Mecklenburg County Debt Affordability Presentation to the Board of County Commissioners June 24, 2008

22 Overview of Presentation  Overview of Debt Position  Rating Agencies’ Perspective  Benchmarks and Ratios  Available Debt Capacity  Recommendations & Next Steps

33 Overview of Debt Position  At June 30, 2008 the County’s outstanding debt will total $2,278,565,000.  $1.8 billion of General Obligation Bonds and $518 million of Certificates of Participation (COPs).

44 Overview of Debt Position  Of that amount, $1.5 billion is fixed rate and $718 million is variable rate.  The total fixed portion includes $331 million of variable rate that was swapped to fixed rate.

55 Overview of Debt Position The outstanding debt is for the following purposes Schools63.2% Land7.9% Park & Recreation6.5% Community College5.9% Courts5.4% Govt. Facilities5.1% Jails3.6% Libraries2.2% Historic Preservation.2% WTVI.1%

66 Overview of Debt Position Authorized and unissued debt totals $718.5 million. BondsAuthorized and Unissued 2007 Referendum School Facilities - $516 million$436,000,000 Land - $35.6 million 30,640,000 Community College Facilities - $30 million 30,000, Referendum Community College Facilities - $46.5 million 32,500, Referendum Park & Recreation Facilities - $69 million 36,000, Referendum School Facilities - $224 million 14,000,000 TOTAL BONDS$579,140,000 Certificates of Participation School Facilities - $212.8 million87,765,000 Community College Facilities - $36 million19,500,000 County Facilities - $14.8 million9,785,000 School Administrative Facilities - $21.5 million12,000,000 Library Facilities - $14.8 million10,325,000 TOTAL COPS$139,375,000 TOTAL$718,515,000

77 Overview of Debt Position Schools74.8% Community College11.4% Park & Recreation5.0% Land4.3% Misc.1.7% Libraries1.4% Govt. Facilities1.4% The miscellaneous category represents the authorization for the school administrative facilities approved by the BOCC in 2007.

8 Overview of Debt Position Projected Debt Service-Current Outstanding Debt Fiscal Year Estimated General Debt Service Estimated School Debt Service Estimated Total Debt Service FY 2009$105,933,316$149,233,934$255,167,250 FY 2010$101,685,216$147,004,923$248,690,139 FY 2011$94,971,320$145,500,198$240,471,518 FY 2012$91,797,392$142,378,736$234,176,128 FY 2013$59,552,952$156,061,284$215,614,236 FY 2014$68,727,016$131,343,129$200,070,145 FY 2015$88,067,553$103,876,629$191,944,182 8

9 Overview of Debt Position Projected Debt Service-Current Outstanding Debt & Authorized and Unissued 9 Fiscal Year Estimated General Debt Service Estimated School Debt Service Estimated Total Debt Service FY 2009$105,933,316$149,233,934$255,167,250 FY 2010$110,237,332$174,552,807$284,790,139 FY 2011$109,719,554$187,949,464$297,669,018 FY 2012$109,271,575$193,149,553$302,421,128 FY 2013$76,575,584$206,718,652$283,294,238 FY 2014$85,298,097$180,657,048$265,955,145 FY 2015$104,187,084$151,847,098$256,034,182

10 Rating Agencies’ Perspective  Mecklenburg County is rated AAA by all three major credit rating agencies.  County was last rated in December 2007 and our AAA ratings were affirmed and given a stable outlook.  Despite the affirmation of the AAA rating and the overall strength of the credit, the rating reports indicate some areas of concern.

11 Rating Agencies’ Perspective Fitch Ratings : “Fitch believes that economic growth will keep pace with the growing debt levels, resulting in a continued moderate debt burden; however it views with concern the county’s lack of compliance with its debt policies.” “Although Fitch generally views the adoption of such a policy favorably, it notes that the county is out of compliance with one of the targets; limiting its impact on credit strength.” “it views with concern the increased operating pressures posed by growing debt service payments. At 17.9% of fiscal 2007 actual expenditures and 20% of the county’s 2008 general fund operating budget, the county’s debt service payment is high and in excess of its 16% target.”

12 Rating Agencies’ Perspective Moody’s Investor Service “Debt service equaled 18.3% of 2007 operational expenditures, above the county’s targeted ceiling of 16%. Fiscal 2008 and fiscal 2009 debt service is also projected to exceed the county’s target levels. The county continuing to exceed this fiscal target could have negative credit implications moving forward. Further, the ability of the county to manage debt service expenditures relative to its budget will be a key factor in future credit analysis.”

13 Rating Agencies’ Perspective Expectation of Rating Agencies  Mecklenburg County will continue to issue debt to finance its capital program;  Mecklenburg County will update its debt policy to more accurately reflect its current and future debt positions;  Mecklenburg County will identify other sources of funding for its capital program.

14 Benchmarks and Ratios Current Debt Policy Overall Debt Per Capita: measure will be maintained in the range of $3,500 to $3,600. Overall Debt as a Percentage of Assessed Valuation: ratio is targeted at 3.3% with a ceiling of 4%. Debt Service as a Percentage of Operational Budget: ratio is targeted at a level of 14% with a ceiling of 16%. Ten-year Payout Ratio: maintain a floor of 64%

15 Benchmarks and Ratios Projected Ratios at June 30, 2008 RatioTarget Results at 6/30/08 Overall Debt Per Capita$3,600$3,641 Overall Debt as Percentage of Assessed Valuation 4%3.4% Debt Service as Percentage of Operational Budget 16%17.1% Ten Year Payout Ratio64%66.9%

