HomeMy WebLinkAboutAgenda - 05-16-2017 - 6-a - Amendments to the County’s Fund Balance Management Policy Regarding the General Fund Unassigned Fund Balance 1
ORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: May 16, 2017
Action Agenda
Item No. 6-a
SUBJECT: Amendments to the County's Fund Balance Management Policy Regarding the
General Fund Unassigned Fund Balance
DEPARTMENT: County Manager Office and
Finance and Administrative
Services
ATTACHMENT(S): INFORMATION CONTACT:
1. Excerpt of Approved Minutes from Bonnie Hammersley, 919-245-2300
September 8, 2016 Work Session Travis Myren, 919-245-2308
2. Orange County's Fund Balance Gary Donaldson, 919-245-2453
Management Policy Paul Laughton, 919-245-2152
3. Davenport Fund Balance Analysis
4. Financial Policies May 9, 2017
Work Session PowerPoint
PURPOSE: To consider amending the County's Fund Balance Management Policy to set the
unassigned fund balance for the General Fund at an amount lower than the current 17% level.
BACKGROUND: The Orange County Fund Balance Management Policy, adopted on April 11,
2011, states:
1. 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.
2. To the extent that the General Fund unassigned fund balance exceeds 17% percent, the
balances may be utilized to fund capital expenditures or pay down outstanding County
debt.
Staff provided information to the Board on June 16, 2016, September 8, 2016, and May 9, 2017
on the County's General Fund balance policy, best practices, and benchmarking with other peer
North Carolina counties. During the September 8, 2016 work session, the Board discussed
amending the 17% level to 16.2%.
At the May 9, 2017 work session, the BOCC further discussed the unassigned fund balance, a
possible revision to the 17% level, and directed staff to schedule additional Board discussion
and a potential decision for this May 16, 2017 regular meeting.
2
The Manager's FY 2017-18 Recommended Budget includes a fund balance appropriation of
$7,807,696 which was based on maintaining a 17% unassigned fund balance. The 16.2%
unassigned fund balance level discussed at the September 8, 2016 work session would result in
an additional one-time $1,651,338 for appropriation in the FY 2017-18 Budget and would
increase the fund balance appropriation to $9,459,034.
There was also discussion at the May 9, 2017 work session on whether a percent change
results in material recurring dollar amounts for appropriation in subsequent fiscal years. After
additional review of this question, it was determined that there is no material recurring dollar
amounts from the percent change. The table below illustrates this point and is consistent with
the Davenport attachment.
Unassigned Fund Balance Discussion on Subsequent Years Fiscal Impact
For Fiscal Year Ended June 30
General Fund 2017 Estimates 2018 2019 2020 2021 2022
Total Expenditures $ 206,417,275 $ 210,545,621 $214,756,533 $219,051,664 $ 223,432,697 $ 227,901,351
Unassigned Fund Balance
17% 35,090,937 35,792,755 36,508,611 37,238,783 37,983,558 38,743,230
16.2% 33,439,599 34,108,391 34,790,558 35,486,369 36,196,097 36,920,019
Difference 1,651,338 1,684,365 1,718,052 1,752,413 1,787,462 1,823,211
Fiscal Impact 1,651,338 33,027 33,687 34,361 35,048 35,749
Note: Assumes 2%Expenditure Growth Rate
$1,651,338 represents the additional amount to be added to$7,807,696 for FY 2017-18
If the Board selects a 16.2% unassigned fund balance level, the Manager recommends that the
additional $1,651,338 be used to fund:
School Improvements: $1,000,000
(Facility Improvements, Equipment and
Furnishings, & Vehicle and Bus Purchases)
County Operating Capital: 200,000
Board Amendments: 451,338
Total $1,651,338
FINANCIAL IMPACT: If the General Fund unassigned fund balance level was amended from
17% to 16.2%, an additional $1,651,338 would be available for inclusion in the FY2017-18
budget.
SOCIAL JUSTICE IMPACT: The following Orange County Social Justice Goal is applicable to
this item:
• GOAL: ENSURE ECONOMIC SELF-SUFFICIENCY
The creation and preservation of infrastructure, policies, programs and funding necessary
for residents to provide shelter, food, clothing and medical care for themselves and their
dependents.
RECOMMENDATION(S): The Manager recommends that the Board continue its review and
discussion of the County's unassigned fund balance for the General Fund as detailed in the
County's Fund Balance Management Policy and consider amending the Policy to set the
General Fund unassigned fund balance at a level between 16 and 17%.
Attachment 1 3
Excerpt of Approved Minutes
from September 8, 2016 1
Work Session
APPROVED 10/4/2016
MINUTES
ORANGE COUNTY BOARD OF COMMISSIONERS
Work Session
September 8, 2016
7:00 p.m.
The Orange County Board of Commissioners met in a work session on Thursday, September
8, 2016 at 7:00 p.m. at the Southern Human Services Center, in Chapel Hill, N.C.
COUNTY COMMISSIONERS PRESENT: Chair McKee and Commissioners Mia Burroughs,
Mark Dorosin, Barry Jacobs, Bernadette Pelissier, and Penny Rich
COUNTY COMMISSIONERS ABSENT: Commissioner Price
COUNTY ATTORNEYS PRESENT: John Roberts
COUNTY STAFF PRESENT: County Manager Bonnie Hammersley, Deputy Manager Travis
Myren and Clerk to the Board Donna Baker (All other staff members will be identified
appropriately below)
Vice Chair Commissioner Dorosin called the meeting to order at 7:02 p.m. He said
Chair McKee will be a little late this evening.
