Chairperson Thompson called the Johnson County Board of Supervisors to order in the Johnson County Administration Building at 9:05 a.m. Members present were: Pat Harney, Mike Lehman, Terrence Neuzil, Sally Stutsman, and Carol Thompson.

Thompson said that Deputy Auditor Joe Elder had prepared an accounting of all expenses that could be bonded for. Elder distributed a handout to the group, the top page of which was a summary of these expenses for FY 02 and 03; the back pages contained the explanatory documents. Expenses in the amount of $478,163 are eligible to be bonded for the dates November 25 to January 25 of this fiscal year, according to a resolution recently passed by the Board of Supervisors. Another $330,557 from January 25 and February 14 is eligible to be bonded, though Elder noted the Supervisors would have to pass another resolution for this to occur. Elder said another $1,438,329 of expenses are anticipated to be eligible for bonding; these will accrue between February 14 and the end of the fiscal year (June 30, 2002). In all, Elder estimated that the County will have $2,247,049 of eligible expenses this year, expenses that could be bonded for, instead of taxed. Elder also showed estimated expenses for FY 03 that could be bonded for; these are in the amount of $4,065,535. The following pages, Elder said, show the details for each of the columns on the front page of the handout.

County Auditor Tom Slockett said that the last page of the handout details the Essential Purpose Bonds, expenses that the Auditor’s Office has assumed the Board would not pay off in one year. These included the financial software and new voting equipment. Slockett noted that these are not ongoing expenses. Slockett said these expenses are in addition to the $8.9 million total from the first page. Thompson asked if the amounts that the County has saved for those items are included in the $8.9 million? Thompson said they have saved $200,000 for the voting equipment, and $300,000 (total, by next year) for financial software. Slockett clarified that the savings are not included in the totals on the current worksheet. If the Supervisors bonded for the financial software and the voting equipment, Slockett said, the money they had saved for these purposes would be freed up. Slockett suggested that the Supervisors next hear from Springsted and Associates Representative Tony Roetlin.

Thompson asked Roetlin to describe, step-by-step, what the Supervisors would have to do in order to bond for the items Elder had identified. Roetlin said that in each fiscal year, there are 2 lines, health insurance and general liability insurance, which will require the most legal homework at this point. Roetlin said the Iowa Code contains a definition of self-funded insurance, of any kind, as an essential County purpose, for which you can borrow, and issue GO bonds. However, it is not all that often that counties in Iowa take a whole year, or several years, of those expenditures, and lump them into a GO bond issue. Roetlin said some additional legal research needs to be done; Johnson County will need to hear from Bonding Attorney Bob Josten regarding the State law level of this issue. Roetlin said they also have a federal tax law question, whether Johnson County can borrow tax-exempt, or will the bond have to be taxable? Roetlin said Johnson County is looking at about a 2% interest rate, tax-exempt, on a one-year issue, and about a 3%-3.75% rate on a one-year taxable issue.

Stutsman said she wanted to poll the Supervisors to see if they are interested in bonding for health insurance? Thompson said she is, if they don’t increase expenses in the General fund. Stutsman said she is definitely opposed to it; it’s a mistake to bond for operating expenses, and puts undue stress and mental anguish on employees, wondering if they are going to lose their health insurance. Harney agreed with Stutsman; the County should be paying this cost for employees, not bonding for it. Harney noted that the Supervisors were going to try and negotiate health insurance issues with the unions, and said bonding would weaken their position. Neuzil asked Slockett if other counties bond for health insurance expenses? Slockett answered that he didn’t know that other counties do this. Slockett said that his point was that if the Supervisors are seriously looking at lowering insurance benefits to County employees, how could they turn their back on this large amount of savings? He said bonding for the 2-year health insurance costs in the $4 million to $5 million range could save the County $20,000. Slockett didn’t think that employees would think the Supervisors were not going to pay back the bonds on their insurance; he said it was simply a way to save money. Slockett said that because they are only tying the money up for one year, not 4 or 5, he agreed with Thompson, and urged the Board to seriously think about it.

Harney said he understood Slockett’s points, if the County can save the money and pay it back within a year. Harney said, though, that he did not want to build up a debt that the Supervisors could not pay back. Slockett said this wouldn’t be an issue for the bonding under discussion; the County would be lowering taxes and paying the bond off in the same year. Harney said he understood this. Slockett agreed that they should not bond for more than one year for these particular purposes. Lehman said the Supervisors are in agreement that the reason to bond was to lower taxes, not to create more revenue for the County. Thompson said it appears that many of the other expenses on Elder’s worksheet would be appropriate for long-term bonding, but health insurance is not. Thompson said they are talking about paying back everything on Elder’s worksheet in one year. Stutsman asked if they can do that? Budget Coordinator Jeff Horne said yes. Slockett explained that it will cost less tax dollars to pay the expenses through bonding; this is the reason they would do it.

