Metropolitan Council. Stewardship: Measuring our Financial Health & 2017 Big Picture Budget

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1 Metropolitan Council Stewardship: Measuring our Financial Health & 2017 Big Picture Budget Council Meeting June 22, 2017

2 Triple-A Bond Rating What does rating mean? Why is it important? What do rating agencies look for? 2

3 What do Bond Ratings Mean? Investment Grade Speculative Rating Aaa/AAA Aa/AA A Baa/BBB Ba/BB B Caa/CCC Ca/CC C Highest quality; lowest level of credit risk High quality; vey low credit risk Upper medium grade; low credit risk Medium grade; moderate credit risk (may possess certain speculative characteristics) Speculative; substantial credit risk Speculative; high credit risk Speculative of poor standing; very high credit risk Highly speculative; likely in, or very near default (some prospect of recovery of principal and interest) Lowest rated; typically in default (little prospect for recovery of principal and interest) 3

4 4 Why our Rating Matters

5 What Rating Agencies Look For Economy and Tax Base Financial Operations and Reserves Management and Governance Debt and Pensions 5

6 Credit Strengths Very large tax base covering diverse economy in Twin Cities area Well managed financial operations with history of positive results and operating flexibility Substantial liquidity Moody s Rating Low debt and pension burden 6

7 Credit Challenges Moody s Rating Volatility of motor vehicle sale taxes and (state) general fund support Lower level of reserves than historically maintained in the sewer availability charge (SAC) reserve fund, though reserves have improved recently 7

8 S&P Global Rating Credit Strength Tax Base: Although the area was not immune to the effects of the national recession, we believe that the economic base of in the Council s jurisdiction is strong and diverse, and key economic indicators continue to show improvement. Unemployment Market Values Area s Effective Buying Income 8

9 Unemployment Rates 9 Source:DEED Labor Market Information Office, Local Area Unemployment Statistics

10 Unemployment By Education 10 Source: Bureau of Labor Statistics

11 Hourly wage required to rent a two bedroom unit by state Below $15.00 $ $20.00 Above $ Source: National Low Income Housing Coalition: Out of Reach 2016

12 Hourly wage required to rent a two bedroom unit in Twin Cities compared to regional wages by occupation $40 Average Hourly Wages in 7-County Area $30 $20 $10 $0 Hourly wage necessary afford to 2 BR unit in region*: $19.75 *Minneapolis-St Paul-Bloomington FMFA 12 Source: National Low Income Housing Coalition: Out of Reach 2016, DEED Occupational Employment Statistics Wage Data

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14 Trend in Housing Starts US 1600 MN/Metro Permits (in thousands) US MN Metro 0 14 Source: US Census Bureau

15 Financial Operations and Reserves Financial Indicators Financial Policies (budgeting & reserves) Revenue Volatility Rate Coverage (Fares, Municipal WW, SAC) Budgetary Flexibility Debt Burden 15

16 MCES Operations and Reserves Mitigating Revenue and Expense Volatility Firm Flow Billing Municipal WW rate allocation based on prior year flow Predictability to the budget of Council and rate payers Operating and SAC Reserve Targets Address volatility in other revenues and expenses Mitigate rate increases otherwise driven by cyclical capital maintenance 16

17 9.0% 8.0% 7.0% MWC Increases Compared to NACWA Average 8.4% 7.3% 6.0% 5.0% 4.0% 3.0% 2.0% 3.4% 6.0% 6.0% 5.2% 2.4% 3.0% 5.4% 4.9% 3.8% 3.2% 4.5% 3.5% 5.6% 5.4% 3.0% 3.5% 5.4% 5.3% 5.0% 1.0% 0.0% 0.5% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 MCES MWC NACWA Average 17 Source: NACWA 2014 Service Charge Index

18 How we Compare to our Peers 25 peer city average retail sewer rate per household = $404 $1,400 Retail Sewer Rate Per Household $1,297 $1,200 $1,000 $800 $600 $400 $200 $146 $160 $185 $206 $239 $240 $242 $244 $312 $322 $335 $335 $335 $377 $392 $400 $426 $451 $455 $477 $492 $527 $577 $850 Peer Average $0 LA County Rochester, NY San Juan Denver Virginia Beach Phoenix Twin Cities Chicago Sacramento San Antonio Miami Philadelphia Washington D.C. St. Louis Fountain Valley Dallas Austin Cleveland Louisville Seattle Milwaukee Columbus Flushing, NY MWRA Atlanta 18 Source: 2013 Rates (per 2014 NACWA survey)

19 $100 Sewer Availability Charge (SAC) Reserve Fund Dollars in millions $80 $60 $ $ $ Balance Council Policy Minimum Balance 19

20 MCES Operating Reserve Dollars in millions $25.0 $20.0 $15.0 $10.0 $5.0 Actual Budget $20.1 $20.1 $13.2 $13.6 Target 10% 15% 15% Target 10% $ Reserve Target Actual/Budget 20 Reserve target calculated as % of adopted budget including allocations.

