April 2, 2012 - 6:10 PM - County Board of Commissioners Meeting Minutes (Special)

10 782 Meeting of the Johnston County Board of Commissioners April 2 , 2012 Special Meeting Annual Work Session The Johnston County Board of Commissioners met in special session Monday , April 2 , 2012 in the Commissioners Meeting Room , Johnston County Courthouse Annex , Smithfield , North Carolina The following members were present Present Allen L Mims , Jr , Chairman , Jeffrey P Carver , Vice Chairman , Cookie Pope , Wade M Stewart , DeVan Barbour , and Tony Braswell Absent W Ray Woodall Also Present Rick J Hester , County Manager , Paula G Woodard , Clerk to the Board , J Chad McLamb , Finance Director , Tyson Radford , Assistant Finance Director , Martha Lasater , Debt and Grant Management Analyst , and David F Mills , County Attorney Chairman Allen L Mims , Jr called the meeting to order at 6 10 pm 1 Board Discussion – 12 Month Goals 5 Year Goals 12 Month Goals Chairman Allen L Mims , Jr , stated one of his 12 month goals is for the County to restore the fund balance to 15 as is required under the adopted Financial Policy Guidelines He noted the County promised the bond rating agencies that the fund balance would be restored to the 15 level by the end of Fiscal Year 2013 Chairman Mims also spoke on the importance of the County securing the large quarry in Princeton for a future water supply He stated that he also hopes for a smooth transition of the Clayton and Princeton EMS units to the County over the next few months , ensuring that services are kept in place for the citizens 5 Year Goals Commissioner Tony Braswell stated the needs of the Courthouse must be a long term goal He noted there are needs for jail space as well as additional courtroom space which should be put in with the future capital plans Chairman Allen L Mims , Jr agreed with Commissioner Braswell and noted the old section of the Courthouse is in need of repair Chairman Mims also stated over the next five years , the County needs to improve and secure the solid waste stream Commissioner Wade M Stewart spoke on the County assuming the responsibility of the Princeton and Clayton EMS units and he noted that discussions have already begun regarding the Smithfield EMS unit transitioning to the County in the near future Commissioner Stewart stated Johnston County Emergency Services already has a great deal of work to do with assuming the Clayton and Princeton EMS operations and he hopes that Smithfield will hold off until July 1 , 2013 Commissioner Stewart stated he has indicated in the past that since the County has already assumed the management for the Benson , Micro , Kenly , Overshot , Thanksgiving and soon to be Clayton and Princeton EMS operations along with perhaps Smithfield in the near future , it is likely that the remaining independent units of Four Oaks , Selma , and 50 - 210 would at some point come under the County’s management as well Commissioner Stewart clarified that the County is not pushing the matter ; however , he believes that sometime within the next three years , all the EMS Units will be operating under the County without each community losing its identity Commissioner Stewart recalled the extensive study that was done on the EMS system which strongly emphasized the need for a County EMS system Commissioner Stewart stated it is an issue of fairness and he believes that the three remaining independent EMS units need to know that the County is gradually moving in that direction Commissioner DeVan Barbour stated the future of water and wastewater infrastructure needs to be included in with the five year goals He added the County must stay on top of needed upgrades and repairs to the water and wastewater systems noting that some of the infrastructure is getting older Commissioner Cookie Pope commented that the concerns she is hearing from the citizens have to do with the state of the economy and she feels the County must continue to ensure that the Community College and Johnston County Schools work diligently to train students as well as those that are unemployed Commissioner Pope stated the College and the Schools are doing a good job ; however , she wants to make sure that everyone works together to help the citizens get jobs and keep the economy going Page783 April 2 , 2012 – 2012 Work Session – Continued Commissioner Braswell asked Commissioner Stewart if he had a timetable in mind as to when the remaining independent EMS units would transition to the County Commissioner Stewart responded he suggests that within the next three years , the remaining EMS units should consider transitioning to the County Chairman Mims commented that some of the EMS units have done a good job managing their operations and he questioned if the County should assume the responsibility of those that are not having problems Commissioner Stewart stated the County needs to look ahead at the future and he noted that EMS operations are not the same as they were 15 years ago Commissioner Stewart added that the days of volunteers are ending and problems will continue to