However, on Wednesday, July 3, board chair Yousef Rabhi and county administrator Verna McDaniel issued a joint statement announcing a decision not to put the bond-related items on the July 10 agenda. They 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. [See Chronicle coverage: "County to Push Back Vote on Bond Proposal."]

Another public hearing on the bond proposal had been held on June 5. That 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. More than a half dozen people also spoke at the July 10 hearing, as well as during two opportunities for public commentary. Many of the speakers were affiliated with a group called the Washtenaw Watchdogs, which has raised concerns about the bonding and is prepared to launch a petition drive that would force the proposal to be put on the ballot for voters to approve. Doug Smith, one of the group’s organizers, told commissioners that the Washtenaw Watchdogs will have a booth at the Ann Arbor art fairs, and is recruiting volunteers.

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.

It’s unclear what actions might be taken next. The administration has previously stated that the bonding proposal was crucial to developing a four-year budget from 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. Without the bonding, the county had expected to pay an estimated $30 million contribution toward these obligations in 2014, with additional amounts varying in subsequent years.

The board had also voted to hold an extra meeting this month, on July 24. That meeting will be held as planned, but instead of bonding, the main topic will be a discussion of budget priorities.

This brief was filed from the boardroom of the county administration building at 220 N. Main St. in Ann Arbor. A more detailed report will follow: [link]

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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A range of other recommendations include closing Mack pool for the summer, eliminating funding for the civic band and Project Grow, and increasing the water utility’s safety services fee by 4%.

The timeline for the budget’s adoption will include an April 14 town hall meeting at 7 p.m. at the CTN studios on South Industrial. That will be followed by public hearings on May 4, with council adopting a budget with any amendments on May 18. If council fails to act on the budget or to amend it by its second meeting in May, then per the city charter, the budget as submitted by the city administrator is automatically adopted.

The park advisory commission will hold a public hearing next Tuesday, April 21, on the recommendations related to parks, before voting on its recommendation.

The plan (not the budget per se) for FY 2011 will be adopted at the same time the FY 2010 budget is adopted. In that second year of the two-year plan, 14 firefighters, or the equivalent of one truck company, would make up the majority of the 22 eliminated positions. For this next year, 27 of the 34  positions proposed for elimination would come from law enforcement.

Fraser said that the intent was to avoid a scenario where demotions from lieutenant to sergeant and sergeant to patrol officer would take place, a situation where the newest, most enthusiastic recruits would be shed from the department. [The newest recruits are also the least highly compensated.] Instead, he said, the plan was to spend $4.8 million from the general fund reserve on an early-out retirement program. The reserve fund expenditure would bring the reserve down to 12%, putting it at the lower end of the recommended 12-15% range. Fraser said that 16-18 command officers might participate in the program, and that earlier in the day, the plan had received the support of the Ann Arbor Police Officer’s Association.

The materials provided to councilmembers on the mix of law enforcement positions to be eliminated were: 8 community standards, 6 command, 10 patrol, 1 dispatch, 2 clerical. However, Tom Crawford, chief financial officer for the city, said that the exact mix of those positions would depend on participation in the early-out program.

Fraser said that the reductions were possible because Barnett Jones, chief of safety services, had undertaken a restructuring of the police department to reduce the size of sergeant and lieutenant ranks to focus resources on patrol, with specialty patrols for housing and downtown areas covered by regular patrol officers. The reduction in community standards officers (who write parking tickets, among other things), would be facilitated by patrol officers supporting ticket enforcement.

Not discussed at the council working session was the potential dovetailing of reduced ticket enforcement resources on the city’s side, with the possible purchase of parking meter enforcement rights in the downtown area by the DDA – an idea that was floated at the last DDA board meeting by Rene Greff. Greff chairs the DDA board’s ad hoc committee formed to begin conversations about the parking agreement between the city and the DDA.

Councilmembers sought clarity on some of the more visible proposals for cuts, which would come in 2011, like the closing of the senior center and of Mack pool for the summer. Leigh Greden (Ward 3) and Stephen Rapundalo (Ward 2) were concerned about whether adequate planning had been done to provide for transitioning to other areas for people who use those services. Jayne Miller, director of community services, said that for the senior center such transitioning would be provided – including on an individual basis. For the pool, there needed to be communication with the Ann Arbor Public Schools system, said Miller, to offer the possibility that the pool might stay open with the schools shouldering a commensurate part of the cost.

