County, Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
8
Additional Debt Capacity
• Legal Debt Capacity = 10% of State Equalized Valuation
2012 State Equalized Valuation
Debt Limit (10% of State Equalized Valuation)
Less: Amount of Outstanding Debt as of 12/6/12
Legal Debt Capacity as of 12/6/12
$4,746,485,450
$474,648,545
$144,045,000
$330,603,545
• Market Driven Debt Capacity = Interest Cost/Ratings
• County’s Willingness to Pay = Actual Debt Capacity
9
Summary of Existing Debt
Muskegon County, Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
10
Summary of Existing Debt
• 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.
2.
3.
4.
5.
6.
7.
Operating ad valorem tax revenue
Quality of Life ad valorem tax revenue
Special assessment revenue from townships within the County
Delinquent tax revenue
Water Supply System revenue
Wastewater System revenue
Michigan Transportation Fund revenue
11
Summary of Existing Debt
12
Summary of Existing Debt
Debt Service Composition by Repayment Source
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$-
Period Ending 9/30
Operating Taxes
Quality of Life Taxes
Special Assessments
Water Revenue
Wastewater Revenue
MI Trans Fund Revenue
Delinquent Taxes
13
Summary of Operating Tax-Supported
Existing Debt
Muskegon County, Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
14
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
15
Existing Tax Supported Debt Service
Existing Operating Tax Supported Debt Service
$2,000,000
$1,800,000
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$-
Period Ending 9/30
Operating Taxes
16
Municipal Bond Market Update
Muskegon County, Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
17
Municipal Bond Market Update
• Tax-exempt municipal bond rates remain at historical lows, despite
increases during the last month of 2012.
• Late in 2012, the Federal Reserve announced monetary policy is expected
to change once unemployment drops below 6.5% and/or inflation
expectations rise above 2.5%. Given the current state of the economy, no
significant changes in monetary policy are expected until 2015.
• Investors’ “flight to quality” continues to contribute to the low rates in high
quality investment grade bonds.
• Low supply of tax-exempt bonds and high demand for such securities
contributes to lower interest rates.
18
Municipal Bond Market Update
Bond Buyer GO Index
20 Year History
Weekly Actual as of 2/15/2013
10.00
Bond Buyer GO Index
Current: 3.72%
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
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.
The Bond Buyer General Obligation index has risen from the 50-year low levels
experienced late in November/early December 2012.
19
Muskegon County Cost of Funds as of 2/19/2013
Muskegon County, Michigan
Cost of Funds
As of February 19, 2013
4.500%
4.223%
4.000%
3.463%
3.500%
3.550%
2.890%
3.000%
3.220%
2.880%
2.500%
2.000%
1.500%
1.820%
1.820%
1.000%
0.500%
0.000%
Maturity
10yr par callable bonds
Non callable bonds
20
Plan of Finance
Muskegon County, Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
21
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.
22
Financing Alternatives
Option 1e
JAIL plus Alternates +
JTC plus Alternate
LOW Bid Projection
Option 1e
JAIL plus Alternates +
JTC plus Alternate
MID Bid Projection
Option 1e
JAIL plus Alternates +
JTC plus Alternate
HIGH Bid Projection
Project Cost
$35,157,279
$38,085,706
$40,942,135
Less:
Cash Contribution
from General Fund
($6,135,000)
($6,050,000)
($5,970,000)
Net Project Cost
$29,022,279
$32,035,706
$34,972,135
Jail Beds
544 beds
544 beds
544 beds
Juvenile Trans Ctr Beds
32 beds
32 beds
32 beds
Estimated Bond Funds
(including bond premium)
$29,367,714
$32,406,813
$35,361,653
Amortization
25 years
25 years
25 years
Average Life of Bonds
18.41 years
18.08 years
17.81 years
“AA” Rated All-in Cost as of 2/19/13
3.93%
3.90%
3.88%
Budget Impact in Dollars
$1,377,376
(FY 2015)
$1,566,370
(FY 2015)
$1,752,333
(FY 2015)
23
Project Components (Budget Breakdown)
Option 1e
JAIL plus Alternates +
South Campus
LOW Bid Projection
Option 1e
JAIL plus Alternates +
South Campus
MID Bid Projection
Option 1e
JAIL plus Alternates +
South Campus
HIGH Bid Projection
Budget Impact in Dollars
$1,377,376
(FY 2015)
$1,566,370
(FY 2015)
$1,752,333
(FY 2015)
Jail Base (52% of Project Cost)
$716,236
$814,512
$911,213
Jail Alternate 1 (8% of Project Cost)
$110,190
$125,310
$140,187
Jail Alternate 2 (8% of Project Cost)
$110,190
$125,310
$140,187
Jail Tunnel (6% of Project Cost)
$82,643
$93,982
$105,140
S. Campus JTC Base (21% of Project Cost)
$289,249
$328,938
$367,990
JTC Alternate 1 (5% of Project Cost)
$68,869
$78,319
$87,617
TOTAL
$1,377,376
$1,566,370
$1,752,333
24

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