What a convoluted headline.
As I was writing about my verification that the McHenry County Conservation District tax hike bill had been signed by Governor Pat Quinn, I predicted that there would be a rebuttal to MCCD Board President David Brandt’s critique of McHenry County Board member Andrew Gasser’s criticism during his comments at the last County Board meeting.
Little did I know that it had already been posted as a comment under this article.
What Steve Willson wrote is worth reading, so I present it below:
During Steve Willson’s participation in the debate over McHenry County College’s attempt to build a fitness center, he attended a meeting to give his views in person.
It’s very easy to get drawn off target, and that is exactly what Brandt is attempting here, so let’s look at the big picture.
1) Andrew Gasser had two points:
(a) MCCD spends much more than the average conservation district, and
(b) Can MCCD justify these higher expenditures?
2) Brandt never disputed Andrew Gasser’s main contention or answered Gasser’s request.
(a) None of Brandt’s responses speak to Andrew Gasser’s point that MCCD spends much more than the average.
(b) None of Brandt’s Reponses explain the benefit to the taxpayers of MCCD spending much more than the average.
3) IF BRANDT HAD STRONG ANSWERS TO GASSER’S POINTS, BRANDT WOULD HAVE GIVEN THOSE ANSWERS.
4) Conclusion: Gasser is right,
(a) MCCD spends much more than the average, and
(b) MCCD cannot prove there is any benefit to the taxpayers in this extra expenditure.
======================================
Those are the key points.
It’s worth looking at Brandt’s actual response in detail for only one purpose: to see exactly how he is trying to pull the wool over everyone’s eyes.
Brandt’s letter says:
(a) some of Gasser’s numbers are wrong
(b) dollars per capita is the wrong measure
(c) dollars per acre is the right measure
(d) MCCD is a small part of the tax bill
(e) MCCD saved money on a refunding
Let’s look at each point.
(a) Some of Gasser’s numbers were wrong.
Brandt is correct. Some of the numbers were wrong. When corrected, that did not that change the overall conclusion that MCCD spends twice the average and four times as much as some conservation districts.
By the way, one of the numbers that was wrong was MCCD’s. The real number was actually bigger than Gasser indicated.
Did Brandt note that in his answer?
No.
Which means he did exactly what he accuses Gasser of.
(b) Dollars per capita is the wrong measure.
Note that Brandt offers no proof of this point. He simply asserts the point.
And he’s wrong.
Dollars per capita is the right measure.
First, it is the measure voters care about (“How much is this costing me”).
Second, it is the measure used by all municipal finance professionals, including those at the national rating agencies, Moody’s and Standard & Poor’s.
It is not the only measure, but it is one of the key measures.
(c) Dollars per acre is the right measure.
Unless Brandt can prove that owning four times as much land as the average has tangible benefits, dollars per acre is irrelevant.
He is like a realtor trying to sell us a house far bigger than we need and then arguing that the heating bill, while very high, is actually low on a per-square-foot basis.
(d) MCCD is a small part of the tax bill.
So being small justifies unnecessary expenditures?
(e) MCCD saved money on a refunding.
How can this justify spending much more than the average?
Classic misdirection.
What Mr. Brandt has actually proven is that he is a zealous advocate for the conservation district, and not actually a trustee representing the taxpayers.
The County needs to stop appointing zealous advocates for the cause to their boards and committees and start appointing people who are a little skeptical.
While I appreciate Steve’s (as usual) cogent analysis, we need to bear in mind a couple of things.
First, the MCCD is not a Park District.
I used to be on the CL Park District Board.
A Park District exists primarily for recreation so it is proper to ask what is the cost per citizen and is that appropriate for recreational purposes.
Different people are going to answer that differently, due, in part, to the extent to which they personally utilize the recreational opportunities.
The MCCD primarily exists to preserve our local environment, and the, mostly passive, recreational opportunities are secondary.
You can’t put a price tag on preservation.
If we didn’t have an MCCD or something similar, the entire county would eventually be paved over.
Second, development does not pay for itself.
Many studies have been done on this which show that for every dollar obtained in new tax revenue for residential development, about $1.25 or more is spent in associated infrastructure improvement costs (ie Randall Road).
If we are able to preserve land in perpetuity and keep it out of development, that ultimately results in a savings.
Therefore I think that cost per acre IS the appropriate measure to use, and by that measure we are getting a bargain.
Apart from that, you really can’t put a price tag on the type of thing that the MCCD makes possible.
It is a quality of life issue, so looking at the total size of the tax bill associated with that and assessing what the MCCD does for your and everybody else’s quality of life is what counts.
I would rather see us spend money on the MCCD than on some of the other things we have been throwing our tax dollars at.
How lovely it must be to have the luxury of ivory tower analysis.
Such analysis proclaims that it is affordable for you, so everyone should be forced to pay that same percentage of home value whether they can afford it or not.
Real people in this county are forced to pay tax rates in the top one percent in the nation due to such attitudes.
Real people have lost life savings in their biggest asset–their homes– because attitudes like that enable taxing&spending & borrowing far in excess of peer comparisons across America.
Please, the next time such an analysis is offered, state the maximum property tax rate. YOU personally would be willing to pay in order to achieve such ends.