Fraser followed up Miller’s point on the school system, saying that in the coming week he hoped to finally reach a written agreement on how to jointly operate recreational ball fields with the schools. He indicated that the city had been working hard over the last five years to achieve an equitable and mutually beneficial arrangement, not just for the ball fields. Fraser said that overtures to the schools by the city in other areas had not yet yielded results.

In response to a query by Marcia Higgins (Ward 4), Fraser discussed another area of cost-saving that has not yet yielded dramatic results: regional cooperation. Higgins asked about the overall strategy of collaboration with other government entities in light of some of the proposed cuts for 2011, which she described as “rather unpalatable.” Fraser drew an analogy of government entities to neighbors who live next door, who just choose to live differently – even when it makes sense to collaborate. Two examples of progress offered by Fraser in that category were the city-county data center consolidation and agreements with surrounding townships and the city of Ypsilanti for firefighting response along the corridor between Ann Arbor and Ypsilanti.

Sandi Smith wanted to know what happened to the discussion of increasing revenues that council had had during its budget retreat in January. Otherwise put, where does the city stand with respect to the request for a city income tax study? Fraser said that the state of Michigan was providing income levels for the city of Ann Arbor, and that employers were providing data for  employees who work in Ann Arbor, but who live outside the city limits. By the end of April, Fraser said, the work should be completed by Plante & Moran, the firm tapped to do the study.

Based on some of the specific items identified for cuts, even relatively small savings opportunities were identified in the proposed budget. For example, city clerk Jackie Beaudry, whose office would permanently lose a now-vacant .60 full-time position, identified the publication of council’s agenda in the local newspaper as a move that could save $15,000 a year. Beaudry said after the work session that council would need to change its rules in order to realize the savings. In relevant part, the council rules read:

The approved agenda for all meetings of Council, including Work Sessions, shall be published in a newspaper of general circulation in the City no later than the Sunday prior to each meeting, except those meetings called less than six days prior to a meeting.

The slides from the presentation at the work session are available here in .pdf format. A binder with the detail of the proposed budget will be available on the second floor of the Larcom Building and at the public library. For members of the public who would like own a copy, the cost for reproduction (which includes charts in color) is $26.36.

The April 14 town hall meeting on the budget, which will be held at CTN studios at 2805 S. Industrial, starts at 7 p.m.

Below we’ve reproduced the budget numbers, followed by some highlights identified by city staff in each year.

Recommended Expenditure Budget
Fiscal Year Budget
                                Adopted     Recommended       Projected
                                   2009            2010            2011
General Fund Expenditures
Police                     $ 27,195,233    $ 26,057,095    $ 27,188,966
Fire                         13,928,987      14,176,119      13,516,759
AATA                          9,741,489       9,636,345       9,135,256
Parks Forestry & Operations   4,225,101       4,132,898       4,063,921
Parks & Recreation            3,844,838       3,718,788       3,511,483
Finance                       4,143,302       3,956,114       4,016,264
Courts                        4,507,684       4,226,107       4,357,693
Planning & Development        2,104,163       2,611,699       2,592,084
Community Development         2,076,980       2,428,699       1,950,666
Public Services               2,179,171       2,105,899       2,017,628
Fleet & Facilities            1,287,695       1,316,428       1,599,240
Attorney                      2,082,710       2,041,949       1,988,580
City Clerk                      924,882         885,960       1,039,966
City Administrator              639,695         634,034         607,334
Mayor & Council                 343,502         348,917         350,740
Transfers/Other              10,332,730       6,887,892       5,664,680
  Total GF Expenditures**  $ 89,214,660    $ 84,816,026    $ 83,250,520

General Fund Revenues
Taxes                      $ 52,076,573    $ 51,492,881    $ 48,993,217
State-shared Revenue         10,756,613      10,827,062      10,827,062
Charges for Services          5,866,021       7,333,170       7,704,717
Fines & Forfeitures           6,182,365       5,131,420       4,861,882
Other                        14,333,088      10,413,505      10,481,630
  Total GF Revenues        $ 89,214,660    $ 85,198,038    $ 82,868,508