arise He stated the County has the proper staff along with an EMS Advisory Board in place to manage the units and ensure that the citizens have the best possible service Chairman Mims stated if that is the direction the County is headed , then those remaining independent EMS units should be informed so they will not spend money on new buildings and or major purchases Commissioner Braswell stated an additional point to remember is that taxpayers ’ monies are involved and the Board needs to make sure that the EMS operations are run efficiently and the citizens are served in a satisfactory manner 2 Economic Development Updates Economic Development Director Peggy Anderson provided the Board with an update Ms Anderson reported she has sent out proposals on approximately six new prospects with one client visit scheduled for later in the week Ms Anderson stated the Economic Development Office has been working on recertifying industrial sites and has just finished certifying the Selma Crossings property Ms Anderson stated she has also been visiting with the local industries making sure they are aware of eligible programs She added some of the local industries are interested in hiring their workforce directly out of high school , and she is working on coordinating meetings with Johnston County Schools and Johnston Community College Ms Anderson noted that during the industry visits , she was pleased to learn that some companies are adding jobs Ms Anderson reported the office has completed a new PowerPoint Presentation that is ready for viewing by clients and they are equally working updating materials and making the office “ client ready ” She offered to answer any questions Commissioner Wade M Stewart inquired as to the amount of prospect traffic through the office as well as if Ms Anderson is seeing any international traffic Ms Anderson stated there is a fair amount of industrial prospect traffic , although not as much as she would like to see for the County Ms Anderson stated most of the projects she is working with are larger with the exception of one small prospect Ms Anderson explained that election years are always quieter in that most companies are waiting to see what changes an election will bring before making any decisions Ms Anderson reported she is working with one international project at the moment Commissioner Jeffrey P Carver asked if any of the industries are inquiring about wanting to be added to the Foreign Trade Zone Ms Anderson reported she is planning to discuss the Foreign Trade Zone with Caterpillar in the near future Chairman Allen L Mims , Jr encouraged Ms Anderson to review the enabling legislation for Foreign Trade Zones to make sure that Caterpillar would qualify before she begins her discussions Commissioner Tony Braswell asked Ms Anderson to share the strengths and weaknesses of the County with regards to economic development Ms Anderson explained that one weakness for the County is the lack of available buildings in that what is currently available is not exactly what prospective industries are looking for She spoke on the low ceilings and other drawbacks of the current available buildings Ms Anderson reported the County does have goodPage784 April 2 , 2012 – 2012 Work Session – Continued industrial sites to offer such as the Four Oaks Business Park as well as the dual rail Selma Crossings tract She noted typically companies are looking for available buildings and that open sites are harder to sell Allen Wellons , Economic Development Advisory Board Chairman , addressed the Board and stated there is still a good economic environment with a lot of prospects looking at the County Mr Wellons added it is just a matter of time and getting the right people together He noted infrastructure , specifically natural gas , needs to be planned for the future in different areas of the County Commissioner Cookie Pope noted that hospitals and schools play a big part in economic development Mr Wellons agreed with Commissioner Pope and added that low tax rates and good leadership also play important roles Commissioner DeVan Barbour asked about the available workforce Mr Wellons reported the workforce is available ; however , education is the key which requires good coordination from all parties in order to have trained workforce 3 Financial Update – Davenport & Company , LLC Kyle Laux and David Rose , with Davenport & Company LLC , presented the annual financial update Mr Rose began by speaking on the importance of the County restoring the fund balance to 15 , as has been promised to the rating agencies He stated because the County has always followed through on what it has promised , the County is in a good financial position today in spite of the difficult economic environment Mr Rose added that Davenport is cautiously optimistic for the present and very optimistic for the future Mr Rose reviewed the following points of interest Overview • Despite the severe impact of the economic recession and additional fiscal pressure from the State , Johnston County has been able to maintain its strong investment grade