Offer some analysis of the effects such tax rates have on those less fortunate, and whether that is a factor you deem relevant.
Maybe we should name some of the trails you enjoy hiking after those who have lost what was relevant to THEM, so you can honor the sacrifice they have made for your benefit.
Mike, I appreciate your perspective and I genuinely respect you, but I must fundamentally disagree with you.
First, your point that “studies show development does not pay for itself.”
Think about your statement for a minute: If such studies were right, then there would be no economic growth.
Only government would create economic growth.
We know that’s wrong.
The studies you mention are not about all development, they are about whether government subsidies pay for themselves.
What they really show is that government is terrible picking economic winners and losers.
So such studies are irrelevant to the subject of how much land should be set aside as open space.
Second, your point “you really can’t put a price tag on the type of thing”.
Mike, if you were correct in that statement, then we ought to spend the entire GDP on open space, and not spend any money on medical research.
No, Mike, we put price tags on things all the time.
YOU put price tags on things all the time.
It’s what governments do when they make budgets: they set priorities because money is not unlimited.
When we spend dollars on one thing, we can’t spend it on another.
So if we spend more on open space, that’s less money taxpayers can spend on something else they may consider to be more important to them.
Please understand that I am, so far, agnostic on how much land is enough.
I would really like to see hard evidence about how much is the right amount to spend.
The best evidence would be some sort of objective standard.
Sadly, so far I have not found one.
In fact, when I wrote to the National Recreation and Park Association, they flatly said they have no standards.
They formerly had standards, but quit publishing them.
That, in and of itself, was disturbing to me.
So, in the absence of objective standards, the next best measure is comparative: how much land do other governments have and how much do they spend.
MCCD has four times the average acreage and spends twice the average, and four times what the least expensive government spends. (Not to mention that 80 counties in Illinois choose not to have opens space districts at all.)
Over the last ten years, MCCD’s property tax levy has increased 75%.
This was during a period when the CPI went up 22%, house values dropped 30%, and McHenry County recorded zero growth in population, which is do, I think, at least in part to our unusually high property taxes.
If MCCD can show that our citizens derive four times the benefit of citizens in other counties, that our citizens are four times as happy, then they will prove their spending is at a justifiable level.
If they cannot prove this, then the best measure available shows they are spending too much.
So, as for your last comment, “see us spend money on the MCCD than on some of the other things we have been throwing our tax dollars at”, I would say rather that absent strong evidence, I would prefer we leave more dollars in taxpayers’ pockets.
Mike, with all due respect, you are right and you are wrong.
You are right when you say “MCCD primarily exists to preserve our local environment, and the, mostly passive, recreational opportunities are secondary.”
Nothing is more pleasing than driving around McHenry County and enjoying the natural beauty that this County has to offer.
You are wrong when you assert that we “can’t put a price tag on preservation.
If we didn’t have an MCCD or something similar, the entire county would eventually be paved over.”
All of life is a process of balancing competing interests, with cost being the ultimate arbiter.
To say that we can’t put a price tag on preservation implies that there are other matters to which absolutes must be applied, and then it becomes a question of who’s to decide what is and is not above a consideration of cost.
To those who pay the bills, it would seem that we’re reaching the limit of your assertion, at least as far as conservation is concerned.
Furthermore, your position ignores the ups and downs associated with an unpredictable future.
We need look no further than the mania that accompanied Motorola’s move to Harvard in 1995.
Fortunes were made, and subsequently lost, over an event that everyone thought pointed in only one direction, which was up.
It’s doubly dangerous to put anything that government does beyond the consideration of price, because as Ronald Reagan famously said: “Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other.”
We need more vigilance over what government spends, not less.
Your assertion that some things that government does in our name are beyond cost considerations is not merely wrong, it’s dangerous.
The Illinois General Assembly (State Reps and Senators) and Governors set in state law how much taxing districts can borrow by issuing bonds, aka the debt limit.
Here from page 27 (page 34 of the pdf containing the addendum) of the 2014 Official Statement (OS) from the EMMA MSRB website is the debt limit of the McHenry County Conservation District (CUSIP-6 580818) after issuing the 2014 refunding bonds.
The Conservation District was way over its non-referendum debt limit, as apparently the refunding bonds counted to the non-referendum debt limit.
That was one issue SB 3341 was to “fix”.
Others argue that the original law was perfectly fine, that there should be strong restrictions on issuing non-referendum bonds, and in fact they should be illegal.
The Conservation District was also over its debt limit of referendum bonds, as a result of declining EAV.
Legal Debt Margin (1)
2013 EAV (2) ……………………………………….. $7,173,742,929
Non Referendum Debt Limit (0.575% of Assessed Valuation) … $41,249,022
Amount of Debt Applicable to Nonreferendum Debt Limit ……. $124,195,000
Nonreferendum Debt Margin (3) ……………………………. ($82,945,978)
Referendum Debt Limit (1.725% of Assessed Valuation) …… $123,747,066
Amount of Debt Applicable to Referendum Debt Limit …….. $124,195,000
Referendum Debt Margin (3)…………………………….. ($447,934)
(1) After issuance of the Bonds and the refunding of the Refunded Bonds.
(2) Does not include TIF incremental EAV totaling $17,858,181.
