The URL can be used to link to this page

Home My WebLink AboutAgenda - 05-09-2017 - 1.3 Attachment 3 Davenport and Company County Tax Supported CIP Discussion Materials Count y Supported Tax CIP Discussion Materials Orange County, North Carolina ORANGE COUNTY NORTH CAROLINA May 9, 2017 DAVENPORT & COMPANY Member NYSE I FIN RA I SIPC Contents / Agenda ORANGE COUNTY NORTH CAROLINA Credit Rating Overview and Peer Comparatives Debt Policy Overview Existing Tax Supported Debt Profile ■ Debt Capacity and Debt Affordability Analysis Appendix: Details of Principal Structuring Cases DAVENPORT&COMPANY May 9,2017 Orange County, NC 1 ORANGE COUNTY NORTH CAROLINA ill d 1 DAVENPORT&COMPANY May 9,2017 Orange County, NC 2 Credit Rating Overview and Peer Comparatives ORANGE COUNTY NORTH CAROLINA Peer Comparative Introduction Moody's Investors Standard & Poor's Fitch Ratings • The County is currently rated Aaa by Moody's Investors Service (May Service 2015), AAA by Standard and Poor's (June 2015), and AAA by Fitch (June 2015). Aaa AAA AAA Aa 1 AA+ AA+ • The following pages contain peer comparatives based on the Moody's Aa2 AA AA Aaa peer counties listed below. Aaa AA- AA- A1 A+ A+ A2 A A — National Aaa Counties - 93 Credits A3 A- A- Baa1 BBB+ BBB+ — North Carolina Aaa Counties - 9 Credits Baa2 BBB BBB — Buncombe, Durham, Forsyth, Guilford, Mecklenburg, New Baa3 BBB- BBB- Hanover, Orange, Union, Wake Non Investment Grade Note: The data shown in the peer comparatives is from Moody's Municipal Financial Ratio Analysis database. The figures shown are derived from the most recent financial statement available as of April 26, 2017 (FY 2016 figures in most cases). DAVENPORT&COMPANY May 9,2017 Orange County, NC 3 Historical Credit Spreads ORANGE COUNTY NORTH CAROLINA ■ The County's credit rating has a direct impact on the cost of borrowing, which in turn effects the County's debt 30-Year s capacity. 7.5 7 — The credit spread is the premium an issuer pays to 6.5 the purchaser of their bonds (i.e. higher interest 6 5.5 rate) as compensation for increased credit risk. 5 JMW 4.5 — Since the financial downturn in September 2008, a 4 3.5 — credit quality of issuers has taken on a renewed 3 importance to investors. 2.5 — — 2 — The average spread for an A rated borrower has 1.5 OR ph 00 p1 p� 00 do N N N ti� yh ti0 increased from 0.33% from Nov 2004 - Dec 2008 ° to 0.70% since Dec 2008. —AAA —AA —A —BBB Credit Spreads (%) vs the 30-yr AAA M M D Nov 2004 - Dec 2008 Ratin Min Max Averaae AA 0.04 0.19 0.10 A 0.15 1.26 0.33 BBB 0.30 2.52 0.60 Dec 2008 - Apr 2017 Ratin Min Max Averap-e AA 0.09 0.53 0.23 A 0.46 1.11 0.70 BBB 0.69 2.58 1.34 Note:credit spreads compared to the AAA'equivalent DAVENPORT&COMPANY May 9,2017 Orange County, NC 4 Rating Agency Methodology Updates ORANGE COUNTY NORTH CAROLINA Moody's Moody's Qualitative Factors • On January 15, 2014, Moody's updated its US Local Governments Below-the-Line Adjustments Other Considerations) General Obligation Debt methodology and assumptions. 1 Economy/Tax Base 2 Institutional presence(+) Per capita income • Under the new methodology, an initial indicative rating is 3 Regional economic center(+) Composition of workforce/employmentopportunities 4 Economic concentration(-) Proportion of tax base that is vacant or exempt from taxes calculated from a weighted average of four key factors: 5 Outsized unemployment or poverty levels(-) Median home value 6 Trend of real estate values 7 Population trends 8 Property tax appeals outstanding US Local Governments General Obligation Debt Methodology 9 Unusually significant tax base declines or growth 10 1. Economy/ Tax Base 30% 11 Finances 0 12 Outsized enterprise or contingent liability risk(-) Questionable balance sheet items that may distort fund balance Tax Base Size (Full Value) 10% 13 Unusually volatile revenue structure(-) Large portion of fund balance that is restricted or unusable Full Value Per Capita 10% 14 Labor contracts that materially affect credit strength Wealth (Median Family Income) 10% 15 Limited revenue raising ability. 16 Restrictive property tax cap 2. Finances 30% 17 Constraints on capturing tax base growth Fund Balance (%of Revenues) 10% 18 Other levy-raising limitation 19 Limited ability to cut or control expenditures: Fund Balance Trend (5-Year Change) 5% 20 Limitation constrains budgetary flexibility to a degree not already captured in the scorecard Cash Balance (%of Revenues) 10% 21 Heavy fixed costs,including contractually fixed costs such as pension Cash Balance Trend (5-Year Change) 5% payments 22 Management 3. Management 20% 23 State oversight or support(+or-) Institutional Framework 10% 24 Unusually strong or weak budget management and planning(+or-) Operating History 10% 25 4. Debt/ Pensions 20% 26 Debt/Pensions 27 Unusually weak or strong security features(-or+) Very high or low debt service relative to budget Debt to Full Value 5% 28 Unusual risk posed by debt structure(-) Very high or low overall debt burden(including overlapping debt) Debt to Revenue 5% 29 History of missed debt service payments(-) Heavy capital needs implyingfuture debt increases 30 Unusuallyslow or rapid amortization of debt principal(gauged by the Moody's Adjusted Net Pension Liability(3-Year Average)to Full Value 5% percentage of principal repaid within 10 years) 31 Other post-employment benefits(OPEB),the most significant of which Moody's Adjusted Net Pension Liability(3-Year Average)to Revenue 5% is retiree healthcare liabilities,when they have the potential to significantly constrain operational flexibility These other considerations include factors specifically outlined in Moodys rating methodology.However,any information regarding an issuer can rise to the level of a qualitative factor/consideration as deemed appropriate by the rating analyst and credit