credit ratings • As a result of the low interest rate environment and the County’s strong credit ratings , the County has been able to achieve significant debt service savings during the past two years via strategic refinancing of existing debt • Multi - year strategic financial planning and adherence to financial policies will continue to be key to maintaining the County’s financial strength , financial flexibility , and credit ratings Mr Rose reviewed a brief history of the credit ratings and noted that the County has two major outstanding credit ratings and is one step away from a AAA rating from Standard & Poor’s He stated that if the County continues to adhere to the Financial Policy Guidelines and restores the fund balance to 15 , if the economy begins to turnaround and given the diversity of the County , it is only a matter of time before the AAA rating can be reached Mr Rose stressed the importance of adhering to the Financial Policy Guidelines otherwise the bond rating could decline He noted with Moody’s , the County is two steps away from a AAA rating History of the County’s Credit Ratings • Despite challenging economic and financial conditions of the past three to four years , the County has been able to enhance and maintain its general obligation credit ratings Page785 April 2 , 2012 – 2012 Work Session – Continued Mr Rose reviewed the following rating agency commentary with the Board He complimented Chad McLamb , Tyson Radford , and Martha Lasater with the Finance staff as well as the County Manager for their efforts Recent Rating Agency Commentary • “ The ratings reflect our opinion of the County’s o Growing local economic base with access to the greater Raleigh - Durham metropolitan area economy ; o Property tax base that experienced a double - digit increase with the most recent revaluation effective for fiscal 2012 ; o Strong financial management policies and practices and maintenance of a good financial position despite recent operating deficits ; and o Low debt burden on a per capita basis , but debt service carrying charges have been rising and are what we consider elevated ” - Standard & Poor’s • “ Officials have closed the gap between recurring revenues and expenditures , and we expect the County to maintain strong reserves going forward ” - Standard & Poor’s • “ The Aa2 rating reflects the County’s diverse local economic base and proximity to a large regional economy , a financial position that remains relatively healthy despite recession - related revenue pressures , and a somewhat elevated debt position ” - Moody’s • “ What would make the rating change UP … o Achievement and maintenance of financial flexibility in line with higher rating categories ; and , o Strengthening of tax base and demographic profile to levels more consistent with higher rating categories ” - Moody’s • “ What would make the rating change DOWN … o Inability to regain compliance with cash management policy within three - year policy timeline ; o Depletion of General Fund balance ; and , o Deterioration of the County’s tax base and demographic profile ” - Moody’s Mr Rose spoke on the amount of savings the County has realized due to the following refundings and pointed out that over the last 24 months alone , there have been over 85 million in debt service savings PagePage pageNumber5786 April 2 , 2012 – 2012 Work Session – Continued Recent Refunding Success • As a result of pro - active monitoring of the County’s existing debt portfolio , Johnston County was able to take advantage of the historically low interest rate environment and lock - in over 85 million of targeted debt service savings during the past 24 months • 2010A General Obligation Refunding Bonds o Refunded 539 million of existing General Obligation Bonds for debt service savings ; o Achieved over 27 million of targeted net debt service savings ; o Reduced the average interest rate on the refunded bonds from 485 to 312 ; and , o Achieved net present value savings of approximately 44 • 2010B General Obligation Refunding Bonds o Refunded 308 million of existing General Obligation Bonds for debt service savings ; o Achieved over 18 million of targeted net debt service savings ; o Reduced the average interest rate on the refunded bonds from 430 to 236 ; and , o Achieved a net present value savings of approximately 58 • 2010 Limited Obligation Refunding Bonds o Refunded 30 million of existing debt for savings ; o Achieved over 124 million of targeted net debt service savings ; o Reduced the average interest rate on the refunded bonds from 414 to 336 ; and , o Achieved a net present value savings of approximately 44 • 2012 General Obligation Refunding Bonds o Refunded 365 million of existing General Obligation Bonds for debt service savings ; o Achieved over 25 million of targeted net debt service savings ; o Reduced the average interest rate on the refunded bonds from approximately 420 to 196 ; and , o Achieved a net present value savings of approximately 70 Versus industry standard minimum net present value savings of 25 to 30 Kyle Laux continued the presentation