Roetlin said the Supervisors could think about the note issue as: instead of paying expenses out of one pocket, they would pay them out of another. He said the other pocket is funded by more tax base; while the General Fund is spread across the County’s tax valuation excluding TIF districts, the Debt Service Fund’s levy is spread over taxable valuation plus TIF districts, which is about 9% higher than the General Fund’s valuation. Roetlin said in the reimbursement situation, for expenses incurred earlier this fiscal year, money is returned to the General Fund balance, and lowering next year’s General Fund levy. Thus, he continued they will spend that balance back down to where it would have otherwise been, making the expenses cheaper for the average homeowner or farmer in the County. Lehman said the Supervisors are apprehensive because this has never been done before; he said they don’t know the downside. Roetlin addressed an earlier question about bonding for health insurance, saying that a one-year shift from one fund to another has never been done in Johnson County. He continued, though, by saying that counties do this all the time on a longer timeframe, spreading expenses over time. Roetlin said that not many counties avail themselves of the technique, which saves taxpayers some money by switching expenses from the Debt Service Fund to the General Fund, and paying it off in one year. Usually, Roetlin said, whatever savings are gained by spreading expenses across the greater valuation are then more than paid out in interest over a 5-year, 10-year, 15-year, or a 20-year period. Thompson said the only criticism she has heard have been from people that have not understood this principle; they thought the County was going to pay it off over many years, so the accrued interest from more than one year would be detrimental.

Stutsman asked what happens next year when they are in the same position? Slockett and Lehman said they could do it again, since they have paid the bond off in one year. Neuzil said it does open up the door for the potential to bond items in order to escape problems generated by a tight budget year. Slockett said that the potential is there whether or not the Supervisors choose to bond. Harney asked how this would affect the County’s ability to bond for some other public projects? Roetlin said it is not going to impact Johnson County’s State law-level ability to either pay cash or borrow for that facility. Roetlin said that Johnson County really has no debt outstanding; the County is credit-worthy and has the ability to borrow at reasonable rates for future needs. He said the bonding under discussion today will not be problematic in this regard. Slockett said the County’s total 100% valuation is $6 billion; the constitutional debt limit is 5% of this, or $300 million; currently, Slockett said, Johnson County has zero debt. Coralville, Slockett said, has $50 million in debt, while the County has zero.

Lehman repeated that he thought the Supervisors’ biggest problem is just apprehension. Slockett said this is like a bank loan that returns some money to you after the entire amount has been paid off. Slockett said the critical question to him is what is legal, and what is not; as long as it is legal, and the County can save the taxpayers some money he said they should give the issue serious consideration. Slockett agreed with Lehman in that he did not want to do anything improper, and wanted to consider any downside, if there is one. Harney said he would like the answers to the legal questions before they proceed further; Slockett agreed. Roetlin said that no bond lawyers take anything very lightly, and said that Bob Josten takes things very seriously. Roetlin said that he has been asking Josten for an answer, but unfortunately Josten simply did not have a confident answer for this morning’s meeting. Roetlin said it is unfortunate that the health insurance represents more than half of the number in any given year. Thompson said that to her, this is the reason to include it; aside from the interest, which will increase with the amount of money, there are fixed expenses, such as Josten’s fees, that will be spread over a larger amount. Thompson thought that if they are going to do the bonding at all, they should include every expense they could. Stutsman said she is still really uncomfortable with including health insurance.

Horne asked Roetlin what was the interest rate level at which the bonding would not pay for itself? Roetlin said he hasn’t performed that calculation; he said they are still in territory that is safely saving a penny on the tax rate for those non-TIF-district taxpayers. Slockett said that interest rates are so low now, which helps the bonding be profitable. He said if interest rates go up in the future, it may not be cost-effective to bond, in which the Supervisors would have to use the regular levy. Thompson said this is why it is important not to increase the regular levies, because they might need to use them in the future. Roetlin said that Thompson’s point is the key. If the Supervisors perceive this as an annual program, they should make sure that whatever amounts they finance in the Debt-Service Levy--which is unlimited as to rate and dollar amount--will fit back into the General Fund (within the $3.50 rate limit) and Supplemental Fund (within the type of expenditure limit). Roetlin said they do have to monitor these issues, to be sure that the expenses will fit back into the General Fund and/or Supplemental Fund, if the Board chooses not to bond for the expenses in a future year.

Lehman asked if the money would be available immediately, up-front? Roetlin asked the Supervisors imagine a schedule where they act on a timeline that gets the Debt Levy set for the coming fiscal year, where they executed the financing in March or April of this year. The County would then get the cash proceeds, up front, and would invest them, generating some investment earnings that Roetlin said he has not factored in right now. He noted that rates are not very high right now. Roetlin said the County would get its proceeds up-front, in effect raising the level of the County’s ending General Fund balance, above where it otherwise would have been. The Board would then "under-levy" next year’s General Fund in that amount, and then spend down that balance. Roetlin said the Supervisors would earn interest on the money over a 12- or 14-month period, to varying degrees, as the money is spent. Then, Roetlin said, on the repayment side, the Debt Service Levy will be collected in 2 big chunks in October and April; the County can invest that money for about 2 months, and repay the bonds in December, for interest, and June, interest and principal. Roetlin said they had talked in an earlier meeting about early repayment, and repaying it from the General Fund and reimbursing the General Fund from the Debt Service Fund; Roetlin said that Josten is leery of this mechanism. Roetlin said that because of this, they could not shorten the bond to a time period shorter than a year, because of legal issues.

