MANAGEMENT’S DISCUSSION AND ANALYSIS
As management of the Town of
· The Town’s assets exceeded its liabilities at the close of the fiscal year by approximately $1,245.8 million (net assets). Of this amount, $235.2 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 $69.8 million in fiscal year 2009. $29.2 million of the increase resulted from governmental activities, and $40.6 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 $197.2 million, an increase of $17.3 million from the prior year. The total fund balance in the General Fund increased $7.6 million. Total fund balance in the Capital Project Fund increased $9.9 million partially as a result of the issuance of general obligation bonds. Approximately 81.3% of total governmental funds fund balance, or approximately $160.2 million, is available for spending at the Town’s discretion (unreserved fund balance). $87.3 million of the unreserved fund balance is designated for capital projects and $15.0 million is designated for fiscal year 2010 spending.
· At the end of the current fiscal year, unreserved fund balance for the General Fund was $54.8 million, or 51.5% (6.2 months) of total general fund expenditures for the 2009 fiscal year.
· The Town issued general obligation bonds during the year. $53 million of general obligation bonds for public improvements to streets and parks were issued in May 2009 along with $40 million in refunding bonds. The refinancing yielded a net present value savings of $2.7 million. The debt service savings provided $1.8 million in interest savings to the Utility Fund and $.9 million in savings to the General Fund. The Town repaid $15.2 million of bond principal and installment financing principal during the year (net of partner reimbursements). The Town maintained its outstanding AAA bond ratings from all three major rating agencies.
· The Town’s total investment earnings during the year were $13.3 million, resulting in a decrease of $7.4 million. The average yield on the investment portfolio decreased from 4.65% to 4.23%. In addition, the average yield related to other deposits dropped from 3.05% to .86%, which had a greater effect on earnings since the average cash balances within these liquid accounts were much higher than the previous 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 (“GASB 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 of $1,245.8 million have increased steadily since fiscal year 2002 when net assets were first reported under GASB 34 at $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.
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 more narrow 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
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 the accounting 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 and other post- employment benefits to all employees.
The combining statements are presented immediately following the required supplementary information.
Entity-Wide Financial Analysis
As noted earlier, net assets may serve over time as a useful
indicator of a Town’s financial position.
By far, the largest portion of the Town’s net assets ($984.5
million or 79%) represents the Town’s investment in capital assets (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 ($26.1 million or 2%) are resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets ($235.2 million or 19%) may be used to meet the Town’s ongoing obligations to citizens and creditors.
At the end of the current fiscal year, the Town has 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 seven fiscal years since these net assets were first computed for the entity-wide statements.
The Town’s net assets increased by $69.8 million for the
fiscal year ended
Governmental activities increased the Town’s
net assets by $29.2 million, accounting for 41.8% of the total growth in the
net assets of the Town of
taxes, the largest single revenue source, increased by $6.7 million (11.5%).
· Charges for services decreased $1.9 million (8.2%) primarily resulting from a decrease in construction activity.
· Capital Grants and Contributions decreased $55.7 million (59.9%) primarily as a result of a significant decrease in developer donated streets which is also a result of the decrease in new construction.
· Other taxes decreased $1.6 million (5.9%) due to a general decrease in sales tax revenue associated with a less favorable economic climate.
· Investment earnings decreased $4.3 million (38.7%). This decrease is primarily attributed to a decrease in average yield on the investment portfolio from 4.65% in fiscal year 2008 to 4.23% in fiscal year 2009 and on the liquid deposits from 3.05% in fiscal year 2008 to .86% in fiscal year 2009.
· Decreases in General Government capital project spending from the prior fiscal year resulted in a reduction in overall Governmental Activities expenses for fiscal year 2009.
Business-type Activities: Business-type operational activities increased
the Town of
· Charges for services decreased $7.7 million (11.7%) primarily due to a decrease in water and sewer development revenue of $6.8 million (37.5%) and a decrease in inspection fee revenue, both associated with a slow down in new construction activity.
· Grants and contributions increased $2.1 million primarily due to increases in developer donated utility infrastructure.