by reviewing the debt service savings as follows He noted that of the 85 million in savings , Davenport has targeted approximately 45 million of that savings to FY 2013 which will help bring the fund balance back into compliance • Aggregate Debt Service Savings Achieved Past 24 Months o Aggregate debt service savings achieved during the past 24 months totals over 85 million PagePage pageNumber6787 April 2 , 2012 – 2012 Work Session – Continued • Undesignated Fund Balance TrendsPagePage pageNumber7788 April 2 , 2012 – 2012 Work Session – Continued • Existing Tax Supported Debt Service o Johnston County continues to maintain a very strong payout ratio with over 70 repaid within the next 10 years o Targeted debt service savings provided up - front cash - flow relief that can be used to help restore the County’s available fund balance • Impact of 2012 Refunding o The 2012 refunding provides the County with a window of cash - flow relief that can be strategically used to replenish the County’s fund balance in accordance with its policy PagePage pageNumber8789 April 2 , 2012 – 2012 Work Session – Continued • Compliance with Debt Policies o The County is at the peak of its debt service vs revenues policy o Revenue growth that is stronger than currently projected can help to create additional debt capacity o The County is solidly in compliance with its debt vs total assessed value policy PagePage pageNumber9790 April 2 , 2012 – 2012 Work Session – Continued Mr Laux concluded the presentation with the following overview and stated the County has been able to maintain and or increase the credit ratings despite the challenging economy He noted the County is setup well for the future so long as the fund balance can be brought back into compliance with the policy as well as staff continues to watch for future additional refundings • Overview o The County has been able to maintain its credit ratings despite the prolonged impact of the economic downturn and associated fund balance decline o Regaining compliance with the County’s fund balance policy will be critical to maintaining and or enhancing the County’s credit ratings • Any further decline in the County’s fund balance will likely have negative rating agency consequences o Davenport continues to monitor the County’s debt portfolio for additional refunding refinancing opportunities o The County’s debt service vs expenditures policy continue to be the “ limiting factor ” as it relates to future debt capacity The Board thanked Davenport for the update Commissioner Wade M Stewart thanked Davenport for recognizing the Finance staff as well as the County Manager and he agreed that they do an excellent job The Board took a ten minute recess 4 Public Utilities – Updates for Solid Waste , Wastewater , and Water Tim Broome , PE , Director of Utilities and Engineering , Chandra Coats , PE , Assistant Director of Utilities , and Rick Proctor , Solid Waste Manager , presented updates to the Board regarding the Solid Waste , Wastewater , and Water operations Solid Waste and Materials Recycling Division – Fund 66 Rick Proctor , Solid Waste Manager , reviewed with the Board the following information for the County’s Solid Waste and Materials Recycling Division He noted the Landfill is presently taking in 300 tons per day of municipal solid waste MSW and 50 tons per day of construction and demolition C & D waste Mr Proctor reported the County has twelve convenience sites and with the new co - mingling of recycled items , there has been a 12 increase in recycled items since last year Mr Proctor presented pictures to the Board , one showing the new Landfill gas collection system and he noted the next step of the project will be the installation of the power generation phase hopefully within the year Mr Proctor reported on the FY 2011 - 2012 budget for Fund 66 Expenditures Convenience Sites and Materials Recycling 2,430,000 MSW Landfill Operation 2,080,000 C & D Landfill Operation 970,000 Yard Waste Operation 180,000 Total 5,660,000 Revenues Decal Sales 1,090,000 Recycle Materials Sales 130,000 State Reimbursements 550,000 MSW Tipping Fees 3,050,000 C & D Tipping Fees 480,000 Yard Waste Tipping Fees 100,000 Fund Balance Appropriation 260,000 Total 5,660,000 Commissioner Wade M Stewart asked staff to provide an example of how much power will be generated from the Landfill gas collection system Page0791 April 2 , 2012 – 2012 Work Session – Continued Mr Broome reported the system is anticipated to generate 16 megawatts which could serve approximately 1,000 homes He stated the power will be sold to Progress Energy by contract with the County receiving a certain percentage of the gross sales At the inquiry of Commissioner Jeffrey P Carver , Mr Broome reported the County will have a 20 year contract with Progress Energy Commissioner Tony Braswell noted the disparity between the decal sales revenue versus the convenience sites expenditure Mr Proctor stated the shortfall is presently covered with revenues from the Landfill Mr Broome noted the convenience sites expenditure also includes the