Harney asked how this bonding would affect the County’s fund balance, the carryover? Slockett said that Johnson County’s carryovers are very low, and has received statewide recognition for cash flow and budget procedures. Slockett said that Farm Bureau has tried to get other counties to emulate Johnson County in its budgeting affairs. Harney asked if the bonding would make the fund balances look larger? Slockett said whether they have a larger balance depends on whether they execute the bonds this year, or next year. If there is a concern about this issue, Slockett said, the County could wait until July to execute the bonds, but repeated that fund balances are absolutely not a problem for Johnson County. Slockett said counties get in trouble with the State Appeal Board when they state one thing to the public, and a different amount is in the fund balances. He said the revenue/expense adjustment addresses this issue, and has been praised by the State Appeal Board.

Thompson said if the Board chooses to do this, the Board will have to pass a resolution yet this year, to cover all of the amounts except the $468,000 that they already passed a resolution for. Roetlin confirmed this. She asked since there is an $800,000 limit on one project, is the jail project a problem, since it cost $807,000? Roetlin said they would have to back the $7,000 out, and noted that the jail is the only project that exceeds the limit. He said they could probably get creative and try to compartmentalize the jail project into several different projects, but said he wouldn’t recommend this course of action. He said on February 21, the Board is on schedule to publish the budget and set a public hearing. If that is the case, Roetlin said, though not legally required, he recommended including the estimate for the Debt Service Fund in that publication. To arrive at the estimate at the Debt Service Fund, they need to know what they are planning to borrow. Roetlin said the timeline is a bit abbreviated. Slockett interjected, saying that the Supervisors could put the expenses in question in both the General Fund and the Debt Service Fund. The Board could let the public know they are doing this to keep their options open while they gather further information, but one will be cut out at the budget hearing. He said while the Board absolutely cannot exceed the published budget figure, they can cut any of those figures at the budget hearing. Slockett said putting the expenses in both places would buy the Supervisors more time to gather information and consider their decision as to whether or not to bond.

Roetlin said there is a hearing and proceedings required to execute a GO bond issue; the Board could set a not-to-exceed amount. He said they could run the proceedings in this manner up until the point at which the Board decides to execute the borrowing. Roetlin noted that the Board is scheduled to certify the County’s budget on March 14th, and for the purposes of the bonding process, that is the point at which the Supervisors need to have exactly set out the Debt Service Levy. Roetlin said he did not know, exactly, what requirements the Auditor’s Office needed. Slockett answered that by law, his office has to have the information 10 days before March 14th. Thompson asked if they would be receiving the money from the top half before the end of this fiscal year, or can they bond for the whole amount next year? Roetlin said they can lump all of the expenses together and do one borrowing, and if there is a fund balance concern, they could also lock in interest rates in the next month and close the issue, or settle it, in early or mid July. Roetlin said this would cost a little bit in interest rates.

Thompson summarized that what the Supervisors would tell Horne to adjust the General Fund downward $8,933,097, minus the $7,000 extra from the jail project. Then, she said, Horne would add a line for Debt Service for the same amount. Roetlin said yes, it would be for the same amount, plus the interest that he would calculate. Thompson didn’t think they should put it into their budget twice; she thought they have confused the public enough. She said if they can’t decide, they shouldn’t be offering any extra choices. Roetlin noted that they should not lower the amount in the General Fund unless they are positive they are going to borrow it; once the General Fund levy is lowered, that money is gone, whether or not the Supervisors decide to bond for it. Thompson said it would actually, then, be smart to include it in the budget twice, even though it is hard to explain to the public. Neuzil thought they should keep the 2 options in the budget. Neuzil said since property taxes go down with the bonding, he thought the public would be in favor of it. Stutsman wondered if the public would see this as a way for the County to raise more monies, to bring the levy back up again. Slockett said his office is prepared to produce spreadsheets that show the budget both ways, to show the specifics of what the savings are to the taxpayers. Harney asked Roetlin if bankers are quick to pick up bonds that are only for one year? Roetlin said he couldn’t speak to how interested or disinterested the local banks are in one-year bonds, versus 5-, 10-, or 20-year investments. He said there is a ready market, at minimum, for this kind of issuance. Slockett said there is a lot of cash on hand in banks, since people are holding back on equity investing because of the economic situation.

Thompson asked County Treasurer Tom Kriz if he thought the local market would pick up this bonding? Kriz said yes, there would be an interest; the banks and investment places carry a heavy concentration in federal funds, which is what drags the rates down. Thompson asked if the 2% and 3% rate estimates given by Roetlin are about right? Kriz said this is good time to bond, because of where interest rates are. At a 5% rate, Kriz said, they would have to consider bonding more carefully. Kriz noted that only the current historically low interest rates make this type of short-term bonding look profitable. He agreed with Stutsman on the concept of borrowing for operating expenses, but said because of interest rates, now is a marvelous time to experiment with something like bonding, even if it is only for a year or 2. Kriz said this could be a win-win situation, and noted that discipline is the key to the issue.

