HomeMy WebLinkAboutMinutes 05-09-2017 1
APPROVED 6/6/2016
MINUTES
BOARD OF COMMISSIONERS
BUDGET WORK SESSION
May 9, 2017
7:00 p.m.
The Orange County Board of Commissioners met for a work session on Tuesday, May 9, 2017
at 7:00 p.m. at the Southern Human Services Center in Chapel Hill, N.C.
COUNTY COMMISSIONERS PRESENT: Chair Dorosin and Commissioners Mia Burroughs,
Mark Dorosin, Barry Jacobs, Earl McKee, Mark Marcoplos, Renee Price and Penny Rich
COUNTY COMMISSIONERS ABSENT:
COUNTY ATTORNEYS PRESENT: John Roberts
COUNTY STAFF PRESENT: County Manager Bonnie Hammersley, Deputy County Manager
Travis Myren and Clerk to the Board Donna Baker (All other staff members will be identified
appropriately below)
Chair Dorosin called the meeting to order at 7:01 p.m.
The Board, by consensus, decided to consider the Resolution Opposing A Proposal
Before the UNC Board of Governors to Prohibit Centers and Institutes From Participating in
Litigation.
Commissioner Rich read the resolution:
ORANGE COUNTY BOARD OF COMMISSIONERS
A RESOLUTION OPPOSING A PROPOSAL BEFORE THE
UNC BOARD OF GOVERNORS TO PROHIBIT CENTERS AND
INSTITUTES FROM PARTICIPATING IN LITIGATION
WHEREAS, at its March 2, 2017 meeting, the Board of Governors of the University of North
Carolina received a proposed policy that "seeks to protect the academic focus of Centers and
Institutes by restricting Centers and Institutes from participating in litigation"; and
WHEREAS, the proposed policy states that "no Center or Institute may...file a complaint,
motion, lawsuit or other legal claim in its own name or on behalf of any individual or entity
against any individual, entity, or government or otherwise act as legal counsel to any third
party; or employ or engage, directly or indirectly, any individual to serve as legal counsel or
representative to any party in any complaint, motion, lawsuit, or other legal claim against any
individual, entity, or government or to act as legal counsel to any third party"; and
WHEREAS, practically speaking, the proposal would affect only the state's two public law
schools at the University of North Carolina at Chapel Hill and North Carolina Central University;
and
WHEREAS, the ability of these centers and institutes to engage in litigation specifically against
state, city, and county governments serves as a proper check and balance in our country's
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system of governance, where power is allocated among the three branches of government
under the Constitution; and
WHEREAS, the UNC Center for Civil Rights —which would effectively be eliminated by the
proposal — serves the memory of the late Julius Chambers, who received his undergraduate
degree at NCCU, received his law degree at UNC-Chapel Hill, practiced law as a prominent
civil rights attorney and argued several cases successfully before the United States Supreme
Court, and then later served as chancellor at NCCU before founding the Center; and
WHEREAS, the UNC Center for Civil Rights has a goal to "represent, educate, and advocate
for minority and low-income people, principally in the American South"; and
WHEREAS, the American Bar Association requires that law schools engage their students in a
minimum of six hours of experiential learning in order to retain accreditation; and
WHEREAS, centers and institutes exist at numerous law schools across the country to provide
exactly this type of experiential learning through litigation for law students during this phase of
their practical academic training; and
WHEREAS, residents of Orange County have benefited from representation and advocacy by
students, staff, and faculty of the UNC Center for Civil Rights; and
WHEREAS, the Board of Governors is currently receiving comments on the proposal;
NOW, THEREFORE, BE IT RESOLVED that the Orange County Board of Commissioners
urges the Board of Governors to reject the proposal to prohibit centers and institutes at its
public law schools from engaging in litigation.
This the 9th day of May 2017.
Penny Rich, Vice Chair
Orange County Board of Commissioners
A motion was made by Commissioner Jacobs, seconded by Commissioner Marcoplos
to adopt/approve a resolution "OPPOSING A PROPOSAL BEFORE THE UNC BOARD OF
GOVERNORS TO PROHIBIT CENTERS AND INSTITUTES FROM PARTICIPATING IN
LITIGATION".
Chair Dorosin said he appreciated Commissioner Rich bringing this resolution forward,
and he is the Managing Attorney at the Center. He asked if Commissioner Rich would sign the
resolution on behalf of Orange County.
Chair Dorosin said the Center does not sue people in the name of UNC, but it
represents clients that are fighting against discrimination. He said the staff at the Center works
on behalf of its clients. He said the Center for Civil Rights does not receive any state funding;
rather grants, private foundations, and gifts fund all costs.
