STAFF REPORT
Operations Committee, December 6, 2007
2007 Comprehensive Annual Financial Report (FN08-04)
Presentation
of the fiscal year 2007 Comprehensive Annual Financial Report
Speaker: Ms. Karen Mills
From: Karen A. Mills, Finance Director
Prepared by: Michelle W. Price, Controller
Approved by: William B. Coleman, Jr., Town Manager
Approved by: Benjamin T. Shivar, Assistant Town Manager
Staff has prepared the Comprehensive Annual Financial Report (CAFR) and Cherry, Bekaert & Holland LLP, certified public accountants, has completed the audit of the Town of Cary's financial statements for fiscal year 2007. This report to Council is intended to officially present the CAFR to the Council and to provide an opportunity for the auditors to make a required statement to Council, comment on the audit process and respond to any questions from Council members.
The CAFR was submitted to the Local Government Commission, a division of the State of North Carolina Treasurer’s office, on a timely basis in accordance with its October 31 deadline.
The accounting process leading to the completion of the CAFR and the preparation of the report itself are the responsibility of the Town of Cary. Cherry, Bekaert & Holland LLP reviewed the work of staff in order to express an opinion on the fairness of the presentation in accordance with accounting and reporting standards. Based on their observations and work experiences at the Town of Cary, in a positive reflection of the Town’s day-to-day procedures and internal controls over financial transactions, Cherry, Bekaert & Holland LLP did not issue a management letter to the Town regarding any suggested changes or improvements in the Town’s internal control or accounting procedures.
As required by auditing standards, the auditors issued an informational letter to the Town Council that further describes their responsibilities and includes additional detailed information regarding the audit. A copy of the letter is attached to this staff report as Exhibit A. The letter does reflect a few immaterial passed adjustments that were detected by Town staff but not included in the statements due to timing and impending reporting deadlines. The letter requires no response or action by Council.
The CAFR includes five sections to disclose both the required audited financial statements as well as supplemental financial information.
Staff has prepared a summary list of key financial results reflected in the report in Exhibit B.
After Council acceptance of the report, copies of the CAFR will be provided to the rating agencies and other interested parties, and a copy will be placed in the two Wake County library branches in town; downtown and the west regional branch. Staff will also present the CAFR and additional financial data to national information repositories so that Town of Cary bond holders and persons interested in investing in Town of Cary debt on the secondary market will have current financial information. In addition, the CAFR will be submitted to the Government Finance Officers’ Association with an application to again earn the Government Finance Officers' Association Certificate of Excellence in Financial Reporting for the report.
Fiscal Impact: Presentation of report only. No fiscal impact.
Staff Recommendation: Staff recommends that Council minutes reflect the presentation of the fiscal year 2007 Comprehensive Annual Financial Report.
EXHIBIT B: Key Financial Results
Entity-wide:
As shown on page 33, on an entity-wide basis under accounting standards similar to those of private business, Town net assets are over $1 billion, an increase of $93.2 million from the FY 2007 balance of $954.1 million. Of this increase, $53.9 million was related to street and utility infrastructure constructed and donated by developers or acquired through annexations. Total net assets of the Town include the Town’s investment in capital assets, restricted assets and other non-cash assets; therefore the majority of total net assets is not available for appropriation for operations or capital spending and should not be compared to traditional analysis of fund balance in the General Fund. A five year trend of the detail of changes in entity-wide net assets is in the statistical section beginning on page 148 of the CAFR.
Governmental funds:
Under more conventional governmental accounting used most for analysis and planning, the governmental fund activities and results are summarized beginning on page 38. The balance sheet shows that the General Fund fund balance at June 30, 2007 was $65.8 million which is a $2.8 million decrease from $68.6 million at June 30, 2006. A table showing ten year historical comparisons of fund balance is included in the statistical section on page 150.
