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Posted on Thu, May 16, 2013 : 5:58 a.m.

Washtenaw County commissioners postpone discussion on $345M bond issue

By Amy Biolchini

The Washtenaw County Board of Commissioners pulled a resolution from its Ways and Means agenda Wednesday night that would have been the first step to issuing a $345 million bond for long-term retiree benefit liabilities.

Citing the need for more public input in the process and the mid-June release of a new actuary report, Board Chairman Yousef Rabhi announced the issue would be pushed to the board’s July 10 meeting for a first vote.


Yousef Rabhi

Andrew Kuhn | For

“This was a decision that I did not make alone,” Rabhi said. “The overwhelming consensus from this conversation was that the public deserves full thought and consideration.”

At the May 2 working session of the board, commissioners were presented with a proposed payment plan for a $345 million bond issue by the county’s bond counsel, led by lawyer John Axe of Axe & Ecklund.

The bond would be used to cover long-term liabilities the county has accrued in its retiree health care and pension plans. The county’s bond counsel has claimed it would reduce the county’s expenditures by $112 million over the next 25 years.

Wednesday night, the board was set to consider the first step in the process, which would be a first vote on a letter of intent to issue bonds.

The second and final vote on the letter of intent would have been June 5 - before the release of the new actuary report that would give the county a better estimate on how much their unfunded liability is.

“There were really some concerns about the timeline being too aggressive and for the public not having time to discuss it,” Rabhi said.

Health care and pension liabilities

Washtenaw County has been accruing an unpaid liability in its funds for retiree health care and pensions, which it pays for using general fund revenues and returns on trust funds.

The trust fund returns have not been great enough to cover the health care and pension costs. Although the county has made its annual general fund contribution to the funds, the actuary report had set the required payment schedule too low, said County Administrator Verna McDaniel.

Both plans have been capped as a result of the contract negotiations the county executed with the vast majority of its unions this spring that came about because of the right-to-work implementation deadline.

The 2011 actuary report defined the county’s unfunded liabilities as $101.4 million for the defined benefit pension plan, and $148.5 million for the retiree health plan.

Fully funding both of those liabilities on a 25-year payment schedule would require about $340 million.

Bond payments

Instead of paying back a growing, fluctuating pension and health care debt directly, the county is considering paying back the debt in fixed interest payments on bonds.

The county is looking to reduce its expenditures - which could be to the tune of $112 million, according to an estimate compiled in a report done by Meredith Shanle, president of Municipal Financial Consultants Incorporated.

Issuing bonds for the debt assumes that the rate of return - which is dependent on the market - will be greater than the rate at which the bonds were borrowed.

The Municipal Financial Consultants proposal assumes a rate of return of 6.5 percent.

Should the county choose to go into debt by bonding, it would be paying $344 million in principal with an additional $238.9 million payment in interest for a total payment of $583.1 million over 25 years.

Those payments would be made from the county’s general fund at the current operating millage rate that the county levies. Should the county pursue limited tax bonds, the county would not have to get voter approval to issue them.

In 2013, the county paid a combined total of $22.3 million to both its retiree health care and pension contributions.

Without bonding, the county is facing a payment of $30.7 million to those funds in 2014 - an increase that McDaniel said would mean millions of dollars would have to be cut from the county’s services and staff.

The projected bond payment for 2014 would be about $18.5 million, according to the Municipal Financial Consultants proposal.


The ability of a municipality to bond for such long-term debt was made possible by Public Act 329, which was signed into law in October.

There are safeguards in the law, including the qualification that a municipality must have a bond rating of AA or higher. Washtenaw County has a Aa1 Moody’s rating and a AA+ Standard & Poor rating.

The Michigan Municipal League was supportive of the passage of Act 329 because of the local finance control it gives to local bodies of government, said Anthony Minghine, chief operations officer of the MML in an interview with

“It’s not without risk. You make a number of assumptions in determining how much you borrow,” Minghine said. “ You assume you’re getting a particular rate of return.”

University of Michigan Ross School of Business Professor Robert Dittmar said in an interview with that one of the biggest risks the county would face would be investing its money safely to guarantee a profitable rate of return.

“The assumption that they’re making is that there’s a spread between what they’ll pay on the bond issuance and the income they’ll make on the bond proceeds,” Dittmar said. “The biggest risk right now is that it’s difficult to find relatively safe investments. It’s difficult to find something to invest in to generate the income in order to have this make sense.”

