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Transit Task Force: Budget, Financing, and Debt Capacity

Explore the budget, financing, and debt capacity aspects of the Transit Task Force. Learn about charter limits, operating/capital budgets, allocations, and debt capacity analysis. Understand key financial indicators and guidelines.

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Transit Task Force: Budget, Financing, and Debt Capacity

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  1. Transit Task Force: Budget, Financing, and Debt Capacity May 6, 2015 Department of Finance www.montgomerycountymd.gov/finance

  2. Overview • Charter Limit: Property Tax Revenues • Charter Spending Affordability Guideline (SAG) Process • Operating • Capital • Debt Capacity Analysis • Rating Agency Criteria • Operating Budget • Allocations • Priorities • Pressures • Capital Budget • Allocations • Process • Priorities • Appendices

  3. Charter Limits: Tax Revenues • Section 305: Total real property revenue must not exceed the previous year plus CPI except new construction without a nine vote/unanimous override • Override provision Amended from 7 to 9 in 2010 • No override since 2010 amendment

  4. Charter Limits: Operating Budget Spending Affordability Guidelines (SAG) • Affordability v. Need • Two Tests in Charter • MCC Section 305 Paragraph 2: (AOB * CPI) • Schedule: Adopt Guidelines by second Tuesday in February each year - MC Code 20(c)1 • 1. “Aggregate Operating Budget” (AOB) may not grow in one year greater than CPI without the vote of at least 6 Councilmembers • AOB excludes: proprietary funds; WSSC; College tuition; & Grants • FY16: AOB * 1.65% (CPI)=$4.4254 Billion

  5. Charter Limits: Operating Budget Spending Affordability Guidelines (SAG) • MCC Section 305 Para 3: Council established SAG Guidelines • Requires 7 vote override • Affordability Indicators: “…the condition of the economy, the level of economic activity in the County, trends in personal income, and the impact of economic and population growth on projected revenues.”MC Code 20-61(a) • Advice of Business Advisory Panel 20-61(b); Convened by Executive and transmitted to Council. • Specify Budget Allocations for Agencies; debt service; CIP Current Revenue; Retiree Health Insurance Pre-funding • Council Discretion: No change in year over year; inflationary change; change in personal income; other standard. • FY16 Operating SAG: AOB * 2.3% (Change in Personal Income)=$4.4539 Billion • Process: Reviewed and Recommended by Government Operations Committee & Approved by full Council.

  6. Charter Limits: CIP SAG • MCC Section 305 Para 3: Council established SAG Guidelines • Requires 7 vote override • Schedule: Adopt by the first Tuesday in October in each odd-numbered calendar year. By first Tuesday in February of each year, the Council may amend (+/-)to reflect a significant change in conditions (not need). • Guidelines Set Include: • Total general obligation (GO)debt issued by the County that may be planned for expenditure in the first fiscal year under the capital improvements program; • Total general obligation debt issued by the County that may be planned for expenditure in the second fiscal year under the capital improvements program; • Total general obligation debt issued by the County that may be approved under the 6-year capital improvements program; • Same for MNCPPC; College and MCPS do not have authority to issue long term debt (exception: College Foundation) • Also Define expected major revenues for CIP including impact taxes, recordation tax for CIP, etc..

  7. Charter Limits: CIP SAG Affordability Indicators. (MC Code 20-57) • The growth and stability of the local economy and tax base; • criteria used by major rating agencies related to creditworthiness, including maintenance of a "AAA" general obligation bond rating; • County financial history; • fund balances; • bonded debt as a percentage of the full value of taxable real property; • debt service as a percentage of operating expenditures; • the effects of proposed borrowing on levels of debt per-capita, and the ability of County residents to support such debt as measured by per-capita debt as a percentage of per-capita income; • the rate of repayment of debt principal; • availability of State funds for County capital projects; • potential operation and maintenance costs relating to debt financed projects; and • the size of the total debt outstanding at the end of each fiscal year