(3) As a result of its declining EAV, the District’s total outstanding debt now exceeds its statutory debt limit.
Without debt limit margin, the District is not authorized to issue any additional new money debt (unless a specific debt limit exception is applicable).
The District is authorized, however, to issue additional debt to refund outstanding debt; provided, however, that the par amount of the new debt does not exceed the par amount of the refunded debt.
The par amount of the Bonds does not exceed the par amount of the Refunded Bonds.
Additional moneys needed to refund the Refunded Bonds or pay costs of issuance of the Bonds will be paid from premium generated from the sale of the Bonds or from funds on hand and lawfully available for such purpose.
[End of (3)].
There was a Premium issued with the Refunding Bonds.
Par Amount of the Bonds: $108,215,000.
Original Issue Premium: $018,282,692.
The refunded bonds total $116,370,000.
The 2014 Refunding Bonds (issued to refund the above bonds) total $108,215,000.
$116,370,000 – $108,215,000 = $8,155,000.
The cost to issue the bonds was $915,113.
$8,155,000 + $915,113 = $9,070,113 (Refunding bond shortfall + cost to issue bonds).
The premium again was $18,282,692.
$18,282,692 – $9,070,113 = $9,212,579.
Now the Conservation District said this was not a cash-out refinancing.
Yet extra cash was generated.
So what kind of funny math and logic and accounting was done to claim it was not a cash out refinancing / refunding?
Also the premium is 16% of the Par amount.
Of the 25000 acres owned, how many acres are income producing farmland that not only requires no upkeep expense, but contributes income to defray budget?
So that invalidates the argument of order per acre based on 25000 acres, doesn’t it?
So this was not a straight refunding / refinancing.
The Conservation District used the refunding to obtain additional cash, the premium, which was apparently used in part to pay down a large chunk of the principal of the outstanding bonds.
Once again.
$116,370,000 Refunded Bonds – $108,215,000 Refunding Bonds = $8,155,000 Principal Reduction.
Did the Conservation District tell you that in plain English?
This was in fact a type of non-referendum bond which generated additional cash for the conservation district, part of what was used to reduce the principal of outstanding bonds.
How accounts where shuffled to hide the additional $9,212,579 is anyone’s guess.
Can you keep $9,212,579 over and above the value of refunded bonds, in an escrow account?
Why did the Conservation District want to pay down some of the bond debt?
To manage taxpayer bond payments (bond debt service), which are outside the tax cap.
There is a striking difference between the bond debt service before and after the refunding which given the above is not entirely accounted for by a strict refunding of the bonds.
Rather, new non-referendum cash in the form a premium on the refunding allowed the Conservation District to pay down bond principal to manage taxpayer bond payments.
That refunding was a tax hike.
The premium must be repaid to bondholders.
Bondholders don’t give bond premiums to taxing districts for free.
Taxing districts repay the bond premiums to bond holders.
Taxpayers pay the Taxing Districts.
Taxpayers pay for bond premiums.
That was a tax hike.
It all smells highly of Agenda 21 to me.
Thanks Mike, for pointing that out!
Maybe we can turn this into an opportunity to get a real firm number about rubber-meeting-road from those with their hands on the wheel and feet on the clutch (Board Members):
What IS the highest property tax rate that you feel is acceptable on your watch?
It is unacceptable to say there is no way to answer that question.
It is just that sort of intellectual laziness which allows spending decisions to be made based upon squishy personal values and favor-trading with others in power who also have squishy personal values which you may not share, but they would like to advance, and they’ll back yours if you back theirs.
You can start with this: at what property tax rate on your own (we have to presume) fairly assessed property will YOU start to feel a personal budgetary pinch? 5%? 10%?
Now, take that percentage figure and apply it to mean and median average incomes in the county.
What percentage of County-dwellers typical income is demanded by property tax? How does that compare to typical percentage of mean and median income demanded in property taxes in the rest of America?
Can you imagine a typical family surviving when your chosen percentage of their income is demanded in property taxes supporting your ‘you cant put a price tag on it’ values?
Remember, you are demanding that everybody pay the same amount you are paying.
YOU are in charge.
You could certainly arrange that those to whom those values are important and affordable pay MORE than all the people in the County who are obligated by the stroke of your pen to pay exactly as much as you (as a percentage of their home value, or reflected in their rent price).
You may want to support your arguments in favor of extracting money from everyone at a uniform rate with a little more evidence than an assertion that ‘you cant put a price tag on it’.
Look for scholarly studies on the effects of high location-specific property taxes, or mortgage interest rates (just as homeowners would have to pay mortgage interest payments, they are force to pay property taxes).
If Mortgage rates going from 3% to 4 %, or 4% to 6% are said to impact local family budgets and local economies, the extraction from family budgets of the same percentage amounts of money toward property taxes would have a similar (or worse) chilling effect).
If you believe our County is ultimately better off with 5% or maybe 10% property tax rates than with tax rates closer to national average of 1.4%, you should be able to support that assertion with facts.
When you authorize spending because it makes you feel good, and you personally can afford it, but you fail to extend any analysis to the effect on mean and median income households throughout the County, how do you rationalize that decision?
A recap on the premium.
Original Issue Premium: $18,282,692.
Less Cost to issue the bonds: $00,915,113.
