Return to Agenda ITEM 12

COUNTY MICHIGAN L. BROOKS PATTERSON, OAKLAND COUNTY EXECUTIVE

TO: Board of Commissioners

Michael Gingell, Board of Commissioners Chairperson
Michael Bouchard, Sheriff
Lisa Brown, Clerk I Register of Deeds
Jessica Cooper, Prosecuting Attorney
Andrew Meisner, Treasurer
James Nash, Water Resources Commissioner
Honorable Nanci Grant, Circuit Court Chief Judge
Honorable Linda Hallmark, Probate Court Chief Judge
Honorable Julie Nicholson, 52nd District Court Chief Judge

FROM: L. Brooks Patterson, County Executive

SUBJECT: Budget Projections for FY-2017 - FY2022 (Long-Range Fiscal Plan)

DATE: April 10, 2017

Attached is the recently completed "Oakland County Long-Range Fiscal Plan -

Summary of Future Operating Issues and Related Resolution." The Long-Range Fiscal
Plan Summary report identifies and discusses potential financial issues facing the
County and proposes means to resolve those issues. The Fiscal Plan Summary is an
update of significant events and business issues, which quantifies the estimated impact
on the County's General Fund operating budget and equity through Fiscal Year (FY)
2022.

The Fiscal Plan serves as the preliminary basis for the development of the County
Executive's Recommended Triennial Budget for FY-2018 through FY-2020 which will be
presented to the Board of Commissioners by July 1. I am pleased to report that the FY-
2017 through FY-2022 Fiscal Plan analysis indicates that, as of today, it will not be
necessary to assign departmental budget tasks for the current budget development
cycle. This represents the sixth consecutive budget cycle that budget reduction tasks
have not been requested of the County's elected officials and department heads.

As a result of our collective efforts, I am pleased to report that the Fiscal Plan is
balanced through FY-2022. While this Fiscal Plan demonstrates continued declining
use of General Fund equity to support General Fund operations, our challenge is not yet
over. Longer-term, the County's budget must become structurally balanced without
reliance on use of fund balance to support ongoing operations. Given our proven track
record as a team of committed leaders and our focus on long-range proactive planning,
I am confident that together we will achieve structural balance within the next few years.
Also, we will be able to continue providing high-quality services that our constituents not
only expect, but deserve.

I look forward to your continued leadership and cooperation in the future.

EXECUTIVE OFFICE BUILDING 41WEST2100 PONTIAC LAKE ROAD, DEPT 409 WATERFORD, Ml 48328-0409 (248) 858-0480 FAX (248) 452-9215

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 OAKLAND COUNTY LONG-RANGE FISCAL PLAN
SUMMARY OF FUTURE OPERATING ISSUES AND RELATED RESOLUTION
Fiscal Year 2017 through Fiscal Year 2022

OAKLAND COUNTY, MICHIGAN

April 10, 2017

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 SUMMARY SCHEDULE - GENERAL FUND FUTURE FIVE YEAR FISCAL PLAN
OAK LAND COUNTY, MICHIGAN
April 10, 2017

Fi scal Year (OOOs)

Adopted Proposed Proposed Projected
Description Notes 2017 2018 2019 2020 2021 2022

Adopted Budget - FY-2017 to FY-2019:

Revenues - total A 411 ,531 422,654 431,017 440,705 450,780 $ 450,780
Expenditures - total A (444,064) (451,135) (454,945) (459,324) (464,703) (464,703)
Planned Use of E quity (32,533) (28,481) (23,928) (18,619) (13,923) (13,923)
Begin ning Equity at October 1 net, see below recon ciliat ion A 245 069 ' 212 536 ' 184 055 ' 160 127 ' 141 508 ' 127 585
ENDING EQUITY AT SEP TEMBER 30 BEFORE ADJU STMENTS 212,536 $ 184,055 $ 160,127 $ 141,508 $ 127,585 $ 113,662

Projected Adjustments to Operatin g B udget

Operating Revenue Ad1ustments:

Real property value adjustments in comparison to adopted budget: B
FY 2017, net change 1n real property taxable value $ (340) (340) (340) (340) (340) $ (340)
FY 2018, no change in assumptions
FY 2019, potential rollback in millage rate down to 4.00 mills (2,200) (2,200) (2,200) (2,200)
FY 2019, adjust assumed TV increase from 4.0% to 5.0% 2,200 2,200 2,200 2,200
FY 2020, adjust assumed TV increase from 4.0% to 4.5% 1,200 1,200 1,200
FY 2021, potential rollback rn millage rate down to 3.95 mills (2,800) (2,800)
FY 2021, adjust assumed TV increase from 4.0% to 4.5% 1,300 1,300
FY 2022, assumed TV increase of 4.5% 12,000
Decrease transfer from DTRF c (3,000) (2,000) (2,000) (2,000) (2,000)
Subtotal - Revenue Adjustments $ (340) (3,340) (2,340) (1,140) (2,640) $ 9,360

Operating Expenditure Adjustments:

Proposed salary increase, increase to 3.0% 1n FY 2018' D $ (2,400) (2,400) (2,400) (2,400) $ (4,800)
Contingency for salary study impact E (2,400) (2,400) (2,400) (2,400)
Change in estimated ARC for DB pension F 1,000 1,500 1,500
Debt service payment for radio replacement project G (1,600) (1,600) (1,600)
Reduction in fringe benefit rate H 5,500
Future facilities and technology projects I 2 000
Subtotal - Expenditure Adjustments 3,500 (2,400) (4,800) (5,400) (4,900) $ (7,300)

Subtotal Projected Net Adjustments to Op eratin g B udget 3,160 (5,740) (7,140) (6,540) $ (7,540) $ 2,060

Non-budgeted It ems/Assignments Impacting Fund B alan ce

General favorabilitynurnover J 12,000 8,000 8,000 8,000 8,000 8,000
Security enhancements and cameras K (3,292)
Technology projects L (10,925) (11 ,500)
Elections equipment M (150)
Dishwasher for Jail kitchen N (1 23)
Compensation study 0 (500)
Resentenc1ng hearings for iuvenrles serving life sentence p (600)
Water quality monitoring/enhancements Q (2,000)
Tri-party road project fund ing R (4,087) (2,000) (2,000) (2,000) (2,000) (2,000)
Local road project fund ing (non-county roads) s (1,032) (1,000) (1,000) (1,000) (1,000) (1,000)

Subtotal - Non-budgeted It ems/Assignments Impacting Fun d Balance (10,709) (6,500) 5,000 5,000 $ 5,000 $ 5,000

Net Adjustments t o Planned Use of Fund B alance (7,549) (12,240) (2,140) (1,540) $ (2,540) $ 7,060
(items 2+3 above)
ESTIMATED ENDING EQUITY AT SEPTEMBER 30 AFTER ADJUSTMENTS:
Adjusted Beginning Equity at October 1 $ 245,069 204,987 164,266 138,198 118,039 $ 101,576
From 1 above Budgeted Use of Fund Balance as A dopted on 9/22/2016 (32,533) (28,481) (23,928) (18,619) (13,923) (13,923)
From 4 above Net Adjustments to Planned Use of Fund Balance (7,549) (12,240) (2,140) (1,540) (2,540) 7,060
REVISED ESTIMATED YEAR-END FUND BALANCE PROJECTION 204,987 164,266 138,198 118,039 $ 101,576 $ 94,713

Targeted Equity at September 30, 2022 (20% of Expenditures) $ 94,401

Projected Amount Above (Below) Targeted Fund Balance $ 312

Begin nin g equity as of Ocl 1, 2016, as reported A 255,241

Restrictions of General Fund Equity:
Land sales operations A (5,885)
Prepaid expenses and inventory A (535)
Carry-forward amounts & encumbrances A (3,752)
Total Restricted Equity Unvavailable for Discretionary Operations (10,172)
Beginning equity available for future operations 245,069

Projected fund equity as of September 30, 2022 94,713

Estimated u se of fun d equity, FY 2017 . FY 2022 (150,356)

NOTE . See footnote and report covering the approach, content and other comments relating to the
above Summary Schedule.