  8. Rating Agency Assessment of Debt Preliminary Conclusion: The rating agencies would most likely view the Authority’s debt as “overlapping debt” and not direct debt. Before this conclusion is reached they would consider several factors: • The level of independence of the Authority. • Council approval of tax increase and operating budget • Control of capital projects • Approval for projects requiring a tax increase • Rating agencies do consider overlapping debt in their ratios • How burdensome is the overall tax levy on the County? • Tax burden compared to other AAA counties? • Does expanding the mission to other Transportation Projects decrease any burden on the County’s current General Fund? If so it would be viewed as “credit positive”. • Would additional projects result in expected economic development? • Does the Authority and the related transportation projects generate additional future revenues? • Critical for justifying an increased debt burden. • Would the County ever have to step in and pay debt service or operating costs? • Will creating a Transportation Authority allow the County to transfer current operating costs or capital costs out of the general fund? • Who appoints the members and can the County or County Council remove members before their term expires? • How involved will the County Executive or County Council be in running or overseeing day to day operations?

  9. OPERATING BUDGET: PRIORITIES; ALLOCATION; PRESSURES

  10. FY16 ALL AGENCIES / ALL FUNDS WHERE THE MONEY COMES FROMTOTAL APPROVED RESOURCES - $5,683.6(million) WHERE THE MONEY GOES *TOTAL APPROVED USES OF FUNDS - $5,683.6(million) *This total covers the full Operating Budget and funds to the CIP, Debt Service, and Reserves. Of this amount $5,067,834,958 is recommended in the Operating Budget.

  11. FY16 TAX SUPPORTED AGENCIES AND FUNDS WHERE THE MONEY COMES FROMTOTAL APPROVED RESOURCES - $4,908.7 (million) WHERE THE MONEY GOES *TOTAL APPROVED USES OF FUNDS - $4,908.7(million) *This total covers the full Operating Budget and funds to the CIP, Debt Service, and Reserves. Of this amount $4,407,964,046 is recommended in the Operating Budget.

  12. FY16 CE Recommended Tax Supported Expenditures by Function

  13. Operating/Capital Spending Pressures Federal budget uncertainty – sequestration State budget uncertainty – budget reductions, cuts to State Aid High structural cost increases – debt service, retiree health, reserves, compensation and benefits School Enrollment increases and State-mandated Maintenance-of-Effort spending requirements (MOE) for MCPS Deferred infrastructure maintenance Operating impact of new facilities – libraries, schools, college, recreation centers, and fire stations Unavoidable cost increases related to energy costs, snow removal, and inflation

  14. CAPITAL BUDGET:PRIORITIES; PROCESS; ALLOCATION

  15. FY16-21 Fiscal Outlook Operating Budget & Capital Budget • Three ways the budgets intersect • Cash payments for capital projects • Operating costs for new facilities • Debt service Every $1 million used for debt service could also be used for: 13 public school teachers 9 police officers 9 fire fighters Operating 1 library Operating 5 recreation centers Rental assistance for 427 families 31,250 bednights in family shelters 11,111 bednights at overflow motels Respite care for 339 clients Child care subsidies for 197 children for a year Services for 4,124 Montgomery Cares clients 1,274 county-funded Maternity Partnership program 1,919 Housing Stabilization grants Pruning 2,150 trees Purchasing 2 buses Renovations for 50 bus stops

  16. CIP Process: Planning, Review, and Approval • Executive Branch Considerations • Readiness • Planning • Scope Definition • Basis for Estimates: Confidence Level • Master/Sector Plans • Department Strategic Plans • Return on Investment/Results • Affordability • Evaluate Changes: Costs, Scope, and Schedule • Method of Financing • Scheduling • Partners: Mixed Use Project • Priorities • Community Priorities • M-NCPPC Priorities • Identification of Needs • Community • Departments and Agencies • Land Use Plans • Growth Policy • Readiness for Programming • Facility Planning • Cost Estimating • Collaboration • Affordability • Fiscal Planning • Fiscal Policy • Operating Impacts

