CREDIT PRESENTATION April 23, 2015 * Preliminary, subject to change - - PowerPoint PPT Presentation

$325,000,000* Riverside County Public Financing Authority Lease Revenue Bonds (Capital Facilities Project) Series 2015

CREDIT PRESENTATION

April 23, 2015

* Preliminary, subject to change

County Executive Office County Executive Office

• Jay Orr, County Executive Officer
• Ed Corser, County Finance Director
• Ivan Chand, Deputy County Executive Officer
• Stephanie Persi, Senior Management Analyst
• Lani Sioson, Management Analyst
• Sam Wong, Senior Management Analyst

Beacon Economics Beacon Economics

• Christopher Thornberg, Founding Partner

Financial Advisor Financial Advisor

• Fieldman, Rolapp & Associates

Riverside University Medical Center Riverside University Medical Center

• Zareh Sarrafian, Chief Executive Officer

Underwriter’s Underwriter’s

• Bank of America Merrill Lynch – Senior Manager
• Stifel – Co‐Senior Manager
• Citigroup Global Markets – Co‐Manager
• Raymond James – Co‐Manager

2

 Proven management team: Experienced CEO and staff

• Close and continuing scrutiny of the County’s budget issues
• Maintain balanced budget as economy recovers
• Maintain Reserve for Economic Uncertainties

 Three primary goals for County management

• Business centric environment – the most business‐friendly county in California

– UC Payroll centralized in Riverside – Foreign trade office established to spur economic growth

• Healthy community

– Establishment of UCR Medical School – becomes first new medical school in 40 years – Restructuring of Riverside University Medical Center and clinic system

• Technology improvements

– Provide customer‐centered public service: better, faster, more fiscally prudent – New Investor Relations website

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 County finances reflect diverse, rebounding economy

• Assessed value increasing, FY 14‐15 by 7.8%, FY 15‐16 projected

to increase by 5.0%

– $37.8 million revenue increase for FY 14‐15

• Prop 8 AV reductions in value have generally ceased
• Growing sales tax revenues

 Reform of pension liabilities and limited OPEB liability  Moderate overall debt level

• Most debt supported by funds other than General Fund

 General fund cash position enhanced

• Financial turnaround of hospital enterprise continues to

demonstrate positive results

4

 Primary asset financed is East County Detention Center (“ECDC”): Estimated Value $274 million

• 1,626 beds
• 516,000 sq. ft.
• Enhanced Technology
• Public safety among County’s highest priorities
• ECDC project and leased facilities are highly essential

 Project also includes:

• Indio CAC Campus Demo for ECDC – $8.2 million
• New County Parking Structure ‐ $15 million
• AEOC – RCIT Hub ‐ $11 million
• Indio Larson Justice Center Courtrooms ‐ $1.5 million
• Southwest Justice Center Courtrooms ‐ $11 million
• Larry D. Smith Correctional Facility Laundry Expansion ‐ $5 million
• Parking Lot for Court ‐ $1 million

 Project funded with:

• Proceeds of 2015 Lease Revenue Bonds
• $100 million Grant from the State of California (based on ECDC Lease)
• $10 million County cash contribution

 Characteristics of the Series 2015 Lease Revenue Bonds

• Riverside County Public Financing Authority Lease Revenue Bonds (Capital Facilities Projects), Series 2015
• Standard California General Fund lease
• Final Maturity 2045
• Current estimated total par $325 million*
• Reserve Fund –funded at 50% of Maximum Annual Debt Service

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*Preliminary, subject to change

 Monthly cash flow monitoring and formal quarterly budget updates and reports  Available Liquidity Policy – established in FY 10‐11 allows any fund controlled by the Board (Auditor) to be borrowed from if the General Fund has a negative balance without further action or approval  Reserve Policy – adopted 2005  Established a Pension Advisory Review Committee (PARC) in 2003 (an independent framework for evaluating long‐range costs of both pensions and OPEB); adopted a Pension Management Policy in 2005 (revised in 2006); and established a Pension Reform Advisory Committee (PRAC) in 2010 to study structural changes to retirement benefits

