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Posted on Thu, Jul 11, 2013 : 5:59 a.m.

Public voices opposition to county board on potential bond issue

By Amy Biolchini


Washtenaw County administration has asked the Board of Commissioners to consider borrowing millions of dollars to pay off its unfunded long-term debts. file photo

Though Washtenaw County officials have put voting on hold on an unprecedented multimillion-dollar bond issue to cover retiree benefit debts, the Board of Commissioners went forward Wednesday with a public hearing on the issue at its meeting.

For the past two months the board has been considering a bond issue of approximately $345 million to cover the county’s unfunded liabilities in both its pension and retiree health care trust funds at the request of county administration as a debt management solution.

Updated figures from the county now indicate the bond issue may be closer to $295 million.

Direct feedback from a strong showing of the public Wednesday night was in staunch opposition to the bond issue, as many people said they feared a such a bond issue would land the county in severe debt in the future when the county board members were long gone from their current positions.

About 40 people were at the meeting Wednesday. People stepped forward to comment on the potential bond issue at various public comment opportunities in both the Ways and Means and the following regular board meting, as well as the designated hearing.

An organized opposition group created about two weeks ago by Ann Arbor resident Doug Smith, Washtenaw Watchdogs, was present in full force at the meeting to debut T-shirts with the group’s new logo and to voice their opinions.

Smith, who spoke three times Wednesday night, warned the commissioners that he has an organized list of volunteers ready to collect signatures and a petition drafted to put the bond issue on a ballot for voter approval. The bond doesn’t automatically go on a ballot because the county is considering a limited tax bond that would not raise the operating millage rate.

“How many of you would go out and mortgage your house and put the money into the stock market?” said Ray Williams of Ypsilanti to the board.


The Washtenaw Watchdogs logo on a T-shirt at the county meeting Wednesday. The text reads "corruption," "taxpayers' money" and "civil rights."

Amy Biolchini |

Ypsilanti resident Judy Bloss told the commissioners that she has many questions, among them being the county’s bond counsel of John Axe of Axe & Ecklund and his daughter, Meredith Shanle of MFCI, that have encouraged the county to pursue the bond issue though they stand to profit from the endeavor. The bond counsel is only paid should the county issue the bonds.

“Any benefit from borrowing at current low interest rates will likely be lost in future poor performance,” said Stephen Ranzini, president and CEO of University Bank in Ann Arbor.

Les Heddle, an Edward Jones financial adviser based in Ypsilanti, also spoke several times Wednesday night. In addition to criticizing the data available on the county’s website recently created for the bond issue, Heddle asked why the county still did not have new actuary reports to make more accurate predictions of its future liabilities.

“You’re using 18-month-old data for the current standing of the unfunded amount in the pension,” Heddle said. “It’s hard to believe in this world … that there isn’t a way to get more current data.”

Reports submitted to the county board in May regarding initial projections of the unfunded liability were based on 2011 actuary reports of county employees, which projected $340 million would be the amount needed to cover long-term liabilities for both trust funds.

An additional $5 million was added to that figure to cover any costs the county would incur in paying consultants and financial advisers during the bond sale and investment for a total of $345 million.

Commissioners postponed voting on the bond issue the first time - which was on the agenda two weeks after the measure was first made public at a working session - because the data was outdated to wait for new actuary and experience reports.

The actuary report is due July 24. Following the actuary report, McDaniel said the county will receive an updated report from its bond counsel and from an independent consultant they've hired to provide a second opinion.

Administration promised the experience report would be available by Wednesday, when a vote had been originally been scheduled on the issue.

As of 4 p.m. Wednesday, the experience report had yet to be delivered, McDaniel said. County staff was briefed last week on a preliminary draft of the report that gave them a better idea of the actual state of the unfunded liability, but McDaniel declined to discuss that figure publicly.

Through a communication blunder, that figure was published in a printed meeting agenda distributed Wednesday night: $295.12 million.

The Wednesday meeting had originally been slated as the day when the Board of Commissioners would take its first vote on a notice of intent to issue the bonds in both back-to-back meetings.

That is, up until a week ago when Chairman Yousef Rabhi announced in a joint press release from Administrator Verna McDaniel that the bond issue had been pulled from the agenda. Rabhi cited uncertain requirements from the state and unanswered questions from commissioners regarding alternative options.

Saginaw County is the only Michigan county to date that has submitted paperwork to the state treasurer to borrow money for its unfunded actuarial accrued liabilities, made possible by Public Act 329 of 2012.

Rabhi said the state has sent back Saginaw County’s paperwork for revision and does not have a template for how the issue should be presented, which prompted his decision to wait on the vote.