materials recycling operation which is supported with revenues from the decal sales , State reimbursements , and recycled materials sales ; however , he stated there is still a shortfall that must be covered with Landfill revenues Upon a question by Commissioner Stewart , Mr Broome confirmed that the County would have to double the cost of the decal stickers in order to break even on the convenience sites program Mr Proctor continued the presentation by reviewing the following challenges Challenges to Solid Waste and Material Recycling Operations • Reduction in Municipal Solid Waste and Construction & Demolition volumes o Reduction in revenues o Underutilization of resources o Fund 66 is currently not sustainable • Disparity in fees vs services provided Mr Proctor stated the reduction in the waste flow is due to the current state of the economy , waste going out of the County , as well as many industries trying to operate as efficiently as possible in the hopes of having zero waste He noted recycling is increasing and that Fund 66 is not currently sustainable because of funding for the convenience site program and the overall decrease in revenue He stated the Landfill is not purchasing equipment but is rather repairing older equipment Mr Proctor reported staff has looked at the following opportunities for revenue , including increasing the tipping fee or developing out - of - county waste sources Opportunities • Increase waste flow by developing out - of - county waste sources - Increase revenue - Use available resources - Contract with major haulers at lower tipping fees - Shorten landfill life • Eliminate decal sales and charge a household waste fee OR increase decal fee from 65 to 130 Commissioner Stewart noted that the downside of increasing the tipping fee is that more waste will go out of County and in his opinion , the County needs more customers Mr Proctor stated the County Landfill operation is designed to handle 650 tons per day and presently it is only taking in 300 tons per day so it would be in the best interest to increase the waste stream to be able to upgrade equipment as needed Mr Proctor reviewed the following trends with the Board Page1792 April 2 , 2012 – 2012 Work Session – Continued Commissioner Cookie Pope asked regarding charging all households a waste fee , would the households inside municipalities be included Mr Proctor explained that it could be done two different ways ; 1 charge just the rural households , or 2 include the municipal households Mr Broome stated if just considering the rural households , they could be charged 4500 annually , or the County could consider including the municipal households and charging the rural households 40 annually and the municipal households 20 annually which would generate the revenue needed to run the convenience site program Mr Proctor noted that most of the neighboring counties have a household fee and Johnston County is one of the only counties that still has the decal program in the State Commissioner Carver commented that he is hearing ways to increase the revenue stream ; however , he questioned what is being done to decrease expenses Mr Broome stated that if the trends continue to decline , some positions could be eliminated ; however , he noted that there is a minimum amount of equipment needed to function Mr Broome explained that for an operation the size of the County’s Solid Waste Program , it is imperative to have two compactors along with an old backup , two bulldozers , and at least two off - road trucks The Board further discussed options regarding the County’s Solid Waste Program Wastewater Tim Broome , PE , Director of Utilities and Engineering , reviewed the following with the Board on the current wastewater situation for the County Capacity Breakdown Permitted WWTP Capacity 950 MGD Average WTP flow Wet Season 450 MGD Permitted Flow Not Yet Tributary 175 MGD Clayton’s Purchased Capacity 075 MGD Total 700 MGD Surplus Capacity 250 MGD Expenditures Operations 3,940,000 Capital Outlay 490,000 Debt Service 2,730,000 Total 7,160,000 Revenues Wholesale Wastewater Fee 3,280,000 Retail Wastewater Fees 1,460,000 Septage and Biosolids Fees 120,000Page2793 April 2 , 2012 – 2012 Work Session – Continued Capacity Allocation Fees 350,000 Fund Balance Appropriation 1,950,000 Total 7,160,000 Mr Broome pointed out that Fund 68 is being balanced by using 1,950,000 from fund balance He stated the challenge is that the debt service is high at 38 of the annual budget which is due to the last expansion He noted the fund will not be sustainable for more than two or three years Mr Broome reviewed the following challenges and options with the Board Challenges to Wastewater Division • Nominal capacity fee revenue being received • Very slow growth in retail and wholesale services • Fund 68 is not sustainable Options • Partner with Clayton for receiving additional wastewater • Dramatically increase wholesale and retail user charges • Subsidize Fund 68 by Fund 69 – Water Districts and Fund 66 – Solid Waste until growth resumes • Subsidize Fund 68 by General Fund