16 Benchmarks and Ratios Comparison to other “AAA” Counties Comparative S&P “AAA” County Medians (as of 6/30/07) Mecklenburg County S&P 2007 Median Ratio of County to Median AAA Rated High AAA Rated Low Overall Debt to Market Value3.36%1.90%1.77x5.90%.10% Market Value Per Capita$105,788$104, X$265,654$50,734 Overall Debt Per Capita$3,551$2, x$4,266$161 Comparative Moody’s “Aaa” County Medians (as of 6/30/07) Mecklenburg County Moody’s 2007 Median Ratio of County to Median Principal Payout Percentage in 10 Years67.2%66.2%1.01x Per Capita Income$27,353$27,595.99x Unreserved/Undesignated General Fund Balance as a % of Revenues19.3%20.5%.94x Household Effective Buying Income (000’s)$117$119.98x

17 Benchmarks and Ratios Comparison to other “AAA” Counties In North Carolina Mecklenburg County (6/30/07) Wake (06/30/06) Durham (06/30/07) Forsyth (06/30/07) Guilford (06/30/07) Overall Debt to Market Value3.8%3.1%2.3%3.3%2.2% Market Value Per Capita$109,615$100,631$89,250 $93,551 Overall Debt Per Capita$4,416$3,085$2,023$2,903$2,042 Principal Payout Percentage in 10 Years 66.9%70%70.2%66.8%52.9% Unreserved/Undesignated General Fund Balance as a % of Revenues 16.1%10.4%7.3%22.8%9.7% Debt Service as a Percentage of Operational Budget 18.3%17.3%10%11.1%7.7% Source: Moody’s MFRA data as of April 25, 2008

18 Measuring Debt Capacity Determining Available Debt Capacity 1)Analyze capital needs 2)Project future assessed valuation, population growth, and operating expenditures. 3)Establish not-to-exceed limits for debt ratios

19 Measuring Debt Capacity Projected Bond Sales

20 Measuring Debt Capacity 20 Fiscal Year Estimated General Debt Service Estimated School Debt Service Estimated Total Debt Service FY 2009$105,933,316$149,233,934$255,167,250 FY 2010$111,637,332$174,552,807$286,190,139 FY 2011$124,684,554$187,949,464$312,634,018 FY 2012$146,361,575$193,149,553$339,511,128 FY 2013$146,528,084$206,718,652$353,246,736 FY 2014$188,468,097$180,657,048$369,125,145 FY 2015$235,699,584$151,847,098$387,546,682 Projected Debt Service-Current Outstanding, Auth/Unissued, CIP & Available Capacity

21 Measuring Debt Capacity Tax Rate Effect

22 Measuring Debt Capacity FY 2009FY 2010FY 2011FY 2012FY 2013FY 2104FY 2015 Outstanding Debt at July 1 (billions) $2.278$2.490$2.662$2.813$2.944$3.069$3.185 Debt Issuance Debt Retirement Outstanding Balance at June 30 th (billions) $2.490$2.663$2.813$2.94$3.069$3.185$3.288 At the end of FY 2009, outstanding debt is projected to total $2.5 billion. This is expected to increase to $3.3 billion by the end of FY Projected Outstanding Debt

23 Measuring Debt Capacity FY 2009FY 2010FY 2011FY 2012FY 2013FY 2104FY 2015 Assessed Valuation (billions)$97.4$116.8$121.2$125.7$130.3$135.2$140.2 Population909,593936,881964,988993,9371,023,7551,054,4681,086,102 Operating Expenditures (billions)$1.414$1,495$1.581$1.673$1.769$1.871$1.979 Projected Ratios Overall Debt to Assessed Valuation3.52%3.08%3.09% 3.07%3.05%3.01% Overall Debt Per Capita$3,768$3,843$3,886$3,905$3,913$3,909$3,890 Debt Service as % Operational Budget 18.04%19.24%19.86%20.38%20.05%19.73%19.58% Principal Payout in Ten Years67.1%67.3%67.7%68.6%69.5% 1)Assessed Valuation – FY2009 is budget amount; growth rate of 20% in FY2010 and 3.7% growth annually thereafter. 2)Population – estimated to grow 3% annually. 3)General Fund Operating expenditures – project to increase 5.76% annually. Based on projected bond sales, debt per capita and debt service as a percentage of operational budget are out of compliance with the current debt policy.

24 Recommendations 1)Amend Debt Policy to include revised debt ratio targets: Increase overall debt per capita to $4,000. Increase debt service as a percentage of the operational budget to 22%. RatioCurrent TargetsProposed Targets Overall Debt Per Capita$3,600$4,000 Overall Debt as Percentage of Assessed Valuation 4% Debt Service as Percentage of Operational Budget 16%22% Ten Year Payout Ratio (floor)64%

25 Recommendations 2) Increase pay-go funding for capital projects Options for pay-go funding Dedicate three pennies on the tax rate for capital projects. Dedicate all or a portion of 8% excess fund balance for capital projects. Dedicate proceeds from all county land sales for capital projects. Move forward with new ¼ cent sales tax and dedicate proceeds to capital projects.

26 Recommendations SourceFY09 Projected Revenue Three pennies on the tax rate$28,500,000 50% of 8% excess fund balance20,750,000 Proceeds from county land sales*32,000,000 Additional ¼ cent sales tax20,000,000 Total$101,250,000 *Assumes the sale of Hal Marshall is completed in FY09 If this pay-go strategy were to be in place for FY09, an estimated $101.3 million could be available to fund capital projects.

27 Recommendations 3) Incorporate pay-go strategy into the County’s Debt Policy. 4) Cap borrowing at $350 million per year to stay within debt ratio targets.

28 Next Steps  Based on feedback, a revised debt policy will be developed and presented to the Board no later than September.

29 Questions?