A Bloomberg Businessweek report about the impact of Detroit’s bankruptcy on bonding in Michigan quotes Erik Gordon, who teaches at the University of Michigan Ross School of Business: “Investors can’t price a bond in Saginaw or Genesee or Battle Creek if they don’t know what a general-obligation bond means. When somebody changes the rules of the game, there’s not much you can do about it, and you don’t want to play again.” [Source]
Washtenaw County board of commissioners meeting (May 15, 2013): A presentation that county commissioners called “daunting” and “sobering” was among several budget-related items on the May 15 agenda.
In her state-of-the-county address, county administrator Verna McDaniel set a goal of identifying $6.99 million in structural reductions for the 2014 budget. The approach to addressing this $6.99 million target depends on whether the county moves ahead with a major bond proposal, which would cover the county’s pension and retiree healthcare obligations. [See Chronicle coverage: "County Board Debates $345M Bond Proposal."]
If the board decides not to bond for those obligations, McDaniel said that most of the $6.99 million would need to come from a reduction in operating costs, as well as $100,000 in cuts to outside agency funding. Finding the $6.99 million in cuts would be very challenging, she added, given the amount of reductions that have already occurred in the past few years. Serviceability levels and major programs would be affected.
Action related to the bonding proposal – for up to $345 million, the largest ever issued by the county – was originally on the May 15 agenda. But early in the meeting, board chair Yousef Rabhi announced a decision to push back the process until the board’s July 10 meeting. He cited the need for more time for public input and additional information – including updated actuarial reports that are due in late June. Public hearings on the proposal are set for June 5 and July 10, with a board working session on the issue scheduled for June 6.
The board also voted to hold a special meeting on July 24, to allow for additional bond-related votes and public commentary, if needed. Rabhi also announced a series of informal meetings at coffee shops in Ann Arbor to discuss the bond proposal with residents. The first “Bonding Over Coffee” will be held on Tuesday, May 28 from 4-6 p.m. in the basement of Elixir Vitae (formerly Café Ambrosia) at 326 Maynard St. in Ann Arbor.
Among the several items that the board is expected to vote on at its July 10 meeting is a “notice of intent” to issue the bonds. This is a standard initial step in the bonding process, letting residents know that they have 45 days during which they can circulate petitions to require a vote of the people before any bonds are issued. Ronnie Peterson reminded commissioners that just a few years ago, a citizens group had gathered enough signatures to force another bond proposal – for expansion of the county jail – onto the ballot, where it was defeated by voters. For the current bond proposal, about 15,000 signatures would be required to force a voter referendum.
In another budget-related item on the May 15 agenda, the board received a first-quarter 2013 briefing. The county’s financial staff is now projecting a $818,999 shortfall for the year – the difference between $102,364,815 in projected general fund revenues and $103,183,814 in projected expenditures. That shortfall is lower than the $3.03 million shortfall that was originally projected for 2013.
The board continued its budget discussion at a retreat on May 16, where they worked to hone priorities for the next four years. This Chronicle report includes a summary of that two-hour session.
In other May 15 action, the board gave initial approval to set the 2013 county general operating millage rate at 4.5493 mills – unchanged from the current rate. Several other county millages are levied separately: emergency communications (0.2000 mills), the Huron Clinton Metroparks Authority (0.2146 mills), two for county parks and recreation (0.2353 mills and 0.2367 mills) and for the natural areas preservation program (0.2409 mills). That brings the total county millage rate to 5.6768 mills, a rate that’s also unchanged from 2012. A final vote and public hearing is expected on June 5.
The board also passed a resolution expressing support for the state of Michigan to expand the federal Medicaid program, as part of the Affordable Care Act – a measure currently being debated in the state legislature. During deliberations, Dan Smith (R-District 2) voiced his objection to the county weighing in on state issues, but he left the room prior to the vote.
A range of other issues were raised as items of communication by commissioners or during public commentary. Topics included: (1) a corridor improvement authority planned by Pittsfield Township for a section of State Street; and (2) the possibility of renewing the county’s membership in the Michigan Association of Counties.
