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Agenda 01/12/2010 Item #10B Agenda Item No. 10B January 12, 2010 Page 1 of 12 EXE. ('(iTI"" ~'Tl\'M, AR" .'~ .. L ,_t.Jl.L .1. Report to the Board identifying key financial eiements impacting the FY 2011 budget policy including taxable values, millage rates, agency debt structure and other potential economic or legislative influences, OBJECTIVE: Provide a FY 2011 budget policy preview to the Board with emphasis on those key financial elements to consider in formation of the policy. CONSIDERATIONS: On December 15, 2009, the Board heard a presentation from staff discussing the status of FY 2010 capital project funding. As part of that discussion, staff was instructed to prepare a report discussing the agency's debt structure and other financial elements which will impact the FY 2011 budget priorto the Board's consideration of budget policy in February 20 10. Faced with a third straight year of County wide taxable value reductions; the prospects of instability in State shared revenues and sales tax due to uncertain economic conditions; continued decline in impact fees and the short tern) inabi1ity to re-structure thc "gency' s debt position dne to revenue and market constraints, the fiscal year 2011 budget will once again challenge management and the elected leadership to allocate scarce resources in a mallner which maintains critical public services and sustains those services customarily associated with quality of life in Collier County, - Taxable Value: The County's largest source of operating revenue is the property or "ad valorem" tax, Revenue generated is the product oftaxable value and the applied tax or "millage" rate, The following table provides a history of county wide and unincorporated area taxable value over the past three years (tax year 2007-2009) as well as the budget projection for tax year 2010 (FY 2011). Tax Year County Wide County Wide % Unincorporated ' Unincorporated I Taxable Value inc. (dec) Area Taxable Area % inc, Value (dec,) 2007 (FY $82,542,090,227 -------------- $53,397,231,747 ------------- 2008) , . 2008 (FY $78,662,966,9] 0 (4.7%) $50,860,023,424 (4.8%) 2009) 2009 (FY 2010) $69,996,831,960 (11.0%) $44,330,936,052 (12,8%) wlo final V AB Projected 2010 $62,997,161,838 $39,897,855;521 (10,0%) (FY 201]) .-- For budget planning purposes a 10% taxable value drop will be applied consistent with the attached guidance provided by the State (sce exhibit one), Any positive difference in taxable value and the resulting increase in ad valorem revcnue can be used to shore up the Board's General Fund (001) reserves and or pay down debt service. Preliminary taxable values for use in preparing the FY 2011 budget will be released by the Property Appraisers office in June 2010. "--,,.-.....'",.,.---.-... ."~~_...,,~.. Agenda Item No. 10B January 12, 2010 Page 2 of 12 The lax or "millage'" rate Ita::. varied uver GJ(;:: Y':"dl'; '::lfl,.i has ueeJl influenced by tlte taxable value environment, recent State legislation as well as vo,er approved referenda. Tax or "millage" rates for the past five years are shown in table form below, t ~~~::aj t:;~~_J ~I8~72--J ~i}7790- I FY 08 FY09 FY]O , - ,---" - ,-- ~---- -- $3,]469 $3.]469 $3.5645 Unincorporated $,8069 $.8069 $.69]2 $.69]2 $.7]6] Area Holding the millage rate at $3,5645 (millage neutral scenario) in FY 201] would equate to a $26,629,300 reduction in General Fund (00]) ad valorem revenues under a 10% reduction in taxable value. Likewise, millage neutral in the Unincorporated Area General Fund (I II) under a 10% taxable value reduction equates to a $3,394.200 loss in ad valorem dollars. Significant Budget Intluencrs:J'he decision t<) vt a millage rate and property tax levy is impacted by a number offactors and for FY 201 I, key factors include; I. Extent of capital, debt and operational transfer dollars expended by the General Fund and Unincorporated Area General Fund, 2, Level of operational cuts to agencies and departments which are funded within the General Fund and Unincorporated Arca General Fund. ..,. 