Less additional amount needed to refund bonds ($108 million not enough): $08,155,000.
Equals money flowing to MCCD as a result of the 2014 Refunding: $9,212,579.
So where is the $9,212,579?
What was it be used for?
What will it be used for?
No clue, but were there some kind of penalties for refunding or early refunding that are not accounted for in the cost of issuing the bonds?
$9,212,579 is a lot of money.
Money that the Conservation District did not have prior to the refunding.
The $8,155,000 to clarify can be explained as follows.
The Conservation District issued $108,215,000 in bonds to help refund $116,370,000 in bonds.
The refunding thus required $116,370,000 – $108,215,000 = $8,155,000 additional money.
The Conservation District thus had to come up with $8,155,000 it didn’t have.
It presumably accomplished that by issuing a Premium on the $108,215,000 bonds.
But the Conservation District did not issue an $8,155,000 premium.
The Conservation District issued an $18,282,692 Premium.
$18,282,692 – $8,155,000 = $10,127,692.
Now, the Conservation District paid $915,113 to issue the bonds.
So we could arguably say that’s a legitimate use of issuing a premium.
$10,127,692 – $915,113 = $9,212,579.
How can the Conservation District justify the $9,212,570 portion of the premium, claiming the bond issue did not generate cash out revenue.
A lot of very proactive people, joining the bandwagon for change in our community.
No nice to see so many honest qualified people making a difference.
Thanks for all of the very good comments.
I think this debate needs to be taken to the MCCD Board itself.
There will be one or more appointment opportunities to that Board in the current year.
I would encourage3 those who have shown an interest to apply.
I’m sure that Cal will post when the appointments opportunities come up.
Using Bond premiums to generate cash and hike taxes is nothing new, it’s a form of non-referendum bonds tax hike.
Here are a few articles.
Bond Buyer
California Schools on Notice
by Rich Saskal
March 10, 2011
http://www.bondbuyer.com/issues/120_48/california_school_issuance_costs-1024244-1.html
Orange County Register
‘Premium’ on school bond issues violates law
April 12, 2014
By Melody Petersen
http://www.ocregister.com/articles/bonds-609532-district-schools.html
Bond Buyer
Cashing Out in California
By Rich Saskal
April 26, 2007
http://www.bondbuyer.com/news/-269320-1.html
Bond Buyer
California’s Cash-Out Deals Stir Debate
January 16, 2009
By Andrew Ward
http://www.gfsi.com/peoplearesaying-flash/news/California%27sCash-OutDealsStirDebate.pdf
The following presentation is more technical.
Introduction to Bond Math
Peter Taylor, Managing Director, Public Finance Department
Matthew Koch, Vice President, Public Finance Department
Barclays Capital
http://www.treasurer.ca.gov/cdiac/seminars/2008/20081002/1.pdf
Gasser you are about to get hammered.
You are alone.
No one supports you on the board and your election is a fluke.
You have a blogger and nothing else.
I cannot wait to hear about the next county board meeting where you have it handed to you.
You are not a Republican “Andy” – you are an tea party agitator.
Keep up the great work Andrew Gasser!
You are an “agitator” to the tax and spend liberals, obviously, they don’t like being exposed!
Hey Proud Republican feel free to pay my tax bill!!!
You obviously don’t mind all of the taxing by the MCCD.
http://calwatchdog.com/2012/08/08/the-right-way-the-wrong-way-and-the-poway-of-school-bond-financing/
Interesting Mark’s reference articles mention Poway California. T
he article link above describes a “capital appreciation bond” debt of Poway.
They borrowed $106 million in 2012 and will owe accrued principal and interest of$986 million 30 years later., Mchenry county has at least one such ticking time bomb: $14 million borrowed,$ 63 million owed after 17 years, 8.5% interest compounding all the meantime.
Any others?
County board members, county business manager, you know of any others?
Let’s look at the Original Issue Premium on the 2014 McHenry County Conservation District bond refunding / refinancing in a slightly different way.
Because bonds can be confusing.
Explaining a bond concept in a different way make turn on the light bulb for someone or fill in a gap.
We will overgeneralize and oversimplify, using layman’s terms and will thus probably not be 100% technically correct, to get the point across.
The McHenry County Conservation District basically said they were refinancing to take advantage of a lowe interest rate to save taxpayers money.
Well, at face value, that would involve issuing new lower interest bonds to swap out the old higher interest bonds.
But it didn’t happen quite like that.
Instead, the Conservation District issued $108,215,000 in lower interest bonds to refund $116,370,000 in higher interest bonds.
Huh?
They seem a little short.
$116,370,000 – $108,215,000 = $8,155,000 short.
Where did the $8,155,000 come from?
Presumably by issuing an “Original Issue Premium.”
Was an “Original Issue Premium” of $8,155,000 issued?
No.
An “Original Issue Premium” of $18,282,692 was issued.
Huh?
$18,282,692 – $8,155,000 = $10,127,692.
Why?
Good question.
We don’t know.
It does cost money to issue bonds, of course, people don’t do paperwork and research for free.
It cost the Conservation District $915,113 to issue the bonds.
