L. BROOKS PATTERSON, OAKLAND COUNTY EXECUTIVE
Several years ago, the Business Leaders for Michigan (BLM) issued a "Michigan Fiscal Scorecard" report for the purpose of "assessing the financial management of Michigan governments." Since then, Governor Snyder has encouraged Michigan's local governments to issue scorecards based on the BLM report design. The intent is to help Michigan's residents understand the sometimes sobering financial realities facing most Michigan governments.
While undoubtedly accurate when considering Michigan governments in general, the "financial snapshot" attained with the BLM Scorecard model does not fully capture the sustained benefits of Oakland County's long-term financial planning and multi-year budgeting practices. We encourage readers of the scorecard to also take advantage of the wealth of financial information that we have made available to the general public through our Investor Relations web page at https://www.oakgov.com/investors/Pages/default.aspx
To help Oakland County residents assess the financial management of Oakland County government, we present the following "Oakland County Fiscal Scorecard." The Oakland Scorecard follows the format utilized by the BLM report so that readers can easily compare Oakland's performance to that of Michigan governments in general.
County Budget Gap
Is Oakland County covering current year expenditures and other obligations with current year revenues?|
Yes. In September 2015, Oakland County adopted a balanced 3-year rolling budget for Fiscal Years 2016, 2017 and 2018. Each year's budget utilizes the current year revenues and a planned-for, nominal amount of accumulated equity that already exists in excess of the levels needed to maintain a reserve of at least 20% of operating expenditures as of September 30, 2020. In the interim, however, the General Fund equity is in excess of the 20% long-range target. The available equity comes from savings that have accumulated over the past several years as a result of our long-term financial focus and planned, accelerated budget reductions. As a result of advanced financial planning, the County has a financial plan in place for a balanced long-term budget through September 30, 2020 without the need for reductions to citizen services.
In addition, unlike the state and the other Michigan governmental units, Oakland County's budget recognizes and has fully funded its pension, health care and other post-employment benefit (i.e. "retiree's healthcare") obligations.
In short, the County has maintained a balanced budget throughout the Great Recession, fully-funded its pension and health care obligations within our balanced budgets, and has a balanced financial plan through FY 2020. In fact, Oakland County's millage rate for general operations remained at 4.19 mills from 1998 through 2014 and was maintained at that low rate despite the budget challenges brought on by the Great Recession. In March 2015, a .10 mill reduction was approved by the Board of Commissioners for the 2015 tax levy, bringing the County's millage rate down to 4.09 mills for general operations, the third lowest tax rate of the State's 83 counties. In September 2015, an additional .05 mill reduction was approved by the Board of Commissioners for the 2016 tax levy, bringing the County's millage rate down to 4.04 mills for general operations. The County's balanced budget principles have garnered a bond rating of 'AAA' for over a dozen years by two bond rating agencies.
Is Oakland County paying current bills with cash on-hand?|
Yes, Oakland County
maintains responsible cash balance reserves and pays its bills on time using
its cash on-hand. Unfortunately, as an adverse consequence of an accounting
gimmick the Granholm Administration and State Legislature imposed on all
Michigan counties in 2004, (often called the “Shift and Shaft”), all Michigan
counties are now required to collect taxes in arrears. This means
that taxes used to pay for current year expenses are not billed until 9 months
into the fiscal year and are not due until 11 months into that year. (Think of
not being paid at your job until after you have worked for 11
months and incurred mortgage, food and other expenses.) Effectively, this means
county governments have to operate for 335 days before they receive the tax revenue
to support those operations. This shift in tax collection period caused a cash-flow
shortage that requires many county governments in Michigan to rely on
short-term borrowing to insure bills are paid on time. To date, Oakland County has not been required
to borrow to cover the County’s operating expenses.
Does Oakland County have reserves or a Rainy Day Fund equal to at least 10% of operating expenditures?|
Yes, Oakland County maintains responsible reserves well-above 10% of operating expenditures to protect and maintain stable service delivery. At the September 30, 2015 fiscal year close and reported in the FY 2015 Comprehensive Annual Financial Report (CAFR), Oakland County's General Fund had unrestricted (meaning available) equity (fund balances) totaling $244.5 million. This amount is well over the County's targeted minimum fund balance level of 20% of annual expenditures.
