County commissioners seek more input from public, professionals as they consider issuing $345M in debt
After delaying a vote on issuing $345 million in debt to cover long-term liabilities, the Washtenaw County Board of Commissioners is seeking more input from both professionals and the public.
Facing about $340 million worth of debt for future, long-term health care and pension costs for its retired employees, the county administration has been working with a consultant since November on the issue.
![050213_Washtenaw_County.jpg](http://www.annarbor.com/assets_c/2013/05/050213_Washtenaw_County-thumb-400x266-141280.jpg)
AnnArbor.com file photo
Issuing bonds for the debt would be an unprecedented move for the county - and the weight of the issue prompted the commissioners to delay an initial vote to start the process at their mid-May meeting.
The county has hired a new firm to provide an independent review of the matter - and the Board of Commissioners is pursuing feedback in upcoming public hearings and a working session this week.
According to an analysis conducted by the county’s longtime bond counsel John Axe, president of the law firm Axe & Ecklund, and by Axe’s daughter, Meredith Shanle of Municipal Financial Consultants Inc., the county could stand to reduce its expenditures for the health care and pension costs through the bond issue by about $112.5 million.
However, the initial reports from Axe and Shanle were drafted using old actuary reports - and commissioners weren’t comfortable basing their decisions on estimates without new data.
Both Axe and Shanle would also only be paid for their work should the county commissioners choose to issue the bonds.
County administrators have hired the PFM Group for a flat fee of $12,500 to provide a second opinion. PFM is anticipated to issue its review in early July after the 2012 actuary report and experience review are produced.
The first public hearing on the bond issue will be during the Board of Commissioner’s regular meeting Wednesday night. The regular meeting begins after the commissioner’s 6:30 p.m. Ways and Means meeting ends.
The second public hearing will be during the Commissioner’s regular meeting July 10. The board is scheduled to vote on initiating the bonding process at that meeting.
Commissioners have also put the bond issue on their Thursday working session agenda.
They’ve asked the county’s bond counsel to return before the board.
Commissioner and working session chairman Andy LaBarre said he has invited several professors and a consultant to give their opinions on a pro bono basis:
- Rowan Miranda, associate vice president for finance at the University of Michigan
- Jens Stephan, professor of accounting at Eastern Michigan University
- Larry Langer, Buck Consultants
LaBarre said he found the professors based on the recommendation of the universities’ community relations staff. However, Dr. Miranda will be out of town Thursday and unable to attend the meeting, LaBarre said.
In addition to the more formal public hearings at the Board of Commissioner meetings, Chairman Yousef Rabhi has set several dates to discuss the bond issue informally at area coffee shops with anyone interested:
- 4 to 6 p.m. June 15 at Espresso Royale at 214 S. Main St. in Ann Arbor
- 4 to 6 p.m. June 26 at Caribou Coffee at 1423 E. Stadium Blvd. in Ann Arbor
Amy Biolchini covers Washtenaw County, health and environmental issues for AnnArbor.com. Reach her at (734) 623-2552, amybiolchini@annarbor.com or on Twitter.
Comments
Judy
Thu, Jun 6, 2013 : 7:33 p.m.
I remember all the out cry about right to work, I was at that Washtenaw County Board of Commissioners meeting. Well, 10 year contracts for the unions you dems got what you voted for!
Jay Thomas
Thu, Jun 6, 2013 : 5:16 p.m.
The old coffee shop $345 million dollar debt Wall Street crapshoot meet up, eh Yousef? Goodness me. How about you put it on a ballet instead and let us dummies decide if we want to take the risk.
DJBudSonic
Thu, Jun 6, 2013 : 1:30 p.m.
My non-professional advice offered as a county resident who does not want to burden his children with bad debt- don't borrow this money, from what I have read it is pure speculation, and that is no way to run county business.
JimmyD
Thu, Jun 6, 2013 : 12:40 a.m.