Dittmar said the worst-case scenario would be if the county did not get a good return on its investment and had to cover more of the payments for the debt issue. That would require more diversion of general fund cash flows to the payments - which would result in a cut to county services and operations, Dittmar said.

“Or, eventually you go bankrupt,” he said. “The investment return on the issue needs to be sufficiently high so that the county doesn’t have to divert cash flows to debt payment.”

Minghine said now is an almost perfect time for Washtenaw County to issue bonds for its long-term unfunded liabilities.

“We’re at historically low interest rates,” Minghine said. “Money’s almost free at this point. When you combine this with a marketplace where investment returns are good at this point - it’s almost a perfect time.”

As the payment schedule for the bond would be set at the time of issuance, the county would be able to plan for its general fund expenditures years in advance, adding a measure of stability to the county’s budget, McDaniel said.

The county’s direct payments to its retiree health care and pension plans fluctuate now based on actuary reports and market rates.

“Done correctly, it can be a great tool,” Minghine said. “If you don’t do this, you have an annual changing number that you’re dealing with.”

Though there is no other option being pursued by the county to pay off its unfunded liabilities, the county is also seeking an independent consultant to review the bond proposal, McDaniel said.

A worst-case scenario analysis for the bond issue is also being compiled, McDaniel said.

Public input

Since the county announced it was pursuing the $345 million bond issue at its May 2 meeting, there have been many questions to county commissioners and county staff on the issue - which prompted the board to take more time to engage the public in the discussion, Rabhi said.

Under the new course of action outlined by Rabhi Wednesday night, there will be two future public hearings on the bond issue: 6:45 p.m. June 5 and July 10.

A presentation to the public on the bond issue will also be a part of the engagement process, though a date has not yet been set.

“We want your feedback and your questions,” Rabhi said in an address to the commissioners and to the general public. “We’re postponing this action to give the community the ability to fully evaluate the pros and cons.”

Rabhi will also begin hosting coffee hours to talk through concerns with residents about the bond issue, which he has named “Bonding over coffee.” The first session has yet to be announced, but will likely begin after Memorial Day, Rabhi said.

July 10 will be the next time the Board of Commissioners considers bond-related resolutions in its Ways and Means meeting. A second meeting was added to that month for July 24 to allow the board to give a final vote on the bond issues.

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


Steve Hendel

Fri, May 17, 2013 : 1:23 a.m.

"We want your feedback and your questions," Rabhi said in an address to the commissioners and to the general public. "We're postponing this action to give the community the ability to fully evaluate the pros and cons." How about the Commissioners debating those pros and cons before putting this bond issue on the fast track? It sounds to me as if they have been sold a bill of goods.


Thu, May 16, 2013 : 10:57 p.m.

Have they decreased the pension/benefit package for new employees? Please tell us.


Thu, May 16, 2013 : 6:37 p.m.

These liabilities shoould have been planned for in the budget years in which they were incurred. Why comes to us now and way after the fact? I say vote no and stop the over spending and over committing. This enough.


Thu, May 16, 2013 : 5:17 p.m.

Ann Arbor Chronicle got a major scoop on this issue. Something potentially far more ominous than the conflict: Chronicle article hints that much prior discussion on this bond occurred in closed board meetings advertised for other business. Did county dupe everyone to think a secret closed meeting was for something else? Then invited this lawyer and his daughter in to pitch the secret bond? Board needs to make closed meeting minutes public on this brewing scandal. Answers needed.

Amy Biolchini

Thu, May 16, 2013 : 6:10 p.m.

I reported in my May 2 article that county administration began pursuing issuing bonds for its long-term debt in November after PA 329 was passed in October. ( ) In November, the retiree pension and health care plans were still open. PA 329 requires the plans to be closed in order for a municipality to bond for the payments. When right-to-work passed in December and the county subsequently entered in to contract negotiations with the majority of its bargaining units prior to the implementation deadline, the county administration has said publicly that they went in to the contract negotiations knowing that they would be asking the employees to cap the plans. The possibility of the bond issue was tied to the concessions the county would be able to get from the contract negotiations - which is the county administration's reasoning for not publicly discussing the bond issue sooner.

Nicholas Urfe

Thu, May 16, 2013 : 5:06 p.m.