  17. Six Year CIP: Major Funding Categories

  18. Financing Sources: Bonds • General Obligation: $2.2 B Programmed in CIP; 50% of total 6 year CIP • 20 year maturity; Charter authority for up to 30 years; AAA Rated • Backed by full faith and credit, unlimited tax pledge of County • Outstanding: $2.845 B. as of June 30, 2014 • Revenue Bonds: $305.9 MM; 7% of six year CIP • Secured by dedicated stream of revenue required e.g. Parking fees, WQPF fees, Solid Waste fees, liquor revenues • 20 year maturity; Charter authority for up to 30 years • Rating: 1 to 3 notches from AAA depending on reliability of revenue stream, market familiarity, reserves, covenants • Outstanding: $196.9 MM as of June 30, 2014 • Other Appropriation Backed Debt: $180.7 MM; 4.1% of six year CIP • Maturity depends on average useful life of asset being acquired; • facilities generally 20; equipment 7 years or less • Master Lease for smaller equipment • BANS: Bond Anticipation Notes/Commercial Paper • Short term debt (<1 year maturities) that is used to initially finance capital projects but is not a permanent source of funding

  19. Appendices • MC Charter - Section 305 paragraph 4: Property Tax Revenues • MC Charter – Section 305: Operating and Capital Spending • FY16-21 Debt Service Budget Detail • GO Bond Adjustment Chart: How the amount of GO Bonds available for programming are estimated • CIP Schedule • Chapter 20: Article X & XI :Spending Affordability Guidelines for Capital and Operating Budget

  20. Charter Limits: Tax Revenues MCC Section 305 Paragraph 4 By June 30 each year, the Council shall make tax levies deemed necessary to finance the budgets. Unless approved by an affirmative vote of nine, not seven, Councilmembers, the Council shall not levy an ad valorem tax on real property to finance the budgets that will produce total revenue that exceeds the total revenue produced by the tax on real property in the preceding fiscal year plus a percentage of the previous year's real property tax revenues that equals any increase in the Consumer Price Index as computed under this section. This limit does not apply to revenue from: (1) newly constructed property, (2) newly rezoned property, (3) property that, because of a change in state law, is assessed differently than it was assessed in the previous tax year, (4) property that has undergone a change in use, and (5) any development district tax used to fund capital improvement projects. (Election of 11-7-78; election of 11- 6-84; election of 11-6-90; election of 11-3-92; election of 11-8-94; election of 11-3-98; election of 11-4-08.)

  21. Charter Limit: Operating & Capital Spending MCC Section 305 Paragraph 2-3 An aggregate operating budget which exceeds the aggregate operating budget for the preceding fiscal year by a percentage increase greater than the annual average increase of the Consumer Price Index for all urban consumers for the Washington-Baltimore metropolitan area, or any successor index, for the twelve months preceding December first of each year requires the affirmative vote of six Councilmembers. For the purposes of this section, the aggregate operating budget does not include: (1) the operating budget for any enterprise fund; (2) the operating budget for the Washington Suburban Sanitary Commission; (3) expenditures equal to tuition and tuition-related charges estimated to be received by Montgomery College; and (4) any grant which can only be spent for a specific purpose and which cannot be spent until receipt of the entire amount of revenue is assured from a source other than County government. The Council shall annually adopt spending affordability guidelines for the capital and operating budgets, including guidelines for the aggregate capital and aggregate operating budgets. The Council shall by law establish the process and criteria for adopting spending affordability guidelines. Any aggregate capital budget or aggregate operating budget that exceeds the guidelines then in effect requires the affirmative vote of seven Councilmembers for approval.

  22. CIP Schedule • September: MCG Departments Submit CIP to OMB Council Approves CIP Spending Affordability Guidelines (SAG) • September – December: OMB Reviews • October – December: Schools, Water/Sewer, Parks, College Submissions • January 15th: County Executive Transmits to the Council • February: County Council Public Hearings • February: County Council revisits Spending Affordability Guidelines (SAG) • February – May: County Council Committee Reviews • May: Full Council Reviews (Approval before Memorial Day)

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