Chairperson Thompson called the Johnson County Board of Supervisors to order in the Johnson County Administration Building at 9:00 a.m. Members present were: Pat Harney, Mike Lehman, Terrence Neuzil, Sally Stutsman, and Carol Thompson.

Thompson called to order the work session to talk about bonding strategies. She introduced County Auditor Tom Slockett, Deputy Auditors Joe Elder and Chris Edwards, and Springsted and Associates Representative Tony Roetlin. Slockett presented a handout with a list of expenditures which are eligible to be paid by bonding, and when these expenditures were paid. He said the first page is expenditures included in the Board’s intent-to-bond resolution; the second page is expenditures made prior to November 24th, and the third page includes expenditures made since January 24th. He said the last page would require the Board to pass another resolution, and the first page would require the issuance of taxable bonds, the interest rates of which are 1.5%-2% higher than non-taxable bonds.

Roetlin explained that a company or private entity almost always borrows on a taxable basis. If they get a loan at 7%, this is a taxable loan. On the other hand, Roetlin continued, municipal entities, such as cities, counties, schools and not-for-profit entities borrow at tax-exempt rates. This means the lender does not need to include the interest paid to them on their tax return, so that they are not taxed on the interest income. Since they do not get taxed on the interest income, they then offer the borrower a sufficiently lower rate. He said over the last 50 or so years, the difference between taxable and tax-exempt borrowing interest rates is generally about 1.25%-2.5%. He said borrowing longer-term makes the spread wider, while borrowing shorter term makes the spread narrower.

Roetlin said he would give some general background about borrowing, and give the Board some things to think about, regarding whether or not to borrow for certain kinds of expenditures, and when. He said a municipal entity might consider taking on debt to reimburse itself for an expenditure with proceeds from a tax-exempt borrowing. He said that some large-city issuers across the nation were paying cash for things until they ran into trouble. Then, at the end of a fiscal year, they would go back and do $50 million worth of borrowing to repay themselves for different capital expenditures. As a response to these abuses, the Treasury passed the reimbursement regulations that regulate an entity’s ability to reimburse themselves for prior expenditures. Before this, he said, government entities could reimburse themselves for expenditures paid up to 10 years prior. The new laws require things such as the Board’s recent reimbursement resolution, passed in January, which was an attempt to comply with that so that expenditures made in the past 60 days could be reimbursed to the County, through a borrowing. He said that almost anything paid before that would need to be funded through a taxable loan.

Stutsman asked what the advantage is for doing taxable borrowings, instead of non-taxable. Roetlin said that the County doesn’t want to do a taxable issue unless it has to; he explained that taxable bonds are more expensive, because the County has to pay the extra interest expenses. Lehman thought that there are certain criteria qualifying for a taxable or non-taxable borrowing. Roetlin said just about anything the County might borrow for can be borrowed with tax-exempt proceeds. Lehman said he is confused by Slockett’s handout; are the expenses on the first page eligible for a taxable, or non-taxable, borrowing?

Slockett said the first page he gave them are expenses eligible for non-taxable borrowing; the 2nd page are taxable expenses, because they were paid prior to passing the resolution. Slockett said that although those expenses were paid before the Board passed their intent-to-bond resolution, the Supervisors could still consider doing a taxable borrowing, and decide whether or not this borrowing could still be an advantage to the taxpayers. Slockett said that bonding with the Debt Service Levy gives the County about 9% more for the same expenditures. He said it is to the advantage of the individual taxpayers outside of the TIF areas to use that levy because they get about 9% more for the same amount of tax, or about 8% less tax for the same dollar. Thompson asked if this is true on taxable and non-taxable borrowing, and Slockett said yes. The difference, Slockett explained, is that the interest would cut into that savings, or might even eliminate the savings altogether, depending on the interest rate. Thompson said another reason to use a taxable borrowing is that there are fees for a non-taxable bond; if it were a very small borrowing the fees for the non-taxable bond could eat up the benefits. Roetlin said this could be the case for very small issues. He said that, in general, the County is still better off borrowing tax-exempt, all other things being equal. Thompson asked what a small issue would be, and Roetlin answered anything under $100,000. Roetlin noted that counties and municipal entities have both State and Federal regulations with which they have to comply in the case of a borrowing or a bonding.

Roetlin showed the Board a handout containing a variety of background information about bonding and borrowing. He showed the Supervisors a brief list of reasons as to why counties might borrow. One reason might be for a building project, or something else with a long life. Another reason counties could borrow is affordability; if a project really has merit and is for the good of the taxpayer, then breaking it into 3 lumps instead of one makes sense. Roetlin said that another reason to borrow is to use the Debt Service Property Tax Levy. He explained that if you do a bond issue or loan, and repay it through the Debt Service Levy, counties get to extend that levy over the taxable valuation throughout the County, plus capture tax increment, which would include every TIF district within the County. Roetlin said that from a tax levy perspective this is the only way to access TIF funds for a County. Slockett said the taxable values of the TIFs in Johnson County is $319 million, about 9% of the County’s total taxable valuation of $3.67 billion. He said that by extending a Debt Service Levy for an expenditure that has been borrowed for, the county is able to tax taxpayers that otherwise would be protected by the TIF in which their home or business is located.

Slockett said this is why the Board should give serious consideration to bonding; using the Debt Service Levy can produce more revenues for the County. He said paying for expenditures out of the Debt Service Levy, rather than the General Fund, also saves taxpayers 8%. He said the Supervisors can cut the levy from the General Fund, put it instead into the Debt Service Levy, and replace those dollars at less cost to the taxpayers. Neuzil said that Slockett’s explanation makes sense to him, but expressed a concern about the Supervisors moving expenses into the Debt Service Levy, and then continuing to tax for those dollars in the General Fund, in essence creating new taxes. Thompson asked if this would affect what other taxing entities get; Slockett said it would be slightly less, but a small, insignificant amount. Stutsman asked if counties are the only ones able to access this, or can schools also bond? Slockett said schools can also bond.

