OAKLAND COUNTY LONG-RANGE FISCAL PLAN

SUMMARY OF FUTURE OPERATING ISSUES AND RELATED RESOLUTION

Fiscal Year 2018 through Fiscal Year 2023

OAKLAND COUNTY, MICHIGAN

April 19, 2018

 SUMMARY SCHEDULE - GENERAL FUND FUTURE FIVE YEAR FISCAL PLAN
OAKLAND COUNTY, MICHIGAN
April 19, 2018

Fiscal Year (000s)

Adopted Proposed Proposed Projected
Description Notes 2018 2019 2020 2021 2022 2023

Adopted Budget - FY-2018 to FY-2020:

Revenues - total A $ 421,861 $ 430,696 $ 441,264 $ 449,319 $ 461,030 $ 461,030
Expenditures - total A (454,983) (462,383) (467,494) (472,466) (474,938) (474,938)
1 Planned Use of Equity (33,122) (31,687) (26,230) (23,147) (13,908) (13,908)
Beginning Equity at October 1 - net, see below reconciliation* A 249,179 216,057 184,370 158,140 134,993 121,085
ENDING EQUITY AT SEPTEMBER 30 BEFORE ADJUSTMENTS $ 216,057 $ 184,370 $ 158,140 $ 134,993 $ 121,085 $ 107,177

Projected Adjustments to Operating Budget

Operating Revenue Adjustments:

Real property value adjustments in comparison to adopted budget: B
FY 2019, projected need for rollback to 4.00 mills postponed to FY 2020 $ - $ 2,200 $ - $ - $ - $ -
FY 2021, projected need for rollback to 3.95 mills postponed to FY 2022 - - - 2,800 - -
FY 2023, assumed TV change of 4.5% - - - - - 12,200
FY 2023, potential rollback in millage rate down to 3.90 mills - - - - - (3,600)
Local Community Stabilization Payment/Revenue Sharing C 1,708 (255) (255) (255) (255) (255)
Decrease transfer from DTRF D - (3,000) (3,000) (3,000) (3,000) (3,000)
Subtotal - Revenue Adjustments $ 1,708 $ (1,055) $ (3,255) $ (455) $ (3,255) $ 5,345

Operating Expenditure Adjustments:

Proposed salary increase, additional 1% in FY 2019, 1% in FY 2023 E $ - $ (2,400) $ (2,400) $ (2,400) $ (2,400) $ (4,900)
Fringe rate adjustment - General Fund impact E - 4,000 3,000 2,000 1,000 -
Change in estimated ARC for DB pension F - - 1,000 3,500 3,500 3,500
Regional projects due diligence G - (300) (300) (300) (300) (300)
Transfer to Debt Service Fund C (1,708) - - - - -
Debt service payment for radio replacement project H - - - (1,600) (1,600) (1,600)
Debt service payment for building renovations I - (1,050) (1,050) (1,050) (2,100) -
IT ongoing support for major future projects L - - - (2,275) (2,275) (2,275)
Subtotal - Expenditure Adjustments $ (1,708) $ 250 $ 250 $ (2,125) $ (4,175) $ (5,575)

2 Subtotal - Projected Net Adjustments to Operating Budget $ - $ (805) $ (3,005) $ (2,580) $ (7,430) $ (230)

Non-budgeted Items/Assignments Impacting Fund Balance

General favorability/turnover J $ 12,000 $ 8,000 $ 8,000 $ 8,000 $ 8,000 $ 8,000
Security enhancements and cameras K (4,693) - - - - -
Technology projects L (5,665) (11,700) (3,825) (1,250) - -
General Fund grant match for Sheriff aviation camera M (66) - - - - -
Unfunded mandates N (1,278) - - - - -
Senior services O (600) - - - - -
Water quality monitoring/enhancements P (2,000) - - - - -
Tri-party road project funding Q (4,470) (2,000) (2,000) (2,000) (2,000) (2,000)
Local road project funding (non-county roads) R (1,817) (1,500) - - - -

3 Subtotal - Non-budgeted Items/Assignments Impacting Fund Balance $ (8,589) $ (7,200) $ 2,175 $ 4,750 $ 6,000 $ 6,000

4 Net Adjustments to Planned Use of Fund Balance $ (8,589) $ (8,005) $ (830) $ 2,170 $ (1,430) $ 5,770
(items 2+3 above)
ESTIMATED ENDING EQUITY AT SEPTEMBER 30 AFTER ADJUSTMENTS:
Adjusted Beginning Equity at October 1 $ 249,179 $ 207,468 $ 167,776 $ 140,716 $ 119,739 $ 104,401
From 1 above Budgeted Use of Fund Balance as Adopted on 9/28/2017 (33,122) (31,687) (26,230) (23,147) (13,908) (13,908)
From 4 above Net Adjustments to Planned Use of Fund Balance (8,589) (8,005) (830) 2,170 (1,430) 5,770
REVISED ESTIMATED YEAR-END FUND BALANCE PROJECTION $ 207,468 $ 167,776 $ 140,716 $ 119,739 $ 104,401 $ 96,263

Targeted Equity at September 30, 2023 (20% of Expenditures) $ 96,103

Projected Amount Above (Below) Targeted Fund Balance $ 160

Beginning equity as of Oct. 1, 2017, as reported A $ 264,780

Restrictions of General Fund Equity:
Land sales operations A (10,400)
Prepaid expenses and inventory A (353)
Carry-forward amounts & encumbrances A (4,848)
Total Restricted Equity Unvavailable for Discretionary Operations (15,601)
Beginning equity available for future operations * $ 249,179

Projected fund equity as of September 30, 2023 A $ 96,263

Estimated use of fund equity, FY 2018 - FY 2023 A $ (152,916)

NOTE - See footnote and report covering the approach, content and other comments relating to the
above Summary Schedule.
LONG-RANGE FISCAL PLAN FOR OAKLAND COUNTY’S FUTURE: SUMMARY OF OPERATING /
BUDGETARY SHORTFALLS, BUSINESS ISSUES AND RELATED RESOLUTION

OAKLAND COUNTY, MICHIGAN

April 19, 2018

The “Long-Range Fiscal Plan for Oakland County’s 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-2018 through
FY-2020 and preparing the budget recommendation for FY-2021 and beyond for General Fund /
General Purpose operations. This Fiscal Plan has been prepared using data from:

• the closure of Oakland County’s accounting records for FY-2017;

• the first quarter forecast for current operations;
• the Equalization Report for property valuations;
• recent discussions pertaining to the recommended general salary increase;
• recent State Legislative actions;
• Governor’s recommended operating budget for FY-2019;
• recent economic reports; and
• other issues identified since the approval of the FY-2018 to FY-2020 operating budgets
in September 2017 by the Board of Commissioners.

