Stories indexed with the term ‘debt’

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.” [Full Story]

Final approval to refinance debt for a sewer system on the county’s west side was given by Washtenaw County commissioners at their Feb. 20, 2013 meeting. The refinancing, which is intended to save about $110,000 in interest payment, got initial approval at the county board’s Feb. 6, 2013 meeting. [.pdf of bond resolution]

The resolution authorizes the sale of refunding bonds that would be used to pay the remaining principal on existing bonds that were sold in 2004. That year, the county sold $5.115 million in bonds to help Lyndon and Sylvan townships pay for the sewer. Of that amount, $2.25 million remains to be repaid. According to a staff memo, the project built sewers at Cavanaugh, Sugar Loaf, … [Full Story]

At its July 11, 2012 meeting, the Washtenaw County board of commissioners authorized a contract with Sylvan Township related to debt repayment on water and sewer bonds. It’s another attempt to establish an arrangement under which Sylvan Township will repay the county for covering bond payments – contingent on Sylvan Township voters approving a millage.

In May of 2012, the county had picked up a $175,000 interest payment that the township couldn’t afford to make, related to $12.5 million in bonds that were issued 11 years ago – and backed by the county’s full faith and credit – to build a water and wastewater treatment plant in the township. The treatment plant in Sylvan Township that was intended for future development. Under a previous contract with the … [Full Story]

University of Michigan board of regents meeting (Dec. 17, 2010): Only two regents were physically present at Friday’s board meeting, which had been rescheduled from Thursday so that university officials could attend the funeral of Mark Pescovitz. The husband of Ora Pescovitz, who leads the University of Michigan Health System, died earlier this month in a car accident.

Despite some logistical challenges presented by a conference call format – which allowed the other regents to participate remotely – the board dispatched with its last meeting of 2010 in 20 minutes. They approved the schematic designs for two major building projects: a renovation of the Alice Lloyd Hall student dorm, and an addition to the G.G. Brown mechanical engineering building. Regents also authorized the university to guarantee a portion of the debt to be incurred by Merit Network, a nonprofit that provides Internet services for research, government and educational entities. The debt is related to a $102.9 million federal stimulus grant awarded to Merit.

As an information item, the regents received an annual report on leases that the university holds for space over 50,000 square feet. Tim Slottow, UM’s chief financial officer, reported that leased space compared to a year ago is essentially flat. While some units have moved out of leased space and into the North Campus Research Complex – the former Pfizer site – other leases have expanded. [Full Story]

On a summer cycle of once-a-month meetings, the Washtenaw County board of commissioners were briefed last week about the agenda for their July 7 meeting. Much of the briefing was spent discussing an item that likely won’t be up for a vote – resurrecting the county’s land bank.

The board dissolved the land bank – a tool used to help the county deal with foreclosed and blighted properties – at their March 2010 meeting, but commissioner Ronnie Peterson has pushed to bring it back. He initially proposed putting a resolution on the June meeting agenda, but later agreed to a request by board chair Rolland Sizemore Jr. to hold off until July. But at the June 29 briefing, Sizemore and Conan Smith, who chairs the board’s Ways & Means Committee, said they were not putting a resolution on the July 7 agenda either, though discussion on the topic is scheduled for the meeting. Peterson did not attend the briefing.

A range of other items are on the agenda, including a public hearing on possible expansion of the county road commission, and a resolution regarding a transparency initiative that’s been in the works for several months. Led by commissioner Kristin Judge, the effort aims to put more of the county’s public documents, especially financial information, online.

Commissioners expressed some concern over one agenda item: Restructuring the debt for a Dexter Township wastewater system, with the goal of lowering payments – payments the township might otherwise have trouble making. The item led some commissioners to ask for a report on debt held by local townships that’s backed by the county’s credit. [Full Story]

A little less than a week after hearing a presentation from city administrator Roger Fraser on his recommended budget for fiscal year 2010 and a plan for 2011, mayor pro tem Marcia Higgins canceled council’s regularly scheduled Sunday night caucus (April 19). No explanation was provided on the city’s website for the cancellation, which was posted on Friday. At least one citizen was alerted to the canceled meeting by reading a sign on city hall’s door at 7 p.m. Sunday evening.

Council must act to amend the recommended budget by its second meeting in May – or the administrator’s recommended budget is automatically adopted, a provision of Ann Arbor’s city charter. There are thus possibly two more caucus meetings before council makes its decision on the recommended budget, which contains a number of proposed cuts.

One of the possible functions of council’s caucus is to assemble “caucus questions” – questions from council to city staff about issues they are going to be considering. Some council members have contended that electronic mail is a far more efficient method of communication, and that caucus is not an efficient use of their time.

Recognizing  that the work that would otherwise be accomplished at caucus can achieved via electronic mail, The Chronicle asked all councilmembers and the mayor to forward their caucus questions to us, in an effort to move the more mundane and tedious work of council more squarely into public view. We report below the responses we received, plus the questions The Chronicle has identified in connection with the city’s budget – some of which have already been answered. [Full Story]