Tuscola County Tuscola County Financial AssessmentFinancial Assessment

Prepared by: Tuscola County Controller/AdministratorPrepared by: Tuscola County Controller/Administrator

Financial Assessment ObjectiveFinancial Assessment Objective

Project county financial capabilities Project county financial capabilities Board directed Controller-Administrator to prepare estimatesBoard directed Controller-Administrator to prepare estimates Information for budget development and labor negotiationsInformation for budget development and labor negotiations Includes three major sections:Includes three major sections:

2008 to 2012 financial history2008 to 2012 financial history

Mid year 2013 financial status and year-end Mid year 2013 financial status and year-end projectionsprojections

Estimate 2014 and 2015 financial capabilitiesEstimate 2014 and 2015 financial capabilities

County Finances Well ManagedCounty Finances Well Managed

Commissioners, department heads and administrative staffCommissioners, department heads and administrative staff Excellence in County Financial Reporting AwardExcellence in County Financial Reporting Award Public funds safeguarded and properly accountedPublic funds safeguarded and properly accounted A+ Standard and Poor’s bond ratingA+ Standard and Poor’s bond rating Comments from bond rating agency:Comments from bond rating agency:

Effective management practicesEffective management practices

Stable agricultural based economyStable agricultural based economy

Adequate reservesAdequate reserves

Low debt burdenLow debt burden

Budget Overview and Budget Overview and Services ProvidedServices Provided

Commissioners responsible for $47 million all funds budgetCommissioners responsible for $47 million all funds budget $12.2 million general fund (GF) budget$12.2 million general fund (GF) budget Budget development most important commissioner function Budget development most important commissioner function Policy and priority setting through allocation of resourcesPolicy and priority setting through allocation of resources 2013 budgets/financial reports available on county web site 2013 budgets/financial reports available on county web site

http://www.tuscolacounty.org/finreports/http://www.tuscolacounty.org/finreports/ Controller responsible for preparation of draft budgetController responsible for preparation of draft budget Controller presents draft budget for commissioner review-Controller presents draft budget for commissioner review-

considerationconsideration

Full Range of Services ProvidedFull Range of Services Provided Police, jail, courts, emergency services and dispatchPolice, jail, courts, emergency services and dispatch Record retention and managementRecord retention and management Public health and Medical Care FacilityPublic health and Medical Care Facility Economic development Economic development Support for neglected, abused and delinquent childrenSupport for neglected, abused and delinquent children Building codesBuilding codes Animal controlAnimal control RecyclingRecycling EqualizationEqualization Mosquito abatementMosquito abatement Roads bridges and drainageRoads bridges and drainage

Accounting StructureAccounting Structure

Finances administered with “fund” accounting systemFinances administered with “fund” accounting system Finances accounted separately for certain servicesFinances accounted separately for certain services Uniform Budgeting and Accounting ActUniform Budgeting and Accounting Act Many services accounted for through GFMany services accounted for through GF County administers over 50 other individual funds County administers over 50 other individual funds Primary focus of assessment is the GF and funds that Primary focus of assessment is the GF and funds that

interact with GFinteract with GF Financial tools:Financial tools:

Audit (Comprehensive Annual Financial Report) Audit (Comprehensive Annual Financial Report) http://www.tuscolacounty.org/finreports/http://www.tuscolacounty.org/finreports/..BudgetBudgetMonthly Financial ReportsMonthly Financial Reports

2008 to 2012 Financial Downturn2008 to 2012 Financial Downturn

Turbulent challenging financial periodTurbulent challenging financial period GF peak revenue 2008 $12.4 million - 2012 declined to $11.8 GF peak revenue 2008 $12.4 million - 2012 declined to $11.8 Alarming decline $600,000 or 4.8% in four years Alarming decline $600,000 or 4.8% in four years Same pattern of decline for most other county fundsSame pattern of decline for most other county funds Especially true for funds based millage and property tax Especially true for funds based millage and property tax