Chair McKee arrived at 7:05 p.m.
1. Discussion of the Proposed Orange County FY 2016 -2020 Affordable Housing
Strategic Plan
Bonnie Hammersley said the goal this evening is for staff to facilitate conversation.
Chair McKee said he spoke with Commissioner Elect Marcoplos about being a part of
this year's retreat planning committee, and he decided not to be seated as part of this
committee this year.
Chair McKee said the retreat planning committee will consist of himself, Commissioner
Jacobs and Commissioner Price.
Audrey Spencer Horsley, Director of Housing, Human Rights, and Community
Development, made the following PowerPoint presentation:
Affordable Housing Strategic Plan
2016 —2020
Purpose of Work Session
• Follow-up to the Board's Questions and Discussions on the Plan
• Consider Approval for Staff to Prepare the Final Draft of the Orange County Affordable
Housing Strategic Plan: 2016 - 2020 for the Board's Adoption
What is the Affordable Housing GAP in Orange County and Special Needs?
• Income and Poverty
• Rental and Owner Occupied Housing Stock and Housing Costs
• Cost Burden
• Housing for Special Needs, Persons with Disabilities, Seniors, Homeless, etc.
• Other Housing Problems
4
15
Bonnie Hammersley referred to the multi-jurisdictional staff team, and said they are
looking at the environmentals of the Greene Tract site, which she shared with the Town
Managers.
Chair McKee suggested bringing this back to the Assemblies of Governments (AOG),
which would afford the opportunity to gauge the buy-in from all involved. He echoed
Commissioners Rich and Jacobs' comments that only placing affordable housing in this area is
irresponsible. He said there must be commercial as well.
Bonnie Hammersley said presenting to the AOG would be at the discretion of the
Board. She said the work group has talked about the work that the Rogers-Eubanks
Neighborhood Association (RENA) has done on this, and when she gets this report she will
share it with the Board of County Commissioners.
Commissioner Pelissier endorsed Chair McKee's suggestion to add this topic to the
AOG. She said this issue has to move forward.
Commissioner Burroughs said there are now only two places left for elementary
schools: the Greene Tract and Carolina North sites, with the latter being shaky. She said part
of the goal of the bond is to increase capacity in the schools. She said growth will continue,
and the Greene Tract may be an option.
Commissioner Jacobs thanked the Manager and staff for their work on this item.
Commissioner Jacobs reiterated the previous suggestion of the County buying out its
partners in this site, if they are not interested in pursuing something on it.
Commissioner Rich said she thinks people are ready to move forward with the Greene
Tract.
Commissioner Dorosin asked if the next step could be identified.
Craig Benedict said as of now the 2002 resolution is firm, but a discussion on how to
change the original resolution could be done at the AOG. He said staff cannot move forward
to suggest other uses until the 2002 resolution is changed, but staff can start plotting out
options to propose at the AOG.
Craig Benedict said it is good to hear from the community, and a report from the
Jackson Center will offer this insight.
Commissioner Dorosin said the Board will receive the report from the Jackson Center
and asked if the next step would be for all local governments to get together to discuss, or if
Orange County should propose a change option for local governments to discuss.
Commissioner Dorosin suggested getting the Jackson Center report next week and
bringing it back for discussion as part of decision tree options presented in the PowerPoint.
Commissioner Jacobs agreed. He suggested putting an action item on one of the
Board's agendas about a conservation easement for the 60-acre site.
Commissioner Rich said a timeframe must be put on everything.
Chair McKee said to get an action item for Commissioner Jacobs' request, and options
for the other parcel, put on an upcoming agenda.
Bonnie Hammersley said the 60 acres can be done anytime, and she will update all
Town Managers about this evening's discussion.
Chair McKee said a decision on the 60 acres will set a tone from the Board, and he
would like to make this decision sooner rather than later.
Chair McKee said to put options in another report, or agenda item, to discuss,
and feedback can be gathered at AOG.
> 3. General Fund Unassigned Fund Balance Policy- 9:45PM
Gary Donaldson, Chief Financial Officer, said they met with the schools to develop a 5-
year plan for the fund balance.
