General Fund

Overall net results for Q3 are relatively consistent with prior years’ third quarter and budget. The net $2 million variance from FY 2019 is 1 percent of the total budget. Given the volume of refunds for Parks, Recreation and Cultural Resources programs and rentals after quarter end, these revenues are overstated. Details on notable revenues and expenditures by category follow.

Total General Fund revenues have been strong thanks to robust sales tax revenues and continued growth in the property tax base. These figures do not reflect parks, recreation and cultural resource program and rental refunds resulting from the governor’s stay-at-home order; therefore, these revenues are overstated. 

Property Tax

Property tax revenue is 54 percent of total budgeted operating revenue and is the largest single revenue source for the General Fund. Taxes are based on an ad valorem tax levy on real property and personal property. Real property includes land and buildings, and personal property primarily includes vehicles and commercial business equipment. Real property taxes were billed in July 2019 and were due no later than January 6, 2020. Most real property tax revenue is received during Q2. Conversely, most 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 FY 2020 budget for real property tax is $90.1 million. As of Q3, Cary has received $90.4 million, or 100 percent of the real property tax budget. Collections increased $2.7 million, or 3 percent, compared to the same period in FY 2019. The FY 2020 budget for personal property tax is $6.1 million. As of Q3, Cary has received $4.6 million, or 75 percent, of the personal property tax budget, a 7 percent increase from the same time in FY 2019. Real and personal property tax revenues total $95 million at the end of Q3, which is $1.2 million under budget. Given the impact of the pandemic on Q4 personal property revenues for vehicles, there is a risk that the total property tax receipts will not meet budget.

Sales Tax

 

The variance in total revenues over expenses at the end of Q3 reflects the timing and amount of transfers to capital projects compared to the prior year, which is highlighted in non-operating expenditures in the Utility Fund Expenditure detail that follows.

 

Utility service revenue increased by $4.3 million, or 8 percent, in FY 2020 compared to FY 2019 due to an 8 percent increase in all water consumption and a 2 percent utility rate increase for FY 2020. The water consumption increase is a combination of a 25 percent increase in irrigation and a 6 percent increase in domestic water use year to date.

Permits and fees are down 18 percent compared to the same period in FY 2019, primarily due to a decline in connection fee revenue.

Non-operating revenues increased 20 percent during Q3 compared to the prior year due to an increase in investment earnings. More information on these revenues can be found in the Cash and Investment section.

Operating expenditures are meeting expectations compared to budget and the prior year. Non-operating expenditures reflect the decrease in budgeted capital transfers in FY 2020 compared to FY 2019.

 

Cary currently has 465 active capital projects with approximately $966 million committed to those projects. Utility projects totaling $523 million comprise 54 percent of the capital spending authorization. General capital projects total $443 million, or 46 percent, of the total $966 million capital authorization. 

Capital project spending totaled $58.5 million through Q3. Some of the largest investments in capital for the community in the quarter were $2.2 million related to the Carpenter Fire Station and CSX Rail Grade project, $1 million on construction of the White Oak Greenway; $1 million related to Fire Station 9, $2.3 million on water line upgrades and $1.1 million on sewer system replacements and rehabilitation. Because the mix of capital projects changes over time, there are no discernable patterns in capital spending.

Mid-Year Appropriations

Almost $1.2 million was included in the FY 2020 operating budget to support emerging or unforeseen needs arising during the fiscal year. The following table lists mid-year appropriations from this resource through Q3. 

In Q3, there were no additional drawdowns of funds available for mid-year appropriation. In Q2, $78.5 million was appropriated to projects associated with the successful passage of the Shaping Cary’s Tomorrow Bond Referendum. The following table details capital project budgets adjusted through Council action on staff reports.

Q3 Delegated Budget Authority Action

Throughout the fiscal year, challenges and opportunities develop that warrant financial resources that were 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. There were no inter-functional budget adjustments approved during Q3 FY 2020.

Budget Public Input and Recommendations

Citizens are invited to share their budget priorities throughout the year specifically via social media, voicemail, and email. There were two budget public input comments in Q3.

At the end of Q3, Cary’s cash and investments totaled $553 million. Cash balances generally peak in Q3 due to the influx of property tax receipts which are due in early January.

The Federal Reserve cut the federal funds rate three times in calendar 2019 from 2.25 percent to 1.5 percent as of December and twice in March 2020. The federal funds rate as of March 31 was 0.25 percent. The FY 2020 budget was prepared when the federal funds rate was 2.5 percent following four rate increases in 2018. These rate cuts led to a decline in the average yield earned on investments. Over $108 million has been invested through FY 2020 Q3 at an average yield of 1.6 percent, whereas through Q3 in FY 2019 over $101 million was invested at an average yield of 2.7 percent. Investment earnings are likely to fall short of budget; however, the impact will not impair the overall financial position of Cary.

Cary has $27 million of variable-rate, tax-supported debt. The interest rate on these bonds is reset on a weekly basis. In a low interest rate environment throughout most of FY 2020, the average interest rate paid in March 2020 was 1.12 percent compared to the average budgeted rate of 2.5 percent. With market volatility during the early phases of the pandemic in March, the interest rates on the variable-rate debt reset at record levels for two weeks that affected the average monthly rate for April.  As the market adjusted in April, rates dropped back to near record lows, which will be reflected in May 
interest expenditures.

Just three months ago the Q2 report stated, “According to TD Bank’s December 2019 analysis, North Carolina’s economic performance has not only been solid throughout 2019 but was also expected to outpace the national average in 2020.” The unprecedented, rapid economic change due to the pandemic will be impactful on the FY 2020 results but will not undermine the financial position of the Town. The most challenging impact will be on the FY 2021 budget. Given Cary’s prudent financial management in the past, Cary has reserves and financial foundations to draw on to ensure the uninterrupted delivery of essential services. Cary’s policy makers have demonstrated the fiscal discipline in the past to use limited resources wisely. This team of Council and staff can be counted on to continue to make judicious choices to serve Cary’s current citizens and to protect the financial position so that resources will be available in the future to continue to maintain services and meet debt obligations.