Travis County Commissioners Court
January 2, 2007
Item 29
First item is 29, receive report from Travis County delegation regarding recent credit rating trip -- we call it the bond rating trip -- and especially responses regarding gasb 45. We all discussed that the gasb provision before we left, so we thought we could get an update. Overall I think the meetings went quite well and our financial records were in tip top shape. They didn't say it, but based on the pretions we read it into their -- on the expressions ragweed it into their meeting and we did discuss gasb 45 with them. And the good news is before I defer to y'all is each one of them had what I would call the gasb 45 expert for the firm at the meeting. And we had our two attorneys there also and it was good we did because we probably spent 45 minutes to an hour with each one of them discussing gasb.
>> right. With regard to the county's financials and my staff dropped off copies of the pack that we took to the bond raters in your office, and if you would -- any of you would like to go over that, just call me and I'll be glad to do that with you. That is an unaudited package. The auditors from deloitte and touche are here now and we would expect that they would finish their work by the end of January, so the actual audited statements would be done after that.
>> those who worked to put those statements together did an outstanding job.
>> they did. And two of them are sitting here, my first assistant diana warner.
>> mention was made of that by the bond rating firm.
>> yeah, they were. And we're always proud of that in Travis County. The one thing I guess that everyone is interested in is that the fund balance came in very, very strong and we came in at about four million dollars higher than we thought at the budget. So the county's financial position is extremely strong and the judge is exactly right action both agencies were pretty well reflecting that. We are a triple a county. One of the things that we wanted to do, gasb 45 is a really big financial issue and accounting issue, and so we've been gathering evidence for self years on this, and -- for several years on this and one of the later steps that we needed to do was go to the bond raters and present to them what we think and the different options that we are considering and see how they reacted to that. And the judge is right, the two people speaking wildly for the two firms, we met with the financial advise -- the financial advisor and I met with doug benton in san antonio since he's from the dallas office he didn't fly into new york, but that firm also had their state monitor come in and talk and listen to our program. Standard and poor, the person that was publishing and really the expert on gasb 45 was perry young, and he just responded to one of our attorneys, and I just gave thaw e-mail. It's a very informal e-mail. And I thought that was extremely positive. What we did is one of the thing that the bond raters are concerned with is how we're dealing with health benefits, what are the thing that the cowrlt are doing, are people aware of it, what is our strategy? And we spent a good built of time talking about that. The strategy that y'all have developed in terms of the clinics, the insurance, the things that we're working on, getting the claims down, working on those types of things. So we presented that to them. The other thing we did is we presented to them the problem we had with the measurement and most of you know that, and then the other thing we showed them was the legal report that we receive from vincent and elkins. And that is the reason for this rating trip, we took two lawyers with us, a securities lawyer and our bond counsel, so we could describe in-depth what we thought that Travis County's legal position was with regard to 45. And based on that we pointed out that because of the laws in Texas, because of the stance that the Commissioners court has taken and because only the Commissioners court in county government can enter into an obligation, an obligation is not created by journal entry, it is not by other elected officials, it is only created by the Commissioners court. And --
>> and employee expectation, which is what they had raised several times.
>> that's right. So what we did is we pointed out that based on the data that we had gotten, the analysis -- and we also by the way meanwhile have had an hour and a half conference call with the gasb head technical person and chairman of that board, that based on the evidence that we have gotten here in Travis County that I as the chief financial officer would not consider putting a liability on our books, then I know k cannot be measured reasonably and b that the Commissioners court did not enter into and that we legally did not have. And so given that starting point, we discussed with them what are the ramifications and how they would look at those. And there are two kind of choices that we would have knowing that I'm not going to issue a statement that is materially misleading. And that is that we would either -- if we didn't put that on there we would not be in conformance with gap and so therefore we would have an adverse opinion that would be a choice -- one choice that we would have, how they would view that. And the other choice would be that we go to the legislature and go off generally accepted accounting principles with regard to the accounting so that that entry reflected the actual situation, the legal situation of Travis County with regard to those benefits. So we discussed those in-depth and the judge answered questions, leroy answered questions, I answered questions, our attorneys answered questions and provided information for them. And the response, we left them thinking the way the gasb rule is is that they do not draw any distinction at all between governments that have a legally enforceable contract and those that have absolutely nothing. And it's kind of a stunning situation, but that is the sway the gasb rule is written. It is a poor accounting rule in my opinion. The question that we left on the table is from a bond rating viewpoint would you prefer for us to get an adverse or would you prefer for us to go off gap to regulatory basis of accounting? And the response from perry young is which way to go and they don't want to commit on that. One of the things we pointed out to them and I think that's why they called this diminus, and that is nothing real has changed in Travis County. We're the same county, we're operating the way we always have. The only thing that has changed is a rule making body came in and made a rule. And that rule has staggering financial implications, but nothing really has changed about us. So we tried to communicate that to them, that this was an accounting rule, an accounting problem, not a real problem. The real problem we're dealing with with our benefits program. So you see the response that we got, perry young, who is the person who has been speaking and publishing for standard and poor, responded to paul, who was the securities attorney from vincent and elkins who we brought with us, and I thought these were very positive responses. And I think the way that you would read this response, the way I certainly did, is that however we deal with it would not in fact impact our bond rating because of all of the other things that we have done and the way that we do business. None of them will stand up and guarantee that. That's the impression you got.
