Wakulla County. Annual Debt Report. For. FY (unaudited) Prepared by the Wakulla County Clerk of Court, Finance Department

Transcription

1 Wakulla County Annual Debt Report For FY (unaudited) Prepared by the Wakulla County Clerk of Court, Finance Department 1

2 Board of County Commissioners and Citizens of Wakulla County, As your Clerk of Court, it is my constitutional duty to keep you informed of the County s debt and to provide an independent check and balance on County finances to ensure your tax dollars are safe. For many years, the County s debt was managed in accordance with policies established as part of a broader financial policy package approved by the BOCC in May of 2008 and as amended from time to time. I am glad my office was instrumental in developing the County s first standalone debt policy as approved by the BOCC on January 20, The County debt policy calls for an annual debt report to be provided to the BOCC and the citizens of Wakulla County. This is the first annual debt report. This report is written in such a manner that non-financial readers may have a better understanding of the County s debt and how it impacts the overall health of the County s finances. As the accountant to the BOCC, I am glad to report that the County s overall debt status is favorable. As of September 30, 2014, the County s debt continues to decline. As with most governmental entities, and like most households, debt is a necessary component to the budget. Like households who borrow money to finance larger purchases such as vehicles and homes, Wakulla County borrows money from time to time to finance capital equipment and large infrastructure projects so that the County may continue to provide the necessary services its citizens expect. Our office is charged with a variety of tasks related to the debt of the County. We assist the County Administrator, David Edwards, with analyzing funding options and with debt structuring both during the budget process and after. We ensure timely payment of debt service obligations, pre-audit and maintain supporting documentation of all debt service payments, accurately account for all debt transactions in the general ledger for financial reporting purposes and ensure compliance with debt covenants and related third party reporting requirements. The amount of debt owed by the County is not the only factor in determining the health of County finances. As your Clerk, our office prepared, and the BOCC approved, its first standalone fund balance policy in The BOCC continues to work toward appropriate levels of fund balance and cash reserves. As always, I am honored to serve as your Clerk of Court. I remain dedicated to promoting transparency and accountability in reporting the financial activities of our County in spending your taxpayer dollars. If you have any questions concerning the contents of this or any other report of our office, please contact me or my staff. In your service, Brent X. Thurmond, C.P.A. Wakulla County Clerk of Courts 2

3 TABLE OF CONTENTS Debt Overview Total Outstanding Debt & Debt Service Payments Total Outstanding Debt by Debt Instrument Type Total Outstanding Debt by Lender Total Outstanding Debt by Activity Debt History Historical Total Outstanding Debt Historical Total Debt Service Payments Debt Planning Current Debt Retirement Schedule Schedule of Future Anticipated Debt Combining Chart of 10 Year Debt History and 10 Year Debt Projection Combining Chart of 10 Year Debt Service History and 10 Year Debt Service Projection Debt Management & Analysis Total Outstanding Debt per Capita Debt Service Expenditures to Total Operating Expenditures Debt Service Coverage Ratios by Fund Appendix Debt Policy 3

4 DEBT OVERVIEW As of September 30, 2014 (unaudited) This unaudited report and the numbers contained herein represent only the capital infrastructure related debt of Wakulla County. It does not include any debt incurred by the Constitutional Officers and does not include other types of long-term debt such as compensated absences and other post-employment benefits. As such, this report is not intended to and will not match the audited Annual Financial Report. Total Outstanding Debt & Debt Service Payments Wakulla County s (the County) outstanding debt totaled $4,771,538 as of September 30, During fiscal year , the County paid $1,381,268 in principal and interest on outstanding debt. The total debt of the County decreased by $1,189,072 and the County paid $192,196 in interest expense. The principal reduction of $1,189,072 represents 19.9% of the balance due at the beginning of the year. The interest expense of $192,196 represents 3.2% of the balance due at the beginning of the year. The County s total debt balance of $4,771,538 is comprised entirely of notes and loans. At fiscal year end, the County had no outstanding bonds or capital leases. The County s total debt of $4,771,538 can be further divided into Governmental Activities and Business-type Activities. Governmental activities include the General Fund, all Special Revenue Funds, and all Capital Project Funds and the total outstanding Governmental debt was $2,480,573 (52%). Business-type activities include the County s two enterprise funds (Sewer and Solid Waste) and the total outstanding Business-type debt is $2,290,965 (48%). Total Outstanding Debt by Instrument Type The following graph shows the types of debt the County has incurred. As fiscal year end, the County s entire debt balance is comprised of notes and loans. Bonds tend to cost more and are typically only used for very large projects. In recent history, the County has only issued bonds three times. The County does not currently have any outstanding bonds. While the County does not currently have any outstanding capital leases either, the County has used this financing mechanism in the past for equipment that is expensive to maintain such a road graders. 4