General Fund Revenues Compared to Expenditures 2000 to 2012

$9,750,000

$10,250,000

$10,750,000

$11,250,000

$11,750,000

$12,250,000

$12,750,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Revenues Expenditures

Property Tax Revenue DeclineProperty Tax Revenue Decline

Downward spiral caused by residential value decline Downward spiral caused by residential value decline Property tax revenue single largest revenue source to GFProperty tax revenue single largest revenue source to GF Accounts for 45% of total GF revenue Accounts for 45% of total GF revenue Major land value declines especially residential classMajor land value declines especially residential class GF property tax revenue declined by $434,000 or 7.4% from GF property tax revenue declined by $434,000 or 7.4% from

2008 to 20122008 to 2012

General Fund Property Tax Revenue Decline

$5,862,204

$5,761,724

$5,682,108

$5,563,863

$5,428,071

$5,000,000

$5,100,000

$5,200,000

$5,300,000

$5,400,000

$5,500,000

$5,600,000

$5,700,000

$5,800,000

$5,900,000

$6,000,000

2008 2009 2010 2011 2012

State Revenue Sharing Trends

$1,480,616

$1,058,281

$975,763$1,018,377

$838,665

$300,000

$500,000

$700,000

$900,000

$1,100,000

$1,300,000

$1,500,000

2008 2009 2010 2011 2012

Adjustments to Declining FinancesAdjustments to Declining Finances

Expenditure reductions required to balance budgetExpenditure reductions required to balance budget Service base and staffing levels reduced Service base and staffing levels reduced Significant concessions and sacrifices requiredSignificant concessions and sacrifices required Difficult decisions to prevent financial problems Difficult decisions to prevent financial problems Reductions included:Reductions included:

Decreased staffDecreased staffElimination/reduction of servicesElimination/reduction of servicesWage freezes and benefit concessions Wage freezes and benefit concessions Employees share for health insurance/retirement Employees share for health insurance/retirement

increasedincreased

General Fund Revenues and Expenditures2008 to 2012

$12,415,127

$11,924,967$11,967,408 $11,955,712

$11,804,134

$12,185,475

$12,570,025

$11,866,214

$11,750,642

$11,614,040

$11,000,000

$11,200,000

$11,400,000

$11,600,000

$11,800,000

$12,000,000

$12,200,000

$12,400,000

$12,600,000

$12,800,000

2008 2009 2010 2011 2012

Revenues Expenditures

Tuscola CountyGeneral Fund Payroll Cost Trends

$4,240,241

$4,404,647

$4,504,625

$4,625,338

$4,930,388

$4,720,721

$4,541,708

$4,330,608

$3,600,000

$3,800,000

$4,000,000

$4,200,000

$4,400,000

$4,600,000

$4,800,000

$5,000,000

2005 2006 2007 2008 2009 2010 2011 2012

Capital Improvement Fund DrawdownCapital Improvement Fund Drawdown

Capital improvement (CI) fund balance reducedCapital improvement (CI) fund balance reduced 2007 CI fund balance $2.1 million - 2012 $1.1 million 2007 CI fund balance $2.1 million - 2012 $1.1 million County unable to make GF transfersCounty unable to make GF transfers All GF revenue prioritized for operational purposesAll GF revenue prioritized for operational purposes 2010 to 2011 $600,000 spent to solve office space needs 2010 to 2011 $600,000 spent to solve office space needs Depletion will continue unless GF revenue is transferredDepletion will continue unless GF revenue is transferred Fund could be reduced to $600,000 in three yearsFund could be reduced to $600,000 in three years Critical that part of wind revenue used to restore CI funds Critical that part of wind revenue used to restore CI funds

Capital Improvement Fund Trends and Projections(If General Fund Transfers are not Restored)

$1,828,422

$2,166,363

$2,070,894

$1,840,274$1,754,341

$1,217,410

$1,080,725

$920,725

$760,725

$600,725

$1,156,725

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

2012 Audited Financial Standing2012 Audited Financial Standing

All funds in positive year end 2012 standingAll funds in positive year end 2012 standing Significant accomplishment difficult circumstancesSignificant accomplishment difficult circumstances GF revenue $11,804,137 compared to expense $11,614,040GF revenue $11,804,137 compared to expense $11,614,040 First time in five years GF transfer to CI fund $110,000 First time in five years GF transfer to CI fund $110,000 Total GF fund balance $2,546,000 on 12/31/12:Total GF fund balance $2,546,000 on 12/31/12:

Unassigned portion of fund balance (portion available Unassigned portion of fund balance (portion available for for expenditure) - $1,024,000 expenditure) - $1,024,000

Assigned portion (amount required to comply with Assigned portion (amount required to comply with policy policy of 10% of next year budget amount for cash flow and of 10% of next year budget amount for cash flow and other unanticipated emergency needs) - other unanticipated emergency needs) - $1,212,000.$1,212,000.

$310,000 is defined as an advance to the Revolving $310,000 is defined as an advance to the Revolving Drain Fund Drain Fund

Financial Variables and InstabilityFinancial Variables and Instability

New normal - fiscal uncertainty New normal - fiscal uncertainty Worst economic/financial decade in state historyWorst economic/financial decade in state history Automobile employees reduced by 2/3Automobile employees reduced by 2/3 Wind energy revenue positive Wind energy revenue positive Method of assessing/taxing wind energy uncertainMethod of assessing/taxing wind energy uncertain Difficult to forecast and plan financiallyDifficult to forecast and plan financially Taxable values will not increase at the rate of decrease - Taxable values will not increase at the rate of decrease -

Headlee and Proposal A limit Headlee and Proposal A limit

Financial Variables and InstabilityFinancial Variables and Instability

Federal and State intergovernmental aid has declined Federal and State intergovernmental aid has declined Local control declined - state making more decisions Local control declined - state making more decisions Counties lack taxing authorityCounties lack taxing authority Most revenue sources and amount charged set by stateMost revenue sources and amount charged set by state Point in time further consolidation difficult to achievePoint in time further consolidation difficult to achieve Elimination of tax exempt status for government bonds Elimination of tax exempt status for government bonds 2016 county may lose over $100,000 due to eligible 2016 county may lose over $100,000 due to eligible

manufacturing personal property exemption manufacturing personal property exemption

Financial Variables and InstabilityFinancial Variables and Instability

Costs to implement Affordable Care Act concern Costs to implement Affordable Care Act concern Health insurance/retirement system costs huge factors Health insurance/retirement system costs huge factors Jail remains overcrowded most costly county service Jail remains overcrowded most costly county service Some officials believe current method of funding local Some officials believe current method of funding local

government no longer viablegovernment no longer viable

Wind Development OverviewWind Development Overview

Wind turbines significant event to impact countyWind turbines significant event to impact county Renewable energy standard set by state Renewable energy standard set by state 10% electricity produced from renewable sources by 201510% electricity produced from renewable sources by 2015 County has sufficient wind velocity and consistencyCounty has sufficient wind velocity and consistency

Land lease agreements negotiated and signedLand lease agreements negotiated and signed Two major unanswered questions: Two major unanswered questions:

How will wind turbines be assessed/taxed?How will wind turbines be assessed/taxed?

How much revenue will be generated?How much revenue will be generated?

State Tax Commission Multiplier State Tax Commission Multiplier Schedule ChangesSchedule Changes

2011 STC unilateral decision changed multiplier schedule 2011 STC unilateral decision changed multiplier schedule No studies or rationale for changeNo studies or rationale for change Reduced wind energy revenue by estimated 27%Reduced wind energy revenue by estimated 27% STC implemented without local input opportunitySTC implemented without local input opportunity Tremendous frustration to local government entitiesTremendous frustration to local government entities Michigan Renewable Energy Collaborative (MREC) formed Michigan Renewable Energy Collaborative (MREC) formed Protect local interests and determine equitable method of Protect local interests and determine equitable method of

assessing/taxing wind generatorsassessing/taxing wind generators Clark Hill law firm hiredClark Hill law firm hired

