LANE COUNTY BUDGET
Tuesday, December 9, 2008
Chair David Crowell presided with Budget Committee members Scott Bartlett, Bill Fleenor, Bobby Green, Sr., Denis Hijmans, Alice Kaseberg, Tony McCown, Peter Sorenson and Faye Stewart present. Bill Dwyer was excused County Administrator Jeff Spartz, County Counsel Liane Richardson and Recording Secretary Melissa Zimmer were also present.
1. Call to Order
Chair David Crowell called the Budget Committee to order.
Approval of Budget Committee Minutes
May 6, 2008
May 8, 2008
May 13, 2008
May 15, 2008
May 22, 2008
September 3, 2008
Kaseberg noted at the bottom of the page from the September 3 minutes, that there was a motion and the motion as printed is not what Option 3 states. She thought they could correct it by deleting the last two words “board recommendation.” She stated the motion reads to move Option 3, that they do not make any changes to the Elected Officials’ compensation.
MOTION: to approve the above minutes as amended.
Stewart MOVED, Fleenor SECONDED.
Additional Supplemental Material
Jennifer Inman, Budget Analyst, reported that next week’s meeting will begin at 3:30 p.m. and will go to 6:30 p.m. She indicated that they will also split the Public Comment session between the beginning and end of the meeting. She noted the packet materials for today include the power point presentations and a copy of the minutes from December 3.
3. Long Term Debt
Jonas Biery, Vice President, Seattle NW Securities, reported that they are the County’s financial advisor. He gave a power point presentation. (Copy in file). He indicated that their role is to guide the County in making issuance of debt and making appropriate capital spending decisions, focusing on the debt markets. He reported that the County has a low debt burden. He added that the debt profile is conservative and strong. He noted the County’s debt ratio is well below the national median. He noted the current debt the County has outstanding has favorable interest rates compared to the current market, where interest rates are less favorable. He commented that made advance refunding or refinancing of debt not a favorable proposition at this time.
Biery discussed the current debt market. He said there is an increased volatility. He indicated that bonds were still being sold at current market rates that are reasonable on a historical basis. He noted that for this year rates have increased by a full percentage point, but it gets them back to where they were in the mid to late 90’s before they saw a dip. He commented that rates are still lower than they have been historically. He indicated in addition to increases in the interest cost, there are increased costs of borrowing. He stated that there are underwriting fees for marketing and selling bonds. He added that there is an increased risk premium they would charge and there would be more work to get the bonds sold and into the market.
With regard to bonds, Biery said that six months ago bonds would be issued with a AAA rating. He indicated that there is only one company doing that and the costs have increased. He noted that it increases the focus on the County’s underlying rating. He said investors are less interested in the AAA insured rating, they want to see the underlying rating of the actual security itself. He noted for the County’s rating it is a strong AA 3 on the general obligation bonds and A1 for faith and credit bonds.
Biery noted the County was anticipating issuing $20 million of full faith and credit debt in fall 2009. He added that given today’s interest rate assumptions, he estimated that over a 20 year maturity payment, the average annual payment on the debt would be $1.7 million or an average interest rate of 5.75 percent. He noted a way to reduce the future exposure would be to use cash to reduce the size of the borrowing. He explained that for every $1 million of cash Lane County would contribute to the project (borrowing $19 million instead of $20 million) they would reduce the debt service by $1.7 million or $85,000 annually for each $1 million of cash contributed. He said in addition to contributing cash, they could maximize the use of the cash by achieving bank qualification. He noted that is a level achieved when an entity’s total borrowing for a calendar year is $10 million or less. He explained that certain investors in bank qualified bonds get a tax benefit for buying the bonds and the tax benefit is passed onto the County in the form of a lower interest rate. He said the reduction currently is about one-quarter of a percentage point.
Biery explained that pension bonds represent the largest part of the County’s debt obligations. He said in December 2007 the County used $6.5 million to pay off a portion of the pension obligations that were eligible for early redemption. He added there is $1.5 million due in 2025 that remains callable. He said they would see about $3.3 million in debt service savings between Fiscal Year 2009 and 2025, with most coming in Fiscal Year 2025 when the principle component would be reduced. He indicated another option would be to use cash to do a defeasance of maturities. He explained that would set cash aside in a dedicated escrow and that money gathers earnings. He indicated that the earnings plus the cash are used to pay the principle and interest as it becomes due. He indicated by defeasing it now, they would forego an opportunity to try again in the future on the portion of the principle they would call.
McCown asked if all of the debt have early payment fees.
Biery responded that the County’s pension debt does not have an early redemption feature other than the $1.5 million in 2025. He noted that most of the debt is eligible for advanced refunding. He said that the County could only achieve savings once and to achieve savings, it relies on lower interest rates which they don’t have in the current market.
