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HomeMy WebLinkAboutAgenda - 10-25-2004-3ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: October 25, 2004 Action Agenda Item No. 3 SUBJECT: Review of County's Debt Management and Capital Funding Policies DEPARTMENT: Budget/Finance PUBLIC HEARING: (YIN) No ATTACHMENT (S): 1, October 25, 2004 Proposed Debt Issuance Schedule 2. May 5, 2004 BOCC Endorsed Debt Issuance Schedule 3, Debt Capacity Charts 4. Annual Debt Service Capacity Spreadsheet 5. Annual Debt Service Projections (Fiscal Years 2004-05 through 2013-14) 6, Orange County Debt Management Policy 7. Orange County Capital Funding Policy 8, Possible Projects to Fund with 2004 Two-Thirds Net Debt Reduction Bonds 9. Programmed Projects Coming On- Line INFORMATION CONTACT: Donna Dean, 919-245-2151 Ken Chavious, 919-245-2453 Robert Jessup, Bond Counsel TELEPHONE NUMBERS: Hillsborough 732-8181 Chapel Hill 968-4501 Durham 688-7331 Mebane 336-227-2031 PURPOSE: To review priorities and timetables of major school and county capital projects based on currently programmed debt funding, and to discuss identified unprogrammed, unfunded school and county capital projects. BACKGROUND: Proposed Debt Issuance Schedule On September 3, 2002, the Baard approved a debt issuance schedule that provided funding of $112,7 million in capital financing for major school and County capital projects through 2006-07, That particular schedule included two components: 1) $75 million in general obligation bonds that were approved by Orange County voters in November 2001; and 2) $37.7 million in alternative financing that would be arranged through mechanisms such as private placement loans or the issuance of Certificates of Participation (COPS). In z accordance with the September 3 approved plan, staff procured alternative financing of $3.475 million in December 2002 and issued bonds totaling $19.175 million in April 2003. In May 2004, the Board endorsed a revised debt issuance schedule (Attachment 2 of this abstract) that outlined a plan to issue $130.425 million in bonds and alternative financing over asix-year period from fiscal year 2002-03 through 2007-08. The BOCC-endorsed May 2004 debt issuance schedule included a number of modifications from, and additions ta, the debt issuance schedule approved by the BOCC in September 2002. For example, the May 2004 schedule reflected the Commissioners' formal decision to reallocate $12.8 million in bond funds originally planned for Chapel Hill-Carrboro Schools' Elementary School #10 to be used towards the construction of CHCCS High School #3 instead. Subsequently, funding for Elementary #10 was reflected on the debt issuance schedule to come from alternative financing. Also included on the May 2004 schedule was the issuance of two-thirds net debt reduction bonds totaling $4.2 million in the current fiscal year. The use of this debt instrument was made possible because the County did not issue any new debt for FY 2003-04. Attachment 8 of this abstract outlines possible projects that could be funded with proceeds from those bonds (in June 2004, the Board adopted several capital project ordinances appropriating a portion of these bonds for several high priority projects -these are highlighted in yellow on the attachment). In keeping with the debt issuance schedule, Orange County completed the sale of $19,740,000 bonds and $4,200,000 in 2/3 net debt reduction bonds in July 20Q4. Since last May, County staff has worked internally and with the County's bond partners to update cash flow needs for all debt funded projects. Attachment 1 of this abstract reflects the most recent proposed revisions to the County's debt issuance schedule. Points of particular note include: Timetables for issuing debt for three major school construction projects -Chapel Hill- Carrboro City Schools Elementary #10 and High School #3 along with Orange County Schools Middle School #3 -remain unchanged from the May 2004 BOCC endorsed schedule. • The new schedule reflects a slower than originally anticipated timetable and cash flow need for two Town of Chapel Hill projects (Homestead Aquatics Center and Southern Community Park) and for the County's Affordable Housing program. • No changes have been suggested at this point to address requests from both school systems for additional funding for anticipated budget shortfalls for OCS Middle School #3 and CHCCS High School #3, The BOCC may wish to consider further adjustments to the debt issuance schedule following receipt and analysis of the November 15 actual student membership numbers. The process of certifying actual student membership and updating 10-year student projections as of November 15 each year is a cornerstone, under the Schools Adequate Public Facilities Ordinance machinery, of the County's Capital Investment Plan, The timing of the need for certain new schools, particularly for CHCCS Elementary #10, may be affected by the upcoming updates to student membership projections. This October 25 work session offers the Board an opportunity to review, in detail, the specific projects and dollar amounts proposed for issuing debt over the next few years. The Budget Director plans tb make a brief PowerPoint presentation, review the attachments accompanying this abstract, and respond to any Board question about possible changes to the project timelines. 3 Debt Management and Capital Funding Policies In the mid-1990's, Commissioners and staff recognized the need for the County to have in place formal policies regarding the County s debt and capital funding. The existence and observation of these formal written policies helps not only to promote the County's creditworthiness with bond rating agencies and investors, but also to schedule funding for expensive major projects in a logical, stepwise approach that precludes major fluctuations from year to year in capital revenue requirements. A copy of the County's Debt Management Policy is provided as Attachment 6 of this abstract and a copy of the County's Capital Funding Policy is provided as Attachment 7. The adopted policies have served the County well and have been major contributing factors to the County's current excellent bond ratings of AA+ with Standard and Poors, Aa1 with Moodys and AAA with Fitch IBCA. Staff solicits any comments the Board may have about changes to the existing policies that Commissioners believe may he appropriate. Any such changes, along with several staff proposed changes, will be brought back for the Board's consideration in preparation for the 2005 -15 CIP cycle. FINANCIAL IMPACT: As was explained during the public information campaign leading up to the November 2001 bond referenda, the cumulative debt service impacts from the plan for bond sales and alternative financing could range from 7 to 10 cents on the property tax rate, depending on size, timing and prevailing interest rates. The annual cast of debt service associated with the first issuances of debt equated to about 1,2 cents per $100 of assessed valuations. Projected future tax rate impacts would depend mainly on how the Local Government Commission structures debt service payments over the coming years, It is important to note that all planned debt issuance is in accordance with the County's current debt management policy and well within the parameters established therein. RECOMMENDATION(S): The Manager recommends that the Board: 1) review and amend, if needed, the list of projects and amounts to be included in the updated debt issuance schedule; and 2) provide other guidance to staff as appropriate on capital and debt management issues.