Adopted budget included a 2% general salary increase in FY 2018, 1% in FY 2019 through FY 2021

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 LONG-RANGE FISCAL PLAN FOR OAKLAND COUNTYS FUTURE: SUMMARY OF OPERATING /
BUDGETARY SHORTFALLS, BUSINESS ISSUES AND RELATED RESOLUTION

OAKLAND COUNTY, MICHIGAN

April 7, 2017

The Long-Range Fiscal Plan for Oakland Countys Future: Summary of Operating Issues and
Related Resolution (Fiscal Plan) is presented in this document. It is the first step in the
process of recommending adjustments to the approved amended budget for FY-2017 through
FY-2019 and preparing the budget recommendation for FY-2020 and beyond for General Fund /
General Purpose operations. This Fiscal Plan has been prepared using data from:

the closure of Oakland Countys accounting records for FY-2016;

the first quarter forecast for current FY-2017 operations;
the Equalization Report for property valuations as of December 31, 2016;
recent discussions pertaining to the recommended general salary increase;
recent State Legislative actions;
Governors recommended operating budget for FY-2018;
recent economic reports; and
other matters identified since the approval of the FY-2017 to FY-2019 operating budgets
in September 2016 by the Board of Commissioners.

SUMMARY

The Fiscal Plan projections demonstrate that, overall, there is a decreasing reliance on planned
use of available General Fund balance for ongoing operations. Use of fund balance should be
considered to be a one-time resource that once spent is no longer available and is only
replenished when there is an annual operating surplus. It is projected that fund balance will be
available to fund some limited one-time projects, primarily capital in nature and in lieu of
issuing long-term debt to fund these proposed capital projects. Oakland Countys ability to use
a limited amount of General Fund equity is the result of planned budget reductions during the
Great Recession in order to balance the budget over a longer term.

The budget plan approved by the Board of Commissioners in September 2016 includes
deliberate use of General Fund equity through FY-2019 in a planned manner to mitigate future
projected operating shortfalls, all while leaving an acceptable level of equity in the General
Fund (and all related operating funds that impact the General Fund) as of September 30, 2019.
Using the adopted budget for FY-2017 through FY-2019 as the starting point, this long-term
Fiscal Plan includes the current FY-2017 budget and the next five-year period of FY-2018
through FY-2022, including adjustments for current business issues.

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During the current FY-2017 and the subsequent five-year forecast period covered in this Fiscal
Plan, the General Fund is anticipated to use approximately $150.4 million in unrestricted equity
for one-time capital projects and to balance the operating budgets through FY-2022, bringing
the ending unrestricted equity to $94.7 million, which is slightly above the equity target of
$94.4 million as of September 30, 2022. The equity target represents 20% of estimated FY-2022
expenditures, in conformance with the Fund Balance Policy as adopted by the Board of
Commissioners with Miscellaneous Resolution # 15175. The target fund balance amount is
designed to meet best practice recommendations identified by the Government Finance
Officers Association (GFOA). This practice has helped the County in retaining the coveted AAA
bond rating.

In order to sustain the long-term fund balance minimum targeted amount, the Countys budget
must eventually become structurally balanced which is defined as the point when ongoing
annual operating revenues are in balance with ongoing annual operating expenditures without
reliance on use of fund balance. Continued reliance on use of General Fund equity for ongoing
operational support is necessitated by future reductions in the Countys property tax rate as a
result of projected millage rollback required by the constitutional Headlee limitation and a
recommended reduction in the annual operating transfer to the General Fund from the
Delinquent Tax Revolving Fund. Even with these reductions in estimated revenue, the five-year
Fiscal Plan demonstrates that departmental budget tasks are not required, representing the
sixth consecutive stable budget cycle with no new budget tasks.

Over the past decade, General Fund equity grew as planned as a result of budget adjustments
that were initiated in advance of forecasted potential budgetary shortfalls. The accumulated
growth of General Fund equity over the past decade allows for the declining use of that equity
during the FY-2017 through FY-2022 period.

Proceeds from the planned growth of General Fund equity in prior years are being used to help
cover any remaining structural operating shortfalls through FY-2022. An operating budget
shortfall means the County is annually projected to spend more than the annual revenue levels
alone will support. As reflected in the budget adopted in September 2016, amounts budgeted
in use of fund equity to balance annual operating shortfalls through FY-2020 were $32.5 million
in FY-2017, and are $28.5 million in FY-2018, $24.0 million in FY-2019, $18.6 million in FY-2020,
and $14.0 million in FY-2021. The combined total budgeted use of fund equity to support
ongoing annual operations over that five-year period is $117.5 million based on the budget
adopted in September 2016.

This planned use of equity that has been acquired in excess of targets allows the County to:

continue to reduce its operating millage rate in advance of constitutionally required

reductions,
make capital improvements to its facilities and technology infrastructure,
provide stable services to the public,

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 provide employment security for County employees necessary for the execution of
those services,
mitigate fee increases, and
provide resources necessary for departmental operating requirements.

For current FY-2017, the first quarter forecast is reporting a net favorable operating variance of
$11.5 million for the General Fund. Past experience has demonstrated that the first quarter
forecast is conservative when compared to actual year-end results. Thus, the fiscal plan
includes an assumption that FY-2017 will result in a favorable operating variance of
approximately $12.0 million when compared to the adopted budget. Plus, there are
recommended adjustments to the current FY-2017 budget that results in a net $3.2 million of
additional favorability. The favorable variance in FY-2017 will help to mitigate some of the
funding needs over the next five years as discussed further in this document.

The adopted budget for FY-2017 includes use of General Fund equity in the amount of
$32.5 million to support ongoing operations. However, because of the favorability identified in
the first quarter forecast, a net $17.4 million use of fund equity is projected to be required to
support ongoing operations for the current fiscal year which is significantly less than the
adopted budget. The favorability from prior years and current operations allows for use of
$22.7 million in fund equity during FY-2017 for one-time purposes, primarily to replace aging
technology and for other major capital projects such as continued security enhancements, as
will be discussed in more detail in this report. As of the date of this report, the net effect is an
anticipated reduction in General Fund equity of $40.1 million in FY-2017 for both one-time
major projects and ongoing operations.