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 County’s
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 County’s 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-2019 through FY-2021 operating budgets and the
longer term five-year forecast.

In last year’s 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-2023) for consideration by the County Executive in developing his budget recommendations,
due to the Board of Commissioners on July 1.

The FY-2021 and FY-2022 projections are based on the five-year forecast contained within the
County Executive’s budget message and included in the budget document that was adopted in
September 2017. The FY-2022 forecast assumptions have then been rolled over as a starting
point for FY-2023 for the extension of an additional year in the long-term forecast. Then, all
fiscal years affected by this Plan, including the current FY-2018 and the future five years of

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FY-2019 through FY-2023, have been modified with macro adjustments for revenue and
expenditure items.

SUMMARY

The long-term Fiscal Plan is balanced currently without the need for budget tasks, representing
the seventh consecutive stable budget cycle with no new budget tasks. However, the Fiscal
Plan does not include the potential impact of the Governor’s recommended unfunded
mandate to increase the local share match requirement to fund new indigent defense
standards imposed by the State. To date, the legislature has not yet approved the increase on
the local match funding requirement which was included with the Governor’s recommended
State budget. There has been strong opposition to the Governor’s recommendation from local
units of government, particularly from counties, including Oakland County.

The following discussion regarding the projections in the current Fiscal Plan does not include
the negative impact from the Governor’s recommended unfunded mandate for indigent
defense. If the Governor’s recommendation is approved by the legislature, it will require an
additional appropriation of $8 million annually from the County’s General Fund which will have
a cumulative $40 million negative impact on the long-term fiscal plan and will require
departmental budget tasks to resolve. (For more details on this issue, see the letter attached
at the back of this document, dated February 12, 2018, that was sent to State legislators
regarding Oakland County’s opposition to the Governor’s recommendation.)

Based on current programs, the Fiscal Plan projections demonstrate that, overall, there is a
decreasing reliance on planned use of available General Fund balance for ongoing operations
over the next five years. 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. However, the Fiscal Plan also anticipates some major capital projects that will
require the issuance of long-term debt and thus includes adjustments to ongoing operations for
future new annual debt service payments.

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-2018 through FY-2023 period.

This planned use of equity that has been accumulated 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 departments to meet operating requirements and
goals.

During the current FY-2018 and the subsequent five-year forecast period covered in this Fiscal
Plan, the General Fund is anticipated to use approximately $152.9 million in unrestricted equity
for one-time capital projects and to balance the operating budgets through FY-2023, bringing
the ending unrestricted equity to $96.3 million, which is slightly above the equity target of
$96.1 million as of September 30, 2023. The equity target represents 20% of estimated FY-2023
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 benefitting both the County and its local governmental units.

In order to sustain the long-term fund balance minimum targeted amount, the County’s 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 the use of fund balance. Continued reliance on use of General Fund equity for
ongoing operational support is necessitated by future reductions in the County’s property tax
rate as a result of projected millage rollbacks 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.

The use of the planned growth in the General Fund equity and the process used to ensure the
stability of services to the County’s residents is highly dependent upon the continued
cooperation of the County’s 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.

As has been the case for decades, Oakland County’s 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 in the subsequent footnotes.

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FOOTNOTE REFERENCES

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

As reflected in the Summary Schedule, the General Fund equity as of September 30, 2017 is the
starting point in determining whether projected equity is sufficient for operating and capital
needs for the cumulative periods of FY-2018 through FY-2023. These amounts are based on the
five-year forecast included with the adopted budget approved by the Board of Commissioners
in September 2017. The forecast includes deliberate use of General Fund equity through
FY-2022 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). This updated long-term Fiscal Plan adjusts for subsequently identified issues
which are quantifiable and have either a positive or negative impact on the budget or General
Fund equity position through FY-2023.

Accumulated General Fund planned equity growth in prior years is being used to help cover any
remaining structural operating shortfalls through FY-2023. 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 2017, planned amounts for use
of fund equity to balance annual operating shortfalls through FY-2022 are $33.1 million in FY-
2018, $31.7 million in FY-2019, $26.2 million in FY-2020, $23.1 million in FY-2021, and $13.9
million in FY-2022. The combined total budgeted use of fund equity to support ongoing annual
operations over that five-year period is $128.1 million based on the budget adopted in
September 2017.

As of September 30, 2017, General Fund equity was $264.8 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
$15.6 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 $249.2 million which remains available on a limited one-time
basis to support future operations until the County once again attains structural balance. As
previously noted, 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.

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In brief summary, the ending General Fund equity as of September 30, 2017, is stronger than
the amount projected in the Fiscal Plan dated April 10, 2017, which the adopted budget was
based on, for the following reasons:

• The most significant reason why the equity position increased over previous 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 7.21%
under budget for FY-2017 resulting in approximately $32.7 million of expenditure
favorability.

• Total General Fund/General Purpose operating revenues were also favorable, with
nearly $11.2 million in favorable revenue variance or 2.68% more than budgeted. In the
General Fund, revenue in the charges for services category was favorable by
$13.4 million, primarily the result of real estate activity (land transfer taxes, mortgage
and deed recordings, and sales of tax-foreclosed properties) and court fines and costs
revenue. This was partially offset by unfavorable Child Care Subsidy revenue of
$2.4 million as a result of unspent favorable expenditures (the State reimburses the
County for 50% of allowable expenditures).

• During FY-2017, $9.2 million of General Fund equity was used for one-time type of
expenditures, with the majority appropriated for the following:

o $3.8 million represents one-time carry forward amounts and encumbrances that
were unspent appropriations from the prior FY-2016 for expenditure in FY-2017.
o $1.6 million was appropriated for the County’s 1/3 share of the Tri-Party Road
Program which leveraged $4.8 million for County road improvements, with the
other 2/3 funded by the Road Commission and the participating local units of
government; additionally, $0.7 million was appropriated for the Local Road
Improvement Matching Program (bi-party program) for non-County roads to
leverage a minimum amount of $1.4 million in local road improvements.
o $1.5 million was appropriated for an interlocal agreement with the City of
Farmington Hills for a water main extension project.
o $1.6 million was used for other miscellaneous projects such as technology
hardware and software replacements, firearms training system simulator for the
Sheriff’s office, overhaul of a Sheriff helicopter, intercom system replacement
and dishwasher replacement in the Jail, and an employee compensation study.