3, Level of General Fund ad valorem operating support extended to eonstiilltional officers. 4. Extent of non ad valorem revenue projected to support operations such as sales tax, state shared revenue and departmental revenue, 5. Beginning-year cash fund balance. 6. Compliance with bond covenants, 7. Credit rating. Agency Debt Structure: At fiscal year ending September 30. 2009; the agency's principal outstanding Governmental Activity and Business Activity debt totaled $765,092,577. Exhibit two provides a summary by type, funding source and issue of the outstanding principal debt as of September 30, 2009 as well as principal and interest payments for FY 2011. Note that Business Activity (Utility) debt does not draw upon ad valorem revenue and is strictly supported by a pledge against system revenne. ,,"~"'- For FY 2010, the General Fund has programmed approximately $23,500,000 to offset certain Governmental Activity debt. This dcbt is generally for governmcntal facilities and the repayment source (not bond covenant revenue pledge) is impact fees. The debt load in the General fund has ,'-'- Agenda Item No. 10B January 12, 2010 Page 3 of 12 i"cc~ased in recent ycars primarily d;;;:: 10 the nec~scity to subsidize certain capital facilities debt due to insufficient impact fee revenue. T1e General Fund (001) has provided via transfer, 1/3 of a mil to non impact fee eligible county w,de capital functions and a debt payment component since FY 2006 (see attached exhibit three graph). This transfer has now evolved into a debt service payment and for FY 2010; the majority of this $23,5 million transfer will be used to cover debt service due to the lack of impact fee revenue. for f'Y 20 II, the lien era I Fund lOO I) transfer will be sized sutficient to cover debt service which cannot be covered by impact fees, Payment of debt is a top priority. Under a 10% decrease in taxable value, dollars generated from the 1/3,d mil allocation will be sufficient to cover this debt service requirement. Attached as exhibit four, is a briefing from the County's financial advisor which discusses certain aspects of the existing Governmental Activity Debt structure including potential payoff of the current $66 million commercial paper debt obligation prior to its maturity in February 2013 (FY 2012). While not obligated, the County has routinely paid off commercial paper principal in an attempt to reduce the final lump sum payment obligation. Typically, only interest payments are required. For FY 2011, a principal payment of $6,149,000 is scheduled. Deferring this principal ll"yment which is funded R8% through impact fees (120;;, through ad valorem revenues) could further reduce the General Fund transfer obligation. This action is an option and would be more p11atable if the County's existing debt could be roiled for five years beyond 2013 under a new commercial paper provider secured through the Florida Local Government Finance Commission. Staff is very optimistic that the commercial paper program will evolve under a new letter of credit provider prior to the February 20] 3 maturity date and will seek more specific guidance from the Board on this strategy during the upcoming budget policy discussion. In summary, the lack of capacity among pledged revenue sources such as sales tax and gas tcx coupled with current interest rate constraints limit short term flexibility in altering the County's debt structure in a manner which can reduce the General Fund's immediate debt obligation, However, staff will continue to explore the concept ofre-directing certain impact fee revenue to cover priority debt payments with consequences that include either deferral or postponement of impact fee funded capital improvements. The Economic Environment: Three months into tiscal year 20 I 0, sales tax and state shared revenues are trending slightly above budget. The FY 2010 revenue budget for sales tax totals $24,854,000 while state shared revenue totals $6,648,500, State estimates for annual collections exceed our budget projections