DEBT SERVICE AND CONTINGENCY

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Harry Freeman
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1 AND CONTINGENCY INTRODUCTION Debt service and contingency budget units account for activities account for servicing county debt and providing appropriations for general contingency. CONTINGENCY Description A contingency appropriation is an appropriation established for unforeseen requirements. No specific purpose is designated for this appropriation. No expenditures may be made against a contingency appropriation. They are only available for transfer to a specific purpose appropriation by the governing body. This must be accomplished through the legally specified process. The adopted budget increased contingency by $15.5 million on a onetime basis due to the anticipated receipt in late June 2015 of payment by the state of back due SB90 reimbursements. As a result, the county began the fiscal year with a $35.5 million general fund contingency, which represents 5 percent of discretionary revenue. CREDIT RATINGS Fitch Ratings recently upgraded Riverside County s outlook to stable. The county s outlook previously was set as negative. In taking its action, Fitch noted that county financial operations are structurally balanced, reserve levels are satisfactory, and that the company expects revenues to benefit from economic tailwinds. Riverside University Medical Center s rapid operational improvements over the past year following years of fiscal distress. Fitch noted the county s diverse economy and its potential for growth, given the proximity to large Southern California employment markets, its competitive home prices, and the availability of developable land. It also described the county s sound debt profile, noting that the obligation on most postemployment benefits is minimal and that county pension plans are adequately funded. Table 13 County Credit Ratings Longterm Lease Debt Issuer Credit Moody s Investors Aa3 Aa3 Services, Inc. Standard & Poor s Corp. AA AA Fitch AA AA The County also received its ratings from Standard and Poor s and they reaffirmed their rating and projected the County s operation and economy to be stable. The ratings reflect our assessment of the following factors for the county, specifically its strong economy, adequate budgetary performance, strong budgetary flexibility, very strong liquidity, and very strong management conditions. COUNTY DEBT PROFILE The county has $627 million of leasebacked bonds and $320 million of pension obligation bonds outstanding as of June 1, In FY 14/15, combined debt service was $113.3 million, including longterm leases and pension obligation bonds. The existing level of debt service will reach a maximum of $135 million in FY 19/20. Current lease payments, excluding 2015 financing, are two and a half percent of projected FY 15/16 general fund revenues. A significant portion of the county s debt service is paid by nongeneral fund sources. It is the county s policy to identify nongeneral fund revenues to support debt repayment as much as possible. Of the total debt service paid, 30 percent is repaid directly from discretionary general fund revenue, and 70 percent has offsetting sources of revenue including tobacco

2 settlement, hospital revenue, redevelopment passthrough revenues, library fees, and court fees. The following table below lists the county s longterm debt obligations. Table 14 County of Riverside Long Term Debt Obligations Outstanding June 1, 2015 Due Within One Year Lease Revenue Bonds: 1997 Series A Hospital Project 33,895,082 3,995, Series C Hospital Project 3,265, , Series A Hospital Refunding Project 75,720,000 15,234, Series B Hospital Refunding Project 3,020,000 98, Series Public Defender/Probation Building and IT Solutions Center Projects 64,985,000 4,281, Series A Southwest Justice Center Project 76,415,000 6,457, Series A PDFA Lease Revenue Bonds 51,585,000 8,253, Series A SCFA Lease Revenue Bonds 13,780,000 1,154, CAC Refunding Project 29,525,000 2,513, PFA Lease Revenue Bonds 15,540,000 1,388, Law Building Project Lease Revenue Bonds 44,380,000 2,438, Series A&B Court Facilities Refunding Projects 16,635,000 2,350,863 Total Lease Revenue Bonds: 428,745,082 48,357,081 Certificates of Participation: 1990 Monterey Avenue Project 3,900, , Series A Capital Improvement & Family Law Ref Projects 42,035,000 3,397, Series B Historic Court Refunding Project 17,270,000 1,636, Series A Capital Improvement Projects 30,040,000 2,158, Series A PSEC and Refunding Projects 31,025,000 11,126, PSEC & Woodcrest Library Refunding Projects 45,245,000 1,916, Larson Justice Center Refunding Project 17,050,000 2,559,150 US District Court Project 8,438,257 1,866,515 Total Certificate of Participation: 195,003,257 25,489,890 Private Placement Loan: 2011 Monroe Park Building Lease Financing 3,350, ,723 Taxable Pension Obligation Bond: 2005 Series A Pension Obligation Bonds 320,470,000 31,638,