It can be a dangerous gamble, said Marcia Van Wagner, a senior analyst at Moody's Investors Service. "It's like borrowing money to pay your groceries. If you do that every month, you're going to end up with a lot of debt, and you continue to need to pay your groceries," Van Wagner said.
Mike
Thu, Jun 6, 2013 : 12:14 a.m.
Buy more trucks and increase pensions, that should do it.............How about pay what you can afford or don't pay if you can't afford it? Just because some elected bureaucrat made a deal with the devil, we the tax payers shouldn't be on the hook.
outdoor6709
Wed, Jun 5, 2013 : 9:39 p.m.
"the county could stand to reduce its expenditures for the health care and pension costs through the bond issue by about $112.5 million. " ?? How does that happen?
DonBee
Wed, Jun 5, 2013 : 9:58 p.m.
Outdoor6709 - They don't What they assume is that they can make more from the investments of the money than it costs to borrow it. That is how they get to the $112.5 million. Can you say Las Vegas?
Arno B
Wed, Jun 5, 2013 : 9:12 p.m.
Well we at least have Professors and a Consultant on the way! Wow! Perhaps they could stop off in Detroit to help out! These Commissioners should be fired and replaced by an Emergency Manager, Detroit style. I suppose that they figured that this mess could be kept under wraps until the next election. Sickening.
PineyWoodsGuy
Wed, Jun 5, 2013 : 6:09 p.m.
Somewhere west of Chelsea there is a Township by the name of Sylvan. When ya drive west on I-94 toward Jackson you will drive past their big white watertower with their name on it. They were taken to the cleaners, messing around with bond issues for money that was way over their head. They're just treading water now. What a mess we, individuals and/or govts, get into when we borrow more than we can pay back! Of course the Trick here is that taxpayers decades from now will have the bill. (for Sylvan Twp info, check past issues of annarbor.com).
A Voice of Reason
Wed, Jun 5, 2013 : 3:36 p.m.
Advice: Get an adult at the table and stop promising benefits that you cannot pay. Look at Detroit and see our future!
Great Lakes Lady
Wed, Jun 5, 2013 : 2:32 p.m.
But it's tax payer money...... True government leaders must make decisions as though they were running their own business. There needs to be accountability, and consequences for poor decision making at the federal, state and local levels.
Basic Bob
Wed, Jun 5, 2013 : 2:40 p.m.
term limits in the legislature have reduced accountability. every six years, a new position opens up for a popular but incompetent local politician. everyone moves up a chair, and the outgoing legislator becomes a lobbyist or starts a political action committee.
belboz
Wed, Jun 5, 2013 : 1:51 p.m.
What is this - Wayne County? Detroit? County officials filled with a false sense of importance and the need to spend? It is outrageous that the county thinks 1/3 of a billion dollars will solve budget issues. It will create tremendously more. It will generate a "spend more" mentality, and departments and benefits will not be cut to meet the revenue stream.
Tex Treeder
Wed, Jun 5, 2013 : 1:34 p.m.
Once again, we see Conan Smith (and to a lesser extent, his colleagues) trying to convert this county (and not incidentally his job) into something similar to Wayne or Oakland county. No. Is that so difficult to understand, Mr. Smith?
Ellis Sams
Wed, Jun 5, 2013 : 1:10 p.m.
So, the county has $345 million in unfunded long term costs, and the Commission's solution is to sell bonds and increase the public's long term obligation to $545 million. In other words, the tax payers are on the hook for an extra $200 million, because the Commission doesn't want to make the tough (and politically dangerous) decisions we elected them to make. Mortgaging the future hasn't worked for Detroit. Why should it be any different for Washtenaw County?
Steve Bean
Thu, Jun 6, 2013 : 8:18 p.m.
Cheers to that. I'll take my indignation at your indignation and move along. :-)
DonBee
Thu, Jun 6, 2013 : 4:16 p.m.
Mr Bean - Yes, I did contact them. That was the first thing I did when I heard about this.