5 As outlined in the County s debt policy (Appendix A), the County selects the lender to borrow from based on several criteria but the primary factor is the cost of the borrowing. The following chart summarizes the lenders the County currently owes and the balances owed. 5

6 Governmental accounting makes distinctions between activities that the County is responsible for that are not intended to function like a business, that is, make a profit or break even. These activities are called governmental activities and accounted for in the General Fund, Special Revenue Funds, and Capital Project Funds. Activities that are more narrowly defined and are intended to function like a business, make a profit or break even and called business-type activities. The County has two such activities, sewer and solid waste, and, as such, they are accounted for in the Sewer Fund and Solid Waste Fund. The following chart summarizes the County s outstanding debt by activity. 6

7 DEBT HISTORY Historical Total Outstanding Debt The County s total outstanding debt has decreased for 10 consecutive years ( ), dropping from $11,750,387 to $4,771,538, a 60% decline. The number of individual debt obligations has dropped from 10 in 2005 to 6 in 2014 and the average maturity of the County s outstanding debt has also dropped from 8.08 years in 2005 to 6.34 years in Below is a chart and graph of the last 10 years of debt history. In $Millions 1E+06 Year 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 Governemental Funds Enterprise Funds Total Debt Service $ $ $ $ 9.71 $ 8.59 $ 8.22 $ 8.50 $ 7.53 $ 5.96 $

8 Historical Total Debt Service Payments During the same period, , the County s annual debt service payments have only slightly decreased dropping from $1,411,637 in 2005 to $1,381,267 in 2014 as shown in the graph below. The interest rates of the County s debts are shown on the next page. All interest rates are fixed rates. The two Bank of America loans contain pre-payment penalties. The amount of the penalty is not listed as it changes over time. Year 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 Principal 921,075 1,231,840 1,076,327 1,275,208 1,198,279 2,072,466 2,009,052 1,555,268 1,647,760 1,189,072 Interest 490, , , , , , , , , ,196 Total Debt Service 1,411,637 1,701,219 1,505,655 1,657,522 1,539,729 2,429,751 2,349,336 1,853,334 1,908,705 1,381,268 8

9 DEBT PLANNING Debt must be carefully planned in order to maintain the County s financial health. Expenditures in today s County budget arising from debt service payments (principal and interest) are obligations on present taxpayers that were decided years in the past and debt incurred today will affect the taxpayers of the future. While the resources used to repay the County s debt comes primarily from restricted or dedicated revenues, the County often offers creditors assurances that the debt will be backed by the full faith and credit of the County, that is, the County promises to budget and appropriate sufficient revenues to pay the debt whether or not the restricted or pledged revenues are sufficient from time to time. The County s Debt Policy (Appendix A) outlines specific guidelines for administering and managing the County s existing debt and the issuance of new debt. This policy is consistent with the Government Finance Officers Association (GFOA) debt management policy best practices (2012) and with the State of Florida, Auditor General Local Governmental Entity Example Financial Condition Assessment Indicators and Related Procedures (2013). Current Debt Retirement Schedule If no changes are made to the current debt schedule, the County s debt will be retired as follows: Project Lender Interest Rate Maturity Balance Due 1 Cent Sales Tax Road Paving Bank of America 3.82% * 12/1/2016 $ 760,564 Sewer Expansion #1 Bank of America 4.08% * 11/1/2017 1,320,302 Courthouse Renovation A Hancock Bank 3.39% 12/31/ ,871 Northwoods Road Paving Centennial 6.50% 2/14/ ,285 Courthouse Renovation B Hancock Bank 3.67% 3/1/ ,853 Sewer Expansion #3 State Rev. Loan 2.63% 12/15/ ,663 Total * Prepayment Penalty $ 4,771,538 The County prepares a Five Year Plan in conjunction with the annual budget process. This plan is an estimate of the future operating and capital needs of the County and is amended from time to time as the County s needs change. As with any plan, it does not take into account the unforeseen or unknown. Circumstances will arise due to disrepair or emergency that may require the County to consider financing a capital expense that was not budgeted for. This uncertainty highlights the importance of having sufficient reserves budgeted and the resource flexibility to incur new unexpected debt. Retirement/Refinancing The County s Five Year Plan anticipates refinancing the Bank of America sewer loan and the State of Florida Revolving Fund sewer loan in fiscal year as part of the Wastewater Treatment Plant upgrade being funded through the U.S.D.A. grant/loan. It is estimated that 9