Biery reported that for the OPEB obligation, Lane County was in good shape compared to other counties. He noted for FY 07, most Oregon governments were only using pay as you go financing and Lane County had already set aside $8.4 million dedicated to offset that liability. He reported that rating agencies haven’t indicated any major concern with any level of OPEB liability other than in extreme circumstances. He said the Government Finance Officer’s Association has recently put out a recommendation and the $8.4 million meets or exceeds that recommendation.
With regard to the general fund balance, Biery said a number of years ago the balance was low. He added that in 2003 Moody’s assigned a negative outlook to the County’s rating. He said in response to that, the County took prudent actions increasing the minimum balance to ten percent. \He indicated that the County was rewarded by having the negative outlook removed from their rating in September 2008. He noted the median for a AA rated county nationwide for a fund balance is 22 percent. He said there is something to be said for having cash that is unrestricted with regard to earnings in the current environment where there is uncertainty with the local economy.
Biery reiterated that the County’s debt profile is strong and Lane County has a favorable debt position. He commented that the current municipal bond market is challenging and volatile. He said cash could be used to fund capital needs to reduce the County’s exposure to the volatile market and cash could be used to further decrease the borrowing and achieving additional benefit from bank qualification. He noted that pension bonds could be defeased to reduce the annual obligation and offset future liability, but it is not the most advantageous market to make that a best decision.
Fleenor asked what top things the County should look for regarding financial stability.
Biery responded that the cash position was most important because there is so much uncertainty in the general financial market. He said it gives the County flexibility to adjust to changes in the market. He thought from a debt perspective, using the $1.5 million to reduce pension debt is a number that won’t change. He indicated that amount is $103,000 annually. He commented that it was an effective use of a small portion of cash. He thought the County should take broader action to ensure continued growth in the community.
4. Lane County
Economic & Employment Trends
Brian Rooney, Regional Economist, Oregon Employment Department, reported that with population growth, (except for the 1980’s) population has continued to grow in Lane County. He recalled in the 1980’s Lane County was more dependent on wood products. He noted that recently when people lost their jobs, they had to move out. He stated from the July 1, 2008 estimate of population, Lane County grew by 2,740 or .8 percent. He indicated it was slower than Oregon’s statewide 1.2 percent. He noted that Florence is still growing but he expected it to slow down with the losses in the stock market. He stated that most of the 1,140 people who moved into the Florence area were retirees. He stated that Veneta, and Junction City also grew rapidly. He noted that Eugene only grew .6 percent over the past year.
Rooney commented that Lane County’s economy is diversified and a lot of the employment track the same as the statewide numbers. He reported that government employment is only 20 percent of overall employment. He indicated that there is a strong manufacturing sector at 13 percent and strong in leisure, hospitality and health services. He said because of the industry mix and the presence of college students, people like living in Lane County because it is less congested than other metropolitan areas. He added because of those reasons, Lane County’s wages tend to be lower than other areas of the state and country. He indicated the wages keep the per capital personal income low but other forms of income are comparable to other areas in Oregon and the rest of the country.
Rooney recalled that 2007 was when employment started to slow down. He said for the past six months Lane County has had job losses. He indicated that total employment is down 2,400 or 1.5 percent over the past year. He noted that the unemployment rate had been declining from late 2003 into mid-2007. He said in 2008 Hynix closed and it pushed Lane County’s rate unemployment rate above the statewide rate to where Lane County’s October rate was 8.2 percent. He noted that was the highest since August 2003. He added they are above the state and compare with Bend or Medford. He noted the state unemployment rate is at 7.3 percent. He noted that the wood products industry was the first part of manufacturing to drop off. He added as foreclosures increased in the housing market and credit tightened, it affected the R.V. manufacturers. He commented that job losses are starting to work their way into retail trade and services. He noted the two private sectors that were positive over the past year were education and health services.
With regard to employment, Rooney reported that short term, from the statewide economic forecast, they have employment growth coming back in 2010. He thought that the year 2008 would be negative. He added the Office of Economic Analysis had also said there would be no employment growth for 2009. He reported that the nation has been in a recession since late 2007 and if the forecast is close and Oregon is in a recession through 2009, it will make it the longest recessionary period post World War II.
Rooney commented that housing market stabilization might be the key to recovery. He reported that Oregon’s housing price increases were better than the nation going into the recession and the forecast is they won’t drop off as much as the rest of the nation. He thought it would be 2010 before they would see stabilization in the housing market with some recovery.
Rooney reported for Lane County’s ten year forecast, they are hoping the current recession will be over and they will be on the long run growth path within the next ten year period. He commented that history shows the normal state for the economy is growth. He said they are forecasting growth of 22,700 jobs or 14.7 percent growth in employment, which is slightly higher than the statewide averages. He indicated that education and the health sector will be adding the most jobs. He added that government and health care significantly contribute to the high wage job growth.