Steve Bean
Thu, Jun 6, 2013 : 2:41 p.m.
"You sound like a cheerleader for the bond." And you, DonBee, sound tone deaf. Information is not cheerleading. Take out your indignation on your representatives, if you must at all. You *have* contacted your representatives on the county board, haven't you?
Amy Biolchini
Wed, Jun 5, 2013 : 11:03 p.m.
DonBee, the figures are from the analysis prepared from the county's bond counsel MFCI. That report was generated using old actuary figures, and did make a lot of assumptions about all of the items you listed in your comment. The report assumes the pension and health care plans for retirees are closed. Email me at amybiolchini@annarbor.com if you'd like me to send you additional documents from the consultants' analysis on this.
DonBee
Wed, Jun 5, 2013 : 9:57 p.m.
Amy - You sound like a cheerleader for the bond. How do you come up with the $657.5 million, is that based on any appreciation of current fund assets? What is the basis for those numbers and what are the actuarial under pinnings of that number? Do they assume the current fund will close and stay closed? Do they assume current retirement ages? Do they assume that that the $345 million will appreciate at the same, lower or higher rate than the current fund is? Do the assumptions match the historical curve for the last decade? There are lots and lots of unanswered questions and the detail is lacking on the County's site. Please dig deep and don't take this at face value, your children will appreciate it in 20 years when the country is not bankrupt or their taxes are not double what we are paying today to dig out of this hole.
Amy Biolchini
Wed, Jun 5, 2013 : 5:59 p.m.
Should the county not issue the bonds, the county could be paying up to $657.5 million over 25 years for the long-term health care and pension costs for its retirees as employees continue to retire and health care costs change. According to the analysis the bond counsel has provided to the county board, the bond debt payments would be about $545 million over 25 years - but there are many assumptions on which that analysis was based. The difference between Detroit and Washtenaw County in this instance is that the county has closed its pension and health care plans -- so it knows exactly how many employees it will have to take care of -- whereas Detroit left them open. Detroit also underestimated how much money it would need to cover the debt it did have.
Alan Goldsmith
Wed, Jun 5, 2013 : 1:06 p.m.
I feel way more comfortable with Anny LaBarre and Yousef Rabhi taking the lead on this than Conan 'Ficano' Smith, so this appears to be positive news.
Alan Goldsmith
Wed, Jun 5, 2013 : 4:23 p.m.
Positive news because Conan Smith isn't in the driver seat.
Veracity
Wed, Jun 5, 2013 : 1:33 p.m.
Really? Carefully re-examine the financials related to the bond issue and tell me how the county plans to service such a large debt issuance; then tell me that this is a rosey picture.
NE Steward
Wed, Jun 5, 2013 : 1 p.m.
Please no more debt - change the system now. Please publish what actions are being taken to manage and reduce all expenditures and employment costs. There is no more patience left among tax paying residents. Options on how to handle the debt should be on the November ballot and truly available for public input!
Veracity
Wed, Jun 5, 2013 : 12:27 p.m.
If the face value of the bonds is $345 million and a total of $545 million will be the total cost over the 25 year lifespan of the bonds, then the coupon rate will be 8% and the average annual cost of servicing the bonds will be $41.4 million, considerably more than the $17.4 million mentioned for first year expense. Does the County have $41.4 million of uncommitted funds in its general fund to pay for debt servicing? I doubt it which means that the County will have to ask County tax payers to approve a millage in order to pay for the bonds. What will the size of the millage have to be to meet the new debt obligation?
Steve Bean
Thu, Jun 6, 2013 : 2:45 p.m.
Amy, does that mean that the only recourse in the case of insufficient revenues would be default on the bond payments, or would it be a choice between that and default on the other debt obligations (for retirees)? I assume that they would have a choice, but could you confirm?
Amy Biolchini
Wed, Jun 5, 2013 : 5:54 p.m.
