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 $1,245.8 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.
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 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
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 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.
As of
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
Town of Cary
Governmental Activities:
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
·
Property
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
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 $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 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 $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.
Town of
(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 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
Economic
Factors and Next Year’s Budgets and Rates
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.
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