by $1,000,000 for sales tax and $300,000 for state shared revenue. Property tax collections for FY 2010 are trending slightly higher than collections at the same point in time last year. Unfunded Mandates: Establishing sufficient General Fund reserves at 2.5 percent of operating expenses consistent with current policy is not only sound financial policy but provides a level of protection against the unknown costs associated with unfunded State and Federal mandates, .',.., Agenda Item NO.1 OB January 12, 2010 Page 4 of 12 Potential FY 2011 Strategies and or Actions: \'/hile dl options are available to the Board pending final decisions during formal budget policy discus>ions, staff at this til>lo is predisposed to recommend preparation of a millage neutral budget for FY 2011 with a complimentary service level menu which adds back or reduces services depending upon funding and actual taxable values, Successfully executing this strategy will require very difficult decisions concerning existing programs and services AND will require the Constitutional Offices to bear their fair share of nudger reductions. FISCAL IMPACT: There is no direct impact associated with this item, GROWTH MANAGEMENT IMPACT: None, LEGAL CONSIDERATIONS: None. RECOMMENDATION: That the Board accept this report and provide further guidance as desired, Prepared bv: John Y onkosky, Budget DIrector, Oftice of Management and Budget Susan Usher, Senior Budget /\nalyst Mark Isackson, Corporate Financial and Management Services, County Manager's Office ".",-.., " , ", \ Agi~a I em NO'J.10B c- ~,'\,\' ry 12, 4.010 . /' age 5 of 12 j . Revenue Estimating Conference Ad Valorem Assessments Last Conference Held: November 30, 2009 EXecutive Summary Estima.cs of the statewide property tax roll are primarily used in the appropriations process to approximate the Required Local Effort (RLE) millage rate. This Is the rate locai school districts must levy in order to participate in the Florida Education Finance Program, The January 1, 2010 certified school taxable value is projected to be $1,468,8 billion. This estimate is $51.5 billion or 3.4 percent lower than the estimate of July 30,2009. On an annual basis, it represents a 9.5 percent decrease from the January 1, 2009 tax roll. After deducting the statutorily required discount rate of 5.0 percent, the value of one mill applied to the January 1, 2010 estimate of school taxable value is $1.4 billion, or in terms of revenue a $146.4 million decrease. The actual RLE millage rate will be set after the legislative session. . - ,--" , n.--' Key Components of Taxable Value (billions of dollars} Actual 2008 Preliminary July 2009 Est. of November 2009 Taxable Value Percent Change January 2010 Tax EslofJanuary loss {10over Tax RoO 2009 Tax Roll (10 over 09) Roll 2010 Tax Roll 091 School Taxable Value. 1,819.0 1,622.9 1,520.2 1,468.8 -154.1 -9.5% Real Property 1,607.6 1,414.7 1,425.9 1,380.9 -33.8 -2.4% ~ PersooaI Property 101.7 101.7 103.0 103.7 2.0 2.0% Centrally Assessed 1.4 1.3 1.3 1.3 0.0 2.9% Sub Components of Real Property""" New'Construction 55.3 33,3 172.5 17.3 117.6 21.9 136.7 -11.3 .34.0% , - Save-Qur-Homes Differential 317.6 -35.8 -20.7% . School taxable value includes Value Adjustment Board changes and other appraiser adjustments. "New construction is an addition to the tax base, and the Save-Our-Homes differential is a subtraction from the tax base. County (non-school) taxable value is iower than school taxable value due to the greater number of exemptions available to property owners. In recent years, the Revenue Estimating Conference has been forecasting county taxable value separately from school taxable value, County taxable value on January 1, 2010 is projected to be $1,366,6 billion, On an annual basis, this represents a 10.0 percent decrease ($151.1 billion) from the January 1, 2009 tax roll. The value of one mill applied to the January 1, 2010 estimate of county taxable value is $1.4 billion. In terms of revenue, this represents a $151,1 million decrease from the prior roll. Increased