The county is considering limited tax bonds which means the county would not be able to tax beyond its operating millage rate to pay back the bond debt. The county is levying the maximum rate of its operating millage right now. The county has been allocating millions of dollars from its general fund for years to pay off what it owes for the health care and pension costs for its retirees. The $17 million payment in the first year bond debt payment would be less than the county is paying right now for that expense.
RUKiddingMe
Wed, Jun 5, 2013 : 12:13 p.m.
Has the county ENDED these pension plans that are the problem? Are new employees still receiving the same type of unsustainable benefits? Is anyone actually getting in trouble for doing such a bad job? This IS incompetence (at best).
DonBee
Wed, Jun 5, 2013 : 9:51 p.m.
RUKiddingMe - They were closed, then reopened and everyone allowed in. They will be closed again in 2014, but will they remain closed? The underfunding was under control before the board voted to reopen them a while back. Now they are on a hiring spree, to get as many employees into the plan before the end of the year as they can. Look at the discussion of "filling" needs in various articles on board meetings. Amy - Close again (hopefully for good) 1 January 2014 - they are open now.
SalineTeacher
Wed, Jun 5, 2013 : 9:09 p.m.
The benefit changes are for employees hired after January 1, 2014; new hires in 2013 get the current benefits, I.e., pension.
Amy Biolchini
Wed, Jun 5, 2013 : 5:46 p.m.
The county has closed both pension and health care plans to new hires as of this year.
Alex Brown
Wed, Jun 5, 2013 : 12:24 p.m.
In order: No Yes No
Steve Hendel
Wed, Jun 5, 2013 : 12:09 p.m.
Everyone please note: all this study and solicitation of public and professional input only took place AFTER the details of this proposed bond sale were leaked to the press.
tosviol8or
Fri, Jun 7, 2013 : 3:03 a.m.
That's what he said.
Amy Biolchini
Wed, Jun 5, 2013 : 5:46 p.m.
Steve, the consideration of the bond issue were first publicly presented at a May working session of the board. County administration had been working privately with its bond counsel since November.
dotdash
Wed, Jun 5, 2013 : 12:21 p.m.
I'd love to hear more details...
DonBee
Wed, Jun 5, 2013 : 12:08 p.m.
This is like taking your mortgage money to Vegas. You know you have to pay the mortgage, you know it has a fixed interest rate, and you know that you don't quite have enough income to cover it, but you decided years ago that you had to have a bigger house. Now you decide to re-finance, and take the mortgage money from the Re-finance to Vegas and hope that you can win enough to put the money away to pay for the re-finance. Good Luck!
snark12
Thu, Jun 6, 2013 : 5:43 p.m.
Except that you need the mortgage payment immediately and this proposal involves structured payment over decades, and Vegas doesn't have a track record of 5-8% average annual return over 30 year periods.
Veracity
Wed, Jun 5, 2013 : 1:25 p.m.
When the plan fails WE pay!
walker101
Wed, Jun 5, 2013 : 11:26 a.m.
Maybe you should have the union leadership give you advice again, since they really run the county who better to guide you through hard times, maybe the board should work for free, pro bono. Better yet why dont you just renegotiate another contract but this time make it for 20 years, if someone can foresee 10 years in the crystal ball 20 is a piece of cake. I can hardly wait till you hire someone for less benefits and less pay for those who were grandfather in that made it worth their while.
Stephen Lange Ranzini
Wed, Jun 5, 2013 : 11:21 a.m.
Buying stocks and bonds at all-time high prices and when valuations are above long term metrics is a bad idea. Borrowing to do so if an even worse idea. Both the 10 year cyclically adjusted PE (10 Year CAPER) and the Tobin Q ratio are 40-45% above their fair value. This means that the future expected returns will be lower than necessary to make this scheme work. It's financially engineering of the worst sort!
Basic Bob
Wed, Jun 5, 2013 : 11:07 a.m.