• Framework has led to significant cost saving benefit reforms
• Adopted Tier 2 prior to PEPRA
• Three tier employee benefit concept

 Updated long‐range CIP approved May 2011; first approved 2002  Investment Policy – most recent adopted December 2, 2014  Debt Management Policy – adopted 2003, updated as needed  Debt Advisory Committee established in 1985 and meets on a monthly basis

• Reviews all County debt activities

7

 From FY 08‐09 to FY 13‐14

• Willingness to make the hard decisions
• Budget cuts across the board
• Hiring freeze imposed
• Multiple offers of early retirement – over 1,340 persons retired
• Reserves applied to cover ongoing expenses to provide “soft landing” but never dropped below $110 million (Reserve

for Economic Uncertainties) commitment to maintain Reserve for Economic Uncertainties above minimum threshold

• f 15% of Expenditures
• Negotiations with unions generated two‐tiered pension plan and increased employee contributions
• Maintained modest level of retiree health insurance support

 Active financial management practices

• Monthly revenue/expenditure monitoring
• Formal Quarterly Board updates and actions
• Specific CEO instructions to departments with budget shortfalls to provide monthly departmental updates and action

plans

– Sheriff’s Department – Riverside County Regional Medical Center (RCRMC)

 3‐Pronged Approach

• Economic Improvement
• Increase reserves – up $50 million
• Move to structural balance

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* Does not include public safety sales tax revenue Source: Riverside County FY 14‐15 Mid‐Year Budget Report

Broad‐based, gradual recovery manifested in increasing discretionary revenues

General Fund Projected Discretionary Revenue (in millions)

Budgeted Estimate Current Quarter Estimate Variance Property Taxes $295.8 $299.1 $3.3 Motor Vehicle Lieu 208.6 208.6 0.0 Tax Loss Reserve 27.0 27.0 0.0 Fines and Penalties 22.8 22.8 0.0 Sales & Use Taxes 33.5 33.5 0.0 Tobacco Tax 10.0 10.0 0.0 Documentary Transfer 12.4 12.4 0.0 Franchise Fees 5.0 5.0 0.0 Interest Earnings 2.9 2.9 0.0

• Misc. Federal and State

10.7 10.7 0.0 RDA Residual Assets 2.0 5.6 3.6 Other (Prior Year & Misc.) 6.7 12.6 5.9 Total $637.4 $650.2 $12.8

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Source: Riverside County Executive Office

5 Year Master Plan

(amounts in millions)

FY 14/15 FY 15/16 FY 16/17 FY 17/18 FY 18/19 Expenditures

Amount Amount Amount Amount Amount

Sheriff

ECDC OPERATIONS

10.0 20.0 41.1 47.8 46.5

PATROL 1.2

4.4 8.8 17.2 21.4 22.5

LABOR COST INCREASES

9.9 24.7 29.7 40.7 57.7

ISF INCREASES

5.1 5.4 5.8 6.2

HELICOPTERS

2.4 2.4 2.4 2.4 Correction Health 10.0 12.4 15.3 19.7 21.7 Fire Salaries and Benefits

LABOR COST INCREASES

10.1 13.0 13.4 13.8 14.2 Other

PROBATION

4.6 6.9 9.3 12.7 12.9

TLMA

1.2 3.0 3.8 4.0 4.2

CAPITAL DEBT SERVICE

2.6 15.9 19.9 20.4 20.4

OTHER

15.8 6.2 6.2 6.2 6.2 TOTAL EXPENDITURES 68.6 $ 118.4 $ 163.7 $ 194.9 $ 214.9 $ REVENUES Discretionary Revenues 46.8 74.6 101.9 130.8 160.3 Prop 172 Revenues 21.8 43.9 56.5 56.7 61.9 TOTAL REVENUES 68.6 $ 118.4 $ 158.4 $ 187.5 $ 222.2 $ FUNDING STATUS $0.0 $0.0 ($5.3) ($7.4) $7.3