Roetlin referred the group to a page in his handout about a hypothetical example of an $800,000 borrowing. He said he made the number up; this is the most that Johnson County could borrow, per project, for a public building improvement with a hearing but no referendum. He asked the Supervisors to imagine a 1-year issue, which would be the shortest interval and lowest total interest cost to the County. He said that net proceeds for the first year are $796,500. This assumes no capitalized interest, and a public sale, so the County doesn’t have to pay for the first year’s interest out of its pocket. He said that using an estimated, tax exempt interest rate of 3%, they would pay $826,000 of total interest and principal. He said with the taxable valuation of about $3.67 billion, and $319 odd million of TIFs, the Debt Service Levy would be spread across $3.99 billion of valuation, 9% higher than the General Fund’s valuation amount. He noted that if they compare a cash expenditure of $796,500 from the General Fund, versus a borrowed expenditure of $826,000, the County has now paid $29,500 to borrow it. So, he asked hypothetically, what is the advantage? To answer this question, Roetlin showed the Board how bonding will save money for homeowners, business owners, and owners of ag land in Johnson County. He said that bonding saves taxpayers about $0.01 (one penny) per $1,000 of valuation on their property. Slockett said that the proposed bonding would also save money for the citizens of cities in Johnson County, such as North Liberty. He said that while it is true the cities implementing these TIFs are able to capture taxes from people that aren’t living in the city, the people paying the biggest cost and have the biggest loss in tax revenues are the people in the city itself. He said they are paying the most for the TIFs.

In answer to Slockett’s question, Roetlin explained that par amount is a bond market term, similar to face amount. He said par amount is usually, but not always, the same as principal. He said that amount is what the County should be thinking about when they look at a section in the Iowa Code, which sets limits to borrowing amounts. He said most of these regulations are in Chapters 331 and 441 of the Iowa Code.

Harney said he doesn’t see how the County can bond, given they are already at its maximum taxation level. He said that next year looks even worse than this year, and wondered how they will be able to pay it back? Roetlin said the key thing to remember is that while the General Basic levy’s rate limit is $3.50 per $1,000 of valuation, the General Supplemental doesn’t have a rate limit, but is instead limited as to the kinds of expenses that can be paid from it. Roetlin said the Debt Service Levy is sort of like the Supplemental levy, in that it is unlimited to rate or amount, but is limited to purpose; there are only certain types of things that a county can borrow for, without a referendum. He noted that with a referendum, a county can borrow for just about anything. Neuzil explained to Harney that bonding creates a 3rd cup; since the General and Supplemental cups are full, some expenses could be paid out of the 3rd cup. Slockett added that, depending on whether they are spending additional dollars or reimbursing themselves for money already spent, it is also possible to save the County money through bonding. He said that if the Board bonds for the $478,000 of already-paid expenses covered by the Board’s recent resolution, they effectively reimburse themselves, and save 4%. He said this is why it is something to seriously think about. In answer to Stutsman’s question, Slockett repeated that the savings from bonding occurred by being able to include taxes from businesses and residences in TIFs. Thompson thought that the more TIF areas they get in the County, the better bonding will look. Roetlin said that in theory, to give a mathematically ridiculous example, if they switched every expenditure out of the General Fund into the Debt Service Levy, by bonding for everything every year, then more TIFs would be better. He clarified that he is not recommending this course of action.

Slockett said the Supervisors’ jobs are to represent the County taxpayers. Slockett said the cities are borrowing money in order to capture taxes the County would otherwise get; to get it back from them, the County then has to borrow money. Stutsman said she agreed with Neuzil’s idea of keeping spending under control, and not simply use bonding as another revenue source to fund more programs. She stated that bonding is the only way the County can pay for the increased services required because of the economic development that occurs in and because of the TIFs. Lehman said bonding is a way to lower taxes. Thompson said another benefit is that they spent money that they saved in the Space Needs budget for the $478,000. She said that if they use the bond to repay the Space Needs budget, it would solve the problem they have been dealing with of not being able to fund Space Needs. Stutsman and Thompson said the Board often makes its biggest cuts in the Space Needs budget, because it is easiest, and causes the least impact. Neuzil asked how many years on the average bonds are paid back in. Roetlin said the statutory maximum is 20 years on General Obligation Bonds for a county in Iowa. Slockett said that to make this work as a savings to taxpayers, they have to borrow for less than a year. Stutsman wondered if they would be in a position to pay this back in a year. Roetlin explained that when it comes time to repay the bond, the County will have collected a Debt Service Levy that can be spent for nothing else. He said the money collected from the Debt Service Levy cannot be transferred and spent on something else. He said it is special purpose money that will be there unless nobody pays their taxes in Johnson County.

Budget Coordinator Jeff Horne asked if they would try to put it in for this year and lower their General Supplemental fund. Slockett said they would list the tax askings to be less next year, and then have the tax receipts be more. Slockett noted that the reduced tax askings would be larger than the increased tax receipts; the amount of this difference would represent the savings to the Johnson County taxpayers. Lehman said he thought of this concept as passing the hat among more people, to spread the payment of expenses out among more taxpayers. Thompson thought they should capture as much as they can for this year, because next year they don’t have much in the way of Capital Expenditures planned. She asked if the financial software counts as a capital expenditure; Slockett said yes, it could be bonded, as could voting machines. Neuzil asked how much money would the taxpayers would save on an $800,000 bond? There was some discussion about this number. Stutsman said the big advantage is that they are recouping dollars from the TIF that they are not able to do otherwise. Roetlin said that a penny on $3.6 billion of taxable value is about $36,700; thus, the net decrease of taxation to the people that pay into the General Fund is about $36,000. Slockett thought this might be a bit high. Neuzil asked if they would save taxpayers $10,000? Roetlin said they would be spending more, in total; the taxpayers outside the TIF districts save $0.01 in rate; the people in TIFs, then, pay that $0.01.