5
16
Gary Donaldson made the following PowerPoint presentation:
Work Session Update on Appropriate Level of Unassigned Fund Balance
Presentation to Orange County Board of County Commissioners
Gary Donaldson, Chief Financial Officer
September 8, 2016
Regular Finance Updates to BOCC and Manager
➢ Financial Reporting
• Quarterly Financial Report Provide General Fund Reserve Updates as part of
regular financial reporting
• New Five Year Financial Plan Provide County General Fund balance
information as part of the long-term financial planning
Best Practices for Unassigned General Fund Balance
➢ The Government Finance Officers Association (GFOA) of U.S. and Canada:
• Updated the Best Practice on unassigned general fund balances in 2009
• At a minimum an unassigned general fund balance of no less than 2 months of
regular general fund operating revenues or operating expenditures
• Equates to 16.7% of either general fund operating revenues or operating
expenditures
Appropriate Use of Unassigned General Fund Balance
➢ The essential uses of General Fund reserves:
• Mitigate risk attributed to revenue shortfalls or unanticipated non-recurring
expenditures
• Provide a financial bridge during recessions or weak economic conditions
• Use for natural disasters and emergencies
• Cash Balance cushion
S&P Scorecard (chart)
Moody's Scorecard (chart)
The Ten `AAA' Rated Counties of North Carolina (chart)
General Obligation Bond Rating Scale (chart)
Audited Unassigned Fund Balance as a Percent of Expenditures—General Fund (graph)
Best Practice Unassigned Fund Balance
➢ In Summary
• GFOA Recommends Unassigned Fund Balance at 2 Months of Expenditures or
16.7%
• North Carolina AAA Rated County Peers Maintain at Least 2 Months; one
exception
• Strong Fund Balance provides Financial Bridge in Recession and Emergencies
6
17
General Fund Cash flow
Gary Donaldson said the long term financial plan is a better narrative, and the fund
balance becomes a part of this.
Commissioner Rich asked Gary Donaldson if he believes the County needs a fund
balance policy.
Gary Donaldson said yes, because the rating agencies weight it highly.
Chair McKee asked if, in his professional opinion, the fund balance should stay at 17%.
Gary Donaldson said when the current audit is concluded, there will be a clearer part of
the picture; and when a 5-year financial plan is developed, the question will be better
answered. He said he thinks 17% is a good level.
Commissioner Dorosin asked if any analysis was done prior to the balance being set at
17%. He clarified that Gary Donaldson is suggesting that the amount should be set by
financial projection and other variables.
Gary Donaldson said a plan is simply a plan, and the rating agencies will not
necessarily view a deviation from said plan as a negative. He said in his view, two months of
expenditures should be the model.
Commissioner Dorosin said the Local Government Commission (LGC) requires 8% and
the Government Finance Officers Association (GFOA) says 16%, the latter of which he thinks
to be overly conservative. He said the Board should consider lowering it. He knows there is a
financial aspect to this, but he likens it to a personal savings account, which one uses when
one needs it. He said he does think a policy is needed, but he finds the current fund balance
of 18% to be too high.
Gary Donaldson said when the audit results are received, and a 5-year financial plan
created, it will be easier to determine what the fund balance should be. He said a draft 5-year
plan will be completed by January 2017.
Bonnie Hammersley said the rating agencies want policies and 5-year financial
forecasts, but it is up to the elected officials to determine the policies. She said the
organization must be sustainable, which is dependent on economic, environmental and social
factors. She said no one knows the magic number, but if there are policies in place and the
County is sustainable, then the number is what the elected officials want it to be.
Commissioner Jacobs said the decision to be fiscally conservative was made to
navigate the recession years ago, but there have been surpluses every year since. He said
there has to be a relationship to interest rates. He said it does seem reasonable to change the
fund balance amount now.
Commissioner Jacobs said he would not want this to be a floating target, and having
enough for two months expenditures is a starting point for a discussion.
Commissioner Burroughs said it does not take a large change to get some revenue.
Commissioner Dorosin said when people are being taxed, and there is an annual
surplus, it is unfair. He said there are additional needs, for which the funds could be used.
Commissioner Burroughs said the Manager and staff have worked hard to tighten the
budget, and there is still an overage.
Bonnie Hammersley said, over the last two budgets, she has been able to use some of
the surplus for the betterment of the County. She said she adjusts the budget to what is
available, and there are controls in place to follow the policy. She said the policy sets a rule to
follow.
Commissioner Dorosin suggested lowering the fund balance to 16.2%.
Chair McKee said he would not oppose going to this rate, but he sees two issues: the
fund balance, and the excess fund balance that exists each year. He said it is a question of
7
18
spending it on the front end, or spending on the back end, as the fund balance always seems
to get fed back in to the next budget. He said if the balance is moved to 16.2%, then next year
there will be $1 million to reduce taxes or spend. He asked if there is a million dollars savings
in the first year only, or every year going forward.
Gary Donaldson said the fund balance is appropriated.
Chair McKee clarified that the fund balance is only appropriated down to 17%.
Bonnie Hammersley said yes.
Gary Donalson said after the fund balance is appropriated, a projection is done in terms
of how that metric aligns with the policy. He said this exercise happens each year.
Chair McKee said he still does not understand an answer to his original question as to
whether there will be savings every year.
Gary Donaldson said there will be revenues and expenditures every year, and there
has always been an appropriation of some level of fund balance. He said there is a target
percentage that will be adhered to, and there will be a continuing savings every year.
Commissioner Pelissier said the $1 million will not seem like a lot going forward, and it
will not stretch as far in the years to come. She said there will always be more requests and
additional monies needed.
Chair McKee said his reservation is simple: he fears that the Board is doing the
standard government tactic of grasping for more money to spend.
Commissioner Burroughs said it will be a million more dollars of services that the Board
will be able to provide, and that is the Board's job. She said there are needs for which more
money must be grasped.
Commissioner Rich said the excess money will be worked into the new budget, and the
Board will spend the money up front rather than at the end of the budget.