Now the practice of using a “Original Issue Premium” to pay the cost of issuing bonds has been questioned by some in general in this and other states especially when issuing referendum bonds, but if the Conservation District did not have $915,113 in the bank to save taxpayers money by refunding the bonds, maybe we can accept that practice.
So let’s also deduct the $915,113 from the remaining Original Issue Discount (this will be our 2nd deduction).
$10,127,692 – $915,113 = $9,212,570.
So why did the Conservation District think it was OK to issue an “Original Issue Premium” for $9,212,570 more than we can account for?
There may be legitimate reasons.
There are all kinds of nuances and exceptions in bonds and the rules vary from state to state.
Maybe it has something to do with a penalty to refund bonds early?
Well whatever the reason and whatever the use of the Original Issue Premium, it should have been clearly explained to taxpayers on the district website, which it is not.
Something to keep in mind about the bond market.
It is bigger than the stock market.
We need good transparency in the bond market, so the EMMA MSRB website was developed.
But that in itself is not enough.
Does the Average Joe know to visit the EMMA MSRB and read the Official Statement to understand bonds issued by the taxing district?
No.
Really it’s up to elected and appointed officials to explain all this to Average Joe on their website with spreadsheets and presentations and such.
But that doesn’t happen.
Instead we need watchdogs for every taxing district issuing bonds.
And in the case of McHenry County Conservation District that is not good enough, because it is a subsidiary of a taxing district.
If you do not have good transparency in the bond market, bad things can happen.
The 2007 financial meltdown was caused partially by bad transparency in the mortgage bond market.
Municipal bonds are traditionally though of as safe investments.
But they are tied to taxpayers being able to afford the bond payments.
That is taken into account with overlapping debt found in Bond Official Statements.
Add to that Property Tax Rates that don’t include bonds, and we have Total Direct Rate.
It’s more complicated but that’s good enough for this conversation.
Still not good enough.
We have some muddy water.
Unfunded pension and retiree healthcare liabilities.
You will find information about pension and retiree healthcare liabilities in the Bond Official Statements.
But missing is a realistic and predictable unfunded pension and retiree healthcare payment schedule.
It’s missing because state legislators and governors ruined the funds with their legislation, and in many cases pay hikes helped in the ruination.
State legislative benefit hikes to pensions and retiree healthcare occurred while pensions and retiree healthcare was already underfunded.
Pay hikes occurred while pensions and retiree healthcare was already underfunded.
Larger pay hikes were possible because funding was diverted from pensions and retiree healthcare to pay hikes.
So now we have to figure out how to hike funding to pensions and retiree healthcare, cut the budget in other areas, restore benefit levels to their pre-hiked status or something reasonable, hike taxes, or a myriad of other solutions.
So it’s not possible to predict the taxpayer unfunded pension and retiree healthcare payments for all the funds to which they contribute taxes.
And so anything units of government do to make unraveling the bond and unfunded liability mess any more difficult is a problem.
Which brings us back to the Original Issue Premium by the McHenry County Conservation District in the 2014 Bond refunding issue.
Now, now Proud Republican.
Remember Reagan’s 11th commandment:
Thou shalt not speak ill of any fellow Republican.
Here’s another recap.
In December 2014, McHenry County Conservation District received $126,497,692 to refund / refinance $116,370,000 in bond debt.
That seems to be much more than necessary.
They did so by issuing refunding bonds with an original issue premium.
The $126,497,692, less the Cost of Issuance ($915,113), was deposited into the Escrow Account.
If we deduct the cost of issuance ($915,113) and the Refunded Bonds ($116,370,000) from the Par Amount of the Bonds ($108,215,000) and Original Issue Premium ($018,282,692), we have a balance of $9,212,579.
Par Amount of Bonds Issued December 2014: $108,215,000
+ Original Issue Premium December 2014: $18,282,692.
– Cost of Issuance: $915,113
– Refunded Bonds: $116,370,000.
= $9,212,579.
The details of the December 2014 bond refunding:
Par Amount of the Bonds: $108,215,000.
Original Issue Premium: $018,282,692.
Refunded bonds: $116,370,000.
Cost of Issuance: $915,113.
The source of above information:
Municipal Securities Rulemaking Board (MSRB)
Electronic Municipal Market Access (EMMA) system.
McHenry County Conservation District, McHenry County, Illinois
General Obligation Refunding Bonds, Series 2014 (IL)
Official Statement posted 12/08/2014 (select “Official Statement” tab)
Page 5 (page 12 of the pdf).
Page 25 (page 32 of pdf).
Page 26 (page 33 of pdf).
http://emma.msrb.org/IssueView/IssueDetails.aspx?id=EA354906
The Conservation District claims this is not a cash out refinancing.
But the Conservation generated cash by paying a premium on the bonds, presumably in exchange for a higher interest rate on the bonds.
Where did the Premium cash go?
Initially into an escrow account.
But how long will it stay in the escrow account?
What will the extra $9,212,579 eventually be used for, or what was it already used for?
Was the $9,212,579 necessary to do this deal?
That doesn’t really tell us the whole story though.
Because all of the bonds were not simply refunded.
Some of the bonds were retired, i.e. paid off.
Prior to refunding, the bond principal was $127,550,000.
After the refunding, the bond principal was $119,395,000.
$127,550,000 – $119,395,000 = $8,155,000.
