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Mecklenburg CountyDebt Affordability

Presentation to the Board of County CommissionersJune 24, 2008

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Overview of Presentation Overview of Debt Position

Rating Agencies’ Perspective

Benchmarks and Ratios

Available Debt Capacity

Recommendations & Next Steps

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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).

Mecklenburg CountyOutstanding Debt

As of J une 30, 2008

517,980,000 23%

1,760,585,000 77%

Bonds

COPs

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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.Mecklenburg County

Mode of Outstanding DebtAs of J une 30, 2008

1,560,265,000 68%

718,360,000 32%

Fixed

Variable

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Overview of Debt PositionThe outstanding debt is for the following purposes

Schools 63.2%Land 7.9%Park & Recreation 6.5%Community College 5.9%Courts 5.4%Govt. Facilities 5.1%Jails 3.6%Libraries 2.2%Historic Preservation .2%WTVI .1%

Outstanding Debt by PurposeAs of J une 30, 2008

Historic Preservation,

$4,386,680

Courts, $122,481,677

Government Facilities,

$116,239,002

WTVI , $1,045,759

Land, $180,574,132

Libraries, $49,135,415

Community College, $134,406,704

Park & Recreation, $147,479,641

J ails, $82,358,834

Schools, $1,440,457,158

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Overview of Debt PositionAuthorized and unissued debt totals $718.5 million.

Bonds Authorized and Unissued2007 Referendum School Facilities - $516 million $436,000,000

Land - $35.6 million 30,640,000Community College Facilities - $30 million 30,000,000

2005 Referendum Community College Facilities - $46.5 million 32,500,0002004 Referendum Park & Recreation Facilities - $69 million 36,000,0002002 Referendum School Facilities - $224 million 14,000,000

TOTAL BONDS $579,140,000Certificates of Participation

School Facilities - $212.8 million 87,765,000Community College Facilities - $36 million 19,500,000

County Facilities - $14.8 million 9,785,000School Administrative Facilities - $21.5 million 12,000,000

Library Facilities - $14.8 million 10,325,000TOTAL COPS $139,375,000

TOTAL $718,515,000

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Overview of Debt Position

Authorized and Unissued Debt By Purpose

Community College, $82,000,000

Schools, $537,765,000

Land, $30,640,000

Park & Recreation, $36,000,000 Misc. , $12,000,000

Libraries, $10,325,000 Government Facilities,

$9,785,000

Schools 74.8%Community College 11.4%Park & Recreation 5.0%Land 4.3%Misc. 1.7%Libraries 1.4%Govt. Facilities 1.4%

The miscellaneous category represents the authorization for the school administrative facilities approved by the BOCC in 2007.

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Overview of Debt PositionProjected 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 $255,167,250FY 2010 $101,685,216 $147,004,923 $248,690,139FY 2011 $94,971,320 $145,500,198 $240,471,518FY 2012 $91,797,392 $142,378,736 $234,176,128FY 2013 $59,552,952 $156,061,284 $215,614,236FY 2014 $68,727,016 $131,343,129 $200,070,145FY 2015 $88,067,553 $103,876,629 $191,944,182

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Overview of Debt PositionProjected Debt Service-Current Outstanding Debt & Authorized and Unissued

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FiscalYear

Estimated General Debt Service

Estimated School Debt Service

Estimated Total Debt Service

FY 2009 $105,933,316 $149,233,934 $255,167,250FY 2010 $110,237,332 $174,552,807 $284,790,139FY 2011 $109,719,554 $187,949,464 $297,669,018FY 2012 $109,271,575 $193,149,553 $302,421,128FY 2013 $76,575,584 $206,718,652 $283,294,238FY 2014 $85,298,097 $180,657,048 $265,955,145FY 2015 $104,187,084 $151,847,098 $256,034,182

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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.

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Rating Agencies’ PerspectiveFitch 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.”

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Rating Agencies’ PerspectiveMoody’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.”

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Rating Agencies’ PerspectiveExpectation 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.

