Mecklenburg county debt affordability
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Mecklenburg County Debt Affordability. Presentation to the Board of County Commissioners June 24, 2008. Overview of Presentation. Overview of Debt Position Rating Agencies’ Perspective Benchmarks and Ratios Available Debt Capacity Recommendations & Next Steps. 2.

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Mecklenburg County Debt Affordability

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Mecklenburg county debt affordability

Mecklenburg CountyDebt Affordability

Presentation to the Board of County Commissioners

June 24, 2008


Overview of presentation

Overview of Presentation

  • Overview of Debt Position

  • Rating Agencies’ Perspective

  • Benchmarks and Ratios

  • Available Debt Capacity

  • Recommendations & Next Steps

2


Overview of debt position

Overview of Debt Position

  • At June 30, 2008 the County’s outstanding debt will total $2,278,565,000.

  • $1.8 billion of General Obligation Bonds and $518 million of Certificates of Participation (COPs).

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Overview of debt position1

Overview of Debt Position

  • Of that amount, $1.5 billion is fixed rate and $718 million is variable rate.

  • The total fixed portion includes $331 million of variable rate that was swapped to fixed rate.

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Overview of debt position2

Overview of Debt Position

The outstanding debt is for the following purposes

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Overview of debt position3

Overview of Debt Position

Authorized and unissued debt totals $718.5 million.

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Overview of debt position4

Overview of Debt Position

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The miscellaneous category represents the authorization for the school administrative facilities approved by the BOCC in 2007.


Overview of debt position5

Overview of Debt Position

Projected Debt Service-Current Outstanding Debt

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Overview of debt position6

Overview of Debt Position

Projected Debt Service-Current Outstanding Debt & Authorized and Unissued

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Rating agencies perspective

Rating Agencies’ Perspective

  • Mecklenburg County is rated AAA by all three major credit rating agencies.

  • County was last rated in December 2007 and our AAA ratings were affirmed and given a stable outlook.

  • Despite the affirmation of the AAA rating and the overall strength of the credit, the rating reports indicate some areas of concern.

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Rating agencies perspective1

Rating Agencies’ Perspective

Fitch Ratings:

“Fitch believes that economic growth will keep pace with the growing debt levels, resulting in a continued moderate debt burden; however it views with concern the county’s lack of compliance with its debt policies.”

“Although Fitch generally views the adoption of such a policy favorably, it notes that the county is out of compliance with one of the targets; limiting its impact on credit strength.”

“it views with concern the increased operating pressures posed by growing debt service payments. At 17.9% of fiscal 2007 actual expenditures and 20% of the county’s 2008 general fund operating budget, the county’s debt service payment is high and in excess of its 16% target.”

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Rating agencies perspective2

Rating Agencies’ Perspective

Moody’s Investor Service

“Debt service equaled 18.3% of 2007 operational expenditures, above the county’s targeted ceiling of 16%. Fiscal 2008 and fiscal 2009 debt service is also projected to exceed the county’s target levels. The county continuing to exceed this fiscal target could have negative credit implications moving forward. Further, the ability of the county to manage debt service expenditures relative to its budget will be a key factor in future credit analysis.”

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Rating agencies perspective3

Rating Agencies’ Perspective

Expectation of Rating Agencies

  • Mecklenburg County will continue to issue debt to finance its capital program;

  • Mecklenburg County will update its debt policy to more accurately reflect its current and future debt positions;

  • Mecklenburg County will identify other sources of funding for its capital program.

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Benchmarks and ratios

Benchmarks and Ratios

Current Debt Policy

Overall Debt Per Capita: measure will be maintained in the range of $3,500 to $3,600.

Overall Debt as a Percentage of Assessed Valuation: ratio is targeted at 3.3% with a ceiling of 4%.

Debt Service as a Percentage of Operational Budget: ratio is targeted at a level of 14% with a ceiling of 16%.

Ten-year Payout Ratio: maintain a floor of 64%

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Benchmarks and ratios1

Benchmarks and Ratios

Projected Ratios at June 30, 2008

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Benchmarks and ratios2

Benchmarks and Ratios

Comparison to other “AAA” Counties

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Benchmarks and ratios3

Benchmarks and Ratios

Comparison to other “AAA” Counties In North Carolina

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Source: Moody’s MFRA data as of April 25, 2008


Measuring debt capacity

Measuring Debt Capacity

Determining Available Debt Capacity

  • Analyze capital needs

  • Project future assessed valuation, population growth, and operating expenditures.

  • Establish not-to-exceed limits for debt ratios

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Measuring debt capacity1

Measuring Debt Capacity

Projected Bond Sales

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Measuring debt capacity2

Measuring Debt Capacity

Projected Debt Service-Current Outstanding, Auth/Unissued, CIP & Available Capacity

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Measuring debt capacity3

Measuring Debt Capacity

Tax Rate Effect


Measuring debt capacity4

Measuring Debt Capacity

Projected Outstanding Debt

At the end of FY 2009, outstanding debt is projected to total $2.5 billion.

This is expected to increase to $3.3 billion by the end of FY 2015.


Measuring debt capacity5

Measuring Debt Capacity

Based on projected bond sales, debt per capita and debt service as a percentage of operational budget are out of compliance with the current debt policy.

  • Assessed Valuation – FY2009 is budget amount; growth rate of 20% in FY2010 and 3.7% growth annually thereafter.

  • Population – estimated to grow 3% annually.

  • General Fund Operating expenditures – project to increase 5.76% annually.

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Recommendations

Recommendations

1)Amend Debt Policy to include revised debt ratio targets:Increase overall debt per capita to $4,000.Increase debt service as a percentage of the operational budget to 22%.

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Recommendations1

Recommendations

2) Increase pay-go funding for capital projectsOptions for pay-go funding

Dedicate three pennies on the tax rate for capital projects.Dedicate all or a portion of 8% excess fund balance for capital projects.Dedicate proceeds from all county land sales for capital projects.Move forward with new ¼ cent sales tax and dedicate proceeds to capital projects.

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Recommendations2

Recommendations

If this pay-go strategy were to be in place for FY09, an estimated $101.3 million could be available to fund capital projects.

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*Assumes the sale of Hal Marshall is completed in FY09


Recommendations3

Recommendations

3) Incorporate pay-go strategy into the County’s Debt Policy.

4) Cap borrowing at $350 million per year to stay within debt ratio targets.

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Next steps

Next Steps

  • Based on feedback, a revised debt policy will be developed and presented to the Board no later than September.


Mecklenburg county debt affordability

Questions?

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