foreclosures and distressed sales that are pushing down prices, coupled with declining commercial real estate activity, have led to the changes in the estimales. - . .._---~-,-,-,,------~._- ._"-,~--;--_.._,, '4-'____' 'L__'~___~",_'''_U, Agenda Item NO.1 08 January 12, 2010 Page 6 of 12 COLLIER COUNTY BOARD OF COUNTY COMMISSIONERS Item Number: Item Summary: 10B Report to the Board identifying key financial elements impacting the FY 2011 budget policy including taxable values, millage rates, agency debt structure and other potential economic or legislative influences. (Mark Isackson, Corporate Financial Planning and Management Services, County Manager's Office) 1/12/20109:00:00 AM Meeting Date: Approved By Susan Usher Management/Budget Analyst, Senior Date Office of Management & Budget Office of Management & Budget 116/20103:17 PM Approved By Mark Isackson ManagementfBudget Analyst, Senior Date Office of Management & Budget Office of Management & Budget 116/20103:22 PM Approved By John A. Yonkosky Director" Management and Budget Date Office of Management & Budget Office of Management & Budget 1/6/2010 4:05 PM Approved By Leo E. Ochs, Jr. County Manager Date County Managers Office County Managers Office 1/6/20104:34 PM Agenda Item No. 10B r: "\ j' I Jantl'1ry 12, 2010 C?'-.- -, \ )1 -i- '::i"age 7 of 12 Collier County Outstanding Debt (bonds & loans) Fund Revenue Source Outstanding Principal Fy 2011 P&I -- No. BondlLoan Pled e Earmarked for r . eol Bal (9/30/09' Debt Serv Pa e $32,815,000 200SA Limited General Oblication Bonds, Conservation Collier Voter approved 272 Pro tam milia e Ad Valorem I 17,885.000 I 4,932,875 $13,244.204 2005A Limited General Oblication Bonds, Conservation Collier Voter approved 273 Pro mm milia e Ad Valorem I 13,244.204 I 3,611.3]8 $6,2]5,0002007 Limited General Obligation Bonds, Forest Lake Raodway and Drainage Voter approved 259 MSTU millae Ad Valorem I 5,590,000 I 555.775 $47,430,0002002 Capital1mprovement 113 mil capital money & 210 Revenue Bonds Sales Tax ~ctrees I 30,175,000 I 3.804,828 $49,360,000 2003 Capital Improvement and 1/3 mil capital money & 215 RefundinlZ Revenue Bonds Sales Tax ~ctfees I 38,285,000 I 2,991.238 S 167,200,000 2005 Capital Improvement and 113 mil capital money & 216 Refundin Revenue Bonds Sales Tax impaetfees I 149,275,000 $ 12,546,894 212 S 102.125.000 2003 Gas Tax Revenue Bonds Gas Tax General Fund Transfer I 65,780,000 I 8.548,915 212 $96,255,0002005 Gas Tax Revenue Bonds Gas Tax General Fund Transfer I 94,085,OOQ $ 6,034,612 $12.000.000 State-Funded Stale Infrastructure Ga'i lax and 213 Bank Loan Agreement Impact Fees Gas Tax I 10,042,623 I 2.040,000 $1.870,0001997 Naples Park Area Storrnwater Special 226 Imorovement Assessment Bonds Assessment S ecialAssessment I 340,000 $ 198.220 $13,500.000 Bayshore Gateway Community Rcd~velopment Agency Tax-able Non~ 287 Revolvin Line of Credit CRA income CRA income I 13.500,000 I 1,787,300 loan for Sheriff Records Met Svstem 299 Commercial Paper A~34 (4 EMS ambulances) non~ad valorem EMS Impact Fees I 705,000 I 262.000 Commercial Paper A~35 (South Reg Lib - Site 299 Prep) non~ad valorem Library Impact Fees I 2,215.000 $ 275.700 299 Commercial Pa r A-36 (800 MHz u rade) non-ad valorem General Fund Transfer I 3,608,000 I 612,400 EMS, General Gov't Bldg, Law Enforce lmpael Fees and 299 Commercial Pa er A-37 (EOC) non-ad valorem Gen Fd Transfer I 7,444.000 I 880,100 299 Commercial Paoer A~38 (S ecial 00s) non-ad valorem Law Enforcement Impact Fee $ 11.091,000 I 2.313,700 299 Commercial Paner A-J9 (South Re~ Lib) non~ad valorem Libra 1m act Fees I 5.182,000 $ 640,700 Commercial Paper A-40 (EMS, land on Old 299 US41) non-ad valorem EMS Impact Fees I 704,000 I 122,300 General Governmental Bldgs 299 Commercial Pa r A-41 (Courthouse Annex) non-ad valorem Imapcl fee $ 19.523,000 $ 1.955,300 291) Commercial Pa er A42 (Vehicle Locator) non-ad valorem General Fund Transfer I 794,000 $ 294,000 299 Commercial Paver A-43 (Golden Gate Lib) non.ad valorem Librnrvlm act Fees I 4,067,000 I 504,200 General Governmental Bldgs 299 Commercial Pa A44 (BCC Fleet) non-ad valorem {mapet fee & Gen Fd Transfer I 2.290,000 I 285,200 299 Commercial Paper A-45 (Sheriff Fleet non.ad valorem Law Enforcement lmnact Fee $ 8,424,000 I 1,040,300 Subtotal ~ Govern mental Activities $ 504,248,827 $ 56,237,875 - Page I ._-_...