Thompson asked about a number in Roetlin’s hypothetical $800,000 borrowing. He said the total costs associated with the hypothetical borrowing are a sum of these 4 types of expenses: cost of issuance, lawyers/financial advisors, interest, and a $8,500 underwriters discount commission. He said the last item would only be present if the County didn’t go to a local bank, but offered the bonds through a large company. If Dain Rauscher or Piper Jaffrey bought the bonds, for example, Roetlin said they would charge the County a commission to sell it to individual investors. Thompson noted that these companies would also charge a commission to the investors buying the bonds, as well; Roetlin agreed. In sum, Roetlin said, the County would be paying back $826,000, $14,000 of interest in December 2002, and $12,000 of interest and $800,000 of principal in June 2003. After paying this $826,000, Roetlin said, they would get $796,500 of net proceeds. Thompson asked if the County can get a tax-free bond from local banks, and Roetlin replied yes. Lehman clarified that it is going to cost the County $29,530 to get $796,478 of usable funds and the impact to the taxpayers is that it is going to cost each of them less to fund the County’s budget from what they are presently doing. Roetlin agreed.

Stutsman asked if you shop around for the best interest rate when working with banks. Roetlin said the main advantage of going to a local bank is to avoid strings attached to public debt market issuance, like doing a 50-page official statement, which looks like a prospectus, and is filled with legal jargon. Roetlin said he usually advises clients to either pick a bank and go to them, and negotiate a private loan; in that case, he said, Springsted can help the County negotiate a fair rate. He said local banks sometimes offer a ridiculously low interest rate in the hopes of gaining a depository relationship with the County. On the other hand, Roetlin said, sometimes banks don’t really understand how secure the County’s credit is, and offer a ridiculously high rate. Thompson asked if banks are going to resell these bonds? Roetlin said a local bank likely would not. Thompson asked if they get a corporate tax benefit from the low interest? Roetlin said banks look at it from the perspective of putting it in their portfolio; they don’t have to include it as income, which is why the rate is lower. He said the other subsidy that banks get at the federal tax level is that small issuers, those who are issuers of less than $10 million in debt in any given year, are able to designate their issue bank-qualified. Roetlin said the law allows purchasers of bank-qualified local debt, that are banks, to deduct the carrying costs from their tax return, as well. Roetlin explained that banks can deduct a percentage equal to the current interest rates (currently about 2%) of the bond issue amount, which further lowers their interest rate.

Stutsman said the Board has to decide whether to go this route. Slockett said they need to move fast. She asked Roetlin if they need a bond council; Roetlin said he would advise this. Stutsman thought they could work out whether or not to use a local bank, but wondered if the Board should give direction on this? Roetlin said a bond lawyer won’t care where the County borrows from, but prepares legal proceedings. Roetlin said he could point out the advantages and disadvantages of different forms of borrowing from different entities. The Supervisors and Slockett discussed the timeframes of the various expenditures on Slockett’s worksheet that qualified for bonding, and what it would take to bond for these items. Stutsman noted that now is a good time to borrow, because of the low interest rates. Roetlin said whether the bonding is taxable or non-taxable is a big deal for him, but overall, whether rates are 2%, 3%, or 4%, they are historically low. He said rates are especially good on the short end of the yield curve, for a 1- or 2-year borrowing. Roetlin said that shorter-term rates got much better after the terrorist events of September 11th, 2001. He thought short-term rates are currently near or at all-time lows. Stutsman asked how Enron’s bankruptcy could affect rates, and Roetlin said that this boded for further lowering of short interest rates.

Roetlin said that one non-quantifiable caveat is possible tax limitation legislation at the State level. He said he hasn’t looked closely at this year’s bill, but last year’s bill contained a 3-year averaging of the base property tax asking, and then an extension of it at some inflationary index. He said that if the State passes legislation that lowers Johnson County’s base calculation, it could have future impact. Roetlin said he mentioned this as a caution. Slockett said as County-a-Day comes up, this would be a good thing for Supervisors to remember when talking to legislators. He continued that limitations actually increase spending, because counties are afraid to not spend everything they can for fear that their future ability to tax is going to be compromised under limitation laws. Roetlin said one element regarding this issue is that there are people like himself, in the private sector, who do not have to get reelected, who are able to speak honestly about property tax limitations. Roetlin said his message to taxing entities is to not lower taxes, if you’re risk-averse, because no one knows what is going to happen in Des Moines. On the other hand, Roetlin continued, here is a methodology that allows for the lowering of the tax asking for people who live in incorporated Coralville, outside of a TIF district. He said the downside is the uncertainty of what is going to happen in the legislative session. He said he knows a lot of counties can show their levy dropping by about the amount, in dollar terms, of mental health pass-through dollars.

Roetlin showed the Board some things he has heard about in Johnson County that are past or contemplated expenditures that do qualify to be bonded for. He said that if something doesn’t qualify for borrowing, the Board could borrow for a like expenditure, which does qualify, and simply substitute one expense for the other. Nobody at the federal or state level says they have to bond the things that fit or don’t fit; the County makes those determinations on its own. Regarding Capital Improvement planning, Roetlin showed a list of advantages he sees to having a 5-year plan for things like building additions, and how to finance them. He acknowledged that Johnson County does plan for these things. He said that if they are ever interested in outsourcing or getting help with this type of planning, his company, Springsted, could help.