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Benchmarks and RatiosCurrent 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%

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Benchmarks and RatiosProjected Ratios at June 30, 2008

Ratio TargetResults at 6/30/08

Overall Debt Per Capita $3,600 $3,641Overall Debt as Percentage of Assessed Valuation 4% 3.4%Debt Service as Percentage of Operational Budget 16% 17.1%Ten Year Payout Ratio 64% 66.9%

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Benchmarks and RatiosComparison 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 Value 3.36% 1.90% 1.77x 5.90% .10%

Market Value Per Capita $105,788 $104,142 1.01X $265,654 $50,734

Overall Debt Per Capita $3,551 $2,484 1.43x $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 Years 67.2% 66.2% 1.01x

Per Capita Income $27,353 $27,595 .99xUnreserved/Undesignated General Fund Balance as a % of Revenues 19.3% 20.5% .94x

Household Effective Buying Income (000’s) $117 $119 .98x

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Benchmarks and RatiosComparison 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 Value 3.8% 3.1% 2.3% 3.3% 2.2%

Market Value Per Capita $109,615 $100,631 $89,250 $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

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Measuring Debt CapacityDetermining 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

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Measuring Debt CapacityProjected Bond Sales

Estimated Estimated Estimated Estimated Estimated Estimated Estimated January 2009 January 2010 January 2011 January 2012 January 2013 January 2014 January 2015

PROJECT Sale Sale Sale Sale Sale Sale Sale

Recommended CIP 677,000,000$ 14,000,000$ 136,000,000$ 225,000,000$ 192,000,000$ 30,000,000$ 40,000,000$ 40,000,000$

BONDS Authorizedand Unissued

Approved in November 6, 2007 Referendum School Facilities ($516,000,000) 436,000,000$ 174,000,000$ 156,000,000$ 94,000,000$ 12,000,000$ Community College Facilities ($30,000,000) 30,000,000 10,000,000 15,000,000 5,000,000 - Land ($35,640,000) 30,640,000 10,000,000 10,640,000 10,000,000 -

496,640,000$ 194,000,000$ 181,640,000$ 109,000,000$ 12,000,000$

Approved in November 8, 2005 ReferendumCommunity College Facilities ($46,500,000) 32,500,000$ 15,000,000 12,500,000 5,000,000

Approved in November 2, 2004 ReferendumPark and Recreation Facilities ($69,000,000) 36,000,000 15,000,000 10,000,000 11,000,000

Approved in November 5, 2002 ReferendumSchool Facilities ($224,000,000) 14,000,000 14,000,000 -

Total Bonds 1,256,140,000$ 252,000,000$ 340,140,000$ 350,000,000$ 204,000,000$ 30,000,000$ 40,000,000$ 40,000,000$

CERTIFICATES OF PARTICIPATION Estimated EstimatedApproved January 2009 January 2010

PROJECT and Unissued Sale Sale

School Facilities ($123,165,000, $31,600,000 & $58M) 87,765,000 87,765,000

Community College Belk Addition ($15,000,000) 3,500,000 3,500,000 New Parking Deck ($21,000,000) 16,000,000 5,000,000 11,000,000

County Facilities Freedom Mall - IST Phase 2 & RES ($14,785,000) 9,785,000 9,785,000

School Administrative Facilities ($12,000,000) 12,000,000 7,000,000 5,000,000

Library Facilities Hickory Grove Relocation ($4,207,000) 2,907,000 2,907,000 Scalybark Relocation ($5,565,000) 3,865,000 3,865,000 Sharon Road Library Relocation ($5,053,000) 3,553,000 3,553,000

Total Approved COPs 139,375,000$ 123,375,000$ 16,000,000$ -$ -$ -$ -$ -$

TOTAL BONDS AND COPS W?CIP 1,395,515,000$ 375,375,000$ 356,140,000$ 350,000,000$ 204,000,000$ 30,000,000$ 40,000,000$ 40,000,000$

Other Projects - - - 146,000,000 320,000,000 310,000,000 310,000,000 Capacity Total Bonds and COPs 375,375,000$ 356,140,000$ 350,000,000$ 350,000,000$ 350,000,000$ 350,000,000$ 350,000,000$

Schools Totals (Bonds & COPs) 537,765,000$ 275,765,000$ 156,000,000$ 94,000,000$ 12,000,000$ -$ -$ -$

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Measuring Debt Capacity

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Fiscal Year

Estimated General Debt Service

Estimated School Debt Service

Estimated Total Debt Service

FY 2009 $105,933,316 $149,233,934 $255,167,250FY 2010 $111,637,332 $174,552,807 $286,190,139FY 2011 $124,684,554 $187,949,464 $312,634,018FY 2012 $146,361,575 $193,149,553 $339,511,128FY 2013 $146,528,084 $206,718,652 $353,246,736FY 2014 $188,468,097 $180,657,048 $369,125,145FY 2015 $235,699,584 $151,847,098 $387,546,682

