The audit of Cary’s financial statements for FY 2022 concluded in Q2 with the preparation of the Annual Comprehensive Financial Report. The financial statements and supporting details demonstrate that Cary remains in good financial condition. For further details on Cary’s audited financial statements, visit townofcary.org/CAFR.  

As of Q2, financial results continue to be in line with budgeted expectations, despite residual impacts of the pandemic, inflation, and certain supply chain delays. Financial planning and budgeting for FY 2024 also commenced this quarter. Cary’s leadership team continued to expand their understanding of Cary’s holistic financial picture, which strengthens the ability to develop a recommended budget for Cary.

Overall net results for Q2 decreased by more than 100%, or $27.9 million, compared with the prior year’s second quarter due to increases in spending as Cary returns to normal operations.

Overall, FY 2023 General Fund revenues are in line with the previous year’s Q2. Although the variance in net revenue is minimal, a few notable revenue changes are detailed in the next section.

Operating Revenues

Property tax revenue is 44% 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 and due no later than Jan. 5. Therefore, most real property tax revenue is expected during Q2. 

Personal property tax revenue, however, 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 FY 2023 budget for real property tax is $111.5 million. Q2 ended less than a week before the property tax due date, and by the end of the second quarter, Cary had received $88.9 million, or 80%, of the real property tax revenue budget.

The personal property tax budget for this fiscal year is $7.7 million, and as of Q2, Cary had received $3.4 million, or 44%. Based on historical trends and collections received so far, both real and personal property tax revenues are on target to meet budgeted revenue.

Sales tax revenue is 20% of budgeted General Fund revenue and is the second largest revenue source for the General Fund. Sales tax revenue through Q2 is 17%, or $2.1 million, more than the same quarter of last fiscal year. This revenue stream is distributed to municipalities by the N.C. Department of Revenue about two and a half months after the month when sales occurred. Through Q2, Cary received three distributions for July through September sales, representing the largest sales tax distribution in Cary’s history. This growth in sales tax revenue continues to reflect significant retail sales and rising prices in some sectors.

Restricted Intergovernmental revenues rose compared with last year largely due to an increase in public safety grants revenue.

Collectively, Permits and Fees revenue decreased 25% when compared with last year. A significant part of this decrease was a 36% drop in permit fees relative to the same period last year. However, despite the reduction in revenue, there was an increase in the number of permits, both building and other, issued compared with the same period last year. 

PRCR Sales and Services increased 13% compared with the same time last year. As of Q2 of FY 2022, PRCR facilities were resuming normal levels of programming but are now fully operational. 

Nonoperating revenues through Q2 decreased 45% compared with the same period in FY 2022. This decrease resulted from the receipt of bond premiums in FY 2022 from the Q1 bond sale to cover the bond issuance costs.

General Fund expenditures increased by 28% compared with last year’s Q2 results. Operating and nonoperating expenditures are up from the prior year, 18% and 53%, respectively. Operating expenditure increases are largely driven by the return to normal spending post-pandemic. The increase in nonoperating expenditures results from increased debt service and payments and transfers to other funds.

Encumbrances represent funds that have been reserved in Cary’s financial system to satisfy a commitment to make a purchase. The following table shows the total outstanding encumbrances in the financial system that remain at the end of Q2. When including these encumbrance amounts with year-to-date spending, the General Fund has nearly $107 million of budgeted funds available for the remainder of the fiscal year.

Utility Fund net results through Q2 declined by 11% compared with FY 2022 due to an increase in operating expenditures. 

Utility Fund revenues increased $2.4 million, or 6%, through Q2 compared with the same period in FY 2022. The increase in revenue is due in part to the 3% increase to water and sewer rates in the FY 2023 budget. The remaining increase is due to a slight increase in consumption. Consumption changes are directly linked to the weather and new meter installations resulting from development. The 20% increase in Utility Permits and Fees is due to a timing difference in FY 2022 that was resolved in the next quarter. 

Overall, Utility Fund expenditures increased 7% when compared with the same period last year. Increases in operating expenditures were largely the result of inflationary pressures, including chemical inflation.  

The following table shows total outstanding encumbrances for the Utility Fund at the end of Q2. When including these encumbrance amounts with year-to-date spending, the Utility Fund has roughly $45 million left in the budget for the remainder of the year.

Cary has 558 active capital projects. General capital projects, with a total of budget of $690.3 million, constitute 61% of the $1.1 billion capital budget authorization. Utility capital projects total $441.6 million, or 39%, of the capital budget authorization.

Capital project spending totaled $58.1 million through Q2. The fluctuation in capital spending is due to the timing of when projects become active or are near completion. The three largest investments in capital for the community in Q2 were $12 million for the Downtown Cary Park, $5.7 million for construction on street improvement projects, and $3.4 million for improvements to the USA Baseball facilities. Because the mix of capital projects changes over time, there are no discernible patterns in capital spending.

Midyear Appropriations

The FY 2023 operating budget includes $1 million to support emerging or unforeseen program needs during the fiscal year. There were no appropriations from these funds as of the end of Q2. The following General Government Midyear Appropriations table identifies all fund balance appropriations approved during the year for the General Fund. 

The Capital Project Funds table notes year-to-date midyear appropriations related to general and utility capital projects. These appropriations were approved by Council and reflect both Cary funds and funds received from outside agencies for specific uses.

Q2 Delegated Budget Authority Action

Throughout the fiscal year, challenges and opportunities develop that warrant financial resources not included in the original budget. Often staff can repurpose 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. No inter-functional budget adjustments were approved during Q2 of FY 2023.

Budget Public Input and Recommendations

Citizens are invited to share their budget priorities throughout the year specifically via social media, phone, and email. No budget public input comments were received in Q2. 

At the end of Q2, Cary’s cash and investments totaled $571 million. Cash balances increased in Q2 and will peak in the early part of Q3 due to the influx of property tax receipts. 

In Q2 of FY 2023, Cary invested more than $40 million at an average rate of 2.79%. In comparison, Cary invested more than $67 million at 0.95% in Q2 of FY 2022. The federal funds interest rate has been increased seven times since March 2022; then it was 0.25%, and it is now 4.25%. When the FY 2023 budget was being developed, a rate of 2.25% was used for new investments. Since interest rates have increased more than anticipated, interest earnings are anticipated to come in above budget.