Budget Committee - Regular Meeting

This is the County of Monterey Budget Committee. This is a special meeting of the budget committee. That is because we had to change the date from a regularly scheduled meeting. We schedule out the meetings for the entire year. That was about a year ago that we set those dates. So when meeting dates get changed, we have to schedule those out as special meetings. So that is why this is a special meeting today. We are live in person at the Monterey Room. We are also live in person at the district four supervisor office in Marina as well as live in person at the supervisor office in King City at the district two no. Sorry.

Sorry. District three supervisor office in King City as well as on Zoom. However, you're joining us. We're happy you're with us today. Thank you for spending a portion of your afternoon with us. Are there any additions or changes to the agenda today?

Yeah. Thank you, supervisor. Michael Beaton, assistant county ministerial officer. We do have a very small correction. It's to agenda item number seven, which would be a regular agenda item. The, title of the item should actually say it currently says provide direction on refunding of the twenty fifteen public finance public facilities financing certificates of participation. It should read, provide support on a refunding of the 20, 15. It's just a small correction between the word direction to support.

Okay. So I will approve that change to the correction to the agenda and move on to any public comments or items that are not on the agenda, but otherwise within the purview of the committee today? Anyone with us for public comment? And you have to raise your hand if you're online.

And there's no public comment in the Monterey room, and I don't see any hands raised on Zoom.

Okay. Well, with that, we'll move on from public comment. We have some consent items. We have item two, three. We have the minutes

have the minutes first, item number one.

I skipped right over those. Mhmm. Alright. The minutes. Any comments about the minutes, Chris?

None from me.

Yep. Neither here. So we'll approve those by consent. Any public comment on the minutes? Seeing no hands raised, we'll move on to our consent agenda now. Right. Anything on the consent agenda? Anything you'd like to pull

No pulls for me.

Alright. Any public comments on the consent agenda?

No. I'm

playing. No hands raised? Okay. Yeah. I don't have any concerns or questions about the consent agenda.

Just noted that measure AA looks like we were up to $7,000,000 collected. Is that correct?

Yeah. So for last received for last fiscal year through the period ending June 30, we did receive a $7,000,000 for Measure AA. Since then, we have received an additional deposit of, I believe, about 1,900,000.0. So I believe we're actually in the total range of about $9,000,000 in total for measure AA approximately.

Alright. Well, we'll keep watching those dollars flow. That's good. Good information. Alright. So we'll consider that consent approved by consensus from both supervisor Lopez and I, and we can move on to item number seven, which is our public twenty fifteen public financing public facilities financing certificates of participation, remaining debt, and providing some direction. I don't know who's presenting,

so we'll pass the floor

to whoever our presenter is.

Yeah. No. Thank you. Thank you, supervisor. Ask you and supervisor Lopez. Michael Beaton, assistant county administrative officer,

for the County Of Monterey. Today with us, we have doing a presentation for on behalf of, the county of Monterey,

K and N Public Finance. They'll be going through this, recommendation asking for support on a refunding of the twenty fifteen public facility financing certificates of participation. This item is currently supported by the debt advisory committee. They recommend support moving forward, and that

was done this morning. So today, we have from K and

N public finance, we have David Leifer and Bobby Chung, who'll be going over, the recommendation today and a little bit of education about our twenty fifteen, certificates of participation. With that, I'll pass it over to David.

Thank you, Michael. Good afternoon, everybody. Good to see everybody on a Friday afternoon. Yeah. We have a very brief presentation about this opportunity to refinance outstanding debt, taking advantage of lower interest rates, to save the county, some money much, akin to a home, you know, mortgage refinancing. Let me see if I can share my screen. Not familiar with this. Bobby, are you there? Let's see.

I am. It's the it's the green button on the bottom that says share.

No. I hit that, but then when I see the presenter layout, content only let's see if that does it.

If you have the file open, should show up under your application windows.

Yeah. I know. Okay.

We we can help. I I think I can share it from my computer right here.

Oh, there we go.

I think I got it. Sorry. Okay. Apologies for the technical issue there, but we'll just move move through this quickly on page one just a little bit about KNN. We are the county's municipal adviser.

