Unofficial Informal Briefing Minutes

Tuesday, February 7, 2017 - 10:30 AM Present: Charlotte J. Nash, Jace Brooks, Lynette Howard, Tommy Hunter, John Heard

1. Financial Services Rating Agencies Update

Financial Service Director/Chief Financial Officer Maria Woods provided a history of Gwinnett County’s ratings and an overview of rating categories and agencies. No Official Action Taken.

FINANCIAL SERVICES

Rating Agency Review Board of Commissioners’ Briefing

February 7, 2017

Did you know…

Only 1.5% of U.S. Counties are

Triple – AAA

Credit Rating Scale

Moody’s Fitch Standard & Poor’s

Highest Quality Aaa AAA AAA

High Quality Aa1 Aa2 Aa3 AA+ AA AA- AA+ AA AA-

Upper Medium Grade A1 A2 A3 A+ A A- A+ A A-

Medium Grade Baa1 Baa2 Baa3 BBB+ BBB BBB- BBB+ BBB BBB-

Speculative Grade Ba1 Ba2 Ba3 BB+ BB BB- BB+ BB BB-

Very Speculative Grade B1 B2 B3 B+ B B- B+ B B-

Substantial Risks – in default

Caa1 Caa2 Caa3 Ca

CCC CC C RD D

CCC+ CCC CCC- CC C D

INVE

STM

ENT

GRA

DE

NO

N IN

VEST

MEN

T G

RADE

“J

UN

K” B

ON

DS

Highest Quality

High Quality

Medium Grade

Upper Medium Grade

History of Gwinnett’s Credit Ratings

If Our Bond Rating Had Been Single A …

…we would have paid more than $50 million dollars in additional interest on bonds that were issued between 2008 and 2017.

Rating Agency Role

• Assessment of the ability to pay back financial obligations

• Ability to pay back obligations = creditworthiness

• Based on an analytical model

• Relative ranking of risk

• Subjective judgment

• Prediction – not a guarantee

Who are they?

What do they look for?

30%

30%

30%

10%

Standard & Poor’s Rating Factors

Economy/Tax Base FinancesManagement & Institutional Debt

Fitch’s Comments

» Strong revenue and expenditure flexibility

» Maintenance of healthy reserves

» Low long-term liability burden

» Prudent fiscal management through conservative budgeting without the use of reserves

Fitch’s scenario analysis highlights the county’s exceptional financial resilience, benefiting from the county’s solid reserves and superior budget flexibility, despite the sizable revenue volatility of 4.5% depicted by Fitch’s analytical sensitivity tool. Fitch believes that the county would maintain reserves at a level that would be consistent with a ‘aaa’ financial resilience assessment in the event of a future economic downturn.

Moody’s Comments Credit Strengths » Strong fiscal position bolstered by formal financial policies and conservative

budgeting » Low debt and pension burdens » Large tax base with strong socioeconomic factors

Credit Challenges » Socioeconomic metrics have declined in recent decades as population

expands

Factors that Could Lead to a Downgrade » Significant tax base deterioration » Marked decline in reserves and cash due to ongoing structural imbalance

S&P Global’s Comments » Adequate economy » Very strong management, with strong financial policies and practices » Strong budgetary performance » Very strong budgetary flexibility » Very strong liquidity » Very strong debt and contingent liability position » Very strong institutional framework score » If financial performance were to experience sustained deterioration, leading

to significant declines in reserves, we could lower the rating » Eligible for a rating above the sovereign because we believe the county can

maintain better credit characteristics than the nation in a stress scenario

U. S. Rating

Upgrade for US rating not in the cards: S&P Wednesday, 11 Jan 2017 | 4:14 AM ET | 02:25

Moody’s 2017 Outlook for US Local Governments

• Healthy Property Tax Growth

• Stable, healthy reserves highlight strong management and provide flexibility

• Growing balance sheet liabilities and fixed costs continue to pressure operations but remain manageable

• Compounding pressures are deteriorating credit quality for a small group

Source: Moody’s Investor Services, Local Government - US 2017 Outlook – Strong Tax Revenues and Healthy Reserves Drive Stability for Most December 7, 2016

Signs of Deteriorating Credit Quality

Source: Moody’s Investor Services, Local Governments - US 2017 Outlook – Strong Tax Revenues and Healthy Reserves Drive Stability for Most December 7, 2016

“A still modest but growing portion of issuers - about 5% to 10% - face compounding pressures and credit challenges, but overall the sector in general remains stable.”

Revenue stagnation + Fixed Cost Growth = Trend of Credit Deterioration

Weak Economic Trends

Falling property values

Poor demographic and employment trends

Low wealth levels

Limited economic or industrial development prospects

Revenue and Reserve Challenges

Tax caps or other legal limits on revenue raising

Anti-tax sentiment, high rates or demographic profile eroding political willingness to raise rates

Heavy reliance on state aid and vulnerability to cuts

Declining, limited, or no reserves

Weak revenue trends

Expenditure Pressures

Limited legal ability to cut expenditures

Rising fixed costs

Few expenditure cuts available

Deteriorating infrastructure with acute need to invest

States shifting costs to local governments

A City in Mississippi

Credit Characteristics Low wealth levels Anti-tax sentiment, high rates or

demographic profile eroding political willingness to raise rates

Declining, limited or no reserves Deteriorating infrastructure with acute need

to invest Rising fixed costs

Baa2

NEGATIVE

History of Rating

2010 2013 High Quality Aa2

2015 Upper

Medium Grade

A3 -

2016 Medium Grade Baa2 -

Value of Triple-AAA Debt Service Savings Refunding Bonds

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

2011 2012 2013 2014 2014 2016 2017

In Millions

Water & Sewer Authority GO Bond Dev Authority

$80.3 million

Keeping Gwinnett Financially Resilient

• Demonstrated Financial Flexibility

• Manageable Debt

• Conservative Budgeting

• Controlling Expenditures

• Multi-year Planning

• Pay-as-you-go Capital Program

• Financial Policies