until growth resumes Recommendations for Sustainability • Partner with Town of Clayton to receive and treat high strength industrial wastewater beginning in 2014 • Maintain solvency in Fund 68 for the next two years through austerity , fee adjustments , and use of fund balance Risks • Approximately 075 MGD of surplus WWTP capacity would be available for wholesale and retail growth which will require careful scheduling of design and construction of the next WWTP expansion Mr Broome presented the following recommended fee adjustments that will be submitted to the County Manager during the budget process Recommend Wastewater Fee Adjustments for FY 2012 - 2013 Wholesale Increase commodity fee by 015 per 1,000 gallons from 250 to 265 per 1,000 + 6 Retail Increase monthly base fee from 1500 to 2000 + 333 , and increase commodity fee by 015 per 1,000 from 465 to 480 per 1,000 + 32 Capacity Fee Residential – increase fee from 2,400 per unit to 3,000 per unit Commercial – increase fee from 1000 per gpd to 1250 per gpd Water Chandra Coats , PE , Assistant Director of Utilities , reported that the Fund 67 – Water and Fund 69 – Water Districts budgets are currently sustainable provided that reasonable and modest rate adjustments are made periodically She reported a rate increase is proposed for FY 2012 - 2013 of five cents per 1,000 gallons Ms Coats reviewed the following points of interest with the Board Challenges to Water Supply & Distribution Division • Compliance with Stage 2 DBP Rule by March 2013 • Acquisition of property rights for operating quarry near Princeton for future water supply reservoir • Implementing a capital reserve fund for the future water supply source • Continuing additions to the distribution system for service to new customers and to improve water quality Commissioner Stewart questioned the proposed rate increase of five cents Page3794 April 2 , 2012 – 2012 Work Session – Continued Mr Broome stated staff is trying to keep the water fund competitive as well as prepare for future expansions that will eventually be needed Mr Broome also reported the County is struggling with increases in costs for fuel and chemicals for water and wastewater 5 Affiliation Update from Johnston Health Ralph Stewart , Chairman of the Johnston Health Board of Commissioners , addressed the Board and introduced Bobby Parker , Treasurer of the Johnston Health Board , and Dr Eric Janis Mr Stewart stated he appreciated the opportunity to update the County Commissioners on the affiliation process He noted the affiliation process is not something to be considered lightly and it will take some time to work through Mr Parker reviewed the following slideshow presentation with the Board He stated the affiliation process was begun in an effort to evaluate the healthcare in Johnston County and determine how it could be improved Focused Approach for our Future The Johnston Health Board of Commissioners continuously evaluates the delivery of health Johnston Health care in Johnston County and how it can be improved Strategic Directions Focused Approach for our Future The Committee’s Charge • Evaluate trends in health care In March 2011 , the Board established a special committee of Board , Medical Staff , and Hospital • Identify how health care reform will impact Johnston Staff to evaluate the current and future health Health care environment and its impact on Johnston Health They are being assisted in this process • Review economic climate and its consequences for by an experienced consultant , who is facilitating future development the analysis and process • Objectively review the performance of Johnston Health as it compares to similar organizations The Committee’s Charge What We Learned • Clearly establish primary objectives for Johnston • JH meets or exceeds national quality benchmarks and Health’s future standards • Discuss alternative course of action to achieve Johnston • The Medical Staff is highly qualified and represents a full Health’s goals array of specialties • Make recommendations for potential courses of action to • Our employees are well - trained and committed to the full Hospital Board of Commissioners providing safe and compassionate care to our patients • Our community image is not well perceivedPage4795 April 2 , 2012 – 2012 Work Session – Continued Moody’s Reaction to Reform What We Learned • Our market share has remained relatively stable but has Over the next three years , most hospitals “ should be able to dropped in some areas navigate the implications of healthcare reform relatively unscathed , ” … because many key provisions of the legislation • JH is part of the 30 of hospitals in NC that have a don’t take effect until 2014 But the rating agency anticipates negative operating margin that not - for - profit hospitals and health systems — particularly stand - alone community hospitals — “ will struggle financially ” as they attempt to deal with reduced payment and increased • Health Care Reform will further reduce reimbursements efficiency demands in a reform environment … all hospitals to hospitals will benefit