We are specialists in in bond financing, and we have a fiduciary duty, which means that we put our clients' interests ahead of our own. And our our mission is to provide, you know, sound advice, independent objective advice to our clients to make good decisions when it comes to issuing debt. Before us on this next slide is the opportunity we're gonna discuss the 2,015 certificates of participation. They were originally issued to finance the acquisition and construction of Schilling Place and some renovations at the courthouse complex. They are now callable.

So it's been ten years, and that means there's an optional redemption provision, which allows the county to either pay off the bonds or to refinance them with new bonds and pay off the old bonds at lower interest rates. And that's what we're talking about. And for, certificates of participation, there's a requirement that there'd be real property, which serves as a leased asset and is basically collateral for the financing. You can see here Schilling Place and Courthouse Complex are the two assets that currently serve as the collateral. Part of this process, we're gonna do an a deep dive and analysis of the values of those properties, as compared to the amount of the bonds par that is still outstanding, and there may be an opportunity to release one of these assets, which would be great.

And that would free it up, take the lien away, and give the county greater flexibility if it needs to issue new bonds in the future. These bonds, as you can see, still have about twenty year life on them, and, there's about $39,000,000 outstanding. I'll move on to the next slide. So this is a summary of, the sort of economics of the refunding if it was done today, which it will not be. It'll be at some point early in 2026.

But this shows that a refinancing in today's market would generate approximately $2,800,000 of gross savings, budgetary savings over the life of the deal. That comes out to about 143,000 a year. And when we present value that back, that's generating about 2,100,000.0 of savings. And we common metric in our industry is to look at that present value savings as a percentage of the, par amount that we're refunding, and that's about five and a half percent. The county has a debt policy which requires, you to achieve minimum savings of at least 3% on a present value basis.

We're at 5%. Our hope in working with Michael and staff early into next year is that we'll target, you know, we would, go to the board and get the deal ready, basically. Prepare the documents and possibly, know, secure the rating and then see where we are in the market. Hopefully, we can hit a bogey that's that's higher even than five and a half percent, and I'll show you what that might look like in a minute. If we move on to the next slide, this just shows the annual breakdown of the numbers I, just talked about, but you have the existing payments now about 2,900,000.0.

You have the new payments about 2.78, and that generates savings of about 140,000. And we looked at this back in April. It was generating a little bit more. We're closer to 200,000 in savings. And what happened was you can see here, kind of in this this time frame in the spring, there was this big spike in interest rates, when there were a number of factors affecting the fixed income market.

And so we really put the deal on the shelf at that point. Seeing that rates kinda crept up, felt like that was not an ideal time to pursue this. Also, the bonds weren't currently callable. The the call, the ability to refund the bonds starts in in in October just last month. So now, as you can see towards the tail end of this graph, rates are starting to drop and have dropped, and that's why we're talking about it again. We're not sure where rates are gonna go, obviously. There's mixed signals in the economy. On the one hand, there's a slowing in the economy. On the other hand, there's still very strong inflation and a high national debt. So those are countervailing, you know, factors that can impact rates.

But we'll revisit this in early January once we get the deal ready. But this this slide sort of shows a sensitivity analysis, and, you can see that if rates were to drop a quarter of a percent, which we Right. You know, has 25 basis points, then we'd be back up at that 7%, present value savings that we were we were at April. So that's kind of where we're hoping to get, but we're comfortably, above the, obviously, minimum savings threshold of 3%. Finally, the next steps, will be to spend the next couple of months.

We recognize the holidays are upon us, so there won't be as much focus. But we're gonna work with the bond lawyers to develop the first drafts of the documents, and we're gonna look at those assets again and see if we can refine the pledge of assets and possibly release release an asset. And then in January, when we have the ACFR ready from the auditor controller, we can finish populating some of the disclosure documents and and decide whether to move forward with the rating agency to secure a bond rating, and then and then bring all the final documents to the board for final approval, at which point the board would then delegate authority to staff to move forward with the financing so long as certain parameters are met. So this schedule is sort of a best case, I would say. You know, starting now, we could achieve this reasonably.

But we'll see in January if we like the market. If if we feel like it would be beneficial to wait a, you know, a period of time, then we certainly could do that. But the opposite is true as well. Once we have the documents ready, we'll be much more, positioned to be nimble and get into the market if we really do like the market. So that's that's what we're what we're proposing, and that's what the debt advisory committee, approved this morning. So with that, I will stop, Michael, and see if there's any questions from you or others on the on the committee.