The attached Fiscal Plan includes projected continued use of General Fund equity in gradually
declining amounts over the next five-year period from FY-2018 through FY-2022 as summarized
below and explained in greater detail subsequently.

(in thousands of dollars)

Fiscal Year
2017 2018 2019 2020 2021 2022
Adjusted Beginning Equity at October 1 $ 245,069 $204,987 $164,266 $138,198 $118,039 $101,576
Projected Use of Equity for Operations (17,373) (26,221) (23,068) (17,159) (13,463) (3,863)
Projected Use of Equity for One-time Projects (22,709) (14,500) (3,000) (3,000) (3,000) (3,000)
Projected Ending Equity at September 30 $ 204,987 $ 164,266 $ 138,198 $ 118,039 $ 101,576 $ 94,713

The use of the planned growth in the General Fund equity and the process used to ensure the
stability of services to the Countys residents is highly dependent upon the continued
cooperation of the Countys elected officials to rise above individual departmental needs for
the betterment of the solid fiscal condition of Oakland County. This cooperation is the
cornerstone of the retention of the AAA bond rating and the fiscal respect held by Oakland
County in the region and State.

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As has been the case for decades, Oakland Countys administration continually monitors the
budget and actual results of both the current year and future years budgets on a monthly,
quarterly and annual basis. Budgetary adjustments for all fiscal years are proposed at every
Finance Committee of the Board of Commissioners to reflect changes in operations and / or
budgetary assumptions subsequent to the adoption of the operating budgets from the prior
September (hence, the process is often referred to as a rolling budget). This updated Fiscal
Plan reflects only those business issues having a new net impact on the operating budgets as
reflected on the Summary Schedule and discussed as follows.

SUMMARY SCHEDULE

The attached Fiscal Plan schedule entitled Summary Schedule General Fund Future Five Year
Fiscal Plan (Summary Schedule) and this related explanatory report are presented based upon
financial analyses created by the Fiscal Service and Equalization Divisions of Oakland Countys
Department of Management and Budget with input from other departments and economic
forecast reports. This Fiscal Plan is a high-level financial planning and strategic report that
summarizes the results of Oakland Countys budgeting process, identifies known budgetary
exposures, and assists in setting fiscal and fund equity targets as the starting point for the
preparation of the recommended triennial FY-2018 through FY-2020 operating budgets and the
longer term five-year forecast.

In last years Fiscal Plan, the three years of adopted budgets / plans were included with the
proposed next two years forecast. The current Fiscal Plan includes an additional year (e.g.
FY-2022) for consideration by the County Executive in developing his budget recommendations,
due to the Board of Commissioners on July 1.

The FY-2020 and FY-2021 projections are based on the five-year forecast contained within the
County Executives budget message and included in the budget document that was adopted in
September 2016. The FY-2021 forecast assumptions have then been rolled over as a starting
point for FY-2022 for the extension of an additional year in the long-term forecast. Then, all
fiscal years affected by this Plan, including the current FY-2017 and the future five years of
FY-2018 through FY-2022, have been modified with macro adjustments for revenue and
expenditure items.

NOTES TO SUMMARY SCHEDULE

The footnote references included on the attached Summary Schedule General Fund Future
Five Year Fiscal Plan (Summary Schedule) are explained below.

Note A General Fund Equity Prior to Recommended Adjustments

As reflected in the Summary Schedule, the General Fund equity as of September 30, 2016 is the
starting point in determining whether projected equity is sufficient for operating and capital
needs for the cumulative periods of FY-2017 through FY-2022. These amounts are based on the

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budget as adopted in September 2016 and then adjusted for subsequently identified issues
which are quantifiable and have either a positive or negative impact on the budget or General
Fund equity position.

As of September 30, 2016, General Fund equity was $255.2 million. To determine how much of
the fund equity is available for future operations, the total ending equity has been reduced for
those components that are restricted by law or other commitments in the amount of
$10.2 million. The General Fund equity restrictions include matters such as: land sales
transactions, encumbrances (expected to be spent directly after year end), prepaid expenses,
inventory, and carry-forward amounts. Because these dollars cannot be used for other
discretionary General Fund operations, the amounts have been eliminated in the reconciliation
of available General Fund equity in the Summary Schedule. The reconciliation results in an
adjusted beginning net amount of $245.0 million which remains available on a limited one-time
basis to support future operations until the County once again attains structural balance.
Attainment of structural balance is defined as the point when annual ongoing operating
revenues (without use of fund equity) are sufficient to support annual ongoing operating
expenditures.

In brief summary, the ending General Fund equity as of September 30, 2016, is stronger than
the amount projected in the Fiscal Plan dated April 28, 2016, which the adopted budget was
based on, for the following reasons:

The most significant reason why the equity position increased over previously set
projections is the continued prudence by operating departments to voluntarily control
spending. Also, the County maintains a strong position control and position budgeting
system and adheres to the practice of budgeting for full employment. Should vacancies
occur or if positions are filled at a level lower than authorized, the resulting favorable
variance falls to fund balance. In total, General Fund/General Purpose expenditures
were 6.63% under budget for FY-2016 resulting in approximately $30.2 million of
expenditure favorability.

Total General Fund/General Purpose operating revenues were also favorable, with
nearly $11.1 million in favorable revenue variance or 2.71% more than budgeted. In the
General Fund, revenue in the charges for services category was favorable by $8.4 million
primarily for real estate activity (land transfer taxes, mortgage and deed recordings, and
sales of tax-foreclosed properties) and court fines and costs revenue. Tax revenue was
favorable by $2.7 million due to the timing of tax collections.

During FY-2016, $25.0 million of General Fund equity was used for one-time type of
expenditures, with the majority appropriated for the following:
o $7.7 million was used for security enhancements for buildings, monitoring
stations, and cameras.

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 o $7.0 million was transferred to the Debt Service Fund for the initial seven (7)
years of payments on the bonded debt that was issued for the new Animal
Control and Pet Adoption Center.
o $4.5 million was used for technology which included $3.5 million for the
replacement and enhancement of the imaging system, $716,252 for the fire
records management system, and $273,565 for the Sheriffs automated
scheduling system software.
o $2.0 million was appropriated for the Countys 1/3 share of the Tri-Party Road
Program which leveraged $6.0 million for County road improvements, with the
other 2/3 funded by the Road Commission and the participating local units of
government.
o $2.3 million represents one-time carry forward amounts that were unspent
appropriations from the prior FY-2015 for expenditure in FY-2016.

The FY-2016 amended budget included the planned use of approximately $46.3 million of
General Fund equity to support operations. However, because total General Fund/General
Purpose revenue and expenditures netted a positive variance of $41.3 million, the end result
was a decrease in General Fund equity of $5.0 million for FY-2016. More details regarding the
Countys operating results for FY-2016 are included with Board of Commissioners
Miscellaneous Resolution #16324, Fiscal Year 2016 Year-end Report and Budget Amendments.