21 Transportation Operations & Reserves Mitigating Revenue and Expense Volatility Motor Vehicle Sales Tax Budget 95% of current State Forecast and; Actual MVST receipts above 95% from prior year Fuel Price Hedging Budget certainty for 90% of projected fuel consumption over next 24 months Operating Fund Reserve Targets Address volatility in other revenues and expenses Regional revenue allocation procedure 21

22 Motor Vehicle Sales Tax Revenues 12/31/ MVST Reserve $15.2M $400 $350 Dollars in millions $300 $250 $200 $150 $100 $50 $ MVST Receipts MVST Forecast 22

23 Bus Farebox Recovery Ratio 35.0% 30.0% 25.0% 31.7% 31.6% 29.9% 27.0% 24.0% 22.7% 20.0% 15.0% 10.0% 5.0% 0.0%

24 How we Compare to our Peers 2014 Bus Farebox Recovery 30% 30% 28% 27% 27% 23% 23% 25% 21% 20% 15% 12% 10% 5% 0% Seattle Pittsburgh Metro Transit 2014 Portland Denver Metro Transit 2016 Cleveland Houston 24 Source: National Transit Database 2014 Motorbus

25 $70.0 Metro Transit Operating Reserves Actual $66.3 Dollars in millions $60.0 $50.0 $40.0 $30.0 $20.0 $32.5 $33.5 Target 8.3% 17% Target 8.3% Budget $ % $10.0 $ Reserve Target Actual/Budget Range % 25 Reserve target calculated as % of adopted budget including allocations.

26 Dollars in millions $20.0 $18.0 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $- MTS Funds Operating Reserves Actual $18.8 $14.2 $14.6 Target 15% 20% Reserve Target Target 15% Actual/Budget Budget $ % 26 Reserve target calculated as % of adopted budget including allocations.

27 Dollars in Millions 1,800 1,600 1,400 1,200 1, Outstanding Debt ,274 1,317 1,350 1,369 1,375 1,405 1,426 1,447 1,468 '13 '14 '15 '16 '17 '18 '19 '20 '21 Wastewater Transit Parks 27

28 Debt Burden Moody s Rating Council s direct and overall debt manageable Netting out GO debt supported by wastewater rates, the Council s direct burden moderates to 0.1% of full value and 2.4 times operating revenues. 28

29 How we Compare to our Peers Wastewater Debt per capita (person)* Los Angeles $188 Denver $370 MCES $392 Virginia Beach $451 Orange County $464 Chicago $473 Phoenix $525 San Antonio $622 St. Louis $653 Philadelphia $766 Sacramento $922 Milwaukee $930 Washington, DC $939 Cleveland $987 Miami $1,037 Austin $1,259 Columbus $1,514 Louisville $1,971 Seattle $2,607 Boston $2,647 Source: 2013 data from 2014 NACWA survey 29

30 Bonding Authority & Debt Service ES Debt Service Self-supporting debt with GO pledge Council authority to set MWW and SAC rates Debt Service to operating budget ratio 43% Transit and Parks Debt Service Supported by unlimited GO pledge (Property Tax) Effectively limited by Legislative bonding authorization Transit Annual Authority Parks $40M revolving 30

31 Matured Debt Service Reserve December 31, 2015 Parks Transit Cash Balance $7.6 $12.2 Committed Balances: Projected Future Arbitrage (0.2) (1.5) SWLRT Internal Financing Costs (0.5) Available Reserves $7.4 $10.2 Parks Available for general purposes by the Council Transit Interest income available for capital expenditures; remainder available for general purposes by the Council 31 Dollars in millions

32 Metropolitan Housing and Rehabilitation Section 8 Management Assessment Program 2015 SEMAP Results 145/145 possible points = High Performer High Performer for 12 years Accurate and timely rent calculations Precise application of HQS inspection standards Quality control systems Regular program and systems monitoring 32

33 How we Compare to our Peers High Performer 1,498 68% % Standard 87 4% Troubled 33 Source: Department of Housing and Urban Development

34 HRA Operating Reserve Dollars in millions $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $- Actual Budget $9.6 $9.4 $5.2 $5.2 Target 8.3% 15% 15% Reserve Target Target 8.3% Actual/Budget 34 Reserve target calculated as % of adopted budget including allocations.