The FY-2017 amended budget included the planned use of approximately $34.6 million of
General Fund equity to support operations. However, because total General Fund/General
Purpose revenue and expenditures netted a positive variance of $43.9 million, the end result
was an increase in General Fund equity of $9.5 million for FY-2017. More details regarding the

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County’s operating results for FY-2017 are included with Board of Commissioners
Miscellaneous Resolution #17325, Fiscal Year 2017 Year-end Report and Budget Amendments.

The adopted budget for FY-2018 includes use of General Fund equity in the amount of
$33.1 million to support ongoing operations. However, because of the favorability identified in
the first quarter forecast, a net $21.1 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
$20.6 million in fund equity during FY-2018 for one-time purposes, the majority of that amount
is for continued security enhancements and road projects. As of the date of this report, the net
effect is an anticipated reduction in General Fund equity of $41.7 million in FY-2018 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-2019 through FY-2023 as summarized
in the following table.

Summary - Projected Use of General Fund Equity

(in thousands of dollars)

Fiscal Year
2018 2019 2020 2021 2022 2023
Adjusted Beginning Equity at October 1 $ 249,179 $207,468 $167,776 $140,716 $119,739 $104,401
Projected Use of Equity for Operations (21,122) (24,492) (21,235) (17,727) (13,338) (6,138)
Projected Use of Equity for One-time Projects (20,589) (15,200) (5,825) (3,250) (2,000) (2,000)
Projected Ending Equity at September 30 $ 207,468 $ 167,776 $ 140,716 $ 119,739 $ 104,401 $ 96,263

Note B – Property Tax Revenue Adjustments

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 Executive’s recommendation, the Board of Commissioners approved
two recent reductions in the millage rate for general County operations. In 2015 the millage
rate was reduced from 4.19 mills to 4.09 mills, and in 2016 it was further reduced to 4.04 mills.
The County’s current millage rate of 4.04 mills is .0725 mills less than the maximum rate
authorized of 4.1125 mills for 2018. As anticipated, if the County had not proactively reduced
its millage rate which used to be 4.19 mills just four years ago, the Headlee provision would
have required the County to reduce the millage rate.

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Last year’s Fiscal Plan dated April 10, 2017 projected that another reduction in the millage rate
should be recommended in 2019 (from the current 4.04 mills down to 4.00 mills). However,
based on data from the recently published 2018 Equalization Report and subsequent analyses,
the reduction to 4.00 mills is not expected until 2020. Similarly, the millage reduction down to
3.95 mills anticipated for 2021 with last year’s Fiscal Plan is now not expected to be required
until 2022. The current Fiscal Plan also assumes a further millage reduction down to 3.90 mills
in 2023.

The following table summarizes the historical maximum authorized millage rates and levied
rates back to 2005. The table also includes projected rates through 2023 which were used to
develop the current long-term Fiscal Plan.

Comparison of Maximum Authorized Rate to Millage Rate Levy, 2005-2023

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 4.11250 (0.03432) 4.04000 - 0.07250
2019* 4.06971 (0.04279) 4.04000 - 0.02971
2020* 4.04536 (0.02435) 4.00000 (0.04000) 0.04536
2021* 4.01882 (0.02654) 4.00000 - 0.01882
2022* 3.99023 (0.02859) 3.95000 (0.05000) 0.04023
2023* 3.95973 (0.03050) 3.90000 (0.05000) 0.05973

*projected estimates for 2019 and beyond

There are no changes to the estimated annual change in County-wide taxable value for real
property as included in the current adopted budget and its associated five-year forecast
through FY-2022. This includes a budgeted 5.0% increase in real property taxable value for
FY-2018. The actual increase in county-wide real property as reflected in the 2018 Equalization
Report is 5.11% before any action taken during the July Boards of Review or appeals pending in
the Tax Tribunal. The adopted budget includes a 5.0% increase in real property taxable value in
FY-2019 and a 4.5% annual increase for FY-2020 through FY-2022. The Fiscal Plan includes an
estimated 4.5% increase in real property taxable value in FY-2023.

Note C – Local Community Stabilization Payment/Revenue Sharing

Pursuant to the Local Community Stabilization Authority Act (LCSA Act), 2014 Public Act 86,
local governments receive reimbursement for losses from personal property tax (PPT)
exemptions as calculated by the State Department of Treasury. The reimbursement paid to the
County for 2017 PPT exemptions was calculated at 285% of losses rather than 100% as

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anticipated. The resulting $1.7 million of revenue favorability recognized in the current fiscal
year has been treated as a one-time revenue source. As such, it has been used to fund a one-
time $1.7 million transfer to the Animal Control Debt Service Fund for advance funding of
future debt service payments on the new pet adoption facility that recently opened in
October 2017.

In FY-2017, the State increased county revenue sharing payments by 1%, which has been
preserved by the State into FY-2018. The adopted budget and five-year forecast contained
therein includes the same current amount of revenue sharing through FY-2022. However, as
part of the recommended State budget for FY-2019, the Governor has recommended taking
back that increase that was provided in FY-2017 by reducing county revenue sharing payments
to counties by 1%, which the House supports. The Senate Appropriations Subcommittee is
taking a contrary position and recommends a 1% increase. The long-term Fiscal Plan presented
herein includes a conservative assumption that State Revenue Sharing will be reduced by 1% in
FY-2019.

Note D – 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
$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.

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 General Fund Operating Transfers from DTRF

(in thousands of dollars)

DTRF Transfer  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 Actual 9,000 (1,800)
2018 Adopted Budget 6,000 (3,000)
2019 Adopted Budget 6,000 -
2020 Adopted Budget 6,000 -

As of September 30, 2017, the DTRF fund balance was $197.4 million, slightly below 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 Treasurer’s
recommendation that future amounts transferred to support General Fund operations be
reduced from the current adopted budget amount of $6.0 million annually down to $3.0 million
annually. The recommended reduction is included in the attached Fiscal Plan for FY-2019
through FY-2023.

It is estimated with this reduced level of funding to support general operations, in FY-2023 the
DTRF fund balance will be restored to a level above the $200 million target. Rather than
restore the transfer to the General Fund back up to $6.0 million in FY-2023 to support general
expenditures, available fund balance in the DTRF above the target amount will be used to
support capital items as intended when the DTRF Fiscal Responsibility Plan was adopted by the
Board of Commissioners in 2001. The Fiscal Plan includes the assumption that the DTRF will be
used to fund annual debt service payments beginning in FY-2023 for building renovation
projects, explained subsequently in Note H.

