FINANCIAL REPORT 4th Quarter FY 2015-16 & 1st Quarter FY 2016-17 Presentation to the Board of Supervisors December 6, 2016 Good Morning Chair, Members of the Board Meegan Jessee, Deputy CAO. Before you this morning is the financial report for the 4th quarter of last fiscal year and the 1st quarter of the current fiscal year.

Overview Economy – Modest, Uneven Growth Expenditures – On Track Fund Balance – Higher Than Anticipated Revenues – Discretionary Revenue Somewhat Higher than Anticipated Cash Balances – Healthy Debt – 1 Refinancing; 1 Loan Paid Off Again this year the 4th and 1st quarter reports have been combined into a single report. The year end accounting work takes much of the 1st quarter to complete so 4th quarter financial information is available about the same time as the 1st quarter information. The quarterly report includes an update on economic trends, expenditures and revenues, fund balances, current cash balances and debt totals.

Gross Domestic Product (GDP) - 1.4% Annualized Growth in the 4th Quarter 2.9% Annualized Growth in the 1st Quarter First on the economy … We’re seeing some improvement in the advance estimate for the 1st show GDP growth of 2.9%, the highest in two years.

Consumer Price Index (CPI) - Averaged 0.2% increase over the past two quarters 0.3% increase in September Inflation remains low Since the report was finalized October numbers have been released showing inflation at 0.4%, the fastest rate in 6 mos --- this, coupled with the stronger GDP numbers, has increased speculation that the fed will increase interest rates before the end of the year.

Consumer Confidence Index - Ended the 1st Quarter at 104.1 Highest Point Since the Recession Consumer confidence increased in both the forth and first quarter ending the first quarter at it’s highest point since the recession

The unemployment rate continues to look good The unemployment rate continues to look good. The state’s unemployment rate declined to 5.3% compared to 5.5% a year ago. Butte County’s unemployment rate ended the first quarter at 6.1% a decrease from the previous few months, but a slight increase from the 5.9% a year ago.

Building Activity Here in Butte County we saw an average of 235 building permits per month in the 1st quarter, compared to an average of 264 per month during the same time period last year, a slight decrease. Statewide the 1st quarter saw an average of 7669 housing starts per month, down very slightly from 7,744 last year at during the same period.

Moving to expenditures … Moving to expenditures …. The County spent 89% of it’s budget during the 15-16 fiscal year very similar to last years 88%.

If we drill down to look at just General Fund departments budgets, as shown on the slide, we are right in line with the three previous years which ranged from 90% to 92%.

Countywide revenue for fiscal year 2015-16 was 96% of budget compared with 89% and 98% in the last two years.

Here are the final general purpose revenue figures for last year Here are the final general purpose revenue figures for last year. We received 108% of budgeted revenue – approximately $6.6 million more than budgeted. This is primarily due to proceeds from the County’s operation of the Alternative Method of Tax Apportionment, commonly referred to as the “Teeter Plan” after the Contra Costa Auditor who developed it in 1949. Teeter Plan proceeds were originally budgeted at $2 million, but closed the year $3.5 million higher than budgeted. Other increases are due to receiving $0.9 million more property tax than budgeted mostly related to former redevelopment agencies, one time SB 90 interest of $0.8 million as well as other smaller increases including sales tax, property transfer tax and the receipt of federal in-lieu of tax payments.  All but $1.3 million, primarily the Teeter revenues, was anticipated in the estimated available fund balance and included in the 2016-17 recommended budget.

In fiscal year 2015-16 departments received 92% of budgeted revenues, a reduction from prior years due primarily to an accounting change which better reflects funds that have been both received and used by departments. In prior years revenues received, but restricted for a specific purpose where included here. Now those restricted revenues are accounted for in separate non-operating funds and transferred to the general fund as they are used.