committee. ■ Below the line qualitative adjustments can be made based upon certain factors. DAVENPORT&COMPANY May 9,2017 Orange County, NC 5 Rating Agency Methodology Updates ORANGE COUNTY NORTH CAROLINA S&P Fitch • On September 12, 2013, Standard & Poor's updated its US Local ■ On April 18, 2016, Fitch updated its US Tax-Supported Rating Governments General Obligation Ratings methodology and Criteria. assumptions. • Under the new methodology, Under the new methodology, Fitch has identified four key rating gy, an initial indicative rating is calculated from a weighted average of seven key factors: factors that play a significant role in driving the rating outcome for a given issuer in the context of its economic base: US Local Governments General Obligation Ratings Methodology Key Rating Factors 1. Institutional Framework 10% 1 Revenue Framework Legal and practical environment in which the local govt operates Growth Prospects for Revenues Without Revenue-Raising Measures 2. Economy 30% Independent Legal Ability to Raise Operating Revenues Without External Approval Total Market Value Per Capita Projected per capita effective buying income as a% of US projected 2 Expenditure Framework effective buying income Natural Pace of Spending Growth Relative to Expected Revenue Growth 3. Management 20% Flexibility of Main Expenditure Items Impact of management conditions on the likelihood of repayment 3 Long-Term Liability Burden 4. Budgetary Flexibility 10% Combined Burden of Debt and Unfunded Pension Liabilities in Relation to Resource Base Available Fund Balance as a% of Expenditures 5. Budgetary Performance 10% 4 Operating Performance Total Government Funds Net Result(%) Financial Resilience Through Downturns General Fund Net Revenue Budget Management at Times of Economic Recovery _ 6. Liquidity 10% Total Gov't Available Cash as a %of Total Gov't Funds Debt Service Total Gov't Cash as a %of Total Gov't Funds Expenditures ■ The factors cover both the institutional framework in which an 7. Debt and Contingent Liabilities 10% issuer operates, which varies by level and location of government, Net Direct Debt as a %of Total Governmental Funds Revenue and performance within that framework. Total Governmental Funds Debt Service as a %of Total Governmental Funds Expenditures ■ Fitch publishes specific rating category evaluations for each factor, with analysis focused on long-term trends and expectations. ■ Up to a one-notch adjustment can be made from the indicative rating based on other qualitative factors. DAVENPORT 8L COMPANY May 9,2017 Orange County, NC 6 ORANGE COUNTY NORTH CAROLINA DAVENPORT&COMPANY May 9,2017 Orange County, NC 7 County Policies ORANGE COUNTY NORTH CAROLINA ■ The County Board adopted a series of financial policy guidelines on April 5, 2011, including: — A Cash Management and Investment Policy. — A General Fund Balance Policy: — The County will strive to maintain an unassigned fund balance in the General Fund of 17% percent of budgeted general fund operating expenditures each fiscal year. The amount of unassigned fund balance maintained during each fiscal year should not fall below 8% percent of budgeted general fund operating expenditures, as recommended by the North Carolina Local Government Commission. — Tax Supported Debt Policies: — The County will maintain its net bonded debt at a level not to exceed 3% percent of the assessed valuation of taxable property within the County. — The County will strive to maintain its annual debt service costs at a level no greater than 15% percent of general fund revenues, including installment purchase debt. This is a recommended "best practice" from the Government Finance Officers Association. DAVENPORT&COMPANY May 9,2017 Orange County, NC 8 Summary of Existing Financial Policies ORANGE COUNTY NORTH CAROLINA Debt General Fund Debt Debt Outstanding as a% Outstandingto Service to General Govt.Debt Service to 10-Year of Governmental Assessed Value Fund Revenues Govt.Expenditures Payout Ratio Revenues Orange FY16 Ratios 1.09% 12.79% 12.19% 88.2% 81.62% Orange Policy Limits < 3.00% < 15.00% N/A N/A N/A < 8.00%(AAA) < 30.00%(AAA) < 15.00%(AA) < 60.00%(AA) S&P Rating Threshold < 3.00% N/A < 25.00%(A) > 65% < 120.00%(A) < 0.75%(Aaa) < 33.00%(Aaa) < 1.75%(Aa) < 67.00%(Aa) Moody's Rating Threshold' < 4.00%(A) N/A N/A4 N/A4 < 300.00%(A) Other North Carolina`Aaa'Counties Policy Limits Buncombe < 3.00% N/A < 18.00% > 65% N/A Durham2 < 3.00% N/A < 15.00% N/A N/A Forsyth N/A N/A < 15.00%5 N/A N/A Guilford2 < 3.00% N/A < 15.00%5 N/A N/A Mecklenburg3 < 2.00% N/A < 18.00%5 > 64% N/A New Hanover < 1.60% N/A < 20.00%5 N/A N/A Union < 3.00% < 15.00%5 N/A > 50% N/A Wake3 < 1.75% N/A < 20.00% > 70% N/A 'Moody's rating methodology uses Operating Revenues and Operating Expenditures for purposes of calculating certain debt ratios. 2County's policies refer to G.O.Bonds only. 3Numbers shown are county's targets rather than an official policy. 4Although Moody's does not give specific guidance for these ratios,they will give a scorecard adjustment for a very high or low ratio. 5Calculation is based on annual debt service as a percentage of the budget DAVENPORT&COMPANY Source:Orange County 2016 CAFR,Locality's Budget and/or Debt Policy May 9,2017 Orange County, NC 9 ORANGE COUNTY NORTH CAROLINA • �'I'�1``i�Illll \�\�\��i;rr i�inrio%i•iVl\�\�\ DAVENPORT&COMPANY May 9,2017 Orange County, NC 10 Existing Tax Supported Debt ORANGE COUNTY NORTH CAROLINA Tax Supported Debt Service Tax Supported Debt Service U) 30.0 `o FY Principal Interest Total 10-yr Payout 25.0 Total 170,965,205 36,486,070 207,451,276 20.0 '_1_ ' 2017 19,794,536 6,338,040 26,132,576 89.7% �—,—. 