Note E – Proposed Salary Increase and Fringe Benefits Rate Adjustment

Included in the Adopted Triennial Budget for FY-2018, FY-2019 and FY-2020 are general salary
increases of 3.0%, 1.0% and 1.0%, respectively. Competition in the labor market is evident and
it is more challenging in an improved economy to recruit and retain experienced, high-quality
employees.

The Fiscal Plan includes an adjustment to the proposed general salary increase above what is
included with the budget that was adopted in September 2017 with an additional 1.0% in

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FY-2019 (for a total general salary increase of 2.0%). The recommended general salary increase
for FY-2020 at 1.0% is unchanged from the adopted budget. At this time, an annual 1.0%
general salary increase assumption is included for FY-2021 through FY-2023. However, the
assumed improvement in the general salary increase will have to be reconsidered if the
legislature approves the Governor’s unfunded mandate recommendation to increase the local
match requirement for indigent defense. The salary recommendations for FY-2020 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.

The 1.0% improvement in the proposed general salary increase recommendation for FY-2019
(and the impact over subsequent operating periods in the long-term Fiscal Plan) will be funded
by a reduction in the overall rate for Fringe Benefits. The reduction in the rate is possible as a
result of favorable employee health care cost experience over the past several years. The initial
savings for General Fund operations from the rate reduction beginning in FY-2019 are
estimated to be $4.0 million. Thereafter, the rate is expected to be gradually restored to the
current level by FY-2023 as reflected in the Fiscal Plan with ongoing annual savings stepped
down incrementally by an estimated $1.0 million each year in subsequent years.

Note F – Pension Contribution

As of September 30, 2017, the Defined Benefit (DB) pension system is 102.6% funded based on
the actuarial value of assets. Exhibit A to this Fiscal Plan includes financial projections for the
pension system from FY-2018 through FY-2025. The financial assumptions and projections
included in Exhibit A, discussed as follows, indicate that the pension system is projected to
continue to remain fully funded with no annual required contribution (ARC). This is an
improvement from last year’s analysis when it was projected that an ARC payment would be
required beginning in FY-2020. This results in a favorable variance of $1.0 million in FY-2020
and $3.5 million in FY-2021 and beyond in comparison to the 5-year forecast that was included
with the adopted budget.

There are three basic components that drive the projected required pension contribution for
the County’s 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, 2017, was $785.0 million, an increase of $27.4 million after deducting $55.5
million in non-investment net cash outflows (benefit payments offset by employer and
employee contributions). Investment income was $82.8 million for FY-2017, yielding a
market value return of 11.35% during the fiscal year, which is more than the long-term
assumed rate of 7.25%. While the actual investment earned in FY-2017 is more than the
assumed rate of return for that individual year, a longer term recognized rate of return is

10
 calculated for actuarial valuation purposes based on a 5-year smoothing of investment gains
and losses. The recognized rate of return for FY-2017 is 6.93%, 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 investment returns of .63%, which will continue to be included with the 5-year
smoothed calculation through FY-2019.

For FY-2018 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 County’s 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 September
30, 2017 there were only 251 active employees eligible for DB benefits and 73 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.

• 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 County’s 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. For the first time, the AAL decreased with
the FY-2017 actuarial valuation with a reduction of $5.5 million down to $757.0 million.
The projected trend for AAL is a continued decline in future years.

Note G – Regional Projects Due Diligence

There are several major regional projects with substantial financial implications for Oakland
County’s taxpayers which require significant effort by high-level staff in order to perform the
due diligence review required by these projects. Some examples include the recently created
Great Lakes Water Authority, regional transit, and State efforts related to impositions of more
restrictive standards for items such as indigent defense and water quality testing. The attached
Fiscal Plan includes $300,000 annually to provide additional support for due diligence
necessitated by these regional projects. The amount included with the Fiscal Plan is a rough
estimate as the actual level and type of support is unknown at this time as options are being
explored (such as hiring staff or contracted professional services).

11
Note H – Debt Service for Radio Replacement Project

The County has replaced the legacy 911 copper network with a regional ESINet (Emergency
Services Internet-protocol Network) to prepare for Next Generation 911 (NG911). Only a few
“punch list” actions remain before it is fully operational. 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 20 dispatch centers, and equipment on 55
towers.

The most recent analysis with estimated financial impact is detailed in a memorandum from
Bob Daddow dated March 29, 2018, which was presented to the Board of Commissioners’
Finance Committee on April 12, 2018 (available on the County’s CLEMIS Division website at
https://www.oakgov.com/it/clemis/about/Pages/financials.aspx). 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 final “punch list” actions are resolved and the ESINet is 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 County’s 911 telephone operating surcharge and potential reimbursement
through the implementation vendor’s access to the State’s technical surcharge funds.

The worst case scenario is that the State does not provide surcharge funds for the ESINet
operations even though it has historically provided such funding to other local units of
government which have completed conversion to an ESINet system. The County would need to
issue bonds in the amount of $21 million if no reimbursement is provided by the State for
Oakland County’s ESINet. The annual debt service payment is estimated to be approximately
$2.4 million for 10 years. Assuming that the Board of Commissioners would be willing to
increase the radio surcharge rate to the maximum amount authorized of 42 cents per month
per device, 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.
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.

Note I – Debt Service for Building Renovations

This Fiscal Plan includes annual debt service for building renovations which covers three major
initiatives for enhanced safety and accessibility for multiple County facilities: continued
building security improvements, building safety enhancements (fire alarm systems, fire egress
paths, emergency exits with enhanced signage, etc.), and ADA improvements (Americans with

12
Disabilities Act). Ideally, these projects would be coordinated to avoid the least amount of
disruption within the specific areas of renovation, so some of the construction work will need
to be done simultaneously and overlap across the three categories. A long-term coordinated
plan for this work is needed, building by building, based on the complexity caused by
construction in areas that are occupied by employees and the public.

The preliminary estimated amount needed for these projects over the next five years or more is
$30.0 million. Given the magnitude, debt issuance will be recommended for these projects
which would require approximately $2.1 million for the annual debt service for a 20-year bond
obligation. It is anticipated that the debt will be issued in two series with half of the annual
debt service payment being required in FY-2019 through FY-2021 and the remaining half of the
annual debt service being required beginning in FY-2022. The attached Fiscal Plan includes the
assumption that the General Fund would absorb the annual debt service payment through FY-
2022 and, thereafter, the DTRF would provide funding for the annual debt service beginning
with FY-2023 (see related Note D regarding DTRF transfers).

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.

For current FY-2018, the estimated $12.0 million of operating favorability included with the
Fiscal Plan is consistent with the results reported in the first quarter forecast. Most of the
favorability is from employee turnover savings as a result of the County’s practice of budgeting
for full employment. This practice 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.

