Agenda 12-12-23; 7-a - Discussion on School and County Capital Planning and Financing Scenarios

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2 County staff has worked with the County's financial advisors to determine alternative plans of finance that would be needed to fund the various options. This presentation details the debt metrics that are used to evaluate the amount of debt the County carries, the revenue and expenditure assumptions contained in the debt model, and the tax rate and debt policy implications of the options presented by Woolpert. Debt Metrics As credit rating agencies evaluate the County's financial condition, they examine three primary metrics related to the amount of debt the County is obligated to pay. • Ten Year Payout Ratio This metric measures the amount of principal to be paid in the next ten-year period to prevent backloading debt payments. One rating agency adds a positive adjustment if the ten-year payout ratio is 65% or greater. This means that 65% of outstanding principal payments are paid within ten years. The County's current payout ratio is 67.1% and is managed by structuring level principal payments over the entire term of the debt issue. • Debt to Assessed Value Ratio This metric measures the amount of outstanding tax supported debt as a percentage of the County's assessed value (tax base). This is one measure of the County's ability to raise revenue to make debt service payments. As assessed values increase, the County's ability to generate enough revenue to pay back existing debt also increases. The County's current policy is that total outstanding debt will not exceed 3% of assessed value. The County's current debt to assessed value ratio is 1.28%. Having a ratio under 3% also results in a positive credit rating adjustment. All of the financing scenarios discussed below maintain a debt to assessed value ratio of under 3%. • Debt Service to General Fund Revenue Ratio This metric compares the amount of debt service payments the County is obligated to pay on an annual basis to total projected general fund revenues. This is a quantitative representation of the County's ability to pay debt obligations on an annual basis. If debt service is growing at a higher rate than general fund revenues, the proportion of the County's budget that is dedicated to debt will increase and lower the ability to fund other operating expenses. The County's current policy is to maintain annual debt service costs at or below 15% of general fund revenues. The County has modestly exceeded this policy in the past. According to one rating agency, a "strong" position is 8% to 15%, and an "adequate" position is 15% to 25%. In FY2023-24, debt service is 13.60% of total general fund revenues. This ratio is tracked in each of the financing scenarios below. Model Assumptions The debt model makes several assumptions to predict the likely impact that a given amount of borrowing will have on the debt service to general fund revenue metric and the property tax rate required to make annual debt service payments. • Assessed Value The assessed value growth assumption is important because it is directly linked to the debt service to assessed value metric discussed above, and it dictates the amount of revenue that each penny on the property tax rate can generate.