March 3, 2017 - County Board of Commissioners Meeting Minutes (Annual Work Session)

10 551 Meeting of the Johnston County Board of Commissioners March 3 , 2017 Special Meeting Annual Work Session The Johnston County Board of Commissioners met in special session Friday , March 3 , 2017 in the Conference Room of the Johnston Regional Airport , 3149 Swift Creek Road , Smithfield , North Carolina The following members were present Present Chairman Jeffrey P Carver , Vice Chairman Ted G Godwin , Cookie Pope , Allen L Mims , Jr , Chad M Stewart , Keith Branch , and Larry Wood Absent None Also Present Rick J Hester , County Manager , Paula G Woodard , Clerk to the Board , J Chad McLamb , Finance Director and Assistant County Manager , Tyson Radford , Assistant Finance Director , Martha Lasater , Debt Manager , Jennifer J Slusser , County Attorney , Dana Cuddington , Paralegal Deputy Clerk to the Board , and Facilitators Patrice Roesler and Neil Emory with the North Carolina Association of County Commissioners Chairman Jeffrey P Carver called the meeting to order at 8 30 am and welcomed everyone to the meeting Facilitators Patrice Roesler and Neil Emory with the North Carolina Association of County Commissioners introduced themselves to the Board At the request of Ms Roesler , each of the Commissioners introduced themselves and spoke on what led them to seek the office of County Commissioner Also at the request of Ms Roesler , the staff introduced themselves and spoke on their roles in Johnston County 2 Financial Update – Davenport & Company , LLC Kyle Laux and Griffin Moore with Davenport & Company LLC , presented the annual financial update , as follows , to the Board Background ? During the past several years Johnston County managed its finances through the Great Recession in a manner that allowed the County to – Maintain and or enhance its Credit Ratings ; – Refinance outstanding debt for significant debt service savings ; and – Maintain the County’s property tax rate ? The County has enjoyed five straight fiscal years with a surplus in the General Fund FY 2012 - 2016 owing to strong management from the Board and Staff as well as gradually improving economic conditions ? Recent economic development announcements will provide additional momentum to the County’s historically stable growth ? The County’s Credit Ratings are in the upper tiers of the rating categories The County’s strong financials and continued economic momentum will further aid in enhancing these ratings ? A 64 million referendum for School and Community College projects was successfully approved by voters with over 70 approval in the Fall of 2013 ? The three tranches of General Obligation Bonds for the Fall 2013 Referendum were competitively sold in the public markets in early calendar year 2014 , 2015 , and 2016 , respectively The results were highly favorable Page552 March 3 , 2017 – 2017 Annual Work Session – Continued ? As part of the process of updating the County’s credit ratings for the 2016 bonds , Moody’s upgraded the County’s rating from “ Aa2 ” to “ Aa1 ” with a “ Stable Outlook ” ? Standard & Poor’s affirmed the County’s existing Credit Rating of “ AA + ” and a “ Stable Outlook ” ? As part of the 2016 General Obligation Bond sale , the County was able to refinance approximately 124 million of existing General Obligation Bonds for savings – The refinancing produced over 530,000 in net savings to the County and reduced the average interest rate on the refinanced bonds from 368 to 118 ? In total , the County has saved roughly 308 million by strategically refinancing existing debt for savings since 2010 – Includes 9 separate refinancing transactions 2010A GO Refunding ; 2010 LOB Refunding ; 2010B GO Refunding ; 2012 GO Refunding ; 2013 LOB Utility Refunding ; 2014 LOB Utility Refunding ; 2014 GO Refunding ; 2015 GO Refunding and 2016 GO Refunding History of Johnston County’s Credit Ratings ? The County’s general obligation credit ratings have been increasing steadily during the past decade ? Moody’s recently upgraded the County’s rating from “ Aa2 ” to “ Aa1 ” ? Both Rating Agencies have assigned a Stable Outlook to the County’s current Credit Ratings ? The Stable Outlook typically means that the Rating Agency does not foresee a rating change in the next several years if the current trajectory in key rating criteria continues Page553 March 3 , 2017 – 2017 Annual Work Session – Continued Moody’s Commentary ? “ The upgrade to Aa1 is based on [ the County’s ] diverse local economic base and integral position in the larger Triangle region economy poised for further growth , rebounding reserves , and a somewhat elevated yet manageable debt position ? The high level rating also reflects the lack of any potential risks posed by variable rate debt , derivatives , or pension pressures , as well as the strength of a prudent management team ” ? FACTORS THAT COULD LEAD TO AN UPGRADE – Achievement and maintenance of financial flexibility in line with higher rating categories – Strengthening of tax base and demographic profile to levels more consistent with higher rating categories ? FACTORS THAT COULD LEAD TO A DOWNGRADE – Significant erosion of the County’s tax base and or demographic profile – Deterioration of the County’s reserves and or liquidity – Increased debt burden S & P Commentary ? “ The ‘ AA + ’ GO rating reflects our opinion of the County’s – Adequate economy , with access to a broad and diverse metropolitan statistical area MSA ; – Strong management with “ good ” financial policies and practices under our financial management assessment FMA methodology ; – Strong budgetary performance , with slight operating surpluses in the general fund and at the total governmental fund level in fiscal 2015 ; – Very strong budgetary flexibility , with an available fund balance in fiscal 2015 at 20 of operating expenditures ; – Very strong liquidity , with total government available cash at 379 of total governmental fund expenditures and 20x governmental debt service , as well as access to external liquidity we consider strong ; – Adequate debt and contingent liability position , with debt service carrying charges at 186 of expenditures , net direct debt at 1435 of total governmental fund revenue , and low overall net debt at less than 3 of market value and rapid amortization , with 729 of debt scheduled to be retired in 10 years ; and – Very strong institutional framework score ”Page554 March 3 , 2017 – 2017 Annual Work Session – Continued ? “ The stable outlook reflects our opinion of Johnston County’s strong management conditions , which should continue to support strong budgetary performance and very strong flexibility ” ? “ Further supporting the rating is expected economic growth by two major industries in the County ” ? “ We do not expect to change the rating within the two - year outlook period ” ? UPSIDE SCENARIO – Holding all other factors equal , significant improvement and maintenance in the County’s wealth and income levels , resulting in a very strong economic profile could lead to a higher rating ? DOWNSIDE SCENARIO – Should the County significantly draw on its reserves and performance deteriorate or the County’s debt profile become very weak , we may lower the rating ” Fund Balance Trends th ? The County’s Available Fund Balance increased for the 5 consecutive year in FY 2016 This stable trend will further aid in maintaining the County’s very strong rating categories ? Preliminary estimates for fiscal year 2017 look positive in terms of the ability to further add to Fund Balance Comparative Fund Balance ? The graph below shows comparative data from Moody’s for available general fund balance versus revenues ? The graph shows medians for highly rated National counties , highly rated North Carolina counties , and the five other North Carolina counties that share the County’s current rating of “ Aa1 ” PagePage pageNumber5555 March 3 , 2017 – 2017 Annual Work Session – Continued Comparative Per Capita Personal Income ? The graph below shows comparative data from Moody’s for County Per Capita Personal Income ? Per Capita Personal Income is an important factor in the Rating Agencies ’ determination of a local government’s demographic economic strength Debt Capacity Update ? The amount of new debt the County can responsibly take on can be separated into two concepts – Debt Capacity ? The ability to incur additional indebtedness and maintain important financial ratios in - line with County policies and municipal “ Best Practices ” especially as it relates to the rating agencies – Debt Affordability ? The budgetary impact of funding payments on additional indebtedness Capital Planning Key Assumptions ? Existing tax supported debt service after completion of the Fall 2013 Referendum is factored into the analysis ? The County has upcoming funding needs of approximately 30 million for school capital projects The funding is planned to be secured through an issuance of Limited Obligation Bonds the “ 2017 LOBs ” , as follows – FY 2017 30 million Potentially to be sold in May – Payments on the 2017 LOBs are assumed to commence a year after issuance ie , payments of principal and interest begin in FY 2018 for the FY 2017 issuance – Debt is structured with 4 years of structured principal and 15 years of level principal payment – The interest rate is assumed to be 450 Note Current borrowing rates in the tax - exempt marketplace are below this level That said there is no way to predict what interest rates will be into the future As such , Davenport’s estimates purposely use an above market rate for planning purposes ? The Fiscal Year 2017 General Fund Budget net of Fund Balance Appropriated roughly 208 million is used as the base for purposes of