County of San Diego Rating Agency Presentation May 2004
Introductions County of San Diego Walt Ekard, Chief Administrative Officer Donald F. Steuer, Chief Financial Officer Tracy Sandoval, Auditor and Controller/Assistant Chief Financial Officer Janel Pehau, Director, Office of Financial Planning Lisa Keller-Chiodo, Capital Finance Manager Group Finance Directors Jill Serrano, Group Finance Director, Public Safety Terry Hogan, Group Finance Director, Health & Human Services Agency Ray Fernandez, Group Finance Director, Land Use & Environment Jerry Hughs, Group Finance Director, Community Services Michelle Bush, Group Finance Director, Finance & General Government • Treasurer-Tax Collector • Dan McAllister, Treasurer-Tax Collector • Auditor and Controller • Christopher Gilmore, Deputy Controller
Mission Statement and Strategic Initiatives Mission Statement: “To provide the residents of San Diego County with superior County services in terms of quality, timeliness and value in order to improve the region’s Quality of Life.” Strategic Initiatives: Improving Opportunities for Kids Protect the Environment Promoting Safe & Livable Communities
Recognitions of Excellence General Management System (GMS): • San Diego County Taxpayers Association: 2003 Grand Golden Watchdog Award • CSAC: 2003 Challenge Award Operational Excellence: • NACo: 2003 Achievement Award - Best in Class - Risk Management for Workers’ Compensation • NACo: 2003 Achievement Award for Pension Obligation Bonds • GFOA: Distinguished Budget Presentation and Certificate of Achievement for Excellence in Financial Reporting Strategic Initiative Recognition: • NACo: 2004 Acts of Caring Awards Program-Criminal Justice • CSAC: 2003 California Community Partnership Award • American Planning Association California Chapter: 2003 State Planning Award
Credit Highlights • The County’s previous and current actions demonstrate its ability to make difficult decisions to cut spending and retain a structurally balanced budget, while still meeting its obligations to taxpayers and residents of the County. • The County is well-positioned to manage the challenges presented by the State of California’s fiscal crisis.
Table Of Contents • Economic Overview & Highlights • Financial Results & Fiscal Year 04-05 & 05-06 Operational Plan • County Retirement System & Pension Obligation Bonds • County Investment Pool • 2004-05 Tax and Revenue Anticipation Notes • Long-Term Bonded Debt • Closing Remarks
San Diego is a Place People Want to Go • PETCO Park opened in April 2004 • San Diego Convention Center is celebrating 15 years in the community • $10 billion in economic impact • Generated more than 7.4 million hotel room nights • San Diego ranked as #1 for Spring and Summer Travel Destination • Location Location Location
Economic Highlights • Statewide job growth • Strong job market, with County unemployment (3.9%) below State (6.2%) and National (5.8%) forecasts
Economic Highlights • San Diego County has experienced positive economic growth every year since 1994. • If San Diego were a separate country it would rank as the 30th largest economy in the world, equal in economic output to Finland or Thailand. • San Diego has the largest number of military personnel in the nation. • Construction Housing Boom • Increase in Housing prices (Average Price $518,650) • Property Tax Base has increased 9% a year since 1997.
2. Financial Results & Fiscal Year 04-05 & 05-06 Operational Plan
Financial Highlights FY 2003-04 • VLF revenues are expected to be under budget by $45.0 million • All other general purpose revenues are projected to be $16.0 million higher than budget • Firestorm 2003: County committed appropriations of $22.6m, $18m has been approved and $3.7m has been received • Amount not included as part of Fund Balance or resources for FY 04-05 • $39m of unappropriated fund balance
General Fund Financial Results * Balances for the year ended June 30, 2001 were significantly affected by the implementation of GASB 33, which requires equity that was previously classified in certain agency funds to be consolidated with the General Fund. **As reported in the Third Quarter Fund Balance Report.
Conservative Budgeting & Strong Financial Performance (1) Third Quarter Fund Balance Report for each respective fiscal year, Excess Ongoing Revenues over Ongoing Expenditures
($000s) Reserves and Resources
Challenges for the Future • State Economy • Structural Cost Increases • Property Tax Shift • Categorical Program Impacts • Dependence on State Government • Workforce Transition
Financial Highlights FY 2004-05 • The County’s operational plan built on the January 9, 2004 governor’s budget. • County will retain the general reserve of $55.5 million and will appropriate an operational contingency reserve of $11 million. • The plan includes the final two years of five-year salaries and benefits agreements for most of the County’s bargaining units. • Retirement costs have been incorporated into the County’s cost structure.