Additionally, Rabhi said commissioners need more time to pursue other options to cover feasible ways to manage the county’s long-term debt other than the bond issue, which has been the sole option presented by administration to date.

The bond issue is now on hold, as commissioners have not placed the item back on its agenda for a vote.

Rabhi said Wednesday that discussion on the item will now be a part of meetings regarding the county’s budget deliberation process, as it moves forward to draft its first four-year budget proposal to present the board in October.

McDaniel has stated that there’s an approximately $7 million hole that needs to be cut from operations - the bulk of which she was counting on the bond issue to account for.

The success of the bond issue would depend upon the market’s rate of return on investment being at least the same or greater than the rate at which the bonds were initially purchased.

Money generated from the bonds’ investment in the market would be used to fund the annual required contribution to both the pension and retiree health care fund, while the county would use its money to pay off the money it borrowed to purchase the bond, plus interest.

The payment schedule can be manipulated - and it appears county administration is interested in paying off less of the principal of the bond in the early years of the 25-year repayment schedule to lessen the financial burden on the county’s cash-strapped budget.

Commissioner Rolland Sizemore Jr., D-Ypsilanti Township, was absent from the meeting.

The Board of Commissioners next meets 6 p.m. Thursday night to discuss budget priorities in a public working session.

Amy Biolchini covers Washtenaw County, health and environmental issues for Reach her at (734) 623-2552, or on Twitter.



Fri, Jul 12, 2013 : 5:46 p.m.

How did they plan to pay for all the goodies they handed out over the years and continue to hand out? It was not by floating a $300MM bond. Like illegal immigration and leaving the border open, we will be right back here in 15 years looking for another $200MM + to pay for the next 15 years of unfunded perks. Blaming the stock market for blowing up their projections that presumably allowed them to over- compensate with bennies (and with our money) workers who would have taken the job for less (and the job pays less in private sector), is criminal and they should all be tossed out if they have their finger prints on this mess. I missed that minimum 8% return guraranty from NYSE that these fools in governement thought/claimed existed and directed their actions in agreeing to ridiculous union contracts.


Fri, Jul 12, 2013 : 1:44 p.m.

Are we seeing the end of the current administration of Verna McDaniel? Retirement deal in the works?


Fri, Jul 12, 2013 : 1:42 p.m.

Basically we now have a Tea Party type watchdog group running the show. Current retirees need to show up a these meetings.

Basic Bob

Sat, Jul 13, 2013 : 2:01 a.m.

Current retirees still get paid regardless. If you attended the meeting you might figure that out.


Fri, Jul 12, 2013 : 3:04 a.m.

Reading the above posts, this issue has been completely dissected by the readers. Simply stated: The idea of floating a Giant Bond Issue without a vote of the people is a simpleton idea; it is Jack and the Beanstalk thinking. Additionally, it does not not - by any measure - pass the "smell" test. Nine commissioners. We need five commissioners with the backbone and intestinal fortitude to demand the question be put to a vote of the people. Anything less is bad government. Commissioners: If you are afraid of your constituents, can We trust you?

Alex Brown

Thu, Jul 11, 2013 : 8:51 p.m.

OOPS! I posted a link to the continuation of the article. Here it is from the beginning:

Alex Brown

Thu, Jul 11, 2013 : 8:49 p.m.

Here (at the links below) are two very good articles about what the thinking on Wall Street is regarding the Detroit Situation and how it might impact statewide.


Thu, Jul 11, 2013 : 7:53 p.m.

Boy, I was really caught off guard by the publics reaction.............


Thu, Jul 11, 2013 : 2:45 p.m.

Is unfunded liability taking all future obligations and assuming absolutely no income in the future? Does anyone here worry about their unfunded liability for their DTE bills 25 years into the future, assuming absolutely no income, starting now?? Someone please explain unfunded liability and why we use it.


Thu, Jul 11, 2013 : 6:52 p.m.

An unfunded liability is something that you have already promised to pay and are legally obligated to pay for. The future DTE bill is not a contractual obligation. The County accounting rules have allowed the debt owed to pension plans to be kept "off the books", which means that they don't have to be considered under the State law that requires to County to balance their budget. New accounting rules are going to mean that the County has to put this debt on the books, that is why they are soon going to have to make bigger contributions to the retirement plan in order to keep a balanced budget.


Thu, Jul 11, 2013 : 6:18 p.m.

Bill - this is how much the County has underfunded the accounts to date and the growth in the expected costs because of longer life spans, etc. It is not that there is an expectation of no more money, only that the low growth in the funds invested to date combined with the higher than expected payouts have left the pension plan underfunded, and that the county now needs to make it up.


Thu, Jul 11, 2013 : 2:37 p.m.

