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HomeMy WebLinkAboutMINUTES - 07231985 - 2.3 23 TO: BOARD OF SUPERVISORS } FROM: Al Lomeli, Treasurer-Tax Collect Contra Don Bouchet, Auditor-Controller Costa Phil Batchelor, County Administra o DATE: July 17 , 1985 County SUBJECT: Short-Term Borrowing Program SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION RECOMMENDATION• Accept report of County Administrator, Auditor-Controller and Treasurer-Tax Collector on the County' s short-term borrowing program for 1985-1986. BACKGROUND: Each year the County borrows a substantial sum of money on a relatively short-term basis to cover the dry period in the County Budget until property taxes and other major revenue sources are received later in the fiscal year. The interest the County must pay to borrow this money is a critical factor in preparing the County Budget each year. The nigher a County' s credit rating, the lower the interest rate the County must pay to borrow this money in relation to other jurisdictions which have a lower rating. In the 1985-86 fiscal year, the County is borrowing $70 million. Therefore, each 1/2 of 1% increase in interest rate the County would have to pay because of lowered credit rating translates into $350, 000 in additional interest payments. The difference between the highest ratings; i.e. , Moody' s MIG 1 (Municipal Investment Grade 1) , Standard and Poors SP-1+ and those agencies ' next lower ratings can result in an interest rate differential of from one-half to more than 2%, depending on market conditions. Last year, for example, another county' s credit rating slipped to MIG 2 and their interest rate for the year was 2. 3% higher than ours. A 2% difference in interest rates could cost the County $1. 4 million in additional interest over the fiscal year based on a borrowing program of $70 million. At the beginning of the 1984-1985 fiscal year, the County was just coming out of a major fiscal crisis. The County' s credit rating was threatened because of concerns on the part of the major rating agencies as to the fiscal stability of the County. In adopting the 1984-1985 fiscal year County Budget, the Board of Supervisors adopted a series of fiscal guidelines which CONTINUED ON ATTACHMENT: YES SIGNATURE: RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE X APPROVE X OTHER SIGNATURE(S) ACTION OF BOARD ON July 23, 1985 APPROVED AS RECOMMENDED X OTHER VOTE OF SUPERVISORS UNANIMOUS (ABSENT :22r ) I HEREBY CERTIFY THAT THIS IS A TRUE „ AYES: NOES: AND CORRECT COPY OF AN ACTION TAKEN ABSENT: ABSTAIN: AND ENTERED ON THE MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. CC: County Administrator ATTESTED /9,8S /9,8 S County Auditor-Controller PHIL BATCHELOR, CLERK OF THE BOARD OF 11- County Treasurer-Tax Collector SUPERVISORS AND COUNTY ADMINISTRATOR h M882/7-88 BY �� DEPUTY 4, • Page 2 provided for a budget which included a realistic budgeting of revenue; a 3% reserve, along with a commitment to move toward a 5% reserve; careful tracking of expenditures and revenues during the year, and a commitment to use the reserves only for emergency situations. In spite of a financially difficult time experienced by the County in 1983-1984, the rating agencies agreed to allow the County to have a rating that would not be significantly detrimental to our sale of the issues. However, they indicated that they would carefully monitor what happened in the County to make sure the County complied with these policies. They also asked the County to obtain a backup line of credit, which cost the County $72 ,000 and which resulted in a delay of issuance, resulting in a $240 ,000 loss of interest revenue. During the 1984-1985 fiscal year, the Board honored their commitment and did not touch the Reserves. The objectives for the 1985-1986 borrowing program were to demonstrate the excellent job done by the Board of Supervisors in helping to put the County on a firm financial footing, and to show that the Board had complied with the fiscal policies they had adopted in June, 1984. We wanted to obtain the highest rating available from Standard and Poors and Moody' s; eliminate the line of credit, and reduce issuance costs. We assured the rating agencies that in 1985-1986 the County would follow the same pattern of realistically budgeting revenues and expenditures , carefully monitoring expenditures during the year, and not touching the reserves except for an emergency. While there were many probing questions about the fiscal condition of the County, the Board' s record eventually persuaded the rating agencies that the County would again be a premium investment. This has resulted in our achieving our three objectives: 1. We received the highest rating available; 2 . No line of credit is being required for the 1985-1986 borrowing; 3 . There was no delay in the issuance and, therefore, no loss of interest revenue. We have been able to negotiate a fixed interest rate of 4 . 7% on one-half of the $70 , 000 ,000, with the balance at a variable interest rate of 4 . 1% which can move higher or lower after the first 30 days. The Proposed Budget currently before the Board provides for a Reserve of $10 . 2 million, only slightly more -than in 1984-1985. This translates into a Reserve of only 2 . 890 of our budget. The rating agencies see 3% as the minimum we should maintain. They have recommended that we move toward a Reserve of more like 5%. Because this Reserve is only minimally adequate, it is essential that the Board maintain the same resolve it showed in 1984-1985 and insure that the adopted budget provides this full $10. 2 million Reserve, and that it is not eroded during the fiscal year. If the Reserves are tapped for other than emergencies, it will impair our borrowing program in the future and will reduce the interest revenue the County receives from investing the borrowed money until it is needed. Page 3 We believe, as we told the rating agencies, that the Board is solving the County' s fiscal problems. The Board' s continued commitment to fiscal stability will, in the long run, save the taxpayers of the County substantial sums of money and will help to preserve valuable programs which would otherwise have to be reduced or eliminated to pay higher interest rates on the County' s borrowing program.