Roetlin said that from a procedural perspective, the bond council could draft procedures to go forward. He said if the Supervisors are sure they want to borrow for something, especially if switching from the General Fund to the Debt Service Levy, or if it is an addition for something they are currently budgeting, then the Board needs to have a resolution in place by March 15th, the time that the budget is certified. Stutsman asked if it would make sense to have this available when doing the public hearing on the budget? Slockett said if they are going to levy next year, they are going to have to move quickly. Slockett clarified that the bonding information would also have to be available 10 days before the hearing when they supply their budget materials, which is less than a week away.

Lehman said the Board’s interest in bonding is motivated by wanting to lower the impact to the taxpayers. He asked if the owner of a $100,000 home would save $.51 if the Supervisors bond? Roetlin said yes, for a taxpayer not in a TIF district, and using the 02-03 rollback for valuation. For a $500,000 home, then, Lehman continued, the savings would be $2.50. Roetlin affirmed this. Lehman said for a 160-acre farm valued at $144,000, that person would save $1.43. Lehman said that in theory this looks great, but how much money, time, and work does this cost the County? Neuzil agreed, saying that it seems like the County would only save about $5,000-$10,000, after taxes, for one year’s bonding. Roetlin and Slockett corrected the group; the County will save $30,000, after expenses; Roetlin said the net to net savings for the County would be $30,000; his numbers and estimates have all expenses built in. Lehman said they could think about this as how much pain and work they want to go through in order to save this amount of money? Roetlin said they could also consider how much pain and agony they would have to go through by chopping $30,000 out of a given department’s budget.

Stutsman said she is encouraged by the fact that the County is already committed to these expenses, and this is simply a way of being more equitable to all of the taxpayers in the County. She said she agrees with Neuzil in that she is not looking for another source of revenue to fund future projects, or put money into the Debt Service Levy in order to give a block grant to ABC Child Care.

Slockett said that it would behoove them to look at everything if they are going to spend, anyway. He said bonding for the County’s insurance costs is also possible, because the County is a self-insurer. Stutsman asked how this would help; Thompson answered that they could remove the insurance expenses from the Supplemental, and Slockett added that they could then bond for another $800,000. Roetlin said that for self-insurance, he thought the County could bond for an unlimited amount. Slockett said if it is unlimited, then they could put the entire self-insurance amount into the Debt Service Levy, and that would save a considerable amount of money. Roetlin said in that example, the County would save the same penny on each $1,000 of valuation, but on a bigger overall total, increasing the total savings to the County and County taxpayers. Thompson asked if the amounts the County can bond for financial software, hardware, and GIS are limited or unlimited? Roetlin said that GIS is unlimited; Horne said that financial software is limited to $800,000, as it is considered building equipment.

Neuzil said if they are going to do this they are going to have to vote on it very soon. Neuzil asked if this can be put together in a week? He wondered if the extra savings would go into their reserve or General Fund. Slockett said there probably wouldn’t be extra savings because they would be adjusting the taxes lower for next year. Roetlin said he heard Thompson mention getting the money next year, but corrected her, saying the County would get the money now, and could earn some interest, albeit not very much because of the low interest rates. Stutsman asked if the County has to take bids from local banks to handle a $2.5 million issue? Roetlin said the County could take bids, but wouldn’t have to. Neuzil asked who does that, the County Treasurer, or Roetlin’s company? Roetlin said his company helps people decide whether they want to go to the public market, take bids from local banks, or go to one local bank. Next, he said, they tell a bonding attorney how to draft proceedings based on whatever decisions have been made. Roetlin acknowledged that there are political and external reasons to take bids; most debt sales in Iowa are done on a public sale basis, through a bidding process. Roetlin said while there is no upside to West Des Moines negotiating with a local bank, there might be here in Johnson County. Then, Roetlin continued, Bonding Attorney Bob Josten could prepare resolutions that preserve a spot in the levy for the Debt Service Levy, on an estimated basis. He said on a multi-year issue, the first year is estimated and then the rest of the years are adjusted according to the accuracy of the first year. He said if they are doing a one-year issue, they need to know exactly what they are borrowing for, and what the interest and principal is going to be, in order to get hard numbers.

Neuzil repeated his earlier point; how close can these estimates get in the next week? Roetlin said that if the County knows the amount it is borrowing for, it doesn’t take any longer to estimate. He acknowledged that interest rates do change daily. Neuzil thought the Board should leave itself some room, in case interest rates go up, they don’t have to pay interest rates out of the County’s already depleted reserves. Roetlin agreed, and said that paying interest you didn’t expect would eat away at the savings, incrementally. Slockett asked if they would pay less interest if they made the borrowing shorter than one year, since the County doesn’t need the time. Roetlin said they need to get past both tax collections, because they have to have the property taxes collected to pay the loan.

Harney added that the County is already running a year behind in its tax collection. Slockett said they collect taxes in July 2002; they don’t need a year. Roetlin reminded the group that when they do the substitution, reducing a General Fund levy and put up a Debt Service Levy, the only thing that Debt Service Levy money can be used for is to pay that borrowing. Roetlin cautioned the group to remember that the County gets its property tax monies in 2 chunks--September/October 02 and March/April 03--they can’t pay off the entire debt, and say they’ll reimburse themselves with the March/April 03 money when it comes in. Roetlin said that the other taxes can’t be used for reimbursement, but are trapped in the Debt Service Levy. So, he said, the County needs at least until March or April to collect the levy they are about to solidify. Roetlin noted that his analysis is conservative, in that it assumes all of the principal being paid in June 03, not early at all. Slockett asked Roetlin if he was saying that County cannot make payments out of the General Fund, and then reimburse that from the Debt Service Levy when the revenues come in. Roetlin said he is almost positive and would check on that. Slockett said this also assumes that shorter-interest loans have lower interest rates. Thompson said they couldn’t pay it back from itself and that it has to be paid back from Debt Service Levy. Roetlin said they could pay it back from itself, but didn’t think the County could reimburse itself in the General Fund from the Debt Service Fund. Roetlin said he would ask Josten this question: if they do an inner fund loan, evidence it by a resolution from the General Fund to the Debt Service Fund, to make the first payment, could they later reimburse the General Fund from the Debt Service Fund? Roetlin said he has seen counties do an inner fund loan from the Debt Service Fund to the General Fund, but didn’t know if it is legal. He said he usually discourages this, because if the payment comes and there isn’t money, this is a problem. He said Johnson County could handle this.