With the absolutely shocking details from the Ann Arbor Chronicle article, it is no wonder they are trying to rush this through with little time for public scrutiny. The lawyer guy who is "advising us" to act quickly and buy the bonds is going to make $485,000 in fees on the transaction! And, news flash - *his daughter* will also be hired as a financial consultant. How is it that the county's paid bond advisor (Axe) is also being paid fees ($485,000) on the bonds? That is a conflict. You cannot give impartial advice on bonds while being paid fees contingent upon the bonds. How can that be proper and in the best interest of taxpayers? Can we possibly structure his deal with someone other than Axe and his daughter? Please? From the Chronicle: "John Axe of Axe & Ecklund, a Grosse Pointe Farms attorney who has served as the county's bond counsel for decades, helped craft the state legislation that permits this type of bonding." "Some commissioners expressed concern that the bonding process, now that it's public, is being rushed." "Dan Smith lobbied to explore more options, rather than just one proposal, and raised the possibility of putting this issue before voters." "Axe also urged the board to act quickly, saying that the proposal is interest-rate sensitive." "Axe told the board his firm would earn $485,000 in fees from this bond issue, at his standard rate. The county is also using Municipal Financial Consultants Inc. (MFCI) as the financial consultant on this proposal. Axe & Ecklund provides a 15% discount on its fees if the county hires MFCI as the financial consultant. MFCI president Meredith Shanle attended the May 2 working session. Though it was not mentioned at the meeting, Shanle is Axe's daughter."

Amy Biolchini

Thu, May 16, 2013 : 6:04 p.m.

I asked Anthony Minghine, COO of the Michigan Municipal League, about the payment arrangement for the bond counsel yesterday. Minghine said it's a pretty standard arrangement for the bond counsel to be paid from the proceeds of the investment should the bonds be issued. As I commented previously, the county is bringing in an independent consultant in and is also having a "worst-case-scenario" debt payment schedule compiled for the bond issue.


Thu, May 16, 2013 : 5:19 p.m.

Urged to act quickly? Before it gets noticed? Certainly not before interest rates rise much. That's not expected until 2014 at the soonest.


Thu, May 16, 2013 : 2:15 p.m.

I've got it! ! ! Borrow the $350M. "Invest" $80M in PowerBall (that covers all the numbers). We'll win $475M. Pay back the $350M. Pocket the $45M difference. Just hope no one else "hits" the winning numbers!


Thu, May 16, 2013 : 2:15 p.m.

Did anyone follow the Ann Arbor Chronicle article on this issue? HUGE concerns about conflict of interest. The county's bond lawyer convinced the county to hire HIS DAUGHTER (!) as a financial adviser by giving a slight fee discount. Fox guarding the hen house??? The board was ready to approve until this issue came up. The lawyer wanted them to move fast and approve right away. Before more questions were asked? Same lawyer who convinced Detroit to do the same bond deal. Someone needs to dig more into this. Nobody bid out the lawyer or his daughter's services, did they? No bid contracts? Something smells. Invest the money now at the top of a climbing stock market? If the market drops you owe bond money that the market maybe just lost - AND the liabilities you were trying to fund!! Only time to issue a bond like this was back in 2008-2009 when the market was going to climb. DUMB!

Amy Biolchini

Thu, May 16, 2013 : 6:01 p.m.

I don't think the your statement that "the board was ready to approve" until the issue of the bond counsel's relationship with financial consultant Municipal Financial Consultants Inc. was disclosed is accurate. There were a large number of questions among the county commissioners on the bond issue at the May 2 meeting, and not one of them seemed 100% convinced that it was the best and only way. Just for context, John Axe has been the county's bond counsel for decades.

Nicholas Urfe

Thu, May 16, 2013 : 4:55 p.m.

Unreal. That needs a lot more attention and scrutiny. How was that not prominently disclosed to the public?


Thu, May 16, 2013 : 1:30 p.m.

It is obvious that the existing WCBC is incompetent to make these types of decisions. In fact it is likely not a decision they will make. They will simply ask their union overlords what to do. We really need to elect people that can look at situations independently and have the financial expertise to ensure their decisions are responsible.

Amy Biolchini

Thu, May 16, 2013 : 5:56 p.m.