2018 19,804,870 5,757,147 25,562,017 93.1% 15.0 2019 19,147,190 5,125,080 24,272,270 94.0% 2020 18,485,819 4,440,496 22,926,315 95.1% 10.0 - — — — — — — — 2021 18,116,274 3,754,643 21,870,917 96.1% 2022 18,049,652 3,067,443 21,117,095 97.1% 5.0 - — _ 2023 14,268,570 2,324,055 16,592,626 98.1% 0.0 r 2024 11,084,848 1,741,855 12,826,703 100.0% 'l lb Cb O ti 0 3 D h 0 1 O 2025 8,333,798 1,263,524 9,597,322 100.0% O`1' 2026 6,224,894 935,805 7,160,699 100.0% 2027 7,246,417 597,513 7,843,931 100.0% JPrincipal mjlnterest 2028 2,554,056 388,778 2,942,835 100.0% Par Outstanding - Estimated as of 6/30/2016 2029 2,347,056 298,821 2,645,877 100.0% 2030 1,893,056 212,744 2,105,800 100.0% 2031 1,458,056 137,709 1,595,765 100.0% Type Par Amount 2032 1,078,056 76,812 1,154,868 100.0% 2033 1,078,056 25,604 1,103,660 100.0% General Obligation Bonds $59,280,000 IPCs/ COPS/ LOBS $111,685,205 Total $170,965,205 Notes: 2010 and 2011 QSCBs are shown gross of Federal Subsidy. Tax Supported Debt shown includes Vehicle Replacement Fund Debt. Tax Supported Debt shown excludes Sportsplex, Solid Waste, and Water &Sewer Debt supported by the Article 46 Sales Tax. DAVENPORT&COMPANY Source: LGC Bond Ledger and 2016 CAFR May 9,2017 Orange County, NC 11 Key Debt Ratio: Tax Supported Payout Ratio ORANGE COUNTY NORTH CAROLINA 10-Year Payout Ratio 10-year Payout Ratio Peer Comparative (Higher is Better) 100.0% — Orange County(2017) 90.0% 80,0% National'Aaa'Median 70.0% 60.0% NC'Aaa'Median 50.0% Buncombe 40.0% Durham 30.0% Forsyth 20.0% Guilford 10.0% Mecklenburg 0.0% New Hanover h O 1 B O O ti 0. 3 Union O� O, Oti 00 00 00 00 00' 00' 00' 00 00 00 O� O� O� O� wake 0 20 40 60 80 100 10-yr Payout Percent • Existing 10-year Payout Ratio ■ Rating Considerations: — FY 2017: 89.7% — Moody's: Moody's rating criteria for General Obligation credits allows for a scorecard adjustment if an issuer has unusually slow or rapid amortization of debt principal. • The 10 Year Payout Ratio measures the amount of principal to be retired in the next 10 years. — S&P: A payout ratio greater than 65% results in a one point positive qualitative adjustment to the Debt & Contingent Liabilities section • This ratio is an important metric that indicates whether or not a of S&P's General Obligation rating methodology. locality is back-loading its debt. • The County does not have a Financial Policy setting a minimum 10- Year Payout Ratio. COMPANY DAVENPORT 8L Source: LGC Bond Ledger,2016 CAFR,County Budget Documents,Moody's Investors Service,and S&P May 9,2017 Orange County, NC 12 Key Debt Ratio: Tax Supported Debt to Assessed Value ORANGE COUNTY NORTH CAROLINA Tax Supported Debt to Assessed Value TS Debt to Assessed Value Peer Comparative (Lower is Better) 3.50% Orange County(2017) 3.00% National'Aaa'Median 2.50% 2.00 NC'Aaa'Median - 1.50% Buncombe — Durham - 1.00 Forsyth 0.50% Guilford Mecklenburg 0.00% , ■ — — New Hanover �(b �1 �Q� �Cb �Q �Ny �0, �nj Union rQ r f 1Q lQ l �O �O wake 0.0 0.5 1.0 1.5 2.0 Existing Policy Percent • Existing Tax Supported Debt to Assessed Value ■ Rating Considerations: — FY 2017: 1.01% — Moody's: Criteria for General Obligation Credits defines categories of Debt to Assessed Values as: • Assumed Future Growth Rates — Very Strong (Aaa): < 0.75% — 2016 Assessed Value: $16,778,182,392 — Strong(Aa): 0.75%- 1.75% — 2017 Budgeted A.V.: $16,942,732,752 — Moderate (A): 1.75%- 4.00% — 2018 & Beyond: 1.70% — Weak - Very Poor (Baa and below): > 4.00% • The County has a Financial Policy setting a maximum Tax Supported — S&P: A positive qualitative adjustment is made to the Debt and Debt to Assessed Value of 3.0%. Contingent Liabilities score for a debt to market value ratio below 3.00%, while a negative adjustment is made for a ratio above 10.00%. DAVENPORT&COMPANY Source: LGC Bond Ledger,2016 CAFR,County Budget Documents,Moody's Investors Service,and S&P May 9,2017 Orange County, INC 13 Key Debt Ratio: Tax Supported Debt Service vs. ORANGE COUNTY Governmental Expenditures NORTH CAROLINA Tax Supported Debt Service vs. Governmental Expenditures TS Debt Service vs. Gov't Expenditures Peer Comparative (Lower is Better) 14% Orange County(2017) 12% National'Aaa'Median 10% 8 NC'Aaa'Median — 6% Buncombe Durham 4% Forsyth 2% Guilford ' ■ ■ - _ — — Mecklenburg 0% New Hanover NCO LA Llb �L°� ,gyp �, 3r1 3� union wake 0 5 10 15 20 25 ■ Existing Percent • Existing Tax Supported Debt Service vs. Governmental Expenditures ■ Rating Considerations: — FY 2017: 11.72% — Moody's: Moody's criteria allows for a scorecard adjustment if an issuer has very high or low debt service relative to its budget • Assumed Future Growth Rates Percent. — 2016 Adjusted Expenditures: $193,857,534 — 2017: 1.50% — 2018 & Beyond: 1.70% — S&P: The Debt and Contingent Liabilities section defines categories of Net Direct Debt as a /o of Total Governmental Funds • The County does not have a Financial Policy setting a maximum Tax Expenditures as follows: Supported Debt Service to Governmental Expenditures. However, the — Very Strong: <8% County has a policy setting a maximum Debt Service to General Fund — Strong: 8%to 15% Revenues of 15.0%. — Adequate: 15%- 25% — Weak: 25% - 35% Note: Governmental Expenditures represent the ongoing operating expenditures of the County.In this analysis,debt service and capital projects expenditures are excluded. — Very Weak: > 35% DAVENPORT&COMPANY Source: LGC Bond Ledger,2016 CAFR,County Budget Documents,Moody's Investors Service,and S&P May 9,2017 Orange County, INC 14 Key Debt Ratio: Tax Supported Debt Service vs. General = ORANGE COUNTY Fund Revenues NORTH CAROLINA Tax Supported Debt Service vs. General Fund Revenues TS Debt Service vs. General Fund Revenues (Lower is Better) 20% Orange County(2017) 18% 16% NC'Aaa'Median 14% 12% Buncombe 10% - — — — Durham 8% - — — — — Forsyth 6% - — — — - Guilford — — Mecklenburg 2% - — — — New Hanover 0% r— r—r Union I Oy Oti Oti 00' 00' Off' Off' Off' O� O� 00 00' 00' O� O� O� O� wake 0 5 10 15 20 25 iiiiiiiiiiiiiiiiiiiiiiiiiExisting Policy Percent • Existing Tax Supported Debt Service vs. General Fund Revenues ■ Note: Peer comparative is estimated based on data available through — FY 2017: 12.87% Moody's MFRA. • Assumed Future Growth Rates — 2017 Original Budget': $203,116,868 — 2018 Estimate 2: $209,221,031 — 2019 & Beyond: 2.00% • The County has a policy setting a maximum Tax Supported Debt Service to General Fund Revenues of 15.0%. 