Thompson asked if they could still borrow for the self-insurance for the current year, which they have already paid? Roetlin asked when they deposited the allocations. Horne said he thinks every month. Thompson asked, then, if the expenditures made in the last 60 days could be tax-free, and the rest would be taxable? Roetlin said reimbursement regulations generally apply to Capital Expenditures. He said the federal tax code deals with cash flow and capital. He said that if they feel comfortable that these payments into the self-insurance fund are more of a cash-flow characterization, and haven’t really been spent from the standpoint of a tax code definition, then they could potentially bond for these expenses. Roetlin said that lawyers argue all the time about the issue of whether or not money has been spent; if it hasn’t been spent, the Board wouldn’t need a reimbursement resolution. Stutsman asked if there is a downside in bonding for the self-insurance? Thompson didn’t think so, as long as they use the money to pay themselves back. Roetlin said the money is safe, because the County wouldn’t be securing bonds with self-insurance funds; they wouldn’t be pledging any assets. He said for deposits which are already made, for assets that aren’t going to be moved or changed, then the question is, should they let the money rest that comes out of the General Fund, or do they reimburse the General Fund from the Debt Service Levy, via a borrowing? He said that if the County replaces an expenditure that has been made like that, what they are really doing is rebuilding a fund balance in the General Fund, helping it recoup from an expenditure. He said the question now is, in the coming levy, are they going to use that recoupment of $2.5 million for another expenditure in the general fund and avoid asking for the $2.5 million in the general fund levy they are about to approve. He said that would be the revenue neutral/revenue advantageous approach and they wouldn’t be pledging their self-insurance fund.

Stutsman asked if they would have to do this every year? Roetlin said they would not be legally obliging themselves to use this mechanism in the future. Thompson said they would be if they bonded for something that is a regular expense out of the General Basic, because then their General Basic would fill up with other things. Slockett said this would not occur if the Supervisors lowered the General Basic Levy by the amount that they are levying in the Debt Service Levy. He said the only problem would be if expenses went up to the limit; Thompson said that is her concern, and what she thought will probably happen. Slockett said that if they follow Neuzil’s analogy of not increasing expenditures, but just shifting it from where they intended to spend it into the Debt Service Levy, then there isn’t any downside that he could see. Slockett asked if they could do it for both this year’s and next year’s health insurance? Neuzil asked how they would do it for this year, since they are already going to collect those taxes? Slockett said they would reimburse. Roetlin said the fact that they have already collected taxes for that self-insurance deposit is key; if the Board is really doing this to save money for the taxpayers, then they need to reduce their total budget. He said that by reimbursing themselves for self-insurance fund expenditures, they are building back up the General Fund balance to where it would be if they never made those deposits. Thus, he said, they would have to under-levy next year, to spend that balance down to where it probably would be as the budget stands now.

Slockett suggested coming up with some alternatives for next week’s meeting if the Board is seriously interested in the possibility of bonding. Slockett said they could look at everything that could be included; it might make a significant difference. Thompson said that every year they would make a plan; this year’s plan would include the current year and next year. Slockett said they would do this for every year they wanted to save the taxpayers money; if there was a year when they didn’t want to save the taxpayers money, they wouldn’t have to go through the process. Neuzil added that they would do this as long as they wanted to recoup some money from TIFs. Thompson said if interest rates change, it might not be of benefit. Lehman wondered if the Board would like to consider not passing all of the savings on to taxpayers, and use part of the money they save as a cushion for amendments or carryover. Stutsman said she has concerns with this, psychologically and politically, because in the past the County has not borrowed money to save for future projects, and didn’t know how the public would take it. Slockett said the Supervisors would set the amounts each year, so they could increase it if they wished. Neuzil said the debate for him is not so much with the 03 monies, but in the money for 02, since technically it is taxed, and done. Did they still want to find a way to reduce it more?

Stutsman asked if there is a problem if any of the Board Members have stock in a certain bank. Roetlin said that though he isn’t a lawyer, he suspected that if they did a competitive local bidding, any potential concerns would be diffused. Neuzil asked who make the decision as to who the lender will be: the Board, the Auditor, or the Treasurer? Roetlin said he sees it as the Board’s decision; Thompson said they would probably get recommendations from the Treasurer and the Auditor. Roetlin said that, technically, by law, bids for bonds are received by the Treasurer, and then the Board votes to award a bond issue or loan to an entity.

Recessed at 10:35 a.m.; reconvened at 10:47 a.m.

Roetlin said he wants to outline some process items that will impact the Board’s budget timeline. He said if anyone has any questions, he could help; if the Supervisors decide to proceed, Josten can get the proceedings out to them. He said that if the County chooses to borrow for items that fit into the definitions given in 331.441(2b) of the Iowa Code, regarding an essential county purpose, these are items they are able to borrow with a hearing, no petition period and no public vote. He said that for one of these borrowings, the Board would need a hearing on a borrowing of not to exceed a certain amount, including between 4-20 days notice in the paper of that hearing to entertain public comment. Thompson said the amount they have so far is $478,162 in the resolution. She asked Slockett if somebody is going to prepare a table showing $478,162 plus any additional amounts; Slockett said the Auditor’s Office would do this. Stutsman said the Board needs to give Horne direction today; Horne agreed. Thompson thought that the Auditor’s Office would list expenses covered in the earlier resolution, expenses they’ve already made but are not covered in the earlier resolution, and planned expenses for this year and next. Slockett added that there could possibly be additional expenditures made this year that have not yet been added.