However, the projected favorability in FY-2018 also includes approximately $4.0 million
attributed to decreased state and private juvenile institution placements. Favorability in this
expenditure cannot be relied upon for future years’ operations for two primary reasons. First,
this is budgeted within the Circuit Court, and it is expected that the Court will request approval
from the Board of Commissioners to shift some of the appropriation favorability to provide
funding for support staff to assist the additional Judgeship which becomes effective on
January 1, 2019.

Second, there is a fiscal uncertainty resulting from an effort known as “Raise the Age”. 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. 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 Michigan’s law with respect to the age of adult criminal
responsibility, it will have a significant impact on the County’s juvenile justice system and

13
particularly for Children’s Village operations and require building capital improvement projects
that are presently not budgeted. In 2017, there were 235 17-year-old inmates booked into the
jail with an average length of stay of 25.27 days, resulting in an average of 13.98 inmates per
day who are 17 years old who would otherwise have to be housed in Children’s Village where
there is not enough capacity in the high-security detention area and space is at a premium, or
housed in other detention facilities presently unknown.

In the attached Fiscal Plan, it is assumed that beginning with FY-2019 the ongoing annual
operating favorability will be $8.0 million.

Note K – Security Enhancements and Cameras

The Facilities Management Department has been working closely with the Sheriff’s Office over
the past several years identifying and implementing security enhancements for County
facilities. The Board of Commissioners recently approved use of $4.7 million from assigned
General Fund Balance in FY-2018 for additional priority 2 projects and to implement projects
identified as priority 3 security enhancements. During the past five fiscal years since FY-2014,
the County has funded approximately $16.0 million from available General Fund equity for
security enhancements. Going forward, it is proposed that beyond the current fiscal year
future security enhancements will be funded through a debt issuance in combination with
other needed building improvements for ADA accessibility and safety enhancement projects
(see Note H).

The following table summarizes actual use of General Fund equity since FY-2014 for security
enhancement purposes.

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

Fiscal Year Period
2014 2015 2016 2017 2018 Total
Security Enhancements $ 308,856 $ 95,751 $ 6,180,110 $ - $ 4,400,000 $ 10,984,717
Cameras and Consoles 2,743,014 214,000 1,475,220 275,000 292,766 5,000,000
Total $ 3,053,884 $ 311,766 $ 7,657,346 $ 277,017 $ 4,694,784 $ 15,984,717

Note L – Technology Projects

With the closing process of FY-2017 operations, the General Fund equity assignments includes
$11.0 million to continue the general replacement of aging technology systems, $10.0 million
for the replacement of the County’s financial and human resources system, and $3.3 million for
data privacy and security. An estimated cost summary is included herein with a brief
description of major technology projects identified for replacement over the next several years.

14
 Funding Plan for Major Technology Projects (in thousands)

Estimated Capital Cost

FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 Total

PeopleSoft replacement 5,000 5,000 - - - - 10,000

Miscellaneous software replacement 215 - - - - - 215

Universal communications (UCC) 3,727 5,000 2,000 - - - 10,727

Offset with available bond funding (1,277) - - - - - (1,277)
Offset with Telephone Communications fund equity (2,000) - - - - - (2,000)
Net amount from General Fund for UCC 450 5,000 2,000 - - - 7,450

Virtual application desktop infrastructure (VDI) - - 1,000 1,250 - - 2,250

Identity and access management (IAM) - 1,000 825 - - - 1,825
Network operations center (NOC) - 700 - - - - 700
Total needed from General Fund assigned equity $ 5,665 $ 11,700 $ 3,825 $ 1,250 $ - $ - $ 22,440

PeopleSoft Financial and Human Resources System Replacement - This project is for a new
enterprise-wide systems for Human Resources and Financials, which includes modules for
Accounting, Financial Planning, Receivables, Payables, Purchasing and Vendor Management as
well as Human Resource and Payroll functions. The County’s 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. A lengthy competitive search and review for the replacement system and
implementation vendor has recently been completed. It is anticipated that a resolution will be
presented to the Board of Commissioners within the current fiscal year for approval and
appropriation to begin the first phase implementation for the system replacement. It is
expected that it will require a couple years before the system replacement is fully
implemented.

In addition to the estimated capital costs, the Fiscal Plan includes an additional $1.875 million
per year after implementation for additional ongoing operating costs. This reflects the shift to a
hosted “service” model. This is a trend in the technology industry which over time will shift
some of the cost profile for the Information Technology Department. Longer term, the
operating costs will be less capital intensive by reducing the need for the County to replace and
support on-site servers. While this shift is occurring, there will be an overlap period of a few
years before the offsetting cost savings will be realized.

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

will link all County facilities and includes the following:

• Converting the County’s 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.

15
 • 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
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 County’s 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. In addition to the estimated capital costs, the Fiscal Plan includes $400,000 annually
beginning in FY-2021 for additional ongoing operating costs to support this system.

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 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 – General Fund Grant Match for Sheriff Aviation Camera

The Board of Commissioners recently authorized use of the remaining $65,805 in the General
Fund Balance assignment for Sheriff Aviation to provide funding toward the replacement of a
high definition imaging system for one of the helicopters. The replacement system’s total cost
is approximately $622,000 with $220,332 provided from a grant, $65,805 from the General
Fund Balance assignment, and the remainder from available forfeiture funds.

16
Note N – Unfunded Mandates

In the current fiscal year, the Board of Commissioners approved use of the General Fund
Balance assignment for Unfunded Mandates to fund two projects.

An appropriation of $1.1 million was approved for compliance with the Federal requirements of
the Health Insurance Portability and Accountability Act (HIPAA) as amended by the Health
Information Technology for Economic and Clinical Health (HITECH) Act. The appropriation is for
software, Information Technology development costs, employee training, installation of card
readers, and periodic HIPAA audit requirements.

An appropriation of $164,136 was approved to improve ingress and egress in Probate

courtrooms for wheelchair accessibility.

Note O – Senior Services

The Board of Commissioners authorized use of General Fund equity in the amount of $600,000
in the current fiscal year for a one-time increase in the contract with the Area Agency on Aging
1-B (AAA 1-B). The funding was provided to eliminate the waitlist for “priority 0” individuals
who requested AAA 1-B Community Living Program Services.

Note P – 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.

Recently, the Board of Commissioners initiated a project to solicit applications from local public
and charter schools for drinking water/bottle filling stations. It is estimated that approximately
$520,000 of one-time funding will be appropriated by the Board of Commissioners from
General Fund equity for this project.