Since some Posters have complained that the "no bonds" people aren't providing options, here you go: 1) Across the board 1% operating cost reduction; 2) Raise taxes 1% for ten years to cover the poor governance over the past decades (we the voters have allowed this silliness to happen); 3) Explore Ranzini's recommendation to contract the funds to real investment firms 4) Borrow money as a last resort but only for a limited time, not decades 5) Sell assets 6) Get the State to allow a one year phase-in to the new rules since the State isn't ready to approve plans 7) Others?


Fri, Jul 12, 2013 : 6:34 p.m.

Here is an idea. Look at all the County depts and boards - like board of elections which is a certified joke, and get rid of the junk. Each year the County advertises for persons willing to sit on 30 different boards, many paid positions, some not. Those boards are just stupid do-gooder ideas by people who created a board because they could. Time to take an axe to this mess. Not beause of "Tea Party" ideas, but because it's what any responsible family or business would do - government should be even more cautious b/c it's our money.


Thu, Jul 11, 2013 : 6:47 p.m.

If you look at the independent audit for 2012 they ended the year with more than $16 million in unrestricted cash. The problem may be that the cash is in a fund for capital improvements, which the administrator then says is not available for the General Fund. The Board could easily decide it is going to delay a project, such as renovations of a building, in order to balance the budget. I would also like to know how much the County spends on overtime. I bet it is huge and I have seen some horrible abuses of overtime. The first thing my employers have always done when facing a budget shortfall is to limit overtime. The County administrator is using the oldest political trick in the book. She lists every popular program for the poor or sick as being possibly due for cuts if we don't approve the bond issue. The Board does not have to target those programs.


Thu, Jul 11, 2013 : 4:20 p.m.

Good suggestions but I disagree with #4. If you're going to borrow money as described, a longer time horizon reduces your risk greatly.


Thu, Jul 11, 2013 : 4:04 p.m.

7) Other? Taxpayers/Votors demand a hiring freeze and no raises for any County Administrators for the next 10 years!

Amy Biolchini

Thu, Jul 11, 2013 : 2:24 p.m.

I asked County Administrator Verna McDaniel after the meeting to address the issue of why the actuary and experience reports -- upon which the unfunded long-term liability estimates are calculated -- take so long to be delivered to the county for the previous year. Her explanation was that this is a normal process that the county undergoes each year and that the July 24 delivery date for the 2012 actuary report will be the earliest the county has ever received an actuary report for the previous year. Normally it is delivered in September, she said. The county has to submit employee demographic data to its actuary before the actuarial report is compiled. McDaniel did not immediately know at what date the demographic data was submitted.


Thu, Jul 11, 2013 : 2:08 p.m.

"McDaniel has stated that there's an approximately $7 million hole that needs to be cut from operations - the bulk of which she was counting on the bond issue to account for." This is the crux of issue. The board in their wisdom, signed 10 year contracts, knowing they did not have the money to pay for them. They previously re-opened the pension plans after closing them and allowed new people in and the unfunded liability grow with each addition. The County is now hiring as quickly as possible to fill open slots so that all the new hires will be included in the old pension plan, increasing the liability again. Then they want to borrow and pray that they can out perform, so that they can spend money they don't really have. Finally they have financially interested parties as their main advisors. People who stand to make literally millions of dollars on a sole source deal. Does this smell bad to anyone else? It is clear this County Board works for the county employees and their unions, not the taxpayers of Washtenaw County. There were several things that could have changed in the 10 year contract that would have shrunk the liability significantly - including raising the retirement age to the social security age, and means testing retirement payouts until people hit the social security age. Now we have an unaffordable contract that will be with us until 2024.


Fri, Jul 12, 2013 : 5:53 p.m.

It's government for the sake of government. Government by its very nature looks to perpetuate itself. Like a blob of living matter, it wants to consume and grow for reasons unrelated to necessity, and fight any attempt to trim it back or put it on a diet. It protects itself through individuals protecting their positions (and pay and bennies) and increasing the ranks.


Thu, Jul 11, 2013 : 6:15 p.m.

Ms Biolchini - IF they had not reopened the funds in the first place, Ms. McDaniel's comment would not be an issue. If they had changed the retirement age, the issue would not exist. This falls right back on decisions that Ms. McDaniel and the County Board made. Thank you Ms. Biolchini for making my point.

Amy Biolchini

Thu, Jul 11, 2013 : 2:20 p.m.

McDaniel has stated that because the plans will be closed to employees after Jan. 1, 2014, the county will be required to pay off the unfunded actuarial liability on a shorter payment schedule -- meaning larger annual contributions as well.


Thu, Jul 11, 2013 : 2:03 p.m.

Well, there is always analternative. Cut the retirees pay outs.


Thu, Jul 11, 2013 : 6:55 p.m.