Fiscal Year 04-05 Proposed Operational Budget $ 3.96 Billion – by fund 3% decrease
FY 04-05 General Fund Proposed Operational Budget Revenues (in millions) $2.763 Billion County maintains balanced budget. Appropriations (in millions)
General Fund Revenue Composition By Source – (in millions) 0.8% decrease General Purpose Revenue of $630.2M – 2.5% decrease
Public Safety Mission Statement: Provide all County residents with the highest levels of public safety and security. • Provide law enforcement services to over 800,000 residents in the unincorporated areas and nine contract cities; Operate 7 jails • Prosecute approximately 50,000 felony and misdemeanor crimes, including consumer and welfare fraud • Supervise more than 20,000 juvenile and adult offenders sentenced to probation by the Court • Provide legal representation to indigent persons • Collect and disburse approximately $150 million in child support payments • Operation of new Juvenile Detention Facility • Participate in development of a Regional Intelligence Center • Increased focus on sex offenders, gang violence, adult offender literacy and prevention of youth exposure to violence.
Health and Human Services Agency Mission Statement:. Make people's lives safer, healthier and self sufficient by managing essential services • Strengthen Child Welfare Services by managing to achieve state and federal accountability outcomes • Ensure that 75% of foster youth achieve high school completion. • Achieve total of 225,000 children enrolled in health insurance coverage. • Place 4,000 Welfare-to-Work participants monthly in unsubsidized employment • Begin integration of mental health and alcohol and drug services into a behavioral health system • Provide Food Stamp benefits to more than 30,000 households. • Prevent the spread of communicable diseases such as AIDS and TB.
Land Use and Environment Group MISSION STATEMENT:To unify the County’s efforts in environmental preservation, quality of life, economic development, recreation, and infrastructure development and maintenance. KIDS: Commitment to Prevention and Diversion • Continue to: • Build the Spring Valley Teen Center • Support kids in 4-H, mentoring and Critical Hours programs SAFE & LIVABLE COMMUNITIES: Preserve the Infrastructure • Continue to: • Seek full state and federal reimbursement of costs resulting from Firestorm 200, and develop grant proposals to help fund fire recovery efforts • Continue collection of household hazard waste • Detect agriculture pests early THE ENVIRONMENT: • Leverage County resources for outside funding for open space acquisition. • Complete public review of General Plan 2020 Environmental Impact Report, and present it to the Board of supervisors for approval • Complete North County Multiple Species Conservation Program Environmental Impact Report • Continue to improve watershed protection and stormwater quality • Preserve open space for public use • Revise rules to further reduce emission from gasoline stations, solvents, engines and gas turbines to continue ozone attainment
Community Services Group Mission Statement: To provide cost effective and responsive services to our customers—the public and County departments. These services are provided with an emphasis on customer satisfaction, quality, and value. • Sustain commitment to major maintenance • Reengineered facilities maintenance to improve efficiency and reduce total costs • Continue investments in energy-saving technologies • Provide funding to assist revitalization of lower-income neighborhoods • Apply innovative procurement methods to reduce costs to County departments • Successfully conduct November General Election
Finance and General Government Group Mission Statement:To provide timely, accurate, efficient and effective financial, legislative and general government services to County residents, other local public agencies, county departments and individual County employees that are consistent with federal, State and local requirements. • Provide accounting, audit, budget, payroll and collection services. • Establish values and maintain records on all taxable property within the County. • Make available to the public all vital records. • Remain a critical revenue generator for the County. • Provide investment and treasury services to the County as well as school districts, cities, and special districts. • Deploy Human Resources and Financial Systems. • Manage IT Outsourcing Contract. • Present full disclosure of financial transactions through recurring reports.
Impact of May Revised Budget • State Mandates Payments – SB-90 • Increase in IDEA funds • ERAF effect shifts from $55m to $28m
County Retirement System • San Diego County Employees’ Retirement Association was established July 1, 1939 under the provisions of the County Employees’ Retirement Law of 1937 • 18,434 active members as of fiscal year ending June 30, 2003 • 10,280 retired members • 3,790 deferred members • Current year activity: • New actuary • Tri-annual experience review
Policy Objectives • Ensure that the County Retirement System is appropriately funded. • Pay the full annual contribution required by the Retirement System’s Actuary. • Take advantage of low interest rates to lower Unfunded Actuarial Accrued Liability (UAAL) and save money by periodically issuing POBs. • Minimize risk of over-funding pension system by targeting maximum funding ratio of 90%-95%. • Maximize flexibility to prepay and refinance future UAAL.