Thus the bond principal was reduced $8,155,000.
So this was a bond refunding, plus a reduction of bond principal, plus generating cash by issuing a bond premium.
Not just a bond refunding.
The reduction in bond principal was made possible by the “Original Issue Premium”?
“Original Issue Premium” does not show up in the “Debt Repayment Schedule.”
Page 25 (pdf page 32) of the bond OS.
Where do we find the debt repayment schedule for the bond premium?
“Bond premiums and discounts and gains/losses on refunding are deferred and amortized over the life of the bonds.”
Page 17 of the 2014 CAFR portion of the bond OS (page 100 of the pdf).
There apparently is no debt repayment schedule for the bond premium.
Is the bond premium in exchange for a higher interest rate?
Apparently, because why else would bondholders pay a premium for bonds?
So presumably the district increased the bond interest rate to receive an upfront premium on the bonds.
(In your common bond, in exchange for purchasing bonds, bondholders receive regular interest payments + their principal back at the end of the term of the bond).
Receiving a premium on the bonds, presumably gave the district cash to retire (aka pay off) some of the bonds.
And receiving a premium on the bonds, presumably gave the district cash to pay the fees for issuing the bonds.
And receiving a premium on the bonds, gave the distrIct more cash than was necessary to just retire some of the bonds and pay the fees for issuing the bonds.
What was that extra cash used for, or what are the plans for the extra cash.
So it seems as if the McHenry County Conservation District had a few goals regarding the December 2014 bond refunding:
1. Lowering the interest rates on its outstanding bonds. That lowers the Districts annual interest payments to bondholders.
2. Smoothing out and lowering the annual bond debt service (aka repayment) schedule, over and above what a simple refunding would have accomplished.
3. Generating additional cash.
It seems as if the Conservation District accomplished those goals by:
1. Issuing Refunding bonds.
2. Issuing a Premium on the Refunding Bonds by increasing the interest rate above what a refunding without a Premium would have accomplished.
3. Using some of the Premium to retire (pay off) some bonds to accomplish bond principal reduction.
4. The Premium generated additional cash for the District, over and above retiring (paying off) some bonds, and over and above paying the issuance cost of the bonds.
What the additional cash was used for, or where it currently resides (escrow account?), and what it can be used for is presently unknown.
Some of the assumptions could be wrong.
There are various scenarios.
What is known is that none of this is explained in clearly in terms the average taxpayer can understand on the McHenry County Conservation District website.
Everything involved with the Premium needs a lot more disclosure by the Conservation District.
Can it be thought of as a partial cash out premium?
Some of the bonds needed to be retired / paid off because the District was over its legal overall bond debt limit (which is set by the Illinois General Assembly and Governors)?
Will the bond debt reduction in turn allow the district to issue more non-referendum bonds in the not so distant future?
These bond premiums are real interesting.
It seems a taxing district subsidiary (McHenry County Conservation District) can jack up the interest rate promised to bondholders, charge a bond premium for doing so, and that bond premium money can be spent in many different ways.
How many people know taxing districts and their subsidiary’s can generate revenue by issuing bond premiums to bondholders in conjunction with a bond refunding, yet still claim it’s not a cash out refunding?
In such a case the taxing district subsidiary is acting as a middleman between taxpayers and bondholders.
The bond premium money flows from bondholders to taxing district subsidiary.
To repay bondholders, the interest rate money flows annually from taxpayers to taxing district subsidiary and then semi-annually or annually to bondholders.
Bondholders receive higher interest rates, taxing district subsidiary receives bond premium cash upfront.
The pocketed bond premium can be spent on the costs to issue the bonds, retiring / paying off existing bonds, and heavens knows what else.
All in the name of refunding bonds to save on the interest rate.
But the taxing district in fact is not receiving the lowest possible interest rate, because ironically the taxing district itself hiked the interest rate in order to receive a bond premium / cash upfront.
Or at least that seems to be one way a bond premium can be used.
And since the bonds retired / refunded with proceeds from the bond premium help push the taxing district eventually below the debt limit, then the taxing district can issue non-referendum bonds up to their non-referendum bond debt limit.
And there’s still bond premium money left over to after retiring some bonds and paying the costs to issue the bonds.
The left over bond premium money will eventually be spent on what?
How’s that for creative financing.
Maybe that’s not exactly how it worked for McHenry County Conservation District.
If not, exactly how did it work?
There’s no denying the Conservation District received a bond premium.
There’s no denying bondholders did not give the Conservation District free money.
The bondholders want something in exchange from the Conservation District for the upfront bond premium.
And there’s no denying some of the bonds that existed prior to the December 2014 refunding, were retired / paid off as a result of the December 2014 bond refunding.
There’s no denying the Conservation District was above it’s overall bond debt limit.
There’s no denying legislation was just passed, Senate Bill 3341 (98th General Assembly), specifically for McHenry County Conservation District bonds.
The appointed McHenry County Conservation District Board of Trustees and elected McHenry County Board Members have had ample time to explain what really happened in plain English so everyone can understand to taxpayers on the McHenry County Conservation District and McHenry County Board websites.
Yet another talking point.
McHenry County Conservation District refunded more bonds than it issued in conjunction with the December 2014 bond refunding.
Bonds Refunded: $116,370,000.