1 Excludes Fund Balance appropriation of$12,726,944. 2 Per County Staff. Excludes Fund Balance appropriation of$7,976,633. COMPANY DAVENPORT 8L Source: LGC Bond Ledger,2016 CAFR,County Budget Documents,and Moody's Investors Service May 9,2017 Orange County, NC 15 Debt Affordability Analysis ORANGE COUNTY NORTH CAROLINA Existing Debt A B C D E F G H I J K L M N 0 Debt Service Requirements Revenue Available for DS Debt Service Cash Flow Surplus D- ProposedClPand CIP General Fund Federal Internal Revenue from Estimated Existing Debt GO Referendum Operating Budgeted Debt QSCB Service Total Revenues Surplus/ Prior Tax Equiv. Capital Reserve Adjusted Surplus/ Incremental Tax Capital Reserve FY Service Debt Impact Total Service Subsidy' Vehicle Fund Available (Deficit) (Column N) Utilized (Deficit) Equivalent Fund Balance 2017 26,132,576 26,132,576 25,879,488 332,068 282,125 26,493,682 361,106 361,106 361,106 2018 25,562,017 25,562,017 25,879,488 299,182 283,263 26,461,934 899,917 899,917 1,261,022 2019 24,272,270 24,272,270 1 25,879,488 265,940 283,202 26,428,630 2,156,360 2,156,360 3,417,383 2020 22,926,315 22,926,315 1 25,879,488 232,697 285,422 26,397,608 3,471,293 3,471,293 6,888,675 2021 21,870,917 21,870,917 1 25,879,488 199,455 123,096 26,202,039 4,331,122 4,331,122 11,219,797 2022 21,117,095 21,117,095 1 25,879,488 166,212 122,451 26,168,152 5,051,057 5,051,057 16,270,854 2023 16,592,626 16,592,626 1 25,879,488 132,970 122,760 26,135,218 9,542,593 9,542,593 25,813,447 2024 12,826,703 12,826,703 25,879,488 99,727 - 25,979,216 13,152,513 13,152,513 38,965,960 2025 9,597,322 9,597,322 25,879,488 66,485 25,945,973 16,348,652 16,348,652 55,314,612 2026 7,160,699 7,160,699 25,879,488 33,242 25,912,731 18,752,032 18,752,032 74,066,644 2027 7,843,931 7,843,931 25,879,488 - 25,879,488 18,035,558 18,035,558 92,102,202 2028 2,942,835 2,942,835 25,879,488 25,879,488 22,936,654 22,936,654 115,038,855 2029 2,645,877 2,645,877 25,879,488 25,879,488 23,233,611 23,233,611 138,272,466 2030 2,105,800 2,105,800 25,879,488 25,879,488 23,773,688 23,773,688 162,046,154 2031 1,595,765 1,595,765 25,879,488 25,879,488 24,283,723 24,283,723 186,329,877 2032 1,154,868 1,154,868 25,879,488 - 25,879,488 24,724,621 24,724,621 211,054,498 2033 1,103,660 1,103,660 25,879,488 25,879,488 24,775,828 24,775,828 235,830,326 2034 - - 25,879,488 25,879,488 25,879,488 25,879,488 261,709,815 2035 25,879,488 25,879,488 25,879,488 25,879,488 287,589,303 2036 25,879,488 25,879,488 25,879,488 25,879,488 313,468,791 2037 25,879,488 25,879,488 25,879,488 25,879,488 339,348,280 2038 25,879,488 25,879,488 25,879,488 25,879,488 365,227,768 2039 25,879,488 25,879,488 25,879,488 25,879,488 391,107,256 2040 25,879,488 25,879,488 25,879,488 25,879,488 416,986,745 2041 25,879,488 25,879,488 25,879,488 25,879,488 442,866,233 2042 25,879,488 25,879,488 25,879,488 25,879,488 468,745,721 2043 25,879,488 25,879,488 25,879,488 25,879,488 494,625,210 Total Tax Effect 0.004 Total 207,451,2 76 207,451,276 Tota l 'Reduced 6.9%and beyond due to Federal Sequestration • FY 2018 Value of a Penny: $1,781,692 • Assumed FY 2019 & Beyond Growth Rate: 1.70% DAVENPORT&COMPANY May 9,2017 Orange County, NC 16 ORANGE COUNTY NORTH CAROLINA ��VA•pi•••4/I rifle DAVENPORT&COMPANY May 9,2017 Orange County, NC 17 September 2015 Overview - Bond Referendum Discussion ORANGE COUNTY NORTH CAROLINA Overview September 2015 Summary of Cases 1 & 2 • On September 10, 2015,the County Board held a retreat to review potential General Obligation Bond Referendum packages. 1 Case Description County CIP Only County CIP& $125 Million GO $125 Million GO Referendum Referendum 2 3 Assumptions • During that meeting, Davenport presented a series of potential 4 Interest Rate 3.75%-4.50% 3.75%-4.50% n/a cases which included: 5 Term 20 Years 20 Years n/a 6 GO Amortization Level Principal Level Principal n/a 7 Non-GO Debt Amortization Level Principal Level Principal n/a - Case 1: Existing County CIP Only 8 9 Debtlssued - Case 2: Existing County CIP and $125 of Referendum Projects 10 FY2016 $ 6,475,175 $ 6,475,175 $ - 11 FY 2017 23,985,200 65,651,867 41,666,667 - Case 3: Existing County CIP and $130 of Referendum Projects 12 FY 2018 28,563,031 28,563,031 - 13 FY 2019 3,967,500 45,634,167 41,666,667 - Case 4: Existing ount CIP and $135 of Referendum Projects 14 FY 2020 7,917,545 7,917,545 g Y � 15 FY 2021 32,936,845 74,603,512 41,666,667 16 Total Debt Issued $103,845,296 $228,845,296 $125,000,000 17 18 Total New Debt Service $148,909,738 $328,597,238 $179,687,500 ■ At the October 7, 2015 County Board meeting, the Board voted to 19 20 Debt Ratios Policy pursue a $125 million Bond Referendum for: 21 10 Year Payout(Worst Shown) N/A 73.6% 65.1% -8.4% 22 Debt to Assessed Value(Worst Shown) 3.00% 1.2% 1.6% 0.5% - School Projects - $120 Million 23 Debt Service toGF Revenues(2016-2023) 15.00% 24 FY 2016 12.7% 12.7% 0.0% 25 FY 2017 12.2% 12.2% 0.0% - Affordable Housing Projects - $5 Million 26 FY 2018 12.9% 14.4% 1.5% 27 FY 2019 13.1% 14.5% 1.4% 28 FY 2020 12.4% 15.2% 2.8% 29 FY 2021 11.9% 14.7% 2.7% ■ As part of the presentation on September 10, 2015,the CIP 30 FY 2022 12.7% 16.6% 3.9% 31 FY 2023 10.4% 14.2% 3.8% funding case that included the $125 million referendum resulted 32 in the following: 34 FY2016valentImpact 35 FY 2017 - - - - A required tax equivalent increase of 4.92 in FY 2018 or a 36 FY2018 0.654 2.784 2.134 total of 7.47 between FY 2018 and 2022. 