Commissioner Jacobs agreed with Chair McKee. He said government spending is like
an accordion that expands and contracts, depending on external pressures or political will. He
said the more easily it can expand, the more likely money is going to be spent. He said the
only way to deal with that is to be rigorous in discussion and understanding of the burden of
taxation.
Chair McKee said he would be comfortable with a half percent drop. He said when
working in government, one can never know what tomorrow will bring, and he would prefer to
have a rainy day account. He would not want to see a pattern develop where the fund balance
gets lowered every few years.
Commissioner Burroughs asked if there is consensus on 16.2%.
Chair McKee said he heard no objection and asked if staff could bring this item back in
November.
4. Adjournment
A motion was made by Commissioner Rich seconded by Commissioner Burroughs to
adjourn the meeting at 10:26 p.m.
VOTE: UNANIMOUS
Earl McKee, Chair
Donna Baker
Clerk to the Board
Attachment 2 8
April 5, 2011
ORANGE COUNTY BOARD OF COMMISSIONERS
FUND BALANCE MANAGEMENT POLICY
The Fund Balance Management Policy is intended to address the needs of Orange County
(County), in the event of unanticipated and unavoidable occurrences which could adversely
affect the financial condition of the County and thereby jeopardize the continuation of
necessary public services. This policy will ensure the County maintains adequate fund
balance and reserves in the County's Governmental Funds to provide the capacity to:
1. Provide sufficient cash flow for daily financial needs,
2. Secure and maintain investment grade bond ratings,
3. Offset significant economic downturns or revenue shortfalls, and
4. Provide funds for unforeseen expenditures related to emergencies.
Fund Balance for the County's Governmental Funds will be comprised of the following
categories:
1. Nonspendable - amounts that cannot be spent because they are either (a) not in
spendable form or (b) legally or contractually required to be maintained intact.
2. Restricted — amounts externally imposed by creditors (debt covenants), grantors,
contributors, laws, or regulations of other governments.
3. Committed — amounts used for a specific purpose pursuant to constraints imposed by
formal action of the government's highest level of decision-making authority.
a. Amounts set aside based on self-imposed limitations established and set in place
prior to year-end, but can be calculated after year end.
b. Limitation imposed at highest level and requires same action to remove or modify
c. Ordinances that lapse at year-end
4. Assigned - amounts that are constrained by the government's intent to be used for
specific purposes, but are neither restricted nor committed.
5. Unassigned — amounts that are not reported in any other classification.
The General Fund will be the only fund that will have an unassigned fund balance. The
Special Revenue Funds and Capital Project funds will consist of only nonspendable,
restricted, committed and assigned categories of fund balance.
Unassigned Fund Balance — General Fund
Orange County has adopted a fiscal policy that provides for capital projects to be financed with
debt and pay-as-you-go funding. In order to obtain the best possible financing, the County has
adopted policies designed to maintain bond ratings at or better than AAA (Fitch), Aa2 (Moody's
Investor Services) and AA+ (Standard & Poor's). Part of the County's fiscal health is
maintaining a fund balance position that rating agencies feel is adequate to meet the County's
needs and challenges.
9
April 5, 2011
Orange County has therefore adopted a policy that requires management to maintain an
unassigned balance as follows:
1. 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.
2. To the extent that the General Fund unassigned fund balance exceeds 17% percent, the
balances may be utilized to fund capital expenditures or pay down outstanding County
debt.
3. The County's budget and revenue spending policy provides for programs with
multiple revenue sources. The Financial Services Director will use resources in the
following hierarchy: bond proceeds, Federal funds, State funds, local non-county
funds, county funds. For purposes of fund balance classification, expenditures are
to be spent from restricted fund balance first, followed in-order by committed fund
balance, assigned fund balance, and lastly, unassigned fund balance. The Financial
Services Director has the authority to deviate from this policy if it is in the best
interest of the County with Board of County Commissioner's approval.
4. Management is expected to manage the budget so that revenue shortfalls and
expenditure increases do not impact the County's total unassigned fund balance. If a
catastrophic economic event occurs that requires a 10% or more deviation from total
budgeted revenues or expenditures, then unassigned fund balance can be reduced
by action from the Board of County Commissioners; the Board also will adopt a plan
of action to return spendable fund balance to the required level.
Enterprise Funds - (Solid Waste, Efland Sewer, and the Orange County Sportsplex) — The
County will strive to maintain unrestricted net assets greater than 8% of total operating
revenues at fiscal year-end, net of any donated assets recognized, to provide reserves for
operations and future capital improvements.
Restrictions, reservations, and designations of Net Assets for Enterprise Funds
For external reporting purposes, net assets will be reported as restricted or unrestricted in
accordance with GAAP. For internal purposes, net assets will be reserved or designated as
follows:
1. Encumbered balances to continue existing projects are designated.
2. Designations for funding of planned projects in a future period to reduce the financial
demands placed upon a subsequent budget.
Internal Service Funds — Dental Insurance Fund - total net assets shall maintain a positive
balance to illustrate the internal nature of recovery fees for services performed in self-insuring
employees of the County. Additionally, the net assets of the fund will demonstrate adequate
funding for incurred, but not reported claims.
10
April 5, 2011
Rescission
This policy supersedes any policy in place prior to this date.