3 Interest on Tax Revenue Anticipation Notes (TRANs) Description of Major Services Notes issued in anticipation of the collection of taxes and revenues, usually retirable only from tax collections, and frequently only from the proceeds of the tax and revenues levy whose collection they anticipate. There are no significant budget changes or operational impacts for this fiscal year. Pension Obligation Bonds Description of Major Services In 2005, the county issued $400 million in pension obligation bonds. The proceeds were forwarded to CalPERS to reduce the county s pension liability. There is currently $320 million in pension obligation bonds outstanding. The pension obligation bond (POB) debt service fund makes debt service payments on the county s pension bonds. Payments are funded by county and employee retirement contributions through department payroll charges during the course of the year. In connection with the issuance of the POBs, the county established the liability management fund (LMF). This fund is funded by capturing a portion of the projected savings associated with issuance and can be used solely to retire pension bond debt and/or be transferred to CALPERS to reduce any unfunded liability. POB debt service payments in FY 15/16 are budgeted at $31.6 million. There are no significant budget changes or operational impacts for this fiscal year. Teeter Debt Service Description of Major Services First enacted in 1949, the Teeter Plan provides California counties with an optional alternative method for allocating delinquent property tax revenues. Using the accrual method of accounting under the Teeter Plan, counties allocate property tax revenues based on the total amount of property taxes billed, but not yet collected. The Teeter Plan allows counties to finance property tax receipts for local agencies by borrowing money to advance cash to each taxing jurisdiction in an amount equal to the current year's delinquent property taxes. In exchange, the counties receive the penalties and interest on the delinquent taxes when collected. For counties not under the Teeter Plan, interest and penalty are allocated to all agencies based on their pro rata share of the delinquent property tax. However, the county retains the penalty on delinquent property taxes if the delinquency is cleared up within the same fiscal year. There are no significant budget changes or operational impacts for this fiscal year

4 State Controller Schedules County Budget Act January 2010 Edition, revision #1 County of Riverside Schedule 9 Financing Sources and Uses by Budget Unit by Object Governmental Funds Fiscal Year Detail by Revenue Category and Expenditure Object Estimated R q Requested Recommended Adopted by the Board of Supervisors DEPT: APPROPRIATION FOR CONTINGENCY CONTINGENCY OTHER GENERAL Other Revenue $ $ 5,910,670 $ 3,106,405 $ 3,106,405 $ 3,106,405 Total Revenue $ $ 5,910,670 $ 3,106,405 $ 3,106,405 $ 3,106,405 Approp for Contingencies $ $ $ 20,000,000 $ 20,000,000 $ 35,515,211 Total Expenditures/Appropriations $ 20,000,000 $ 20,000,000 $ 35,515,211 Net Cost $ $ (5,910,670) $ 16,893,595 $ 16,893,595 $ 32,408,806 FUNDED POSITIONS: See Attachment A 196

5 State Controller Schedules County Budget Act January 2010 Edition, revision #1 County of Riverside Schedule 9 Financing Sources and Uses by Budget Unit by Object Governmental Funds Fiscal Year Detail by Revenue Category and Expenditure Object Estimated R q Requested Recommended Adopted by the Board of Supervisors DEPT: INTEREST ON TRANS INTEREST ON SHORTTERM DEBT Other Revenue $ 3,881,324 $ 3,362,437 $ 3,447,500 $ 3,447,500 $ 3,447,500 Total Revenue $ 3,881,324 $ 3,362,437 $ 3,447,500 $ 3,447,500 $ 3,447,500 Services and Supplies Other Charges $ 61,129 $ 67,107 $ 75,017 $ 75,017 $ 75,017 4,668,056 4,039,583 4,628,556 4,628,556 4,628,556 Total Expenditures/Appropriations $ 4,729,185 $ 4,106,690 $ 4,703,573 $ 4,703,573 $ 4,703,573 Net Cost $ 847,861 $ 744,253 $ 1,256,073 $ 1,256,073 $ 1,256, DEPT: TEETER PRICIPAL Rev Fr Use Of Money&Property Other Revenue $ 94,396 $ 83,085 $ 956,036 2,621,592 2,832,398 2,832,398 2,832,398 Total Revenue $ 1,050,432 $ 2,704,677 $ 2,832,398 $ 2,832,398 $ 2,832,398 Services and Supplies Other Charges $ 187,245 $ 91,067 $ 100,144 $ 100,144 $ 100, ,488 3,151,111 2,732,254 2,732,254 2,732,254 Total Expenditures/Appropriations $ 963,733 $ 3,242,178 $ 2,832,398 $ 2,832,398 $ 2,832,398 Net Cost $ (86,699) $ 537,501 $ DEPT: PENSION OBLIGATION BONDS RETIREMENT OF LONGTERM DEBT Rev Fr Use Of Money&Property Charges For Current Services $ 609,705 $ 654,711 $ 34,389,173 35,175,954 36,639,366 36,639,366 36,639,366 Total Revenue $ 34,998,878 $ 35,830,665 $ 36,639,366 $ 36,639,366 $ 36,639,366 Salaries and Benefits Services and Supplies Other Charges $ 5,000,000 $ $ 5,000,000 $ 5,000,000 $ 5,000, ,162,237 30,378,635 31,638,969 31,638,969 31,638,969 Total Expenditures/Appropriations $ 34,162,615 $ 30,379,025 $ 36,639,366 $ 36,639,366 $ 36,639,366 Net Cost $ (836,263) $ (5,451,640) $ FUNDED POSITIONS: See Attachment A 197

DEBT SERVICE AND CONTINGENCY

AND CONTINGENCY County of Riverside INTRODUCTION Debt service and contingency budget units account for activities account for servicing county debt and providing appropriations for general contingency.