Travis County Commissioners Court

June 12, 2012 - Item 25
Agenda

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That is our last item for open court, right, 25, consider and take appropriate action regarding a new civil and family law court -- or family courthouse, including but not limited to, a, appointment of a courthouse committee to recommend a delivery method and receive update on committee activities; b, proposed membership for a second community advisory committee; and, c, other related issues.

>> And I think the primary thing we're going to be speaking with you about today is covered under related issues.
As you're aware, we are planning to meet with the courthouse recommendation committee on June the 13th, and we've been meeting with them over a series of weeks, first of all, to talk about procurement laws and practices regarding the two potential delivering methods that they're looking at.
Then after that we actually had ernst & young come in and do a presentation of the report that they delivered to the court.
And now jessica rio and leroy neles have gone through taking a lot of the financial information in the ernst & young report and done some very preliminary financial analysis about how that could potentially look just in terms of -- we're not really at the point where we would call this a financing plan by any means.
It's really just some preliminary financial analysis.
So we wanted to share that with the court before we share it with the committee, and in addition to that, jessica is going to be prepared to kind of walk the committee through a local government financing 101.
I think many of them are already well up to speed on that, but just getting them familiar with some of the issues that Travis County faces, and kind of doing a presentation that's very similar to what we embark upon when we have a bond initiative.
So we've provided those materials to you.
We're not going to cover those today, but we're going to walk you through the basic financial analysis.
So I'm going to turn it over to jessica, and then I think she's going to kind of tag-team with leroy on this.

>> So on the two we see, we should turn to --

>> We should turn to the one that's titled update to Travis County Commissioners court preview of presentation.
The other one has supplemental information in the box, and that one we are not going to cover today, but I am going to go over what is in that supplemental information for your information and for the committee's information.
So we're on slide 3 now of the presentation, preview presentation to court.
The additional information that's in that supplemental handout basically is an overview of how we do capital budgeting at Travis County, so there is a brief definition of how we use the capital acquisition resources account, which is car, and the history there, between 2003 and 2012, a discussion briefly on certificates of obligation, our bond election history and our most recent bond election, which was the November 2011 bond election, as well as our state highway bond program that the Commissioners court has approved.
Also some debt service highlights and graphs, the debt policy, we will be providing that to them.
I'm also going to be providing them a one-sheet summary of historic interest rates at Travis County just to show how strong we are, as a naturally aaa rated county and the interest rates that we're able to issue debt.
Review of debt modeling as well as key ratios, we've all called here the white line.
So that's going to be the packet for them.
And I am understanding we're not going to go through it very thoroughly, but we are going to provide it to them for their review.
And if they have subsequent questions I'll be available to come back and talk to them about that.
So the goals that we embarked on for this presentation for the presentation that we'd like to give the committee tomorrow is to compare and contrast the financial aspects of the two potential delivery methods that are being discussed with the committee and that is design, build, and then design, build, maintain and operate, which is known commonly as p 3, or the public-private partnership.
We'd like to summarize key cost components in the ernst & young feasibility analysis that was presented and the court that was presented to resident come, including the absolute dollar and present value comparison and to provide the Commissioners court and the committee members with a sort of order of magnitude estimate on the average tax impact on the taxable homestead.
And the tax bill.
Some of the assumptions that were used.
We used conservative annual growth and the overall assessment valuation.
Basically we took a business cycle and layered that into the debt model on the average assess the red valuation and flattened that out to account for the business cycle and the outer years we did a very conservative 2 1/2%.
Taxable homesteads are consistent with ab growth semses.
These are estimates pbo made.
However we've incumbented with t cad on very assumptions here.
The issues answer of the debt is consistent with the projected cash flow needs laid out in the reports.
We've used conservative interest rates and much like when we go before the bond committee, I reached out to our financial adviser, lad patilo, and let him know what interest rates we were assuming and did a look back on the last ten years to kind of project that forward.
We're going to show you that the tax rate under either scenario is within roll-back limations.
The

>> [inaudible] capital costs is assumed and contracted maintenance from a third-party provider under both scenarios.
The annual debt service that we used is our standard 20-year issuance -- excuse me, not issuance, payback or debt service payback, but one thing we will throw out there is a 30 or 35-year schedule that you might want to consider as an appropriate alternative.
This would not only match the lengths of the asset to the population that it's going to serve but obviously it would make it a little more affordable on any given year.
The financial projection snapshots shown are as of 2020, which is basically the year after the debt has been issued and the impact has been realized.
I'll turn it over to leroy now for the following couple of slides on the estimated tax impact.