VOTE: UNANIMOUS
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1. Discuss and Prioritize Capital Projects in the Manager's Recommended FY 2017-
22 Capital Investment Plan
BACKGROUND:
On April 4, 2017, the Manager's Recommended FY 2017-22 Capital Investment Plan (CIP)
was presented to the Board of County Commissioners (See Attachment 1). The Five-Year Plan
includes County Capital projects, School Capital projects (including Chapel Hill-Carrboro City
Schools, Orange County Schools, and Durham Technical Community College — Orange
County Campus), as well as Proprietary projects (including Water and Sewer, Solid Waste
Enterprise Fund, and Sportsplex Enterprise Fund).
The projects listed in the FY 2017-22 CIP totaled $274,423,538, with Debt Capacity Ratios
(Debt Service to General Fund revenues) ranging from 12.8% in FY 2017-18 to 17.4% in FY
2021-22. The County has a Debt Management Policy, which states, "The County will strive to
maintain its annual debt service costs at a level no greater than fifteen percent of general fund
revenues, including installment purchase debt". This policy is consistent with the Government
Finance Officers Association best practice.
On September 10, 2015, the Board of County Commissioners held a work session to review
potential General Obligation Bond Referendum packages and its impact on the CIP related to
Debt Capacity and Debt Affordability. The County's financial advisor, Davenport and Company,
presented a series of potential cases related to the Bond Referendum amount. As part of the
presentation, the CIP funding case included the FY 2015-20 Approved CIP and a $125 million
referendum. (See Attachment 3)
Tonight's discussion will be focused on prioritizing Capital projects to achieve the Debt
Capacity of 15%, to restructure debt to fund the scheduled CIP projects within the policy
threshold, and to reflect tax rate equivalent impacts to achieve Debt Affordability by minimizing
or eliminating cash flow shortfalls.
County staff has made an attempt to help remedy exceeding its policy and/or addressing the
cash flow shortfall by delaying or removing County Capital projects until they can be funded
within the parameters of the adopted policy. Also, consistent with Year 1 of the Manager
Recommended FY 2017-22 CIP, it includes substituting pay-as-you-go funds for school
projects to debt financing in Years 2-5. The following are the adjustments made to County
Capital projects, as reflected in FY 2017-22 CIP Alternative 1:
• Parking Lot Improvements - $1,625,000 moved from Year 5 to Year 6 related to OPT/
AMS North and Passmore Center improvements; and removed $300,000 for Efland-
Cheeks Community Center as it is included in the construction of a new Efland-Cheeks
Community Center in Year 3.
• Southern Orange Campus Expansion - changed funding source to $3,269,500 in
Medicaid Maximization funds for the Health clinics portion, and $1,555,500 in debt
financing.
• Information Technology Fiber Connectivity— moved $1,045,675 out of both Years 2
and 3 to Years 6-10.
• Information Technology Governance Council Initiatives — removed $500,000 in
Years 2 and 4.
• EMS Substations — moved $700,000 from Year 3 to Year 5; moved $1,500,000 from
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Year 4 to Years 6-10, and moved $600,000 from Year 5 to years 6-10.
• Orange County Radio/Paging System Upgrades — removed $1,400,000 as there are
current funds within this project to cover this expense.
• Register of Deeds Automation — removed $400,000 for the software system purchase
as there are current funds within the Automation and Enhancement Preservation Fund
to
cover this expense.
• Mil!house Road Park— moved $300,000 from Year 2 to Year 4, and moved
$6,400,000
from Year 3 to Year 5.
• Northeast District Park— moved $350,000 from Year 3 to Year 5, and moved
7,650,000 from Year 4 to Years 6-10.
The County's financial advisor, Davenport and Company, will present additional information
(See Attachment 3) regarding the following possible options to consider as it relates to
exceeding the policy and/or addressing cash flow shortfalls: (1) Consider alternative debt
restructuring flexibility from the Local Government Commission (LGC), in order to fund the
scheduled CIP projects within the policy threshold, and reduce cash flow shortfalls; (2)
Implement tax rate adjustments to minimize or eliminate cash flow shortfalls.
FINANCIAL IMPACT:
There is no immediate financial impact associated with discussion and prioritization of the FY
2017-22 Capital Investment Plan. It is a long-range financial planning tool with a financial
impact in FY 2017-18, if the first year of the CIP is approved by the Board of County
Commissioners with the adoption of the Annual Budget.
Ted Cole, Davenport and Company Senior Vice President, made the following
PowerPoint presentation:
County Tax Supported CIP Discussion Materials
Orange County, North Carolina
Credit Rating Overview and Peer Comparatives- graph
Peer Comparative Introduction
• The County is currently rated AAA by Moody's Investors Service (May 2015), AAA by
Standard and Poor's (June 2015), and AAA by Fitch (June 2015).
• The following pages contain peer comparatives based on the Moody's AAA peer
counties listed below.
— National AAA Counties — 93 Credits
— North Carolina AAA Counties - 9 Credits
o Buncombe, Durham, Forsyth, Guilford, Mecklenburg, New Hanover,
Orange, Union, Wake
Historical Credit Spreads
• The County's credit rating has a direct impact on the cost of borrowing, which in turn
affects the County's debt capacity.