Note B Property Tax Revenue Adjustments

Property values are increasing above the rate of inflation once again. As a result, the Headlee
Constitutional Amendment of 1978 requires a rollback for the Countys maximum allowable tax
rate. The County Executive Administration and Equalization Division continually monitors the
variables that impact the Headlee rollback calculation in order to foresee the potential for
future constraints on the millage rate.

The major variables that impact the Headlee rollback calculation include:

Change in the consumer price index (CPI)

The lower the CPI, a greater impact on rollback
The higher the CPI, a lesser impact on rollback
Taxable value uncapping from property transfers (pop-ups)
The greater the number of pop-ups, a greater impact on rollback
Losses from the recent personal property tax exemption legislation have a greater
impact on rollback

One of the variables that significantly affected the Headlee rollback calculation, and also limited
the increase in taxable value, was the suppressed CPI which was only .3% for 2016 taxable value
and .9% for 2017. (The CPI calculation is based on the prior years fiscal period; for example,
the CPI used for 2016 taxable value is based on the change in CPI for the period 10/1/14
through 9/30/15.) It is expected that the change in CPI will revert to more normal levels going

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forward, particularly with expectations for continued rising interest rates as a result of the
change in Federal monetary policy.

The Fiscal Plan includes the following assumptions over the next five-year period:

2018 2019 2020 2021 2022

Change in CPI for taxable value/rollback calculation 2.1% 2.3% 2.5% 2.5% 2.5%

For existing individual property parcels that did not have a change in ownership, the annual
increase in taxable value is capped at either the change in CPI or 5%, whichever is less.
However, overall county-wide taxable value can change above the CPI for several reasons such
as: properties that become uncapped as a result of a change in ownership (pop-ups),
additions/improvements to existing property, and new construction.

Calculating property values and tax revenue has now become a bit more complicated for local
governments as a result of recently enacted tax exemptions. Exemptions are treated as losses
to the tax base in the Headlee calculation formula which rolls back the maximum authorized
millage rate even further. Personal property tax exemptions have the largest impact on overall
taxable value which was amplified in 2016 with the inclusion of a new exemption for
manufacturing personal property (EMPP). The impact of the EMPP in 2016 was a reduction in
personal property values, -12.20% in assessed value and -12.22% in taxable value. This resulted
in a reduction in property tax revenue of approximately $2.4 million, which was offset by
reimbursement from the State. However, it is more difficult to articulate the annual overall
percentage change in assessed and taxable values since there has to be an adjustment now for
the PPT exemptions when comparing to the prior years data and for developing future tax
revenue estimates.

As a result of the passage of Michigan Public Act 357 of 2004, the County levies and collects it
property taxes in arrears. This means the County is required to levy its property taxes in July for
its fiscal year which began on October 1 of the preceding year. Taxable value is not determined
until the Board of Commissioners approves the Equalization Report in April, approximately two
months prior to the issuance of the July tax bills. This requirement for counties to collect
property taxes in arrears adds greater uncertainty for budgetary planning, since property taxes
must be estimated approximately 18 months prior to the levy date for timely adoption of the
annual General Appropriations Act.

As a proactive strategy, Oakland County has always levied a millage rate below the maximum
authorized rate. During the 10-year period of 2005 through 2014, a Headlee rollback was not
required, primarily the result of negative economic conditions which severely impacted
property values. With the improved economy and increasing property values, a millage rollback
has been required every year since 2015.

Based upon the County Executives recommendation, the Board of Commissioners approved
two recent reductions in the millage rate for general County operations. In 2015 the millage
8

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rate was reduced from 4.19 mills to 4.09 mills, and in 2016 it was further reduced to 4.04 mills.
The Countys current millage rate of 4.04 mills is .1068 mills less than the maximum rate
authorized of 4.1468 mills for 2017. As anticipated, if the County had not proactively reduced
its millage rate which used to be 4.19 mills just three years ago, the Headlee provision would
have required the County to reduce the millage rate.

Based on projected future property values and forecasted changes in the CPI, it is likely that the
County Executives Recommended Budget for FY-2018 through FY-2020 will include a reduced
millage rate in 2019. Unfortunately, the amount of rollback required in 2019 will not be known
until approximately April 2019, approximately one month before the tax bills are printed and
more than six months after the beginning of the fiscal period to be funded by the July 2019
levy.

Based on current projections, it is likely that the County Executives Recommended Budget will
include a reduction from the current 4.04 mills down to 4.00 mills in 2019 as reflected in the
Fiscal Plan. Since the projected maximum authorized rate for 2021 is approximately equal to
4.00 mills, the Fiscal Plan also includes the assumption that the millage rate would be further
reduced down to 3.95 mills in 2021.

Comparison of Maximum Authorized Rate to Millage Rate Levy, 2005-2022

Maximum Authorized Reduction in Change in Differential

Year(s) Millage Rate Max. Auth. Millage Rate Levy Levy Rate Max. - Levy
2005-2014 4.22482 4.19000 0.03482
2015 4.21766 (0.00716) 4.09000 (0.10000) 0.12766
2016 4.18768 (0.02998) 4.04000 (0.05000) 0.14768
2017 4.14682 (0.04086) 4.04000 - 0.10682
2018* 4.09746 (0.04936) 4.04000 - 0.05746
2019* 4.05347 (0.04399) 4.00000 (0.04000) 0.05347
2020* 4.03449 (0.01898) 4.00000 - 0.03449
2021* 4.00789 (0.02660) 3.95000 (0.05000) 0.05789
2022* 3.97925 (0.02864) 3.95000 - 0.02925

*projected estimates for 2018 and beyond

The budget as adopted in September 2016 and its associated five-year forecast provided for an
estimated 4.0% increase in taxable value for FY-2017, an increase of 5.0% for FY-2018, and an
annual increase of 4.0% from FY-2019 through FY-2021.

County-wide taxable value increased overall by 3.67% % in FY-2017, slightly less than the 4.0%
budgeted amount. As mentioned, the low .9% increase in CPI suppressed the taxable value
increase. Excluding personal property which increased at only 1.29% as a result of the
exemption for EMPP discussed previously, real property increased at 3.83%. Since the State
will reimburse the County for the EMPP exemptions, the impact on the budget is based on the
differential in real property taxable value change which is (.17)% less than the 4.0% budgeted

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amount or an estimated $(340,000) less in property tax revenue. Assessed values increased
overall by 6.06% with real property assessed values increasing by 6.32% and personal property
assessed values increasing by 1.31%.