Projected Debt Service-Current Outstanding, Auth/Unissued, CIP & Available Capacity

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Measuring Debt CapacityTotal

Fiscal Current Debt Authorized & Projected Request Tax Rate Projected Request Tax Rate Estimated Tax RateYear Outstanding Unissued Total Debt Service Effect Debt Service Effect Debt Service Effect

2009 26.87 0.00 26.87 - 0.00 - - 255,167,250 26.87 2010 20.95 3.04 23.99 1,400,000 0.12 - - 286,190,139 24.11 2011 19.53 4.65 24.18 14,965,000 1.22 - - 312,634,018 25.40 2012 18.34 5.35 23.69 37,090,000 2.91 - - 339,511,128 26.60 2013 16.29 5.11 21.40 55,352,500 4.18 14,600,000 1.10 353,246,736 26.69 2014 14.57 4.80 19.37 56,935,000 4.15 46,235,000 3.37 369,125,145 26.89 2015 13.48 4.50 17.99 55,442,500 3.89 76,070,000 5.34 387,546,682 27.22

Schools

Fiscal Current Debt Authorized & Debt Tax Rate Projected Request Tax Rate Estimated Tax RateYear Outstanding Unissued Total Service Effect Debt Service Effect Debt Service Effect

2009 15.71 0.00 15.71 - 0.00 - - 149,233,934 15.71 2010 12.38 2.32 14.70 - 0.00 - - 174,552,807 14.70 2011 11.82 3.45 15.27 - 0.00 - - 187,949,464 15.27 2012 11.15 3.98 15.13 - 0.00 - - 193,149,553 15.13 2013 11.79 3.83 15.62 - 0.00 - - 206,718,652 15.62 2014 9.57 3.59 13.16 - 0.00 - - 180,657,048 13.16 2015 7.30 3.37 10.67 - 0.00 - - 151,847,098 10.67

Total

Total

Projected Capacity

Projected Capacity

Projected 2009 CIP Authorization

Projected 2009 CIP Authorization

Estimated Debt Service Tax Rate Effect

Estimated Debt Service Tax Rate Effect

Tax Rate Effect

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Measuring Debt Capacity

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2104 FY 2015

Outstanding Debt at July 1 (billions)

$2.278 $2.490 $2.662 $2.813 $2.944 $3.069 $3.185

Debt Issuance .375 .356 .350 .350 .350 .350 .350

Debt Retirement .164 .183 .200 .219 .225 .234 .247

Outstanding Balance at June 30th (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 2015.

Projected Outstanding Debt

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Measuring Debt Capacity

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2104 FY 2015

Assessed Valuation (billions) $97.4 $116.8 $121.2 $125.7 $130.3 $135.2 $140.2Population 909,593 936,881 964,988 993,937 1,023,755 1,054,468 1,086,102Operating Expenditures (billions) $1.414 $1,495 $1.581 $1.673 $1.769 $1.871 $1.979

Projected RatiosOverall Debt to Assessed Valuation 3.52% 3.08% 3.09% 3.09% 3.07% 3.05% 3.01%Overall Debt Per Capita $3,768 $3,843 $3,886 $3,905 $3,913 $3,909 $3,890Debt Service as % Operational Budget

18.04% 19.24% 19.86% 20.38% 20.05% 19.73% 19.58%

Principal Payout in Ten Years 67.1% 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.

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Recommendations1) 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%.

Ratio Current Targets Proposed TargetsOverall Debt Per Capita $3,600 $4,000Overall Debt as Percentage of Assessed Valuation 4% 4%Debt Service as Percentage of Operational Budget 16% 22%Ten Year Payout Ratio (floor) 64% 64%

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Recommendations2) Increase pay-go funding for capital projects

Options for pay-go fundingDedicate 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.

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Recommendations

Source FY09 Projected Revenue Three pennies on the tax rate $28,500,00050% of 8% excess fund balance 20,750,000Proceeds from county land sales* 32,000,000Additional ¼ cent sales tax 20,000,000

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.

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Recommendations3) Incorporate pay-go strategy into the

County’s Debt Policy.

4) Cap borrowing at $350 million per year to stay within debt ratio targets.

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Next Steps Based on feedback, a revised debt

policy will be developed and presented to the Board no later than September.

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Questions?