10 $2,000,000 will be refinanced. Refinancing these two loans will provide more flexibility with increased cash flow and a lower interest rate. It is expected that approximately $124,000, on average, will become available each year in increased cash flow and $151,000 will saved in net interest expense due to this refinancing. Schedule of Future Anticipated Debt The County s Five Year Plan anticipates most of the capital improvements being funded by grants and restricted cash. The following capital improvements are expected to be financed through the issuance of debt: Fund Pledged Revenue / Funding Source Project Amount Life Instrument Road Fund 2 Cent Gas Tax 3 Motor Graders $ 525,000 5 years Lease w/ option to buy Road Fund 2 Cent Gas Tax 3 Dump Trucks 636,000 6 years Lease w/ option to buy Sewer Fund Sewer Fees WWTP 6,495, years Local Interim Financing / USDA Revenue Bonds Solid Waste Solid Waste Assessment Class III Landfill 930, years Local Bank Loan Total $ 8,586,000 3 Motor Graders & 3 Dump Trucks The County leases its heavy equipment due to the high maintenance and repair expense associated with this type of equipment. The County currently operates 3 motor graders and anticipates selling them, using the proceeds as a down payment on 3 new graders and making lease payments on them over the next 5 years. The County has also budgeted to lease purchase 3 new dump trucks. Typically this cycle is repeated at the end of each lease so that the County always has new equipment on the roads and eliminates the typically high maintenance and repair expense associated with such equipment. WWTP Expansion The Board has approved a project to expand the existing Wastewater Treatment Plant (WWTP). The WWTP is almost at capacity and the Florida Department of Environmental Protection (FDEP) is requiring action by the Board. Staff has negotiated a loan/grant agreement with the United States Department of Agriculture (USDA) in which the County will borrow $6,495,000 from a local/regional bank during construction and USDA will repay (take out) the bank loan and, in turn, issue tax-exempt bonds in the amount of $6,495,000. The USDA is providing a grant in the amount of $3,066,900 to complete the project. The low-interest loan will be repaid with sewer revenues over the next 40 years. Additionally, as mentioned in the previous section, the 2 current sewer loans will be refunded in FY 14/15 through this USDA loan. 10

11 Class III Landfill Closure The Board has approved a project to close (cap) the Lower Bridge Class III landfill. The landfill is at capacity and the FDEP again is requiring Board action. Staff has negotiated a long-term fixed interest rate loan from Ameris Bank. The County will borrow approximately $930,000 and use $300,000 in existing cash to complete the project. The loan will be repaid using with the Solid Waste franchise fee over the next 15 years. Please note there are several other capital project needs that the County has identified that may require the issuance of new debt but they are not included in these schedules since staff has not identified how they can be funded or the debt repaid. Combining Chart of 10 Year Debt History and 10 Year Debt Projection The chart and graph below illustrates the County s 10 year debt history, current outstanding debt, and the County s anticipated refunding and borrowing schedule for the next 10 years. As seen in the graph, the bulk of the outstanding debt is expected to be related to the County s two enterprise funds. In $Millions Year 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 Governemental Funds Enterprise Funds Total Debt Service $ $ $ $ 9.71 $ 8.59 $ 8.22 $ 8.50 $ 7.53 $ 5.96 $ 4.77 In $Millions Year 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 23/24 24/25 Governemental Funds Enterprise Funds Total Debt Service $ 6.90 $ 9.45 $ 8.74 $ 7.98 $ 7.44 $ 6.90 $ 6.98 $ 7.29 $ 6.86 $ 6.42 $