April 5, 2011
11
Attachment 3
General Fund Balance Discussion Materials
Orange County, North Carolina
ORANGE COUNTY
NORTH CAROLINA
May 16, 2017
DAVENPORT & COMPANY
Member NYSE I FIN RA I SIPC
Contents / Agenda ORANGE COUNTY
NORTH CAROLINA
General Fund Balance Policy Discussion
' General Fund Balance Peer Comparatives
DAVENPORT&COMPANY
May 16,2017 Orange County, NC 1
ORANGE COUNTY
NORTH CAROLINA
pie :111
mg
'aqj
1 HIM
DAVENPORT&COMPANY
May 16,2017 Orange County, NC 2
General Fund Balance Policy Analysis ORANGE COUNTY
NORTH CAROLINA
17.o% Fund Balance Policy and o% Future Expenditure Growth
A B C D F G H
Change in
Total Reserve Reserve Beginning Unassigned Ending
Fiscal Fund Balance
Expenditures - Requirement % Requirement Unassigned to Equal Unassigned
Year 0% Growth (Policy) ($) Fund Balance Balance
Reserve
Requirement
20171 206,417,275 17.00% 35,090,937 35,290,621
2018 206,417,275 17.00% 35,090,937 35,290,621 (199,684) 35,090,937
2019 206,417,275 17.00% 35,090,937 35,090,937 - 35,090,937
2020 206,417,275 17.00% 35,090,937 35,090,937 - 35,090,937
2021 206,417,275 17.00% 35,090,937 35,090,937 - 35,090,937_
2022 206,417,275 17.00% 35,090,937 35,090,937 - 35,090,937
2023 206,417,275 17.00% 35,090,937 35,090,937 - 35,090,937
2024 206,417,275 17.00% 35,090,937 35,090,937 - 35,090,937
2025 206,417,275 17.00% 35,090,937 35,090,937 - 35,090,937
2026 206,417,275 17.00% 35,090,937 35,090,937 - 35,090,937
2027 206,417,275 17.00% 35,090,937 35,090,937 - 35,090,937
2028 206,417,275 17.00% 35,090,937 35,090,937 - 35,090,937
2029 206,417,275 17.00% 35,090,937 35,090,937 - 35,090,937
2030 206,417,275 17.00% 35,090,937 35,090,937 - 35,090,937
2031 206,417,275 17.00% 35,090,937 35,090,937 - 35,090,937
1 FY 2017 estimated Expenditures and Unassigned Fund Balance per County Staff.
DAVENPORT&COMPANY
May 16,2017 Orange County, NC 3
General Fund Balance Policy Analysis ORANGE COUNTY
NORTH CAROLINA
16.2% Fund Balance Policy and o% Future Expenditure Growth
A B C D F G H
Change in
Total Reserve Reserve Beginning Unassigned Ending
Fiscal Fund Balance
Expenditures - Requirement % Requirement Unassigned to Equal Unassigned
Year 0% Growth (Policy) ($) Fund Balance Balance
Reserve
Requirement
20171 206,417,275 16.20% 33,439,599 35,290,621
2018 206,417,275 16.20% 33,439,599 35,290,621 (1,851,022) 33,439,599
2019 206,417,275 16.20% 33,439,599 33,439,599 - 33,439,599
2020 206,417,275 16.20% 33,439,599 33,439,599 - 33,439,599
2021 206,417,275 16.20% 33,439,599 33,439,599 - 33,439,599
2022 206,417,275 16.20% 33,439,599 33,439,599 - 33,439,599
2023 206,417,275 16.20% 33,439,599 33,439,599 - 33,439,599
2024 206,417,275 16.20% 33,439,599 33,439,599 - 33,439,599
2025 206,417,275 16.20% 33,439,599 33,439,599 - 33,439,599
2026 206,417,275 16.20% 33,439,599 33,439,599 - 33,439,599
2027 206,417,275 16.20% 33,439,599 33,439,599 - 33,439,599
2028 206,417,275 16.20% 33,439,599 33,439,599 - 33,439,599_
2029 206,417,275 16.20% 33,439,599 33,439,599 - 33,439,599_
2030 206,417,275 16.20% 33,439,599 33,439,599 - 33,439,599
2031 206,417,275 16.20% 33,439,599 33,439,599 - 33,439,599
1 FY 2017 estimated Expenditures and Unassigned Fund Balance per County Staff.
DAVENPORT&COMPANY
May 16,2017 Orange County, NC 4
General Fund Balance Policy Analysis ORANGE COUNTY
NORTH CAROLINA
17.o% Fund Balance Policy and 2% Future Expenditure Growth
A B C D F G H
Change in
Total Reserve Reserve Beginning Unassigned Ending
Fiscal Fund Balance
Expenditures - Requirement % Requirement Unassigned to Equal Unassigned
Year 2% Growth (Policy) ($) Fund Balance Balance
Reserve
Requirement
20171 206,417,275 17.00% 35,090,937 35,290,621
2018 210,545,621 17.00% 35,792,755 35,290,621 502,134 35,792,755