At the May 15, 2013 meeting of Washtenaw County board of commissioners, board chair Yousef Rabhi pulled from the agenda a resolution related to a $345 million bond proposal, pushing back a process that was originally scheduled to start that evening. The proposed bond issue – the largest in the county’s history – is intended to cover unfunded pension and retiree healthcare obligations. The process is expected to be picked up again at the board’s July 10 meeting, when a public hearing will be held on this issue.
On May 15, the board also scheduled a special board meeting for July 24, to allow for additional votes and public commentary related to the bond proposal, if needed.
The resolution that originally appeared …
At a May 2 working session lasting more than 3.5 hours, Washtenaw County commissioners were briefed on a bond proposal to fund the county’s pension and retiree healthcare plans, and debated the merits and risks of issuing up to $345 million in bonds – by far the largest issue in the county’s history.
The bonding is made possible by Michigan’s Public Act 329 of 2012, which the state legislature passed in October of 2012. [.pdf of Public Act 329] The law enables municipalities to issue bonds to cover unfunded accrued pension and retiree healthcare liabilities, but has a sunset of Dec. 31, 2014. The county faces a $30 million contribution toward these obligations in 2014, and is looking for ways to manage that obligation.
The most recent estimates put the county’s maximum retirement obligations at $340.8 million. New actuarial reports are due in June, however, and estimates could change. The board was presented with calculations for borrowing $344 million at an assumed average interest rate of 4%. The county would pay $239 million in interest over the life of the 25-year bond, for a total of $583 million in combined interest and principal.
John Axe of Axe & Ecklund, a Grosse Pointe Farms attorney who has served as the county’s bond counsel for decades, helped craft the state legislation that permits this type of bonding. He was on hand at the working session to describe the proposal and answer questions. “If you don’t issue the bonds,” Axe said, “you’re going to have horrible budget problems.”
County administrator Verna McDaniel has advocated for this move, in part to make long-term budgeting easier by having predictable bond payments. She raised the proposal publicly for the first time at the board’s April 17, 2013 meeting. However, Axe told commissioners that he’d been asked by the county administration to start looking into this possibility in November of 2012. He also met earlier this year with the board in closed session, when labor negotiations were discussed.
During the May 2 working session, several commissioners referred to the fact that the new 10-year labor deals approved earlier this year had been key to moving forward with this bond proposal. Allusions to that connection have been made at previous board meetings, but not directly stated. The crucial point was closing the defined benefit plan to employees hired after Jan. 1, 2014. Unless the defined benefit plans were closed, the county would not have been allowed by law to proceed with this type of bonding.
Also a factor are the new accounting standards of GASB 68, which require that unfunded liabilities be included in an organization’s financial statements for fiscal years beginning after June 15, 2014.
Some commissioners expressed concern that the bonding process, now that it’s public, is being rushed. “If I’m borrowing $350 million, I think we should take our time to ask appropriate questions,” said commissioner Ronnie Peterson. “That’s a lot of money.” He felt it was important to see updated actuarial estimates, but noted that based on the board’s discussion, “it’s like we’ve already made up our minds.”
Dan Smith lobbied to explore more options, rather than just one proposal, and raised the possibility of putting this issue before voters. “What we’re really trying to do is to manage our cash flow,” he noted. Smith also expressed skepticism about projections that the bond proposal would result in more than $100 million in savings for the county over 25 years, compared to the amount that the county would pay for its retiree obligations without bonding.
But Conan Smith argued that the board “set the course” when it approved those labor contracts and voted to close the defined benefit plans earlier this year. He acknowledged concerns about the timing, “but in part it has to move so fast because this board closed the plan, and we’re looking at a $30 million payment in 2014 if we don’t do something. So it was a choice we made willfully and with full knowledge and now we’re designing a fiscal strategy to minimize the severity of the impact on our budget.”