Kriz commented that there are costs to bond issuance, so there could be an advantage to having a 2.15% rate, but only have the bonding costs, initially, once. Roetlin agreed, especially to the degree that the County could lock in an interest rate today, eliminating uncertainties about where rates could be in June or July. Roetlin said smaller borrowings, in amounts less than $1 million, probably shouldn’t be split up and done in chunks, because of the fixed, administrative costs. Roetlin recommended keeping the borrowing in larger chunks, and locking in interest rates as soon as possible, whether funds are received before or after the end of a fiscal year. Slockett asked if there are any advantages to a shorter duration than one year, in terms of interest? Roetlin said if the County wants to pay off the bond faster than it is going to collect the debt service property taxes, they run into the problem of where will they get the money? He said some of the numbers are small enough so that the Board could front them from the General Fund, and reimburse the General Fund as levies come in. Roetlin said they do run into legal issues when they attempt to do that. He said unless he is missing something in how to get that levy collected fast enough, he didn’t think bonding in terms shorter than one year was a good idea. He said that if there were a way to collect 100% of the Debt Service Property Tax Levy in October, instead of October/April, this would change the situation. He said he is not real familiar with how these funds come in; if it’s one big chunk, and the County can legally allocate to the different funds in whatever manner saves the County the most money, then, in theory, the County could fund all of its debt service obligation in October, and reimburse the General Fund in April. Slockett said that these monies come in in 2 lumps, when taxes are due in September and March. Roetlin said one key item is a feel for the cash flow pattern of the County, in terms of how fund balances look from July to October, and from November to March. Slockett said this could be a problem.

Harney asked a question about TIF dollars. When there is a TIF area, such as Coralville’s, and the tax dollars are collected for that particular area, is Coralville reimbursed for the TIF area? How would this work, if the County bonded? Kriz said there are orders that go out on the 10th of each month, on taxes collected; each of the taxing entities receives this. He said the County has those funds from whenever they come in until the 10th of the next month. Slockett said the TIFs will lose money because of the reduction in taxes on the General side. He said if they set the Debt Service Levy on, that goes against all property, including the TIFs; everyone pays this, as a new tax. As a result of this, Slockett explained, taxes will be lowered for all the other properties, and to the extent that the taxes go down in the TIF’d areas, they will not receive that part of the funds that they would have otherwise. Neuzil asked if it would just take them longer, and Slockett agreed. Neuzil said that the long-term benefits of TIFs are great, but short-term, they are bleeding the County. Neuzil said if there is any way to recoup some money from TIFs, and pass it on to the taxpayer, this is a win for the County. Lehman said one reason to bond is to counter the effects of the TIFs. Lehman reminded the group of Roetlin’s example from an earlier meeting, when he said that bonding $800,000 would lower a $100,000 home’s valuation by $0.51, which is not very much money. He said the overall picture, though, would be saving the County $20,000, which is worth it.

Stutsman worried about setting a precedent; once the Board did this once, it would be difficult not to do it again. Lehman added that everyone is concerned that they would at some future point tax the levy and still bond. Horne said the 2 different kinds of insurance are from the Supplemental Fund anyway, and as such do not make a difference in the cap. Horne said it would be still be a taxpayer’s savings. Thompson said that many of the other expenses under consideration, such as the Jail and Courthouse repairs, are things that Iowa City or Coralville would put in their Debt Service Levy every year; she said they have been doing this for years. Others in the group agreed. Stutsman said she has no problems with putting these expenses in the Debt Service Levy, but is uncomfortable with starting to depend on this revenue source for things that she thought the County is legally obligated to pay from the General Fund. Thompson said it this is sort of like borrowing from your savings account to pay a bill; Lehman added that they will get a cash discount. Stutsman said in looking at her own personal expenses, she does not borrow from her electric bill. Slockett asked Stutsman if she would borrow for her electrical bill if her electrical bill would be less if she did? She said she is worried about the County getting dependent on this revenue.

Roetlin said he felt obligated to bring up the fact that when you drop and raise levies, the Supervisors need to be cognizant that various property tax limitations bills have capped various funds. He said this year, for the first time since Spring of 1998, a bill was passed that capped debt service; there is also pending legislation that may cap city debt service levies, by ignoring fund distinctions. Roetlin said the Board is somewhat at the mercy of the Legislature on this issue, but noted this is the case whether or not the Supervisors decide to use bonding to pay some County expenses. Harney noted the Legislature could also change the rules for TIFs; Roetlin said they probably will, since change is the constant with TIFs.

