County Hoping For Good Grades

April 20, 2008
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GRAND RAPIDS — The most recent series of county bonds will go to market next week with a sale date set for May 1 and a closing date scheduled for two weeks later. The county is looking to raise about $22 million from the sale, which it will use to make improvements to the Fuller Avenue Campus and to build a new courthouse for the 63rd District Court.

The bond sale will come a week after county officials return from an annual road trip to meet with representatives of ratings agencies. Moody’s Investment Services and Standard and Poor’s have given Kent triple-A ratings since 1998 and 1999, respectively, and county officials are looking to get the same grade from this visit.

Kent County Fiscal Services Director Robert White told the Business Journal the 20-year bonds are likely to be sold with an interest rate around 4.3 percent, and certainly not higher than 6 percent, since the municipal market has settled down over the past few weeks. He said the market has calmed because many of the municipalities that wanted to turn their variable-rate bonds into fixed-rate securities were able to do so.

White pointed out the county can absorb the additional bond debt because the total outstanding debt the county had last year was only 2.1 percent of its state equalized value. That figure is up from 1.5 percent the previous year, before the county issued $120 million in bonds for the work being done at the airport.

The county’s current outstanding debt total is $517 million. The maximum debt load a county is allowed under state law is 10 percent of the SEV, meaning the county could carry $2.4 billion, or almost five times its current outstanding debt.

White noted that the county has an unfunded liability to its post-employment benefits plan of $40 million, a relatively low amount due to the county’s decision to overfund it. The county established a VEBA Trust last year, and a study revealed that the county should fund the plan with $2.9 million annually. But during 2007, the county funded it at a little over $3 million.

At the end of last year, Kent County had $468 million invested in brokered securities, such as U.S. Treasury STRIPS and money market accounts, and in certificates of deposit with local banks.

Although the four-county metro area lost 1,700 jobs in durable manufacturing from 2004 through 2007, White said employment is growing in a half-dozen other segments, with health care and professional services leading that charge Since 2004, 4,400 jobs have been added in health care, with 3,100 more coming in the professional and business services sector. The ongoing transition in the labor force has left the region with 3,800 more jobs in 2007 than it had in 2004, according to labor bureau statistics.

“We are growing in other industries that are giving us some balance,” said White.

White said he expects the job growth will continue locally, especially in health care. New projects like Spectrum Health’s Lemmen-Holton Cancer Pavilion, DeVos Children’s Hospital, the expansion of the Van Andel Research Institute, the Michigan State University medical school, and Saint Mary’s Health Care’s neurology services center will offer new employment opportunities. All are expected to become operational between this year and the end of 2010.

“There are a number of facilities that will open in the next few years that will give us some good paying jobs,” said White.

The county’s 2007 general fund budget, which provides funding for most local services, fared much better than it initially was expected to do. The fund was projected to lose $3.1 million when the budget was first put together. The account, though, ended the year with revenues exceeding expenses by $923,000 for a $4 million turnaround.

White said most of the gain came from property-tax revenue, about $2.3 million above the projection, and was due to the state-mandated change in payment dates for those taxes. He said the county can expect a surplus of $500,000 for the current general fund budget.

A general fund surplus, local job growth, strong conservative investments and a low debt load are factors the ratings agencies will consider in grading the county’s bonds for another year. Another factor the agencies will look at is whether the area’s population is growing, because one that does usually results in more tax revenue.

Kent County should score high on that factor, too. The U.S. Census Bureau reported that Kent was the third-fastest-growing county in Michigan last year and has seen its population rise by more than 5 percent during the past seven years to 604,000 in 2007. Neighboring Ottawa County had the highest population growth rate of state counties last year.

“We’re still experiencing a healthy growth in Kent County,” said White. “If you look at the two-county area you can see the strength of West Michigan.”

County Debt Load

Kent County has $516 million in direct debt, a total that is 2.1 percent of the total state equalized value of the real and personal properties in the county. The legal debt load limit for counties in Michigan is 10 percent of the SEV.

The county’s net debt figure is $194 million, or 0.8 percent of the total SEV. Net debt is direct debt minus the portion of the debt that is self-supported by user fees or paid for by units that benefit from the debt.
Here is a list of the county’s total direct debt.

Direct Debt

Gross Amount

County Building Authority (LTGO)   

$94,360,000

General Obligation Limited Tax Notes   

$83,000,000

Refuse & Solid Waste Bonds (LTGO)   

$21,755,000

Airport Bonds (LTGO)     

$150,200,000

Airport Bonds (Revenue)     

$46,680,000

Water & Sewer Bonds (LTGO)    

$3,900,000

City/County Building Authority Bonds (LTGO)  

$81,333,904

Capital Improvement Program Bonds (LTGO)  

$23,005,000

Total Direct Debt      

$516,779,904

Note: LTGO are limited tax pledge bonds or notes.
Source: Kent County 2008 Financial Overview, April 2008

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