Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
December 6, 2012
Prepared by:
Muskegon County Finance and Management Services Department and
Member FINRA & SIPC © 2012
First Southwest Company

1.
Bond Ratings
2.
Additional Debt Capacity Analysis
3.
Municipal Bond Market Update
4.
Summary of Existing Debt
5.
Summary of Tax-Supported Existing Debt
6.
Series 2013 Plan of Finance
7.
Proposed Schedule of Events
2

Muskegon County, Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
3

• The County’s unlimited tax debt is currently rated “Aa2” by Moody’s (the voted Series 2009 Building Authority Bonds)
• The County’s limited tax debt is currently rated “Aa3” by Moody’s and
“AA” by Standard and Poor’s
• Standard and Poor’s revised the County’s management practices under
S&P’s Financial Management Assessment (FMA) methodology from
“good” to “strong” in May 2011
• Additionally, the last short term rating for the Delinquent Tax Anticipation
Notes was “SP-1+” by Standard and Poor’s (highest category)
• Over the last 15 years the County’s bond ratings have been upgraded several notches: from “Baa1/A” to “Aa2/AA” for unlimited tax pledge and from “A3/A” to “Aa3/AA” for the limited tax pledge
4

• “Stable and diverse local economy and participation in the greater Grand
Rapids and Kent County, Mich. economies;”
• Taxable base per capita still strong despite recent contractions since 2010.
• County’s median household and per capita incomes at 80% and 74% of national level are adequate.
• “Very strong financial position, demonstrated by very strong reserves and additional liquidity outside the general fund…”
• History of general fund surpluses and balanced budgets in challenging times.
• “We consider the county's overall net debt burden (excluding self-supporting enterprise and Michigan Transportation Fund debt) to be moderate…”
5

• “Overlapping debt is a significant portion of the County's debt profile.”
• “Carrying charges as a percent of total governmental funds expenditures less capital outlay were what we consider low at 1.4% in fiscal 2011.”
• County has addressed pension unfunded liabilities and instituted a defined contribution plan.
• “Strong” Financial Management Assessment (S&P’s highest category)
– Long term planning
– Capital improvement plans
– Board receives monthly updates from Staff
– Board approved a debt management policy in 2011
– General Fund reserves targets have historically been met
6

Long Term
Moody’s Fitch / S&P
Aaa AAA
Aa1
Aa2
Aa3
A1
A2
AA+
AA
AA-
A+
A3
Baa1
Baa2
Baa3
Ba1
Ba2
A
A-
BBB+
BBB
BBB-
BB+
BB
Short Term (less than 3 years)
Moody’s S & P Fitch
MIG 1
MIG 2
MIG 3
SG
SP-1+
SP-1
SP-2
SP-3
F1 (+ or -)
F2 (+ or -)
F3 (+ or -)
B (+ or -)
Ratings below the line are speculative grade.
Muskegon County
Stable Outlook from S&P, no expectation of rating change within 2 year outlook as of April 2012.
7

County
Kent
Oakland
Ottawa
Ingham
Washtenaw
Allegan
Jackson
Kalamazoo
Grand Traverse
Muskegon
Newaygo
Oceana
Genesee
Wayne
State of Michigan
AA
AA
AA
AA-
AA+
AA+
AA
AA
S&P
AAA
AAA
AA
A+
A
BBB+
AA-
Moody's
Aaa (LT)
Aaa (LT)
Aaa (LT)
Aa2 (LT)
Aa1 (LT)
Aa3 (LT)
Aa2 (LT)
Aa2 (LT)
Aa2 (LT)
Aa2 (UT) / Aa3 (LT)
Not Rated
Not Rated
A1 (LT)
Baa2 (LT)
Aa2
Sorted based on S&P rating (except for Ottawa County since its S&P rating is outdated)
Fitch
Not Rated
Not Rated
AAA
Not Rated
AA+
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
AA
Not Rated
Not Rated
BBB+
AA-
*LT = Limited Tax
*UT = Unlimited Tax
8

Muskegon County, Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
9

• Legal Debt Capacity = 10% of State Equalized Valuation
2012 State Equalized Valuation
Debt Limit (10% of State Equalized Valuation)
Less: Amount of Outstanding Debt as of 12/6/12
Legal Debt Capacity as of 12/6/12
• Market Driven Debt Capacity = Interest Cost/Ratings
• County’s Willingness to Pay = Actual Debt Capacity
$4,746,485,450
$474,648,545
$144,045,000
$330,603,545
10

Muskegon County, Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
11

• The County currently has $144,045,000 of outstanding debt secured by the taxing powers or appropriation pledge of the County.
• The amount stated above include the County’s Road Commission Michigan
Transportation Fund Notes and the assumption that the Michigan Finance
Authority commitments have been drawn in full.
• The County’s debt is supported by the following sources of revenue:
1. Operating ad valorem tax revenue
2. Quality of Life ad valorem tax revenue
3. Special assessment revenue from townships within the County
4. Delinquent tax revenue
5. Water Supply System revenue
6. Wastewater System revenue
7. Michigan Transportation Fund revenue
12