County budgeted revenues rely on input from independent professional economic assessments County budgeted revenues rely on input from independent professional economic assessments

• Cal State Fullerton
• Beacon Economics

Overall FY 14-15 general fund expenditures expected to increase to $657.2 million from $618 million in FY 13-14 Overall FY 14-15 general fund expenditures expected to increase to $657.2 million from $618 million in FY 13-14 Assessed Values are projected to increase by 4% and 7.8% in FY 13-14 and FY 14-15, respectively – second and third consecutive increase in AV Assessed Values are projected to increase by 4% and 7.8% in FY 13-14 and FY 14-15, respectively – second and third consecutive increase in AV Property tax revenue budgeted to exceed original forecast (an $18 million increase) by an additional $3.3 million Property tax revenue budgeted to exceed original forecast (an $18 million increase) by an additional $3.3 million Sales tax revenue for the County estimated at $33.5 million for FY 2014-15 Sales tax revenue for the County estimated at $33.5 million for FY 2014-15

Source: Riverside County FY 14-15 Mid Year Budget Report, 14-15 Adopted Budget

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 State FY 15‐16 Budget focuses on fiscal discipline and projects a modest surplus

• Budget includes payments to local governments, including the County
• County would receive $26.6 million for payment of pre‐2004 back‐due

mandate reimbursements

• County would receive $7.7 million for county Medi‐Cal administration
• County estimates state payment of $2.6 million in payment‐in‐lieu‐of‐

taxes and one‐time and ongoing funding for county fairs

 Redevelopment dissolution activities are ongoing

• For FY 14‐15 Auditor‐Controller anticipates $5.6 million to County

General Fund in one time revenues

• Deposited into Budget Stabilization Fund

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Sales tax revenue has stabilized and is increasing Total receipts for all jurisdictions in the County are expected to be $33.5 million

• HdL estimate of $24 million (no project receipts)
• Includes one time solar project receipts
• Includes other retail growth

Factory outlets at Cabazon have expanded and will result in increased sales tax revenue

• Board intends to set aside portion of that revenue growth in

2014‐2015 Fiscal Year

13

Source: Riverside County FY 14‐15 Mid‐Year Budget Report

 County has negotiated agreements with its bargaining units for the next 2 years

• Implemented second tier in August 2012
• Eliminated employer‐paid member contributions

– Savings of $70 MM in FY 12‐13, – Estimated to grow to $90 MM by FY 21‐22 (permanent savings)

 Public Employees Pension Reform Act (PEPRA) further modified benefit terms

• Implemented a third tier retirement plan, offering a 2.0% @ 62 for Miscellaneous

employees, and 2.7% @ 57 for Safety employees

• New employees required to pay 50% of Normal Cost

 Implementation of a second and third (PEPRA) retirement tier is projected to reverse the trend of increasing CalPERS contribution percentages  Impact of the second and third retirement tiers is expected to decrease the rate of growth in labor costs

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 County created the Pension Advisory Review Committee (PARC) in October 2003 to provide a holistic review of benefit costs  As part of PARC bylaws, County prepares an annual report

• f its pension funding status

 Estimated June 30, 2014 unfunded actuarial liability (UAL) at $1.085 billion for the Miscellaneous Plan and $471 million for the Safety Plan*

• 85% of Funding Level (Target of >80% under policy B‐25)

for the Miscellaneous Plan (estimated)

• 83% of Funding Level (Target of >80% under policy B‐25)

for the Safety Plan (estimated)

15

Source: Bartel Associates, LLC report dated March 11, 2015

Expected*

* As of 2014, assets are at market value.

