MANAGEMENT’S DISCUSSION AND ANALYSIS
As
management of the Town of
Financial
Highlights
- The
Town’s assets exceeded its liabilities at the close of the fiscal year by
approximately $1,047.3 million (net
assets). Of this amount, $231.8 million (unrestricted net assets) may be
used to meet the Town’s ongoing obligations to citizens and creditors.
- The
Town’s total net assets increased by $93.2 million in fiscal year 2007. $53.8 million of the increase resulted from
governmental activities, and $39.4 million resulted from business-type
activities. Increases in net assets are the
result of General Fund and the Utility Systems Enterprise Fund revenues
that exceeded expenses and the increase in capital assets, both from Town
constructed assets and the donation of infrastructure from
developers.
- As of the
close of the fiscal year, the Town’s governmental funds reported combined
ending fund balances of approximately $189.1 million, an increase of $61.0
million from the prior year. The
total fund balance in the General Fund and special revenue funds decreased
$2.5 million and total fund balance in the Capital Project Fund increased
$63.5 million as a result of bond fund proceeds received exceeding
expenditures. Approximately 82.5%
of total governmental funds fund balance, or approximately $155.9 million,
is available for spending at the Town’s discretion (unreserved fund balance).
$92.3 million of the unreserved fund balance is designated for
capital projects and $1.2 million is designated for fiscal year 2008
spending.
- At the
end of the current fiscal year, unreserved fund balance for the General
Fund was $46.9 million, or 51.3% of total general fund expenditures for
the 2007 fiscal year.
- The
Town’s had two bond issuances during the year. $47.3 million of general obligation
bonds for public improvements were issued in July 2006, and $22.2 million in
revenue bonds for sewer projects were issued in June 2007. As a part of the revenue bond issue in
June 2007, the Town also issued $13.5 million in refunding bonds, which yielded
a net present value savings of $552,760.
Related to other debt, the Town drew the final $2.1 million from
the State Revolving Loan for construction expenses on the biosolids dryer
and the regional plant design loan.
The Town repaid $13.1 million of bond principal and installment
financing principal during the year.
The Town maintained its
outstanding AAA bond ratings from all three major rating agencies.
- The
Town’s total investment earnings during the year were $17.2 million with
an average investment yield of 4.85% compared to a prior year yield of 3.44%. Investment earnings increased $8.5
million from the prior year.
Overview of the Financial Statements
This
discussion and analysis is intended to serve as an introduction to the Town of
Entity-Wide Financial Statements
The
entity-wide financial statements, a statement
of net assets and a statement of
activities, are designed to provide readers with a broad overview of the
Town’s finances in a manner similar to a private-sector business. These
statements have been presented since Fiscal Year 2002 in accordance with the
implementation of Governmental Accounting Standards Board Statement 34.
The
statement of net assets presents all
of the Town’s assets and liabilities, with the difference between the two
reported as net assets. This statement
combines and consolidates current financial resources with capital assets and
long-term obligations. Over time, increases or decreases in net assets may
serve as a useful indicator of whether the financial position of the Town is
improving or deteriorating. The Town’s
net assets have increased steadily since fiscal year 2002 when net assets were
$786.8 million.
The
statement of activities presents
information showing how the government’s net assets changed during the most
recent fiscal year. All changes in net
assets are reported as soon as the underlying event giving rise to the change
occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in
this statement for some items that will only result in cash flows in future
fiscal periods, for example, uncollected taxes or earned but unused vacation
leave.
Both
of the entity-wide financial statements distinguish functions of the Town that
are principally supported by taxes and intergovernmental revenues (governmental
activities) from other functions that are intended to recover all or a
significant portion of their costs through user fees and charges (business-type
activities). The governmental activities
of the Town include most of the Town’s basic services such as police, fire,
solid waste and recycling, facilities and operations maintenance, planning,
engineering, building inspections, parks, recreation and cultural programs as
well as the administrative support functions.
The business-type activity of the Town primarily consists of water and
sewer utility services.
In
accordance with the Governmental Accounting Standards Board criteria for
inclusion in the reporting entity, the Town of
The
entity-wide financial statements are Exhibits A and B of this report.
Fund Financial Statements
The
fund financial statements provide more detailed information about the Town’s
major funds. Funds are the accounting
tools used to track specific sources of funding such as those required by law
or for specific purposes. The Town of
Governmental Funds: Most of the Town’s
basic services are included in governmental funds which are essentially the
same functions reported as governmental activities in the entity-wide financial
statements. However, unlike the entity-wide
financial statements, governmental fund financial statements focus on how cash
and other assets are and can be used for near-term spending as well as on
balances of resources available for spending at the end of the fiscal year. This information may be useful in evaluating
the Town’s resources for near-term financial requirements.
Because
the focus of governmental funds is narrower than that of the entity-wide
financial statements, it is useful to compare the information presented for
governmental funds with similar information presented for governmental
activities in the entity-wide financial statements. By doing so, readers may better understand
the long-term impact of the Town’s near-term financing decisions. Exhibit F describes the differences in the statement
of revenues, expenditures, and changes in fund balances of governmental funds
to the entity-wide statement of activities.
