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 $848.5 million (net
assets). Of this amount, $206.2 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 $26.9 million in fiscal year 2005. This increase included a $2.6 million
prior period adjustment related to a change in revenue recognition
criteria. $10.3 million of the
increase resulted from governmental activities, and $14 million resulted from
business-type activities. The increase is 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 $148.2 million. The total fund balance in the General
Fund increased $6.1 million and total fund balance in the Capital Project
Fund decreased $24.5 million. Total
governmental funds combined fund balance decreased $17.8 million from the
prior year. Approximately 81.5% of
total governmental funds fund balance, or approximately $121.1 million, is
available for spending at the Town’s discretion (unreserved fund balance).
$60.5 million of the unreserved fund balance is designated for
capital projects.
- At the
end of the current fiscal year, unreserved fund balance for the General
Fund was $47.3 million, or 59.5% of total general fund expenditures for
the fiscal year.
- The
Town’s total debt decreased by $4.8 million (2%) during
the current fiscal year. No
additional bonds were issued during the year. The Town drew $7.2 million from the
State Revolving Loan for the year’s construction expenses on the biosolids
dryer. The Town repaid $12 million
of bond principal during the year.
- The Town’s
total investment earnings during the year were $6.2 million with an
average investment yield of 2.43%. Investment
earnings increased $3.6 million from the prior year. The prior year investment earnings
reflected a $3.6 million reduction caused by the accounting recognition of
unrealized losses on investments adjusted to market values. The Town did not actually incur these
losses since it is the Town’s position to hold all investments to
maturity. The increase in
investment earnings in fiscal 2005 is primarily attributed to a decrease
in the negative adjustment to market value and a slight increase in
investment yield from the prior year yield of 2.19%.
Overview of the Financial Statements
This
discussion and analysis is intended to serve as an introduction to Town of
Government-Wide Financial
Statements
The
government-wide financial statements are designed to provide readers with a
broad overview of the Town’s finances, in a manner similar to a private-sector
business.
The
statement of net assets presents information on all of the Town’s assets and
liabilities, with the difference between the two reported as net assets. 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
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 (e.g., uncollected taxes and
earned but unused vacation leave.)
Both
of the government-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 general government, public safety, public works,
environmental protection, and cultural and recreational. The business-type activity of the Town is
primarily utility system water and sewer services.
In
accordance with the Governmental Accounting Standards Board criteria for
inclusion in the reporting entity, the Town of
The
government-wide financial statements are Exhibits A and B of this report.
Fund Financial Statements
A
fund is a grouping of related accounts that is used to maintain control over
resources that have been segregated for specific activities or objectives. The Town, like all other governmental entities
in
Governmental Funds: Governmental funds
are used to account for essentially the same functions reported as governmental
activities in the government-wide financial statements. However, unlike the government-wide financial
statements, governmental fund financial statements focus on near-term inflows
and outflows of spendable resources, as well as on balances of spendable
resources available at the end of the fiscal year. Such information may be useful in evaluating
the Town’s near-term financial requirements.
Because
the focus of governmental funds is more narrow than that of the government-wide
financial statements, it is useful to compare the information presented for
governmental funds with similar information presented for governmental
activities in the government-wide financial statements. By doing so, readers may better understand
the long-term impact of the Town’s near-term financing decisions. Both the governmental fund balance sheet and
the governmental fund statement of revenues, expenditures, and changes in fund
balances (Exhibit E) provide a reconciliation to facilitate this comparison
between governmental funds and governmental 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 of
Proprietary
funds provide the same type of information as the government-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. Fiduciary funds are not
reflected in the government-wide financial statements because the resources of
those funds are not available to support the Town’s own programs. The accounting used for fiduciary funds is
much like that used for proprietary funds.
The Town has a fiduciary fund to account for the Pension Trust Fund for
the Law Separation Allowance.
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 government-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 in
funding its obligation to provide pension benefits to its employees.
The
combining statements are presented immediately following the required
supplementary information on pensions.
Government-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 $848.5 million as of
By
far, the largest portion of the Town’s net assets ($627 million or 74%) 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 ($15.3 million or 2%) represents
resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net
assets ($206.2 million or 24%) 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 held true for the prior
fiscal year.
The
Town’s net assets increased by $26.9 million for the fiscal year ended
Town of Cary
Governmental activities: Governmental activities increased the Town’s
net assets by $10.3 million, thereby accounting for 42% of the total growth in
the net assets of the Town of
·
Property
taxes, the largest revenue source, increased by $1.2 million (2.4%). The tax rate remained the same and the
increase is primarily due to an increase in tax base resulting from growth.
·
Charges for
services increased $2.36 million (17%) primarily resulting from an increase in permits
and fees related to a 35% increase in new construction building permits this
year.
·
Capital Grants
and Contributions increased $11.2 million (105%) primarily as a result of a
significant increase in developer donated streets, which is also related to the
increase in new construction.
·
Other taxes
increased $1.8 million (10%), which is related to higher than expected sales
tax revenue.
·
Investment
earnings increased $1.9 million (127%)
This increase is primarily attributed to a decrease in the adjustment
for market value and a slight increase in investment yield.
