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HomeMy WebLinkAbout04-24-17 Finance Committee MinutesDUBLIN CITY COUNCIL FINANCE COMMITTEE MEETING OF THE WHOLE Monday, April 24, 2017 Council Chambers Minutes of Meeting Mr. Keenan, Finance Committee Chair, called the meeting to order at 5:30 p.m. Finance Committee Members present: Mr. Keenan, Ms. Alutto, Mr. Lecklider Also present were Mayor Peterson, Ms. Amorose Groomes, Vice Mayor Reiner. Ms. Salay arrived at 6:05 p.m. Staff present: Mr. McDaniel, Ms. Mumma, Ms. Kennedy, Mr. Gaines, Ms. Goss, Ms. Crandall, Ms. Richison, Mr. Plouck. Approval of Minutes of 11-28-16 Mr. Keenan moved to approve the minutes of the Finance Committee Meeting of November 28, 2016. Ms. Alutto seconded the motion. Vote on the motion: Mr. Keenan, yes; Ms. Alutto, yes; Mr. Lecklider, yes. Debt Presentation Ms. Mumma stated that the first quarter financials were provided to Council in their packet. The focus of tonight's meeting is on debt. Ms. Mumma introduced the advisors to the City of Dublin: Brian Cooper, James Hargrove and Thomas Ricchiuto with Umbaugh & Associates, and the City's bond counsel Chris Franzmann from Squire, Patton, Boggs. Ms. Mumma stated the purpose of the meeting was to provide Council with an understanding of the City's debt. After this presentation, Council will have a better understanding of: • The various types of debt; • The City's current debt profile; • The financing plan for 2017 and forward; and • The evaluation of the City's creditworthiness by rating agencies, specifically Moody's and how that might be impacted in the future. Ms. Mumma stated that this important financing tool fits in with the City's planned investment. The capital budgets recommended by the Administration reflect a level of investment that is affordable, given the City's conservative revenue estimates and within the confines of state restrictions and Dublin's own policies. Ms. Mumma provided a chart of the City's outstanding bonds as of the meeting date, and stated that there are approximately $135 million in par outstanding. Council members have inquired in the past about paying down debt with cash. However, there are constraints within each bond issue that specify the call dates, so until 2019, none of those are able to be refunded. With the exception of the City's non tax revenue bonds that were issued in 2015 for the two parking garages in Bridge Park, all of the City's debt is General Obligation. General Obligation (GO) bonds are backed by the full faith and credit of the City, which results in a lower interest rate. GO debt is rated higher by the rating agencies than any other debt, given that full faith and credit backing by the City. The City currently has one unlimited tax General Obligation bond, which obligates the City to raise property tax revenues in order to satisfy debt service requirements if necessary. Dublin is fortunate to have sufficient resources, so the City has never had to take measures to raise property taxes. Finance Committee of the Whole April 24, 2017 Page 2 Ms. Mumma stated that there are three different constraints on the City's overall ability to issue debt: the Statutory Debt Limit, the Constitutional Debt limit and the City's own debt policy limitations. • The Statutory Debt limit likely poses no issue for the City now or in the foreseeable future as it relates to borrowing capacity. • Frequently referred to as the "ten -mill" limitation, the Constitutional Debt limitation stipulates that the maximum combined unvoted ad valorem property taxes that all overlapping subdivisions may impose on a taxpayer is one percent of assessed valuation (10 mills). Available millage continually changes as entities issue or pay off debt. As a result of this limitation, the City will likely have to consider options other than a General Obligation pledge on all debt in the future. While it has been beneficial in the past, it has reduced some of the debt capacity that exists. The City's practice of utilizing General Obligation debt is not uncommon. • The City's debt policy states that of the 25% of income tax revenue that is dedicated to capital improvements, 60% is reserved to pay debt service while the remaining 40% is used to cash fund projects. Also, the maximum amount of debt shall not exceed 90% of the allocation of income tax revenue allocated to pay debt service. Income Tax Revenue is just one source of revenue that the City uses to pay debt. Other sources to retire debt service include: TIF revenues, property taxes, special assessments, water/sewer revenue and other sources such as Hotel -Motel Tax or State