Neuzil asked if they should meet before next Thursday if they have to vote, and wondered about setting up a work session. Stutsman said she would rather go slow, but is comfortable going ahead with what they have here. Stutsman said she is cautious about including everything possible that could be bonded for, because it is a big change for the County. Slockett repeated his earlier comment that the Board is passing up saving the taxpayers a lot of money. Slockett said the more money they can bond for, the more money the taxpayers save. Stutsman said there hasn’t been a chance to educate the taxpayers yet. Thompson said the only actual savings the County can accrue is by putting items from next year’s budget into the Debt Service Levy. Since they have already taxed for the $478,000, bonding for this year’s expenditures will not save the taxpayers money, but only increase the County’s carryover fund balances. Slockett and Neuzil noted that the Supervisors could lower next year’s taxes by the amount saved this year. Thompson said she understood. Slockett said he did not think there is a downside to the County’s bonding for the expenses being discussed in today’s meeting. Thompson said their earlier hypothetical case had been for a $800,000 borrowing, which resulted in a $36,000 benefit to taxpayers; she noted that bonding for several million would make the benefit considerably larger. Neuzil said if they were to include a lot of things, he would like to see the list of those expenses, to ensure thorough community education. Thompson asked that the list include a tax-free and a taxable column; Neuzil asked for columns delineating 02 and 03 budget years.

Harney said he is concerned about how this is going to affect the County with the State. He thought the State could look at Johnson County’s borrowings and cut its spending to the County, adversely affecting Johnson County in the end. Harney said another concern is that if they do the bonding and spend for something other than what is being budgeted for, then they are adding to the tax dollars. Stutsman said that perception and reality are often 2 different things, and they need to make sure that the taxpayers are well-educated about this. In answer to Harney’s 2nd concern, Slockett said that if they do the bonding the way it’s been discussed, the money isn’t going to be there next year to spend in another way, because the Board will have lowered the property taxes for next year. Lehman said he saw the bonding as a legal way to recoup some of the County’s losses because of the TIF districts. Harney agreed, but said his concern is buying large items and spreading the financing out over 3-5 years; he said this would force the Board to raise taxes. Thompson noted that they have discussed a long-term borrowing for some expenditures like voting equipment; Slockett added they could maybe do this for financial software, as well. Neuzil noted that he is thinking of that as a separate discussion, because it would not be a one-year borrowing. Slockett said there are good reasons to spread a borrowing of this type into the future; Roetlin added that in this case, accessing the TIF districts makes the borrowing slightly lower every year.

Stutsman and Neuzil asked when the Auditor’s Office could realistically have this ready? The group discussed the timeline of the budget publication, and how the bonding was going to impact this by moving it back a week. The Board decided to set the budget hearing for March 11th, at 5:30, and to meet in a work session at 9 a.m. on Wednesday, February 20th, to further discuss the bonding. Roetlin mentioned that the Board has to have a separate hearing, outside the County’s budget process, one for each project, whether it be building construction, self-insurance, etc. Thompson asked if they couldn’t do all of the items in one hearing, and Roetlin replied they could be done sequentially, open and close one meeting, then open & close the next, etc. Sullivan clarified they could have multiple, short hearings in the same day. Roetlin said he assumed that Horne or Slockett would call him if they needed further information from him.

After Roetlin’s departure, the Board of Supervisors moved to a discussion of the current budget. Horne said that bonding will, of course, change some of the numbers on his worksheet. Thompson asked what changes there are; Horne answered the biggest change is that health insurance has been allocated out. He noted that Central Services is way down, after the health insurance was allocated out to individual departments. Horne said the ending balance is up slightly, because health insurance was lower than previously thought. Neuzil asked if Horne was able to adjust the Sheriff’s budget, and Horne said yes, but with some small rounding differences. Horne said he also recalculated the ending Senior Dining numbers, and said he thought they are fairly accurate, as they now stand. Neuzil asked about Communications in the Central Services budget for next year; Horne replied it is the same, at $4,000. Horne said the biggest change is going to be in the tax askings; they will have "proceeds from debt" line item, which will lower the amount of the tax askings. Thompson asked if there would be another line item to pay off the debt. Horne said no, not on this sheet, the General Basic budget, but there would be a new page for tax askings, delineating the tax askings from the Debt Service Levy. Horne said they would have to create a department with a number, and create a line item with specifically what they are paying. Horne said bonding will change the ending balances, as well. The group discussed the final numbers for Senior Dining, and Horne said the County saved about $25,000-$30,000 in additional waiver revenues, in this fiscal year. Thompson recommended that the County not get too attached to this money, as the County may be asked to return some or all of that money.

Stutsman asked what is the County’s projected year-end balance?. Horne said in the General Fund, for this year, it is about $1.8 million. Thompson asked what he wanted it to be, and Horne answered $2.2 million. He said that if the Board decides to bond, the bonding revenue will result in an higher actual ending fund balance. Thompson asked if he feels better that page 9 shows the ending balance for this year as $1.8 million, and next year’s ending balance as $2.3 million? Horne said yes, this does make him feel much better, because this is the amount they need for cash flow. Stutsman asked what the State Auditor recommends for fund balances? She thought it was 25%, and Johnson County’s was less than 10%. Horne answered that the revenue/expense adjustment eliminates carryovers in Johnson County; without the revenue/expense adjustment, the carryover would be larger. Horne said the revenue/expense adjustment allows the County to not tax for that amount, and to build this into the budget. Horne said this is basically like holding a constant carryover.