from decreases in charity care and bad debt expenses … hospitals that employ physicians will also see increases in Medicaid payments to primary care physicians • Health Care Reform will require increasing alignment between physicians and hospitals 8 Moody’s Reaction to Reform Standard and Poor’s 2011 Outlook We expect an acceleration in merger and acquisition M & A activity this year Although consolidation has been “ However , as governmental auditing and oversight of commonplace for more than a decade in this sector , we believe revenue are tightened , hospitals will be pressured to operate the drive to lower costs , enhance information technology IT more efficiently , forcing spending cuts and mergers among capabilities , prepare for health care reform , and increase the smaller hospitals after 2014 ” range of collaboration with others – both horizontally and vertically - - will likely boost M & A activity We expect system - to - system mergers to increase , but we also believe many stand - alone providers will need to overcome traditional community control concerns and seek larger partners to prepare for future challenges Standard and Poors , “ Outlook Is Stable For Not - For - Profit Health Care Providers 9 10 This Year , But Unsettling Times Loom ” , Feb 3 , 2011 Possible Course of Action Carolina “ Systemness ” • Investigate the Positive and Negative benefits of a formal affiliation with a major health care provider who can significantly improve our ability to achieve our stated priorities in our current and future health care environment 11 An Affiliation Strategy Our Priorities • Types of Affiliations • Maintain quality and expand services – Status Quo no affiliation – Strategic Alliance • Clinical Programs • Improve access to capital • Management – Joint Venture – Joint Operating Company • Improve profitability – Lease – Asset Merger • Increase market share • Improve imagePage5796 April 2 , 2012 – 2012 Work Session – Continued Affiliation as a Growth Strategy Structural Models Overview ? Enhance physician recruitment Status Quo ? Increase access to care via specialty High Alliance services development Joint Venture ? Economies of scale via backroom Control Joint Operating Retained initiatives Management Agreement Agreement ? Improve market share Sale Merger Lease Low ? Broaden brand awareness Low High Strategic Benefits ? Enhance competitive position ? Achieve geographic diversity 15 ? Improve financial position 16 CONFIDENTIAL CONFIDENTIAL Process Timeline Process to Date Mar 22 Board Meeting Mar 23 Public Announcement Process and Proposed Structure Phase I Mar 26 – Apr 16 Phase II Pursue Phase III Execute Education Develop Conduct Meetings Change Strategy Strategy ~ Apr 16 Issue Final RFP Receive Acceptances Mar 24 2011 Oct 20 2011 ~ Apr 20 Board approves Board approves Phase I Phase IIa RFIs Public Announcement RFP Recipients ~ May 18 Proposal Deadline May – September 2011 Committee Dec – Feb 2012 ~ May 29 Conducts Phase I Nov 18 2011 Responses Committee Reviews Proposals RFIs Distributed Evaluated ~ May 31 Committee’s First RFP Report to Board Dec 16 2011 RFI Responses ~ June Received Presentations from Potential Partners 17 18 Commissioner Tony Braswell asked to hear from Dr Janis , as a physician , as to his perspective on the affiliation process Dr Janis stated from his perspective as a physician that has served on the Hospital Board , served as Chief of Staff , and been a member of the medical community in Johnston County for 16 years , he feels it is critical that healthcare in Johnston County not only survive , but also thrive and succeed Dr Janis stated anything that is done must be designed to enhance healthcare in Johnston County for the benefit of Johnston County citizens and not dissolve healthcare in Johnston County for the benefit of an outside partner Dr Janis reported he feels that everyone on the committee along with everyone he has spoken to is dedicated to the preservation and enhancement of healthcare in Johnston County Dr Janis spoke on the relationship of hospitals and doctors and noted that when hospitals are successful , doctors feel good about being associated professionally with that hospital He stated successful hospitals help the medical community by enhancing services for doctors in areas such as IT integration , new equipment , as well as they create efficiencies for doctors in order to improve patient care and become more productive Dr Janis spoke on the difficulty of healthcare and the uncertainty regarding the healthcare reform bill He noted the mandates associated with healthcare reform and the financial constraints will make it difficult for an individual and or a small group provider to stay in business Dr Janis stated whoever the hospital decides to partner with must be committed to local healthcare and committed to local doctors He stressed that doctors need to be a part of the affiliation process and that everyone is committed to looking for a way to strengthen healthcare in Johnston County Commissioner Cookie Pope commented that when the affiliation process