Highway Funds. Ms. Mumma provided Council with a comprehensive listing in their packets of all the City's outstanding debt and the sources of revenue that the City uses to pay them. Ms. Mumma illustrated the projected debt service that was included as part of the 2017-2021 CIP. Looking specifically at 2017, it was anticipated that the City would issue $54.8 million of debt for projects. As projects change, are delayed or accelerated, the estimates in the CIP could change as well. Staff will be preparing for Council's consideration at their May 8 meeting a bond package in the amount of $35.4 million, which is $19.4 million less than expected for projects in 2017. Ms. Mumma gave a brief description of the projects that will be financed by the bond package and explained that some projects will be put into a later bond package closer to when construction for those projects would begin. Ms. Mumma provided a timeline for the bond package coming before Council in May. Ms. Mumma shared a graph illustrating debt service analysis. As stated earlier, income tax is only one source of revenue used to retire debt. Income tax revenues alone traditionally are not sufficient to pay the entire debt service of the City. However, combined with these other revenue sources, there have been and will continue to be sufficient revenues to retire the City's debt. Ms. Mumma stated that an important comparison is the debt service funded from the City's income tax revenues against the City's actual income tax revenues to ensure compliance with the debt policy. She provided an illustration showing that there are sufficient resources from the income tax to support the income tax debt through 2030. The proposed financing plan is compliant within the City's approved debt policy. The other important conclusion drawn from the illustration was that there are sufficient resources -- between the income tax and other sources of revenue -- to support the total debt service of the City (excluding water, sewer and special assessments as they each have a dedicated revenue stream to pay the debt service). Finance Committee of the Whole April 24, 2017 Page 3 Ms. Mumma stated that the credit rating assigned to the City's bonds is very important. She invited Mr. Hargrove to explain the rating process. Mr. Hargrove stated that the credit rating process is similar to a campaign. Aaa is the highest credit rating and there are grades between of AA down to BB. The City has the highest credit rating. Mr. Hargrove used Moody's Investor Services for an example. There are four major criteria that Moody's considers: • Economy/Tax Base: This is 30% of the weighting. Under this category, there are three sub -categories: o Tax Base Size (full valuation) o Full Value per Capita o Wealth (median family income) • Finance: This is also 30% of the weighting. The sub -categories are: o Fund Balance as a percentage of revenue o Five-year dollar change in fund balances as a percentage of revenues o Cash balance as a percentage of revenues o Five-year dollar change in cash balance as a percentage of revenues. • Management: 20% weighted. o Institutional Framework — the ability to adjust revenues. o Operating history — five year average of operating revenue/operative expenditures • Debt and Pension: 20% weighted. o Net Direct Debt/Full Value o Net Operating Revenues o three-year average of Moody's Adjusted Net Pension Liabilities/Full Value o three-year average of Moody's Adjusted Net Pension Liabilities/Operating Revenues Direct Debt. Being a part of the robust Central Ohio economy contributes to the rating factors. Mr. Hargrove stated the credit rating agency also looks favorably upon the City having a formal adopted policy regarding fund balances. Mr. Hargrove shared with Council an illustration showing the rating impact of future debt. The City's current rating is 1.5 (Aaa). Looking out to 2021, the scores are anticipated to increase to 1.53, 1.54, etc., which is just above the Aaa rating. This model assumes no growth in the tax base and no growth in the fund balances, which are unlikely. In response to Vice Mayor Reiner, Mr. Hargrove stated that the score changing to 1.53, 1.54, etc., is more related to the future debt coming into the picture and not the tax base growth. Mr. Keenan stated that it is a conservative outlook as the City has always done. The City has always intentionally overestimated expenses and underestimated revenues. In response to Mr. Keenan's question, Ms. Mumma stated that this model does take into consideration any debt retiring in the future. Vice Mayor Reiner asked about the analysis that is done by the