Tracy Sandoval, Auditor and Controller/Assistant Chie

1
County of San Diego

• Rating Agency Presentation
• May 2004

2
Introductions

• County of San Diego
• Walt Ekard, Chief Administrative Officer
• Donald F. Steuer, Chief Financial Officer
• Tracy Sandoval, Auditor and Controller/Assistant
  Chief Financial Officer
• Janel Pehau, Director, Office of Financial
  Planning
• Lisa Keller-Chiodo, Capital Finance Manager
• Group Finance Directors
• Jill Serrano, Group Finance Director,
• Public Safety
• Terry Hogan, Group Finance Director,
• Health Human Services Agency
• Ray Fernandez, Group Finance Director,
• Land Use Environment
• Jerry Hughs, Group Finance Director,
• Community Services
• Michelle Bush, Group Finance Director,
• Finance General Government

• Treasurer-Tax Collector
• Dan McAllister, Treasurer-Tax Collector
• Auditor and Controller
• Christopher Gilmore, Deputy Controller

3
Mission Statement and Strategic Initiatives

• Mission Statement
• To provide the residents of San Diego County
  with superior County services in terms of
  quality, timeliness and value in order to improve
  the regions Quality of Life.
• Strategic Initiatives
• Improving Opportunities for Kids
• Protect the Environment
• Promoting Safe Livable Communities

4
Recognitions of Excellence

• General Management System (GMS)
• San Diego County Taxpayers Association 2003
  Grand Golden Watchdog Award
• CSAC 2003 Challenge Award
• Operational Excellence
• NACo 2003 Achievement Award - Best in Class -
  Risk Management for Workers Compensation
• NACo 2003 Achievement Award for Pension
  Obligation Bonds
• GFOA Distinguished Budget Presentation and
  Certificate of Achievement for Excellence in
  Financial Reporting
• Strategic Initiative Recognition
• NACo 2004 Acts of Caring Awards Program-Criminal
  Justice
• CSAC 2003 California Community Partnership Award
• American Planning Association California Chapter
  2003 State Planning Award

5
Credit Highlights

• The Countys previous and current actions
  demonstrate its ability to make difficult
  decisions to cut spending and retain a
  structurally balanced budget, while still meeting
  its obligations to taxpayers and residents of the
  County.
• The County is well-positioned to manage the
  challenges presented by the State of Californias
  fiscal crisis.

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Table Of Contents

• Economic Overview Highlights
• Financial Results Fiscal Year 04-05 05-06
  Operational Plan
• County Retirement System Pension Obligation
  Bonds
• County Investment Pool
• 2004-05 Tax and Revenue Anticipation Notes
• Long-Term Bonded Debt
• Closing Remarks

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1. Economic Overview Highlights
8
San Diego is a Place People Want to Go

• PETCO Park opened in April 2004
• San Diego Convention Center is celebrating 15
  years in the community
• 10 billion in economic impact
• Generated more than 7.4 million hotel room nights
• San Diego ranked as 1 for Spring and Summer
  Travel Destination
• Location Location Location

9
Economic Highlights

• Statewide job growth
• Strong job market, with County unemployment
  (3.9) below State (6.2) and National (5.8)
  forecasts

10
Diverse High-Tech Center
11
Economic Highlights

• San Diego County has experienced positive
  economic growth every year since 1994.
• If San Diego were a separate country it would
  rank as the 30th largest economy in the world,
  equal in economic output to Finland or Thailand.
• San Diego has the largest number of military
  personnel in the nation.
• Construction Housing Boom
• Increase in Housing prices (Average Price
  518,650)
• Property Tax Base has increased 9 a year since
  1997.

