George W. Kuhn Drainage District (Oakland County), MI

CREDIT OPINION New Issue Contacts Matthew Butler 312-706-9970 AVP-Analyst matthew.butler@moodys.com Henrietta Chang 312-706-9960 VP-Sr Credit Officer henrietta.chang@moodys.com George W. Kuhn Drainage District (Oakland County), MI New Issue: Moody s assigns Aaa to $7.7M George W. Kuhn Drainage District (Oakland County, Summary Rating Rationale Moody's Investors Service has assigned a Aaa rating to the George W. Kuhn Drainage District, MI s $7.7 million Drain Refunding Bonds, Series 2016. The bonds are payable with the collection of assessments from a number of communities within Oakland County, MI, including the county itself. Pursuant to resolution, Oakland County (Aaa stable) has pledged its full faith and credit as further security for the payment of debt service. The Aaa rating is based on the full faith and credit general obligation limited tax (GOLT) pledge of Oakland County. Oakland County s Aaa rating incorporates its large and diverse tax base that encompasses the northwestern suburban region of the Detroit (B2 positive) metropolitan area, very healthy financial position and expected continuance of strong fiscal management, low direct debt burden, and modest exposure to unfunded defined benefit pension liabilities. Credit Strengths Large, diverse and affluent tax base Expected maintenance of healthy liquidity Consistently solid management of financial operations Credit Challenges Michigan s statutory limits on taxable valuation and revenue growth cause revenue loss during times of tax base decline and slow recovery of revenue as valuations increase Rating Outlook Oakland County's stable outlook reflects the expectation that its credit profile will remain in line with the high Aaa rating going forward given very strong management practices, a growing economy, and anticipated maintenance of healthy reserves. Factors that Could Lead to a Downgrade Renewed economic pressure indicated by growing unemployment, depressed socioeconomic indices, or tax base depreciation

Significant declines in available financial reserves Material growth in the county s debt and pension burden This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. 2

Key Indicators Exhibit 1 Data in the chart above is only through fiscal 2014 and does not illustrate changes in debt and tax base valuation in 2015. Source: Comprehensive annual financial reports of Oakland County, MI; US Census Bureau; Moody's Investors Service Recent Developments The following report is largely unchanged from the rating report we issued on November 12, 2015. The county has not yet released its fiscal 2015 comprehensive annual financial report. Detailed Rating Considerations Economy and Tax Base Oakland County's economic profile continues to improve in the wake of the 2007-09 recession. While the county's full valuation declined a cumulative 34% from its peak in 2007 through 2012, it is now growing rapidly. The county recorded 7.1% growth in 2014 and additional growth of 10.4% in the current year. While the 2015 valuation of $122 billion remains 21% below the 2007 peak of $155 billion, it is up nearly 20% from the 2012 low of $102 billion. The county's November 2015 unemployment rate was 4.2%. Median family income remains strong at 130% of the national figure. Despite continued ties to the automotive industry, Chrysler (FCA US LLC; Ba1 positive) and General Motors Company (Ba1 stable), the county's second and third largest taxpayers and employers, comprise a modest 0.4% of taxable valuation. Commensurate with a reduction in the unemployment rate, the county's labor force and total employment levels have steadily grown over the past few years as new businesses have relocated to the region or existing companies have expanded operations. Officials report over $400 million of private investment in the county since April of 2015, with more than 3,300 new jobs having been created over the same time period. We expect such economic developments to continue in the coming years. Financial Operations and Reserves We expect the county's financial position will remain strong going forward owing to continued application of very solid fiscal management practices, which are discussed in more detail in the Management and Governance section of this report. The county closed fiscal 2015 on September 30 and management reports a $6.2 million general fund operating surplus. Due to amendments to internal reserve assignments, the county reports an even greater increase in the available general fund balance to $244.5 million from the fiscal 2014 balance of $225 million. The county also reports a year-end unrestricted net asset position in its delinquent tax revolving fund (DTRF) of $202.8 million, resulting in combined available reserves of $447.3 million, or 120% of estimated revenue. The estimated fiscal 2015 results represent a tenth consecutive operating surplus for the county. In its most recent audited financial statements, the county closed fiscal 2014 with an available general fund balance of $225 million and an additional $205 million unrestricted net asset position in its DTRF. Total available reserves were $431 million, or a substantial 110.5% of operating revenue. Primary sources of funding in the most recently audited fiscal year were property taxes and charges for services, which accounted 3