credit rating agency and how aware they are of the statistics regarding size and number of businesses in a community. Finance Committee of the Whole April 24, 2017 Page 4 Mr. Hargrove stated they are aware of statistics and they look at the number of employers and the tax revenue in total. He believes they would conclude that the City of Dublin has a large, diverse economy. Ms. Mumma stated that this concludes the debt presentation. There were no questions. Ms. Mumma noted that the proposed CIP is aggressive, however it does represent forward investment in the community over the next five years. This investment will contribute to not only maintaining the tax base but growing the tax base. The debt plan proposed in the 2017-2021 CIP operates within the confines of the debt policy. While aggressive, the plan leaves additional capacity and is affordable, based on revenue estimates. Mr. Keenan inquired about the 10 mill overlapping debt limitations and whether or not the inside millage is the same concept. Ms. Mumma stated that the concept of inside millage is different from what is being discussed at this meeting. Ms. Amorose Groomes stated that the assumptions of zero growth were mentioned. Is there any modeling done in case there are any decreases? She referenced the Financial Update Memo provided in the packet, stating that the estimates were assumed to be a 4 percent decrease in revenues in 2016, but later in the memo it states that the quarter closed with revenues decreasing by 1.3 percent. She wants to clarify that the City anticipated a 4% decrease in revenues, but the actual was only 1.3%. Ms. Mumma responded that through the first quarter of 2017, revenues were down 1.3% over the first quarter last year. Ms. Amorose Groomes asked if the projection was for a 4% decrease. Ms. Mumma stated that overall for the year, staff is projecting a 4% decrease over the 2016 actuals. She then referenced a spreadsheet that was offered to Council in their packet illustrating a breakdown month -by -month. Ms. Amorose Groomes clarified her question. If the assumption is for flat revenues, but the City is budgeting a decrease in revenues, what happens if a really conservative decrease of a percent does occur? What does that do to those numbers in terms of net effect? Ms. Mumma stated that when staff estimates the 2017 income tax revenues, it is done when the operating budget is discussed with Council in November of each year. At that point in time, staff was expecting a 4% increase, based on that revised estimate. Throughout the year, staff looks at the revenues year-to-date and revises the estimates, based on what is actually occurring; typically, it is more positive than expected. At the time the operating budget was approved last year, the budget for 2017 included a projected 4% decrease in income tax revenue over 2016's estimate. Ultimately, it showed a 5.1% decrease over 2016. Therefore, quarter by quarter, the first quarter of 2017 is down 1.3% over the first quarter of 2016. However, based on staffs estimate for 2017, we are actually ahead of the estimate. Ms. Amorose Groomes reiterated that 4% was projected, but only 1.3% was the actual. She restated her question as, "if we assume flat, no growth, no decrease, what would happen if those projections were even a very modest decrease of a percent or two?" She wants to know the effect on the future numbers -- or would the extra credit the City received negate that? Finance Committee of the Whole April 24, 2017 Page 5 Mr. Hargrove stated that they did not run out any decline in revenues to see an impact. The rating agencies would be looking at the tax base for valuation versus income tax collections, so he believes it would have a minor impact, which would be offset by the other factors. In response to Mr. Keenan's question regarding whether or not rating agencies look at historical budget data, Mr. Hargrove stated that the rating agencies do look at estimates, but they base the rating on actuals. Mr. Keenan stated that the direction from Council has always been to be conservative on projecting revenues and aggressive on projecting expenses. Ms. Mumma stated that aside from the rating, it is important to note that the City only programs 90% of its income tax revenue for debt service, which leaves a little cushion for an unforeseen circumstance. Mr. Lecklider asked if the Fitch rating agency applied their stress test analysis on the City last year and the City still received their highest rating. Mr. Hargrove stated that was correct. There were no further comments. The meeting was adjourned at 6:14 p.m. Clerk of Council