— The credit spread is the premium an issuer pays to the purchaser of their
bonds (i.e. higher interest rate) as compensation for increased credit risk.
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— Since the financial downturn in September 2008, credit quality of issuers has
taken on a renewed importance to investors.
— The average spread for an A rated borrower has increased from 0.33% from
Nov 2004 — Dec 2008 to 0.70% since Dec 2008.
Rating Agency Methodology Updates - graph
Moody's Qualitative Factors
Moody's
• On January 15, 2014, Moody's updated its US Local Governments General Obligation
Debt methodology and assumptions.
• Under the new methodology, an initial indicative rating is calculated from a weighted
average of four key factors:
• Below the line qualitative adjustments can be made based upon certain factors.
Rating Agency Methodology Updates
S&P
• On September 12, 2013, Standard & Poor's updated its US Local Governments
General Obligation Ratings methodology and assumptions.
• Under the new methodology, an initial indicative rating is calculated from a weighted
average of seven key factors:
• Up to a one-notch adjustment can be made from the indicative rating based on other
qualitative factors.
• US Local Governments General Obligation Ratings Methodology - graph
Fitch
• On April 18, 2016, Fitch updated its US Tax-Supported Rating Criteria.
• Under the new methodology, Fitch has identified four key rating factors that play a
significant role in driving the rating outcome for a given issuer in the context of its
economic base:
• The factors cover both the institutional framework in which an issuer operates, which
varies by level and location of government, and performance within that framework.
• Fitch publishes specific rating category evaluations for each factor, with analysis
focused on long-term trends and expectations.
• Key Ratings Factors - graph
Debt Policy Overview
County Policies- page 8
• 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:
o 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:
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o 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.
o 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.
Summary of Existing Financial Policies - graph - page 9
Existing Tax Supported Debt - graph - page 11
Tax Supported Debt Service - graph
Par Outstanding — Estimated as of 6/30/2016
Tax Supported Debt Service
Key Debt Ratio: Tax Supported Payout Ratio - page 12
• Rating Considerations:
— 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.
— S&P: A payout ratio greater than 65% results in a one point positive
qualitative adjustment to the Debt & Contingent Liabilities section of S&P's
General Obligation rating methodology.
• Existing 10-year Payout Ratio
— FY 2017: 89.7%
• The 10-Year Payout Ratio measures the amount of principal to be retired in the next 10
years.
• This ratio is an important metric that indicates whether or not a locality is back-loading
its debt.
• The County does not have a Financial Policy setting a minimum 10-Year Payout Ratio.
Key Debt Ratio: Tax Supported Debt to Assessed Value
TS Debt to Assessed Value Peer Comparative (Lower is Better) - page 13
• Rating Considerations:
— Moody's: Criteria for General Obligation Credits defines categories of Debt
to Assessed Values as:
o Very Strong (Aaa): < 0.75%
o Strong (Aa): 0.75% - 1.75%
o Moderate (A): 1.75% - 4.00%
o Weak—Very Poor (Baa and below): > 4.00%
— S&P: A positive qualitative adjustment is made to the Debt and 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%.
• Existing Tax Supported Debt to Assessed Value
— FY 2017: 1.01%
• Assumed Future Growth Rates
— 2016 Assessed Value: $16,778,182,392
— 2017 Budgeted A.V.: $16,942,732,752
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— 2018 & Beyond: 1.70%
• The County has a Financial Policy setting a maximum Tax Supported Debt to Assessed
Value of 3.0%.
Key Debt Ratio: Tax Supported Debt Service vs. Governmental Expenditures
TS Debt Service vs. Gov't Expenditures Peer Comparative (Lower is Better)
• Rating Considerations:
— Moody's: Moody's criteria allows for a scorecard adjustment if an issuer has
very high or low debt service relative to its budget Percent.
— S&P: The Debt and Contingent Liabilities section defines categories of Net
Direct Debt as a % of Total Governmental Funds Expenditures as follows:
o Very Strong: <8%
o Strong: 8% to 15%
o Adequate: 15% - 25%
o Weak: 25% - 35%
o Very Weak: > 35%
• Existing Tax Supported Debt Service vs. Governmental Expenditures
— FY 2017: 11.72%
• Assumed Future Growth Rates
— 2016 Adjusted Expenditures: $193,857,534
— 2017: 1.50%
— 2018 & Beyond: 1.70%
• The County does not have a Financial Policy setting a maximum Tax Supported Debt
Service to Governmental Expenditures. However, the County has a policy setting a
maximum Debt Service to General Fund Revenues of 15.0%.
Key Debt Ratio: Tax Supported Debt Service vs. General Fund Revenues
Tax Supported Debt Service vs. General Fund Revenues
• Existing Tax Supported Debt Service vs. General Fund Revenues
— FY 2017: 12.87%
• Assumed Future Growth Rates
— 2017 Original Budget : $203,116,868
z
— 2018 Estimate : $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.