The County has deliberately increased its equity during the past several years in anticipation of using a portion of the savings to stabilize future service delivery while thoughtful restructurings of operations were implemented. This allows citizens to continue to receive services that would otherwise be adversely impacted by shortfalls expected in the current FY 2016 – FY 2018 triennial budget period. The County is planning to use some of its accumulated equity to balance the budget through FY 2020. The long-term financial plan is to maintain a sustainable long-term General Fund equity target of 20% of General Fund/General Purpose expenditures; this is in line with the recommended best practice by the Government Finance Officers Association (GFOA) of maintaining at least two months' operating reserves.
Is Oakland County Government fully funding its pension and other post-employment benefit obligations?|
Yes, Oakland County fully funds its pension and other post-employment (retirees' healthcare) benefit obligations. These expenses are included in our annual operating budgets and are not pushed off onto future generations.
Long the leader in curbing the cost of these benefits, Oakland County Executive L. Brooks Patterson, in partnership with the Board of Commissioners and the other County-wide elected officials, has structurally reformed Oakland's benefit plans to make them sustainable and less costly for taxpayers.
Oakland County closed the traditional defined benefit retirement plan to new hires in 1994, replacing it with a fair, but far less costly, defined contribution plan. The defined contribution plan benefit is fully funded on an annual basis. In 1997 new hires began mandatory contributions to their healthcare coverage. By 2003 all employees were paying mandatory contributions to their healthcare coverage.
Similarly, in 2006 Oakland County terminated the traditional retiree health care benefit and replaced that with a Health Care Saving Account, for employees hired after January 1, 2006. The Health Care Savings Account is a benefit that gradually vests over an employee's career. This benefit plan is also fully funded for each member employee on an annual basis.
In 2007, Oakland County became the first and only Michigan governmental unit to fully fund the traditional retiree health care benefit obligations incurred before adoption of the Health Care Savings Account Program. Oakland County started actuarially funding its retiree health care obligation in 1987. In 2007, the County issued "Certificates of Participation" (COP's), a type of bond, and established a source that fully-funded its existing retiree health care obligation for current and future retirees. On September 27, 2013 Oakland County initiated a private placement of securities to refinance the 2007 COP's thereby reducing annual interest payment rates from 6.23% to 3.62%, a net savings of approximately $171 million. This refinancing not only saved the County taxpayers money, it also included the development of a superseding plan to secure health care for all eligible County retirees and their covered dependents to the end of their eligibility. Upon completion of the refinancing, the VEBA fund assets were 117% of the fund actuarially determined liabilities. The COP's debt was paid off on April 1, 2014. The defined benefit pension plan actuarial report as of period ending September 30, 2015 indicates that the County is 103% funded. The retiree health care plan actuarial report as of period ending September 30, 2014 states that the County is 121% funded for the retiree health care plan (please note that the September 30, 2015 retiree health care actuarial report is expected to be published late May 2016).
The annual cost of retiree pension and health care benefits, both for the current year's expenses and the actuarially determined amount for the future years' costs, are accounted for in each year's operating budget. None of the costs are hidden and none are pushed off onto future generations.
Are incomes growing faster than public debt levels?
Oakland County government's per capita public debt level in 2015 was estimated at $434.69. This includes general obligation debt, backed by the full faith and credit of the taxpayers, and revenue-dedicated debt that is repaid through specific revenue associated with the projects that it funds. The debt was incurred primarily to support water, drain and sewer projects, and includes the Retiree Healthcare Refunding bonds discussed previously. The per capita income has risen from $47,146 in 2002 to the most recent published amount of $59,759 in 2014. (Source: Department of Commerce, Bureau of Economic Analysis.)
It is important to understand that while some Michigan governments have borrowed and owe amounts close to their maximum constitutionally-authorized debt level, Oakland County is nowhere near to that situation. As of September 30, 2015, Oakland County is constitutionally authorized to incur approximately $6.1 billion in debt, yet its actual debt is only $727.9 million, about 12% of what is Constitutionally Authorized.
Oakland County taxpayers can be proud that even after experiencing a decade of recession in Michigan, Oakland County remains an AAA rated county.
The primary reasons for this continuing achievement include:
- The County's on-going commitment to live within its means while maintaining its low tax rate.
- The County's utilization of a rolling, 3 year budget that allows early recognition of budget challenges and provides time to thoughtfully restructure operations while maintaining stable service delivery.
- The County's preservation of responsible levels of cash reserves.
- The County's low debt level.
- The County's full funding of pension, health care and other post- employment benefit obligations today, within its budget, and not at the expense of future generations.