Kriz cautioned that the average taxpayer is not going to see that bonding saved them money, since the amounts are so small. Kriz also said that there was a time in past year when on delinquent taxes, the rate was 9%, but the consumer was paying 15% or 16% to borrow from the bank. He said at that time it was advantageous to let taxes go delinquent, to pay the County that 9%, because it cost more than that to get it elsewhere. Slockett agreed, and said this had occurred. Kriz said they should sometimes think outside the box, and not continue doing things exactly the same just because that’s the way it’s always been. Kriz said that borrowing, such as that including TIFs, is addictive, but it is a means to achieve a goal. Kriz said there really is some merit to the idea of bonding. Harney thought that bonding would be advantageous this year, but said they should review each year in the future before they committed to it again. Others in the group agreed. Kriz noted that if interest rates go back to 5%-6%, and the County gets $1 million in additional revenue from interest, the whole equation is changed. Lehman noted that the higher interest rates would make bonding less attractive. Roetlin agreed.

Thompson suggested that the Supervisors set up a short-term borrowing policy, that would say that each year the County can identify the costs that would be bond-able, and will analyze the interest rates and economic situation. From this information, the Board can make a decision about whether or not to bond for those costs. Roetlin added that the Supervisors could also consider how much room the Board has beneath its $3.50 cap, and whether or not there is a local market to handle the bonds. Thompson asked Stutsman if she would be more comfortable if there was a process in place? Stutsman replied that there isn’t time to put a process in place, but this is something the Finance Committee should definitely consider. Thompson said there is plenty of time to put a process into place between now and July. Kriz thought the Board should have some kind of policy about bonding, to give long-range direction, regardless of who is sitting on the Board as a Supervisor at that time.

Slockett reminded the Supervisors about the last page of their handout. Thompson said the 2 items on that page, financial software and voting equipment, could be bonded for over a longer period of time, "real" bonding. She said this would be the year to do this, since interest rates are so low. Harney said he is concerned about the County’s ability to pay for the items over time, since the economy has been so weak. Lehman said they should take baby steps, and he noted that if they bond for these items, the County can buy them right away, whereas at the rate the County has been saving up for them, it would take several more years. Slockett said they need the voting equipment right away. Thompson said one of the reasons to bond is to spread the costs out over future voters, and she noted that future voters are those who will be using those voting machines. Slockett said this is also true of financial software. Neuzil said this is true of roads, the jail, and everything. Stutsman wondered about the length of this bond? Thompson thought maybe 5. Roetlin said the County should consider how long the voting equipment or financial software last, and explained there is a federal requirement that the County not finance over 120% of that term. If voting equipment has a useful, practical life of 10 years, he said, they could spread the financing out over about 12 years. Roetlin noted that the County could also pay the bond off sooner than this, if it wished. From a practical perspective, Roetlin said, the County should consider when the financial software or voting equipment will be replaced again? This could also be a guide for the length of the financing. He said this is when a policy on long-term financings could help clarify the Supervisors’ ideas. Roetlin said it would not be unusual for the County to have a bond lasting from 5-15 years. He said there are no State law restrictions on this length. Thompson asked if it would be wiser to do a shorter term, since the County has so little debt? Roetlin replied that this could be argued either way; on this type of equipment, he recommended a term of between 5 and 10 years, depending on what type of taxpayer impact the Supervisors feel is appropriate. In response to Lehman’s comment about cash flow, Roetlin noted that longer bond terms means more total payments, but lower annual payments. Thompson said if they bonded $1 million of expenses for 10 years, the impact on the County’s budget would be something less than the purchase of Mall Drive has been. She said the County bought Mall Drive at 7.5%, and they would be getting the bond at around 4%. Thompson estimated that the first year’s payment, then, would be $140,000; others in the group confirmed that this was a reasonable estimate.

Harney asked if there is a penalty for paying a bond off sooner than its term? Roetlin said it depends on the type of bond; if the County uses a local bank, they will typically be less sensitive or worried about prepayment, so they will allow the County to prepay things a little sooner. At a larger institution, he continued, a 10-year bond would not be pre-payable, or at least certainly not before 8 years. Locally, Roetlin has seen more flexibility about prepayment. Thompson thought this was something they would negotiate when they made the contract with the bank; Roetlin affirmed this. Stutsman asked if interest rates are locked in, during the bonding process, and Roetlin and Thompson said yes. Roetlin said the County would know what its interest rate is on the front end, and would also know what the maximum payments are. He said refinancing would also be possible, at a lower rate, which could lower payments. Stutsman asked why the County would want to pay off a bond early, if money is available so cheaply? Roetlin said there could be 2 potential reasons to prepay a 10-year loan. One was if the County could refinance the loan, at a like term, at a lower rate, perhaps in the 5th year; in this case, 5-year rates would have to be better than the remaining 5 years on the 10-year bond. Usually, he said, the interest rates currently earned in the County’s General Fund also figure into this decision, as a comparison between what can be earned, versus what it costs to borrow.

Slockett asked Roetlin to talk about documentation for possibly bonding for future expenses. Roetlin said it is easy to know what past expenditures are, and accurately borrow to reimburse yourself just that much. The federal tax code imposes the concept of reasonable expectations on the County, when it borrows. He said the County will have to certify that they reasonably expect that this is the amount they will need to borrow to pay for expenditures. Roetlin said reasonable expectations usually are discussed as plus or minus 5%; he said this means the County has to be 95% confident in its numbers. Roetlin said the Supervisors only have one chance to bond for most of the expenditures on Elder’s worksheet, and this decision needs to be made fairly soon. He continued, saying that the Board does have a little more time to decide about the multi-year expenditures, the financial software and the voting equipment.