TS Debt Service vs. General Fund Revenues (Lower is Better)
• Note: Peer comparative is estimated based on data available through Moody's MFRA.
Debt Affordability Analysis - page 16 - graph
Existing Debt
• FY 2018 Value of a Penny: $1,781,692
• Assumed FY 2019 & Beyond Growth Rate: 1.70%
Debt Capacity and Debt Affordability Analysis
September 2015 Overview— Bond Referendum Discussion
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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.
• During that meeting, Davenport presented a series of potential cases which included:
— Case 1: Existing County CIP Only
— Case 2: Existing County CIP and $125 of Referendum Projects
— Case 3: Existing County CIP and $130 of Referendum Projects
— Case 4: Existing County CIP and $135 of Referendum Projects
• At the October 7, 2015 County Board meeting, the Board voted to pursue a $125
million Bond Referendum for:
— School Projects - $120 Million
— Affordable Housing Projects - $5 Million
• As part of the presentation on September 10, 2015, the CIP funding case that included
the $125 million referendum resulted in the following:
— A required tax equivalent increase of 4.92¢ in FY 2018 or a total of 7.47¢
between FY 2018 and 2022.
— While the County was projected to be in compliance in all cases with its Debt
Service to Assessed Value policy, the General Fund Debt Service to
General Fund Revenues exceeds the policy in FY 2020 and 2022.
September 2015, Recommended 2017, and 2017 CIP Alternative #1
Difference in Debt Funded Projects
Overview
• The County adopts a 5 Year Capital Improvement Plan on an annual basis as part of its
budget process.
— The County identifies funding sources for each of the projects.
— Proposed capital projects are reviewed and adjusted as necessary each
year.
• Since September 2015, the County has adopted the FY 2016-2017 CIP and is currently
in the process of reviewing the FY 2017-2018 CIP.
• As part of the adoption and development of these CIPs, a number of items have
changed and evolved since September 2015.
• In addition to adjustments made to the projects included in the CIP, a number of
assumptions have been adjusted in the debt 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:
o General Fund Revenues.
o Assessed Value.
o 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.
Capital Improvement Plan — Case Overview- page 20
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• 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).
2017 CIP Alternative #1 — Future Debt Financings- graph- page 21
Summary of Results —2017 CIP Alternative #1- page 22
Debt Affordability Analysis
2017 CIP Alternative #1 Debt— No Tax Adjustment- page 23
• FY 2018 Value of a Penny: $1,781,692
• Assumed FY 2019 & Beyond Growth Rate: 1.70%
• Note: Without a tax increase, the County is forecasted to have shortfalls from FY 2019
to 2027 totaling $74,426,098.
Commissioner Jacobs said another bond, of comparable size, will be needed in the
future, and asked if there is a timeline on this.
Ted Cole said there are needs going forward, and the current CIP is being worked with.
He said it is not demonstrated well on this page, but if the County moved forward with an
upfront adjustment of 5.5 pennies, the County would have new dollars available for debt
service in FY 2025. He said this particular CIP goes to FY 2022, and dollars are available
beyond what is needed for this CIP beginning in FY 2025. He said the County could do a
borrowing in 2024, and the new debt service would start in 2025. He said there is a little bit of
a gap between 2022 and 2024, but that is likely the next CIP horizon, and there will be some
debt affordability. He said this debt affordability has yet to be measured, but it is a
continuation of this whole process. He said he could measure "x" million in 2024, 2025, 2026,
etc. He said a GO bond authorization is good for a 7-year period, and it is fairly
straightforward to get it extended to 10 years. He said this debt should be fully issued by FY
2022, which is on a somewhat aggressive schedule, and there may be a couple of years that
they could stretch GO authorization out to 2024.
Commissioner Jacobs said when the Board passed a bond in 2016, he doubted that
the public realized that other comparable projects would not be able to be accomplished until
2029. He said he does not think projects were prioritized with this in mind.
Commissioner McKee asked if the possibility of pushing out anything would depend on
when the projects were built.
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Ted Cole said it would be striking a balance between wanting projects sooner and the
projects being too costly until a later date. He said the luxury of pushing out the debt issuance
may not be possible.
Commissioner McKee said a lot of these projects are very big and would eat up most of
the issuance debt. He said the County will be obligated to go at a faster rate, rather than
further out.
Ted Cole said for this very reason, the County may find that general fund revenues are
growing more quickly, and the future policy issue may work itself out because the revenue
component is higher than projected.
Commissioner Jacobs said this has conceptual implications on how the County deals
with large CIP projects going forward. He said even two bonds will not cover all the many
issues in the schools: health, safety, capacity, modernization, etc. He said this presentation
grounds the discussion, and there needs to be a short hand way to articulate this to the school
boards and the public, as to what the County will be able to afford. He said the County needs
to revisit its priorities each time it considers taking on new debt.
