Budget Overview
The total recommended Operating Budget for Debt Service is a decrease of or percent from the approved budget of
General Obligation Bonds
General Obligation (GO) bonds are issued by the County to finance a major portion of the construction of long-lived additions or improvements to the County's publicly-owned infrastructure. The County's budget and fiscal plan for these improvements is known as the Capital Improvements Program (CIP) and is published separately from the Operating Budget and Public Services Program. Currently, GO bonds are anticipated to fund approximately percent of the County's capital expenditures (excluding WSSC Water) for the six years of the Recommended CIP program. The bonds are repaid to bondholders with a series of principal and interest payments over a period of years, known as Debt Service. In this manner, the initial high cost of capital improvements is absorbed over time and assigned to citizens benefiting from facilities in the future, as well as current taxpayers. Due to various Federal and State tax laws, interest rates are usually lower than for non-government issues.
"General obligation" refers to the fact that the bonds are backed by an irrevocable pledge of the County's full faith and credit and unlimited taxing power. Such bonds are payable from ad valorem taxes, unlimited as to rate or amount, on all real, tangible personal and certain intangible property subject to taxation at full rates for local purposes in the County. In addition, the Montgomery County Charter provides that the Director of Finance must make debt service payments even if the Council fails to provide sufficient appropriation. County GO bonds are exempt from Federal taxes and from State taxes for citizens of Maryland. Finally, the County strives to maintain its total and projected outstanding debt and debt service within certain financial parameters according to the County's fiscal policy. Thus, these financial instruments provide safety of repayment for investors.
Section of the County Charter requires the County Council to set Spending Affordability Guidelines (SAG) for the CIP. The guidelines are related to how much the Council believes the County can afford, rather than how much might be needed. The guidelines apply to County GO bonds and must specify the total GO debt issued by the County that may be planned for expenditure in the first and second year and approved under the six-year CIP. On September the County Council approved SAG limits at million for million for and million for the period. On February May and February the County Council confirmed the guidelines set on September
Debt Service Program
The annual debt service obligation of all outstanding GO bond issues, long- and short-term lease payments, other long-term debt, and projections of certain related expenditures (including costs of issuance) constitute the total Debt Service budget for When a bond-funded facility supports an activity funded by one of the County's enterprise funds, the debt service is appropriated in that enterprise fund operation.
Montgomery County GO bonds are budgeted in specific categories for specific purposes: General County (Police, Corrections, Human Services, Libraries, General Government, and other miscellaneous purposes); Roads and Storm Drains; Public Housing; Parks (including land and development for M-NCPPC regional and Countywide use parks); Public Schools; Montgomery College; Fire Tax District; Mass Transit Fund and the Recreation Fund. A separate appropriation is made for the General Fund or a special fund (e.g., Fire Tax District, Mass Transit, and Recreation) as appropriate. These appropriations include debt service for GO bond issues outstanding and other long-term and short-term financing.
The total Debt Service budget consists of principal and interest on the bonds and other long-term and short-term financing obligations. Bond anticipation notes (BANs)/commercial paper are short-term capital financing instruments issued with the expectation that the principal amount will be refunded with long-term bonds. In the meantime, interest costs are incurred and included in the debt service budget, usually at lower rates than with long-term financing. Cost of issuance includes the legal, financial advisory, administrative, and production costs of rating, issuing, and selling bonds, BANs/commercial paper and short- and long-term financing. Funding sources which offset the General Fund requirement for Debt Service may include premium on bonds issued. The special funds will fund the debt service appropriation via a transfer from individual special funds to the Debt Service Fund.
Estimated Debt Service
The estimated general obligation debt service, lease, and other long-term debt expenditure requirements for tax-supported funds total million which is lower than the budget of million primarily due to deferrals of some lease and long-term debt financings, in addition to the Series general obligation bond refunding savings.
Recommended Debt Service Budget
The Debt Service budget is predicated on a base of existing debt service requirements from past bond issues plus the following:
• An issue of million at an interest cost of percent for years with even principal payments and annual debt issuance to continue through
• Interest expense based on an anticipated average BANs commercial paper balance of million during
• Other short- and long-term financing obligations as displayed in a chart at the end of the section.
The Debt Service assumptions discussed above result in a total Debt Service requirement for tax-supported funds of million, which is a percent decrease from the budget of million. The General Fund appropriation requirement is or percent less than the budgeted amount of million. A schedule detailing debt service principal and interest by major fund is included at the end of the chapter.