-.. Agenda Item NO.1 OB January 12, 2010 Page 8 of 12 Collier County Outstanding Debt (bonds & loans) Fund Revenue Source Outstanding Principal Fy 2011 P&I No. Bonqa,oan Pledoe Earm rked for rcn3vrnenl Hal f9/10/02,L Debt Serv Payment $33,630,00020038 County Water/Sewer Water/Sewt'T 410 Rcfundinl! Revenue Bonds Revenues Water I Sewer User Fees $ 31,580,000 $ 4.835,050 $6,605,000 1999A County Water/Sewer Water/Sewer 410 RefunclinJl: Revenue Bonds Revenues Wateri Scwet User Fees $ 785.000 $ - $22.855,000 1999B County Water/Sewer Water/Sewer ~!O Refundin Rfwenue Bonds ;-~;;V(;r.i...CS """~r 'Sewer l'- - $ 11,450,000 $ 1,970.9"19 .. "'''' , }~<.;I , t:\;~ $1 ]0,165,0002006 County Water/Sewer Water/Sewer Water I Sewer User Fees and 410 Revenue Bonds Revenues imDaclfees $ ] 10,]65.000 $ 4.974,053 - $14,547,667 County Water./ Sewer District Water/Sewer 410 State Revolvin Fund Loan CS 120597070 Revenues Special Assessment $ 2,930,661 $ ],060,598 $13,292,898 County Water / Sewer District Water/Sewer 410 State Revoh'in Fund Loan CS 120597090 Revenues Sewer LJscr Fees $ 7.040,095 $ 886,480 $22,238,677 County Water / Sewer District Water/Sewer 410 State Revolvin Fund Loan CS120597100 Revenues Sewer Imnact Fees $ 14,600.956 S 1,463.31 J $5.160,675 County Water / Sewer District Slate Water/Sewer 410 Revolvin Fund Loan CSI2059715P Revenues Sewer Impact Fees $ 4,147,104 $ 346,589 $6,560,956 County Water / Sewer Distnct Slate Water/Sewer 410 Revolvine. Fund Loan CS120597074 Revenues Sewer Impact Fees $ 5.268,810 $ 440.334 $29,224,004 Coumy Water / Sewer District State Revolving Fund Loan WWG12059715L Water/Sewer 410 02 Rev'cnues Sewer Impact Fees $ 25.257.434 S 1.944,449 $10.525,509 County Water / Sewer District State Revolving Fund Loan V.l\VG 12059715L \\'ater/Sewcr 410 03 Revenues Sewerlm act Fees S lU13.752 S 668,242 $5,445.223 County Water I Sewer District State Water/Sewer 410 Revolving Fund Loan WW5971 7S Revenues Sewer 1m act Fees , 4.614,837 S 363.097 $5,188,500 County Water / Sewer Dlstnct State Waler/Sewer 410 Revoh'in Fund Loan WW597180 Revenues v..'ater User Fl::l::s $ 3.719,346 $ 338,696 $7,123.496 County Water I Sewer Dlstnct State \Vater/Sewer 4lO Revolvin Fund Loan OWll I 1020 Revenues Water User Fees S 4,816,360 $ 464,836 $11.478,810 County Waler / Sewer Dlstnct Water/Sewer 410 State Revolvin fund Loan OWI111 030 Revenues Watcr Impact Fees $ 11,009.256 $ 745,370 $11.637,070 County Water / Sewer District Water/Sewer 410 State Revolvin Fund Loan DW111 1040 Revenues Water Impacl Fees S 11.815,681 $ 755,634 $3.294,890 County Water / Sewer District Stale Water/Sewer 410 Revolvin Fund Loan DW1! 11 010 Revenues Water t:ser Fees $ 2,929.458 $ 216.078 Subtotal - Business Type Activity $ 260,843,750 $ 21,473,795 Total $ 765,092,577 $ 77,711,670 Page 2 .".."~~",."~,_.".....__.._",,,_..~... ,"'. -.",.., .....",'" :< ~ ~ I ~ C\ ~ tOON - 0 , N .- 0"'-""- .... - ~ '(""-0_ III - .N 0 Q) ~ o -0> ~_.('\.j - - '" ..-I c.. ..en ..-I _. 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M ~ 0 19 0 +-oJ '~ u U 0 ~ - \D ~ .- ro u E a c.. ~ ~ a r w N E w I ("I"') ~ '" .......... - ~ ~ ~ C ~ - " 0 0 " ro Z " c a a a a a a a 0 ~ a a a a a a -Vl- . ~ a a a a a a ~ 0 - - - - - - u a a a a a a x w - a a a 0 a a ~ 0 a a a a a a ~ " - - - - - - " a U"'I a U"'I a U"'I ~ (V') N N ..-I ..-I -Vl- 0 ~ -Vl- -Vl- -Vl- -Vl- -Vl- - 0 M ~ " m ~ I ..- .~-_..~_.__.-._-- ~ -- - -._-- T _._.- -- ~--._-' , -,-~..- -_...-......~-'"' 2121 Ponce de Leon Blvd, Suite 510 CoratGables, FL 33134 1_ --" \ A~€lnd,\ Item ,"d. 106 ~ (') II r}Jarruary 12,12010 Page 10 of 12 305-448-6992 305-448-7131 fax WWW.pfm_com The PFM Group ~_:Iic ,.- " """"!:(""'~:"'" T', . " .;'.''-.::.