2001 Credit Rating for Essex County

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services expenditures, combined with an increase in expenditures for homes for the aged and children's services, limited the decline in total social services expenditures. Spending on transportation, Essex's second-largest operating expenditure in 1998 and fourth largest in 1999, declined more than 47% in the same period. Spending for environmental services (in particular, solid waste management) and general government, the county's second- and third-largest expenditures in 1999, remained almost unchanged in 1999 from 1998. Capital revenues (exclusively grants from the province) in 1999 were negligible and virtually unchanged from the year before. Capital expenditures declined 17% to C$7.3 million in 1999. Transportation, which represented roughly 78% of total capital spending, was unchanged in 1999 from the year previous. Almost all of the C$7.3 million capital program was funded by net contributions from the C$4.4 million operating budget and from C$3.1 million in reserves and reserve funds. Because Essex is committed to funding its capital plans on a pay-as-you-go basis, no new debt was issued in 1999 or in 2000. The county's funding practices are a clear demonstration of its financial prudence and, accordingly, a noteworthy credit strength. Reserve and reserve fund balances increased in 1999, rising 7% to C$25 million at year-end. Reserve and reserve fund balances are usually held as cash or short-term investments. Essex's liquidity, holdings of cash and investments, increased even more dramatically, rising 28% to C$27 million by the end of 1999 from 1998's levels. Despite these increases, both reserve balances and liquidity levels remained just below net outstanding debt, leaving the county as a small net debtor at the end of 1999. With total expenditures budgeted at around C$7.8 million, Essex anticipates undertaking a capital program in 2001 that is very close in scale to those of recent years. Almost all of 2001's spending will be directed toward transportation, especially road and bridge repair. The 2001 program will be funded by a contribution from the current budget of C$5.2 million and a draw from reserves of C$2.7 million. The county does not expect to issue debt in 2001. Beyond 2001, Essex expects to undertake similarly sized capital programs and to fund them on a progressive pay-as-you-go basis. The county's current five-year capital forecast indicates that it will make substantial but declining draws on its capital reserves. As those reserves are drawn down during the period, the declining contribution from capital reserves will be supplemented by increasingly larger current budget contributions so that the annual capital programs will continue to be funded on a pay-as-you-go basis. Only equipment replacement and large one-time capital acquisitions will be funded from capital reserves. Table 2 County of Essex Financial Statistics --Year ended Dec. 31 -- (%) 1999 1998 Operating balance/operating revenue 14.3 19.6 Operating revenues (% change) (16.5) Operating expenditures (% change) (10.7) Net debt/operating revenues 43.2 36.8 Net ta~ suppoded debt/operating revenues 4.3 4.3 Interest costs/operating revenue 1.9 1.1 Page 4 of 6