The Board of Commissioners, in addition to creating a number of public comment opportunities on this issue, is also seeking the advice of an independent consultant on the bond proposal.

Steve Bean

Thu, May 16, 2013 : 2:13 p.m.

They're listening. Do you have a specific suggestion?

Steve Bean

Thu, May 16, 2013 : 1:20 p.m.

The practice of issuing debt made some sense in the growth environment (bull market period) of the mid 1980s through the orthodox top in 2000. Growth as we knew it is over. We've been in a sideways market top for the past 13 years, and the real deflation of the massive debt bubble is ahead of us. Homeowners who extracted equity from their houses as interest rates dropped did something similar a while back. It was a great idea until it wasn't. The window of opportunity is about to be slammed shut as the stock market begins the massive corrective wave downward. (Was the top yesterday or will it make one last push upward first?) To add to Stephen's list of indicators, market bullishness and optimism levels are in the 'peak' range, similar to levels in early 2007. It's time to protect financial assets and face the costs of past decisions without exacerbating the situation.

Nicholas Urfe

Thu, May 16, 2013 : 1:17 p.m.

They might as well just gamble the money at a casino. Who will be managing the gambling portfolio and what is their historical rate of return?

Steve Bean

Thu, May 16, 2013 : 1:27 p.m.

The only historical data that would be relevant is that during the 2008 market decline. Otherwise, Elliott wave analysis indicates that the market(s—they're all the same now, have you noticed?) are topping and will lose value down to the level of the fourth wave of one lower degree, which was the Crash of 1929. Even if it doesn't extend down to that level, most value will be lost, and property values and the economy will follow it down, leading to an extended depression (possibly multiple, back-to-back ones as in the 1800s).


Thu, May 16, 2013 : 1:17 p.m.

Here is my history on salaried retirement benefits since retiring from a large automotive firm in 2002: 1. All medical insurance (Medigap/Medicare Advantage) cancelled. 2. 90% of company paid life insurance cancelled. 3. Dental Insurance cancelled. 4. Optical Insurance cancelled. 5. Pension eliminated in favor of an insurance company annuity or a lump sum distribution. Pension was not indexed to cost of living. Thank goodness for Medicare and Social Security.

Jay Thomas

Fri, May 17, 2013 : 6:19 a.m.

Jimmy, because one political party takes its marching orders from the unions. They come FIRST.


Thu, May 16, 2013 : 2:18 p.m.

Same here A2. I wonder why our public union employees haven't had their compensation recalibrated to "global market rates" like us?

Patrick Maurer

Thu, May 16, 2013 : 12:59 p.m.

The move to sign long term contracts to protect the unions from the Right To Work legislation was the dumbest move they could have made. The whole process has a nasty smell to it. The County Board of Commissioners certainly were not looking out for the tax payers when they obligated the tax payers for that bill. Now they are proposing to play roulette with borrowed money to try to fund these union benefit giveaways. Fine job by our elected politicians (union shills).


Thu, May 16, 2013 : 12:39 p.m.

Remember Water Street in Ypsilanti. That's what happens when governments borrow to invest in risky investments. Eventually the citizens get forced to bail them out when the investments fail to produce the revenue expected. This scheme is a really bad idea.


Thu, May 16, 2013 : 12:25 p.m.

The bond is a truly dumb idea! Put $345 million completely at risk of loss in a hot market, good luck with the fortune teller on which investments will make the money back. At the same time those of us paying taxes will be on the hook for the principle, the interest and any market losses on the investments, similar to what Detroit is facing right now. Next, is the fact that the idea was brought forward by an interested party, THEY MAKE MONEY if the country does this and can walk away. If this is going to happen, it needs to be bid out like any other contract. Third, there is no limit to the liability that the pension and medical funds have, if these people who are drawing benefits live to 200, the county has made the promise that they will pay these benefits for life. In 20 years when this bond is paid off by our children, they may be on the hook for another 300, 400, 500 million or more. Signing 10 year contracts the country could NOT afford was the initial dumb move, this bond is the next dumb move by the country commission. It reminds me of the irresponsible way the built the new jail that every citizen in the county is now dealing with the costs of - through additional millages for.


Thu, May 16, 2013 : 2:21 p.m.

Not true snark12. If a defined benefit employee lives to 200, the pension fund has to pay them every single year. Only death stops the retirement checks.


Thu, May 16, 2013 : 1:15 p.m.