 County’s PARC (Pension Advisory Review Committee) has been studying OPEB since 2005  County provides very limited retiree medical benefit  County established a separate medical rate for early retirees, eliminating over time the “implied subsidy”  County established an OPEB Trust with CalPERS in 2008 ‐ Currently funded 85.0%, among the highest in the state

16

Source: County of Riverside Postretirement Benefits Actuarial Valuation Report dated July 1, 2014

17

Source: Riverside County Auditor‐Controller

(In thousands)

FY 2013‐14 Original Projections FY 2013‐14 Actual FY 2014‐15 Original Projections

All Taxes $ 234,565 $ 256,7 46 $ 196,7 7 0 Licenses & Permits 17 ,60 8 16,588 16,692 Fines, Forfeitures & Penalties 7 6,592 81,0 37 59,7 52 Rev from Use of Money and Property 6,269 16,898 8,546 State Aid 982,30 0 1,10 7 ,87 8 1,138,910 Federal Aid 47 5,137 462,291 510 ,815 Other Government Aid 7 8,30 0 83,169 85,199 Charges for Current Services 468,50 7 396,90 4 480 ,865 Miscellaneous Revenue 27 ,340 41,248 22,667 Other Financing Sources 29,0 65 95,10 7 7 ,116 Repayment of Advances to Other Funds 46,0 0 0 10 1,0 21 48,0 0 0

Total $2,441,683 $2,658,887 $2,575,332

Salaries and Benefits $ 1,264,0 14 $ 1,284,653 1,382,47 2 Services and Supplies 481,951 57 7 ,0 99 545,351 Other Charges 587 ,0 56 7 0 2,0 48 611,7 7 0 Fixed Assets and Capital Outlay 7 ,828 6,47 2 7 ,196

Total $2,340,849 $2,570,272 $2,546,789

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FYE 13‐14 General Fund balance at $364 million

Source: Riverside County Auditor-Controller * Estimate. Preliminary, subject to change

$‐ $100 $200 $300 $400 $500 $600 $700 $800 2006 2007 2008 2009 2010 2011 2012 2013 2014 Millions

Ending General Fund Balance

Reserved Unreserved, designated Unreserved, undesignated Nonspendable Restricted Committed Assigned Unassigned 447 571 479 372 386 344 337 357 364 $‐ $100 $200 $300 $400 $500 $600 $700 $800

Ending General Fund Balance

 Riverside’s historic robust growth in assessed valuation has led to an increasing share of Proposition 172 sales tax funds  Board policy caps the amount of Proposition 172 funds available to safety at $133M  Excess funds are reserved and/or applied for capital expenditures 19

* Projected

Source: Riverside County Auditor‐Controller

County Board approves the budget health benchmarks

• Regularly updated
• Procedure for County budgeting since FY 05-06

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** Estimate as of the beginning of FY 13‐14

Target 04‐05 05‐06 06‐07 07‐08 08‐09 09‐10 10‐11 11‐12 12‐13 13‐14 14‐15** Reserve for Economic Uncertainty* 15% 3% 20% 15% 15% 15% 12% 25% 21% 22% 22% 22% Contingency* 4% 4% 4% 5% 4% 4% 5% 3% 3% 4% 3% 3% General Obligation Rating Moody's A1 A1 A1 A1 Aa3 Aa3 Aa2 Aa3 Aa3 Aa3 Aa3 S&P AA‐ AA‐ AA AA AA AA AA AA AA AA AA Fitch ‐‐ AA AA AA AA AA AA AA‐ AA‐ AA‐ AA‐

* Based on discretionary revenue

Riverside County Budget Health Benchmarks

 Conservative investment policies are in place to minimize credit and market risks while maintaining a competitive yield in the portfolio

• Managed investment rate risk – limit of

1.5 years for weighted average life of portfolio

• At least 61% of total value in securities

having maturities 1 year or less

• Maximum of 5% exposure to any one

institution (direct purchases and indirect commitments)