12 Combining Chart of 10 Year Debt Service History and 10 Year Debt Service Projection The chart and graph below illustrates the County s 10 year annual debt service history, current debt service, and the County s anticipated annual debt service schedule for the next 10 years. The spike in FY 14/15 is a result of refinancing the two sewer loans and the spike in FY 16/17 is a result of paying off the WWTP interim financing with the issuance of the USDA bonds. As shown in the graph, the County s annual debt service payments have exceeded $1,000,000 every year for the past 10 years. It is anticipated the annual debt service payments for the next 10 years will be about $500,000 which will provide $500,000 in available cash for on-going operations. Year 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 Principal $ 921,075 $ 1,231,840 $ 1,076,327 $ 1,275,208 $ 1,198,279 $ 2,072,466 $ 2,009,052 $ 1,555,268 $ 1,647,760 $ 1,189,072 Interest $ 490,562 $ 469,379 $ 429,328 $ 382,314 $ 341,450 $ 357,285 $ 340,284 $ 298,066 $ 260,945 $ 192,196 Total Debt Service $ 1,411,637 $ 1,701,219 $ 1,505,655 $ 1,657,522 $ 1,539,729 $ 2,429,751 $ 2,349,336 $ 1,853,334 $ 1,908,705 $ 1,381,268 Year 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 23/24 24/25 Principal $ 2,964,852 $ 946,312 $ 7,198,075 $ 765,594 $ 536,168 $ 541,969 $ 442,977 $ 326,926 $ 434,920 $ 436,982 $ 439,112 Interest $ 308,689 $ 338,322 $ 398,720 $ 186,460 $ 172,892 $ 167,092 $ 157,934 $ 151,695 $ 152,867 $ 150,805 $ 148,674 Total Debt Service $ 3,273,541 $ 1,284,635 $ 7,596,795 $ 952,055 $ 709,061 $ 709,061 $ 600,911 $ 478,621 $ 587,787 $ 587,787 $ 587,787 12

13 DEBT MANAGEMENT & ANALYSIS The County uses ratios, trends and benchmarks to assess the County s level of outstanding debt. As a stand-alone number, these ratios are relatively useless, but the change in the ratios from year to year or the trend helps the County assess whether or not the total outstanding debt is at an appropriate level or if it is causing a financial burden. Industry norms and third parties have also established benchmarks to help assess whether or not the County s total debt is at an appropriate level. These benchmarks must be refined or massaged to fit each local government since not all governments are the same size, have the same revenue resources, or provide the same services and so on. We also review these trends for mitigating factors that might cause the trend to seem favorable or unfavorable on the surface but not so when all of the variables are taken into account. Many of the variables used in the following analysis must be adjusted for inflation. The price index used by the Auditor General of Florida is the September Municipal Cost Index published by American City and County Magazine. This index is a weighted average of the consumer price index, the producer price index for industrial commodities and the construction cost index. These indices can be found on the American City and County or U.S. Bureau of Labor Statistics web sites. Total Outstanding Debt per Capita One of the ways the County analyzes its total debt is by looking at the amount of outstanding debt (in constant $) per citizen over time. If the results of this analysis are increasing over time it may indicate that the County has a decreasing level of flexibility in how its resources (revenues) are allocated to its costs or it even may indicate a decreasing ability to pay its long-term debt. Simply put, as this number increases over time, the County is allocating more and more of its revenues to pay for annual debt services payments and is allocating less to operating costs or unable to adjust its budget due to unforeseen changes or events. And, as this number decreases, it indicates the County has the ability to easily adjust to unforeseen economic conditions. The County s debt policy requires the outstanding debt amount not to exceed $500 per citizen. The highest per capita debt was in FY 04/05 and was $ The lowest per capita debt is expected to be in the current year just ended, FY 13/14, and is expected to be $ The per capita debt is expected to climb in the next two years due to the issuance of debt for the WWTP project and the Lower Bridge Class III Landfill project but will decline over the following eight (8) years. The population growth is estimated to be approximately 1.7% over the next ten (10) year period which is slightly lower than the actual growth rate of 2.2% over the past ten (10) year period. 13