Net Surplus/(Deficit)      $          0    $    382,012    $   (382,012) 

Undesignated Fund Balance  $ 13,515,463    $ 13,897,475    $ 13,515,463 

     ** Adopted Budget subsequently amended to $90,791,514

_

FY 2010 Ann Arbor City Budget Highlights

General Fund 2010

POLICE

• Reduction in size of sergeant and lieutenant ranks to focus resources on patrol
• Specialty patrols (ie. housing, downtown, etc.) would be covered by regular patrol
• Community standards reduced with existing patrol supporting ticket enforcement
• Add a 3rd School Resource Officer / Reduce 1 Canine / Reduce vehicle fleet by 14
• FTE positions reduced by 27 (8 community standards, 6 command, 10 patrol, 1 dispatch, 2 clerical)

FIRE

• Reduce non-FTE expenditures and overtime

COMMUNITY SERVICES

• Mack pool will close down for the summer (only)
• Eliminate funding for Civic Band ($7k), Project Grow ($7k), & 1 GIS employee
• Reduce hours at Vets Park Fitness Center ($9k) & expand teen camp pilot
• Leslie Science Center becomes fully financially independent of the city ($31k)
• Rental Housing Inspection Fees – 3% increase

OTHER

• Eliminate publication of council agenda in newspaper ($15k)
• Reduce projected cost of employee compensation and benefits
• Energy savings / Reduced maintenance for LEDs ($29k)
• Service drive parking meter revenue, net of set-up costs ($380k)
• 4% Safety Services Fee from water utility ($787k)
• Loading zone permit fees & S. Industrial football parking revenue ($12k)
• Reduce 4.6 FTEs – 1 in Treasury (vacant), 2 in Courts (vacant), 1 in HR, and 0.6 in Clerks (vacant)

Non-general Fund 2010

Act 51 Funds/Weight & Gas Tax (Funds Right-of-Way Maintenance Activities)

• Anticipated revenue decrease [3% major roads, 5% local roads] ($345k)
• Extend street sweeping cycle from 5 to 8 weeks ($148k)
• Traffic calming reduction [50% or 1 program per yr.] ($28k)
• Extend gravel road grading cycle from 6 to 8 weeks ($40k)
• Reduction in overtime costs for snow removal ($65k)

Utility Funds (Water, Sanitary Sewer, Storm Water)

• 3.6% increase in water revenue requirements
• 1.6% increase in storm water revenue requirement
• 3.1% increase in sanitary sewer revenue requirements
• 4% Safety Service Fee to General Fund
• Planting of 600 trees for storm water benefit ($300k)

Other (Constraints of Diminished Tax Revenue)

• Reduction in Parks Maintenance & Capital Improvements Millage revenue by $65k
• Reduction in Greenbelt Millage revenue by $26k
• Reduction in Solid Waste Millage revenue by $135k

FY 2011 Ann Arbor City Budget Highlights

General Fund 2011

FIRE

• Reduce 14 FTEs in Fire ($1.1 mil.) – equivalent to 1 truck company

COMMUNITY SERVICES

• Reduce Human Services allocations by $260k
• Eliminate Historic District contract ($24k)
• Close or turn over Mack pool to AAPS ($59k)
• Eliminate 30 hours per week of seasonal assistant facility supervisor ($12k)
• Close senior center ($141k)
• Reduce 2.5 FTEs (1 in Parks & Rec., 1 Support Specialist in Planning Development, & 0.5 Planner)
• Rental Housing Inspection Fees – 3% increase

OTHER

• Eliminate contracted services for Park Ops. ($31k)
• Include 8 months of utility charges for Court/PD building ($184k)
• Reduce projected cost of employee compensation and benefits
• Increase revenue or reduce 1 FTE in FASA (financial services)
• Revenue: Service Dr. Parking Meter/Net of Maintenance Costs ($460k)
• Revenue: Energy Savings/Maintenance from LED Installations ($12,323)
• Expenditures: Energy Savings/Maintenance from LED Installations ($69,600)

