08-28-2017 Council Work Session Packet

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LIQUIDITY The city concluded fiscal year 2015 with a net cash balance across operating funds of $8.3 million, or a very healthy 91.5% of revenues. Debt and Pensions: Modest Debt and Slightly Above Average Pension Burden The city's below average debt burden will likely remain modest due to no planned future issuances. Inclusive of the transaction, the city's direct debt burden of 0.3% of full value is lower than both the state and national medians of 1.1% and 1.9% respectively. Including borrowing by overlapping entities, the city's overall debt burden is at 2.2% of full valuation. Debt service as a percentage of operating expenses was moderate at 16.3% of fiscal 2015 expenditures, while combined fixed costs, (pension contributions, OPEB and debt service) made up a still moderate 20.6% of 2015 revenues. DEBTSTRUCTURE All of the city's debt is fixed rate. Principal amortization is average with 88.8% of debt retired within 10 years. DEBT -RELATED DERIVATIVES The city is not a party to any derivative agreements. PENSIONS AND OPEB The city has a slightly above average employee pension burden. The city participates in the statewide General Employees Retirement Fund (GERF) and the Public Employees Police and Fire (PEPFF) plan, which is administered by the Public Employees Retirement Association (PERA). In fiscal 2015 the city's combined pension contributions totaled $465,000 or 5.2% of operating revenues. In fiscal 2015, Moody's total Adjusted Net Pension Liability (ANPL) for the city totaled $17.2 million, or 1.9 times fiscal 2015 operating revenues. Moody's ANPL reflects certain adjustments we make to improve comparability of reported pension liabilities. The adjustments are not intended to replace the city's reported contribution information, but to improve comparability with other rated entities. We determined the city's share of liability for GERF and PEPFF in proportion to its contributions to the plans. The city also administers a single -employer defined benefit healthcare plan. The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the city's group health insurance plan, which covers both active and retired members. Retirees still pay their healthcare premium but benefit from an implicit rate subsidy. The city does not pay their premiums. As of January 1, 2014, the most recent actuarial valuation date, the city's unfunded actuarial accrued liability for OPEB was $831,138, or 9.2% of operating revenues. Management and Governance: Strong Institutional Framework with Conservative Budgeting Practices Minnesota cities have an institutional framework score of "Aa," or strong. Revenues are moderately predictable as cities rely primarily on property taxes. Some cities also rely on State Local Government Aid (LGA), which is distributed based on demographic and tax base factors. Revenue -raising flexibility is moderate as cities generally benefit from unlimited levying authority, except during years in which the state has imposed limits. Levy limits are not in place for the 2016-2017 biennium. Expenditures mostly consist of personnel costs, which are highly predictable. Cities typically maintain low fixed costs and have a moderate ability to reduce expenditures. Management utilizes a conservative budgeting approach which has led to the maintenance of healthy reserve levels. Legal Security The Series 2016 bonds are secured by the city's full faith and credit general obligation pledge which benefits from a dedicated levy unlimited by rate or amount. Use of Proceeds The proceeds of the 2016A bonds will be used refund the city's General Obligation Street Reconstruction Bonds, Series 2008A (callable 2018-2023 maturities) for an estimated savings of $200,000. Obligor Profile The city of Orono is located approximately 20 miles west of downtown Minneapolis, MN. The city encompasses an area of approximately 25 square miles and has an estimated population of 7,785. 20 October 2016 City of Orono, MN: New Issue - Moody's assigns Aaa to the City of Orono, MN's Ser. 2016A GO bonds