>> right.
>> so that's I guess what I have to say. Leroy, judge, jump in here. I came with a kind of small team in here.
>> let me ask you, it sounds like what y'all went up there and found out from these bond guys is that we wouldn't look at it that way. Would it have made any difference had you not taken the two experts? Because I image thain they were on our nickel.
>> I think it would have made a big difference.
>> it would?
>> yeah.
>> [overlapping speakers].
>> they didn't back down. They kind of qualified their position. To be honest, they had not thought about this a whole lot, especially from accounting perspective. That was clear, number one. Number two, though, was what clear is that they really are greatly respectful of gasb. And they just assumed that gasb wouldn't come up with this rule if it weren't necessary. Now, how it cut different entities across the nation really didn't matter a whole lot.
>> no, it did not.
>> so where they left us really is this is one of the factors that we'll consider, not that we won't consider it. This is one of the factors that we'll consider, but it won't be the overriding factor.
>> right. The only factor or the overriding factor.
>> you've got good financials in those accounts, but we'll look at this too, gas b 45, but it won't be number one or if everything else is in order and you've been trying to manage this -- when they say manage the cost, we're saying it's not a cost of ours in the future. That's a cost this year, and we budget for it. And when they make reference to the point well taken by the judge's point, what I said was we deal with this annually. Four or five years ago I said incoming employees did not make a contribution towards the cost of insurance, the county picked up 100% of it. Retirees either. But today because of the cost the retirrees pick pik up a significant percentage and we showed them that. Retirees under 65 especially because over 65 -- medicare coverage, they pay about a fifth of what the retiree's cut is. So it's a complicated issue. And I thought we need to go over to the legislature and get to what the regulatory --
>> we do. And that's the legislation that we are having drafted and have been supporting, and that is that it is not appropriate in my opinion for us to put a liability of the size that this is on our financial statements, which truly would make Travis County look insolvent. Liabilities were greater than assets. When it is a liability that we do not have. And what gasb did, the judge is exactly right, they defined substantive plan different than liability although it is posted as a liability on your books. What they've said is that you've offered the benefits in the past and that employees think that's the same thing they're going to get, then you owe that for the future. And that's just not how government works. Not how government works in Texas. And I think that what is obvious as we get into more and more in-depth discussions -- and I think that the last comment that mr. Young made here reflects that, is that they didn't really look at that definition that closely. Because it's a definition that's hard to defend. I mean, that's not a liability, it just plain isn't. And so we compared it to -- they're looking at liabilities and expenditures here, and if I a used the example if this had been a revenue -- we said we think we will probably get them in the fiewlt so let's put that asset and revenue on, then I'd be in jail with enron people. So it's just that they have departed. Sure, you laugh, I wouldn't be in jail by myself.
>> we would all be laughing in the same cell.
>> [ laughter ]
>> but it's a complicated issue and my take coming out of it , and the judge and leroy with speak to their take, is we do need to proceed with the legislation and that it is unfortunate that the governmental accounting standards board has lost site of how governments operate, and the importance of the constitutional and statutory restrictions of governments, and they have disregarded that. And it has put us in a position where I really as a professional accountant don't care to go off gap, but I don't think gap anymore reflects the financial position of this government and that's what we give -- I mean, they're concerned about bond buyers and so are we, but we're also concerned with the constituents to pay the taxes here. And when a government puts a lienlt on its books -- puts a liability on its books, what it means is that's a commitment to the taxpayer, it's a commitment to property taxes because that's what pays for obligations and expenses that we have. And there is a process for establishing that in a government. And I think it's a terrible, terrible mistake, before I think we're in a position of saying if they're going to keep ignoring it what are we going to do? And I agree with the judge, I think we need for proceed aggressively with the legislation because the session is now. This is in effect in fy fought, so we need to get that in place. I thought that the conversations went well and good issues came up.
>> but in the future the bond rating -- when you ask the question what does this mean, what about this substantive plan, these funds will --
>> [papers shuffling - audio interference] the other thing is that the state of new jersey apparently has regulatory accounting, so it's not new to them. They made reference to that. So they're used to dealing with an entire state with regulatory accounting. When we said we're thinking about doing this, I mean, they didn't express any interest exern about that. It was almost do you think you can really get that done?
>> I'm hoping we will.
>> I don't know how other governmental entities in Texas in the same position as we are would not get out there and just seriously advocate for that regulatory accounting.