Wind Revenue Critical Fiscal FactorWind Revenue Critical Fiscal Factor New revenue source but not “fix all” New revenue source but not “fix all” County recovering from four years of declineCounty recovering from four years of decline Only helps to maintain service base and CI needsOnly helps to maintain service base and CI needs Estimates need updating regularly - situation changes dailyEstimates need updating regularly - situation changes daily Caution until assessment/taxation method determineCaution until assessment/taxation method determine Caution until pending assessment appeals reconciled Caution until pending assessment appeals reconciled Wind revenue variables: Wind revenue variables:

Project completion date - utility companies reported Project completion date - utility companies reported costcost

Federal cash grant applied to value or notFederal cash grant applied to value or notWhich multiplier schedule is applied Which multiplier schedule is applied How many turbines installed and megawatt capacity How many turbines installed and megawatt capacity Value of underground collection and substation Value of underground collection and substation

Wind Turbine Multiplier Schedules

  OLD NEW COMPROMISE

Year Multiplier Multiplier Multiplier

1 1.00 0.80 1.00

2 0.95 0.75 0.80

3 0.90 0.70 0.75

4 0.85 0.60 0.70

5 0.80 0.50 0.60

6 0.76 0.40 0.50

7 0.70 0.30 0.45

8 0.65 0.30 0.40

9 0.60 0.30 0.35

10 0.56 0.30 0.30

11 0.50 0.30 0.30

12 0.45 0.30 0.30

13 0.40 0.30 0.30

14 0.36 0.30 0.30

15 0.30 0.30 0.30

Projected Wind RevenueProjected Wind Revenue

GF receives first revenue 2013 - estimated $450,000 GF receives first revenue 2013 - estimated $450,000 $88,000 escrowed for 2013 pending Nextera appeal $88,000 escrowed for 2013 pending Nextera appeal Special millage funds begin receiving revenue 2014 Special millage funds begin receiving revenue 2014 Special millage funds also need to be escrowedSpecial millage funds also need to be escrowed Critical to understand – REVENUE DECLINES WITH TIMECritical to understand – REVENUE DECLINES WITH TIME

Peak GF revenue in 2015 - estimated $927,500 Peak GF revenue in 2015 - estimated $927,500 2027 GF decline to $411,0002027 GF decline to $411,000Peak special millage revenue 2016 – estimated Peak special millage revenue 2016 – estimated

$1,079,000 $1,079,000 2027 decline to $448,000 2027 decline to $448,000 Unless more projects occur revenue begins declining after 2016 Unless more projects occur revenue begins declining after 2016

Estimated Revenue From 190 Wind Turbines

Year General Fund Special Millage Total

2013 $450,000 $0 $450,000

2014 $585,500 $429,500 $1,015,000

2015 $927,500 $679,000 $1,606,500

2016 $846,000 $1,079,000 $1,925,000

2017 $772,000 $982,000 $1,754,000

2018 $685,000 $899,500 $1,584,500

2019 $598,000 $792,500 $1,390,500

2020 $530,500 $686,500 $1,217,000

2021 $482,000 $603,500 $1,085,500

2022 $453,500 $544,500 $998,000

2023 $433,000 $506,500 $939,500

2024 $420,000 $479,500 $899,500

2025 $417,500 $460,500 $878,000

2026 $414,000 $456,500 $870,500

2027 $411,000 $448,500 $859,500

Estimated General Fund and Special Millage Fund Wind Turbine and ITC Revenue

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

General Fund Special Millage

Change in General Fund and Special Millage Wind Revenue Over Time

2027 Special Millage Revenue, $448,500

2015 General Fund Revenue, $927,500

2027 General Fund Revenue, $411,000

2016 Special Millage Revenue, $1,079,000

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

Estimated Special Purpose Millage Change 2016 to 2027

  Millage Percent of Total 2016 2027  

      Special Millage Special Millage  

Special Millage Amount Special Millage Revenue Revenue Difference

Medical Care Construction 1.0000 21.84% $235,692 $97,969 ($137,724)

Primary Roads 0.9657 21.09% $227,608 $94,608 ($133,000)