first began , she believes that since there was not much information available to the public , it was thought that perhaps the hospital was going to be sold Mr Stewart agreed that when the process began , many people jumped to conclusions He referenced the comments by Dr Janis and reiterated that everyone needs to work together Mr Stewart added that when talking with hospitals , they must make sure to keep things as they are in Johnston County while making improvements He stated if the right partnership can be achieved , then he does not believe the citizens will realize the change , aside from seeing different aspects of medical care that could be offered Page6797 April 2 , 2012 – 2012 Work Session – Continued Commissioner Wade M Stewart reiterated the need to find the right partnership Commissioner Stewart stated everyone is telling him that they want the services at Johnston Health enhanced ; therefore , Johnston Health needs to partner with a hospital that has the funds to do that Commissioner Stewart stated Johnston Health does not need to become a transfer station whereby patients are taken there only to be transferred to another hospital Mr Stewart commented that the goal is to provide more services locally for Johnston County citizens Dr Janis stated the goal is not to sell Johnston Health , but to enhance the services it offers and enhance healthcare in Johnston County Commissioner DeVan Barbour stated that he believes Johnston Health is one of the best assets that Johnston County has along with the good schools and excellent infrastructure and further , the citizens deserve good healthcare He stated Johnston Health has never been able to enjoy the confidence of a lot of people in the County and he cautioned that the affiliation process must be done with care in that people are afraid of the unknown Commissioner Barbour stated the affiliation method is a wonderful way to quickly reestablish credibility Commissioner Barbour stated he is aware that some of the affiliation process must be done quietly , but he added it is important to let people know that Johnston Health is not going to be sold Commissioner Barbour expressed his appreciation to the Johnston Health Board and he encouraged transparency for the citizens At the inquiry of Commissioner Braswell , Mr Stewart confirmed that once the Request for Proposals has been sent out , Johnston Health will release the names of those hospitals that acknowledge the RFPs 6 Fiscal Year 2012 - 2013 Budget Update County Manager Rick Hester reported he hopes to have a proposed Fiscal Year 2012 - 2013 budget completed and ready for submittal to the Board by mid - May , followed by the budget public hearing at the June 4 , 2012 10 00 am meeting , whereupon the Board can then schedule special budget meetings if appropriate Mr Hester stated the proposed budget will be presented with a 78 cent tax rate and he assured the Board that the budget will not contain a fund balance appropriation Mr Hester noted several key points that will affect the proposed budget ; one being the recent debt refunding that will help with the fund balance especially in light of the fact that the County will be taking on two and possibly three EMS units Mr Hester also mentioned that he along with Commissioner DeVan Barbour Commissioner representative on the Mental Health Board are once again dealing with mental health reform and he spoke on the complexity of the issue He stated it is his understanding that there may be more expense involved with providing mental health services , but they are still working on the issue Mr Hester reported he and Finance Director Chad McLamb will be working with Tax Administrator Pat Goddard on the tax valuation in order to have a good tax revenue estimate for the proposed budget He noted there are a lot of appeals scheduled so the revenue estimates will be conservative Mr Hester also spoke on the lottery revenue situation He stated if the County receives its full allocation for Fiscal Year 2012 - 2013 , the estimate would be 4 million ; however , if the General Assembly follows the formula as they have in the past two years , the County would only receive approximately 24 million in lottery revenues He noted staff will continue to work with the North Carolina Association of County Commissioners on the lottery revenue situation Mr Hester stated staff will continue to monitor the sales tax revenues Mr Hester explained he is proposing the low wealth minimum amount for Johnston County Schools at 493 million He stated he is also proposing to allocate the same amount of funding for Johnston Community College as in FY 2011 - 2012 ; however , he noted he has not received any estimates from the College to date Mr Hester concluded his comments by stating he plans to propose a 2 pay increase for County employees There being no further business , Commissioner Cookie Pope moved the Board adjourn Commissioner Jeffrey P Carver seconded the motion , which carried by unanimous vote The meeting adjourned at 8 45 pm Allen L Mims , Jr , Chairman Paula G Woodard , Clerk to the BoardPage