Based on the projected change in CPI and other economic conditions, the Fiscal Plan includes
an estimated change in County-wide taxable value as follows for the period FY-2018 through
FY-2022:

FY-2018: +5.0% increase in taxable value (TV), same as adopted budget

$0 change in estimated annual tax revenue estimate

FY-2019: +5.0% increase in TV (1.0% improvement over the adopted budget)

Offset by .04 mills reduction
$0 net change in estimated annual tax revenue estimate

FY-2020: +4.5% increase in TV (0.5% improvement over the adopted budget)

$1.2 million increase in estimated annual tax revenue estimate

FY-2021: +4.5% increase in TV (0.5% improvement over the adopted budget)

Offset by .05 mills reduction
$(1.5 million) net decrease in estimated annual tax revenue estimate

FY-2022: +4.5% increase in TV (new year added beyond adopted budget period)
$12.0 million increase over FY-2021 estimated tax revenue base

Note C Decrease DTRF Transfer

The Delinquent Tax Revolving Fund (DTRF) was established in 1974 to help stabilize annual
revenues for local taxing units. It does this by paying our local communities 100% of their share
of delinquent property taxes in anticipation of the collection of those taxes by the County
Treasurer. The County funds the DTRF by borrowing money and issuing revolving fund notes.
Payment of the notes is made from the proceeds of delinquent tax collections. Once the notes
are paid in full, any surplus in the fund may be transferred to the County General Fund by
action of the Board of Commissioners.

In FY-2006 the equity position of the DTRF increased above the long-term target amount of
$200 million, in part because of a growth in penalties and interest over the prior several years
from increased property tax delinquencies resulting from the problems in the real estate and
employment markets. DTRF equity peaked at $229.4 million by the end of FY-2009. The
retention of available surplus equity above the target amount without specific plans for its use
would be inappropriate if, alternatively, severe cuts to essential programs would otherwise be
required. Thus, for a limited period of time from FY-2009 through FY-2012, the County
judiciously used the DTRF operating surplus to fund certain General Fund and other County
operating costs. As part of a planned multi-year approach which utilized DTRF equity above the
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$200 million target amount, the authorized transfer from the DTRF to support the FY-2012
General Fund budget was $23.15 million, which was the last year in the long-term plan for an
elevated amount of operating transfer. Since then, the budget has been reduced for the annual
operating transfer from the DTRF to the General Fund as shown in the following table.

(in thousands of dollars)

DTRF Transfer r From
Fiscal Year Amount Prior Year
2007 Actual $ 2,100
2008 Actual 8,050 5,950
2009 Actual 11,600 3,550
2010 Actual 21,650 10,050
2011 Actual 23,150 1,500
2012 Actual 23,150 -
2013 Actual 10,800 (12,350)
2014 Actual 10,800 -
2015 Actual 10,800 -
2016 Actual 10,800 -
2017 Adopted Budget 9,000 (1,800)

As of September 30, 2016, the DTRF fund balance was $200.2 million, essentially at the target
amount. Now that tax delinquencies have decreased, there is a reduction in the amount of
penalties and fees revenue in the DTRF. Based on a recent analysis, it is the Treasurers
recommendation that future amounts transferred to support General Fund operations be
reduced down to $6 million annually. These recommended reductions are included in the Fiscal
Plan for FY-2018 through FY-2022.

Note D Proposed Salary Increase

Included in the Adopted Triennial Budget for FY-2017, FY-2018 and FY-2019 operating budgets
are general salary increases of 2.0%, 1.0% and 1.0%, respectively for all County employees.
Competition in the labor market is evident and it is more challenging in an improved economy
to recruit and retain experienced, high-quality employees. It is imperative that the Countys
total compensation package be competitively positioned. As the traditional lure of public
sector employment, namely employee benefits, begins to look more and more like private
sector (e.g., defined contribution pension plans, a retiree health care savings plan, health care
contributions, etc.), the benefit package distinction diminishes and competitive salary becomes
a more critical component of total compensation.

The Fiscal Plan includes an adjustment to the proposed general salary increase above what is
included with the budget that was adopted in September 2016 with an additional 1.0% in
FY-2018 (for a total general salary increase of 3.0%). The recommended general salary increase
for FY-2019 at 1.0% is unchanged from the adopted budget. At this time, an annual 1.0%
general salary increase assumption is included for FY-2020 through FY-2022. The salary

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recommendations for FY-2019 and beyond will be revisited and addressed in future fiscal plans
as the County strives for continued improvement in the operating budget as has been
demonstrated in the past.

Note E Salary Study

The Human Resources Department is in the process of reviewing proposals for a contracted
consultant to review all of the Countys job classifications. This is expected to include a salary
study for all classifications to analyze market competitiveness. Subsequently, it is anticipated
that upon completion of the study, an updated or new salary administration plan will be
presented to the Board of Commissioners for approval prior to implementation. Currently, it is
unknown as to what the implementation timeline would be or what the budgetary impact
would be as a result of this study. At this time, the Fiscal Plan includes $2.4 million annually as
a contingency amount beginning in FY-2019 which would be equivalent to approximately 1.0%
of budgeted General Fund/General Purpose salaries and associated fringe benefits.

Note F Pension Contribution

As of September 30, 2016, the Defined Benefit (DB) pension system is 102.3% funded based on
the actuarial value of assets. Exhibit A to this Fiscal Plan includes financial projections for the
pension system from FY-2017 through FY-2025. The financial assumptions and projections
included in Exhibit A , discussed as follows, indicate that an annual required contribution (ARC)
payment could be required beginning in FY-2020.

There are three basic components that drive the projected required pension contribution for
the Countys defined benefit pension plan: market value of the investment portfolio, benefits
paid and the actuarial accrued liability (complete with the assumptions used by the actuary to
formally calculate the amount).

Comments on each of the three components follow:

Investment Portfolio Value. The net assets of the pension system portfolio as of
September 30, 2016, was $757.6 million, an increase of $12.0 million after deducting
$53.5 million in non-investment net cash outflows (benefit payments offset by employer
and employee contributions). Investment income was $65.5 million for FY-2016,
yielding a market value return of 9.11% during the fiscal year, which is more than the
long-term assumed rate of 7.25%. The market valuation of assets as of 9/30/16 is a
significant improvement in comparison to the estimate included with last years analysis
when the equity and bond markets were negative and extremely volatile. While the
actual investment earned in FY-2016 is more than the assumed rate of return for that
individual year, a longer term recognized rate of return is calculated for actuarial
valuation purposes based on a 5-year smoothing of investment gains and losses. The
recognized rate of return for FY-2016 is 6.19%, which is less than the long-term assumed
rate of 7.25%. The recognized rate is less primarily as a result of unfavorable FY-2015

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 investment returns of .63%, which will continue to be included with the 5-year
smoothed calculation through FY-2019.

For FY-2017 through FY-2025, the change in net assets is based on the 7.25% assumed
long-term rate of return less the amount of non-investment net cash flow.

Non-Investment Net Cash Flow. The non-investment net cash flow represents the
pension benefits paid less employee and employer contributions. Since the Countys DB
plan has been closed to new participants since 1994, the analysis in Exhibit A includes
the assumption that future net cash outflows will exceed investment inflows. As of
9/30/16, there were only 300 active employees eligible for DB benefits and 88 deferred
retirees who are eligible to receive DB benefits at some future date. Payments to DB
plan retirees are anticipated to peak in FY-2026 as shown in the below chart.