2019 214,756,533 17.00% 36,508,611 35,792,755 715,855 36,508,611
2020 219,051,664 17.00% 37,238,783 36,508,611 730,172 37,238,783
2021 223,432,697 17.00% 37,983,558 37,238,783 744,776 37,983,558_
2022 227,901,351 17.00% 38,743,230 37,983,558 759,671 38,743,230_
2023 232,459,378 17.00% 39,518,094 38,743,230 774,865 39,518,094
2024 237,108,565 17.00% 40,308,456 39,518,094 790,362 40,308,456
2025 241,850,737 17.00% 41,114,625 40,308,456 806,169 41,114,625
2026 246,687,751 17.00% 41,936,918 41,114,625 822,293 41,936,918
2027 251,621,506 17.00% 42,775,656 41,936,918 838,738 42,775,656
2028 256,653,937 17.00% 43,631,169 42,775,656 855,513 43,631,169_
2029 261,787,015 17.00% 44,503,793 43,631,169 872,623 44,503,793_
2030 267,022,756 17.00% 45,393,868 44,503,793 890,076 45,393,868
2031 272,363,211 17.00% 46,301,746 45,393,868 907,877 46,301,746
1 FY 2017 estimated Expenditures and Unassigned Fund Balance per County Staff.
DAVENPORT&COMPANY
May 16,2017 Orange County, NC 5
�-00-om"W"-- 7
General Fund Balance Policy Analysis ORANGE COUNTY
NORTH CAROLINA
16.2% Fund Balance Policy and 2% Future Expenditure Growth
A B C D F G H
Change in
Total Reserve Reserve Beginning Unassigned Ending
Fiscal Fund Balance
Expenditures - Requirement % Requirement Unassigned to Equal Unassigned
Year 2% Growth (Policy) ($) Fund Balance Balance
Reserve
Requirement
20171 206,417,275 16.20% 33,439,599 35,290,621
2018 210,545,621 16.20% 34,108,391 35,290,621 (1,182,230) 34,108,391
2019 214,756,533 16.20% 34,790,558 34,108,391 682,168 34,790,558
2020 219,051,664 16.20% 35,486,369 34,790,558 695,811 35,486,369
2021 223,432,697 16.20% 36,196,097 35,486,369 709,727 36,196,097
2022 227,901,351 16.20% 36,920,019 36,196,097 723,922 36,920,019
2023 232,459,378 16.20% 37,658,419 36,920,019 738,400 37,658,419
2024 237,108,565 16.20% 38,411,588 37,658,419 753,168 38,411,588
2025 241,850,737 16.20% 39,179,819 38,411,588 768,232 39,179,819
2026 246,687,751 16.20% 39,963,416 39,179,819 783,596 39,963,416
2027 251,621,506 16.20% 40,762,684 39,963,416 799,268 40,762,684
2028 256,653,937 16.20% 41,577,938 40,762,684 815,254 41,577,938_
2029 261,787,015 16.20% 42,409,496 41,577,938 831,559 42,409,496_
2030 267,022,756 16.20% 43,257,686 42,409,496 848,190 43,257,686
2031 272,363,211 16.20% 44,122,840 43,257,686 865,154 44,122,840
1 FY 2017 estimated Expenditures and Unassigned Fund Balance per County Staff.
DAVENPORT&COMPANY
May 16,2017 Orange County, NC 6
��+ 8
z
General Fund Balance Policy Analysis - Summary ORANGE COUNTY
NORTH CAROLINA
Change in Unassigned Fund Balance to Equal Reserve Requirement
A B C D E F G
Expenditure Growth 0.00% General Fund Expenditure Growth 2.00% General Fund Expenditure Growth
Fund Balance
Policy Target
17.00% 16.20% Difference 17.00% 16.20% Difference
Fiscal Year
2018 (199,684) (1,851,022) 1,651,338 502,134 (1,182,230) 1,684,365
2019 - - - 715,855 682,168 33,687
2020 - - - 730,172 695,811 34,361
2021 - - - 744,776 709,727 35,048
2022 - - - 759,671 723,922 35,749
2023 - - - 774,865 738,400 36,464
2024 - - - 790,362 753,168 37,194
2025 _ - - - 806,169 768,232 37,937
2026 _ - - - 822,293 783,596 38,696
2027 - - - 838,738 799,268 39,470
2028 - - - 855,513 815,254 40,259
2029 - - - 872,623 831,559 41,065
2030 - - - 890,076 848,190 41,886
2031 - - - 907,877 865,154 42,724
■ The figures shown in the chart above represent the change in Unassigned Fund Balance necessary to equal the County's Unassigned Fund
Balance Policy. Negative numbers represent Unassigned Fund Balance available to be spent, while positive numbers represent additional funds
required.
DAVENPORT&COMPANY
May 16,2017 Orange County, NC 7
z
ORANGE COUNTY
NORTH CAROLINA
OWN-
ISNV .