Bonds Issued: . $108,215,000.
Difference: … $008,155,000.
We can look at it a different way.
Bond Principal Outstanding Prior to Bond Refunding: $127,550,000.
Bond Principal Outstanding After Bond Refunding: .. $119,395,000.
Difference …………………………………. $008,155,000.
Reference Page 25 (pdf page 32) of the Official Statement for the December 2014 McHenry County Conservation District Bond Refunding found on the EMMA MSRB website.
Note that Official Statement could be placed by the McHenry County Conservation District website, but it chooses not to do so.
Another reason for the Conservation District to put the document on its website is that it paid for the document.
The Official Statement is required by law to issue bonds.
I do not think anyone on the board has the experience in searching out bond information like Mark does.
Mark – you should go present this.
So many great comments and a wealth of information!
I hope the county board & MCCD take notes.
Andrew, we are lucky to have you – keep up the good work.
Proud RINO sour grapes is at it again.
He/she wishes you were “alone” but the fact is you have the taxpayers/voters behind you all the way.
As you speak up with the truth (hopefully) others will follow your lead.
But if not … There’s always the voting booth!
Right, proud RINO?
Thank you!
Steve Reick had commented on the McHenry County Conservation District bond premium (aka Original Issue Premium) in the comments of this post.
McHenry County Blog
Interpreting Althoff’s Defense of Senate Bill 3341 Authorizing Non-Referendum Bonds
12/29/2014
http://mchenrycountyblog.com/2014/12/29/interpreting-althoffs-defense-of-senate-bill-3341
Here is the comment:
“Borrowing to obtain a lower interest rate makes sense, but to not say what will be done with the resulting bond premium “windfall” is a deal killer. Would voters, if given the chance, have allowed MCCD to simply pocket that money?”
McHenry County Conservation District and McHenry County itself have never answered the question of what they did, and plan to do, with the bond premium windfall.
We made some assumptions above of what the Conservation District did with some of the money.
1. Pay the costs to issue the December 2014 Refunding Bonds.
2. Retire / pay off some existing bonds, allowing the District to get under its overall bond debt limit, so non-referendum bonds can be issued in the future.
But that only accounts for some of the bond premium windfall.
What are the plans for the rest of the bond premium windfall?
The McHenry County Conservation District has previously generated cash in the form of bond premiums.
First of all the below document cannot be found on Conservation District website.
It can be found via a Google Search.
That’s because it’s a hidden link on the Conservation District website.
Second, the document is protected, so you cannot cut and paste from the Adobe pdf to the blog, you have to retype the information.
Both are unusual behaviors from taxing districts (or in the case of the Conservation District, a taxing district subsidiary) and are an impediment to transparency.
McHenry County Conservation District
Comprehensive Annual Report
2011 Fiscal Year
Beginning April 1, 2010 and ending March 31, 2011
http://www.mccdistrict.org/rccms/wp-content/uploads/2014/08/Comprehensive-Annual-Report-Fiscal-Year-2011.pdf
2005 Premium on Bond Issuance (refunding): $4,596,625.
2008 Premium on Bond Issuance (refunding): $2,754,406.
– page 96 of the pdf.
Next let’s look at how the Conservation District accounted for the premiums in 2011.
“Long – term liabilities consist of debt in the form of general obligation bonds and the related unamortized premium as well as an installment contract for a land acquisition.”
“Reconciliation of Fund Balances of Governmental Funds to the Governmental Activities in the Statement of Net Assets.
….
Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds.
….
Unamortized premium on bonds issued (2,186,635).”
page 38 of the pdf.
“Reconciliation of the Governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Governmental Activities in the Statement of Activities.
…
Governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items.
Amortization of premium on bonds issued (77,518)
Amortization on loss of refunding 160,092
Amortization of bond issuance cots (70,235).”
– page 40 of the pdf.
“Mchenry County Conservation District
Notes to Financial Statements
Summary of Significant Account Policies
j. Long term obligations
In the government wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable government activities. Bond premiums and discounts, as well as issuance costs and gains (losses) on refundings, are deferred and amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount and gains (losses) on refundings. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt.”
In the fund financial statements, governmental funds recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financial sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as expenditures.”
– page 45 of the pdf
“Notes to Financial Statements (continued)
6. Long Term Debt (continued)
c. Changes in Long Term Liabilities (continued)
…
Unamortized Bond Premium
Balance April 1, 2010: $2,345,727
Reduction: $160,092
Balance March 31, 2011: $2,185,635
Unamortized Loss on Refunding
Balance April 1, 2010: ($362,618)
Reduction: ($77,518)
Balance March 31, 2011: ($285,100)”
– page 51 of the pdf.
Well Addressing Steve Willson’s last two assertion’s in his post above.
“What Mr. Brandt has actually proven is that he is a zealous advocate for the conservation district, and not actually a trustee representing the taxpayers.
The County needs to stop appointing zealous advocates for the cause to their boards and committees and start appointing people who are a little skeptical.”
The Conservation District would have a hard time disputing that.
Look at this document on the Conservation District website.
Conceptual Framework Long Range Planning 2010-2030
http://www.mccdistrict.org/rccms/wp-content/uploads/2014/08/MCCD-Conceptual-Framework-Long-Range-Plan.pdf
First of all for historical perspective, 2010 was after the 2007 financial meltdown.