The
Town of
The
Town of
The
basic governmental fund financial statements can be found on Exhibits C through
K.
Proprietary Funds: The Town’s business
type activities are reported in proprietary funds. The Town of
Proprietary
funds provide the same type of information as the entity-wide financial
statements, only in more detail. The
utility systems enterprise fund is considered to be a major fund of the Town of
The
basic proprietary fund financial statements can be found on Exhibits L through N
of this report.
Fiduciary Funds: Fiduciary
funds are used to account for resources held for the benefit of parties outside
the Town. The Town has a fiduciary fund
to account for the Pension Trust Fund for the Law Enforcement Separation
Allowance. Fiduciary funds are not reflected in the entity-wide financial
statements because the resources of those funds are not available to support
the Town’s own programs. Accounting for
fiduciary funds is much like that used for proprietary funds.
The
basic fiduciary fund financial statements can be found on Exhibits O and P of
this report.
Notes to the Financial
Statements: The notes provide additional information that is essential
to a full understanding of the information provided in the entity-wide and fund
financial statements.
Other Information: In addition to the
basic financial statements and accompanying notes, this report also presents
certain required supplementary information concerning the Town’s progress toward
funding its obligation to provide pension benefits to its law enforcement
officers.
The combining statements are presented immediately following
the required supplementary information on pensions.
Entity-Wide Financial Analysis
As
noted earlier, net assets may serve over time as a useful indicator of a Town’s
financial position. In the case of the
Town, assets exceeded liabilities by $1,047.3 million as of
By
far, the largest portion of the Town’s net assets ($794.2 million or 76%)
reflects the Town’s investment in capital assets (e.g. land, buildings,
machinery, and equipment), less any related debt still outstanding that was
issued to acquire those assets. The Town
of
An
additional portion of the Town’s net assets ($21.4 million or 2%) are resources
that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net
assets ($231.7 million or 22%) may be used to meet the Town’s ongoing obligations
to citizens and creditors.
At
the end of the current fiscal year, the Town reports positive balances in all
three categories of net assets, both for the government as a whole, as well as
for its separate governmental and business-type activities. The same situation has held true for the past
five fiscal years since these net assets were first computed for the entity-wide
statements.
The
Town’s net assets increased by $93.2 million for the fiscal year ended
Town of Cary
Governmental Activities:
Governmental activities increased the Town’s net assets by $53.8
million, thereby accounting for 57.7% of the total growth in the net assets of
the Town of
·
Property
taxes, the largest revenue source, increased by $3 million (6%). The tax rate remained the same; therefore, the
increase is due to an increase in tax base which primarily resulted from growth.
·
Charges for
services increased $3.9 million (17.9%) primarily resulting from an increase in
recreation payment-in-lieu and street and sidewalk payment-in-lieu fees.
·
Capital Grants
and Contributions increased $11.4 million (33%) primarily as a result of a
significant increase in developer donated streets which is also a result of the
increase in new construction.
·
Other taxes
increased $2.3 million (10%) due to higher than expected sales tax
revenue.
·
Investment
earnings increased $5.2 million (111%). This
increase is primarily attributed to an increase in overall yield (from 3.44% in
FY06 to 4.85% in FY07) and an increase in average cash balances due to a $47.3
million General Obligation Bond issuance and the receipt of the final $17.6
million NCDOT loan repayment.
Increases
in operational expenses closely paralleled inflation and growth in the demand
for services.
Business-type Activities:
Business-type
operational activities increased the Town of
·
Charges for
services increased $6.4 million (11.6%) for several reasons.
·
Grants and
contributions decreased $2.3 million primarily due to decreased grant funding
offset by increases in developer donated infrastructure.
·
Investment
earnings increased $3.3 million (82.5%).
This increase is primarily attributed to an increase in average cash
balances due to a $22.2 million Revenue Bond issuance and increased average
yield (3.44% in FY06 to 4.85% in FY07).
Most
expense areas had increases closely paralleling inflation and growth in the
demand for services.
Financial Analysis of the Town’s
Funds
As
noted earlier, the Town of
Governmental Funds: The focus of the
Town of
As
of the end of the current fiscal year, the Town’s governmental funds reported
combined ending fund balances of $189.1 million, an increase of $61.0 million compared
to the prior year. Approximately $59.9
million of this amount (31.7%) constitutes unreserved, undesignated fund
balance, which is available for spending at the Cary Town Council’s
discretion. The remainder of fund
balance is reserved or designated to indicate that it is not available for new
spending because it has already been reserved for 1) street spending of
Powell Bill funds ($15.4 million), 2) compliance with North Carolina state
statutes ($12.0 million), 3) miscellaneous other purposes including spending
already encumbered at June 30 ($5.8 million), or committed to 1) capital
projects ($92.3 million), 2) subsequent year’s expenditures ($1.2 million)
or 3) other small miscellaneous purposes ($2.5 million).
The
General Fund is the chief operating fund of the Town of
The fund balance of the Town’s general fund decreased by
$2.8 million during the 2007 fiscal year. Key components of this change are as follows:
·
Property
taxes, the largest revenue source, increased by $3.1 million (6%). The tax rate remained the same and the
increase is due to an increase in tax base primarily resulting from growth.