projecting the Debt Service versus Expenditures ratio Future growth is assumed to equal 25 per year PagePage pageNumber6556 March 3 , 2017 – 2017 Annual Work Session – Continued ? Assessed Value of Property is assumed to be approximately 141 billion for Fiscal Year 2014 Future growth is assumed to equal 21 except FY 2020 , which assumes 4 growth due to revaluation ? The County would maintain a 10 Year Payout Ratio of tax supported debt in compliance with its 50 policy ? This analysis assumes the County will have 12 million in Novo Nordisk Site Work Capital Expenditures in FY 2018 - 2020 ? These expenditures are assumed to be cash funded ? Adjustments for future addition subtraction of on - going revenue for debt service are as follows ? Homebuilders Exemption Possible Veterans Exemption 850K loss of revenue beginning in FY 2018 ; ? Additional Sales Tax Revenue 15 million beginning in FY 2018 ; ? Additional Revenues from Revaluation 30 million beginning in FY 2020 ; ? New Novo Nordisk Revenue 10 million beginning in FY 2021 , 23 million in FY 2022 and beyond ; ? Reduction in Public Safety Expenses 300K beginning in FY 2022 ; and ? New Gas Pipeline Revenue 10 million beginning in FY 2022 Ongoing Revenue Adjustments Cash Flow Impact of New Debt Debt Affordability ? The table below demonstrates the incremental annual cash - flow impact of – The 2017 LOBs to be issued for 30 million in school capital projects ; and – Approximately 125 million in additional new debt issued over the next five fiscal years PagePage pageNumber7557 March 3 , 2017 – 2017 Annual Work Session – Continued Impact on New Debt on Policy Ratios Debt Capacity Refunding Opportunity ? Davenport has identified an opportunity for the County to refinance two outstanding debt obligations for savings purposes the “ Refunding Opportunity ” The Refunding Candidates are summarized below – Installment Payment Revenue Refunding Bonds , Series 2006 the “ 2006 Financing ” ; and , – Limited Obligation Bonds , Series 2010 the “ 2010 LOBs ” ? Given the current historically low interest rate environment , Davenport believes the County can reduce the average interest rate on the 2006 Financing 399 and the 2010 LOBs 476 ? Davenport , on behalf of the County , recently distributed a Request for Proposals to solicit funding proposals for the Refunding Opportunity from local , national , and regional banking institutions Summary ? Johnston County managed through the Great Recession and is poised to continue to grow and deepen its economy PagePage pageNumber8558 March 3 , 2017 – 2017 Annual Work Session – Continued ? This strategic management has been a major factor in the County’s recent trend of positive rating results ? With the recent economic development announcements in the County , demographic trends are expected to further improve which will aid in achieving further rating improvement ie , income levels , unemployment levels ? Interest rates remain favorable Davenport and County staff will evaluate results of the bank RFP process for the Refunding Opportunity versus potentially including the Refunding with the new Money bonds to be sold May June Mr Laux and Mr Moore offered to answer any questions At the inquiry of Chairman Jeffrey P Carver , Debt Manager Martha Lasater confirmed that approximately 99 of the County’s debt is related to education for both Johnston County Schools and Johnston Community College Chairman Carver commented that the County will never be out of debt because we will always have needs and the key is managing the balance sheet and income statement to the greatest potential He stated the County has an obligation to Johnston County Schools and Johnston Community College , but he asked everyone to keep in mind that County government infrastructure also has needs to be addressed Chairman Carver suggested setting aside a separate time for the new Commissioners to talk further about the County’s finances in an effort to get a better understanding Commissioner Keith Branch commented that the financial presentation has been very informative for him The Board took a ten minute recess 2 Where are we going to be in 20 years Commissioner Ted G Godwin stated he had asked for this item to be on the agenda to get an idea of everyone’s thoughts on the future of the County The Commissioners began a general discussion about how future growth could impact the County as it relates to residential and commercial industrial development , quality of life , utilities , recreation , the vibrancy of the municipalities , school capacities , transportation , court facilities , healthcare , and County government services The discussion centered around the fact that the County will continue to grow and what the best direction should be to meet the future needs and demands of the citizens The Commissioners discussed the difficulties in planning for future growth noting