12
2. Financial Results Fiscal Year 04-05 05-06
Operational Plan
13
Financial Highlights FY 2003-04

• VLF revenues are expected to be under budget by
  45.0 million
• All other general purpose revenues are projected
  to be 16.0 million higher than budget
• Firestorm 2003 County committed appropriations
  of 22.6m, 18m has been approved and 3.7m has
  been received
• Amount not included as part of Fund Balance or
  resources for FY 04-05
• 39m of unappropriated fund balance

14
General Fund Financial Results
 
 
Balances for the year ended June 30, 2001 were
significantly affected by the implementation of
GASB 33, which requires equity that was
previously classified in certain agency funds to
be consolidated with the General Fund. As
reported in the Third Quarter Fund Balance
Report.
15
Conservative Budgeting Strong Financial
Performance
(1) Third Quarter Fund Balance Report for each
respective fiscal year, Excess Ongoing Revenues
over Ongoing Expenditures
16
Reserves and Resources
17
Challenges for the Future

• State Economy
• Structural Cost Increases
• Property Tax Shift
• Categorical Program Impacts
• Dependence on State Government
• Workforce Transition

18
Financial Highlights FY 2004-05

• The Countys operational plan built on the
  January 9, 2004 governors budget.
• County will retain the general reserve of 55.5
  million and will appropriate an operational
  contingency reserve of 11 million.
• The plan includes the final two years of
  five-year salaries and benefits agreements for
  most of the Countys bargaining units.
• Retirement costs have been incorporated into the
  Countys cost structure.

19
Fiscal Year 04-05 Proposed Operational Budget
3.96 Billion by fund 3 decrease
20
FY 04-05 General Fund Proposed Operational Budget
Revenues (in millions)
2.763 Billion
County maintains balanced budget.
Appropriations (in millions)
21
General Fund Revenue Composition
By Source (in millions) 0.8 decrease
General Purpose Revenue of 630.2M 2.5 decrease
22
FY 04-05 General Fund Detail
23
Public Safety

• Mission Statement Provide all County residents
  with the highest levels of public safety and
  security.
• Provide law enforcement services to over 800,000
  residents in the unincorporated areas and nine
  contract cities Operate 7 jails
• Prosecute approximately 50,000 felony and
  misdemeanor crimes, including consumer and
  welfare fraud
• Supervise more than 20,000 juvenile and adult
  offenders sentenced to probation by the Court
• Provide legal representation to indigent persons
• Collect and disburse approximately 150 million
  in child support payments
• Operation of new Juvenile Detention Facility
• Participate in development of a Regional
  Intelligence Center
• Increased focus on sex offenders, gang violence,
  adult offender literacy and prevention of youth
  exposure to violence.

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Health and Human Services Agency

• Mission Statement. Make people's lives safer,
  healthier and self sufficient by managing
  essential services
• Strengthen Child Welfare Services by managing to
  achieve state and federal accountability outcomes
• Ensure that 75 of foster youth achieve high
  school completion.
• Achieve total of 225,000 children enrolled in
  health insurance coverage.
• Place 4,000 Welfare-to-Work participants monthly
  in unsubsidized employment
• Begin integration of mental health and alcohol
  and drug services into a behavioral health system
• Provide Food Stamp benefits to more than 30,000
  households.
• Prevent the spread of communicable diseases such
  as AIDS and TB.

25
Land Use and Environment Group

• MISSION STATEMENT To unify the Countys efforts
  in environmental preservation, quality of life,
  economic development, recreation, and
  infrastructure development and maintenance.
• KIDS Commitment to Prevention and Diversion
• Continue to
• Build the Spring Valley Teen Center
• Support kids in 4-H, mentoring and Critical Hours
  programs
• SAFE LIVABLE COMMUNITIES Preserve the
  Infrastructure
• Continue to
• Seek full state and federal reimbursement of
  costs resulting from Firestorm 200, and develop
  grant proposals to help fund fire recovery
  efforts
• Continue collection of household hazard waste
• Detect agriculture pests early
• THE ENVIRONMENT
• Leverage County resources for outside funding for
  open space acquisition.
• Complete public review of General Plan 2020
  Environmental Impact Report, and present it to
  the Board of supervisors for approval
• Complete North County Multiple Species
  Conservation Program Environmental Impact Report
• Continue to improve watershed protection and
  stormwater quality
• Preserve open space for public use