The commissioners re-opened the retirement plan to employees without considering the costs, because they were in the future. Then they hastily signed ten-year employee contracts to protect union leaders and fund flow to their political campaigns. In the coming years, new employees will be hired and deserve higher wages since they need to provide for their own retirement. This scheme crushes all hopes that the county will have money to pay employees for the next 25 years. We can hope the Michigan Department of Treasury rejects this scheme and requires the county to meet their current obligations the right way, by layoffs and asking taxpayers for more money if necessary.
Sandy Castle
Thu, Jun 6, 2013 : 1:20 p.m.
The retirement plan was reopened several years ago because the county needed an influx of money to cover rising costs. Many employees did not want to go to a defined benefit plan as they liked the individual control of the plan they had. However, the word being put out to them from the county was that if they didn't vote for it there could be severe budget repercussions in the future. After the vote approved the switch, the stock market dropped and the money taken from the employees accounts was much less than anticipated. The new contract has put all incoming employees back to the old 401k type plan and changes their retirement health care funding. That was a major incentive for the county to enter into the long contract. Everyone on this blog purports to be an expert, but only the future will tell if this was a good move.
Great Lakes Lady
Wed, Jun 5, 2013 : 2:27 p.m.
"...Then they hastily signed ten-year employee contracts to protect union leaders and fund flow to their political campaigns." Yes; they think we have short memories and forgot about that piece.
Barzoom
Wed, Jun 5, 2013 : 10:58 a.m.
A financial decision this large should be put to the voters. We're the one who will be left holding the bag long after the current commissioners are gone. Remember Water Street & Sylvan Township.
NE Steward
Wed, Jun 5, 2013 : 12:46 p.m.
Agree
Goober
Wed, Jun 5, 2013 : 10:49 a.m.
If the revenue model does not generate enough to cover all costs, then the model needs to change - not, that we need to borrow to cover costs. Hard to believe that they are considering taking on borrowed debt to finance repetitive costs. Go figure!
Goober
Thu, Jun 6, 2013 : 12:46 a.m.
Renegotiate the contract on the basis that we never had the money, do not have it now and will not borrow to cover for the previous two comments.
Hugh Giariola
Wed, Jun 5, 2013 : 4:16 p.m.
I agree Goober, but these pension obligations are likely contractual. As I said above, I only hope that going forward they use the 401K model like most of the working world these days.
Goober
Wed, Jun 5, 2013 : 12:51 p.m.
Also...... Any consultant that recommends this as a viable option should be banned from doing business. Maybe its like 'the blind leading the blind'.
dotdash
Wed, Jun 5, 2013 : 12:19 p.m.
I agree. Isn't this how Detroit's troubles started? Borrowing long-term to finance costs that should have been a part of the yearly budget?
Hugh Giariola
Wed, Jun 5, 2013 : 10:44 a.m.
This is why "defined benefit" (pension) plans are unsustainable. I really hope the county is now using a "defined contribution" 401K plan like the vast majority of companies today.
JimmyD
Wed, Jun 5, 2013 : 10:01 p.m.
Hugh, I think that they're closing the "defined benefit" plan at year end.
average joe
Wed, Jun 5, 2013 : 10:24 a.m.
"Both Axe and Shanle would also only be paid for their work should the county commissioners choose to issue the bonds." Sounds more like a sales job than an analysis by a financial consultant.
Judy
Thu, Jun 6, 2013 : 4:07 p.m.
PineyWoodsGuy, That is what Lawyers do all the time, they get paid more and more the longer they are on your case and can keep the other side in the court room.
PineyWoodsGuy
Wed, Jun 5, 2013 : 2:23 p.m.
@average joe: You got that right. It is like a guy comes to you trying to sell stock. He only gets paid if you buy it. So he does an "analysis" of the stock. Of Course he is going to exaggerate how great it is! That is what salesmen do. Lawyers are supposed to advise; not sell the client a product to benefit the lawyer.
dotdash
Wed, Jun 5, 2013 : 12:17 p.m.
Yes, this gives me pause. They have in incentive, then, for the board to go ahead with the bonds...