Summary of Results —
2017 CIP Alternative #1 with Structured Principal
Observations / Items for Discussion
• 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:
o Change Policy Targets or Ratios.
o Add provisions that allow for policy exceptions subject to Board
review/ approval.
Potential Next Steps
• 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.
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Appendix
Details of Principal Structuring Cases
Principal Structuring
Chair Dorosin referred to page 24, and said the incremental option jumps all over the
place. He asked if these numbers are based on the amount of projects happening in any
given year.
Ted Cole said these numbers are driven by the amount of debt they are issuing.
Travis Myren made the following PowerPoint presentation:
Capital Investment Plan Prioritization
Board of Orange County Commissioners
May 9, 2017
Total Appropriations —Alternative 1 (graph)
• County capital projects reduced by approximately $22.4 million in years 1 through 5
• No changes to school capital or Durham Tech facility expansion
Projects and Facilities (graph)
Commissioner McKee asked if the jail project is currently on hold.
Travis Myren said he spoke with the Sheriff today about doing the project on the
current site, which the Sheriff supports. He said the architects will be redirected to start
looking at this site, and there will be some preliminary conversations with Hillsborough about its
requirements to complete such a project. He said this decision has not been completely made,
but the current site is being studied much more closely.
Travis Myren resumed the presentation:
Parking Lot Improvements
• AMS North moved from year 5 to years 6 to 10 ($1.6 million)
• Efland Cheeks Community Center parking lot ($300,000) removed - included in
Community Center project in Year 3
Southern Orange Campus
• $3.6 million in Medicaid revenue applied to the Public Health portion of the project
(medical and dental)
• $1.56 million debt financed for remaining portions of the building
Technology and Communication
Fiber Connectivity
•Moved $1.05 million from FY2018-19 and FY19-20 to years 6 to 10 — completes
Hillsborough project; delays full north/south fiber run (Chapel Hill to Cedar Grove)
and east/west fiber run (Buckhorn to Eno EDD)
ITGC Projects
•Removed $500,000 in years 2 and 4 due to project backlog
EMS Substations
•Retained two highest priority stations in Waterstone and Efland; others deferred
pending location study and co-location partners
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Commissioner Price said she hoped that the EMS stations would be a priority going
forward.
Travis Myren resumed the presentation:
Radio System
•Removed $1.4 million from year 1 for engineering by funding with prior year
appropriation
Register of Deeds Automation
•Removed $400,000 by applying existing funding
Chair Dorosin said the Board did not vote on this project yet.
Travis Myren said no, it did not.
Chair Dorosin asked if any funds would be spent in year 1.
Travis Myren said yes, there are funds allocated for engineering, but these funds would
come from a previous year.
Chair Dorosin asked if the Board does not approve this $28 million plan, would those
funds be wasted.
Travis Myren said the engineer needs direction as to what the County wants him to build
and the design, prior to an engineering contract being brought to the Board.
Commissioner Jacobs said he had questions about allocating $21 million for a Durham
Tech building, and before the Board accepts this as the landscape, he would want more
information. He said half of the funding for Durham Tech's current building was paid for with
state funds. He said there is no assurance of state funds being provided again. He said he
does not like the assumption that Orange County will pay for this new building, and would like
more information.
Travis Myren said staff will gather more information. He resumed the presentation:
Parks and Open Space
Blackwood Farm Park
• Delays Park Operations Center ($2.5 million including design and equipment) to
years 6 to 10 as alternatives are evaluated
Mil!house Road Park
• Delays park planning and development for two years
Northeast District Park
• Delays park planning and development for two years
Funding Sources
• Transition from pay as you go to debt financing for school capital
• Register of Deeds revenue corrected
• Medicaid funds recognized for Public Health portion of Southern Campus Facility
Improvement
Debt Financing
• Debt financing for County Capital in years one through five reduced by $22.4
million as a result of project reorganizations
• Transition from pay-as-you-go financing to debt financing for school capital
Recommended CIP and Alternative 1 (graph)
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Debt Service Capacity Benchmark (graph)
Commissioner Burroughs referred to Mil!house Park and asked if Chapel Hill is in a
hurry to move this along.
Bonnie Hammersley said there have been conversations with the Town of Chapel Hill
for the past two years, but she will defer this question to Commissioner Jacobs.
Commissioner Jacobs said Mayor Hemminger is very interested in this park, and she
has talked to soccer leagues about putting money in up front. He said she is very interested in
talking to Orange County about options.
Commissioner Rich asked if Chapel Hill has asked Orange County to put money into
the Legion Road property.
Bonnie Hammersley said no, she has not had any conversations about this property.
Commissioner Rich said the Board received an email today from the Carrboro Mayor
noting the addition of$10 million to the Carrboro budget for the Southern Branch Library. She
asked if this affects the County's budget for this item.