DAVENPORT&COMPANY
May 16,2017 Orange County, NC 8
0
General Fund Balance ORANGE COUNTY
NORTH CAROLINA
General Fund Balance
General Fund Balance as a %of Expenditures
2012 2013 2014 2015 2016
1 General Fund Budget 40.00% -
2 Revenues 184,453,147 186,502,452 194,549,600 201,401,718 204,151,009
3 Expenditures 166,795,780 170,496,718 179,425,656 192,078,545 198,146,472 35.00%
4
5 General Fund Balance 30.00%
6 Nonspendable 34,734 39,954 29,242 20,306 16,669
7 Restricted 9,320,587 9,736,214 12,102,492 11,255,821 12,144,573 25.00%
8 Committed 145,919 3,105,267 6,001,641 7,543,841 7,543,841
9 Assigned 3,212,872 5,190,118 10,068,343 10,650,770 12,726,944 20.00% -
10 Unassigned 35,145,394 36,608,054 33,913,229 35,548,843 32,034,160
11 Total 47,859,506 54,679,607 62,114,947 65,019,581 64,466,187 15,00%
12
13 Available' 47,824,772 54,639,653 62,085,705 64,999,275 64,449,518 10,000/0
14
15 General Fund Balance Ratios 5.00%
16 Unassigned as a%of Revenues 19.05% 19.63% 17.43% 17.65% 15.69%
17 Unassigned as a%of Expenditures 21.07% 21.47% 18.90% 18.51% 16.17% 0,00%
18 Available as a%of Revenues 25.93% 29.30% 31.91% 32.27% 31.57%
19 Available as a%of Expenditures 28.67% 32.05% 34.60% 33.84% 32.53% 2012 2013 2014 2015 2016
20 Total General Fund Balance as a%of Revenues 25.95% 29.32% 31.93% 32.28% 31.589/
21 Total General Fund Balance as a%of Expenditures 28.69% 32.07% 34.62% 33.85% 32.53% -K-Unassigned -I-Available Total
22'Includes Restricted-Stabilizabon by State Statute,Committed,Assigned,and Unassigned Fund Balance
Policy Target Policy Floor
■ In April 2011, the County adopted a policy that the County will General Fund Balance as a %of Revenues
strive to maintain an unassigned fund balance in the General Fund
35.00% -
of 17% percent of budgeted general fund operating expenditures
each fiscal year. 30.00% -
- The amount of unassigned fund balance maintained during 25.00°x°
each fiscal year should not fall below 8% percent of budgeted 20.00%
general fund operating expenditures, as recommended by the
North Carolina Local Government Commission. 15.00°x°
10.00%
5.00%
0.00%
2012 2013 2014 2015 2016
Unassigned --m-Available Total
DAVENPORT&COMPANY Source: County CAFRs
May 16,2017 Orange County, NC 9
General Fund Balance — Peer Comparatives ORANGE COUNTY
NORTH CAROLINA
Total General Fund Balance Total RatingAgency Available General Fund Balance 1 Total Unassigned General Fund Balance
Orange County(2016) Orange County(2016) I Orange County(2016)
National'Aaa'Median National'Aaa'Median National'Aaa'Median
NC'Aaa'Median NC'Aaa'Median NC'Aaa'Median
Buncombe Buncombe Buncombe
Durham Durham
Forsyth Forsyth Durham
Guilford Guilford
Forsyth
Mecklenburg Mecklenburg Guilford
New Hanover New Hanover Mecklenburg
Union Union New Hanover
Wake Wake Union
0 50 100 150 200 0 50 100 150 200 0 50 100 150 200
Millions Millions M i I lions
Do I lars($) Do I tars($) Doi lars($)
Total General Fund Balance as %of Revenues RatingAgencyAvai lab leFund Balance as a%of Revenues 1 Unassigned Fund Balance as a%of Revenues
Orange County(2016) Orange County(2016) Orange County(2016) I`
Orange County Policy
National'Aaa'Median National'Aaa'Median
National'Aaa'Median
NC'Aaa'Median NC'Aaa'Median
NC'Aaa'Median
Buncombe Buncombe E I
Durham Durham Buncombe
Forsyth Forsyth Durham
Guilford Guilford Forsyth
Mecklenburg Mecklenburg Guilford
New Hanover New Hanover Mecklenburg
Union Union New Hanover
Wake Wake Union
0.0 10.0 20.0 30.0 40.0 50.0 0.0 10.0 20.0 30.0 40.0 50.0 0.0 10.0 20.0 30.0 40.0 50.0
Percent Percent Percent
1 Includes Restricted -Stabilization by State Statute,Committed,Assigned,and Unassigned Fund Balances.
DAVENPORT&COMPANY Source: County CAFRs and Moody's MFRA
May 16,2017 Orange County, NC 1(
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 16,2017 Orange County, NC 11
Attachment 4
23
ORANGE COUNTY
NORTH CAROLINA
Financial Policies Update
Work Session Presentation to
Orange County Board of County Commissioners
Gary Donaldson, Chief Financial Officer
i
May 9, 2017
24
Key County Financial Policies
•
April 2011 BOCC Adopted Financial Policies :
— Debt Management Policies for 1) Debt Service
to Revenues (15 % metric) and Debt to Assessed
Value (3 % metric)
— Fund Balance Policy for Unassigned Fund
Balance (17% metric)
25
Debt to Assessed Value Rat *io
Fiscal Year Total Debt Total Assessed Value Debt to AV Ratio
2007 $ 221,943,769 12,330,315, 189 1.80%
2008 216,588,249 12,581,220,279 1.72%
2009 233,904,488 12,820,237,558 1.82%
2010 222,843,717 15,538,736,056 1.43%
2011 214,713,340 15,689,990, 180 1.37%
2012 225,599,381 15,899, 136, 125 1.42%
2013 210,585,038 16,075,973,471 1.31%
2014 214,322, 108 16,632,360,368 1.29%
2015 207,784,411 16,501,943, 134 1.26%
2016 190,805,417 16,778, 182,392 1. 14%
Note: Total Debt includes all County Debt including Enterprise Fund debt.