26
Community Services Group

• Mission Statement To provide cost effective and
  responsive services to our customersthe public
  and County departments. These services are
  provided with an emphasis on customer
  satisfaction, quality, and value.
• Sustain commitment to major maintenance
• Reengineered facilities maintenance to improve
  efficiency and reduce total costs
• Continue investments in energy-saving
  technologies
• Provide funding to assist revitalization of
  lower-income neighborhoods
• Apply innovative procurement methods to reduce
  costs to County departments
• Successfully conduct November General Election

27
Finance and General Government Group

• Mission Statement To provide timely, accurate,
  efficient and effective financial, legislative
  and general government services to County
  residents, other local public agencies, county
  departments and individual County employees that
  are consistent with federal, State and local
  requirements.
• Provide accounting, audit, budget, payroll and
  collection services.
• Establish values and maintain records on all
  taxable property within the County.
• Make available to the public all vital records.
• Remain a critical revenue generator for the
  County.
• Provide investment and treasury services to the
  County as well as school districts, cities, and
  special districts.
• Deploy Human Resources and Financial Systems.
• Manage IT Outsourcing Contract.
• Present full disclosure of financial transactions
  through recurring reports.

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Impact of May Revised Budget

• State Mandates Payments SB-90
• Increase in IDEA funds
• ERAF effect shifts from 55m to 28m

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3. County Retirement System Pension Obligation
Bonds
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County Retirement System

• San Diego County Employees Retirement
  Association was established July 1, 1939 under
  the provisions of the County Employees
  Retirement Law of 1937
• 18,434 active members as of fiscal year ending
  June 30, 2003
• 10,280 retired members
• 3,790 deferred members
• Current year activity
• New actuary
• Tri-annual experience review

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Policy Objectives

• Ensure that the County Retirement System is
  appropriately funded.
• Pay the full annual contribution required by the
  Retirement Systems Actuary.
• Take advantage of low interest rates to lower
  Unfunded Actuarial Accrued Liability (UAAL) and
  save money by periodically issuing POBs.
• Minimize risk of over-funding pension system by
  targeting maximum funding ratio of 90-95.
• Maximize flexibility to prepay and refinance
  future UAAL.

32
Current Status

• Actuarial Report as of 6/30/2003 released in
  April 2004
• Reflects new UAAL of 1.4 billion (75.5 funded)
• Does not include sizable investment gains
  achieved since June 30, 2003
• Board of Supervisors authorized CFO to pursue
  issuance of pension obligation bonds.
• County has retained its own actuary to assist in
  matters relating to retirement funding.

33
SDCERA Overview

• Theme
• Operational Enhancements
• Successes
• Challenges
• SDCERA Goals for FY 04-05

34
2004 POBs Preliminary Financing Plan

• Take advantage of favorable interest rates to
  achieve cost savings
• Target near-term funding ratio of 80
• Consistent with Strategic Plan, continue to use
  available one-time, operating surpluses to retire
  POBs or other County debt
• Economic Defeasance of 1994 POBs budgeted for
  FY04-05. Escrow can be collapsed and funds
  redirected if needed
• Structure financing to achieve ongoing savings
• Not a near-term budgetary fix
• Include optimized mix of fixed and floating rate
  bonds
• Consistent with County Long-Term Debt Policy