Not if you hit the actual retirees, I thought that was Snyders approach.


Thu, Jul 11, 2013 : 2:28 p.m.

Most of the benefits involved are covered by union contracts. You'll have to wait ten years to fight that battle.


Thu, Jul 11, 2013 : 1:58 p.m.

Was humbling to see so many of us there last night to express our dissatisfaction with this plan. It is the wrong thing to do. This county shouldn't kick its current problems down the road and force our community's children to bear the burden of fixing it later. Only be worse then. County administrator suggesting that "manipulating" payments so that future generations are forced to solve the problem later is wrong. Very wrong. And negligent. Conveniently won't be her problem then, will it? How pathetic. Isn't this what Detroit did the past couple decades? How's that working out for them now? County board needs to show leadership. If they can't, then step aside.


Thu, Jul 11, 2013 : 1:56 p.m.

"Hopefully, the County can sell the bonds with a coupon rate (interest paid to bond purchasers) of 4% and the bond duration will be 25 year." In regard to the above, from Veracity's excellent post, consider this: If the city of Detroit's plan to define municipal bond holders as "unsecured" creditors is allowed by the state and/or courts to actually stand, there will be no one anyplace who will buy bonds from any municipality in Michigan. If that idea actually comes to fruition, it will impact every government in the state for decades.


Thu, Jul 11, 2013 : 4:16 p.m.

I don't think Detroit's issues will preclude Washtenaw County from selling bonds, but it will certainly impact the interest rate.

Shawn Letwin

Thu, Jul 11, 2013 : 1:41 p.m.

Here is the email list with semi-colons separating the email addresses (my first posting had commas). Depending on your email set-up, having commas separating the email addresses may cause the email to be unable to send. Again, let the commissioners know what you think. Enjoy, take care and be well.;;;;;;;;


Thu, Jul 11, 2013 : 1:05 p.m.

Any way you look at it, this bond issue is a bad idea for the taxpayers of the county.

Nicholas Urfe

Thu, Jul 11, 2013 : 1:04 p.m.

"The payment schedule can be manipulated - and it appears county administration is interested in paying off less of the principal of the bond in the early years of the 25-year repayment schedule to lessen the financial burden on the county's cash-strapped budget." Sure. Kick it down the road. Kick it real good!


Fri, Jul 12, 2013 : 5:50 p.m.

If the BOC plans to amortize the debt payments then I would like to see the amortization schedule. For real-estate the amortized payments are equal each month. In this case, the BOC wants to expend less on servicing the bonds during the early years which means, or course, higher expenditures later. With a 4% coupon rate and ROI on the bonds of 3.5%, as with the existing WCERS fund, will be insufficient even if nothing is paid into a sinking fund. Any ROI less than 8.4% will not pay for servicing the bonds if sinking fund payments were level throughout the bond's lifetime and a 0.4% management fee is paid annually. The BOC better have other money available to make up the difference between ROI and actual bond costs.


Thu, Jul 11, 2013 : 4:15 p.m.

This is how every amortization schedule works. Your home mortgage works the same way.

Nicholas Urfe

Thu, Jul 11, 2013 : 12:57 p.m.

"the county's bond counsel of John Axe of Axe & Ecklund and his daughter, Meredith Shanle of MFCI, that have encouraged the county to pursue the bond issue though they stand to profit from the endeavor." That just stinks terribly. How such a conflict could have been allowed to occur on such a contentious and large finanacial matter defies belief. The people you are paying to give you advice are father-daughter? It just doesn't pass the smell test.


Thu, Jul 11, 2013 : 5:44 p.m.

Solitude: "If they can find any independent municipal finance experts to support this plan, I'll be very surprised, and if they can't, the deal should be a dead issue." I agree but, we are talking about people who got the County in this mess in the first place. People who approved 5 and 10 year contracts knowing this was a problem in the first place.


Thu, Jul 11, 2013 : 1:59 p.m.

It's not that they are a father/daughter company, it's that they stand to make gigantic sums of money off the deal. That's the problem. Of course they are for it, they will make millions. They are in business to make money. The county board has to be smart enough to understand the opinion of someone who wants your money is not to be considered objective. If they can find any independent municipal finance experts to support this plan, I'll be very surprised, and if they can't, the deal should be a dead issue.

Vivienne Armentrout

Thu, Jul 11, 2013 : 12:56 p.m.