Road Patrol 0.9000 19.66% $212,123 $88,172 ($123,952)

Mosquito Abatement 0.6316 13.80% $148,863 $61,877 ($86,986)

Bridge 0.4807 10.50% $113,297 $47,093 ($66,204)

Medical Care Operations 0.2500 5.46% $58,923 $24,492 ($34,431)

Senior Citizens 0.2000 4.37% $47,138 $19,594 ($27,545)

Recycling 0.1500 3.28% $35,354 $14,695 ($20,659)

Total Special Millage 4.5780 100.00% $1,079,000 $448,500 ($630,500)

Wind Revenue Essential to Wind Revenue Essential to County FinancesCounty Finances

Without wind continued property tax revenue decline projectedWithout wind continued property tax revenue decline projected Wind revenue is anticipated to off-set declineWind revenue is anticipated to off-set decline Without wind revenue further reductions requiredWithout wind revenue further reductions required County heavily dependent on wind energy revenueCounty heavily dependent on wind energy revenue Wind revenue critical to sustain servicesWind revenue critical to sustain services

General Fund Property Tax Revenue Projections With and Without Wind Revenue

$4,500,000

$4,700,000

$4,900,000

$5,100,000

$5,300,000

$5,500,000

$5,700,000

$5,900,000

$6,100,000

$6,300,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

Property Tax Without Wind Revenue Property Tax With Wind Revenue

Need to Escrow Portion of Need to Escrow Portion of Wind RevenueWind Revenue

Nextera appealed 2012 assessment - 68 generators GilfordNextera appealed 2012 assessment - 68 generators Gilford If successful 2013 GF revenue reduced – estimated $88,000 If successful 2013 GF revenue reduced – estimated $88,000

escrowedescrowed Taxes for 2013 were based on “old” multiplier scheduleTaxes for 2013 were based on “old” multiplier schedule Nextera claims federal grant reduces value by 30% Nextera claims federal grant reduces value by 30% Escrow mid-point of difference between assessment and Escrow mid-point of difference between assessment and

amount Nextera would pay under appealamount Nextera would pay under appeal Only GF impacted by Nextera - 68 generators GilfordOnly GF impacted by Nextera - 68 generators Gilford If other projects appealed need to escrowed funds each yearIf other projects appealed need to escrowed funds each year May take years before Michigan Tax Tribunal hears casesMay take years before Michigan Tax Tribunal hears cases

General and Special Fund Wind Revenue Escrow

Fund Name 2013 2014 2015 2016

General $88,000 $161,000 $188,000 $146,000

MCF Debt $0 $22,483 $41,133 $48,031

Primary Roads $0 $21,712 $39,722 $46,384

Road Patrol $0 $20,235 $37,020 $43,228

Mosquito Abatement $0 $14,200 $25,980 $30,337

Bridge/Street $0 $10,807 $19,773 $23,089

Medical Care $0 $5,621 $10,283 $12,008

Senior Citizens $0 $4,497 $8,227 $9,606

Recycling $0 $3,372 $6,170 $7,205

Total $88,000 $263,927 $376,308 $365,888

2013 Amended GF Budget2013 Amended GF Budget

Amended 2013 GF budget $12,227,753 Amended 2013 GF budget $12,227,753 Dependent on revenue from phase 1 Nextera wind projectDependent on revenue from phase 1 Nextera wind project Budget assumes no use of reserves in 2013Budget assumes no use of reserves in 2013 Includes transfer of $109,000 to CI fund – may be moreIncludes transfer of $109,000 to CI fund – may be more Recommend amending budget to account for escrowed fundsRecommend amending budget to account for escrowed funds

2013 GF Revenue and 2013 GF Revenue and Expenditure ProjectionsExpenditure Projections

Projected revenue $12,210,000 close to $12,227,753 budget Projected revenue $12,210,000 close to $12,227,753 budget Projected 2013 revenue $421,000 more than 2012Projected 2013 revenue $421,000 more than 2012 Department expenditures tracking below budget Department expenditures tracking below budget Courts, jail and buildings and groundsCourts, jail and buildings and grounds Expenses estimated $12,210,000 - budget $12,227,753Expenses estimated $12,210,000 - budget $12,227,753 2013 wages and staffing levels held constant 2013 wages and staffing levels held constant Increase GF fund balance or transfer to CI fundIncrease GF fund balance or transfer to CI fund Currently increase GF transfer to CICurrently increase GF transfer to CI