26
Best Practices for Unassigned General Fund Balance
The Government Finance Officers
Association (GFOA) of U. S. and Canada:
• Updated the Best Practice on unassigned general
fund balances in 2009
• At a minimum an unassigned general fund
balance of no less than 2 months of regular general
fund operating revenues or operating
expenditures
• Equates to 16.7% of either general fund
operating revenues or operating expenditures
27
Appropriate Use of Unassigned Fund Balance
➢ The essential uses of General Fund
reserves :
• Mitigate risk attributed to revenue shortfalls
or unanticipated non-recurring expenditures
• Provide a financial bridge during recessions
or weak economic conditions
• Use for natural disasters and emergencies
• Cash Balance cushion
28
Audited Unassigned Fund Balance as a
Percent of Expenditures - General Fund
Zs%
18.5%
20% 16.2%
15% - y ❑ 2016
10% ❑ 2015
5%
0% -Z<7 [Z 1 :7
2016 2015
2016- $3210341160/198,1461472
2015- $3515481843 / $ 19210781545
29
Unassigned Fund Balance as % of Expenditures
For Fiscal Year Ended June 30
General Fund 2017 Estimate 2016 2015 2014 2013
Non-spendable $ 16,676 $ 161669 $ 20,306 $ 29,242 $ 391954
Restricted 1211671129 1211441573 1212551821 1211021492 917361214
Committed 717931841 715431841 715431841 610011641 311051267
Assigned (1) 718071696 1217261944 1016501770 1010681343 511901118
Unassigned (2) 3512901621 3210341160 3515481843 3319131229 3616081054
Total Fund Balance 6310751963 6414661187 6610191581 6211141947 5416791607
Total Expenditures 206,417,275 198,116,335 192,078,545 179,185,168 170,330,053
Assigned as % of Expenditures 3.8% 6.4% 5.5% 5.6% 3.0%
Unassigned as % of Expenditures 17% 16.2% 18.5% 18.9% 21.5%
Notes:
1) Assigned represents that portion of fund balance that is appropriated to fund the General Fund Budget
2) Unassigned represents that portion of fund balance that is reserved to meet the Board's 17% policy.
30
General Poseiteion
Jul-16 Aug-16 Sep-16
BEGINNING CASH BALANCE $ 64,834,252 $ 53,190,205 $ 53,346,963
RECEIPTS $ 292779993 $ 1493899946 $ 892309545
DISBURSEMENTS $ 1399229040 $ 1492339188 $ 1499309882
NET CASH $ (1196449047) $ 1569758 $ (697009337)
ENDING CASH BALANCE $ 5391909205 $ 5393469963 $ 4696469626
The first quarter of the fiscal year specifically the month of September represents
the lowest cash balance period.
County Government Unassigneod Fund Balance Policy
The Ten 'AAN Rated Counties of North Carolina
As of /o Expenditures
1. Mecklenburg County 28%
2. Durham County '
3. Wake County '
4. New Hanover County '
5. Union County
20%
6. Orange County '
7. Chatham County '
8. Forsyth County • '
9. Buncombe County '
10. Guilford County 15.1% 2
Average
equates
2) Not policy; represents unassigned fund balance as of June 30, 2016
32
S& P Scorecard
Rating Factor 4 Weighting Imputed Score
Institutional Framework 100/0
Uniform score for all of the same type of
governments in same state
Economy 3O%
Total Market Value Per Capita and Projected
Per Capita Effective Buying Income as a % of US
Projected Per Capita EBI
Management 2O%
Issuer's Financial Management Assessment
Score considered with other certain qualitative
factors
Financial Measures 30%
Liquidity (10%)- Total Government Available
Cash as % of Total Governmental Funds Debt
Service and % of Total Governmental Funds
Expenditures
Budgetary Performance (1O%)- Total
Governmental Funds Net Result (%) and
General Fund Net Results (%)
Budgetary Flexibility (10%)- Available Fund
Balance as a % of Expenditures
Debt and Contingent Liabilities 100/0
Net Direct Debt as % of Total Governmental
10
33
Moody's Scorecard
Rating Factor Weighting
Economy/Tax Base 30%
Tax Base Size (full value) 10%
Full Value per Capita 10%
Wealth (median family income) 10%
Finances 30%
Fund Balance (% of Revenues) 10%
Fund Balance Trend (5-Yr Change) 5%
Cash Balance (%of Revenues) 10%
Cash Balance Trend (5-Yr Change) 5%
Management 20%
Institutional Framework 10%
Operating History 10%
Debt/Pensions 20%
Debt to Full Value 5%
Debt to Revenue 5%
Moody's adjusted Net Pension Liability 5%
(3-Yr average) to Full Value
Moody's adjusted Net Pension Liability 5%
(3-Yr average) to Revenue
11
34
Best Practice Unassigned Fund Balance
In Summary
• GFOA Recommends Unassigned Fund
Balance at 2 Months of Expenditures or
16. 7%
• North Carolina AAA Rated County Peers
Maintain at Least 2 Months; one exception
• Strong Fund Balance provides Financial
Bridge in Recession and Emergencies
12
Questions