The fiscal year began July 1 with an approved $443 million budget supporting both operating and capital spending. Cary maintained the property tax rate at $0.345 per $100 of assessed valuation. The FY 2023 budget focuses on maintaining and expanding service levels, bringing the Downtown Cary Park online, and retaining employees. The utility base and volumetric rates for water, sewer, and irrigation increased by 3% in Q1, which equates to an estimated $2.30 per month for the average family of four.

Cary is committed to providing the highest-quality, safest drinking water and utility services while keeping the financial impacts to consumers in mind. This commitment is evident in Cary’s strategy for eliminating large utility rate spikes by implementing smaller, more frequent rate adjustments in accordance with Cary’s 10-year financial forecasting model. 

Overall, expenditures surpassed revenues this quarter. This is expected and consistent with prior years as revenues are not received evenly throughout the year. Q1 expenditures are higher than the same time last year primarily as a result of inflation and increased debt service payments. Staff continue to monitor both revenues and expenditures and anticipate both will moderate as the fiscal year progresses.

FY 2023 General Fund revenues decreased 6% compared with the same period in FY 2022. Revenues often fluctuate year to year due to the timing of allocations from state and federal sources. 

Operating Revenues

Property tax revenue is 45% of total budgeted revenue and is the largest revenue source for the General Fund. Taxes are based on an ad valorem tax levy on real and personal property. Real property are items such as land and buildings, while personal property are items such as vehicles and commercial business equipment. Real property taxes were billed in July 2022 and are due no later than Jan. 5, 2023. Therefore, most real property tax revenue will be received during Q2. Conversely, personal property tax revenue is collected throughout the year based on the state of North Carolina’s Tax and Tag program, which combines the vehicle ad valorem tax collection with the state’s vehicle license renewal process. The property tax rate remained unchanged at $0.345 for FY 2023, and Q1 revenues totaled $17.7 million. Although property tax revenue decreased by 6% from FY 2022, Cary collected 15% of the property tax budget, which is consistent with the prior year. It is quite possible that this decline is due to the timing of the receipt of tax revenues. As mentioned, most of this revenue is received during Q2, at which time staff will know whether this initial decline was due to the timing of receipts. 

The Other Taxes and Licenses category saw a decrease of 60% compared with the prior year. This decrease is due to ABC revenue received during Q1 of FY 2022 that has not yet been received as of Q1 of FY 2023. This decrease is solely due to timing of receipt, and this revenue is expected to be received during the fiscal year. 

Non-Operating Revenues

Non-operating revenues decreased by 75% in Q1 of FY 2023 compared with the same period last year primarily due to bond proceeds. In FY 2022, Cary received $500,000 in bond premiums from the bond sale to cover the bond issuance expenditures.

General Fund operating expenditures increased 38% compared with FY 2022 and are consistent with budgetary expectations. Inflation rates have increased from the prior year, which has led to increased costs for goods and services. Non-operating expenditures increased because of higher transfers for capital needs and increased debt service payments.

Encumbrances represent funds that have been reserved in Cary’s financial reporting system to satisfy a commitment to make a purchase. The following table shows the total outstanding encumbrances in the financial system at the end of Q1. After accounting for year-to-date spending and the encumbrances listed, the General Fund has about $160 million of budgeted funds available for the remainder of the fiscal year.

 

Utility Fund net results in Q1 of FY 2023 declined compared with Q1 of FY 2022 by 26% due to increases in operating expenditures primarily related to inflation.  

Utility revenues in FY 2023 remained consistent with FY 2022 levels for the same period. The marginal increases in water and sewer revenue align with the 3% increase to water and sewer rates.

Non-operating revenues for Q1 declined 67% when compared with the same period in the prior year due to a decrease in investment earnings. Although investment earnings for Cary as a whole increased from FY 2022, the amount of investment income for the Utility Fund decreased. Investment earnings are allocated based off each fund’s cash balance as a percentage of total cash. At the end of Q1, the Utility Fund had less cash than the previous year due to increases in operations spending. 

Utility operating expenses increased 21% compared with Q1of FY 2022 primarily due to inflation. The following table shows the total outstanding encumbrances for the Utility Fund remaining at the end of Q1. After accounting for year-to-date spending and the encumbrances, the Utility Fund has approximately $68 million in the budget for use for the remainder of the year.

As of Q1, Cary has 546 active capital projects. Utility capital projects, with a total budget of $441.6 million, constitute 39% of the capital budget authorization. General capital projects total $685.9 million, or 61%, of the total $1.1 billion capital budget authorization.

 

Capital project spending totaled $23.1 million in Q1 of FY 2023. The fluctuation in capital spending is due to the timing of projects becoming active and nearing completion. The three largest investments in capital in Q1 were $4.3 million for street improvements throughout the community, $3.4 million for the purchase of the York site at Carpenter Fire Station Road Park, and $2.6 million for the Downtown Cary Park, which is expected to open in the summer of 2023. Because the mix of capital projects changes over time, there are no discernible patterns in capital spending. 

Mid-year Appropriations

The FY 2023 operating budget includes $1 million to support emerging or unforeseen needs arising during the fiscal year. There were no Q1 mid-year appropriations by Council, leaving the full $1 million available for use during the remainder of the fiscal year. Additionally, Q1 saw no appropriations of General or Utility Capital Reserve fund balance for capital needs.

Q1 Delegated Budget Authority Action

Throughout the fiscal year, challenges and opportunities develop that warrant financial resources not included in the original budget. Staff can often redirect existing resources to address the highest priorities and initiatives. The budget ordinance authorizes the town manager to approve inter-functional budget adjustments and requires reporting to Council. There were no inter-functional budget adjustments approved during Q1 of FY 2023. 

Budget Public Input and Recommendations

Citizens are invited to share their budget priorities throughout the year specifically via social media, voicemail, and email. There was one budget public input comment received via these channels in Q1.

Cary’s cash and investments totaled about $623 million for Q1 with about $79 million of the total being bond proceeds. About $50 million is maintained in bank accounts to ensure that Cary has immediate access to funds. Furthermore, the bond proceeds are maintained in bank accounts so they are available for large capital expenditures to support bond projects. The remainder is invested in securities that, first, ensure the safety of the principal; second, provide quick access to additional funds for any unforeseen needs (liquidity); and finally, earn the maximum interest income. At any one time, Cary holds about 150 different investments that are scheduled to mature about every three to seven days over the next three to four years to match projected disbursements for payroll and expenditures. 

Interest rates continue to rise as the federal funds rate is increased. It is expected that interest earnings will be slow to realize until securities with lower interest earnings roll off the portfolio. Cary traditionally completes the majority of investing in Q2 and Q3 as property taxes are received and will be able to take advantage of the higher interest rates at that time. 

Cary earned just over $2 million in interest income in the first quarter, which is an increase of more than 25% from this time last year. The average interest rate for all funds is 1.15% at the end of Q1 compared with 1.24% last year. Cary’s cash and investment program is overseen by a fixed-fee independent consultant. The financial advisers compile the weekly cash flow forecast and provide market insights, advice, and reporting on a quarterly basis.

Cary’s total outstanding debt is about $465 million, with $223 million attributed to the General Fund and $242 million for the Utility Fund. All the various issuances of debt have fixed interest rates except for the debt issued in 2006. The interest rate for the variable rate debt, with an outstanding balance of $20.8 million, is reset weekly, and the interest is paid monthly. As interest rates have increased for investments, they also have for the variable rate interest payments. Interest was budgeted for Q1 at an average of 1.5%, and the average interest actually paid was at a rate of 1.2%, resulting in about $17,000 in interest savings.