·
Other taxes increased
$2.4 million (10%) as a result of an 11% increase in sales tax revenue.
·
Permits and
fees increased $3.1 million (30.4%) primarily related to an 334.2% increase in recreation
and street payment-in-lieu fees received when developers opt to pay fees rather
than provide land or street improvements required for new developments.
·
Most expense
areas had increases closely paralleling inflation and growth in the demand for
services, however, debt service expenditures increased $1.3 million (12.2%).
·
Transfers to
street, parks, fire and general government capital project funds increased a
total of $9.4 million (92%) primarily related to infrastructure needs
associated with growth.
The
Capital Projects Fund includes street, parks and recreation, fire, and general
government capital projects. At the end
of the current fiscal year, total fund balance was $121.4 million, an increase
of $63.5 million from the prior year.
The fund balance increased primarily due to the receipt of General
Obligation bond proceeds and repayment of the NCDOT loan related to the
widening of Highway 55. Some of the most
notable of the capital project spending included $4.0 million for the High
House Road Widening project, $3.1 million on the Chapel Hill Road Widening
project, and $4.0 million for the USA Baseball National Training Facility
project at Thomas Brooks Park.
Proprietary Funds: The
Town’s proprietary funds provide the same type information found in the entity-wide
financial statements, but in more detail.
Unrestricted
net assets of the Utility Systems Enterprise Fund at the end of the year
amounted to $138.9 million, a $15.4 million (12.5%) increase from the prior
year. Refer to the discussion of the
Town’s business-type activities for the primary factors that created the
positive results.
General
Fund Budgetary Highlights
During
the year, there was a $14.8 million increase in appropriations between the
original and final amended budget. The
primary components of the increase were $10.0 million for design and construction
of an aquatics center, $1.8 million for the design of a downtown streetscape
and cultural arts center, and $1.3 million for data warehousing and predictive
modeling software. The Town was able to
appropriate fund balance for these increased budgeted expenditures. The Town maintains fund balance in excess of
minimal requirements as a fiscal tool to support Town goals in several
ways. Timely financial flexibility is
afforded by the balances as evidenced in fiscal year 2007. The original adopted budget for fiscal year
2007 anticipated an appropriation from fund balance of $5.2 million. Budget adjustments, discussed above, throughout
the year authorized $14.8 million additional spending for an anticipated revised
reduction in fund balance of $20.0 million. Net variances in revenues and expenditures actually
resulted in a decrease in fund balance of $2.8 million.
Capital Asset and Debt Administration
Capital assets: The
Town of Cary’s investment in capital assets for its governmental and
business–type activities as of
Major
capital asset additions during the year included the following:
- Land for
governmental activities of $8.0 million, including developer donated land
and annexed right of ways;
- General
infrastructure assets of $43.4 million such as streets and a fiber optic
traffic signalization system;
- Construction-in-progress
for the regional water reclamation facility and sewer pump station
upgrades; and
- Utility
infrastructure assets of $18.4 million such as water lines, sewer
collection lines and sewer pump stations.
Town of Cary
(net of depreciation)
Additional
information on the Town’s capital assets can be found in Note 4 of the Basic
Financial Statements.
Long-term Debt: As of
Town of Cary
General Obligation
Bonds, Installment Purchases,
Revenue Bonds, and
State Revolving Loans
The Town of
The
Town of
Additional
information regarding the Town of
Economic Factors and Next Year’s Budgets and Rates
The unemployment rate for the Town is
currently 3.0%, which is a decrease of .1% from a year ago.
The General Fund 2008 budget maintains
a tax rate of $.42 per hundred dollars valuation of taxable property, which has
been the rate since 2002. In addition,
the solid waste fee remains steady at $11.75 per month for residential service.
Other key items to note in the 2008
budget include:
·
an appropriation of $.9 million from fund balance;
·
staffing growth to facilitate 1) growth in demand for services and
increased case complexity in Police, 2) growth in demand for services at Parks,
Recreation and Cultural Resources special facilities, 3) increase in demand for
services in Permits and Inspections related to the growth in permitted
construction activity, 4) growth in telecommunication technology needs, 5)
growth in demand for fixed route transit services, and 6) growth in demand for
services in Public Works and Utilities;
·
a study to update the transportation, water, and sewer development fees.
In the Utility Systems Enterprise
Fund, for
The capital budget for 2008 includes $178.8
million in funding for the following purposes in addition to the current $381
million ongoing capital project authorizations:
- $28.2 million for transportation projects;
- $8.4 million for parks, recreation and cultural
projects;
- $4.4 for general government and fire projects;
- $26.0 million (net of partner reimbursements) for
water projects; and
- $111.8 million (net of partner reimbursements) for
sewer projects, primarily related to the Western Wake Regional Wastewater
Management Facility (WWRWMF) initiative.
The Town’s capital improvement plan
for ten years beyond 2008 totals $981.2 million.
Requests for Information
This
report is designed to provide a general overview of the Town’s finances for
those with an interest in the Town of