14 Source: Office of Economic & Demographic Research; Debt Service Expenditures to Total Operating Expenditures Another important factor in the overall health of the County s debt is looking at the trend of annual debt service payments (principal and interest) divided by the total operating expenditures. It is important to distinguish governmental activities from business-type activities when looking at this trend. As the percentage of debt service payments compared to total operating expenditures increases over time, it may indicate a declining flexibility of the County to respond to uncertainties and changes in economic conditions. And, as the percentage decreases, it illustrates the county s ability to easily respond to these changing conditions. The County s debt policy recommends this ratio not exceed 15%. The Governmental debt service ratio has historically hovered around 5% and is expected to drop to less than 2%, on average, of the Governmental operating expenses. That is, less than 2 cents on every dollar spent is expected to be spent on principal and interest payments. The Business-type debt service ratio has historically exceeded the 15% benchmark and has caused the cash position of the County s sewer and landfill funds to suffer. Staff has re-balanced the business-type debt with the planned issuance the of the USDA bonds and this ratio is expected to drop below 10% for the foreseeable future. For purposes of calculating this ratio, the early retirement of debt in a given year is removed so that only annual debt service payments are analyzed. 14

15 Debt Service Coverage Ratios by Fund Debt service coverage ratio (DSCR) is the ratio of cash available (net income) for debt service payments on an annual basis. Certain non-operating amounts are excluded from the net income calculation such as transfers in or out, depreciation expense and principal and interest payments. It is a benchmark used to measure the ability to produce enough cash to pay all operating costs and the anticipated debt service payments. The higher the ratio the better it is. A ratio of 1.0 or more means you have sufficient revenues to pay the debt service payments and a ratio of less than 1.0 means you have insufficient revenues. The industry standard is typically between 1.10 and 1.20 depending on the particular circumstances of the borrowing. Several factors make analyzing this ratio difficult across all funds. For example, in a capital project fund such as 1 Cent Sales Tax, the net income before making debt service payments may be very high for several years while it is building up for a large purchase or construction project. When the funds are spent, there is a net loss in the year the funds are spent and the DSCR may actually be negative. Another example may be when a fund pays off debt early, the debt service payment for the year will far exceed the typical debt service payment and the DSCR is of little use and not needed any longer since the debt is gone. Due to these factors, the DSCR is really only a useful tool for operating funds. 15

16 Wakulla County Debt Service Coverage Ratios by Fund Fund / Year 10/11 11/12 12/13 13/14 $30 State Court Fee - Courthouse Annual Debt Service Pmt 6, , , ,274 Annual Net Income 66,975 59,071 82,908 95,390 DSCR Cent Gas Tax - Capital Equipment Annual Debt Service Pmt 125, , ,921 Annual Net Income 203, , ,732 DSCR Debt Paid Off Northwoods Subdivision Road Paving Annual Debt Service Pmt 34,694 34,694 34,694 34,676 Annual Net Income 13,346 51,734 21,469 28,228 DSCR MSBU Fire Dept - Station 8 Annual Debt Service Pmt 23,443 71, ,463 Annual Net Income 90, , ,009 DSCR Debt Paid Off 1 Cent Sales Tax Road Paving Annual Debt Service Pmt 776, , , ,552 Annual Net Income 532, , , ,878 DSCR Cent Sales Tax Public Facility - Courthouse Annual Debt Service Pmt 22, , , ,994 Annual Net Income 86, , ,192 (167,483) DSCR Sewer Fund Annual Debt Service Pmt 1,359, , , ,771 Annual Net Income (191,448) 679,301 1,165, ,917 DSCR Notes on deficient DSCR: 1. The debt for the Courthouse in the $30 State Court Fee Fund is supplemented by the 1 Cent Sales Tax Public Facility. Currently revenues are down and staff is reviewing options for refinancing or refunding. 2. The Northwoods Subdivision Road Paving debt is recovered by assessing the property owners on the annual tax bill. Currently, not enough is collected each year to pay the annual note. Staff is reviewing options for refinancing the debt to lower the annual payment. 3. The MSBU Fire Dept. fund and both 1 Cent Sales Tax funds have had deficient DSCR from time to time due to the capital outlay expenditures in these funds. 16

17 Other Potential Obligations In 2002 the County guaranteed a loan on behalf of the Senior Citizens Center. The original amount of the loan was $350,000 and will be paid off in The current balance due is $182, with annual principal and interest payments of approximately $44,000. In 2013 the County opened a $2,000,000 line of credit for disaster response / emergency preparation. No monies have been borrowed and only the BOCC may authorize a borrowing after declaring a state of emergency. 17

18 APPENDIX A The following pages contain the Wakulla County Debt Policy as approved by the Board of County Commissioners on January 20,