The article says the health and pension benefits are capped under the new contract. The bond issuance would replace the unfunded liabilty. If the retires live to 200 it would be on their own dimes.

Steve Bean

Thu, May 16, 2013 : 11:58 a.m.

"The county is looking to reduce its expenditures…" That's not quite accurate. The county is looking to spread its debt out over time, which in the process would actually increase its debt through the interest on the bonds (plus the fees for the bond issuance). Expenditures would increase as a result. The only potential offset would be a net return on the held funds from the bond sales, and that return would not be guaranteed. Stephen Ranzini's description of this as speculation is accurate. What Stephen didn't quite say is that the county would be at risk of losing principal, not just getting a lower return than the interest rate they'd be paying on the bonds (4%?), depending on how the funds were invested. The best option would be to protect the funds in cash and cash equivalents (short-term US T notes), which have low to no return. It wouldn't be a good 'bet'.


Thu, May 16, 2013 : 11:39 a.m.

Didn't Detroit do something like this, issuing debt to cover budget shortfalls? That worked out well for them. Or maybe Washtenaw County could match revenue and expenses like the rest of us?


Thu, May 16, 2013 : 11:35 a.m.

Did this debt obligation go out for multi-bid? Or is someone getting a $500M favor? Even a $5,000 lawn mower goes out for bid.

Hot Sam

Thu, May 16, 2013 : 11:24 a.m.

Stephen has it right... A healthy economy requires interest...this is yet another example of how we are all being taken by the governments continued printing of money... The longer it continues, the more bitter the pill will be to swallow...

Stephen Lange Ranzini

Thu, May 16, 2013 : 10:40 a.m.

The purported savings from this plan are manufactured by financial engineering. Now is not the time to do this. The merit of borrowing now is that long term interest rates are low, however that money will be invested in stocks & 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: So any benefit from borrowing at current record low interest rates is likely to be given up though future substandard investment performance. Stocks are at high levels due to the Fed's stated policy of printing money to stimulate the economy. Chairman Ben Bernanke has been very explicit in his public remarks as to what he is doing to counteract the business depression (printing money to increase stock prices) & why he is doing it (to lever the wealth effect to increase consumer spending). Bonds are at record high levels & long term interest rates have never been lower because the Fed has a program to buy $85 billion of bonds per month in an effort to force long term interest rates lower to stimulate the economy and the housing market in particular. When the bond market & stock market drop the pension fund will lose a lot of that money it has invested including the newly borrowed funds. On the other hand the value of its liabilities will drop when long term interest rates rise. There are multiple outcomes & trajectories that are widely disparate some of which could cause large losses. This is not a sure thing at all, in fact it is speculation, akin to borrowing to invest on margin. The savings may disappear when a new deficit opens up. Also how are we assured that a future board won't again reopen the pension plan to new employees which is how we got to this position of losing a third of a billion dollars in the f

Stephen Lange Ranzini

Fri, May 17, 2013 : 11:29 a.m.

@Steve Bean: In a pension fund, the net present value of the future liabilities is calculated using a discount rate. When interest rates fall, that discount rate drops and the net present value of the liabilities of the pension plan rise. When interest rates rise, that discount rate rises and the net present value of the liabilities of the pension plan fall. A similar calculation occurs on the asset side using the estimated annual future return on the investments. In calculating the actuarial position of a pension fund, these two estimates, the discount rate used to discount the future liabilities and the estimated rate of return on the investment portfolio are key. Slight changes in the rate can generate big swings in the UAAL (unfunded actuarial acrrued liability).

Steve Bean

Fri, May 17, 2013 : 1:44 a.m.

"On the other hand the value of its liabilities will drop when long term interest rates rise." Stephen, could you explain this further? TIA.


Thu, May 16, 2013 : 2:04 p.m.

VERY smart comment.

Stephen Lange Ranzini

Thu, May 16, 2013 : 11:05 a.m.

... first place.

Bob W

Thu, May 16, 2013 : 10:20 a.m.

"University of Michigan Ross School of Business Professor Robert Dittmar said in an interview with that one of the biggest risks the county would face would be investing its money safely to guarantee a profitable rate of return. " I think he means they would be speculating. Not something a gov't entity should ever be doing let alone with borrowed money. P.S. University is spelled incorrectly in the quoted text.