Non-General Fund FY 2011

Utility Funds/Water, Sanitary Sewer, Storm Water

Revenue:

• 3.49% increase in Water Revenue Requirements (Operation & Maintenance Budgets held constant to accommodate capital requirements)
• 1.75% increase in Storm Water Revenue Requirement (Bonding for Capital Improvements)
• 3% increase in Sanitary Sewer Revenue Requirements (Operation & Maintenance Budgets held constant to accommodate capital requirements)

Expenditures:

• 4% Safety Service Fee ($813,750)

Other

• Reduce 3 FTEs in Construction Code Fund – 2 development services inspectors (1 vacant) & 1 support specialist
• Reduction in Parks Maintenance & Capital Improvements Millage revenue by $270k
• Reduction in Greenbelt Millage revenue by $117k
• Reduction in Solid Waste millage revenue by $607k

Willie Powell, the executive director of the retirement system, needed a couple of tries to get the grim news out: plan assets had dropped $30 million (preliminary) in October, and combined with a $50 million drop in September, the asset value was now just below $300 million – down 33% year to date. I noticed a definite groan coming from the vicinity of Tom Crawford, chief financial officer for the city of Ann Arbor.

Bar chart by The Chronicle based on data from minutes of City of Ann Arbor Employees' Retirement System board of trustees meetings, available on the city's website.

Since the city employees’ retirement plan is a defined benefit plan, it puts “us the taxpayers” on the hook for making up for any shortfall in funds. What that means for you and me is difficult to assess at this point, but don’t count on your taxes going down anytime soon.

We should not single out our pension trustees as the source of the problem. In less demanding years the plans have performed satisfactorily. Ann Arbor is not alone in feeling the pain as wave after wave of banks, insurance companies and other businesses fail despite the $700 billion bailout initiated by Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson. Many public and private investment portfolios are down even more percentage-wise than ours as the “bear market” devours stocks and bonds indiscriminately.

We all should care about these losses because Michigan law stipulates that required employer contributions to pension trusts are not optional. Deficiencies can be amortized out over 30 years, but they must be made up. Several trustees pressed very hard for the plan’s independent actuary to identify a new Actuarially Required Contribution (ARC) for fiscal year 2010, which starts next June. The consensus was that, ceteris paribus, the ARC would increase from approximately $7.5 million to $9 million and potentially more. This additional $1.5 million or more will have to come from somewhere: cutting expenses, increasing revenue, or from the general fund surplus.

For almost two years I have been mildly cajoling our elected representatives (chiefly city council members and the mayor) that it was time to take our collective foot off the spending accelerator. My main message has been that the city should conserve our “rainy day” fund cash (surplus money in the general fund) for contingencies just such as this. Now, thanks to credit default swaps, collateralized debt obligations and a lot of other things that you have never heard of and have no control over, our “weather forecast” has changed to partly cloudy with a 75% chance of rain!

In the past, Ann Arbor liked to boast that we were immune from the seemingly perpetual economic malaise that plagued the rest of the state. When Pfizer abruptly pulled out of Ann Arbor, we began to sense that this time things might be different. Now, with a two-month paper loss equal to the entire annual budget of the general fund, it should be perfectly clear, in fact obvious, that it is a time for fiscal restraint. Even University of Michigan Hospital Systems has announced layoffs. When our city council meets for their annual budget retreat in January, they must make it clear to the taxpayers and municipal employees that it will not be business as usual for the foreseeable future.

Henceforth, every expenditure must be examined and prioritized. No doubt we will emerge from this recession, but we must protect ourselves from core service cuts by hunkering down and spending more wisely. Our options are becoming extremely limited.

Editor’s note: The Ann Arbor Employees’ Retirement System board of trustees meetings are held the third Thursday of every month at 8:30 a.m. These meetings are held in the Retirement System conference room at 532 S. Maple Rd., Ann Arbor. Next meeting: Dec. 18. The budget retreat to which Nelson refers takes place on Jan. 10 at the Wheeler Service Center, 4150 Platt Road, starting at 8:30 a.m.