>> I would think that's the case too, judge. What happens is that the accountants have a problem because it's their professional standards and we don't like to step off, and I don't. I don't like to have to go and get another basis of accounting. But I think at the point from the chief financial officer's viewpoint you have to say are you going to put your name on a statement that you know is materially misleading. And my answer is no, I'm not going to do that. It's not the right thing.
>> now, leroy talked a whole lot more before he is today.
>> just one comment. Dwight burns, our former moot di's rater and now the transfer of our rater, he indicated personally he would prefer to see regulatory accounting than an adverse, so he personally wasn't speaking for the firm, but he did indicate that. I just think that it's commendable the way that susan and her staff have put this strategy together and worked so hard over the last two years. I know that the health committee started discussing this over two years ago and susan picked up the ball and has pushed it. I think she's really carrying the ball for the nation. So I think it's very admirable of all of her and her staff's efforts. I think there was a couple of times they said how you manage this obligation. We were arguing that we don't have this obligation, so it's not ours to manage. So there was a disconnect there. Which is a little bother some because when it comes up yoif got to deal with it some way or submit another legal opinion and an explanation of dealing with it and that means not putting it on the financial statement, but if there is a big gap, and if you're talk the $350 million or so, there would be a big gap and you just can't act like it's not somewhere.
>> no. And what -- the private sector adopted this, but they're not a government. They don't have the laws on this like we do. But as many of you know just from reading the papers, the way they dealt with it is they just quit insuring people, period. It's one of the things that precipitated the health crisis in this country. The judge is right, they talk about managing it. Well, people out speaking on it say one of the ways to manage it is just get rid of the benefit. Well, that's not how you manage an accounting rule. So I think that we've been doing not the superficial management of it, but have been looking at a plan, we've been looking at the health clinics. Everyone knows we need to work on getting the premiums down. We know that, but you don't do that by not insuring people. That is not the solution and it is the solution that the private sector has taken. And I will tell you that there are governments talking about the same thing, that they're just not going to deal with it. And the way they're going to deal with an accounting problem is thish going to quit insuring their people. And --
>> we'll pay for it in some on or about respects.
>> that's right.
>> with the government paying for it.
>> in Texas we have the biggest percentage of uninsured people in the nation in this state, and this will only increase it. We also have 12 percent of our population on medicaid. This will increase the number of people on medicaid, so you're right, it will be paid for. And when you do not have primary care, now you have more expensive care because the only care people have is to go to the emergency room, which is again -- if you even forget the human part, which you can't forget, it is the most expensive way to deal with health care. So the judge is right, we need to continue working on our strategy here. It is a huge cost for us and for everyone. It is certainly a huge issue here. But I don't believe, having soaferbd the committee since I've been here, that the way you solve this is the accounting rule. And that's what this is, it's just an accounting rule.
>> well, we're not the only ones faced with this either. It's all across the nation and I guess even at the state level and stuff like that, they're confronted with the same situation. And I don't really know how they're going to address theirs, but I think what we're doing here definitely can serve as a beacon or light and maybe we can head in the right direction because all governmental entities basically have to operate on some type of revenue as far as taxes and stuff like that are concerned.
>> some just put it on their books and forget it. And I don't think that's the way to deal with it.
>> it hasn't been on everybody's radar until very recently, even in the state of Texas, but susan has done a fine job of notifying them of the rule effective next year.
>> [overlapping speakers]
>> it's taken us a long time to look at the issues and gather the facts. And the bond rating has always been important to this organization because the higher your bond rating, the less interest you pay when you issue debt. And we've been proud of that. Wubld judge Biscoe became the judge, wasn't that the first year we got our triple a's, judge?
>> I never brag about that, susan, but that is a fact.
>> [ laughter ]
>> and we want to keep it the highest one. But it is not the defining issue for the government. It is not the most important thing, it is not the only important thing. It is something that you factner on a business and human decision in terms of other things. But it was -- judge, and leroy, it was not my impression that our handling of this issue would endanger our triple a.
>> no.
>> till it's 2008 and we see what the law is and we submit, we won't know.
>> don't you think we surprised them with our position, with our backup documentation, with our history and with our questioning the rule itself, plus the possible impact?
>> I agree with that, judge. They haven't thought through it. And I think perry's last statement, the dialogue was eye opening and prompted him to look at the plan definitely. And that's the whole issue because this man has worked very hard on this and studied it, but I agree. I think one of the things that happens as I look at it is in a way we're an interesting size here because we're big, but we're not so big that these issues become separated from the organization. You have an enormous operation and they are very separated from the workforce. But we're not here and I think that's a good thing about Travis County. So I think they were very surprised. I think gleeps b is surprised and we're pushing them harder than they've been pushed on this and I think we need to keep it up because I think it's the right thing to do.
>> questions, comments about the trip?
>> no. Thanks very much, susan.
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Last Modified:
Wednesday, January 210, 2007 8:14 AM