Thanks for your great reporting on this meeting. You have provided some good information, including the missing reports (actuary and experience reports). I think the commissioners (mostly) are getting the message that this bond issue is a bad idea. What they are not receiving from the public are useful suggestions on how to weather this financial crisis (once it is fully defined). Telling the commissioners to abandon the contract just signed or cut existing pensions is not useful. But the only alternative to the bond program presented to them by their administration is to cut popular programs drastically. What I've urged elsewhere is to use a combination of small economies and even a judicious use of reserve funds to wait and see what changes emerge in the long-term picture over the next year. They do not need to solve 25 years of shortfalls in one year. And here is a perhaps controversial thought: with all the development going on in the Washtenaw/Platt road area, that county property on Platt (the former juvenile justice center) might provide some real capital injection. (There are many hoped-for uses for that property, but even if divided some of it might be developable.)


Fri, Jul 12, 2013 : 1:40 p.m.

The difference between Washtenaw County's defined pension plan and others is that the employee's have contributed a lot of cash over the years to help fund it. It's not a freebie. County wages, at lease in the past, have been lower than the private sector and even other municipalities. The employees put in about 7% of each pay check to help fund the system - so this all not one sided. How many years did the County fail to pay into the retirement system during good times? I don't know the answer. Current employees pay into the VEBA that supports health benefits and maybe the pension plan - so what has happened to all that cash?


Thu, Jul 11, 2013 : 6:28 p.m.

The rush to do the bond issue is being pushed by the County administrator, Verna McDaniel, because she wants the Board to do a 4 year budget by the end of this year. This issue is too important to be driven by something that is not necessary and has never been done before, such as a 4 year budget. Pass a 1 year budget and then take your time to look at the alternatives and risks.


Thu, Jul 11, 2013 : 4:11 p.m.

Very good post Solitude! I agree 100%, too many things can happen in 25 years.


Thu, Jul 11, 2013 : 2:03 p.m.

"They do not need to solve 25 years of shortfalls in one year." This, perhaps more than anything else, is really at the heart of the problem. It's the panic-driven path Ypsi City was on, until recently, over Water Street debt. There are too many unknowns and too many variables to make any long-term debt a good, or even feasible, idea.

Linda Peck

Thu, Jul 11, 2013 : 12:54 p.m.

I admit I have a very very foggy understanding of all of this. It is beyond my comprehension, the financial dealings here. I only know that I don't want to in-debt myself or my children or grandchildren or their children for public pensions. I do not support public pensions of any kind. It is difficult enough to operate a city without having this burden. The same should be for all public positions. It is way too much for private citizens to pay for all of these people when they have their own families to take care of. Not everyone is supported by employer funded pensions in this country. It is an unfair burden.


Thu, Jul 11, 2013 : 4:13 p.m.

You're already in debt for the pensions. The officials already placed the order and the product has been shipped. The question is now, Will you pay the bill?


Thu, Jul 11, 2013 : 2:15 p.m.

Whether you support them or not, they exist, and for the many years leading up to the last decade of fiscal recklessness and national economic collapse, the well-structured ones actually were an economical alternative to paying into Social Security for the employees in question. Your elected officials allowed themselves to be bought by unions who in turn supported their political campaigns. And during the long stock market boom that preceded the 2008 collapse, when pension plan investments were hauling in huge returns and plans were actually overfunded, municipalities elected to direct the money they were supposed to put into the pensions to other things. The debts have to be paid. The task at hand is to be vigilant and exercise common sense. No plan that relies on nothing more than speculation and wishful thinking is a good idea. We also need to learn from the mistakes of other municipalities. The examples of the dangers of financing debt with debt are all around us. We just have to pay attention.


Thu, Jul 11, 2013 : 12:18 p.m.

The vote will be a defining moment the the future careers several of the younger commissioners. We will see what they are made of. Citizens have long memories and, should this silly plan be passed, the young politicians will have to live with it throughout their careers. Ray Williams hit the nail on the head with his question: "Would you go out and mortgage your house to borrow money to dump in the stock market today?" If commissioners are not aware: the stock market today is at an historic all time high. In case the young commissioners did not take Econ 101 in college, here is the mantra: Buy Low, Sell High.

Great Lakes Lady

Thu, Jul 11, 2013 : 12:09 p.m.

The commission approved unprecedented 10 year union contracts one week before Right To Work laws took effect in March of this year. In 3-4 months the public was supposed to forget? shame to their game.


Fri, Jul 12, 2013 : 5:38 p.m.

Yes they do. Pathetic, but people are lazy and like the idea of government workers around the County having nice bennies. They just forget that unless they too work for the County or City of A2, they don't have those outlandish perks but they get to pay for this disaster.


Thu, Jul 11, 2013 : 12:09 p.m.