37 FY 2019 0.994 0.904 0 38 FY 2020 1.454 1.45459 4 39 FY 2021 - - - - While the County was projected to be in compliance in all cases 40 FY 2022 2.354 2.354 41 Total 1.644 7.474 5.834 with its Debt Service to Assessed Value policy, the General Fund 42 Debt Service to General Fund Revenues exceed the policy in FY 43 One Time FY 2018 Tax Equivalent Impact 1.224 4.924 3.704 2020 and 2022. DAVENPORT&COMPANY May 9,2017 Orange County, NC 18 September 2015, Recommended 2017, and 2017 CIP Alternative #1 ORANGE COUNTY NORTH CAROLINA Overview Difference in Debt Funded Projects • The County adopts a 5 Year Capital Improvement Plan on an annual basis as part of its budget process. A a c D — The County identifies funding sources for each of the projects. 2017 CIP September 2015 Recommended — Proposed capital projects are reviewed and adjusted as Alternative #1 CIP Funding 2017 CIP Funding necessary each year. _ Funding 1 Debt Funded Projects • Since September 2015,the County has adopted the FY 2016-2017 2 2016 6,475,175 7,427,000 7,427,000 CIP and is currently in the process of reviewing the FY 2017-2018 3 2017 65,651,867 10,000,000 10,000,000 Cl P. 4 2018 28,563,031 67,683,272 66,283,272 5 2019 45,634,167 34,245,550 34,270,392 • As part of the adoption and development of these CIPs, a number 6 2020 7,917,545 76,995,092 66,270,311 7 2021 74,603,512 28,584,380 22,966,868 of items have changed and evolved since September 2015. 8 2022 - 58,017,330 67,335,304 9 Total ('16-'22) 228,845,297 282,952,624 274,553,147 • In addition to adjustments made to the projects included in the 10 CIP, a number of assumptions have been adjusted in the debt 11 Total ('17-'22) 222,370,122 275,525,624 267,126,147 funding model, including items such as: — Project amounts and timing to match the CIP, including one additional year of CIP projects. — The addition of short term financings for software, equipment, and similar projects. — Updated budget assumptions and growth rates for key drivers, including: — General Fund Revenues. — Assessed Value. — Value of a Penny. — In analyses where an upfront tax increase is calculated, the year of the tax increase was shifted from FY 2018 to FY 2019. • The following pages contain a summary of the debt issuance included in the current draft CIP and the associated impacts. DAVENPORT&COMPANY May 9,2017 Orange County, NC 19 Capital Improvement Plan — Case Overview ORANGE COUNTY NORTH CAROLINA • As part of the annual CIP process, the County identifies Capital Projects for potential debt funding. The CIP includes Installment Purchase Contracts/ Limited Obligation Bonds as well as General Obligation Bonds approved during the November 2016 Referendum. • Future debt is assumed to be funded under the following assumptions: — Issuance Date: Fiscal Year indicated in the CIP (mid year) — First Payment: Fiscal Year following issuance — Short-Term Borrowings: 5 Year Term at 2.25% - 3.00% — Medium-Term Borrowings: 15 Year Term at 3.25% — Long-Term Borrowings: 20 Year Term at 4.00% - 4.50% • Key Debt Ratio Growth Assumptions: — Assessed Value - Natural Growth: 2018 & Beyond: 1.70% — General Fund Revenues - Natural Growth: 2018 & Beyond: 2.00% plus revenue derived from projected tax increases identified in the capital funding plan (note: revenues include sales tax). DAVENPORT&COMPANY May 9,2017 Orange County, NC 20 2017 CIP Alternative #1 — Future Debt Financings ORANGE COUNTY NORTH CAROLINA Fiscal Year 2017 2018 2019 2020 2021 2022 Total Interest Rate Assumptions Short-Term Borrowings(5-Year) 2.25% 3.00% 3.00% 3.00% 3.00% 3.00% Medium-Term Borrowings(10-15-Year) 3.25% n/a n/a n/a n/a n/a Long-Term Borrowings(20-Year) n/a 4.00% 4.25% 4.50% 4.50% 4.50% 1 FY 2017 - 2022 County CIP 2 Short-Term Borrowings(5-Year)1 3 County Capital Projects $ 1,666,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 4,166,000 4 5 Medium-Term Borrowings(15-Year)2 6 County Capital Projects 7,334,000 - - - - - 7,334,000 7 School Capital Projects 1,000,000 1,000,000 s Total Medium-Term Borrowings (15-Year) 8,334,000 - - - - - 8,334,000 9 10 Long-Term Borrowings(20-Year)3 11 County Capital Projects - 18,426,936 28,308,300 17,497,417 8,234,380 12,742,330 85,209,363 12 School Capital Projects 4,856,336 4,914,181 4,972,894 5,032,488 4,092,974 23,868,873 13 School GO Referendum 40,000,000 - 40,000,000 - 40,000,000 120,000,000 14 Affordable Housing GO Referendum 2,500,000 - 2,500,000 - - 5,000,000 15 Durham Tech Capital Projects - 547,911 800,000 9,200,000 10,000,000 20,547,911 16 Total Long-Term Borrowings (20-Year) - 65,783,272 33,770,392 65,770,311 22,466,868 66,835,304 254,626,147 17 1s Total CIP $ 10,000,000 $ 66,283,272 $ 34,270,392 $ 66,270,311 $ 22,966,868 $ 67,335,304 $ 267,126,147 1 Beginning in FY 2017,future vehicle financings are assumed to be paid for from Vehicle Replacement Fund Internal Service Fees. 2 Assumed for borrowing amounts under$10 million. 