County to Push Back Vote on Bond Proposal

Action on a controversial bond proposal to cover unfunded pension and retiree healthcare obligations will not take place at a July 10, 2013 meeting of the Washtenaw County board of commissioners as had originally been planned. The decision not to put bond-related items on the July 10 agenda was made this week and announced on Wednesday, July 3.

County administrator Verna McDaniel, standing, at a June 27, 2013 public forum to discuss a major bonding proposal. Seated from the left are county commissioners Yousef Rabhi and Andy LaBarre, and former Ann Arbor Public Schools trustee Bob Rorke.

A joint statement by board chair Yousef Rabhi and county administrator Verna McDaniel, posted on the county’s website late Wednesday afternoon, cited the need to address questions and concerns that had been raised by commissioners and the public, as well as uncertainty related to the state approval process that’s required for this type of bonding.

Just last week, McDaniel held a public forum to provide information about the bonding process. At the June 27 forum, which was attended primarily by county staff and former or current elected officials, McDaniel presented only two options: (1) issue bonds to cover the full amount of unfunded liabilities, estimated to total more than $250 million, or (2) implement dramatic cuts in county services and programs.

This had been the administration’s approach since first publicly floating the idea in mid-April, and since work started on the plan privately in November 2012. A website devoted to the bond proposal, posted last month, includes a list of potential cuts to discretionary programs if the bonding did not move forward. The cuts include items like the elimination of 12 sheriff deputy road patrol positions and cutting the Washtenaw Health Plan. [.pdf of discretionary cuts] [.pdf of implications for county funding to outside agencies]

A public hearing on the bond proposal was held on June 5, and the board had voted to schedule another public hearing – to be held on July 10. The June 5 public hearing drew four people who all expressed caution about the possible action, as some attendees suggested a millage or additional budget cuts to cover the retiree obligations – instead of bonding.

Some commissioners have also asked whether alternatives to a bonding approach might also be viable, but the administration has not provided other options. The plan put forward by the administration was to bond for up to $345 million, although officials believed the amount would be lower than that, pending an updated actuarial report. A preliminary report, delivered late last month, has set the total of unfunded liabilities at $295,115,000 according to Rabhi.

This is the second time that action has been pushed back. Items related to the bonding proposal were originally slated for the May 15, 2013 agenda, but Rabhi pulled those items from the agenda after concerns were raised that the process was moving too quickly for adequate public input and board deliberation.

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. At this point, the law has a sunset of Dec. 31, 2014.

The county had expected to pay an estimated $30 million contribution toward these obligations in 2014, with additional amounts varying in subsequent years. The county administration was looking for ways to manage those payments as it develops a four-year budget proposal for 2014-2017. The administration has set a goal of identifying $6.99 million in structural reductions for the overall 2014 general fund budget, based on the assumption that the bonding would take place.

The county’s bond counsel, John Axe, was instrumental in crafting the law that makes this kind of bonding possible. He had been working on the proposal for Washtenaw County since November 2012, and has advocated for bonding for the entire amount of the unfunded liabilities. At the board’s May 2, 2013 working session to discuss the proposal, Axe told commissioners: “If you don’t issue the bonds, you’re going to have horrible budget problems.”

A financial analysis prepared by Municipal Financial Consultants Inc. (MFCI) – led by Axe’s daughter, Meredith Shanle – assumed that the county would pay an average interest rate of 4% on the bonds, or a total of $239 million in interest over the life of the 25-year bond. At that rate, the county would pay a total of $583 million in combined interest and principal, based on bonding for an estimated $345 million. Fees paid to Axe would have been an estimated $485,000. The county planned to invest the funds from the bonds and earn an average return on its investments of 6.5%.

Part of the process for issuing this type of bond includes approval by the Michigan Dept. of Treasury. [.pdf of bond application requirements] To date, no other municipality has completed the approval process. Saginaw County was the first to apply, making its application in February.

Several actions related to bonding proposal had been expected to take place at the July 10 meeting, prior to the July 3 decision to delay on a vote. Those actions would have included:

• Vote on 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.
• Vote the bond resolution and “continuing disclosure” resolution. The board would have been asked to set a maximum amount for the bond. The continuing disclosure resolution is standard for all bond issues over $1 million, and indicates that the county will provide updated financial information annually during the term of the bond.
• Vote to create an intermediate trust. The trust would have received the bond proceeds, and trustees would have been appointed to oversee the money managers to handle the investments.

The board had also voted to hold an extra meeting this month, on July 24. In a phone interview with The Chronicle on July 3, Rabhi said the July 24 meeting will be held as planned. Instead of bonding, however, the main topic will likely be a discussion of budget priorities.

At this point, Rabhi said, no date has been identified for when a bonding proposal might be back on the board’s agenda.

Here’s the statement from Rabhi and McDaniel, issued late afternoon on July 3:

As all of you are aware, the proposed retiree health care and pension bonding is scheduled for the July 10, 2013, Ways & Means agenda. The opportunities which the County has presented for public input has demonstrated that there are many unanswered questions pertaining to this proposed bonding. In addition, Commissioners still have concerns and questions about the bonding, which we wish to resolve prior to bringing the bonding before the Board for deliberation.

Also, while doing due diligence for Wednesday’s meeting, Finance Director, Kelly Belknap, discovered that the Michigan State Department of Treasury, which must ultimately approve the bonding, still has not developed a template of the items which a local governmental entity must provide to be approved. This matter has been discussed with Board leadership and we have agreed to put a hold on the proposed bonding to give the Board and Administration enough time to explore other options for the County to follow and address its budget needs. The proposed bonding items have been removed from the July 10, 2013, Ways & Means agenda.

If you have any questions or concerns, please contact Washtenaw County Administrative Office at (734) 222-6894, Yousef Rabhi, Chair of the Board, at (734) 548-5159, or email the County Administrator at WCAdministrator@ewashtenaw.org.

Sincerely,

Commissioner Yousef Rabhi, Chair of the Board & Verna McDaniel, Washtenaw County Administrator

For background, see Chronicle coverage: “County Board Debates $345M Bond Proposal” and “County Budget, Bonding Decisions Loom,” and “County Grapples with Court Budget.”

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