35 Dollars in Millions $400 $300 $200 Other Post Employment Benefits $368 Jan 1, 2016 Actuarial Valuation Retiree Health Care Liability $262 $328 $209 $215 $100 $ Valuation 2016 Valuation 35

36 Dollars in Millions $400 $300 $200 $100 Other Post Employment Benefits $368 Jan 1, 2016 Actuarial Valuation Retiree Health Care Liability $262 $328 OPEB Reserve $218 $ Valuation 2016 Valuation 36

37 Self-Insured Health and Dental Fully-insured to Self-insured benefit plans Greater control over rate setting and reserve requirements Assumption of risk for claims Reserves Cash flow monthly variability between premiums and claims Mitigate uninsured losses for claims exceeding premium coverage and provide stability in rate setting Insurance Coverage $500K Specific stop loss 125% Aggregate stop loss 37

38 Health Plans and Rates OPEN Access Distinctions HRA Availability ATU Members All Employees All Employees Single Premium $906 $763 $593 Family Premium $2,266 $1,907 $1,484 38

39 Self-Insured HealthCare Benefits December 31, 2015 Medical Dental Ending Reserve Balance $ 26.1 $ % 29% Reserve Target 25-35% 10% Projected 2016 Expenses (Oct 2015) $ 66.8 $ 4.6 Low end of target $ High end of target (recommended) $ 23.4 $ Dollars in millions

40 General Fund Operating Reserve Dollars in millions $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 Actual $13.6 $5.6 $5.9 Target 10% 15% Target 10% Budget $9.7 15% $ Reserve Target Actual/Budget 40 Reserve target calculated as % of adopted budget & 2016 carryforward amendment.

41 Big Picture 2017 Budget

42 Proposed Payable 2017 Levy Pct Chg Limit * Non-Debt Service Levies General Purposes $ $ % Highway Right of Way Livable Communities: - Demonstration Acct % Tax Base Revitalization % Total Non-Debt Levies $ $ % $ Levies as Pct of Limit 88.8% Debt Service Levies Parks $ $ % Transit % Total Debt Levies $ $ % Total All Levies $ $ % * Estimated using US Bureau of Economic Analysis th quarter data. The actual maximum levy will not be known until published by the MN Dept of Revenue in late July. 42 Dollars in millions

43 Proposed Payable 2017 Levy $83.7M $6.6 8% Parks Debt Service Transit Debt Service $ % $ % Livable Communities $ % General Purposes Dollars in millions 43

44 General Purposes Levy Uses - $14.6 M Community Development Operations $8.7 60% $4.6 31% Targeted Initiatives $1.0 7% $0.3 2% Other Operating Statutory Transfer to LHI Account Dollars in millions 44

45 Targeted Thrive Initiatives General Purpose Levy Use - $4.6 M Stewardship Housing Study Blue Line Extension Stormwater Grants Green Infrastructure Grants Robert Street Elevator and Accessibility Prosperity Equity Livability Sustainability Integration Collaboration Accountability 45

46 Operating Budget Trend - Expenses & Uses Dollars in Millions $1,018 $ Passthrough Debt Service OPEB Operations Proposed Increase 3.8% 46 Budget expense net of operating transfers

47 Total Budget Change - $39 Million Pressures on Operations Labor contracts Metro Mobility growth Inflationary growth Technology Maintenance/Overhaul Incenting Ridership Growth 47

48 2017 Proposed Budget for Council Operations Uses by Category - $709 M $428 60% Salaries & Benefits $35 Other 5% $34 5% Utilities & Rent $71 10% Materials & Chemicals $57 8% $84 12% Transit Programs Contracted Services Dollars in millions 48

49 Unified Capital Improvement Program $8.6B Authorized Projects $4.3B Planned Projects $4.3B Parks $166 4% Transit $632 15% Wastewater $1,275 30% Transitways $2,198 51% Parks $167 5% Transit $705 16% Wastewater $328 8% Transitways $3,132 72% 49

50 Unified Capital Improvement Program $8.6B $2,361 27% Preservation Transitways $5,330 62% $815 10% Expansion Improvements $106 1% 50

51 Unified Capital Improvement Program - $3.6B Excluding New Starts Transitway Projects Preservation $2,361 66% $815 23% Expansion $298 8% Transitways Improvements $106 3% 51

52 Unified Capital Improvement Program Planned Projects - $4.3 Billion 1,800 1,600 1,400 1,200 1, '16 '17 '18 '19 '20 21 Other Southwest Bottineau 52

53 Budget Development Schedule Now Aug 10 Aug 24 Oct 26 Dec 14 Committee Budget Discussions Division Level Budget Presentation Adopt Preliminary Budget and Levies Public Comment Draft Adopt Final Budget 53