GENERAL FUND – 6/30/15 Balance $31.2 million total fund balance - $ 7.8 million obligated fund balance =$23.4 million unobligated (available) fund balance $1.9 million more than estimated $9.7 million beginning GF Contingency At the end of the year the general fund, fund balance was $31.2 million – less than the prior year b/c most of the restricted funds that used to be held in the general fund have been moved into non-operating funds. Of that $31.2 million $7.8 million is obligated ($7.5 GF Reserve). The balance of $23.4 million was the 2015-16 final available fund balance. As part of the recommended budget we include an estimate of what the available fund balance which used it to fund part of the recommended budget. The actual available fund balance is $1.9 million more than we estimated in the budget primarily due to the Teeter Funds we discussed earlier. This results in a $1.9 million increase to the general fund contingency from a projected $7.8 million to $9.7 million. Current GF Contin is $9.29 (spent $412,000 to date – Rebudget, library roof, Oroville veterans park)

OTHER FUNDS – 6/30/16 Balance $43.2 Million – Non-Operating Funds $53.6 Million - Other Governmental Funds $5.0 Million - Internal Service Funds $30.1 Million - Enterprise Funds (Neal Road) In addition to the County General Fund the non-operating funds that old restricted revenues not expended the year they are received totaled $43.2 million and tother governmental funds had a combined year end balance of over $53.6 million. Internal Services Funds which include general liability insurance, workers comp and unemployment insurance have a year end net position of $5 million. The Enterprise Funds which are used to account for the Neal Road Recycling and Waste Facility ended the year with a net position of $30.1 million.

Moving to first quarter expenditures and revenues … On the expenditure side things are very much as anticipated at this early point in the year and fairly consistent with prior years. (last year we had a large cash movement – this year three pp in septemeber)

Similarly, looking at revenues to date things are consistent with prior years

General Fund cash balanced ended 15-16 at $31 General Fund cash balanced ended 15-16 at $31.8 million (up $2 million from the prior year) and ended the first quarter at $10.5 million down about $5 million from the prior year due primarily to an additional payroll in September, a higher bi-weekly payroll a payment to CalFire for the 4th quarter which cleared in the 1st quarter and some about $1 million in one time dollars received in 2015-16. As you can see from the graph the overall cash trends are fairly consistent with the lowest cash levels in November before the 1st installment of property tax revenues are received and a second dip in March before the 2nd installment is received in April.

Finally, moving to debt, the slide shows are current debt obligations Finally, moving to debt, the slide shows are current debt obligations. During the last two quarter we’ve made debt payments totally $3 million, $2 million resulted in principal reductions. Additionally during the period covered by the report the County refinanced the Neal Road Recycling and Waste Facility 2006 Certifications of Participation which will result in interest savings of approximately $345,000 and we paid off one of two loans related to the Solar Panels three years early resulting in interests savings of $11,973.

UPDATE – Pension & Retiree Health Liabilities Pension Obligation Bond Payment Strategy Retiree Health Pre Funding CalPERS Pension Costs County Employees receive pension benefits and in some cases health benefits after their retirement from the County. The management of these long term liabilities is a key component of the County’s finances. POB -- As such in 2012 the Board adopted a strategy related to our pension obligation bonds some of which have a variable interest rate. In order to prepare for interest rate fluctuations and increasing payments in future years, the County has accumulated approximately $7.9 million for future payments. The interest earnings from this reserve currently offset the debt service payments. The County will prepay some of the principal when that becomes advantageous (interest costs exceed interest earnings). Retiree Health -- Similarly with Retiree Health in July of 2015 to address our unfunded liability related to retiree health care the County established an irrevocable trust to prefund retiree health care benefits earned, but, not yet payable. The strategy involved gradually increased the amount set aside for retiree health benefits beyond the amount payable in a signal year. The County is now ramping up to collecting the liability accrued in a signal year. This accrued liability amount is referred to as the actuarially required contribution (ARC). In the current year the County is collecting 70% of ARC from department budgets and any amount beyond was is payable in the current year will be set aside in a trust. The balance in the trust as of the end of the first quarter of the current fiscal year was $1 million. In addition to this strategy the retiree health benefits for new employees were significantly reduced in 2010 so over time the ARC will be reduced. CalPERS -- Despite increases in CalPERS payments since the great recession due both to investment losses and a variety of assumption changes the CalPERS Board is considering lowering it’s “discount rate” or earnings assumption over the coming months due to lower investment earnings expected over the next decade, a relatively low funded status and a maturing retirement plan. At it’s November meeting the CalPERS board heard informational presentations from staff and consultants on this topic and directed staff to come back to the board with recommendations in December. Reducing the discount rate, which is currently 7.5% to 7.25% or 7% have both been discussed and may be necessary. Any reduction to the discount rate will increase County costs significantly, likely millions of dollars annually. A change made this year would likely first impact the County in fiscal year 2018-19. Staff will continue to monitor these discussions and provide updates as appropriate.