13

$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$-
Debt Service Composition by Repayment Source
Operating Taxes
Water Revenue
Quality of Life Taxes
Wastewater Revenue
Period Ending 9/30
Special Assessments
MI Trans Fund Revenue
Delinquent Taxes
14

Muskegon County, Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
15

• The County currently has $17,070,000 of outstanding debt being paid by operating tax revenues. (Excludes quality of life and delinquent tax debt)
• The County’s operating tax-supported debt is as follows:
– Muskegon County Building Authority Debt ($10,415,000)
• Mental Health Facility Bonds
• Muskegon County Michael E. Kozba Hall of Justice and Heritage Landing
Bonds
– Governmental Activities Tax Supported Debt ($6,655,000)
• Energy Conservation Bonds
16

$2,000,000
$1,800,000
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$-
Existing Operating Tax Supported Debt Service
Period Ending 9/30
Operating Taxes
17

Muskegon County, Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
18

• Tax-exempt municipal bond rates are at historical lows.
• The Federal Reserve’s monetary policy is expected to remain unchanged until mid-2015.
• Investors’ “flight to quality” has contributed to the low rates in high quality investment grade bonds.
• Expectation of income tax increases contributes to higher demand for taxexempt bonds.
• Low supply of tax-exempt bonds and high demand for such securities has contributed to lower interest rates.
19

9.00
8.00
7.00
6.00
5.00
4.00
Bond Buyer GO Index
25 Year History
Weekly Actual as of 11/30/2012
Bond Buyer GO Index
Current: 3.29%
Average: 5.44%
Max: 8.10%
Min: 3.29%
Current 3.29%
3.00
2.00
1.00
0.00
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
This graph depicts historical interest rates and their respective relationships. Future interest rates are dependent upon many factors such as, but not limited to, interest rate trends, tax rates, the supply and demand of short term securities, changes in laws, rules and regulations, as well as changes in credit quality and rating agency considerations. The effect of changes in such factors individually or in any combination could materially affect the relationships and effective interest rates. These results should be viewed with these potential changes in mind as well as the understanding that there may be interruptions in the short term market or no market may exist at all.
The Bond Buyer General Obligation index hit the lowest rate since records began in the
1960s.
20

4.500%
4.000%
3.500%
3.000%
2.500%
2.000%
1.500%
1.000%
0.500%
0.000%
Muskegon County, Michigan
Cost of Funds
As of December 5, 2012
1.260%
1.260%
2.310%
2.310%
3.128%
2.480%
3.630%
2.780%
3.911%
3.000%
10yr par callable bonds
Maturity
Non callable bonds
21

Muskegon County, Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
22

• The Project will be funded with a $7,000,000 cash contribution plus
Limited Tax Bonds payable from the County’s operating tax revenues.
• Operational changes by eliminating positions open budgetary capacity between $503,000 and $1,177,000 (6 to 15 positions).
• Changes in insurance providers and past equity investments of the general fund in self-insurance activities (reducing annual expenditures by approximately $800,000).
• Realization of actual administrative expenses from County funds.
23

Mean Project Cost
Less:
Cash Contribution from General Fund
Net Project Cost
Jail Beds
Juvenile Trans Ctr Beds
Estimated Bond Funds
(including bond premium)
Amortization
Average Life of Bonds
“AA” Rated All-in Cost as of
12/5/12
Budget Impact in Dollars
Option 1d
Base w/Craig
School
$25,405,268
Option 1d
Base w/Craig
School plus
Alternates 1 & 2
$34,968,983
Option 1c
Base w/Craig
School
$31,816,027
Option 1c
Base w/Craig
School plus
Alternates 1 & 2
$37,791,080
($6,130,000)
$19,275,268
480 beds
16 beds
$16,545,169
25 years
19.01 years
3.66%
$831,383
(FY 2015)
($5,685,000)
$29,283,983
582 beds
32 beds
$29,618,301
25 years
19.33 years
3.68%
$1,326,883
(FY 2015)
($5,820,000)
$25,996,027
544 beds
16 beds
$26,304,632
25 years
19.82 years
3.71%
$1,126,333
(FY 2015)
($5,560,000)
$32,231,080
576 beds
32 beds
$32,580,317
25 years
18.98 years
3.66%
$1,509,233
(FY 2015)
24

Muskegon County, Michigan
Jail and Juvenile Transition Center Project
Plan of Finance (Series 2013)
25

• December 2012
– Finalize costs scenarios and recommend Project alternative
• February 2013
– Presentation of Final Plan of Finance and key dates to the Board of
Commissioners
– Begin preparation of bond sale (legal and financial analysis and due diligence)
• March/April 2013
– Bond Rating meetings/conference calls
• April-August 2013
– Issuance of Series 2013 Bonds
– Closing and delivery of funds to the County
26