Note Q – 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

17
the participating local community (1/3). The County Commissioners have indicated that they
will authorize $2.0 million annually for new road improvement projects from General Fund
equity, which will leverage a total of $6.0 million for local road improvement projects. The
Fiscal Plan includes the assumption that the Board of Commissioners will continue to authorize
$2.0 million annually for new road improvement projects from General Fund equity in support
of this local road funding program. The FY-2018 amount of almost $4.5 million includes
unspent amounts from prior years in addition to the current year’s expected authorization of
$2.0 million.

Note R – Local Road Project Funding (Non-County Roads)

In 2016, the Board of Commissioners approved a 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
County’s 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
need to get to and from work, shopping, schools and recreation. In a fiscally prudent and
limited manner, the County opted to help its local communities accomplish this objective with a
test-pilot program. In the first two years of this program, the County Commissioners approved
annual funding of $1.0 million in each FY-2016 and FY-2017. The County Commissioners have
indicated their intent is to appropriate $1.5 million in FY-2018 and an additional $1.5 million in
FY-2019 for new local road projects, after which time the pilot project will expire in anticipation
of increased local road funding from the State. During the two-year period of FY-2018 and
FY-2019, the local road improvement matching fund program will leverage $3.0 million of
County funds for local road improvement projects with a total benefit of no less than $6.0
million.

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 County’s
budget from Federal and State budgetary issues. This Fiscal Plan includes quantifiable amounts
for items within the County’s 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.

18
Of significant concern and uncertainty is the potential impact from trade wars on the local
economy as a result of Federal trade and tariff policies, which includes whether the U.S. exits
the North American Free Trade Agreement or whether the U.S. joins the Trans-Pacific
Partnership. There is concern about the impact on industrial manufacturing costs as a result of
the recent tariffs imposed on imported steel and aluminum. Also, there are concerns about
Federal policy and budgetary actions that could impact grant programs operated by the County
and the impact on our citizens if services are no longer provided through those grants.

And as mentioned previously, the most immediate and largest concern has to do with the
mandated costs that could be imposed on local units of government as a result of the newly
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 were approved by the MIDC on May 22, 2017. A second set of four
new recommended standards is expected to be approved by the MIDC in the next several
months that could be every bit as fiscally onerous as the first four standards.

The County delivered its first compliance plan submission on November 17, 2017, with a total
cost of approximately $10.7 million for the first four standards (the net additional incremental
costs submitted were $8.8 million after subtracting the current County local share match
amount of approximately $1.9 million). The first compliance plan submission was rejected by
the MIDC. The County delivered a second compliance plan submission on February 20, 2018,
with a total cost of approximately $10.4 million. The second compliance plan submission was
also rejected.

Of the first four new standards, Standard #4 imposes the most costly and largest operational
impact for many County operations. Standard #4 creates a new critical stage for a contested
hearing and requires defense counsel to be assigned for first appearance during the
arraignment process. As required by the MIDC Act, MCL 780.993 Section 13(6), “. . . If the MIDC
determines that funding in excess of the indigent criminal defense system’s share is necessary in
order to bring its system into compliance with the minimum standards established by the MIDC,
that excess funding shall be paid by the State. . . .” While the State has indicated that it will
reimburse the County for additional defense attorneys as part of the costs associated with the
new critical stage for a contested hearing, the State refuses to pay for the new additional costs
required on the other side of the contested hearing for representatives of crime victims.

Further, as previously mentioned the Governor has proposed revising the local share match
calculation so that local match requirement will equal $7.25 per capita. In addition, the
Governor proposes that the local units of government must remit to the State 90% of the
reimbursements collected as cost recovery for indigent defense. Combined, these two changes
proposed by the Governor would increase Oakland County’s local match requirement to
approximately $10.9 million or an additional $8.0 million above the current $1.9 million local
match share defined by statute. The attached Fiscal Plan does not provide for the unfunded
mandate being attempted by the MIDC and the Governor which would have a significant

19
negative financial impact on the County. If the unfunded mandate for additional MIDC costs is
successfully imposed and burdened on the County, it will require budget tasks to be imposed
which will negatively impact current County programs.
SUMMARY IN CONCLUSION

The long-term General Fund Future Five Year Fiscal Plan for FY-2019 through FY-2023 is
currently balanced and does not require imposition of budget tasks at this time. However,
budget tasks will be required if the potential unfunded mandates are imposed on local funding
units as threatened by the MIDC and the Governor.

The Fiscal Plan relies upon the planned use of General Fund equity to support operations
totaling $152.9 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,
2023, is $96.1 million which represents 20% of annual expenditures. Based on the projections
included in this Fiscal Plan, General Fund equity is estimated to be $96.3 million as of
September 30, 2023, which is slightly 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. As noted previously, 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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PENSION PROJECTIONS - DEFINED BENEFIT PLAN
OAKLAND COUNTY, MICHIGAN
Updated: March 28, 2018

EXHIBIT A

*Marked to Market Estimated

2014* 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

A. Funding Value Beginning of Year $ 716,944,068 $ 787,896,080 $ 786,151,565 $ 779,685,235 $ 776,357,213 $ 769,764,171 $ 760,866,622 $ 760,002,670 $ 755,755,624 $ 744,439,685 $ 731,412,948 $ 716,795,374
B. Market Value End of Year 787,896,080 745,659,829 757,642,972 785,011,127 781,297,591 775,321,079 767,257,415 757,265,119 745,429,231 731,955,981 717,018,884 700,740,820
C. Market Value Beg of Year 764,270,787 787,896,080 745,659,829 757,642,972 785,011,127 781,297,591 775,321,079 767,257,415 757,265,119 745,429,231 731,955,981 717,018,884

D. Non-investment Net Cash Flow (43,662,997) (47,038,887) (53,482,287) (55,466,944) (58,506,000) (60,430,000) (62,026,000) (63,323,000) (64,403,000) (65,155,000) (65,625,000) (65,874,000)

E. Investment Income:
E1 Market Total (B-C-D) 787,896,080 4,802,636 65,465,430 82,835,099 54,792,464 54,453,488 53,962,336 53,330,704 52,567,112 51,681,750 50,687,902 49,595,937
E2 Assumed Rate of Income (I) 7.25% 7.25% 7.25% 7.25% 7.25% 7.25% 7.25% 7.25% 7.25% 7.25% 7.25% 7.25%
E3 Amount for Immediate Recognition
I x (A+D/2) 55,417,306 55,057,256 54,516,503 54,165,055 53,617,315 52,914,388 52,804,735 52,457,674 51,610,008 50,648,532 49,579,732
E4 Amount for Phased-In Recognition
(E1-E3) 787,896,080 (50,614,670) 10,408,174 28,318,596 627,409 836,173 1,047,948 525,969 109,438 71,742 39,370 16,205