Bond Analysis -- Part 2 (Continued) The calculations so far assume that an investment manager can achieve a 7% ROI. In practical terms the most recent ROI on existing pension trust funds has been 3.2% and 3.5%. For each 1% less than 7% ROI the new bond trust fund will earn $3 million less and the deficit in servicing the bonds will become that much larger. And the management fee, estimated to be $1.2 million per year, is not being included to simplify the mathematics. This fee increases the annual deficit. And it gets worse about eight years into the future when the existing pension funds are exhausted from distributing annual benefits to eligible recipients. Then the bond trust funds must begin paying out annual benefits. The benefits to be paid out this year is $20 million. The payout will increase each year into the future because of additional payments to newly eligible pension recipients and a COLA, if included to account for inflation. So, in eight years, the bond funds will likely begin paying out $30 million dollars with ever-increasing annual disbursements each year thereafter. Since the bond fund will not offset any pension disbursements with increased earnings the pension payments will be paid directly from the bond principle. As principle declines so will ROI. Very likely the annual outlays for pension benefits could deplete the bond fund in five years after which the County will have to find another source of funds to pay pensioners while still obligated to service the bond for the remaining 12 years until maturation. So the presently planned bond issue will create even more financial problems after a decade when the present County Commissioners will be long gone (but not forgotten!). Very likely a large millage will be required in a dozen years in order to meet financial obligations. Alternatives to issuing bonds includes Ranzini's suggested annuity and a scaled millage as used by the AADL.


Thu, Jul 11, 2013 : 8:06 p.m.

Great analysis.


Thu, Jul 11, 2013 : 2:21 p.m.

"In practical terms the most recent ROI on existing pension trust funds has been 3.2% and 3.5%. For each 1% less than 7% ROI the new bond trust fund will earn $3 million less and the deficit in servicing the bonds will become that much larger." This is a perfect illustration of the magical thinking being employed by County staff who have somehow come to believe this plan is a good idea. They are completely disregarding facts such as this, and there has been ZERO mention of any workable contingency if their hopes and dreams for returns are not realized. I think we should all be very happy that the county commissioners did not just jump on the bandwagon and are actually behaving like they should here.

Nicholas Urfe

Thu, Jul 11, 2013 : 1:02 p.m.

Thank you!


Thu, Jul 11, 2013 : 11:36 a.m.

Bond Analysis -- Part 1 For those who can not picture the financial structuring of the proposed $345 million (or $295 million if properly updated) bond I offer the following analysis. Assuming that the unfunded pension liabilities are actually $295 million and that an additional $5 million is needed to cover issuing expenses, then the County will issue $300 million of bonds. Hopefully, the County can sell the bonds with a coupon rate (interest paid to bond purchasers) of 4% and the bond duration will be 25 year. Let us generously assume also that the bond investment manager will be able to earn 7% return-on-investment (ROI) and will charge a $1.2 million annual management fee. During the first year after issuance, the cost for servicing the bonds will be $24 million (4% of $300 million to pay bond holders plus $300 million/25 years to pay into an annual sinking fund to retire the bonds at maturation). A 7% ROI will return only $21 million, requiring the County Board to find an additional $3 million to cover the deficit in servicing the bonds. Or, as is being suggested by the County Board, a $3 million reduction in payment into the sinking fund could be accepted which will then eliminate the deficit. If the County Board paid even less towards the sinking fund it could then claim a "profit" from investing. Of course, the "profit" will be illusory because the County must contend with making sinking fund payments later which will create larger deficits than if paid annually from the start. The County Board wishes to avoid having to budget for additional monies to service the bonds so it has proposed to pay less into the sinking fund or defer any payments for some years into the future. Doing so will greatly increase the financial burden for future County tax payers. The amount of that tax payers will eventually have to pay will be compounded by the additional $12 million needed annually to finance the sinking fund. (Continued)


Fri, Jul 12, 2013 : 2:44 p.m.

snark 12 -- Expanded Explanation -- Part 3 Another possible fix is to consider Stephen Lange Ranzini's suggestion of buy an annuity to pay retirement benefits. I am not familiar enough to understand how such an annuity will be arranged and the ultimate cost to taxpayers. I will ask Mr. Ranzini to post an explanation if he is willing. Either using a millage or an annuity should cost less over years than a bond issue. Not only will the bond issue only pay eleven years of pension benefits but is obligates the County for 25 years of interest payments which are lost to the County. In addition to paying off the bond principle of $300 million, interest payments will amount to another $300 million. If a millage or an annuity will cost less than $600 million over 25 years, then one or both will be preferable to a bond issue.