\{.:i \jl-;r "T"'''-,'.:: ~ '." .., . ,;~;.",; " November 30, 2009 Memorandum To: From: Re: John Y onkosky, Director of Management and Budget, Collier County, Florida Public Financial Managcment, Inc. Existing Debt Considerations The County's Budget Office has requested that Public Financial Management, Inc. ("PFM") review (1) the County's ensuing obligation to cash fund three Debt Service Reserve Funds ("DSRF") related to the County's Capital Improvement Revenue Bonds, Series 2002, 2003 and 2005 and (2) the County's potential future requirement to redeem the outstanding Commercial Paper notes presently outstanding through the Florida Association of Counties' Commercial Papcr Program. This memorandum is intended to identify possible alternatives for further or future actions. However, at this time we would like to emphasize that the County has been proactive in addressing these concerns and prudent in its decisions thus far. 1, Debt Service Reserve Surctv Requirements Collier County purchased the following Debt Service Reserve Fund surety policies in lieu of cash-funding a Debt Service Reserve Fund, At the lime of issuance, each insurer was rated Aaa/AAAlAAA by Moody's, S&P and Fitch, respectively, At this timc the insurcrs (AMBAC, FGIC & MBTA) have all been downgraded below acceptable levels, S"-.1'k.... Origin.tl P.lI (:t edit ":nh,UHTI n.tlilJ~"" SUH't\' SUH'lV N.nJlt' AJlIlJlIlI( J,IlIt.IllLn l\lolld\'" S.s.:J> i'tlth (J\f/\V~) PH'llIUIIlI Capital Improvement Revenue Ronds, Series 2002 47,430,000 FGIC'" \'CD WD \Xl]) 5,704,210 114,084 l.apiral Tmprovcment and Refunding Revenue RunJ.~, Series 2003 49,360,000 /\:\1HAC Caa2 CC Capitallmprovemcnt and Refunding Revenue B{)lld~, Seril:s 2005 1G7,200,000 i\-IRI:\' 1-)3 HER \'CD 2,629,064 52,581 \X/11 12701,(119 200.000 *MBIA Illinois has assumcd the insurance policies and related surety policies for MBlA and FGIC insured municipal honds. MBIA Illinois is currently rated 'Baal' and 'A' by Moody's and Standard ~ Poor's, respectively. Under the bond resolutions, an 'AAA' rated surety policy was a valid alternative for a cash- funded DSRF, The downgrade of each insuref below the 'AA' credit category requires replacement of the surely policy within one year. Replacement of the surety policies requircd Collier County to obtain a replacement surety Of deposit qualificd securities into a reserve fund. Interest on such funds would continue to accrue to Collier County, Since the global market crisis, and subsequent impact to local governments, PFM has worked with the County in order to determine the most effective course of action to deal with the DSRF Agenda Item NO.1 08 January 12,2010 Page 11 of 12 Collier Counn', Florida , November 30, 2009 PageZ - funding requirements, Over the last year, PFM and the County's finance committee have met re"uJarly and evaluated several alternatives, including: a) Renegotiating the bond covenants with each bond insurer - the bond insurers were note agreeable to this option. b) Securing an alternate DSRF surety from one of the remaining viable insurers (FSA, Assured, Berkshire) - This option would likely be very costly based on current market pncmg, c) Issuing taxable bonds in order to fund the DSRF requirement; borrowing additional monies to fund the DSRF requirement through a short-term borrowing program (i.e. F AC CP Program) - this option would be suitable ifno othcr funding was available. d) Refunding the existing 2002, 2003, and 2005 Bonds in order to change bond covenants - upon review of the existing bonds and the call features, it was determined that advance refunding these bonds would not be cost-effective, However, none of the available alternatives were deemed to be cost-efficient or prudent. This is particularly the case for Collier County, where fortunately other available cash balances were available and could be "re-designated" to be available for the DSRF, while interest earnings on those funds continued to How to the original purpose, As such, the County was able to satisfy the DSRF funding requirements without having to incur additional borrowing or make a one- time payment. Once the DSRF funding requirements have