Bonnie Hammersley said she and David Andrews, Carrboro Town Manager, are
working on a development agreement, and she said if it is not completed prior to the summer
break, it will be brought to the Boards in the fall. She said the CIP would mirror the Town of
Carrboro's. She said the County still has some planning money, but the Southern Branch
Library construction money is in year 2. She said the Town Manager agreed this plan is
reflective of both governing boards' budgets.
Commissioner Rich said when residents see this item in year 2 and 3, it is assumed
that the Town and the County are not working it currently, but that is not the case. She said
conversations are continuing, and the Town and the County are working together.
Commissioner Jacobs said the Board of County Commissioners (BOCC) has never
voted on the amount of money that continues to be listed for this project in the CIP. He said
this amount goes back to the original idea of a 20,000 square foot urban library.
Bonnie Hammersley said this amount has been revised since she has been the County
Manager, and the size is about 12,000 square feet. She said staff will look at the details more
closely. She said she spoke with the Carrboro Town Manager and she asked that Carrboro
hold the contract for construction, because Carrboro owns the property, and the County will
pay the Town.
Commissioner Jacobs said the Board has not discussed co-locating in a building with
the Town of Carrboro, and he said a lot of the public dialogue involved a desire for public
meeting space. He said if the Town is in the building, there would be a necessity of square
footage, but not if Carrboro is building its own building.
Commissioner McKee clarified with Commissioner Rich that Carrboro intends to budget
$10 million for this project.
Commissioner Rich said it was an email from the Carrboro Mayor sent to Chair/VC only,
and Carrboro has $10 million in its budget for a new library.
Commissioner McKee asked if this amount aligns with the $6 million in the County
budget.
Bonnie Hammersley said the agreement is being developed, and more details will be
defined as discussions continue. She said no party has agreed to a development agreement
at this time. She said she has budgeted an estimate, and whoever holds the contract will need
to have the full amount budgeted and receive offsetting revenue from the other party. She
said Carrboro is amending its CIP to add this item.
Commissioner McKee said this issue needs to be highlighted for more discussion.
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Commissioner Marcoplos asked if there was a purpose to the email from the Carrboro
Mayor.
Commissioner Rich said the email was to advise the Board that the conversation is
continuing within Carrboro, and that there are residents that have been waiting for a long time.
She said she brought it up this evening to assure the public that the BOCC and the two
Managers are talking about the issue.
Chair Dorosin said the BOCC ought to be looking at the CIP to further reduce costs.
He said there are several small ticket items that may not make an overall difference if
removed. He echoed Commissioner Jacobs about the Durham Tech project, and said it does
need more clarification.
Chair Dorosin said the Environment and Agriculture Center (EAC) is $3.4 million in year
1, and he recollected that the BOCC was going to get more information about options. He said
moving this project, or part of it, by one year may make a big difference.
Chair Dorosin said he would suggest further discussion about the fiber connectivity,
totaling $1.1 million in year one. He asked if it is critical to do in year 1.
Travis Myren said this project is with the Town of Hillsborough to connect County and
Town facilities with publicly owned fiber, as opposed to paying Time Warner for these
connections. He said the Town is ready to move on this item next year, and staff could talk to
the Town about deferring it for a year.
Chair Dorosin said he would like to know the significance of that possible delay.
Chair Dorosin referred to "Parks and Open Spaces", and said there is a $1 million for
conservation easements in years 2 and 4, and he said there is still money in Lands Legacy
program. He asked if the distinction between these two funding sources could be identified.
He also asked if one of these projects was moved back a year, and another project arose in
the interim, would there be other funding sources that could cover the conservation
easements.
David Stancil, Department of Environment, Agriculture, Parks and Recreation (DEAPR)
Director, said previously the conservation easement fund was an annual appropriation of
$500,000. He said conservation easements tend to take a while, so the CIP was shifted to an
every other year approach. He said there are existing funds in the Lands Legacy fund, but
there are also a few outstanding projects that will be coming up shortly. He said the
conservation easement fund was set aside in 2002 to fund things that the 2001 bond money
could not fund. He said the conservation easement fund is down to about $100,000 currently,
and is one that could have a lot of projects outstanding.
Chair Dorosin asked if David Stancil's recommendation is to leave as is, or is there
room for flexibility.
David Stancil said next year the conservation easement fund will not have any extra
funds, and Lands Legacy funds would be used if need be. He said this will cover any
shortfalls until year 2, when the conservation easement fund is replenished. He said he would
leave this the way it is. He said the Lands Legacy fund will not be replenished for another two
years, so next year includes no new funds for conservation projects.
Chair Dorosin asked if the total in the Lands Legacy fund could be identified.
David Stancil said it is about $3 million, and $101,000 in the conservation easement
fund.
Commissioner Rich said she believed the County fiber project to be important and
would not want to push it off. She said the County is behind on this issue, and it is time to be
independent of Time Warner. She said she hopes this will make it easier to get service to rural
areas.