Actuarial Accrued Liabilities (AAL). The most difficult projection to estimate relates to
the AAL, which is the net present value of future benefit payments to retirees. This
calculation is dependent on the number of DB-eligible employees who retired over the
past year and their respective benefit payments as well as the number of retirees or
beneficiaries who are now deceased. In the past, the Countys projections of this
liability have been reasonably accurate, but because of its sensitivity in the calculation
of the annual required contribution (ARC payment), it is a critical input to Exhibit A. The
AAL increased by approximately $18.0 million in FY-2015, which was a sizeable increase
as a result of a new actuarial assumption study in that year which included updated
mortality tables with longer life expectancies. In the FY-2016 actuarial valuation, there
were no assumption changes, and AAL increased by $1.7 million to $762.5 million,
consistent with the estimate of $762.0 million in last years analysis (estimation accuracy
of 99.7%).

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 The estimated AAL is projected to decline in future years beginning with FY-2017. The
analysis for the projected future decline in AAL is illustrated in the following chart based
on future projected DB payments provided by the actuary and the present value of
those projected payments.

Unless future market conditions exceed the assumed long-term annual investment rate of
7.25%, an ARC payment is expected to be required beginning in FY-2020 as shown in Exhibit A.
Note: there is a two-year lag between the valuation date of the actuarial report and the
actuarially-recommended pension contribution. For example, a projected unfunded position as
of the fiscal year ending September 30, 2018, would require an ARC payment in FY-2020.
However, because of the improved investment return of 9.11% in FY-2016, the projected future
ARC payments from FY-2020 through FY-2025 are less than the estimated amounts in last years
analysis. This results in a favorable variance of $1.0 million in FY-2020 and $3.5 million in
FY-2021 in comparison to the 5-year forecast that was included with the adopted budget.

Note G Debt Service for Radio Replacement Project

The County will be replacing the legacy 911 copper network with a regional ESINet (Emergency
Services Internet-protocol Network) to prepare for Next Generation 911 (NG911). This will
enable 911 calls to be routed using geographic information system coordinates and will allow
callers to be eyewitnesses at emergency scenes with not only voice calls, but photographs,
videos, in-car crash systems, and text messaging. Radio equipment will also need to be
replaced which currently includes: 4,343 portable radios, 1,861 mobile radios, consoles at 18
dispatch centers, and equipment on 55 towers.

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During 2016, the County initiated a study to assess alternative service means for its radio
communications system with a draft report having been issued in late calendar 2016. The final
report has recently been received from the consultant. A preliminary analysis with estimated
financial impact has been prepared based on the draft report and is detailed in a draft
memorandum from Bob Daddow dated March 28, 2017. The County Executive
Administrations recommendation as detailed in the March 28 draft memorandum was
approved by the Radio Oversight Committee on April 10, and a final memorandum is pending.
The analysis and radio surcharge recommendation is scheduled for review by the Board of
Commissioners Finance Committee on April 20. This memorandum covers the financial status
of the Radio Communications Fund and its capital and operating needs for the next several
years. This Fund has financially assisted local units when dispatch centers were consolidated.
The assistance involved the acquisition of equipment and software, technical consulting
support, networking, movement of equipment and similar costs eligible under State statutes to
be charged against the 911 operating surcharge revenues.

When the ESINet is constructed and launched, the funding needed for this county-wide capital
project will most likely be secured over a four-year period through a combination of the
Countys 911 telephone operating surcharge and potential reimbursement through the
implementation vendors access to the States surcharge funds. At the current rate for the
State surcharge, its likely that the States surcharge pool of funds could become depleted
before the Countys ESINet project is completed and eligible for reimbursement. Public safety
is lobbying for an increase in the State surcharge rate, among other actions.

The worst case scenario is that the States surcharge funds become depleted and the State is
not willing to increase its surcharge rate to restore funds to continue reimbursement to the
remaining counties for ESINet conversion. The County would need to issue bonds in the
amount of $21 million if no reimbursement is provided by the State for Oakland Countys
ESINet. The annual debt service payment is estimated to be almost $2.5 million for 10 years.
Assuming that the Board of Commissioners would be willing to ratably increase the radio
surcharge rate to the maximum amount authorized of 42 cents per month per device by 2020,
the County would still need to appropriate $1.6 million annually for the annual debt service
since the maximum rate is insufficient to cover the full amount of debt service payment circa
2020. The Fiscal Plan includes the assumption that supplemental funding of $1.6 million
annually from the General Fund will be required beginning in FY-2020 based on the worst case
scenario.

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Notes H and I One-time Fringe Benefit Rate Reduction/Funding for One-time Facilities and
Technology Capital Projects

The operating results for the Fringe Benefit Fund have been favorable, particularly for
employee health care costs. The County is self-insured for most of its employee health care
costs. In contrast to premium-based plans, self-insured plan costs tend to fluctuate more from
year to year, depending upon the timing of actual utilization.

Because of favorable operating results in the Fringe Benefit Fund in FY-2015, a one-time rate
fringe benefit rate reduction occurred in FY-2016 which reduced the Fringe Benefit Fund budget
by approximately $8.0 million with a benefit to the General Fund budget of approximately
$5.5 million. The Fringe Benefit Fund experienced favorable operating results again in FY-2016;
net health care costs for employees decreased by $2.8 million (6.2%) when compared to the
prior year. With the Board of Commissioners approval of the FY-2017 First Quarter Forecast
resolution, an amendment was included to reduce the Fringe Benefit Fund budget once again
by $8.0 million with a one-time benefit to the General Fund for an estimated $5.5 million. A
portion of the General Fund savings, $2.0 million, is recommended to be set aside with
year-end closing to fund future major one-time capital facility and technology projects.

Note J General Favorability/Turnover

Since the County budgets for all positions on a full employment basis, it is typical for actual
operations to result in surplus each year from employee turnover savings. As a result, a
provision to reflect anticipated annual budgetary favorability due to turnover has been
included in the Fiscal Plan.

As noted earlier in this document, FY-2016 General Fund/General Purpose expenditures were
6.63% under budget resulting in $30.2 million of expenditure favorability, much of that being
the result of employee turnover savings. The Fiscal Plan includes approximately $12.0 million
of expenditure favorability for FY-2017 based on the projections included in the first quarter
forecast. The amount of estimated favorability becomes more conservative for future years at
$8.0 million annually.

It should also be recognized that the favorability from employee turnover savings as a result of
the Countys practice of budgeting for full employment provides a built-in safety net if
needed. Such safety net can be used to address unknown operating issues or unanticipated
capital needs that might arise during the year and will continue to be required to provide
flexibility if needed.

Note K Security Enhancements

The Facilities Management Department has been working closely with the Sheriffs Office over
the past several years identifying and implementing security enhancements for County
facilities. There are two assignments in General Fund equity which total approximately

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$3.3 million for continued building security enhancements, cameras, and consoles. This
amount is expected to be expended over the next year or two as security enhancements
continue. The below table summarizes actual and planned use of General Fund equity since
FY-2014 for security enhancement purposes.