>> Yeah, on slide 6 you'll see a number of columns there, that the first column there is estimated cost.
It's titled "npv." it's actually a nominal financial calculation that e and y did based upon the total cost of the design/build and the what's called the p3.
In that financial analysis the design build turned out to be a little bit more expensive at 412,834,000, with the p3 being 391,621,000.
Now, the conclusion that ey reached was based upon that financial analysis, was that that the $21 million was not significantly financially different, that both delivery methods were more or less on the same footing.
Now, I might say that some of these financial analyses in the ey report go in and do a net present value, and in that case both of these models come out almost equal at 312 million.
So the opponent is, based upon your study, that financially these have essentially about the same net present value.
I will -- the next column shows what the absolute costs are, and under that the design/build is 640 million and the p3 is 838.
And the reason they come together on the present value calculation is that under that design build it is assumed that you would issue 20-year debt, and obviously a present value, the longer you have the payments, such as 35 years under a p3, then the more it gets discounted when you compare the present value as of today.
It's interesting that as of 2020 when you have the -- all of the debt issued under the design build and the p3, that the impact on the average homestead as projected in 2020 is approximately the same with the design build being about $77.93, and the p3 being $76.58.
I would encourage you to look, though, at page 7, the next slide, because I believe this is the factor that the court needs to consider in going forward with one of the delivery methods.
As you can see, the design build requires this would be in 2015 or 2016, and the significance of those years is that that is the projected time that the contract would need to be signed under a p3 type delivery method.
In that year the court will need ongoing operational m & o money of $16.8 million.
That's under the p3.
That's the availability payment as projected by e & y.
The design build would require 5.6 million.
Now, obviously under a design build you'd have a much larger debt capacity, and what this is, this is dealing with, is essentially the maintenance and operation in that first column.
So what you would need to do between fy '13, '14, '15 and '16, you would need to accumulate ongoing operational costs under either of these deliveries, under the design build you would need to have 5.6 million ongoing, and under the p3 you'd need 16.8.
And then you can see the debt service on the design build you've got 30.5 million and then on the p3 you have 18.5.
So when you add these together you see that as of 2016 you'd need about 36.1 million on design build and about 35.3 on the p3.
They're very close.
Statistically they're very close in that aspect.
However, your debt service on the design build is automatically included in your effective tax rate.
The m & o you would need to -- and we have run numbers, and it is financially possible under the ceilings allowed by law, to get to the 16.8.
It would take about a half a cent per year in '13, '14, '15 and '16 on your m & o rate, which is approximately -- I think it's about --

>>

>> [inaudible].

>> Oh, well, maybe I'm getting ahead of myself.
What it is, one cent, as you can see on slide 8, on the tax rate, excluding down on the bottom, excluding the unallocated reserve of 11%, would produce about $8.4 million.
So you can see to get to the 16 you would need about 2 cents on the tax rate over a four-year period or about a half a cent.
Now, let me tell you what -- what I believe is the most important factor of this entire project, and it has to do with how much it would cost you if the interest rate starts to accelerate on you, on this amount of debt.
And I can tell you that on a projected project of 338 million, which is the capital number in the ey report, that the -- the interest charge, if interest rates go up on you and you know that you just issued 20-year debt bonds for 2.85%, the -- lower than the u.s.
Treasury can issue, if that interest rate goes up 1%, that cost you $1.6 million a year on this debt.
And over the 20-year period that that debt is outstanding under this 20-year payback, you are going to incur 33.8 million more dollars than if you issued it at an interest rate that's 1% less.
Now, who can -- who can project how much interest rates are going up?
Well, I can tell you that the fed has a history, and between -- between the time of February the 4th of 1994, after we come out of that recession, to one year later, the federal funds rate went up 2.75%.
And the significance of that is if you make that a 33.9 million effect of 1% increase, that if, in fact, this trend repeats itself, you will add $93.2 million to the cost of this project.
My bottom line is this: my strong recommendation to you and the committee is to move expeditiously on this project.
And whatever delivery method --

>> Either way.

>> -- that you decide, then go ahead, make those hard decisions and move forward, because if the fed chairman on last Thursday told the senate joint committee, he said, I can almost assure you that interest rates are going to stay near zero through calendar year 14, and he didn't -- he didn't indicate that he saw the place in 15.
If you can get into the window and get this construction started where you can start issuing this debt, you can save almost $100 million, because I think that this -- the trend -- these interest rate trends from the fed, they repeated themselves in July of 1999 to may 16 of 2000, the fed increased interest rates 1.5%.