• TPIF currently rated

– Aaa/MR1; Moody’s – AAA/V1+; Fitch

• County investment portfolio is liquid

and does not contain any structured investments

21 Source: Riverside County Treasurer‐Tax Collector

Market Value ($000s) % of Portfolio Federal Agencies $3,530,081 63.97% U.S. Treasuries 435,000 7.88% Cash Equivalents and Money Market Fund 340,000 6.16% Other 1,213,680 21.99%

Certificates and Time Deposits 260,000 4.71% Commercial Paper 733,500 13.29% Caltrust Short Term Fund 54,000 0.98% Municipal Bonds 165,785 3.00% Local Agency Obligation 395 0.01%

Total $5,518,761 100.00%

 Recent Fiscal Results

• Started FY 14‐15 with a negative cash balance of $40 million
• Projected to end FY 14‐15 with a cash balance between zero and negative $10 million
• Significant improvement over earlier projections – negative trend has been stopped
• Net asset position is $15 million

– Best position of RCRMC in 3 years

• Loan from Waste Management Enterprise Fund– not the General Fund – must be repaid by 2023

 Financial Support

• RUMC is an enterprise fund
• $10 million annually from the County’s General Fund tobacco settlement revenues
• $5 million annually via a pass‐through agreement with the Moreno Valley RDA (Successor Agency) from tax increment (approved on

the Successor Agency’s ROPs)

 Remedial actions

• County had retained Huron Associates for remedial action plan
• Realized significant improvements in cash flow and collections
• New management (CEO, CFO and COO) appointed to develop business plan to address Affordable Care Act challenges

 Ongoing Strategy

• County has developed Riverside University Health System ‐ Rebranding and restructuring strategy
• Regional network established: RUMC, Arrowhead Regional MC, Loma Linda University MC, Inland Empire Health Plan
• Plans to develop and enhance specialty services
• Improvements to IT system

22

Source: Riverside County FY 14‐15 Mid‐Year Budget Report

 Federal Court Order requires resident inmates be released when bed limit is reached

• 6,990 inmates released early in 2012

 Inmates are transported back & forth from

• ther County detention Centers
• Inconvenient for family & legal representatives
• Increased Operational costs

 Increase Local Public Safety

• Population increased 48% over 14 years

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 Current Facility built in 1950’s

• Last renovation 1980’s
• Bed Capacity – 353 beds
• Security Risks

 516,000 sq. ft., Modern Facility featuring – 1,626 beds

• 1,536 general purpose beds
• 74 special use beds
• 16 one person cells

 Built on a 6.47 acre site  Houses both women and men  Will be located in Indio

26

 Funding for Project

• County of Riverside ‐ $10 million
• State of California ‐ $100 million
• Proceeds from the 2015

issuance will cover the balance

 Indio CAC Campus Demo for ECDC – $8.2 million  New County Parking Structure ‐ $15 million  AEOC – RCIT Hub ‐ $11 million  Indio Larson Justice Center Courtrooms ‐ $1.5 million  Southwest Justice Center Courtrooms ‐ $11 million  Larry D. Smith Correctional Facility Laundry Expansion ‐ $5 million  Parking Lot for Court ‐ $1 million Total Cost ‐ $52.7 million

27

 The County has $641 million of lease backed bonds and $320 million of POBs outstanding as of March 1, 2015  Combined debt service in FY 15‐16 is $120 million  Debt service reaches a maximum of $98 million in FY 19‐ 20  2015 (ECDC) financing replaces 1985 ACES financing in debt profile

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• Note. Chart above includes proposed transaction

 A significant portion of the County’s debt service is paid by non‐General Fund sources

• County’s policy is to identify non–General Fund revenues to support debt repayment as much

as possible

• 30% of the County’s debt is repaid directly from the General Fund
• 70% of the County’s debt has offsetting sources of revenue including tobacco settlement,

hospital revenue, redevelopment pass‐through revenues, library fees and court fees

30

Assumes level debt service for the East County Detention Center

Master Lease Agreement between Riverside County Public Financing Authority and the County