For the most part, increases in expenses closely paralleled inflation and growth in the demand for services. One noteworthy exception, however, was in the Town’s general government function, which increased $13.2 million (33%). This increase is related to an increase in street construction of $13.7 million (96%).
Business-type activities:
Business-type
activities increased the Town of
·
Charges for
services increased $3.5 million (10%), which is largely the result of a 17%
increase in sewer rates designed primarily to cover purchased treatment service
from
·
Grants and
contributions increased $1.5 million (100%) primarily due to the recognition of
a federal State and Tribal Assistance Grant for the biosolids dryer.
·
Investment
earnings increased $1.7 million (154%)
This increase is primarily attributed to a decrease in the negative adjustment
for market value and a slight increase in investment yield.
·
Total expenses
remained constant with the prior year.
Most expense areas had increases closely paralleling inflation and
growth in the demand for services; however, administrative expenses decreased
about $1 million compared to the prior year because of the recognition of the
expenditure for settlement with the City of
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 $148.2 million, a decrease of $15.2 million in
comparison with the prior year.
Approximately $53 million of this amount (35.7%) constitutes unreserved,
undesignated fund balance, which is available for spending at the government’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) streets – Powell Bill
funds ($13.6 million), 2) state statute ($10.5 million), 3) a variety of other
purposes ($3.2 million) or committed to 1) capital projects ($60.5 million), 2) subsequent
year’s expenditures ($5.3 million) or 3) other small miscellaneous purposes
($2.1 million).
The
General Fund is the chief operating fund of the Town of
The
fund balance of the Town’s general fund increased by $8.7 million during the
current fiscal year. Key factors in this
growth are as follows.
·
Property
taxes, the largest revenue source, increased by $941,000 (1.9%). The tax rate remained the same and the
increase is primarily due to an increase in tax base resulting from growth.
·
Other taxes
increased $1.9 million (10%) as a result of higher than expected sales tax
revenue.
·
Permits and
fees increased $788,000 (28%) primarily related to a 35% increase in new
construction building permits this year.
·
Restricted intergovernmental
revenues decreased $1.4 million. 2004
restricted intergovernmental revenues were primarily Federal Emergency
Management Agency (FEMA) reimbursements related to disastrous storms. There were no significant storms during 2005
that qualified for FEMA reimbursement.
·
Expenses
closely paralleled inflation and growth in the demand for services.
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 $81.1 million, a decrease of
$24.5 million from the prior year, primarily related to spending on street
projects. The most notable of these
projects were $7 million spent during the year for the
Proprietary Funds: The
Town’s proprietary funds provide the same type information found in the
government-wide financial statements, but in more detail.
Unrestricted
net assets of the Utility Systems Enterprise Fund at the end of the year
amounted to $111.2 million, a $14.9 (15.4%) increase from the prior year. Refer to the discussion of the Town’s
business-type activities for highlights of increase.
General Fund Budgetary Highlights
During
the year, there was a $3.8 million increase in appropriations between the
original and final amended budget. The
primary components of the increase were $1.8 million for the affordable housing
program that was not included in the original budget and $682,000 for the
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 transactions during the year include the following. Changes are shown net of depreciation and
transfers between funds.
- Land for
governmental activities of $10.3 million, including developer donated land
and annexed right of ways.
- Buildings
and improvements for governmental activities of $16.5, primarily related
to prior year construction in progress being completed, including one
building on town hall campus and the town hall parking deck.
- Construction
in progress for governmental activities decreased $11.7 million primarily
related to $26.6 million projects being completed. Major additions include street projects
that have been discussed previously in the Financial Analysis of the
Town’s Funds.
- General
infrastructure assets of $3.9 million, such as streets.
- Construction
in progress (“CIP”) for water and sewer capital assets of $16.7 million primarily
for a water reclamation facility upgrade, pump station upgrades and a
thermal biosolids dryer.
- Utility
infrastructure assets of $1.3 million such as water lines and sewer
collection lines.
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, and Revenue Bonds
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 3.7%, which is a decrease of .2% from a year ago.
The 2006 budget maintains a tax rate
of $.42 per hundred dollars valuation of taxable property, which has been the
rate since 2002. In an effort to avoid a
tax increase, the Town took the following actions in the General Fund:
·
Appropriated $4.8 million from fund balance;
·
Increased business license fees;
·
Increased fee levels for various athletic and recreation programs;
·
Reduced positions;
·
Did not fill certain unfilled positions;
·
Contracted services previously performed by Town staff;
·
Changed approach to rising health and dental insurance costs by
encouraging more consumerism;
·
10% reduction in training and travel expenses;
·
3% reduction in non-utility operating and maintenance expenses;
·
Reduction in proposed annual merit increases from 4.88% to 4%;
·
Moved from backyard to curbside solid waste pickup and increased solid
waste and recycling fees.
In the Utility Systems Enterprise
Fund, water and sewer base charges were increased to continue to match these
revenues with actual administrative costs and the sewer volume charge was
increased 18% to cover expected increased costs of providing this service.
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