3 Assumed for borrowing amounts over$10 million. Note: Per County Staff,the FY 2017 borrowing is anticipated to be$10 million.As such, $5,610,878 has been moved from FY 2017 to FY 2018. For purposes of this analysis, no changes have been made to short term or school capital projects. Note: 2/3 Bonds are assumed to be issued in FY 2018 to fund projects in FY 2018 and FY 2019. DAVENPORT&COMPANY May 9,2017 Orange County, NC 21 Summary of Results - 2017 CIP Alternative #1 ORANGE COUNTY NORTH CAROLINA Level Principal Amortization Existing Debt Only 2017-2022 CIP Assumptions Short-Term Medium-Term Long-Term Total 1 Interest Rate N/A 2.25%-3.00% 3.25% 4.00%-4.50% 2.25%-4.50% 2 Term N/A 5 Years 15 Years 20 Years 5/15/20 Years 3 Amortization N/A Level Debt Service Level Principal Level Principal LDS/Level Principal 4 5 Debt Issued 6 FY 2017 N/A $ 1,666,000 $ 8,334,000 $ - $ 10,000,000 7 FY 2018 N/A 500,000 - 67,826,936 68,326,936 8 FY 2019 N/A 500,000 31,726,728 32,226,728 9 FY 2020 N/A 500,000 65,770,311 66,270,311 10 FY 2021 N/A 500,000 22,466,868 22,966,868 11 FY 2022 N/A 500,000 - 66,835,304 67,335,304 12 Total Debt Issued N/A $ 4,166,000 $ 8,334,000 $254,626,147 $ 267,126,147 13 14 Total New Debt Service N/A $ 4,509,555 $ 10,500,840 $370,543,261 $ 385,553,656 15 16 Debt Ratios Policy 17 10 Year Payout(Worst Shown) N/A 89.7% 63.7% 63.7% 63.7% 18 Debt to Assessed Value(Worst Shown) 3.00% 1.0% 1.7% 1.7% 1.7% 19 Debt Service to GF Revenues(2017-2025) 15.00% No Adjustment Up Front Adjustment Incremental Adjustment 20 FY 2017 12.9% 12.9% 12.9% 12.9% 21 FY 2018 12.2% 12.8% 12.8% 12.8% 22 FY 2019 11.4% 14.8% 14.2% 14.5% 23 FY 2020 10.5% 15.2% 14.6% 14.8% 24 FY 2021 9.9% 17.2% 16.5% 16.3% 25 FY 2022 9.3% 17.4% 16.6% 16.4% 26 FY 2023 7.2% 17.6% 16.8% 16.5% 27 FY 2024 5.4% 15.3% 14.6% 14.4% 28 FY 2025 4.0% 13.4% 12.8% 12.6% 29 30 Tax Equivalent Impact 31 FY 2017 - - - - 32 FY 2018 - - 33 FY 2019 5.520 2.844 34 FY 2020 - 0.854 35 FY 2021 2.754 36 FY 2022 0.504 37 FY 2023 0.504 38 FY 2024 - - - 39 Total 0.00 0.00 5.52 7.44 40 41 Additional Existing Revenues/Reserves Required N/A $74,426,098 N/A N/A Note:2/3 Bonds are assumed to be issued in FY 2018 to fund projects in FY 2018 and FY 2019. DAVENPORT&COMPANY May 9,2017 Orange County, NC 22 Debt Affordability Analysis ORANGE COUNTY NORTH CAROLINA 2017 CIP Alternative #1 Debt - No Tax Adjustment A B C D E F G H I J K L M N 0 Debt Service Requirements Revenue Available for DS Debt Service Cash Flow Surplus D- ProposedClPand CIP General Fund Federal Internal Revenue from Estimated Existing Debt GO Referendum Operating Budgeted Debt QSCB Service Total Revenues Surplus/ Prior Tax Equiv. Capital Reserve Adjusted Surplus/ Incremental Tax Capital Reserve FY Service Debt Impact Total Service Subsidy' Vehicle Fund Available (Deficit) (Column N) Utilized (Deficit) Equivalent Fund Balance 2017 26,132,576 - 26,132,576 25,879,488 332,068 282,125 26,493,682 361,106 361,106 361,106 2018 25,562,017 1,182,480 26,744,497 25,879,488 299,182 283,263 26,461,934 (282,563) (282,563) - 78,543 2019 24,272,270 7,378,024 31,650,294 1 25,879,488 265,940 283,202 26,428,630 (5,221,664) (78,543) (5,143,121) - 2020 22,926,315 10,268,213 33,194,528 1 25,879,488 232,697 285,422 26,397,608 (6,796,920) (6,796,920) 2021 21,870,917 16,404,439 38,275,357 1 25,879,488 199,455 123,096 26,202,039 (12,073,318) (12,073,318) 2022 21,117,095 18,278,856 39,395,9511 25,879,488 166,212 122,451 26,168,152 (13,227,799) (13,227,799) 2023 16,592,626 23,961,699 40,554,324 1 25,879,488 132,970 122,760 26,135,218 (14,419,106) (14,419,106) 2024 12,826,703 23,282,478 36,109,1811 25,879,488 99,727 - 25,979,216 (10,129,965) (10,129,965) 2025 9,597,322 22,603,258 32,200,579 1 25,879,488 66,485 25,945,973 (6,254,606) (6,254,606) 2026 7,160,699 21,924,037 29,084,736 1 25,879,488 33,242 25,912,731 (3,172,005) (3,172,005) 2027 7,843,931 21,244,816 29,088,747 25,879,488 - 25,879,488 (3,209,259) (3,209,259) - 2028 2,942,835 20,565,596 23,508,430 25,879,488 25,879,488 2,371,058 2,371,058 2,371,058 2029 2,645,877 19,995,553 22,641,430 25,879,488 25,879,488 3,238,058 3,238,058 5,609,116 2030 2,105,800 19,425,509 21,531,310 25,879,488 25,879,488 4,348,178 4,348,178 9,957,295 2031 1,595,765 18,855,466 20,451,232 25,879,488 25,879,488 5,428,257 5,428,257 15,385,551 2032 1,154,868 18,285,423 19,440,291 25,879,488 25,879,488 6,439,198 6,439,198 21,824,749 2033 1,103,660 17,159,780 18,263,440 25,879,488 25,879,488 7,616,049 7,616,049 29,440,798 2034 - 16,607,793 16,607,793 25,879,488 25,879,488 9,271,695 9,271,695 38,712,493 2035 16,055,807 16,055,807 25,879,488 25,879,488 9,823,681 9,823,681 48,536,174 2036 15,503,821 15,503,821 25,879,488 25,879,488 10,375,667 10,375,667 58,911,841 2037 14,951,835 14,951,835 25,879,488 25,879,488 10,927,654 10,927,654 69,839,495 2038 14,399,848 14,399,848 25,879,488 25,879,488 11,479,640 11,479,640 81,319,135 2039 10,456,515 10,456,515 25,879,488 25,879,488 15,422,973 15,422,973 96,742,108 2040 8,453,847 8,453,847 25,879,488 25,879,488 17,425,642 17,425,642 114,167,750 2041 4,816,418 4,816,418 25,879,488 25,879,488 21,063,070 21,063,070 135,230,820 2042 3,492,145 3,492,145 25,879,488 25,879,488 22,387,344 22,387,344 157,618,164 2043 - - 25,879,488 25,879,488 25,879,488 25,879,488 183,497,652 Total Tax Effect 0.004 Total 207,451,276 385,553,656 593,004,931 Total (361,106) 'Reduced 6.9%and beyond due to Federal Sequestration • FY 2018 Value of a Penny: $1,781,692 ■ Note: Without a tax increase, the County is forecasted to have shortfalls from FY 2019 to 2027 totaling $74,426,098. • Assumed FY 2019 & Beyond Growth Rate: 1.70% DAVENPORT&COMPANY May 9,2017 Orange County, NC 23 Summary of Results - = ORANGE COUNTY 2017 CIP Alternative *1 with Structured Principal NORTH CAROLINA Existing Debt Only 2017-2022 CIP Assumptions Short-Term Medium-Term Long-Term Total 1 Interest Rate N/A 2.25%-3.00% 3.25% 4.00%-4.50% 2.25%-4.50% 2 Term N/A 5 Years 15 Years 20 Years 5/15/20 Years 3 Amortization N/A Level Debt Service Level Principal Structured Principal* LDS/Structured Principal* 4 5 Debt Issued 6 FY 2017 N/A $ 1,666,000 $ 8,334,000 $ - $ 10,000,000 7 FY 2018 N/A 500,000 - 67,826,936 68,326,936 8 FY 2019 N/A 500,000 31,726,728 32,226,728 9 FY 2020 N/A 500,000 65,770,311 66,270,311 10 FY 2021 N/A 500,000 22,466,868 22,966,868 11 FY 2022 N/A 500,000 - 66,835,304 67,335,304 12 Total Debt Issued N/A $ 4,166,000 $ 8,334,000 $ 254,626,147 $ 267,126,147 13 14 Total New Debt Service N/A $ 391,776,345 $ 391,134,694 15 16 Debt Ratios Policy 17 10 Year Payout(Worst Shown) N/A 89.7% 61.9% 62.2% 18 Debt to Assessed Value(Worst Shown) 3.00% 1.0% 1.8% 1.8% 19 Debt Service to GF Revenues(2017-2025) 