Public Services Program
The six-year Public Services Program for Debt Service is predicated on the bond issue requirements in the Recommended CIP, adjusted for inflation. An estimated interest cost of percent is budgeted for the fall issue. Projected interest rates for bond issues for through are based on market expectations for coupon rates, which drive actual debt service costs. Under these projections and assumptions, tax-supported debt service will increase from million in to million by with the General Fund revenue requirement growing from million in to million by
Capital Improvements Program Impact On Operating Budget
Debt Service Requirements
Debt service requirements are the single largest impact on the Operating Budget/Public Services Program by the CIP. The Charter-required CIP contains a plan or schedule of project expenditures for schools, transportation, and infrastructure modernization, with estimated project costs, sources of funding, and timing of work over a six-year period. Each bond issue used to fund the CIP translates to a charge against the Operating Budget each year for years or the actual maturity of the bonds issued. Debt requirements for past and future bond issues are calculated each fiscal year, and provision for the payment of debt service is included as an Operating Budget requirement. Debt service expenditures take up fiscal capacity that could be utilized to fund current or improved services as well as tax bill containment. As Debt Service grows over the years, increased pressures are placed on other PSP programs competing for scarce resources.
The County Council adopts Spending Affordability Guidelines for the Capital Budget based on criteria for debt affordability. These criteria are described in the County's Fiscal Policy and provide a foundation for judgments about the County's capacity to issue debt and its ability to retire the debt over time. Debt capacity evaluation also focuses on other factors which impact the County's ability and willingness to pay current and future bond holders. Debt obligations, which include GO debt service plus other short- and long-term commitments, are expected to stay manageable. Maintaining this guideline ensures that taxpayer resources are not overextended during fiscal downturns, nor are services squeezed out over time due to increased debt service burdens. The Debt Capacity chart as displayed at the end of this section is based on the County Council's approved Spending Affordability Guidelines for The chart displays the anticipated debt issues for the six years which are the basis of the GO bond-funded portion of the Recommended Amended CIP. Annual bond-funding requirements (on which future debt issue projections are based) are based on assumptions of projected bond-funded expenditures identified by project, amount, and year. The total programmed bond-funded expenditures for each year and for the CIP period are then adjusted to assist in estimating annual bond issue requirements. Adjustment factors include inflation, commitment of County current revenues (PAYGO) as an offset against bond requirements, and a set-aside for future unprogrammed projects. The resulting bond requirements are then compared to planned bond issue levels over the six-year period. It is most critical that debt funding of the CIP be within projected bond issue requirements for the first and second years and for the six years, and the County Executive's Recommended Amended Capital Improvements Program meets that requirement. The General Obligation Bond Adjustment chart reflecting the County Executive's January proposals for the Recommended Amended CIP is included at the end of this section.
Debt Limit
The County's outstanding general obligation debt totals $ as of June The allocation of outstanding debt to government programs and functions is displayed in a chart at the end of this section.
The Annotated Code of Maryland, Article Section authorizes borrowing funds and issuance of bonds up to a maximum of percent of the assessed valuation of all real property and percent of the assessed value of all personal property within the County. The legal debt limit as of June is based upon the assessed valuation for all real property and for personal property. The County's outstanding general obligation debt of plus outstanding short-term commercial paper of is percent of assessed value, within the legal debt limit and safely within the County's financial capabilities. A comparison of outstanding debt to legal debt limit is displayed in a chart at the end of this section.
Additional information regarding the County's outstanding general obligation debt and revenue bond debt can be found in the Debt Service Book for Fiscal Year Schedules which display the allocation of outstanding debt to government programs and functions, debt service requirements for bond principal and interest, and payment schedules for paying agents can also be found in the Debt Service Book at the following link: http://www.montgomerycountymd.gov/Finance/financial.html
Leases and Other Debt
Long-term lease costs are similar to debt service in that they are long-term commitments of County funds for the construction or purchase of long-lived assets. They are displayed and appropriated within the Debt Service Fund. Short-term leases, where the payments represent a substantial County commitment for the acquisition of assets that have a shorter life but still result in a substantial asset, are also displayed and appropriated within this Fund.
The appropriations for the long- and short-term financing are displayed in a chart at the end of this section.
Other Long-Term Debt
The County entered into lease-purchase agreements to finance energy systems modernization at various County buildings for which the debt service is covered by energy savings. Three of the leases qualified for Qualified Energy Conservation Bonds which provided a Federal tax subsidy.