The final amended budget for the General Fund for fiscal year 2007 authorized a $20 million appropriation from fund balance, so the actual $2.8 million decrease represents $17.2 million better than budgeted. The $17.2 million budget variance was a result of revenues that exceeded budget by $8.2 million (an 8.2% variance) and a $7.1 million net positive budget variance (7.2%) in actual expenditures compared to budgeted expenditures. The remaining $1.9 million variance was primarily the result of accounting standards that require capital leases to be shown as a financing source although the leases did not provide cash resources to the Town along with the proceeds from sale of assets. The Budgetary Comparison Statement that begins on page 45 of the CAFR provides details that are summarized below.
The $8.2 million positive revenue variance primarily resulted from:
$1.2 million in property taxes,
$4.1 million in other taxes, licenses and intergovernmental revenues and
$1.5 million in investment earnings.
The property tax assessed value increased 6.6% in fiscal year 2007 compared to fiscal year 2006.
The $7.1 million positive expenditure variance primarily resulted from:
$1 million in budgeted interest expense for debt that has not yet been incurred and for variable rate debt interest expense that was less than budgeted,
$1 million in affordable housing authorization that was not spent,
$2.8 million savings spread over 13 general government functions, (11.9%)
$1.6 million savings in public safety functions (5.1%),
$1 million savings in public works functions (4.9%), and
$1.1 million savings in parks, recreation and cultural resources (11.4%),
net of $1.4 million in planned expenditure budget savings.
General capital spending decreased $8.6 million in fiscal year 2007 to $36.7 million compared to $45.3 million in fiscal year 2006. Details of spending by project fund are shown beginning on page 106. Spending decreased in 2007 from 2006 $4.2 million in street projects, $3.6 in parks and recreation projects and $1 million in fire projects along with a very slight increase in spending for general governmental projects. A component of the reduction in spending was relative to the activity in 2006 for the USA Baseball facility at Thomas Brooks Park. $92.3 million remains designated for future spending in the governmental capital project fund.
Proprietary funds:
Page 120 of the CAFR shows that Utility System Operations earned $10 million income before capital transfers and contributions in fiscal year 2007. By comparison, Utility System Operations gained $7.5 million before capital transfers and contributions in fiscal year 2006. The utility safely met the debt service coverage ratios specified by the revenue bond covenants as detailed on page 227.
Comparisons on a budgetary basis differ slightly from results under accrual accounting principals, but provide meaningful insight for comparing fiscal years. These schedules begin on page 122. Total revenues were budgeted to increase $5.7 million from fiscal year 2006 actual results, primarily based on a 10.2% sewer rate increase implemented for fiscal year 2007 and a full year of revenue related to Morrisville utility customers. Actual revenues were 8.5% greater than budget.
Continued analysis on a budgetary basis shows that utility system operations expenditures had an overall increase of approximately $3.3 million which is due to increases in electric and gas energy costs as well as other operational expenses such as credit card fees.
Although fund balance is not technically reported under proprietary accounting for the utility fund, staff computes fund balance for utility operations in a manner similar to the general fund to gauge the amount of equity that is truly available for appropriation, emergency funding requirements, etc. Utility system operational fund balance increased $9.3 million from $36 million at June 30, 2006 to $45.3 million at June 30, 2007.
Utility capital spending significantly increased to $32.6 million in fiscal year 2007 compared to $16.6 million in fiscal year 2006 as many of the sewer projects related to the Western Wake Regional Wastewater Management Facility began construction.
Debt:
General fund debt service increased by $2.3 million in fiscal year 2007 compared to 2006 due to additional debt service related to the $47.3 million general obligation bond issuance for streets and parks in July 2006. The Utility Fund incurred $36.3 million in 2007 in new debt obligations with most of it related to a $35.7 million revenue bond issuance. This issuance also included a refunding that resulted in a net present value savings of $552,760 to the Town over the life of the bonds.
Federal and State grants and awards:
Pages 199-203 outline fiscal year 2007 spending under grant programs. Total grant funded spending decreased slightly. The majority of grant funding is from State’s Powell Bill program. The Town benefited $7.8 million from 17 different state and federal grant awards in 2007.
Overall summary:
Both the general fund and the utility system operations results contributed to the Town’s strong financial position which will facilitate the maintenance of the Town’s exceptional bond ratings and future financial flexibility to meet the needs of the citizens.