Chair Dorosin said he is not suggesting removing any items, but just delaying them by a
year.
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Commissioner Price said the BOCC should move forward with the fiber project.
Commissioner Burroughs said the times in which they are going over the 15% are in
the out years, and asked if it is possible that delaying things in the first year or two may not
help at all.
Travis Myren said staff focused on years in which they would be over the policy, or
those with the highest affordability issues, which were FY 2020-21 and FY 2021-22. He said
borrowing that would occur in FY 2019-20 would start affecting the FY 2020-21 debt service
payments.
Commissioner Jacobs said he agreed that the BOCC needs more clarity on the EAC
project. He said it might be useful to differentiate the few projects that have a financial return
or savings.
Commissioner Jacobs said this is an ambitious CIP that still fits into the County's debt
policy, which he finds to be impressive.
Commissioner Rich asked if Hillsborough's percentage of the fiber costs could be
identified. She said there may be other partners willing to join in on this project.
Commissioner Rich said she would also like further information about affordable
housing options at the EAC.
Chair Dorosin asked if staff would highlight those projects that generate revenue, as
well as those done in partnership with the other municipalities.
2. Financial Policies Discussion
(General Fund Balance and Debt Management)
Gary Donaldson, Chief Financial Officer, reviewed the following background
information:
BACKGROUND:
On April 5, 2011 the BOCC adopted a series of financial policies including:
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.
Debt Management Policies:
• The County will maintain its net bonded debt at a level not to exceed 3% 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% of general fund revenues, including installment purchase debt. This is a
recommended "best practice"from the Government Finance Officers Association.
It is a recommended practice to provide regular updates to the BOCC regarding the County's
Financial Policies as a means to communicate the County's financial status.
Gary Donaldson made the following PowerPoint presentation:
Financial Policies Update
Work Session Presentation to the
Orange County Board of County Commissioners
Gary Donaldson, Chief Financial Officer
16
May 9, 2017
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)
Debt to Assessed Value Ratio
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.
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 200
• 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 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
Audited Unassigned Fund Balance as a Percent of Expenditures—General Fund (graph)
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Unassigned Fund Balance as % of Expenditures
For Fiscal Year Ended June 30
General Fund 2017 Estimate 2016 2015 2014 2013
Non-spendable $ 16,676 $ 16,669 $ 20,306 $ 29,242 $ 39,954
Restricted 12,167,129 12,144,573 12,255,821 12,102,492 9,736,214
Committed 7,793,841 7,543,841 7,543,841 6,001,641 3,105,267
Assigned (1) 7,807,696 12,726,944 10,650,770 10,068,343 5,190,118
Unassigned (2) 35,290,621 32,034,160 35,548,843 33,913,229 36,608,054
Total Fund Balance 63,075,963 64,466,187 66,019,581 62,114,947 54,679,607
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.
General Fund Cash Flow Position (graph)
The Ten `AAA' Rated Counties of North Carolina (graph)
S&P Scorecard
18
l atin; Factor Wei htin lrr sited Score
institutional Framework 10%
Uniform score for all of the same type of
governments in same state
Economy 30%
Total Market Value Per Capita and Projected
Per Capita Effective Buying Income as a % of US
Projected Per Capita EBI
Management 20%
Issuer's Financial Management Assessment.
Score considered with other certain qualitative
factors
Financial Measures 30%
Liquidity (10%)- Total Government Available
Cash as 0/0 of Total Governmental Funds Debt
Service and 0/0 of Total Governmental Funds
Expenditures
Budgetary Performance (10%)- Total
Governmental Funds Net Result (0/0) and
General Fund Net Results (WI
Budgetary Flexibility (10%)- Available Fund
Balance as a % of Expenditures
Debt and Contingent Liabilities 10%
Net Direct Debt as % of Total Governmental
Moody's Scorecard
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Rating Factor Weighting
Economy/Tax Base 300/0
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 Hof 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%
( -Yr average) to Full Value
Moody's adjusted Net Pension Liability 5%
(3-Yr average) to Revenue
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
Questions
Bonnie Hammersley said she put this item on the agenda because the audit had not
been completed the last time this topic was discussed. She said this was the first available
time to add it to an agenda, since the completion of the audit. She said this is the Board of
County Commissioners' policy and should be defined as such.
Commissioner Marcoplos asked if the fund balance was dipped into during the
recession.
Bonnie Hammersley said she was not in Orange County at that time, but there was
minimal use of the fund balance prior to 2013-2014. She said $5 million was put into the
budget in FY 2013-14 as a source of on going expenditures, and the same for 2015.
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Bonnie Hammersley said the County and schools operating expenses are starting to
eat away at the fund balance.
Commissioner Jacobs said the BOCC set the 17% fund balance during FY 2013-14, as
a way to improve the County's fiscal standing.
Chair Dorosin said the Board discussed this, and he thought the Board voted to change
the 17% policy, but it looks like the Board only agreed to just dip into the balance.