Commencing in Water Quality Protection bonds finance stormwater management requirements resulting from the new National Pollutant Discharge Elimination System (NPDES) Municipal Separate Storm Sewer System permit requirements. During the County entered into two drawdown loans with the Maryland Water Quality Financing Administration (MWQFA), approximating million. In FY the County secured another loan from the Maryland Water Infrastructure Financing Association (MWIFA), previously the MWQFA, in the amount of million. The loans are secured by Water Quality Protection Charge (WQPC) revenues.
Debt service estimates for additional Water Quality Protection Bonds and MWIFA loans have been included. These financings are required to meet ongoing permit requirements. To pay for the debt service, a transfer of funds from the Water Quality Protection Fund to the Debt Service Fund is required.
Other long-term debt (MHI) includes the debt service costs, offset by a transfer from the MHI Fund, for the issuance of debt for housing projects, which will increase the County's capacity to acquire and renovate affordable housing. In addition to financing costs related to funding the County's ongoing Affordable Acquisition and Preservation project, the budget includes debt service on two million tranches of Limited Obligation Bonds issued by the Housing Opportunities Commission. The first tranche was issued in and the second in Interest income of million that was earned on unspent bond proceeds from the first tranche has been included as a non-GO Bond funding source.
Long-term debt payments to acquire the Silver Spring music venue and to finance Rockville Core and Wheaton Redevelopment facilities are also included. Contributions to the Wheaton Redevelopment tax-supported debt service appropriation are assumed from Permitting Services, Community Use of Public Facilities, and Water Quality Protection funds.
In certain master leases were refunded as part of a Certificates of Participation (COPs) financing for which debt service is included.
Certain other types of long-term debt are issued by the County government and State-chartered agencies of the County, such as the Maryland-National Capital Park and Planning Commission, WSSC Water, Housing Opportunities Commission, and the Revenue Authority. Examples are revenue bonds, backed by fees and charges to facility users; and agency bonds, backed by separate taxes, charges, other revenues, and/or the faith and credit available directly to these agencies. In some cases, the County government may make direct payments under contract to these or other agencies. Most of these other types of non-general obligation debt are not included in expenditure listings of this section.
Rating Agency Reviews
Montgomery County continues to maintain its status as a top-rated issuer of municipal securities. The County has the highest credit ratings possible for a local government, AAA from Moody's Investors Service, Inc. (since from Standard and Poor's (since and from Fitch Ratings Inc. (since the first year a rating was sought from Fitch). These high ratings are critical to ensure the lowest possible cost of debt to citizens. High ratings translate into lower interest rates and considerable savings over the interest payments on the bonds. The rating agencies also place great emphasis on certain operating budget criteria, the quality of government administration, legal or constitutional restrictions, and the overall condition of the local economy. All of these factors are considered evidence of both the ability and willingness of local governments to support public debt.
Special Taxing Districts
The County has two active special taxing districts: West Germantown and White Flint. West Germantown was created in accordance with Chapter of the Montgomery County Code, the Montgomery County Development District Act enacted in The White Flint Taxing District was created in accordance with Chapter of the Montgomery County Code, which was enacted in The creation of these districts allows the County to provide financing, refinancing, or reimbursement for the cost of infrastructure improvements necessary for the development of land in areas of the County with high priority for new development or redevelopment.
Pursuant to Chapter and special taxes or special assessments may be levied to fund the costs of bonds or other obligations issued on behalf of the respective districts. Any bond issued under Chapter and is not an indebtedness of the County within the meaning of Section of the Charter. Additionally, any bond issued must not pledge the full faith and credit of the County and must state that the full faith and credit is not pledged to pay its principal, interest, or premium, if any. Any bonds issued are not considered liabilities of the County and are not reported in the County's financial statements. However, unlike the West Germantown development district, the County may issue financing or provide funding for certain infrastructure projects within the White Flint Taxing District that are not derived under the authority of
In April the County issued two series of special obligation bonds for the West Germantown Development District. The County issued million of Senior Series bonds and million of Junior Series bonds to finance the construction of infrastructure in the development district. Special taxes and assessments were levied beginning in to repay this debt. On August the County issued of Special Obligation Refunding Bonds (Senior Series to refund West Germantown Development District Series and bonds. The outstanding principal balance as of June was million.