The economy was not rosy.
Yet there is not a hint of declining EAV aka property values.
Only growth projections.
In fact, the US Census Bureau estimates the population of McHenry County has actually declined -0.5% (1/2 of 1%) from 2010 to 2013, even though the Census Bureau estimates the population of Illinois has increased .4% during that period.
McHenry County population estimate by US Census Bureau
2013: 307,409
2010: 308,860
Illinois population estimate by US Census Bureau:
2013: 12,882,135
2010: 12,830,632
http://quickfacts.census.gov/qfd/states/17/17111.html
Now in the Conservation District’s defense, let’s look at the Wikipedia Summary of McHenry County population. Wikipedia obtained their numbers from the US Census Bureau.
Year—Population—% Increase or Decrease
1840—002,578——–N/A
1850—014,978——–481.0%
1860—022,089——–047.5%
1870—023,762——–007.6%
1880—024,908——–004.8%
1890—026,114——–004.8%
1900—029,759——–014.0%
1910—032,509——–009.2%
1920—033,164——–002.0%
1930—035,079——–005.8%
1940—037,311——–006.4%
1950—050,656——–035.8%
1960—084,210——–066.2%
1970—111,555——–032.5%
1980—147,897——–032.6%
1990—183,241——–023.9%
2000—260,077——–041.9%
2010—308,760——–018.7%
2013—307,409——-(000.4%) that would be negative .4%
2013 is an estimate
https://en.wikipedia.org/wiki/McHenry_County,_Illinois
Wikipedia is wrong on 2013, the Census Bureau is currently claiming negative .5% population decrease for McHenry County as of today.
Maybe the Census Bureau has revised their estimate since the Wikipedia posting, or maybe the Wikipedia poster transposed the Illinois and McHenry County numbers for 2013.
Anyways -.5% is close to -.4%.
You can double check the Wikipedia figures for 1900 to 1990 on this Census Bureau website, which I did, and they matched.
http://www.census.gov/population/cencounts/il190090.txt
It seems the Conservation District should put an addendum to their Conceptual Framework Long Range Planning 2010-2030 on their website, or revise it, stating the new facts on historical population growth and any revised population growth revisions.
Because here is some of what the Planning document says about growth.
“As of January 2010, the District has preserved 23,500+ acres representing approximately 6% of the total land area in the county.”
“The National Recreation and Park Association and the United States Department of the Interior have
developed open space standards that attempt to quantify the amount of land required to satisfy the
needs for outdoor recreation.
It is generally recommended that a minimum of 10 acres of local park land and 20 acres of regional open space be set aside for every 1,000 people.
While these standards are designed to provide a framework to meet minimum public recreation needs, they do not reflect the habitat requirements of native wildlife populations, including endangered or threatened species, or the space needed for native ecosystems to maintain their long-term viability.”
The following site matches the 10 acres of local park land per 1,000 people number.
http://www.prm.nau.edu/prm423/recreation_standards.htm
It’s more difficult to confirm the 20 acres of regional open space.
Regional open space would be for conservation districts one would think.
Here’s Indiana goals for comparison sake.
You can cut and paste from their documents.
The Indiana Statewide Outdoor Recreation Plan 2011-2015
Chapter 3
Indian has three categories.
Local recreation acres: Land owned by municipal, township, and county governments, and land privately owned (but open for public use). 20 acres per 1,000 people (.02 acres per person).
Regional recreation acres: Land owned by either state or federal governments for public recreational use.
35 acres per 1,000 people.
Statewide recreation acres: Total of all public recreation land statewide, owned by all the entities in the other categories. 55 acres per 1,000 people (20 + 35 = 55).
Back to McHenry County.
Their report uses the recommendation of 20 acres of land for every 1,000 people.
1,000 people / 20 acres of land = 50.
So we can multiply acres of Conservation District land x 50 to see the population that can be served.
23,500 acres x 50 = 1,175,000 population can be served by 23,500 acres.
The population of McHenry County is 307,409.
1,175,000 population is roughly four times 307,409 current population.
Another way to look at this.
307,409 McHenry County people / 1,000 people = 307 (1,000 people) x 20 acres of regional space for every 1,000 people = 6,140 acres for 307,000 people.
The Conservation District should have only 6,140 acres of land.
The Conservation District has 23,500 acres.
6,140 acres per recommendation compared to 23,500 actual is about a 1:4 ratio.
Both calculations lead to the conclusion the District has four times the amount of land to serve the current population.
There are a few things to consider.
Keep in mind the Conservation District asserts more land would be needed if these requirements arise: “habitat requirements of native wildlife populations, including endangered or threatened species, or the space needed for native ecosystems to maintain their long-term viability.”
And future growth should be considered.
But the Conservation District has not revised future growth projections on their website.
Also, in general, Conservation Districts and Forest Preserve Districts in general want to buy land before a lot of growth because historically land has been cheaper prior to growth.
On the other hand some of the property the Conservation District purchased may have declined in value, so if the Conservation District had waited to buy property it might have been able to purchase more acres.
There is nothing wrong with using financial metrics to analyze government and in fact the Conservation District itself uses financial metrics.