Roetlin said that the estimates of bondable expenses will never be exact, which leads to the concept of arbitrage. He said the federal government limits the abilities of counties to borrow, tax-exempt, and then put off expending the money in order to invest at taxable rates, and earn the difference. Thompson noted that right now, the market limits the counties’ ability to do this; Roetlin agreed, and said right now the County is "market-constrained," resulting in "negative arbitrage." In this case, he continued, the County should borrow relatively close to when it is planning to expend the money for voting equipment or financial software, unless there is a high probability of rates rising, on that borrowing. All other things being equal, he said, borrowers do not earn a positive spread right now; at other times, this is possible, and people spend a lot of time trying to do so. For reimbursement transactions, Roetlin qualified, the money is deemed to have already been spent, for federal tax code purposes, so right now the Supervisors do not need to be concerned with tax code arbitrage compliance. If the Board decides to bond for health insurance purposes, which are made in 12 equal deposits during the next fiscal year, then they will have to check with Josten to see that are in compliance with arbitrage legislation.

Thompson asked if she understood correctly, that to bond for the items on the front page of Elder’s worksheet, the Supervisors need to decide right away? Roetlin agreed. She wondered what the time frame was if the Board decided to bond for the items on the back page, financial software and voting equipment? Could the Board pass a resolution and save these amounts, and then bond for them next year, and take if out of the General Fund for the following year? Roetlin answered that with the longer-term issues, the County has the ability to do one of 2 things. One would be to decide right away, put up an estimated levy for the items in this coming fiscal year, and then adjust the future years for whatever difference there is when they actually borrow the money. Roetlin recommended not moving quickly on the financial software and voting equipment, and waiting until they have a better idea of the exact costs. Roetlin asked the group if anyone had accurate price estimates for either of these expenditures; no one did. Slockett said that prices vary according to the different bids from the various vendors; he wouldn’t feel comfortable that an estimate would be within 5%.

Lehman asked Roetlin what would happen if the County bonds for voting equipment next November? How would the County get the funds to pay the bond off in that fiscal year? Roetlin said the mechanics would be to set up a Debt Service Levy which, in a September or November borrowing instance, is not going to come in quickly enough to pay the first 1 or 2 interest payments. Thus, Roetlin said, they would either do a reimbursement resolution and wait until the County could levy, or, if they did not want to carry that expenditure out of the General Fund, the County could borrow right away, and put up levies to pay it that would also include a little extra to pay the first couple of interest payments. Thompson suggested to the rest of the Supervisors that bonding for the front page of expenses is enough for this year; other Board members agreed. Thompson said they could do the resolution next year if they decide to bond for the other items as well. Stutsman said they need to get a policy in place; she is concerned about making decisions based on the County’s ability to bond, not whether this is in the best interest of the taxpayers. She noted they’ve made some decisions about financial software, and have made some commitments to voting equipment, and thought they are getting ahead of themselves. Harney thought that long-term bonding is worth looking at, but said they need accurate estimates of the costs of financial software and voting equipment.

Roetlin wondered if, after the last Presidential election, there is a climate conducive, emotionally, to federal or state grants to aid in replacing voting equipment. He said this could factor into the final cost on voting equipment. Slockett said he is in contact with Senator Harkins’ office, and no aid is pending at this point. He said there is disagreement among legislators as to which machines would be replaced, if a bill were passed.

Lehman asked Horne if he has any concerns about trying to orchestrate the short-term bonding, and wondered about bringing 2 options to a public hearing? Horne said he needs numbers. Lehman said the next step for the Board is to identify how many dollars they wish to bond for, in the short-term, so Roetlin can give them some estimates of the actual savings. Thompson’s hunch was that the break-even point was up closer to 5%; a 2%-3% interest rate for one year would be beneficial. Thompson asked if the costs to the County are higher to bond for both taxable and non-taxable items, because of fees to Josten, etc? Roetlin thought his fees would go up slightly. Roetlin said his estimates were about $800,000 taxable, and $800,000 tax-exempt, on strictly building projects. Roetlin noted that these estimates do not include the insurance and the technology equipment and other equipment. He said at those kinds of magnitudes, his fee isn’t going to double, and will be less than 1% of each of the 2 categories. Thompson thought that it would be to the County’s advantage, then, to do the whole amount, which she said was $8,925,489. Roetlin said at that scale, the distinction between the 2 series is not going to impact his fee. Thompson said their expenses were about 1/3 taxable and 2/3 non-taxable. Roetlin said if anything was going to impact Josten’s fee, it was going to be the analysis related to the health insurance and liability insurance line items.