That specific budget impact was not discussed publicly when the board voted on the new labor contracts.
Axe also urged the board to act quickly, saying that the proposal is interest-rate sensitive. The proposal assumes that the county would borrow at an average annual interest rate of 4%, then invest the bond proceeds to earn an average rate of return of 6.5% over the 25-year period.
The proposal calls for the board to take an initial vote at its next meeting, on May 15, followed by final approval to issue a “notice of intent” on June 5. The board would also need to approve a state-mandated comprehensive financial plan in July, setting the amount of the bond issue. The county would then submit an application to the state Dept. of Treasury, which must approve the bond issue.
Some commissioners hope to get more input from experts – faculty at the University of Michigan business school, for example, or the county treasurer – who don’t stand to benefit from this bond issue. Because of these concerns, the county is expected to hire a third-party consultant, Public Financial Management Inc., to review the proposal.
In response to a question from Dan Smith, Axe told the board his firm would earn $485,000 in fees from this bond issue, at his standard rate. The county is also using Municipal Financial Consultants Inc. (MFCI) as the financial consultant on this proposal. Axe & Ecklund provides a 15% discount on its fees if the county hires MFCI as the financial consultant. MFCI president Meredith Shanle attended the May 2 working session. Though it was not mentioned at the meeting, Shanle is Axe’s daughter.
Board chair Yousef Rabhi stressed the importance of community engagement, and outlined plans for getting input – including a public presentation and possibly extra meetings. “Regardless of the decision that we make,” he said, “it’s important that the community is involved in that process.”
Ann Arbor City Council meeting (Oct. 4, 2010): While the city council postponed two major pieces of business, it did take action on two others.
First, the council voted to discontinue a pilot program to turn off selected streetlights. The program was designed to save $120,000 for the current fiscal year’s budget [FY 2011]. No additional streetlights will be turned off, and those that were switched off as part of the pilot program will be turned back on.
And the council voted to authorize the issuance of $9 million in general obligation bonds in connection with the parking deck to be built as part of Village Green’s City Apartments project at First and Washington. The bonds could take the form of conventional tax-exempt bonds, or other bonds, depending on which are legally available and most advantageous to the city when they’re issued. The bonds won’t be needed until the construction of Village Green’s project is completed.
In 2008 the Ann Arbor Downtown Development Authority passed a resolution authorizing that the bond payments be made from revenues generated by the city’s public parking system, which is managed by the DDA. The city council approved an extension to the purchase option agreement for the land at its Aug. 5 meeting.
Two expected votes did not take place. Revisions to the city’s zoning code that would change the specifications for area, height and placement in most zoning districts of the city outside the downtown were postponed at the request of Marcia Higgins (Ward 4), who said that she had questions she’d been unable to submit in time to get answers.
And in the absence of Sandi Smith (Ward 1) and Stephen Rapundalo (Ward 2) – who arrived late to the meeting – Tony Derezinski (Ward 2) asked for postponement of a five-year extension of the 2007 consent judgment the city reached with Joseph Freed and Associates LLC, developer of the Glen Ann Place project.
Glen Ann Place was a planned unit development (PUD) approved by the council in July 2005, but that did not win subsequent approval from the city’s historic district commission. Freed then filed suit against the city, the outcome of which was a consent judgment. Per the consent judgment, the height of the building was reduced from 10 to 9 stories. Glen Ann Place is planned to include retail and office uses on its first two floors, with residential on upper stories.
In other business, the council approved a handful of recommendations for liquor licenses, approved a rezoning for the land where the University of Michigan’s new soccer facility has been built, and approved an overhauling of the ordinance that governs how false alarms to fire and police are penalized.
The council also received a variety of updates from staff, including one on the traffic control plan for the East Stadium bridges when they are reconstructed next year, as well as a response from the city’s CFO to recent community discussion of significant unpaid taxes that might be owed to the city.
The city council also accepted a gift on behalf of the city from the Ann Arbor Summer Festival – a giant print of a photograph by Myra Klarman.