>> But we -- I mean, we don't need a great prognosticator to say they have no place to go but up.

>> But up.

>> [laughter]

>> Right, but my point of this is regardless of the delivery method, and there are reasons to do both, as you've well heard, that expeditiously is probably the best route on this.
If you -- I guess that's the last --

>> So we've got just a few more, just to kind of sum up our concluding thoughts.
The next one on slide 9, I think leroy actually covered a number of these on potential funding strategies, but you'll recall we've got the reserve of three and a half million currently and that's said aside for future planning needs.
He and jessica are working together to figure out where we're at this year and we might likely be able to set additional funds aside.
We'll be looking at that as part of the budget development process, and come back and make a recommendation to you in July.
And then leroy did cover this in great detail, the third bullet on slide 9 about the thought of raising the tax rate in modest increments over time to generate -- kind of get to the point where you could cover a significant increase in operations and maintenance costs, and in the meantime you could be setting aside that funding to potentially pay down your design cost as you go, kind of on a pay as you go kind of basis.
And I think that actually -- I kind of skipped ahead of myself there on slide 10.
We make that point in the first bullet on slide 10.
Jessica mentioned the 30-year financing as an option, and again, this is not a financing plan.
We're just throwing that out as a way to perhaps reduce the annual debt service and lessen the impact on the tax rate, and certainly that would be fleshed out more over time as we progress with this project.
And then lastly, we're going to show the committee this and we wanted to show you all as well.
Jessica has gone in and looked at really over the next five to ten years, all the other potential project -- capital project needs that we have just as a reminder, and, you know, how us numbers people always like to remind of all the needs out there, a portion of the downtown campus looking at funding in the medical examiner facility, additional jail beds at the del valle facility, and we've just got kind of some rough ranges for you there.
And then the last slide is really just some concluding thoughts, and I think these are really just caveats to remind everyone that these are projections and projections will change.
And as it project moves forward we will try to keep up-to-date and on top of those projections and -- but just wanted to let you know, right now this is our preliminary financial analysis.
More to come later, and this is what we'll be sharing with the committee on Wednesday night.
And that concludes our presentation.
Do you need to talk about committee members -- are --

>> No, we have no changes to report on that today.
I know that -- I spoke to mr. Hilly today and we -- they sent us the conflict of interest form.
We'll take one more look at that and get that to you as soon as possible.
I know you need to get that to your potential members, and that's really, other than the meeting tomorrow night, that's all we got.

>> Questions, comments?
So we don't need to take any action?

>> No, this is just an update.

>> Okay.
And any objection to this being presented to the committee tomorrow evening?

>> Tomorrow --

>> That's what it is, right?
Okay.
Thanks for the briefing.

>> Actually I do have one more question with regard to the courthouse, and perhaps cyd could answer this with regard to where we are on getting at least a shell of the job description together for the owner representative once we do decide on a funding strategy, because again, we have -- we do have need for speed in order to avail ourselves of these historically low interest rates.

>> We really haven't started on it, but once -- once we make a decision -- I mean, we've thought about it, belinda and I and some of the others have thought about it but we really haven't started putting it on a piece of paper.

>> It might be good to be throwing down some preliminary drafts just so we can strike quick after we get the delivery method nailed down.

>> Okay.

>> Thanks.
I appreciate it.
I know you're up to your eyeballs, like everybody.

>> Yes.

>> Thank you very much.

>> We have come to the executive session part of our --

>> Hold on.
Hold on, before we go.
I still need to make sure that that affidavit that we need for the external committee -- I want to make sure I get that.
I think john has already drafted that affidavit, and I need to make sure that that is presented to me, where I would like to use it with the persons that I still need to have -- haven't really appointed by the external committee dealing with the civil courthouse.
So I would like to have that affidavit, though, in my hands so I could give it, along with the charge, to the person in the committee that I have determined, at least hopefully, that they will

>> [inaudible].
So --

>> We got the draft back from the county attorney just recently.
We can probably have that for you by tomorrow, if that's all right.

>> Okay.
Okay.

>> After you leave Commissioner Davis's office would you circulate to the rest of the court, put one in our hand too?

>> We certainly will.

>> To him first.

>> We definitely will.

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