Thank you, David.

Yeah. You're

welcome. Yeah. Do you have anything to add, Michael, before we bring it back?

No. Nothing to add, supervisor. Thank you.

Great. Thank you. And supervisor Lopez, comments, questions?

A couple questions, David. So Yep. One, is there a cost to what we're doing now? Right? So say we get to January and we choose not to pull the trigger. I saw the structure based on if a deal gets struck. But if no deal gets struck, what is the cost that we're out to go through this exercise?

Good question. The cost for now is there is no cost now to have bond counsel prepare documents, to have K and N work on this. We, in these types of deals, we tend to work on a contingent basis. So we'd be paid, you know, from the proceeds of the deal when and if it closes. However, at some point, if we go to the rating agency, we then would be, beginning to incur a potential cost.

And, you know, we estimate that rating fee probably to be around $40,000. Yeah. I think we'll have a better idea before we decide to go to the rating agency that we're close and that, you know, we we like the we like the market. But, and I would say, I've never been in a situation where we've gone to the rating agency, and then we delayed the deal for a period of time. They didn't, like, hit us up to pay the bill right away. But if it were put on the shelf permanently, then I think they probably would seek their fee at some point.

And then a follow-up question. You talked a little bit about the, you know, the winds blowing in different directions, and I'm just curious given the meeting schedule for the Fed, which tends to drive rates. When are those next meetings, and what do you anticipate given the politics around the the appointments that we're hearing a lot about at this point?

Yeah. I think there's a meeting in June in in December. Sorry. And and then I'm not sure what the first one is in in '26. I'll have to look at that. So you got a lot of things going on. Right? Like, there's a lot of political pressure on the Fed to lower rates. That's clearly what federal government administration is pushing for. And there have been a couple of Fed rate reductions already this year, which, you know, were in response to some alleviation of inflation.

Right? Like, they they the Fed was attacking inflation, you know, over the course of the last few years by raising rates and then felt that inflation started to come down, and they were worried about a recession, so trying to create a soft landing. I think it's probably unlikely that we see another Fed cut this year, but just based on some of the, inflation numbers that we're seeing, it's stubborn. The, you know, the tariffs are not helping. Immigration policy is not helping. So a lot of reasons to show some concern. And I would say over the longer term, and Michael and I were talking about this, even if the Fed cuts rates on the short end, and that and I agree that that's helpful. Long term rates sometimes are detached from short term rates. They're really looking at you know, trying not to be so political. Right?

They're looking at the long term fundamentals. They see a big budget deficit at the federal level. They see inflation. So even a couple of Fed reductions may not reduce, you know, the ten year treasury, for example, dramatically. But but I think generally, there's a sense that, you know, rates, hopefully, there's some downward pressure on rates. That's certainly our our hope, and we could benefit from that in you know, if we were to price this in the spring, say.

And on the recent past, we've seen an inverted yield curve a couple times, which is typically an indicator for a recession. Obviously, there's Yeah. Additional additional pressures around the tech space right now that have folks questioning where the market is and all that could have impacts, I think, in the next quarter. But big picture, I we just saw news alert come through that there's been a tariff reduction and removal for key products like beef and and coffee, which is bad for American producers, but it's good for American consumers on the other end. So I think all those pieces are different levers that I'm seeing pulled and have me wondering what the world will look like in January. Right now, every month feels like a year May. For most of us. So I it'll be interesting to see where we end up when we get to that decision point.

Yeah. There's certainly a feeling of whipsaw going on, and and I think you're right that, you know, as we get closer to midterm elections, suddenly, there's a little more concern about consumer costs, and that's probably why we're seeing tariff reductions finally.

Yep.

Yeah. I think it's a political calculus, but nonetheless, that could be helpful to, you know, bring possibly bring inflation down. But there's other factors driving inflation for sure. And and and it's still the, you know, the the magnitude of the deficit is is is still a factor for long term rates. So we'll have to see. You know, not wishing for a recession, but that would bring a little pressure on rates to come down.

Right. Thank you, David. And that's all I have, madam chair. Back to you.

Thank you. Were there any concerns or hesitations raised by the, the debt committee, earlier today?