for 58% and 30%, respectively, of operating revenue. Total fixed costs (debt service and pension payments) were a modest 5.7% of operating revenue in fiscal 2014. Exhibit 2 Fund balance and liquidity are strong and growing Includes reserves of the county's DTRF Source: Comprehensive annual financial reports of Oakland County Given its strong financial position, the county reduced its tax rate in both fiscal years 2015 and 2016. The rate fell to 4.09 mills from 4.19 mills for fiscal 2015 and the current fiscal 2016 budget reduced the tax rate to 4.04 mills. The county's current five-year financial framework identifies expected general fund balances of $173 million (39% of projected expenditures) and $134 million (30% of projected expenditures) at the close of fiscal years 2018 and 2020, respectively. Actual results will likely be much stronger given the county's history of outperforming operating forecasts. LIQUIDITY At the close of fiscal 2014, the county's net cash and investment position across the general fund and DTRF was $372 million, or a very strong 95.5% of operating revenue. Debt and Pensions The county's net direct debt burden is equivalent to a low 0.4% of full valuation and a moderate 1.3 times fiscal 2014 operating revenue. The net debt burden does not include $25 million of short-term GOLT delinquent tax anticipation notes nor approximately $208 million of outstanding GOLT bonds that the county issued on behalf of underlying local governments and drainage districts. Delinquent taxes combined with fees and interest have historically been more than sufficient to cover repayment of annual shortterm GOLT notes and underlying entities routinely fulfill their contractual obligations to the county for repayment of their associated county-issued debt. Debt service comprised a low 4% of operating revenue in fiscal 2014. DEBT STRUCTURE With the exception of $25 million of outstanding short-term notes, all debt of Oakland County is fixed rate and amortizes over the long term. DEBT-RELATED DERIVATIVES The county has no derivatives. PENSIONS AND OPEB County employees are members of the Oakland County Public Employees' Retirement System. In the three years through fiscal 2014, the Moody's adjusted net pension liability (ANPL) for Oakland County averaged $281 million, or a low 0.2% of full valuation and below average 0.7 times fiscal 2014 operating revenue. Calculation of the ANPL is based upon our methodology of adjusting reported pension information. On a reported basis, the plan's funded ratio remained above 100% through fiscal 2012, and annual contributions were not required in those years. The county's fiscal 2014 payment to the plan was $5.8 million, or a very low 2% of operating revenue. 4

The county's OPEB liability was overfunded by $154 million as of September 30, 2013. In 2007, the county issued certificates of participation (COPs) to fully fund its accrued OPEB liability. The county refinanced the COPs with GOLT bonds in 2013. Management and Governance We consider the institutional framework of Oakland County, like that of other Michigan counties, to be of A quality. This score factors in the limited flexibility of the county to raise revenue as any new taxes would require voter approval. As the county's general operations largely consist of personnel expenditures, costs tend to be tied to collectively bargained contracts. Notwithstanding the moderate score assigned for institutional framework, Oakland County has demonstrated very strong management characteristics for a number of years. Despite the onset and lingering effects of the 2007-09 recession and the corresponding loss of operating revenue, the county posted annual operating surpluses and continued to strengthen its financial position. The county annually adopts a three-year operating budget within a rolling five-year financial forecast. The county recently adopted a formal fund balance policy that targets maintenance of no less than 20% of expenditures in reserves. We anticipate continuation of these prudent practices will support stability of the high credit rating. Legal Security Oakland County s full faith and credit pledge is a general obligation limited tax pledge, with the bonds ultimately payable from all available operating revenue of the county subject to constitutional and statutory tax limitations. Use of Proceeds Proceeds of the bonds will refund the drainage district s outstanding Series 2007 bonds for anticipated interest cost savings. Obligor Profile Oakland County is located in southeast Michigan just north of the City of Detroit. As of the 2010 US Census, the county had a population of 1.2 million. Methodology The principal methodology used in this rating was US Local Government General Obligation Debt published in January 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology. Ratings Exhibit 3 GEORGE W. KUHN DRAINAGE DISTRICT, MI Issue Rating Drain Refunding Bonds, Series 2016 Rating Type Sale Amount Expected Sale Date Rating Description Aaa Underlying LT $7,725,000 02/11/2016 General Obligation Limited Tax Source: Moody's Investors Service 5

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Contacts CLIENT SERVICES Matthew Butler AVP-Analyst matthew.butler@moodys.com 7 312-706-9970 Henrietta Chang VP-Sr Credit Officer henrietta.chang@moodys.com 312-706-9960 Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454