Use of General Fund Balance for Security Enhancements and Cameras/Consoles

Fical Year Period
Actual Actual Actual Assigned
2014 2015 2016 2017 Total
Security Enhancements $ 308,856 $ 95,751 $ 6,180,110 $ 2,724,139 $ 9,308,856
Cameras and Consoles 2,743,014 214,000 1,475,220 567,766 5,000,000
Total $ 3,053,884 $ 311,766 $ 7,657,346 $ 3,293,922 $ 14,308,856

In FY-2014, the General Fund budget was also increased by $2.1 million annually to support
ongoing operating costs related to security enhancement, primarily for additional deputies and
security equipment maintenance.

Note L Technology Projects

Also included in General Fund equity is an assignment in the amount of $14.0 million to
continue the replacement of aging technology systems, and there is also an additional
assignment of $10 million specifically for the replacement of the Countys financial and human
resources systems. Below is an estimated cost summary of major technology projects
identified for replacement over the next several years followed by a brief description for each
of these projects.

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PeopleSoft Financial and Human Resources System Replacement - This project will identify and
implement new enterprise-wide systems for Human Resources and Financials, which includes
modules for Accounting, Financial Planning, Receivables, Payables, Purchasing and Vendor
Management. The Countys existing PeopleSoft system was installed in two phases: the HR
system was implemented in 1998 and the financials in 2006. In addition, both systems have
been maintained but not upgraded to new functionality for the last five years. Given their ages,
both systems lack many of the work process improvements offered by modern systems.

Sheriff Firearms Training System The firearms training system requested by the Sheriffs
Office is a simulator which uses five interconnected borderless screens to create a fully
immersive 300 degree use of force training. This allows for multi-directional training to
improve a deputys situational awareness, including the ability to acquire and engage moving
targets and overcome distractions. The estimated cost of approximately $200,000 includes all
of the necessary hardware, equipment kits, and software which will also allow the Sheriffs
Office to create customized training scenarios. The 300 degree screen trains deputies how to
continue to assess situations and expand situational awareness during high stress incidents.
This simulator will allow deputies to react in an objectively reasonable manner when
considering all of the use of force options in rapidly developing, high stress scenario.

Analog Telephone System Replacement - Unified (Universal) Communications - This program

will link all County facilities and includes the following:

Converting the Countys existing analog phone network to a digitally based Voice Over
Internet Protocol (VOIP). This will allow all communications, both voice and data, to use
the same physical network.
It will provide campus wide wireless access for employees and guests (a wireless cloak).
It will enable the use of video calling to/from all devices on the network.
It will greatly expand the use of instant messaging between employees.
It will expand the capacity of the network to allow faster communications between all
participants.

Today, the County has two important systems, voicemail and the telephone system, that have
reached end-of-life and need to be replaced. Instead of a like-for-like upgrade, this project will
transform the way employees communicate and collaborate with each other as well as with the
public. It will provide additional features not currently available including peer-to-peer video
conferencing and establish private wireless access to enable mobility.

Virtual Desktop Infrastructure (VDI) - VDI is the practice of running a user desktop inside a
virtual machine that lives on a server in the datacenter. The benefits of VDI are not based in
cost but in the features it provides. The most valuable benefit of a VDI deployment is increased
security and control. A VDI structure also enables easier support, better availability, more
appropriate systems for task works and enabling new workforce strategies. The new workforce
strategies include remote work and Bring Your Own Device (BYOD). Launching these new
workforce strategies will help us transform our working environment and improve team
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member satisfaction while enhancing our technical security and operational performance as
well as reducing administrative and hardware costs in the future.

Identity and Access Management (IAM) - IAM comprises people, processes and products to
manage access to Oakland Countys IT systems. An IAM will improve the user experience in
terms of sign-on management while improving security and reducing complexity in our
environment. Today, we have over 20 different authentication methods. A single process and
tool will reduce the number of passwords users need to access all of the systems they use to do
their work as well as improving security by allowing smaller applications to align to our County
standards.

Network Operations Center Monitoring (NOC) - A NOC is a central focal point for monitoring all
IT services ensuring up-time and maximizing performance. The key features will include end-to-
end service performance reporting, centralized alert management, grouping network elements,
customizing network diagnostics, mapping device topology and unifying network management
platforms. Currently, the County uses several different technologies to create insights into the
technological environment. A NOC will bring a single, real-time, integrated view into all the
different critical monitoring that will allow the County to proactively respond to issues before
they become problems. This will increase IT service availability and reduce downtime.

Note M Elections Equipment

Pursuant to the Federal Help America Vote Act of 2002 (HAVA), Federal and State grant funding
is available to replace voting systems statewide. Oakland County will be receiving $228,920 of
grant funding for new equipment to be used specifically by the County Clerks office. In addition
to the grant funding, a General Fund Balance assignment of $150,000 will be requested for
appropriation to purchase other equipment needed to support the new voting system, such as
high-speed tabulators.

Note N Dishwasher for Jail Kitchen

One of the capital improvement projects scheduled for this year is to replace the kitchen floor
at the jail. The dishwasher will also be replaced at the same time. The General Fund Balance
assignment of $123,539 earmarked for the jail from past revenue generated by jail commissary
will be used toward the cost of the dishwasher.

Note O Compensation Study

In anticipation of pending retirements of long-time employees and the need to maintain a

stable and knowledgeable workforce through succession planning, the General Fund Balance
includes an assignment for Human Resources Compensation/Workforce Planning. As discussed
previously with Note E, the Human Resources Department is in the process of reviewing
proposals for a contracted consultant to conduct a job classification and salary study. The
Fiscal Plan includes an estimated $500,000 one-time use of General Fund equity for the study.

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Note P Juvenile Resentencing Hearings

In 2012, the US Supreme Court ruled that juveniles serving life sentences after being convicted
of murder is cruel and unusual punishment. This requires resentencing hearings with some of
these cases being very old and requiring significant financial resources for investigations, expert
testimony, locating witnesses, and additional prosecuting attorneys that may be needed. The
effort began last fiscal year and is expected to continue through at least the current fiscal year.
The rough estimate is that it could cost the County approximately $1.2 million for additional
resources. Half of that amount was appropriated in FY-2016, and it is expected that another
$600,000 will be needed to complete the resentencing hearings.

Note Q Water Quality Monitoring/Enhancements

The water crisis in Flint raised awareness throughout the state and nation regarding the
potential for high levels of lead and copper in public/private water supplies and also from those
metals being present in pipes and fixtures located within older systems and buildings. State
and federal regulators are expected to develop new monitoring and reporting rules. Since the
County through the Water Resources Commissioner operates several water supply systems and
the Health Division inspects and monitors others as part of their statutory duties, it is
anticipated that additional resources may be needed for these County officials to perform their
mandated functions.

Note R Tri-Party Road Project Funding

If adequate equity is available in the General Fund, it has been the practice for the Board of
Commissioners to provide funding to the Road Commission for the Tri-Party Road Funding
program to assist with improvements on County roads. The Tri-Party arrangement leverages
County dollars (1/3) with an equal match amount from the Road Commission (1/3) as well as
the participating local community (1/3). The County Commissioners have indicated that they
will authorize $2 million annually for new road improvement projects from General Fund
equity, which will leverage a total of $6 million for local road improvement projects. The Fiscal
Plan includes the assumption that the Board of Commissioners will continue to authorize
$2 million annually for new road improvement projects from General Fund equity in support of
this local road funding program.