Current Status • Actuarial Report as of 6/30/2003 released in April 2004: • Reflects new UAAL of $1.4 billion (75.5% funded) • Does not include sizable investment gains achieved since June 30, 2003 • Board of Supervisors authorized CFO to pursue issuance of pension obligation bonds. • County has retained its own actuary to assist in matters relating to retirement funding.
SDCERA Overview • Theme • Operational Enhancements • Successes • Challenges • SDCERA Goals for FY 04-05
2004 POBs – Preliminary Financing Plan • Take advantage of favorable interest rates to achieve cost savings • Target near-term funding ratio of 80% • Consistent with Strategic Plan, continue to use available one-time, operating surpluses to retire POBs or other County debt • Economic Defeasance of 1994 POBs budgeted for FY04-05. Escrow can be collapsed and funds redirected if needed • Structure financing to achieve ongoing savings • Not a near-term budgetary fix • Include optimized mix of fixed and floating rate bonds • Consistent with County Long-Term Debt Policy
2004 POBs – Historical Perspective 1 Assumes market rates as of May 7, 2004. Actual rates may vary. 2 2002 POBs had $100 million of unhedged ARS while 2004 POBs assume $60 million of unhedged ARS at conservative benchmark variable rates. 3 10-yr T-note yield as of May 7, 2004.
2004 POBs Financing Schedule* Date Activity May 19 Rating Agency Presentations June 7 Receive Ratings June 8 Receive Credit Enhancement Bids June 15 Board Meeting to Approve Transaction Mail POS June 22 Price Transaction June 29 Closing * Preliminary, subject to change.
Investment Pool Strength and Stability • Highly Liquid • Low weighted average maturity • 65% of securities mature within 1 year • Portfolio focus is Safety, Liquidity, Return • Weighted average yield of 1.60% • High Credit Quality • High credit quality (100% of securities are rated AAA or A-1/P-1/F-1) • Professionally managed • Strong cash flow model
Key Pool Highlights – Pool Participants As of March 31, 2004 • Mandatory Participants: • County of San Diego, • K-12 school districts, and • various special districts and accounts controlled by the County Board of Supervisors. • Community Colleges fall somewhere between Mandatory and Voluntary Participants. While they have the ability to invest funds outside of the County Treasury, they receive banking, checking, and investment services from the County. • Voluntary Participants: • cities, • fire districts, and • Various special districts
Asset Allocation As of March 31, 2004
Key Pool Highlights - Credit Quality As of March 31, 2004 The Pool is limited to buying corporate and medium-term notes of issuers rated AAA or better when the maturity is beyond one year, whereas the Code allows for buying corporate and medium-term notes of issuers rated A or better. The following pie chart displays the percentage breakdown of credit exposure for the Pool.
2003-2004 Tax and Revenue Anticipation Notes • Preliminary Size = $360 million • Includes maximum cash deficit and working capital reserve • Provides additional low cost, liquidity in light of State budget challenges • Mitigates any potential need for supplemental or internal borrowing • Final Maturity • 12 or 13-month maturity - to be determined • Investment of Note Proceeds and Set-asides • Investment Agreement vs. County Pool - to be determined • Flexible Pricing Schedule • Navigate around technical imbalances that may be caused by State
2004-2005 General Fund Cashflow In thousands
2003-2004 General Fund Actual/Estimated Cashflow In thousands
Available Cash for Short Term Interfund Borrowing AS OF 05/13/2004
TRANs Financing Schedule* Date Activity May 11 County Board Approves Financing May 24 Receive Ratings May 25 Post / Mail Preliminary Official Statement June 1 Price Transaction (Tentative) July 1 Closing * Preliminary, subject to change.
Long-Term General Fund Bonded Debt • Composition: • 32% of debt COPS • 68% pertains to Pension Obligation Bonds • County pays down various long-term obligations • San Pasqual • Interim Justice • 1993 Series A • 1993 Vista Refunding
Debt Profile Outstanding Certificates of Participation Outstanding Certificates of Participation & Pension Obligation Bonds