Stutsman asked what the 1,996% means for total balances and expenses? Horne said this is a balance to expenses ratio, created partially because of the huge Reservoir Roads Trust. He said the actual amount of what they are spending is a fraction of the balance. Horne said that Reservoir Roads Trust is up to about $2.8 million. Lehman said there was $160,000 in interest last year, but they are only spending $100,000, and putting the remaining $60,000 back into the Reservoir Roads Trust. Horne confirmed this. Lehman asked if this helps their carryover? Horne said this is only a carryover from this fund.

The group discussed giving Senior Dining some of the interest from the Senior Dining Trust fund and decided to give them $8,000. Horne said the Board had directed him to give Senior Dining whatever interest the Senior Dining Trust had generated during the previous year. Neuzil asked if the Board was going to have any discretion over how that money was spent? Thompson said they have 2 choices: they can keep all of the money, for the purpose of using it someday for senior nutrition, or they can give the money out annually. Thompson said they have to use it for senior nutrition, and not for anything else. Neuzil wondered about putting the $8,000 toward something that would promote Senior Dining, on behalf of the County and this trust. Thompson said she thinks Elderly Services needs it for other things, because of the reduced level of the County’s funding this year. Thompson asked if the Board wants to give them money for the rest of this year? Horne said they could pay them something if they want to. Other Supervisors thought that the Board had already agreed to pay Senior Dining some amount this year. Horne said he would calculate the amount of interest from FY ’01, and the Board could allocate that amount to Elderly Services. Others agreed. Neuzil asked if the County should give the interest money with, or without, some type of oversight? He wondered if they could have something to promote Senior Dining a couple of times during the year, such as a volunteer party? Stutsman thought that the only stipulation should be that Elderly Services spend the money on the Senior Dining program.

Horne asked about the budget processes this year, since they hurried at the end. Stutsman said they should talk about what they are doing for their budget presentation, as well. Horne said he could assign 6 service areas, one to each Supervisor and one to himself, a process similar to that of last year’s. Stutsman asked if the Auditors Office is still going to have a very small role? Horne said they declined to have a role, at all. Thompson asked if the Auditor’s Office is still going to create the pages, delineating what homeowners in various places in the County pay for their County taxes? Horne said he could make those same charts. Horne said he would give some general information about TIFs, and also a breakdown as to why the County’s budget was so tight this year. Thompson suggested that they should also tie the budget to the Board’s goals. Neuzil suggested including the impacts of the 4% departmental budget cuts. Stutsman suggested emphasizing that the Supervisors funded very few new requests; almost no decision packages were approved. Thompson asked about the amount of the overall salary increase? She noted that the departments requested $22,300,000, before salary increases and health insurance. Since the County’s total budget was $22 million this year, the Board made dramatic cuts, and should get credit for that. Stutsman said these are the things to emphasize in showing that they really did respond to the fiscal situation.

Stutsman asked about including the levy history in the budget presentation? Horne said the total levy is $8.78. Neuzil remembered that there was a good graph last year showing what is happening to taxes in the different cities and in Johnson County. Thompson said there is one for the schools, also, and said he would include these in the presentation. Stutsman and Horne noted that the County’s levy rate is pretty steady, overall.

Horne said he learned a lot about the budget process this year, and mentioned that by the first week of November, he will know a lot about what the numbers are going to look like. Thompson said this is going to help. Horne asked if they want to go through the normal budget process again, beginning in early September, or have departments wait and do it all of their budget work over a couple of months, like Linn County? Thompson clarified that Linn County finds out their numbers, and then tells the departments to come in with a budget increase of a certain percentage. Neuzil thought the budget situation is going to be worse next year. Thompson said they will not know any of the salary increases by November, because of the negotiation of the union contracts. Neuzil thought they should change the budget forms, eliminating the requests for the department’s top 3 priorities; he surmised that the real issues and priorities for next year would be layoffs. Thompson said they could do a base budget, asking that departments have a base budget of 90% of what they had last year, and then use the decision packages to justify the inclusion of other items. Neuzil said something in the process had to be different next year, even assuming that the budget will be frozen from this year, which he thought was a best-case scenario. Horne said the County lost $1.1 million in its General Fund this year, due to TIFs. Stutsman added that this amount alone, when combined with the County’s lower revenues, accounted for a $2 million lower budget amount.

Horne asked for the Supervisors’ input about the budget process? Stutsman said she still hears complaints about informing the public and the department heads as to where the Board is on the budget. She said County officials get upset when they find out about budget issues in the newspaper, but wondered if this is unavoidable? Horne said that the newspapers get the information out to the public faster than the Board is able to inform County employees. Neuzil said that the Board has heard criticism from some of the entities affected by the block grants, particularly Pathways, who found out from the newspaper that their County funding had been cut or eliminated. Thompson suggested that a phone call from Horne would be appropriate; Stutsman suggested an email. Horne said he is fearful about these, because he doesn’t like to give information out until the budget is finalized. Horne gave the example of the Board’s ICAD contribution, which had been $20,000, but was lowered before the budget was finalized. Stutsman suggested that Horne could tell people that "this is where the Board is as of 5:00 p.m. on Thursday, and it is all subject to change, but just wanted to let you know." She wondered about getting an email list of all the department heads and contact people. Lehman suggested sending out a blanket email, so that people could see that others are also being cut. Neuzil said the Board is not always consistent with their cuts. Thompson noted that if they disseminated the Board’s preliminary budget decisions, they would be heavily lobbied by those affected, perhaps prolonging the budget process. Stutsman said if the Board is committed to open government, that is the consequences. The group agreed that there had been some lobbying this year, as well; Stutsman said this can upset other departments, who wonder why certain departments get to state their case to the Board, and others don’t? Stutsman said departments do have the option of calling over to the Board office to check the latest numbers, or looking at the minutes on the web page. Thompson suggested putting the spreadsheet on the web every day during the budget process. Neuzil said that for the most part, department heads handled the cuts with extreme professionalism. Stutsman agreed, but said that Horne, not the Supervisors, bears the brunt of the complaints. Horne said he didn’t have anyone that was really upset. Neuzil said if they get into layoffs next year, this will be very difficult. Stutsman said they should give departments as much information as they had, as early as possible; departments didn’t want to go to a lot of work preparing decision packages if none were going to be funded. Thompson said if the Board is going to do anything that impacts other cities, they have to tell the cities in August. Thompson said this is related to the Board’s Strategic Plan of identifying non-mandated areas and deciding, early on, which areas will be cut or eliminated next year.

