County officials consider bond sale for $432 million in projects
June 11, 2014
MACOMB COUNTY — A pair of major goals for county officials appear to be taking shape at the same time as the Board of Commissioners and the Executive Office work together on a plan to finance retiree health care benefits and renovate several county buildings.
On June 5, the board approved a resolution asking the Executive Office to issue a proposal request for professional services for bond counsel and a financial adviser. Many commissioners believe that it is in the best interest of Macomb County to seek competitive bids for these services, as officials are strongly considering using municipal bonds to defray the costs of unfunded retiree health care liabilities and a series of capital improvements in downtown Mount Clemens.
“This is a really exciting time in Macomb County government,” said Commissioner Fred Miller, D-Mount Clemens, chair of the board’s Finance Committee. “A lot of big decisions are being made to get our finances under control, to honor some old promises and to rebuild our infrastructure. It’s a huge honor to be doing this, but it’s also very daunting and challenging.”
County Executive Mark Hackel, D-Macomb Township, stressed the importance of taking swift action, rather than waiting around for these needs to get worse.
“Both of these projects are equally important issues that we’ve needed to address for years, so we decided to look at them both together,” he said. “Doing nothing is not the answer — that’s how you end up in a similar (bankruptcy) situation as what Detroit and Wayne County are facing right now.”
The first component of the plan would involve setting aside $340 million into an interim retiree medical benefits trust. This contribution would consist of a $270 million bond sale, $40 million from the county’s general fund balance, and $30 million from a delinquent property tax fund. The funding strategy is modeled after one that Oakland County has been using since 2007.
For the past decade, Macomb County has been unable to allocate the funds necessary to pay for the health insurance of its employees after retirement. Officials suspended the prefunding of their retiree health care liabilities in 2004 after significant budget cuts needed to be made. Additional economic hardship spurred by the recession combined with ballooning health care costs only exacerbated the problem. Now, officials are facing a situation in which they will be unable to pay their health care premiums in the future unless money is put aside in advance.
The new proposal would allow them to sell bonds to cover these liabilities for the next 25 years. It assumes that Macomb County would receive a 7.5 percent rate of return on its investment, which is below the 9 percent return rate that the county has traditionally received on its pension system. If approved by the board, the plan would have to be submitted to the Michigan Department of Treasury for final authorization no later than Dec. 31. Because of this tight window, the board also approved a resolution on June 5 requesting that the state extend its deadline on the bond program.
As enthusiastic as county leaders are about this proposal, they acknowledged the gamble inherent in subjecting retiree health care benefits to the ups and downs of the financial marketplace.
“This seems like it’s the best play for us right now, but there is a lot of risk involved,” Miller said. “When you look at how many zeroes are at the end of these numbers, it’s obvious that we need to be as cautious and careful as possible. At the same time, though, it’s very important for Macomb County to honor the commitments that we’ve made to our retirees over the years.”
Hackel agreed, but he offered a more optimistic view of the bond proposal, as well as a distaste for simply maintaining the status quo.
“This is a glaring issue that we know we have to resolve,” he said. “Yes, there are risks associated with this plan, but we don’t want to just ignore the problem and keep kicking the can down the road. The market is not the real risk here — the real risk is continuing to do the same thing that we’ve always done. As long as we continue the good practices that we’ve shown under the (Macomb County) charter, then we will continue to be successful.”
The other component of the funding proposal would involve selling bonds to pay for a host of upgrades to county buildings and infrastructure that were included in the county’s five-year capital improvement plan for 2014-18. In all, officials are considering roughly $92 million in projects that would provide for major renovations to existing county buildings, upgrades to information technology (IT) equipment and maintenance on facilities’ roofing, electrical, plumbing, and heating and cooling systems.
A big chunk of these funds — at least $35 million — would be committed to the county’s downtown revitalization project, which would involve consolidating many Macomb County operations in downtown Mount Clemens. These ongoing efforts to establish a central campus would include a massive overhaul of five existing facilities, including the 13-story former County Administration building. Officials are still awaiting the insurance settlement from the electrical fire that struck the building in April 2013, a payment that they expect to come in between $8 and $10 million.
Not included in this five-year capital improvement plan is another potentially massive project: the proposed construction of a new Macomb County Jail building. Instead, the plan includes about $7 million in repairs and renovations at the 60-year-old lockup, which experiences frequent overcrowding problems. County Sheriff Anthony Wickersham has estimated that if a new jail is not built, the existing facility will require about $71 million worth of maintenance over the next 30 years.
According to Miller, on June 18, the Finance Committee is expected to decide on a resolution of intent to issue bonds to fund both the county’s unfunded retiree health care liabilities and the downtown revitalization project. If the resolution passes, it will be passed along to the full Board of Commissioners for a final vote on June 19.
Miller is grateful that the board opted to hire bond counsel and a financial adviser for such massive and complex proposals.
“I’m glad that we’re planning on doing both of these projects at once,” he said, “but I’m even more glad about the way that we’re choosing to do them. So much money is at play here that we want to make sure that Macomb County is represented as well as possible, and that we’re being as open and transparent as we can be.”
Hackel, meanwhile, feels strongly that the decisions county leaders are making in 2014 will pay off in a big way down the road.
“I think this will be something for us to celebrate years from now,” the county executive said. “I think those who come after us will say, ‘Thank you for not passing these problems down to us.’ This group (of officials) is very committed to fixing the finances of Macomb County. We’ve come a long way, and now we’re in an enviable position.”
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