Fri, Jul 12, 2013 : 2:33 p.m.

snark 12 -- Expanded Explanation -- Part 2 (continued) The rising beneficiary payouts must come from the Bond Fund principle and will reduce the bond's ROI. As the ROI diminishes less of the bond's servicing costs will be covered and the County will have to find other funds to eliminate the deficit. Furthermore, as the bond's principle is reduced the number of years that the principle can support full beneficiary payments will decline quickly. I estimate that the bond fund may only support beneficiary payouts for five years or perhaps even less. So, the present WCERS fund will support six years of pension payouts and then the bond fund will add another five years for a total of eleven years of retiree benefit payments. And yet after eleven years, servicing of the bonds must continue for another 14 years which will require a total of another $336 million! So, after all retirement funds are depleted in eleven years, the County will still have to pay $24 million yearly to service the bonds and also must pay retiree benefits which may be more than $50 million a year. Therefore, the County Commissioners must find $74 million annually in addition to annual budget requirements. The only solutions which I can imagine are the lesser evils, so to speak. The County Commissioners can calculate accurately how much pension money will be paid out each year and establish a annual schedule of payments. Then the County Commissioners can generate a scaled millage much like that used by the Ann Arbor District Library (AADL). The AADL is authorized to receive a 1.92 annual millage (if my memory is correct) but is only asking taxpayers to provide 1.55 mills which is sufficient at this time to cover annual operating costs. When needed the AADL can raise the mills requested. Likewise, the County Commissioners can determine the maximum millage needed to provide full pension payments when maximum payout occurs in, say, fifteen to twenty years and ask for needed funds yearly. more


Fri, Jul 12, 2013 : 2:10 p.m.

snark 12 -- Expanded Explanation -- Part 1 The County has a VEBA fund with $82 million and another (existing) WCERS fund with $228 million, if you believe County Board Commissioner Andy LaBarre. So the $20 million dollars due to be paid to retiree beneficiaries this year can come from existing WCERS fund. The yet-to-be created bond fund will not have to pay pensioners until the existing $228 million WCERS fund is depleted. In future years the existing WCERS fund will have to pay progressively more to beneficiaries because the number of eligible recipients will increase until all employees registered for benefits are receiving them, which may not occur for 20 years or more for younger employees. Of course, after time beneficiaries will begin dying which will reduce the amount of benefits paid out each year. And inflation will likely increase any COLA associated with pensions. To accommodate the above I assumed that the yearly increase in eligible beneficiaries and inflation will combine for an average 3.5% annual increase in pension benefit payouts. These factors that will raise fund payout will be offset by the 3.5% ROI that the WCERS has accrued over the years and is assumed to continue to earn. Thus, the $228 million WCERS should support annual $20 million benefit payments (on balance) for six years. During the seventh year only $8 million will remain to pay for retirement benefits. At that point the bond trust fund will have to supplement the payout with $12 million. Thereafter, the bond fund will be the only source of beneficiary payouts. Unlike the present WCERS fund the bond fund will continue to apply its ROI to service the bonds and will not even meet that requirement. Therefore, beneficiary payouts will continue to increase with new recipients and inflation so that actual payouts may gradually increase from $30 million annually to as much as $50 million annually.


Thu, Jul 11, 2013 : 4:11 p.m.

Veracity, I agree the information provided (at least by these articles) is not clear but I don't think you've described the situation properly. In year 1 the bond service is $12 million (4% of $300 million in your example). That will be paid for with the general funds (which are currently being used to pay the pension benefits). In year 1 the county will also owe some money ($24 million? I'm not sure) to the pension fund. That will be taken out of the $300 million investment fund. If the 7% gain is realized in year 1, that $21 million will be added back to the fund. Of course there are issues with timing, the costs to the underwriters, etc. But let's suppose that's all true: then after year 1, there is $300 - 24 + 21 = $297 million left in the fund. I agree, 7% is a high number. I think the article said they were targeting 6.5%. Over 25 years, 6% is more realistic. Taking $12 million out of the general fund for the benefits is a savings over where we are now, so it's likely some of the general funds would have to go into the investment fund at some time to "catch up" so that, after 25 years, there is still $300 million left to pay off the bonds.


Thu, Jul 11, 2013 : 11:14 a.m.

They want to borrow $345M (over $500M in payments) to play the financial marets. Are we a County or are we a Casino?


Thu, Jul 11, 2013 : 11:14 a.m.

Sorry: 'markets'


Thu, Jul 11, 2013 : 11:08 a.m.

The timetable on decision making is controlled by the State's requirement for a balanced budgetary plan. But the State doesn't have it's act together. Shouldn't they delay implementation another year to get this figured out? Instead of potentially being forced into multi-decade decisions? (But keep the pension payments current, no more back-slidding).

Stephen Lange Ranzini

Thu, Jul 11, 2013 : 10:46 a.m.