· Investment earnings decreased $3.1 million (32.3%). This decrease is primarily attributed to a decrease in average yield on the investment portfolio from 4.65 in fiscal year 2008 to 4.23% in fiscal year 2009 and on the liquid deposits from 3.05% in fiscal year 2008 to .86% in fiscal year 2009.
· Most expense areas had increases closely paralleling inflation.
Financial Analysis of the Town’s Funds
As noted earlier, the Town of
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 $197.2 million, an
increase of $17.3 million compared to the prior year. Approximately $54.8
million of the amount (28.3%) 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 ($17.4 million), 2) compliance with
The General Fund is the chief operating fund of the Town of
The fund balance of the Town’s general fund increased by $7.6 million during the 2009 fiscal year. Key components of this change are as follows:
· Property taxes, the largest revenue source, increased by $6.7 million (11.5%) as a net result of real property revaluation, decreased tax rate and tax base growth due to new construction.
· Other taxes decreased $1.6 million (5.9%) as a result of a 6.7% decrease in sales tax revenue resulting from an economic downturn.
· Sales and Services revenue increased $1.7 million (18.1%), primarily as a result of increased sanitation revenue generated by a 19% fee increase. Modest rises in cultural and recreational revenue provided the balance of the increase.
· Most expense areas had increases closely paralleling inflation, growth in the demand for services and expanded infrastructure needs. Debt service expenditures increased $1.1 million (9.8%).
· Transfers to street, parks, fire and general government capital project funds are offset by a transfer from the capital reserve sub-fund resulting in a decrease in net transfers of $8.7 million (58.7%).
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 $120.5 million, an increase of $9.9 million from the prior year partially due to the issuance of $29.8 million in general obligation bonds.
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 $171.8 million, a $19.6 million (12.8%) 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 $.8 million decrease in appropriations between the original and final amended budget. 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 2009. The original adopted budget for fiscal year 2009 anticipated an appropriation from fund balance of $6.4 million. Budget adjustments, discussed above, throughout the year reduced authorized spending by $.8 million. Net variances in revenues and expenditures actually resulted in an increase in fund balance of $7.6 million.
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 $7.5 million in developer donated right of ways;
· General infrastructure assets of $29.4 million for developer donated streets;
· Construction-in-progress for the regional water reclamation facility, sewer interceptors and sewer pump station upgrades; and
· Utility infrastructure assets of $26.1 million such as water lines, sewer collection lines and sewer pump stations.
(net of depreciation)
Additional information on the Town’s capital assets can be found in Note 4 of the Basic Financial Statements.
The Town issued $53 million in new debt for streets and parks during FY2009 and refinanced $40 million to ensure $2.7 million in present value debt service savings. Business-type activities will benefit from interest savings of $1.8 million and governmental activities will benefit from $.9 million in reduced interest expense.
The Town of
Additional information regarding the Town of
The unemployment rate for the Town is
currently 6.8%, which is an increase of 3.2% from a year ago.
The tax rate in the fiscal year 2010
General Fund budget remained at $.33 per hundred dollars valuation of taxable
property, the estimated revenue-neutral tax rate after the
Other key items to note in the fiscal year 2010 budget include:
an appropriation of $.3 million to fund balance;
· limited staffing growth given the recession’s impact on the Town’s finances; and
· increases in water and sewer rates to cover increased costs of related capital infrastructure improvements. For a typical 7,000 gallon per month residential customer, these rate changes will increase a monthly utility bill by 7.9%.
Given the current economic climate and future debt service obligations, the limited capital budget for fiscal year 2010 includes $42.8 million in funding for the following purposes in addition to the current $654.1 million ongoing capital project authorizations:
· $2.8 million for transportation projects;
· $.6 million for parks, recreation and cultural projects;
· $1.5 million for general government;
· $.9 million for fire projects;
· $16.7 million (net of partner reimbursements) for water projects; and
· $20.3 million (net of partner reimbursements) for sewer projects, primarily related to pump station and interceptor projects.
The Town’s capital improvement plan for ten years beyond fiscal year 2010 totals $848.1 million.
This report is designed to provide a general overview of the
Town’s finances for those with an interest in the Town of