Washtenaw County has received an upgraded bond rating from Standard & Poor’s – from AA+ to AAA, the highest debt rating from that agency. Only two other counties in Michigan – Oakland and Kent – have a triple-A rating. County administrator Verna McDaniel announced the news on May 22. [.pdf of press release] In general, higher ratings allow organizations to secure better terms for borrowing funds.
In an email to the media sent a few minutes after the press release was issued, commissioner Conan Smith (D-District 9) questioned the value of the upgraded rating:
This is a solid testament to the county’s investments in its institutional security, but I think the real story is at what cost this incremental improvement came. A minor bump in our bond rating will save the county about $50,000 a year in interest payments, but it was heavily dependent on sequestering millions of dollars from programs to serve the poor to pump up our fund balance and on jeopardizing the retirement security of future employees by eliminating the pension program – costs that will likely be revisited on society multifold if this folks find themselves unable to afford to live without government support in their golden years. In the end we invested in ourselves rather than in our community or our employees, so an elite bond rating is to me a Pyrrhic victory.
The “sequestering millions of dollars” mentioned by Smith refers to McDaniels’ goal of increasing the county’s fund balance up to 20% of total expenditures. Most recently, McDaniel has recommended that a $3.9 million surplus from 2013 be put into the fund balance. At its May 21, 2014 meeting, the board adopted a calendar outlining the process for deciding how to allocate those surplus funds. [.pdf of budget calendar]
As of Dec. 31, 2013 the fund balance was $20,708,905. Total general fund revenues were $105.797 million, with total expenses of $101.876 million.
The county received the upgraded rating after a presentation made earlier this month to S&P regarding the sale of $16.16 million in Capital Improvement Re-funding Bonds, Series 2014. The county board had authorized the re-funding in April 2014. The bonds were originally issued in 2006 to fund expansion of the county jail. According to a staff memo, $16.9 million in principal remains of the original $21.675 million bond sale. The county’s bond counsel, Axe & Ecklund, advised the re-funding because of lower interest rates, and estimates a net savings of about $869,000 over life of the bond issue. Bond counsel John Axe told the board that current interest rates are between 4% and 4.3%. He estimated that the re-funding interest rates would be between 2.2% and 3.8%. [.pdf of refunding resolution]
The bonds will be sold competitively on May 28 starting at 11 a.m.
The county administration attributes the upgraded rating in part to recognition that the county has received for its four-year budget, which the board authorized late last year for 2014-2017. Most municipalities prepare budgets for one- or two-year periods. In April, Washtenaw County received the Outstanding Achievement in Local Government Innovation Award from the national Alliance for Innovation for its four-year budget.