15.00% Uo Front Adjustment Incremental Adjustment 20 FY 2017 12.9% 12.9% 12.9% 21 FY 2018 12.2% 12.8% 12.8% 22 FY 2019 11.4% 14.2% 14.5% 23 FY 2020 10.5% 14.4% 14.6% 24 FY 2021 9.9% 14.9% 15.0% 25 FY 2022 9.3% 14.9% 15.0% 26 FY 2023 7.2% 15.0% 15.0% 27 FY 2024 5.4% 15.0% 14.9% 28 FY 2025 4.0% 13.3% 13.1% 29 30 Tax Equivalent Impact 31 FY 2017 - - - 32 FY 2018 - - 33 FY 2019 5.524 2.844 34 FY 2020 - 0.854 35 FY 2021 2.754 36 FY 2022 0.504 37 FY 2023 0.504 38 FY 2024 - 39 Total 0.001 5.521 7.444 40 41 Additional Existing Revenues/Reserves Required N/A N/A N/A Note:2/3 Bonds are assumed to be issued in FY 2018 to fund projects in FY 2018 and FY 2019. *Subject to review and discussion with LGC Staff DAVENPORT&COMPANY May 9,2017 Orange County, NC 24 Observations / Items for Discussion ORANGE COUNTY NORTH CAROLINA • Orange County has formalized a series of Financial Policy Guidelines and has a formal CIP process in place. • Orange County has historically managed its debt in a conservative fashion, as evidenced by a strong 10 year Payout Ratio. — Note: This conservative debt structure contributes to a higher Debt Service to Budget Ratio. • Based on a series of conservative CIP projections/ assumptions, the 2017 CIP Alternative #1 results in a projected cash flow shortfall (after the FY 2018 borrowing) and the County is projected to exceed its Debt Service to General Fund Revenues Policy (after the FY 2020 borrowing). • The County has a number of options to consider as it relates to exceeding its policy and/or addressing cash flow shortfalls: — Consider delaying projects until they can be funded within the confines of the adopted policies. — Consider requesting alternative debt structuring flexibility from the LGC in order to fund the currently scheduled CIP projects within current policy limits and/or reduce cash flow shortfalls. — Implement tax rate adjustments to minimize/ eliminate cash flow shortfalls. — Consider amendments to County policies: — Change Policy Targets or Ratios. — Add provisions that allow for policy exceptions subject to Board review/ approval. DAVENPORT&COMPANY May 9,2017 Orange County, NC 25 Potential Next Steps ORANGE COUNTY NORTH CAROLINA • County Board reviews the current draft of the CIP and projected results. • County Board provides guidance on preferred option or options for addressing cash flow shortfalls and policy non-compliance. • Davenport and County staff develop potential alternative scenarios and present a series of options for the Board's consideration and feedback. • Final CIP developed and adopted by the County Board. DAVENPORT&COMPANY May 9,2017 Orange County, NC 26 ORANGE COUNTY NORTH CAROLINA Lo Details of Principal Structuring Cases DAVENPORT&COMPANY May 9,2017 Orange County, NC 27 Principal Structuring ORANGE COUNTY NORTH CAROLINA 2017 CIP Alternative #1 — Structured Principal with Upfront FY 2019 Tax Adjustment 2018 2019 2020 2021 2022 Total Total 67,826,936 31,726,728 65,770,311 22,466,868 66,835,304 254,626,147 2018 - - - - - - 2019 3,391,347 - - - - 3,391,347 2020 3,391,347 1,255,000 - - - 4,646,347 2021 3,391,347 1,255,000 - - - 4,646,347 2022 3,391,347 1,623,152 1111 - - 5,014,498 2023 3,391,347 1,623,152 3,000,000 8,014,498 2024 3,391,347 1,623,152 3,692,371 750,000 3,517,648 12,974,517 2025 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2026 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2027 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2028 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2029 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2030 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2031 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2032 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2033 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2034 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2035 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2036 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2037 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2038 3,391,347 1,623,152 3,692,371 1,277,463 3,517,648 13,501,980 2039 - 1,623,152 3,692,371 1,277,463 3,517,648 10,110,633 2040 - - 3,692,371 1,277,463 3,517,648 8,487,482 2041 - - - 1,277,463 3,517,648 4,795,110 2042 - - - - 3,517,648 3,517,648 Note: Cells in light blue represent structured principal periods and cells in light green represents interest only periods Note: Subject to review and discussion with LGC Staff. DAVENPORT&COMPANY May 9,2017 Orange County, NC 28 Principal Structuring ORANGE COUNTY NORTH CAROLINA 2017 CIP Alternative #1 — Structured Principal with Incremental Tax Adjustment 2018 2019 2020 2021 2022 Total Total 67,826,936 31,726,728 65,770,311 22,466,868 66,835,304 254,626,147 2018 - - - - - - 2019 3,391,347 - - - - 3,391,347 2020 3,391,347 1,108,900 - - - 4,500,247 2021 3,391,347 1,108,900 - - 4,500,247 2022 3,391,347 1,639,385 700,000 - 5,730,732 2023 3,391,347 1,639,385 3,615,017 8,645,749 2024 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2025 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2026 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2027 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2028 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2029 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2030 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2031 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2032 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2033 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2034 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2035 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2036 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2037 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2038 3,391,347 1,639,385 3,615,017 1,248,159 