Thompson said the County would get the money in July, pay back half of the money plus interest for 6 months in December, and in June they pay back the other half of the money, plus interest on half of the principal for 6 months. Thompson said their total interest costs for the year, then, would be about $154,000. She asked Roetlin to go over what benefit the County gets that offsets the $154,000. She admitted that Roetlin had already done this in an earlier meeting, but said she wanted to hear it with a bigger number. Roetlin referred to a sheet he had distributed from an earlier meeting, which the Supervisors still had in front of them. He said from the numbers on this sheet, which considered a hypothetical bonding of $800,000, the Board members could multiply all the numbers on the page by 10, and get an approximate estimate of accurate numbers for the County’s situation, since they were considering bonding about $8 million. Thompson asked about some numbers of the sheet from the earlier meeting; she noted that in the case of the County borrowing $800,000, the proceeds are $796,000. What happens to the rest? Roetlin said there are 2 sources of fees built into the equation. One is a 1% broker-dealer cost, which the County would likely avoid if they used a local bank. He said that is built into the interest rate in his assumptions and construct of this sheet. The other source of fees is Springsted and Josten; he said Springsted fees start at about $7,500 for a $500,000 issue, and rise at about $1 per thousand thereafter. Thompson asked, wouldn’t the County borrow for the $8.9 million, plus interest and fees? Roetlin said the County will borrow for the project costs, plus fees, and the interest that you pay on the borrowing, will be a lower tax rate, to the tune of about $.01 per $1,000 of valuation. Thompson asked, then, if they are borrowing the interest, too? Roetlin said no, they are paying the interest; the County wouldn’t borrow it, but just levy it, in the Debt Service Fund. Thompson asked if they would reduce the General Fund by $8.9 million? Roetlin said they should reduce it by the actual amount they would spend out of the General Fund, $8.9 million, is the dollar amount by which they can reduce their levy in the General Fund, and then put up another levy in the Debt Service Fund, which would be more than this. Thompson thought this would be the $8.9 million plus interest and fees, and Roetlin agreed. That amount, Thompson said, would be spread across a greater tax base. Horne qualified that they won’t really change the way the budget looks, but will just change the way the County pays itself back.

Kriz said they need to get down to real numbers, such as Josten’s and Roetlin’s fees, so the group can see actual costs. Thompson asked Kriz if he feels confident that they can avoid the 1% cost by going to a local bank? Kriz said yes, he thought so. Roetlin said local banks typically don’t add a closing fee, or a spread, if they are going to hold the money in their portfolio. Kriz agreed, and said the Johnson County banking community is a strong one.

Roetlin said they also need some State and Federal legal answers about health and general liability insurance from Josten. Thompson asked if they could get those answers by tomorrow? Roetlin hesitated, and Thompson asked if she should call Josten? Stutsman asked what answers they are waiting for? Roetlin said there is a clearly-delineated essential county purpose, in the Iowa Code, that deals with self-insurance expenditures. The question, he said, is whether or not the entire amount is bondable? Roetlin said many counties bond for $250,000, but bonding for an amount this large requires a high level certainty. Roetlin said the Supervisors want Josten to be perfectly comfortable that if a financing were challenged, he could defend it. At the federal level, there is a taxable vs. tax-exempt question, but with the current interest rates on either side, it mathematically saves money either way.

Thompson asked Roetlin to assume that the bonding carries with it $270,000 in costs, including interest and fees. She asked Roetlin to explain how the County is going to recoup that? Roetlin said the $270,000 of additional costs gets spread over an increased tax base which is 9% higher, including an additional $300 million of valuation. Roetlin said that $270,000 divided by $300 million is a tenth of a penny. So, he said, the rest of that penny, 9/10 of a penny, is savings to the taxpayers that are not in a TIF district anywhere in the County. Roetlin said that for these taxpayers, their County taxes would be $0.01 lower for each $1,000 of valuation. Roetlin said the penny is only slightly eroded by the fees; the fees cost 1/10 of a penny.

Slockett asked Horne to get the numbers to the Auditor’s Office, and said his office needs the numbers today, in order to have them ready for tomorrow’s meeting, and to get them published on time. Horne suggested that if the Supervisors decide they want to bond for the entire $8.9 million, Roetlin and the Auditor’s Office could work together to have the numbers to the Board for their meeting the next day. Neuzil asked if Horne and the Auditor’s Office would also prepare a version of the budget that does not include bonding? Slockett asked if the budget should include both options? Neuzil and Thompson said yes, if this is allowed. Slockett said the disadvantage is that the published numbers and the tax increase will be higher if both options are included; thus, the Supervisors will have to explain that they are going to cut the budget at the hearing. Slockett said when the Board finally adopts the budget, the numbers will be right, but until then, the budget will look bigger than it actually is. Lehman wondered if the Supervisors are better off to simply make the decision now, rather than later having to explain the inclusion of both sets of numbers? Slockett agreed. Neuzil wondered if they should figure and publish the budget both ways, one assuming that they will bond, and one assuming they will not. The Supervisors thought this was a good idea; Slockett said they could prepare 2 budget worksheets, and the Board could pick one at the meeting the following day; only that version would be published. In response to Thompson’s query, Slockett explained that there are lines in the publication for both the General Fund Levy and for the Debt Service Levy; they will not be the same if both options are included. Slockett said they will have 2 budgets available to the Board tomorrow, and they will pick which one they choose to publish. Neuzil wondered about publishing both of them; Horne and Slockett did not think this is possible, as it would be deceptive.