F. Phased-In Recognition of Invest. Income

F1 Current Year (E4 / 3); (E4/5 2010 & beyond) (10,122,934) 2,081,635 5,663,719 125,482 167,235 209,590 105,194 21,888 14,348 7,874 3,241
F2 First Prior Year - (10,122,934) 2,081,635 5,663,719 125,482 167,235 209,590 105,194 21,888 14,348 7,874
F3 Second Prior Year - - (10,122,934) 2,081,635 5,663,719 125,482 167,235 209,590 105,194 21,888 14,348
Third Prior Year - - - (10,122,934) 2,081,635 5,663,719 125,482 167,235 209,590 105,194 21,888
Fourth Prior Year - - - - (10,122,934) 2,081,635 5,663,719 125,482 167,235 209,590 105,194
F4 Total Recognized Investment Inc. - (10,122,934) (8,041,299) (2,377,580) (2,252,098) (2,084,864) 8,247,660 6,271,219 629,387 518,254 358,894 152,545

G. Funding Value End of Year (A+D+E3+F4) 787,896,080 786,151,565 779,685,235 776,357,213 769,764,171 760,866,622 760,002,670 755,755,624 744,439,685 731,412,948 716,795,374 700,653,650

H. Difference - Market & Funding Value - (40,491,736) (22,042,263) 8,653,914 11,533,420 14,454,457 7,254,745 1,509,495 989,546 543,034 223,510 87,170

I. PV of future benefit payments, less PV of

employee contributions - net 742,877,320 760,839,312 762,520,988 757,006,989 752,321,000 745,335,000 736,219,000 725,120,000 712,118,000 697,407,000 681,151,000 663,463,000
Less valuation of assets (G) 787,896,080 786,151,565 779,685,235 776,357,213 769,764,171 760,866,622 760,002,670 755,755,624 744,439,685 731,412,948 716,795,374 700,653,650
Assets > Accrued Benefits $ 45,018,760 $ 25,312,253 $ 17,164,247 $ 19,350,224 $ 17,443,171 $ 15,531,622 $ 23,783,670 $ 30,635,624 $ 32,321,685 $ 34,005,948 $ 35,644,374 $ 37,190,650

PROJECTED CONTRIBUTION $ 5,770,835 $ 4,554,832 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -

Transfer in from General Employee Pool - - - - - - - - - - - -
NET CONTRIBUTION* $ 5,770,835 $ 4,554,832 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -

Estimated ARC Projection in Adopted Budget $ 5,771,000 $ 4,555,000 $ - $ - $ - $ - $ 1,000,000 $ 3,500,000 $ 3,500,000 $ - $ - $ -
Adjustment based on revised projections - - - - - - (1,000,000) (3,500,000) (3,500,000) - - -
PROJECTED PENSION CONTRIBUTION $ 5,771,000 $ 4,555,000 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -

Major assumption adjustments:

1. Actuary recommended ARC is paid two fiscal periods after the valuation period; for example, ARC payment required in FY 2020 will be based on Actuarial Valuation for Period Ended 9/30/18

2. Item D (non-investment net cash flow) projections for FY 2018 and beyond obtained from GASB 67 report dated 9/30/17

3. Item I (PV of future benefit payments): Adjusted in FY 2015 for changes in actuarial assumptions/experience study: updated mortality tables, wage inflation of 3.25%, entry age actuarial method
(10 year amortization of UAAL beginning with FY 2015) - projected amount for FY 2018 and beyond is based on GASB 67 report dated 9/30/17
 OAKLAND COUNTY EXECUTIVE L. BROOKS PATTERSON

February 12, 2018

Re: Michigan Indigent Defense Funding

ATTENTION – WARNING
To the Oakland County Delegation of Michigan Representatives and Senators:

Please be advised that on February 7, 2018 the State Budget Office (SBO) disseminated
Governor Snyder’s Executive Recommendation on Michigan Indigent Defense Grants, which included a
significant increase in taxes on your constituents to fund indigent defense costs. (See attached 2/7/18
SBO Report). The Governor’s budget includes two legislative amendments to the Michigan Indigent
Defense Commission Act (MIDC Act), MCL 780.991 et al, one that imposes a new tax in the form of a
$7.25 per capita minimum spending threshold on local funding units for indigent defense costs and
another that denies local funding units the ability to seek reimbursement of the costs of representation
from defendants, which they are statutorily authorized to do under MCL 769.1k(1)(b)(iv).

Oakland County is currently required to spend funds on the implementation and enforcement of
the MIDC’s minimum standards for indigent defense at the level of its “local share” calculated at $1.85
million. 1 MCL 780.993(7) provides that a local funding unit “shall not be required to provide funds in
excess of its local share.” The SBO seeks to amend the definition of “local share” to a per capita cost,
which would now require Oakland County to spend a minimum of $9 million on indigent defense costs. 2
This nearly quintuples the historic spending levels on indigent defense in the Oakland County Circuit
Court and the four election district of the 52nd District Court. This formula also penalizes local communities
with low crime rates – those local funding units will still be forced to spend the same amount per capita
on indigent defense as a high crime rate community that requires more indigent defense resources. Every
local funding unit in the state will be required to recalculate their “local share” based on population and
bear the exorbitant increase in indigent defense costs. This redefinition of “local share” is a de facto tax
and a blatantly deceitful per se violation of unfunded mandate limitations in the Headlee Amendment,
Article 9, §29 of the Michigan Constitution. 3

1 “Local share” is defined as the sum of a local funding unit’s average annual expenditures for indigent

criminal defense services in 2010, 2011, 2012 less the average of reimbursements by indigent
defendants. Oakland County’s net sum was $1,850,626. MCL 780.983(h) and MCL 780.993(6).
2 Calculation: $7.25 x 1,242,304 million residents = $9,006,704.

2100 Pontiac Lake Road | Waterford, MI 48328 | Telephone (248) 858-0480 | Fax (248) 452-9215 | OakGov.com
 OAKLAND COUNTY EXECUTIVE L. BROOKS PATTERSON

The state also seeks to seize 90% of the revenue collected by local funding units from defendants
for the expenses associated with providing indigent defense counsel. This amendment eliminates the
deduction of reimbursements of “local share” under MCL 780.983(h). The recommended state grant of
$61.3 million includes “$15.3 million in reimbursements from partially indigent defendants.” The budget
is based on the legislature “requiring that 90 percent of the revenue collected from partially indigent
defendants be remitted to the state…” (See attached 2/7/18 SBO Report p. 2).