35
2004 POBs Historical Perspective
1 Assumes market rates as of May 7, 2004. Actual
rates may vary. 2 2002 POBs had 100 million of
unhedged ARS while 2004 POBs assume 60 million
of unhedged ARS at conservative benchmark
variable rates. 3 10-yr T-note yield as of May
7, 2004.
36
2004 POBs Financing Schedule
Date Activity May 19 Rating Agency
Presentations June 7 Receive Ratings June
8 Receive Credit Enhancement Bids June 15 Board
Meeting to Approve Transaction Mail POS June
22 Price Transaction June 29 Closing
Preliminary, subject to change.
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4. County Investment Pool
38
Investment Pool Strength and Stability

• Highly Liquid
• Low weighted average maturity
• 65 of securities mature within 1 year
• Portfolio focus is Safety, Liquidity, Return
• Weighted average yield of 1.60
• High Credit Quality
• High credit quality (100 of securities are rated
  AAA or A-1/P-1/F-1)
• Professionally managed
• Strong cash flow model

39
Key Pool Highlights Pool Participants
As of March 31, 2004

• Mandatory Participants
• County of San Diego,
• K-12 school districts, and
• various special districts and accounts
  controlled by the County Board of Supervisors.

• Community Colleges fall somewhere between
  Mandatory and Voluntary Participants. While they
  have the ability to invest funds outside of the
  County Treasury, they receive banking, checking,
  and investment services from the County.

• Voluntary Participants
• cities,
• fire districts, and
• Various special districts

40
Asset Allocation
As of March 31, 2004
41
Key Pool Highlights - Credit Quality
As of March 31, 2004
The Pool is limited to buying corporate and
medium-term notes of issuers rated AAA or better
when the maturity is beyond one year, whereas the
Code allows for buying corporate and medium-term
notes of issuers rated A or better. The following
pie chart displays the percentage breakdown of
credit exposure for the Pool.
42
5. 2004-05 Tax and Revenue Anticipation Notes
43
2003-2004 Tax and Revenue Anticipation Notes

• Preliminary Size 360 million
• Includes maximum cash deficit and working capital
  reserve
• Provides additional low cost, liquidity in light
  of State budget challenges
• Mitigates any potential need for supplemental or
  internal borrowing
• Final Maturity
• 12 or 13-month maturity - to be determined
• Investment of Note Proceeds and Set-asides
• Investment Agreement vs. County Pool - to be
  determined
• Flexible Pricing Schedule
• Navigate around technical imbalances that may be
  caused by State

44
2004-2005 General Fund Cashflow
In thousands
45
2003-2004 General Fund Actual/Estimated Cashflow
In thousands
46
Available Cash for Short Term Interfund Borrowing

• AS OF 05/13/2004

47
TRANs Financing Schedule
Date Activity May 11 County Board Approves
Financing May 24 Receive Ratings May 25 Post /
Mail Preliminary Official Statement June 1 Price
Transaction (Tentative) July 1 Closing
Preliminary, subject to change.
48
6. Long Term Bonded Debt
49
Long-Term General Fund Bonded Debt

• Composition
• 32 of debt COPS
• 68 pertains to Pension Obligation Bonds
• County pays down various long-term obligations
• San Pasqual
• Interim Justice
• 1993 Series A
• 1993 Vista Refunding

  
50
Debt Profile
Outstanding Certificates of Participation
Outstanding Certificates of Participation
Pension Obligation Bonds
51
General Fund Debt
County Debt Service Burden 4.20 Debt
Service Burden with offsets 2.92 Debt
Service Burden net of POBs 2.01
Total Debt Payments/(General Fund Revenue
Fund Balance)
52
7. Closing Remarks
53
Closing Remarks

• County continues to exercise fiscal prudence and
  uses reserves properly in times of economic
  slowdown
• Consistent with its strategic plan and financial
  objectives, the County has maintained a
  structurally balanced budget
• Absorb the emergent events of FY 2003-2004
• County continues to maintain adequate cash
  position
• County is well positioned to manage future
  challenges, including economic slowdown,
  potential impact of State budgetary actions, and
  changing demands of our citizens
• Prudent reserves and resources available
• No public hospital system
• Diversified economy