No. Michael, you wanna address that? Or

Yeah. No. No. Thank you, supervisor. Great question. Primarily, the, the the concern was, ultimately, rates and the potential forecast of the, economy that we might have that has an impact. There was a concern regarding, to ensure that through this process, we do proceed that we would unencumber a property or two as part of the refunding. This would allow us to have some future, financing capabilities, by alleviating or moving some of the encumbered properties as part of the financing. So that was really something that was, brought up during the debt advisory committee. Besides that, it was overall supportive and nothing, super significant, as far as I'm concerned.

Okay. And so that would be a part of the strategy or part of the direction would be that any any action would be tied to to unencumbered to the unencumbered of property for our future so that we would have the option to acquire future debt. That would be

a I'll I'll just address that, supervisor, briefly. Yes. That's the goal, and it it really will depend just on the valuation of those assets versus the amount of bonds outstanding. So it's not a guarantee that we can release an asset. They obviously both were needed at the time the bonds were originally issued, but now we've had some paydown of the bonds. So it may be we have that that opportunity. So that's what we're gonna be looking closely at.

Okay. And then The other question that I had was around the county's credit rating, and I know that we've generally been able to secure a very strong credit rating with with our reserves and with our our our policies in place. When was the last time we went out for a rating? And I have has there been a review of where we're at with sort of I'm assuming there's, like, an initial assessment that we do to look at our the status of our of our of our financial health to get a sense of where we might fall in that rating? Have we Yes.

Yes. Excellent. Brief

look at that?

Excellent question. You're right that the rating agency takes a fresh look every time you bring a new bond issue to to them for consideration. So this would be a fresh look. But they also do surveillance in between something they're supposed to do it every year. I don't think they do. And that and they, you know, in the context of surveillance, they are looking at the updated budget, updated ACFR, updated reserves, cash, liquidity, all of that. So I don't know off the top of my head. I apologize. I will get back to Michael with this information. Michael, hopefully, you can report it out or to Debbie, to this group or at the next meeting exactly when the last, the last fresh look was.

But there has been no action on the rating. There has been no downward pressure on and it is a very strong high double a, you know, rating for the for the county's credit. I will also say that the county is not a frequent issuer of debt, so that positions it well. You know, investors look for, sort of diversity in in the different credits that they buy, and they get a lot of the same credit, you know, LA and California, you know. So when there is a good name, that represents, know, something they don't own, that's always a positive. So that that you know, I think the county's credit would be well received in the market for sure. But I haven't seen the act for yet for, you know, the year ending in June, and, that's a big part of what they look at.

Okay. And so the the the the going back to the slides and the draft, the the savings that you're estimating and those numbers, I'm assuming those are based on an assumption of maintaining a strong rating Yes. Because the the the numbers would change if we if we didn't have I mean, they're changing constantly. Right? But

No. You're absolutely right. You're absolutely right that the rating helps drive the interest rates. You know, all other things being the same, the higher rating will result in lower interest rates and and vice versa. So your board's, you know, diligence and, you know, sort of helping to maintain balanced structurally balanced budgets and reserves are both important features and sort of prudent debt manage prudent financial management overall really is important.

And what would the, like, what would the swing be from, say, an a to a a double a rating in the scenario that you ran Mhmm. With the I think it was the the total savings or the, you know, just the annual cash savings. Like, what would a what would a what would a difference look like just simply based on credit rating difference between

between Yeah. So what I'll say is

If that's a question that's answerable.

Yeah. Yeah. It is answerable. I may not be able to answer it right off the top of my head. But what I would say is that we have gradations in ratings, so we don't go from a to double a necessarily. We go from, say, triple a to double a plus, double a, double a minus. So there's three double a ratings, for example Uh-huh. Before you then go to an a plus, a, a minus. So if there were rating action on the county, let's just say you're a double a rating, you would go to a double a minus, you know, presumably. And and that difference is pretty minor, you know, you know, less than a tenth of a percent on interest rates across the scale most likely because you're already in a very high category double a.

If you were, you know but, yes, if you were to drop three categories, then we'd be looking at a real significant drop. So I don't think, there's gonna be a huge impact if there were a single gradation movement. But, again, that also sort of depends on the strength of the market. In a good market, that's the case. In kind of a bad market where rates are zooming up and investors are nervous and they're sitting on the sidelines, then that's a bigger risk, and there could be a wider impact. It could be 25 basis points, a quarter of a percent to, you know, different for for one category. So we've enjoyed a strong market, fortunately, but it's impossible to sort of predict where we'll be next year.