Oakland County is statutorily authorized to collect the expenses for providing legal assistance to
indigent defendants. See MCL 769.1k(1)(b)(iv). Oakland County averages $896,000 in revenue
reimbursements from indigent defendants, but under the proposed amendments will only be allowed to
retain $89,600 of that collected revenue. Oakland County will lose an average of $800,000 in revenue
per year. The state will never get the $15.3 million it needs in reimbursements from indigent defendants
to fund the activities under the MIDC Act. Not every local funding unit in the state engages in
reimbursement efforts to collect for indigent defense costs. Local funding units who do engage in this
activity can no longer be expected to continue to fund the effort to collect money from indigent defendants
and act on behalf of the state.

Oakland County is requesting that the members of its delegation in the legislature oppose all
efforts of the SBO to amend the MIDC Act. These amendments will cost Oakland County residents
and taxpayers in excess of $9.8 million in expenses and lost revenue. The increase in costs created
by the MIDC Act amendments cannot constitutionally be shifted to local funding units. The state is not
fully funding the minimum indigent standards and has failed to live up to the constitutional requirements
of Headlee Amendment, Article 9, §29 of the Michigan Constitution. Oakland County has long been
concerned that the State of Michigan would not be paying for the increased costs presented by the
Michigan Indigent Defense Commission standards. The amendments discussed above demonstrate that
Oakland County’s concerns are well founded and that the State’s intention is to shift these increased
costs onto the funding units.

Very truly yours,

L. Brooks Patterson
Oakland County Executive

3 “Article 9, §29 is a clear prohibition of this kind of state action: before the state imposes a new or
increased activity or service on a local unit of government, it must appropriate sufficient funds to cover
any of the increased costs.” Adair v. State, 486 Mich. 468, 479 (2010). See also Adair v. State, 497 Mich.
89 (2014) and Oakland County v. State, 456 Mich. 144 (1997).

2100 Pontiac Lake Road | Waterford, MI 48328 | Telephone (248) 858-0480 | Fax (248) 452-9215 | OakGov.com
 STATE BUDGET OFFICE
February 7, 2018

Michigan Indigent Defense Grants

FY 2019 Executive Recommendation

Proposal
The governor's budget includes $61.3 million for local indigent defense systems to support the four initial
minimum standards to improve the statewide provision of indigent criminal defense services. The standards
were authorized by the Michigan Indigent Defense Commission (MIDC), and Michigan's 134 local systems
will receive grants to support the costs of improvements required to meet the standards. The recommended
total of $61.3 million includes $46 million general fund and $15.3 million in reimbursements from partially
indigent defendants.
In addition to providing state grants to support the implementation of the initial four minimum standards, the
governor's budget also recommends amendatory legislation to clarify and provide for more efficient
implementation of the statutory requirements.
Background
In 2011, Governor Snyder issued Executive Order No. 2011-12 creating the Indigent Defense Advisory
Commission, which was tasked with making recommendations regarding improvements to legal
representation for indigent criminal defendants in the state. Based on the Advisory Commission's findings
and core recommendation that a permanent and independent Indigent Defense Commission be
established, the Legislature approved and the governor enacted Public Act 93 of 2013. This act created the
MIDC and authorized it to improve criminal indigent defense services through a framework of minimum
standards. Statute mandates that the additional costs required to implement these minimum standards be
paid by the state.

The first set of minimum standards geared towards improving indigent criminal defense services were
approved in May 2017, and included the following four items:

1. Education and Training of Defense Counsel - Requires defense counsel to know certain areas of
the law including forensic and scientific issues, use applicable technologies, and annually complete
continuing legal education courses.
2. Initial Review - Directs defense counsel to be prepared to interview and to evaluate client capability
to participate in their representation after appointment of the counsel and before any court
proceeding in a confidential setting.
3. Investigation and Experts - Obligates defense counsel to perform investigations, request funds
when appropriate to retain a professional defense investigator, and to seek the assistance of
experts if necessary.
4. Counsel at First Appearance and Other Critical Stages - Mandates that a defense counsel be
assigned to a defendant as soon as the individual is determined to be indigent. Furthermore,
counsel must also be provided to defendants at pretrial appearances and for other critical stages at
all criminal proceedings.
Pursuant to the act, each local indigent defense system was required to submit a compliance plan and cost
analysis that detailed the level of current local funding and additional state funding necessary to implement
these initial four minimum standards by November 20, 2017. The MIDC then had 60 days (until January 19,
2018) to review and approve, or disapprove, a system's compliance plan and/or cost analysis. If
disapproved, the local indigent defense system has an additional 30 days to submit a new plan and/or cost
analysis. However, if after three rounds of submissions a compromise is not reached, mediation is required
through the State Court Administrator.
The MIDC is currently in the process of reviewing and approving or disapproving compliance plans and cost
analyses from the 134 local criminal indigent defense systems in Michigan. The initial request from all
systems submitting a compliance plan and cost analysis totaled $85.3 million. As of January 31, 2018, 16
plans and cost analyses have been approved, requesting a total of $6.6 million from the state. The
remaining compliance plans and/or cost analyses were initially not approved by the MIDC, and are now in
the process of resubmittal by the local system. In addition, two local plans were not submitted and the MIDC
is working with them to ensure compliance.
Given statutory timeframes, it may be several months before all compliance plans and cost analyses are
approved by the MIDC and total state obligations are known. Total funding proposed in the Executive
Recommendation is estimated based on assumptions relative to disallowed costs and the remittance of
partially indigent reimbursements in support of statewide grant allocations.
Amendatory Legislation
Key recommended changes to clarify and improve the Michigan Indigent Defense Commission Act include:
• Moving the deadline for annual plan and cost analysis submission from February 1 to October 1, to
better align with the state budget development cycle for each following fiscal year.
• Increasing the MIDC plan review periods from 60 to 90 days for initial plans and from 30 to 60 days
for plans that were not approved.
• Establishes a minimum local share of indigent defense systems of $7.25 per capita, and provides for
an annual adjustment of a system's local share by the Detroit Consumer Price Index or 3 percent,
whichever is less, to maintain the local share of support.
• Requiring that 90 percent of the revenue collected from partially indigent defendants be remitted to
the state to support statewide system costs.
• Aligning to a system's actual ongoing costs by adjusting grant awards in subsequent years.
• Identifying and implementing performance metrics to assess the provision of indigent defense
services in Michigan relative to national standards and benchmarks.