Bonnie Hammersley said the BOCC agreed to take money out of the fund balance, but
the impact was unknown at the time. She said the BOCC did have a more comprehensive
discussion about changing the policy, but there was also discussion about the audit not yet
being completed at the time.
Commissioner Burroughs said she had a similar recollection, and she thought the
BOCC had agreed to go to 16% last fall. She said she would be willing to consider going to
16% as the County fund balance policy.
Chair Dorosin said he would support lowering the fund balance to 16%, and said the
Board should make a policy decision. He said he would like the Board to vote on it formally,
one way or the other. He said he would be willing to do that this evening, or wait a bit if other
Commissioners would like any additional information.
Commissioner Rich recalled the discussion being between 16.5% and 16%.
Chair Dorosin said it is not important to remember the previous discussion, because
there was no vote. He said the conversation can happen now.
Commissioner Jacobs suggested asking the bond counsel about this topic.
Bob Jessup said he would defer the question to Ted Cole, but there is not a bond risk
within his scope.
Ted Cole said if there is a near-term need for these funds, it would be preferable to use
the reserves for a one-time event as opposed to just lowering the policy permanently. He said
the bond agencies may ask at some point why the Board chose to permanently lower the fund
balance.
Ted Cole said rating agencies may or may not pick up on a permanent change, but if
they do, they will ask why the change occurred. He said no one ratio is going to drive a rating,
but picking away at areas of strength will eventually have an impact. He asked if there a
specific reason behind lowering the percentage to 16%.
Commissioner Marcoplos said he sees this money as a safeguard, and he does not
see it as a risk to go to 16%. He said having the money available now, and using it in current
dollars, is an investment that will save money.
Commissioner Jacobs said a 5.5-cent property tax increase is expected next year, and
if the reason for lowering the percentage is to give more to schools, then it will not be available
to offset the tax increase next year. He said he would rather plan for the inevitable 5.5-cent
property tax increase, and leave funds in the balance for one more year and then lower it next
year, to offset property tax increases in FY 2018-19.
Commissioner McKee said he would like to stay in a comfortable range, which is 17%
for him. He said he is not opposed to lowering it, but Commissioner Jacobs makes a good
point. He said there will be a demand for extra money, but "you can only sell the cows one
time," and the 1% can only be taken out once.
Commissioner McKee said his main concern about this discussion is not the actual
percentage, but rather the trend of the fund balance going down over the years. He said the
Board needs to be cognizant of this conversation, and it cannot continue to reduce the
percentage of the fund balance every year. He said this is a policy change, and asked if this
vote could be deferred to a regular meeting agenda, so that the public can be notified and
heard.
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Commissioner Burroughs agreed that this discussion and vote should be on a regular
meeting agenda.
Discussion ensued.
Chair Dorosin said he believed 17% is too conservative. He said historically, after the
budget is approved, the Manager comes back with an extra $1 million, and this money is used
outside of the budget process, which he finds to be less transparent. He said he appreciates
Commissioner McKee's point about the trend, but it does not trouble him because 16% is still a
conservative percentage. He said he is not earmarking the reduction in the fund for the
schools, and he agreed the Board should vote on the policy at a regular meeting.
Bonnie Hammersley said she thought staff would get guidance this evening and keep
the outside agencies at 1.2%. She said this will come back for a formal vote, and she will
honor the reserve, whatever it is.
Commissioner Burroughs said she would support lowering the percentage to 16% this
year.
Commissioner Price said the County will not be at risk, as long as two months worth of
funding is in the bank.
Commissioner Jacobs said he is not opposed to going lower, but would suggest doing it
with strategic timing.
Commissioner Rich said she thought the BOCC already voted on this, and asked if the
Clerk would look at the minutes. She said she is happy to go to 16%.
Chair Dorosin asked the Manager if she would put this item on a regular agenda, and
bring back information on both 16% and 16.5% options, and what budget recommendations
she would make for the extra funds.
3. Closed Session
A motion was made by Commissioner Rich, seconded by Commissioner Burroughs to
go into closed session at 9:51 p.m. for the purpose below:
"Pursuant to G.S. § 143-318.11(a)(3) "to consult with an attorney retained by the Board in
order to preserve the attorney-client privilege between the attorney and the Board to receive
updates on Orange County, et al v. Slack and Southeast Property Group v. Orange County
and to approve general accounts of closed sessions."
VOTE: UNANIMOUS
RECONVENE INTO REGULAR SESSSION
A motion was made by Commissioner Jacobs, seconded by Commissioner Burroughs
to reconvene into regular session at 10:30 p.m.
VOTE: UNANIMOUS
ADJOURNMENT
A motion was made by Commissioner Price, seconded by Commissioner Jacobs to
adjourn the meeting at 10:30 p.m.
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VOTE: UNANIMOUS
Mark Dorosin, Chair
Donna Baker
Clerk to the Board