The short term benefit generated by the financial engineering the bond deal promises will turn into future losses.  Some of the commissioners want to use these paper profits to close a multi-million dollar annual deficit instead of cutting spending in line with revenues. At the public hearing I suggested that there is a better alternative. the county could take advantage of over optimism among professional investors and defease it's retirement plans by buying an annuity from a top rated insurance firm.  While this would also require a borrowing to close the large gap between the plans' assets and liabilities, by terminating the plans and buying an insurance annuity, the county would eliminate its future investment risk and lock in today's low interest rates.   The cost of this plan is likely to be lower than the plan on the table because insurance companies are hungry for these kinds of long term annuities.  If the plans are defeased, the risk of investment underperformance will never haunt the county or it's taxpayers.


Thu, Jul 11, 2013 : 4:30 p.m.

Like I said, at least your insurance annuity plan doesn't leave the county bankrupt if it doesn't work as planned.


Thu, Jul 11, 2013 : 4:29 p.m.

@SLR, the point isn't whether it will work or not. I happen to agree that the chances of it working are slim to none, but regardless. You can't gamble with things you can't afford to lose, and especially with what is not yours to lose. The financial viability of the county as a whole isn't something that can be gambled with on the off-chance an ill-advised risk might pay off.

Stephen Lange Ranzini

Thu, Jul 11, 2013 : 4:03 p.m.

@Solitude: You are correct, the plan *could* work, but the odds are long against it working because under the plan on the table the borrowed money will be invested in stocks and bonds, which are at high levels. For stocks, the 10 Year Cyclically Adjusted PE Ratio is 50% above the Mean & Median of the past 122 years [see:]. The Tobin Q ratio is more than 45% above fair value [see:]. These are the best indicators of relative value for stocks. Bonds are at yields even lower than in the depths of the Great Depression. So any benefit from borrowing at current record low interest rates is likely to be given up though future substandard investment performance. In contrast, under my alternative plan future investment performance is irrelevant and the total cost of the plan to defease the retirement funds is known up front.


Thu, Jul 11, 2013 : 2:29 p.m.

"The short term benefit generated by the financial engineering the bond deal promises will turn into future losses." The point here is that no one can say with any certainty what will happen either way. It's not impossible (however unlikely) that the plan could succeed, just as it's also possible the idea could easily go up in flames. The point is that it's a huge its essence nothing more than a crap shoot with hundreds of millions of dollars and the future economic and social viability of the county and its residents at stake, and it has to be recognized and acknowledged as such. I'm more scared of people who don't even know they are gambling, and therefore have no backup plan, than I am of people who at least realize what they are doing. County staff seems be in the former group. At least the insurance annuity idea doesn't rely on wishful thinking to be successful.


Thu, Jul 11, 2013 : 11:10 a.m.

This has to be explored as an option. GM and Prudential recently completed a contract of this type to lower GM's exposure to risk. Senator Hatch introduced a bill in the US Senate this week to make these plans even more affordable to municipalities.

Shawn Letwin

Thu, Jul 11, 2013 : 10:46 a.m.

For those of you who could not attend, but would like to let the commissioners know how you feel about this issue, I have included the email address below for the commissioners. If you support it, email them. If you are against it, email them. If you believe that the citizens should be the ones voting yes or no on this issue, email them. Don't let your vote at the polls for a commissioner be the only time you let your opinion be known to the commissioners. Please consider emailing them. I spoke last night about how I see the commissioners as being elected to spend the taxes we pay to run the county. I did elect my commissioner to be able to borrow money on behalf of the taxpayer…whether it is $1 or $300 million dollars (with overall costs approaching $600 million)…let alone finding out that the administration would want to pay less in the initial years to ease cash flow. Accounting is not just crunchy numbers; it is also being accountable with the taxes we pay to run our government. If the people hired cannot do that job, then we need to hire the people who can do the job using today's monies and not present a single solution that kicks the can down the road.,,,,,,,,

Linda Peck

Thu, Jul 11, 2013 : 12:49 p.m.

Thank you, Shawn, for the email addresses. You are so right on this.


Thu, Jul 11, 2013 : 10:19 a.m.

"The payment schedule can be manipulated - and it appears county administration is interested in paying off less of the principal of the bond in the early years of the 25-year repayment schedule to lessen the financial burden on the county's cash-strapped budget." There's the zinger. If there's a normal amortization schedule, where more interest is paid early on than principal, that's one thing. Principal deferment is a totally different concept. As is typical with many boards of this nature, the "near term financial pain" is minimized for the sole purpose of minimizing the "near term political pain" for those passing the measures. Those officials can't (won't) cut spending now, so they push it on to the next generation of members to do the dirty work. Will the dirty financial work ever get done? Doubtful: The next generation of officials will simply blame the current generation (just as is being done with the bond issue) and abrogate any promises or covenants we've all agreed to right now. We'll be in the same boat in 10 years, except we'll be sitting on $295M in debt principal with no end in sight.