Lehman said they were criticized for the withdrawal of funds from the Senior Center; Thompson said if the County is going to withdraw the $100,000 of funding for next year, the Board should tell Iowa City in July or August. Stutsman said they are supposed to have a process to study this all year. Neuzil asked who is doing this, and Stutsman replied Senior Center Director Linda Kopping. Neuzil asked if the Senior Center is starting to track where people are from? Thompson said yes, Information Services Director Jean Schultz figured out how to combine the Senior Center’s database with the County’s database, to figure out who lives in town, and who lives in the unincorporated areas of the County. Neuzil said they have discussed just paying for the rural people, and taking it out of the Rural Fund. Lehman wondered if they should let Iowa City come up with a proposal, and then sit down with them to discuss it? Thompson said Harney and herself are doing that and the first meeting is the 26th. Neuzil said a lot of people are wondering why the County contributed $100,000; where did that number come from? He said he doesn’t really have an answer to that question, as to why it wasn’t $110,000, or $90,000.

Horne said that starting to work on the budget process and numbers in the beginning of November would make a huge difference. Thompson summarized that they are basically reversing the process; instead of hearing from the departments first, and then finding out how much money the County has to work with, it will be the other way around. Horne agreed. Horne and Neuzil thought that department heads already have a good feel for how difficult next year’s budget is going to be. Horne said there are certain items that are very hard to deal with and accurately estimate, like telephone costs and fuel. Horne said it is difficult to decide if items such as these qualify as new spending, or just inflationary changes to departmental budgets? Neuzil said most of the cuts this year were from non-employee. He said there are departments, like the Sheriff, that is 85% employees, so some employee layoffs are unavoidable. Neuzil said there will be things that are going to take a little longer to do, or offices that will be open less.

Stutsman wondered, also, about reviewing the County’s funding policies regarding the libraries. Neuzil said that is another thing that should be done before August or September. Horne agreed, and said he plans on working on that this spring. Horne said he is first going to find out what is the mandate, and then proceed from there. Stutsman said all of these decisions regarding library funding are policy decisions for the Board. Thompson said they could take a proportion of their levy and give that to each library, based on their circulation, as they do now, but with a limited amount of money.

Horne asked about putting some of the health-related block grants back into the Health Department? He continued that when he asked Public Health Department Director Ralph Wilmoth and he thinks it would be OK. Stutsman said she thinks the Health Department was under a lot of scrutiny with former boards for the huge budget. She said she thinks it was just accounting to get as much out of that budget so that it didn’t look so big. Thompson said they could leave it in block grants but take it out of the United Way process and just let the Health Department make recommendations to the Board. Horne said they make the recommendations to the Board, but they make it early. Neuzil said he would rather they still have their board and come to the Board of Supervisors. Stutsman agreed. Stutsman said it is the same as when the Board of Supervisors transferred all of the block grants into Mental Health/Developmental Disabilities Director Elaine Sweet’s budget and did a fee for service. Thompson said they aren’t talking about a fee for service. Stutsman said they have a better handle on what those services are than the Board does. Thompson said her theory on fee for service is that if it is an expensive service, then it pays you to hire staff to see if people are eligible, but if it costs $35 and you have to hire staff then it isn’t worth it. Stutsman said part of the fee for service is accountability because people feel better if they know there is a client that the County is paying for. Thompson said you have to be more accountable for a large amount of money than for a small amount. Horne said this definitely changes things. He said he has the State worksheet and is going to start working on that.

Harney asked if they know how much the bonding is going to cost when talking about having fees for services. Thompson said about 1%. Horne said it depends on how they do it. Harney asked if there is a bank fee on that. Stutsman said there isn’t the commission fee with banks. Horne said banks would be cheaper than bonding. Stutsman said the interest rate might be higher, too. Neuzil asked if anyone knows if they tax only the less, or tax less the amount that they have room for when they tax. Horne said typically they aren’t taxing less, but rather spreading it out over more taxpayers. Lehman asked if it messes up their numbers if the Coral Ridge base isn’t there. Stutsman said she doesn’t think it messes it up at all. She said they just keep having access to those dollars. The Board and Horne talked about TIF’s for some of the smaller cities. Neuzil said the Coralville resident saves money because they are getting taxed less. Thompson said Coralville government loses only a tiny fraction of the TIF money. She said it’s not like the $800,000 is coming out of the TIF and the County is getting it instead. She said the taxation on the TIF goes up and the County gets the up part. Horne said they might have to raise their levy a little bit to cover it. Lehman said the County is going to have an impact on their dollars.

Adjourned at 11:45 a.m.

Attest: Tom Slockett, Auditor

By Casie Parkins, Recording Secretary