That's really helpful. Thank you for that. Of course. And then so I'm guessing before we go do the before we move forward with the rating, we would have a chance to just kind of very briefly review where we're at. Someone would take a close look at things. And if there were any reason for concern or red flags, we would be able to hear about that beforehand, before moving forward. Yeah. Yeah. That we would have a a revised set of, data to look at. Because I think that the the debt committee looked at this given sort of an assumption with data that we have.

I I don't have reason to think that we're gonna dramatically shift, but, like, there's a set of assumptions that we're operating based on. If those assumptions were to dramatically change in some way, we would we would check it again.

Yeah. Absolutely. We're gonna pay close attention to that. We also do our own internal scoring of the county's rating. We sort of take the criteria that the rating agency uses and just do a little informal scoring ourselves so that we can see if there's any areas of vulnerability that we need to address. And and that's something we'll do once we get the act for, but, yeah, if we got some indication from the rating agency that things are not as we assumed, and we would would update the numbers, obviously. I I really don't expect that just based on working at the county for as many years as we have, but, you know, we'll we'll pay close attention. And then, obviously, if interest rates move against the deal, then we would work with Michael and others and and and put a pause on it.

And if if I could add, out of the sales office, our our intention here is once we do have we get down this road quite a bit more in January time frame, we do plan on updating the debt advisory committee one more time with the individualized numbers. And then, ultimately, this will come to the full board of supervisors for consideration for moving forward. At that time, our staff report will have a full analysis of what we, believe and a recommendation whether we proceed, or if we proceed, but maybe with the delay or whatever parameters might be depending on the interest rate, that we are attempting to achieve.

Okay. Great. Thank you. Let's open this up to thank you for all the information, all the additional answers to my questions. Let's open this up to public comment. Is there anyone with us who would like to ask a question or make a comment for the good of the discussion? Please raise your hand, and we welcome your feedback. I'm not seeing any hands raised, and I'm not seeing anyone in Monterey room.

Correct. No hands raised in one in Monterey in the Monterey Room. Alright. So I guess that means

it was a great presentation, and no one has any questions. So or they'll just come in and find Michael in the hallways of the government center or at the grocery store. I don't know. But thank you for the for the information. Thank you for the diligence, and I'm tracking these things and continually monitoring to ensure that the county's resources are utilized to their highest good. I think the it's it's not providing direction, but it's what did you call it, Michael, that we're doing?

Support us moving forward with the plan that we have.

We're we're affirming support given the the role of the committee as a advisory body to affirm our our support to to continue so that it will find its way to the full board for ultimate action when the time comes. And that's approved from to Roger Lopez as well?

Correct.

Yeah. Good. Alright. I think that's the only thing that we have on our agenda with our new streamlined committee. Actually, we haven't did the board did we make that to to the full board for approval of the the revised committee roles yet?

So we have not taken the full general financial policies for the county. That has not fully been gone to the that has not been taken to the board yet. We are anticipating taking it with the bear on December 9. Got it. The presentation then.

Fantastic. So the bear is coming, the financial policies, the updated scope for the committee. So lots of lots of good budget conversation on December 9 at the full board of supervisors meeting. So come join us there to talk more about county budget. Our next meeting of this committee is scheduled for 12/17/2025. However, I think we've already canceled that meeting. I know I am not available that day. So the I think this is actually is this the final committee of the year, or did we get another one put on before the end of the year? Yeah.

This is the final meeting of the year unless you put on a special meeting. But as of right now, this would be the final meeting of the year.

Okay. That's what I thought. So I think this is our final committee meeting of the year unless a special meeting is called for something that comes up. But we do have the full budget the full board discussion with a lot of budget items coming. So we'll look forward to seeing everyone at that meeting on December 9 and then I'm not sure who sits on budget for next year but whoever it is I'm sure they will continue to diligently work to steward our County resources.

Michael, welcome again to Monarch County we're happy to have you here with us and it's been a great I'm getting to work with you this year. And Chris, I really appreciate serving on budget committee with you and everyone who's been with us all year. Thank you so much. And with that, any comments for the good of the order before we adjourn?

Thanks, everybody.

Yeah. Thank you. Thank you all. Have a

good Friday.

Bye bye. Bye. Bye.