alleviated (Debt Service declines over time), the cash will be "un-designated," If at some time the existing cash is required for its original purpose, the County can proceed with alternatives b-d above or pursue other alternatives at that time, 2. Commercial Paper Notes Collier County currently has approximately $66.05 million of commercial paper notes outstanding through the Florida Association of Counties' CP Program, Principal on the commercial paper notes are structured to amortize annually through tile final estimated maturity year of 2028. However because commercial paper is a short-term instrument subject to a periodic "put option" from investors, the program requires a Letter of Credit ("LaC") at all times. Due to the global credit crisis, many banks are pulling back on credit exposure in Florida and throughout the United States, causing letters of credit to be scarcer over the last year. As such, the FAC's LaC provider has indicated that the FAC should not anticipate an extension of the LaC [at the current pricing] past the current termination date of February 2013. The impact to tile County if the LaC was not extended or replaced with another bank is that the outstanding amount would be due at that time, The County's budgct office estimates that the principal balance in 20 I 3 would be approximately $47 million. At this time we would note that the County is in a position of strength. The current LOC is in place through February 2013, and is being provided at a below market rate. While the LaC Bank has indicated that it will not renew the current LaC, it is still likcly that they would be ,- -- - ..-~~~._._,~~-----,--_. - "_"~~-"'--'.,.'~' .-- -..__..---~,,~.,," Agenda Item No, 10S January 12, 2010 Page 12 of 12 r.ollit:f County, Florida 1\;ovember 30, 2009 Page 3 willing to renegotiate a market rate at some point prior to the 2013 expiration, or that another LOC Bank would be wi!!ing to $tep in wi:h a new LOC. The CP Plvgram is currcntly trading at attractive levels (variable rate), and below the budgeted interest amounts, which provides the County with financial flexibility. At the same time, the CP serves as the County's only variahle interest rate exposure and forms a natural hedge with the County's investment earnings. Should the worst-ease scenario play out in 2013 (the F AC is unablc to secure an LOC provider, the program cffectively shuts down, and the $47M principal payment is accelerated), the County would have several options, including: . Refinancing the principal balance through a bond issuance with one of the County's existing bond liens (i.e. sales tax), It should be noted that PFM has reviewed the County's existing pledged revenues and determined that very limited capacity is currently available. However. ifand when revenues recover (by JOI3) additional capacity should be available. . Refinancing the principal balance through a bond issuance with a newly created non-Ad Valorem revenue pledge. This would essentially entail the same revenues currently available to pay interest on thc CP program, and could reasonably be expected to achieve at least an 'A' category credit rating. . Refinancing the principal balance through the creation of an internal CP Program, In conclusion, the County is not under pressure to cnter into a financial transaction that would not be beneficial. The County is actively monitoring its outstanding obligations and has taken proactive steps to review the situation. While the Debt Service Reserve Fund requirements are not ideal, the actions takcn thus far do represent the most viable alternative, On the same note, continual monitoring of the CP program is appropriate, however any action taken should be considered carefully due to the amount ohime prior to the LOC's expiration. It should be noted that PFM communicates with the County's finance conunittee on a regular basis and continually monitors market conditions and credit ratings for opportunities to prudently and effectively manage the County's debt profile. We will continue to do so in the future,