5. Lane County Board of Realtors
Lorena Teer, President, Eugene Association of Realtors, reported that nationally through the end of October 2008, inventory of homes for sale was down 1.6 percent nationally, but inventory of homes in Lane County (excluding Florence) was up .6 percent versus the same time period year to date through October 2007 versus October 2008. She commented that the standing inventory is much higher than it was last year. She noted the number of actual closed properties nationally is down 7.7 percent from last year and Lane County it is down 28.6 percent. She said at the current rate of sales, the number of weeks of standing inventory nationally is 43.86, down 1.02 percent from last year and in Lane County, it is up 40.9 percent at 40.8 weeks of inventory. She commented that healthy employment is what creates a healthy real estate environment. She indicated that what causes a healthy market is 26 weeks of standing inventory. She said they currently have a buyer’s market. She reported that currently it is not so much the supply that is the problem, it is the fact they are not having consumers stepping forward and absorbing the inventory they currently have.
Teer thought that there is an overcorrection in the real estate market. She said she is starting to see balancing in the finance market. She indicated that the current opportunities are with first time home buyers. She noted the market currently moving is the $250,000 and under price point. She noted the areas selling are River Road, Danebo and Springfield.
With regard to foreclosures, Teer indicated that the National Association of Realtors reported that on November 18 foreclosures and short sales accounted for 35 to 50 percent of all transactions in the third quarter. She noted for Lane County, the number of home foreclosures were consistently higher in 2008 than they were in 2007 but the actual auctioned sales dropped 46 percent in November over October. She stated if that trend continues, then they have seen a bottom. She said they are looking for responsible growth in the area and investing in the current employers so they can keep living wage jobs available to the people who are living in Lane County. She asked the Board to provide certainty for consumers. She stated that employment is the number one issue so other employers could provide living wage jobs and employment for the community.
6. Springfield Chamber of Commerce
Dan Egan, Springfield Chamber of Commerce, reported that he is the Director of the Chamber of Commerce and they have 950 businesses and organizations as members. He considered the Secure Rural Schools money as a bridge for Lane County. He thought the money would be for one time. He thought the Board should think about what is best for the citizens of Lane County. He suggested revisiting the County’s priorities. He commented that the fiscal realities of the country have changed and he thought the Board should examine what the County’s core mission is as they go forward in these uncertain times. He recommended spending the Secure Rural Schools money slowly. He thought Lane County could be a county that does less but does it better. He said the Board should look at eliminating some aspects of general service government. He thought the Secure Rural Schools money could be a bridge to identify a new revenue source as they set priorities. He cautioned about adding new programs. He said if monies are to be spent, they should be spent on public safety and law enforcement. He commented that the County is not doing a good job at job number one. He added that the County didn’t find itself in this fix overnight and he didn’t think Lane County could be fixed overnight. He recommended starting with a program that could add capacity and prevention and build the confidence of the citizens of Lane County and go forward from there. He said if there are any more dollars spent, he recommended spending the money on economic development and aggressive recruitment of businesses to the community. He thought the Board should put resources into the next wave of jobs that will make a difference to the economy.
Fleenor asked if the Board should put money into reserves.
Egan responded that in looking to the future, the Board needs to have money if they need to continue doing the base mission. He thought the Board needed to be united and the lack of that has hurt their efforts in getting an income tax measure passed. He recommended fixing the big problems in small ways. He wanted to see the commissioners elected countywide.
7. Public Comment
Mike Tayloe, Springfield, asked how many jail beds Lane County really has to have and how much public safety and treatment is needed to put the County to minimum standards. He said they can’t keep doing public safety the way they are currently doing it. He said they can’t spend money to run a revolving door. He wanted to know what the bonded debt would be to build jails. He also recommended voting on commissioners countywide.
Bob Richards, Eugene, stated he is the Director of the Buckley Center. He asked the Board to help support social services as they deliberate with the Secure Rural Schools money. He commented that each year social services seem to be on the chopping block more than any other funded services. He said each year they lose valuable programs and weaken the ones that continue to survive. He stated that research has continually proven social services are to be more cost effective than any other strategy. He noted that research has proven that for each dollar spent on addiction treatment, as much as six dollars could be saved by the taxpayer and the saving of human lives. He added that it reduces unemployment and crime and reduces jail beds. He commented that once social services are gone, they are gone forever. He stated that closing any of their programs will increase unemployment. He asked the Board to keep social services in mind.
Kaseberg asked for a response on how they could expect needing $42 million instantly. She indicated that they have state cuts, federal unfunded mandates and there could be natural disasters and unnatural disasters. She asked why they needed money in the bank.
Sorenson wanted the views of the citizen members of the Budget Committee on the topic of continuing this format. He thought this was a good format. He asked if this was a good use of the Budget Committee’s time.
Bartlett thought it was a good use of time.
Crowell didn’t want to make it a regular event, but thought that sometimes this format could be valuable.
Chair Crowell adjourned the meeting at 4:15 p.m.