2014 and 2015 Financial Capabilities 2014 and 2015 Financial Capabilities Unassigned and assigned GF balance to start 2014 projected Unassigned and assigned GF balance to start 2014 projected

same or larger than 2013 same or larger than 2013 Core questions and objectives:Core questions and objectives:

Can same fund balance be maintained for 2014/2015? Can same fund balance be maintained for 2014/2015? Can the service levels be maintained? Can the service levels be maintained? Can employer absorb health insurance/retirement costs? Can employer absorb health insurance/retirement costs? Can a modest inflationary wage increase be provided?Can a modest inflationary wage increase be provided?Can GF requirements to other funds be met?Can GF requirements to other funds be met?

Can GF requirements to CI needs be met? Can GF requirements to CI needs be met? Never 100% assurance - reasonable probability Never 100% assurance - reasonable probability Is there enough flexibility to adjust should changes occur?Is there enough flexibility to adjust should changes occur?

2014/2015 Revenue 2014/2015 Revenue Assumptions/ObjectivesAssumptions/Objectives

GF wind revenue increases in 2014 and 2015 GF wind revenue increases in 2014 and 2015 Manage wind revenue use for operational purposesManage wind revenue use for operational purposes Continue to escrow funds if necessaryContinue to escrow funds if necessary State revenue sharing remains constant - $886,000State revenue sharing remains constant - $886,000 District court revenue remains about same as 2012District court revenue remains about same as 2012 Delinquent court fines remain about $200,000 to $220,000Delinquent court fines remain about $200,000 to $220,000 Register of deed remains at a level as 2013 projected Register of deed remains at a level as 2013 projected State continues to pay diverted felon State continues to pay diverted felon Indirect cost revenue remains similar as 2013 budgeted Indirect cost revenue remains similar as 2013 budgeted

2014/2015 Expenditure 2014/2015 Expenditure Assumptions/ObjectivesAssumptions/Objectives

No staffing increases No staffing increases 2% wage increase for 2014 and 20152% wage increase for 2014 and 2015 Health insurance cost same for 2014 - 5% increase 2015Health insurance cost same for 2014 - 5% increase 2015 Retirement costs same for 2014 – 5% increase 2015Retirement costs same for 2014 – 5% increase 2015 GF Transfer to CI fundGF Transfer to CI fund

Financial Assessment Conclusions Financial Assessment Conclusions for 2014 and 2015for 2014 and 2015

Optimistic budgets can be balanced and accomplish objectives:Optimistic budgets can be balanced and accomplish objectives:Maintain current services and service levelsMaintain current services and service levelsMaintain current staffing levelsMaintain current staffing levelsEmployer pays health insurance/retirement increasesEmployer pays health insurance/retirement increasesProvide modest inflationary wage increasesProvide modest inflationary wage increasesMaintain at least the same GF fund balance levelsMaintain at least the same GF fund balance levelsSatisfy objective of rebuilding depleted CI fundSatisfy objective of rebuilding depleted CI fund

Anticipated GF revenue increase for 2013-2014-2015Anticipated GF revenue increase for 2013-2014-2015 Wind revenue enough to off-set other land value decreases Wind revenue enough to off-set other land value decreases See GF revenue and expenditure spreadsheetsSee GF revenue and expenditure spreadsheets See spreadsheet for funds that interact with the GFSee spreadsheet for funds that interact with the GF

GF Revenue Projections 2012 to 2015

Year Projected GF Revenue Dollar Change Percent Change

2012 $11,804,137  

2013 $12,210,000 $405,863 3.4%

2014 $12,500,000 $290,000 2.4%

2015 $12,736,000 $236,000 1.9%