Lehman asked Reverend Bob Welsh about what he thought the public would think of bonding. Welsh said if the Supervisors could convince him that he was going to save some tax dollars by doing this, he would be in favor. He said the problem was that he isn’t sure the Supervisors are going to have the legal information they need to make a decision by tomorrow. Slockett asked Roetlin if he thought Josten would make a decision by tomorrow? Roetlin said he thought there was a better than even shot that Josten would give an answer by the deadline. Roetlin said the problem is that the Supervisors need an answer quickly, but they do not want a quick answer. Slockett clarified that they don’t want an incorrect answer. In response to another comment from Welsh, Slockett repeated that they cannot publish 2 budgets, based on hypothetical situations. Rather, he continued, they need to publish what the budget actually is. Neuzil asked if they publish without bonding, but decided they wanted to bond sometime in the next 2 weeks, could they still do so? He noted that they would not be raising their budget, but lowering it. Slockett replied that the Board could not do this, because they would be raising another levy, the Debt Service Levy.

Neuzil asked what the group recommends to the Board? Slockett repeated that he thought the Board should bond for $8.9 million, until tomorrow, when they will hopefully have an answer from Josten. Slockett pointed out that Josten’s questions only concerned the health insurance and general liability insurance lines; the remaining expenses could be bonded for regardless of Josten’s decisions. Thompson asked if Josten was concerned more with whether the insurance items were taxable or non-taxable, or more with whether or not the items were allowable, bondable expenses? Roetlin answered that there is some State-level question as to whether or not the insurance items are bondable, overall. Neuzil said he would like to see both proposals.

Roetlin wondered if they could get a feel, from the Supervisors, as to what their opinions are about the bonding, if they get all the right answers from Josten. Would there be consensus? Stutsman said she will have no problem with bonding if Josten’s opinion is favorable toward the insurance items. She noted that she is still uncomfortable with this. Lehman said if Josten says the County can’t bond for the insurance, they will still bond for the remaining amount. Welsh and Slockett pointed out that if the insurance isn’t bondable, they can only bond for $2,724,148, which, with the fixed expenses, will generate as much tax savings. Roetlin said the tax rate difference is still essentially the same. In finishing the straw poll, all the Supervisors said they are in favor of bonding; Thompson noted that the support was unanimous. Welsh asked the Board to take another straw poll; would they support bonding for the smaller amount, the $2,724,148, that does not include the health insurance? The Board decided to recess for a brief break so that Roetlin could call Josten and see if he had an answer on the issue.

Recessed at 10:44 a.m.; reconvened at 11:05 a.m.

Roetlin said he got an answer about when the answers will be ready: Monday. He said Josten offered a statutory reference outside his frame of expertise, which might give the Board more time to make the decision. Thompson said that putting both options into the budget was their only choice; Slockett agreed, saying this gives the Board the most flexibility, because they will have until the public hearing to make the decision. Thompson noted that they could explain the higher budget amount to the voters; Stutsman agreed. Slockett said the ambiguity created by both options will only exist for 10 days or so, because they can clarify the decision made at the public hearing. Thompson summarized that all they are asking Horne to do is to add a Debt Service Levy line item to the budget for about $9.2 million. Roetlin and Slockett said they could get exact numbers to Horne. Slockett reminded the group to include the $9.2 million in the General Fund as well, so that if Josten disallows the health insurance, they will still have the funds in the budget.

Neuzil asked how the Board could publish a budget that exceeded their budget authority? Slockett said that by putting the items in both the General Fund and the Debt Service Levy, the Board is publishing a legal budget. Neuzil said he is trying to avoid real confusion, when taxpayers ask about a 20% tax increase. Welsh added that the published budget will show that the Board is taxing twice for the same expenditures. Welsh said the Supervisors should clarify which decision they’ve made as soon as possible, to get the information to the public and avoid confusion. Stutsman suggested that the Board have a work session after they make this decision, to clarify their explanations regarding this issue. Neuzil wondered if the Supervisors have a meeting set to plan their approach to the public hearing; Horne noted they will also need a work session to practice the presentation itself.

The Supervisors decided to have the work session to plan for the budget presentation after their regular informal meeting, on Thursday, February 28th, 2002. For the practice run-through of the Board’s budget presentation, they decided to meet on Thursday, March 7th, 2002 at 1:30.

Roetlin said if he has an answer from Bob Josten on Monday, February 25th, he could be at the Board’s work session on February 28th, with hard numbers. Neuzil said someone should communicate with Pat White about the bonding situation. Thompson asked when the finance work group would start writing policies? Horne said they wanted to do a larger financial plan, of which bonding would be a part. Thompson said they could write the chapter explaining the County’s short-term borrowing and long-term borrowing policies. Slockett noted that if Josten happens to make his decision before the end of the day, the County will be able publish the budget, correctly, according to his decision. This will avoid having to publish a budget that is deceptively high, with the bondable expenses appearing twice in the budget.

Adjourned at 11:17 a.m.

Attest: Tom Slockett, Auditor

By Casie Parkins, Recording Secretary