it can get ahead of communities leaving counties in situations where government is constantly trying to catch up The Commissioners also discussed how the generation coming up today is different than the past and it is important to understand the mindset of the new generation The discussion also reflected on how State laws impact counties and their ability to fund and provide services Facilitator Patrice Roesler stated there is a lot of energy around the conversation of planning for the future and the question now is how does the Board want to proceed Ms Roesler stated obviously there are no answers today , but it is important that there is a willingness to continue the conversation 3 Commissioner Roles & Relationships Facilitator Neil Emory , a former County Manager , explained that the Association developed the session for commissioner roles and relationships to talk to Boards about how they work together , how they are different , and what those differences can mean as counties try to achieve their directives Mr Emory took a moment to compliment the Johnston County Board of Commissioners on how well they work together as a team Mr Emory stated the Board is composed of seven different people with seven different perspectives and how those perspectives are managed can make a difference in how the County meets its challenges Mr Emory noted that one commissioner can totally change a board’s personality which can then reflect on the community He stated unfortunately , in some counties , reputations can hurt economic development efforts and business recruitment Mr Emory stated the perception of the County is a burden placed upon the Board of Commissioners which is why it is important to work together as a team and build relationships with each other Mr Emory shared some of his past experiences with boards and counties to help the CommissionersPagePage pageNumber9559 March 3 , 2017 – 2017 Annual Work Session – Continued better understand everyone’s role as well as the importance of learning everyone’s point of view Mr Emory discussed with the Board their thoughts and feelings on how they best work with each other and staff as staff is an extension of the Board in the community The Board took a five minute recess 4 Economic Development Report Economic Development Director Chris Johnson provided the Board with a sampling of new marketing materials and previewed a new video highlighting Johnston County that will be sent to approximately 350 site consultants up and down the eastern seaboard Mr Johnson stated after the video is sent , the Economic Development Office plans to follow up with a series of mailers every couple of weeks to promote livability , capability , accessibility , and affordability Following the video , Mr Johnson reviewed the following presentation with the Board Page0560 March 3 , 2017 – 2017 Annual Work Session – ContinuedPage1561 March 3 , 2017 – 2017 Annual Work Session – ContinuedPage2562 March 3 , 2017 – 2017 Annual Work Session – ContinuedPage3563 March 3 , 2017 – 2017 Annual Work Session – ContinuedPage4564 March 3 , 2017 – 2017 Annual Work Session – ContinuedPage5565 March 3 , 2017 – 2017 Annual Work Session – ContinuedPage6566 March 3 , 2017 – 2017 Annual Work Session – Continued Mr Johnson thanked the Board for their support to Economic Development and stated it is a pleasure to represent Johnston County 5 Review , Recap , and Adjourn Facilitator Patrice Roesler stated a lot of the discussion today centered around the financial update and she feels there is a consensus of the Board to move forward with improving the bond rating as well as consider ways to best position the County for the next 20 years Ms Roesler touched on some of the points of the discussion and stated she will prepare a summary of her notes taken during the work session and send those out to everyone Chairman Jeffrey P Carver agreed that there was a lot of discussion around the financial update and noted it is a subject that could have had two or three hours devoted to it Chairman Carver encouraged the Board to go through the report and write down any follow up questions that could be addressed by Davenport The Commissioners briefly discussed their thoughts and feelings on the work session Chairman Carver stated there was good discussion today and he suggested having an extended work session every other year after the election cycles to give Board Members the opportunity to learn one another and promote team building Commissioner Cookie Pope remarked that today’s work session is one of the best she has attended and her fellow Commissioners agreed The Commissioners thanked Facilitators Patrice Roesler and Neil Emory for working with the Board and staff today There being no further business , the Chairman declared the meeting adjourned at 1 00 pm Jeffrey P Carver , Chairman Paula G Woodard , Clerk to the BoardPage