Note S Local Road Project Funding (Non-County Roads)

The Board of Commissioners recently approved a new pilot program for Bi-Party Road Funding
to address road maintenance needs for local non-County roads with funding provided by the
County and participating local cities and villages. (Township roads are maintained by the
Countys Road Commission and thus eligible for funding through the Tri-Party Road Funding
Program.) Communities that wish to attract, retain and grow business, retain jobs and
encourage community investment, need a safely maintained road infrastructure. This road
infrastructure must include both residential and commercial roads as workers and consumers

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need to get to and from work, shopping, schools and recreation. In a fiscally prudent and
limited manner, the County wishes to help its local communities accomplish this objective with
this new test-pilot program. The local road improvement matching fund program will leverage
$1 million of County funds for local road improvement projects with a total benefit of no less
than $2 million. The Fiscal Plan includes $1 million annually for this program through FY-2022.

Other Issues Not Included in Fiscal Plan Financial Projections

One of the risks with preparing long-term financial plans is that there is less certainty in being
able to forecast longer term economic and market-driven issues and their resulting impact.
There is also significant uncertainty regarding the potential downstream impact on the Countys
budget from Federal and State budgetary issues. This Fiscal Plan includes quantifiable amounts
for items within the Countys control and other known likely issues which can be planned for at
this point in time. This is why the County has a rolling multi-year budget process with frequent
amendments so that the Fiscal Plan can be updated for issues that have significant impact on
the long-term budget as new information becomes known.

Some of the major broader economic risks that could negatively impact the estimates included
in this long-term Fiscal Plan include: uncertainty caused by foreign and domestic monetary
policies; military conflicts around the globe; the potential for future inflation; and other such
events beyond our control and which could impact the entire state, nation, or world.

There are discussions at both the Federal and State levels regarding tax policy and realigning
budgets by cutting programs to shift funding to other areas of higher priority. A brief
summarized listing of issues follows, primarily the result of Federal and State policy discussions
which could have future significant impact on the Countys budget but with a high degree of
uncertainty that is not quantifiable at this time.

Indigent Defense - There is concern about future mandated costs that could be imposed on
local units of government as a result of the passage of 2013 P.A. 93 which established
Michigan Indigent Defense Commission (MIDC). The Commission has been charged with
setting minimum standards for indigent legal defense delivery systems. The first four
recommended standards are expected to be formally approved soon. Upon approval, the
County will have 180 days to develop and submit a plan to the State which shall include the
amount of funding required to conform to the new standards. The State will then have 180
days to respond. If the Countys plan is approved, the State is required to provide funds for
the increased costs between the Countys share (defined as the Countys average indigent
defense costs for the fiscal years 2010, 2011, and 2012) and the actual costs as approved by
the State. Based on a preliminary review of standards that are likely to be subsequently
recommended, the costs could become quite substantial. Ultimately, if it became required
for the County to establish and staff a Public Defender office, preliminary estimates are $18
million or more annually for ongoing operations for such an office. Additionally, there
would be one-time start-up costs for office space, computers, etc., which could be
$25-$30 million or more. Given the significant budgetary pressures at the State (discussed

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 subsequently), it is unknown how the State will be able to fund the costs for the local units
of government for this new initiative.

As has been the case for over 100 years, under Michigan law 17 year-old offenders are tried
and sentenced as adults in criminal matters. Recently, there have been ongoing efforts by
certain advocacy groups to increase the age limit to 18 before criminal defendants would be
considered to be adults. If there is a change to Michigans law with respect to the age of
adult criminal responsibility, it could have a significant impact on the Countys juvenile
justice system and particularly for Childrens Village operations. Unfortunately, any
potential budgetary and operational impacts are not quantifiable at this time.

Statewide infrastructure needs for transportation, water & sewer, and communications
require additional new funding of $4 billion per year. This financial new funding does not
include energy infrastructure needs provided by the private sector (primarily the gas,
electric, and petroleum industries) which are estimated to be $3 billion per year and will
need to be funded by ratepayers, who are also taxpayers.

In 2015, a State road funding plan was approved. The plan assumes additional statewide
road funding of $1.2 billion annually by FY-2022. Half of that amount, $600 million, is
expected to be appropriated in the States General Fund. Currently there is concern being
expressed by the State Budget Director that it may be more difficult than originally
conceived to attain that level of funding. The other half, another $600 million, is expected
to come from a combination of increased taxes and fees, largely dependent on an assumed
continued improving economy. A recent study opines that $1.2 billion amount when and if
fully implemented by FY-2022 will not be enough because Michigans roads are in such poor
condition now and deteriorating at an accelerated rate. A future economic downturn
would undermine the State assumptions and limit the proposed funding anticipated by local
governmental units to address the transportation issue.

The combined unfunded liability for State and school pension systems and retiree
healthcare plans exceeds $51.5 billion according to the actuarial valuation reports as of
9/30/15. Further, a recent audit by the State Auditor General states that the accrued
liability was understated by $143 million for FY-2015 for one of the States plans (retiree
healthcare for the State employees). The principal unfunded liabilities are related to the
schools where the recent contributions for pension and retiree health care have been
substantially less than the amounts recommended by the actuary.

Moodys institutional framework score for Michigan school districts is Baa (weak). Michigan
is the only state with this rating and is the lowest in comparison with all other State
institutional framework scores for school districts with rated debt.

National debt was approaching $20 trillion as of December 2016. Debt has been increasing
by about $2.5 billion per day over the past 4 years. This equates to over $61,300 per

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 person and is increasing. Federal entitlement programs as currently funded are
unsustainable Social Security, Medicare, Medicaid.

Policy discussions regarding income tax reform are occurring at both the Federal and State
levels, creating uncertainty about the potential downstream impact on the Countys budget
and programs. Specifically, major Federal budget changes are anticipated which will likely
impact grant funding that flows to the states and ultimately to local governments. There is
discussion about full elimination of some Federal grant programs, such as the Community
Development Block Grant.

SUMMARY

The long-term General Fund Future Five Year Fiscal Plan for FY-2018 through FY-2022 is
balanced and at this time does not require imposition of new budget tasks. The Fiscal Plan
relies upon the planned use of General Fund balance to support operations totaling
$150.4 million for the current fiscal year and for the next five years, which is available as a
result of the deliberate advance budget reductions implemented over the past several years
and which now allows for use of accumulated General Fund equity available above the
sustainable target amount. The targeted amount of General Fund equity as of September 30,
2022, is $94.4 million which represents 20% of annual expenditures. Based on the projections
included in this Fiscal Plan, General Fund equity is estimated to be $94.7 million as of
September 30, 2022, or $0.3 million above the sustainable target amount.

Although expected use of General Fund equity to support ongoing operations declines over the
timeframe of the Fiscal Plan, continued improvements in revenue or reductions in expenditures
are needed to ultimately achieve structural balance. Structural balance is defined as the point
when budgeted ongoing revenues are sufficient to support budgeted ongoing expenditures and
when budgeted use of available accumulated fund balance is no longer needed to support
ongoing operations.

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