• General Fund Obligation
• Base Rental Payments made from the County to RCPFA
• Subject to Abatement

Lease security features:

• 24 months rental interruption insurance
• Earthquake insurance (blanket policy)
• Property, Casualty, CLTA leasehold title insurance and

public liability insurance

31

Properties subject to the Lease Agreement:

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 Indio Parking Structure  Downtown Law Building  Downtown Law Building Parking Structure  County Jail – Presley  Criminal Justice Building  Health Administration Building  Mental Health Treatment Building  Mental Health Clinics / Conference Center  San Jacinto Valley Animal Campus

33 * Preliminary, subject to change.

Sources: Bond Proceeds Par Amount $325,000,000 Premium 39,857,109 Total Sources 364,857,109 Uses: Project Fund Deposits Project Fund $353,532,333 Other Fund Deposits Debt Service Reserve Fund 10,447,688 Delivery Date Expenses Cost of Issuance 500,000 Underwriter's Discount 377,088 Total Uses $364,857,109

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Date Description Thursday, April 23, 2015 Rating Presentations Thursday, April 30, 2015 Receive Ratings Monday, May 11, 2015 Post POS Monday, May 18, 2015 Pre‐Pricing Tuesday, May 19, 2015 Pricing Tuesday, June 09, 2015 Close

The County offers excellent security for the Bonds and the outlook is positive

• Strong and diverse economy and employment relative to

State of California – Recovery is in full swing!

• History of conservative, proactive budgeting and cash

management

• Increasing reserves – well ahead of informal benchmarks
• Effective management of liabilities

– Moderate debt, pension reform and limited OPEB obligation

• Lease revenue bonds backed by lease payments from

County’s General Fund based on essential County asset

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 Affordable industrial and office space has attracted cost‐conscious manufacturers, distributers and back office operations to the Inland Empire Region  In the Inland Empire, Class A office property (defined as the most prestigious building competing for premier office users with rents above average for area) rents for $1.60 per square foot per month  Industrial property rents for $0.40 per square foot, both significantly lower than other counties in Southern California

Source: Newmark Grubb Knight Frank (as of March 2015)

 Notices of Default in Riverside County have declined 14.6% in 2014Q3 compared to 2013Q3  The price of Riverside County single family homes increased 11.52% year over year from June 2013 to June 2014  The price of Riverside County Single family homes increased 3.80% year over year from Jan 2014 to January 2015

40

Source: DataQuick Information Systems

41

Source: MDA DataQuick Information Systems

42

Source: MDA DataQuick Information Systems (Appendix A-8), Survey of Buying Power, Sales and Marketing Magazine, 2008; Nielsen Solution Center for 2009-2015 data (1) Southern California is comprised of Los Angeles, Orange, San Diego, Riverside, San Bernardino and Ventura Counties.

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 AV increased 4.0% in FY 13‐14 and increased 7.75% in FY 14‐15

• Expected third consecutive increase in AV with 15‐16 @ 5.0%

 FY 12‐13 Prop 8 reductions were: $42.2 billion  FY 13‐14 Prop 8 reductions are: $38.9 billion

Source: County Assessor * Projected

44

Source: County Economic Development Agency (Appendix A pp. A-7)

45

Source: State Employment Development Department, Labor Market Information Division as of January 2015(Appendix A pp. A-4) 1. The employment figures by industry which are show above are not directly comparable to the “Total, All Industries” 2. Annualized data for 2014 is not yet available.

46

Source: Riverside County Agricultural Commissioner (Appendix A pp A-9)

Initial taxable sales data indicates an estimated $28 billion in total taxable sales for 2012 (HdL Companies)

47

Source: California State Board of Equalization, Research and Statistics Division (Appendix A pp. A-6)

48

 Unemployment down from 13.60% in 2010 to 7.4% in 2014 (1) 2015 Data for Riverside County and California is as of February. (2) 2015 Data for the United States is as of March.

Source: Bureau of Labor Statistics