3,517,648 13,411,556 2039 - 1,639,385 3,615,017 1,248,159 3,517,648 10,020,209 2040 - - 3,615,017 1,248,159 3,517,648 8,380,824 2041 - - - 1,248,159 3,517,648 4,765,807 2042 - - - - 3,517,648 3,517,648 Note: Cells in light blue represent structured principal periods and cells in light green represents interest only periods Note: Subject to review and discussion with LGC Staff. DAVENPORT&COMPANY May 9,2017 Orange County, NC 29 MEW ' i ��VAAt•:4:iiirnirri�po �� 11\��\•:iii:••rr .i o 1 1�� \�\�p�ii•�iirniii�1�1\�\��\\ Charlotte Office Ted Cole Independence Center Senior Vice President 101 N. Tryon Street 804-697-2907 Suite 1220 Charlotte, NC 28246 tcole @investdavenport.com Richmond Office Mitch Brigulio One James Center First Vice President 901 East Cary Street 704-644-5414 11th Floor mbrigulio @investdavenport.com Richmond, VA 23219 Raleigh Office Glenwood Plaza 36905 Glenwood Ave. Suite 390 Raleigh, NC 27612 DAVENPORT&COMPANY May 9,2017 Orange County, NC 30 Municipal Advisor Disclosure ORANGE COUNTY NORTH CAROLINA The U.S.Securities and Exchange Commission(the"SEC")has clarified that a broker,dealer or municipal securities dealer engaging in municipal advisory activities outside the scope of underwriting a particular issuance of municipal securities should be subject to municipal advisor registration. Davenport&Company LLC("Davenport") has registered as a municipal advisor with the SEC.As a registered municipal advisor Davenport may provide advice to a municipal entity or obligated person.An obligated person is an entity other than a municipal entity,such as a not for profit corporation,that has commenced an application or negotiation with an entity to issue municipal securities on its behalf and for which it will provide support.If and when an issuer engages Davenport to provide financial advisory or consultant services with respect to the issuance of municipal securities, Davenport is obligated to evidence such a financial advisory relationship with a written agreement. When acting as a registered municipal advisor Davenport is a fiduciary required by federal law to act in the best interest of a municipal entity without regard to its own financial or other interests.Davenport is not a fiduciary when it acts as a registered investment advisor,when advising an obligated person,or when acting as an underwriter,though it is required to deal fairly with such persons. This material was prepared by public finance,or other non-research personnel of Davenport. This material was not produced by a research analyst,although it may refer to a Davenport research analyst or research report. Unless otherwise indicated,these views(if any)are the author's and may differ from those of the Davenport fixed income or research department or others in the firm. Davenport may perform or seek to perform financial advisory services for the issuers of the securities and instruments mentioned herein. This material has been prepared for information purposes only and is not a solicitation of any offer to buy or sell any security/instrument or to participate in any trading strategy. Any such offer would be made only after a prospective participant had completed its own independent investigation of the securities, instruments or transactions and received all information it required to make its own investment decision, including, where applicable,a review of any offering circular or memorandum describing such security or instrument. That information would contain material information not contained herein and to which prospective participants are referred. This material is based on public information as of the specified date,and may be stale thereafter. We have no obligation to tell you when information herein may change. We make no representation or warranty with respect to the completeness of this material. Davenport has no obligation to continue to publish information on the securities/instruments mentioned herein. Recipients are required to comply with any legal or contractual restrictions on their purchase,holding,sale,exercise of rights or performance of obligations under any securities/instruments transaction. The securities/instruments discussed in this material may not be suitable for all investors or issuers. Recipients should seek independent financial advice prior to making any investment decision based on this material. This material does not provide individually tailored investment advice or offer tax, regulatory,accounting or legal advice. Prior to entering into any proposed transaction, recipients should determine, in consultation with their own investment, legal,tax, regulatory and accounting advisors,the economic risks and merits,as well as the legal,tax, regulatory and accounting characteristics and consequences,of the transaction. You should consider this material as only a single factor in making an investment decision. The value of and income from investments and the cost of borrowing may vary because of changes in interest rates,foreign exchange rates,default rates,prepayment rates,securities/instruments prices,market indexes, operational or financial conditions or companies or other factors. There may be time limitations on the exercise of options or other rights in securities/instruments transactions. Past performance is not necessarily a guide to future performance and estimates of future performance are based on assumptions that may not be realized. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes or to simplify the presentation and/or calculation of any projections or estimates, and Davenport does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein. This material may not be sold or redistributed without the prior written consent of Davenport. Version 1.13.14 CH I MB I TC DAVENPORT&COMPANY May 9,2017 Orange County, NC 31