Overall net results for Q3 have declined 18%, or $5.1 million, compared with the prior year’s third quarter. Positive increases in sales taxes and Parks, Recreation, and Cultural Resources (PRCR) revenues were offset by a decrease in grant revenue and non-operating revenue. Differences in non-operating revenues and expenditures compared to Q3 of FY 2021 are due to debt refinancing last year. 

FY 2022 General Fund operating revenues have increased $8.2 million, or 5%, over the same period in FY 2021. Increases in operating revenue from sales tax, permits and fees, the revitalization of PRCR sales and services revenue, and other taxes and licenses are offset by decreases in restricted intergovernmental and other sales and services revenue. Those decreases are due to the receipt of CARES grant funds during the prior year and the timing of cell tower lease receipts.  

Non-operating revenues have declined $15.2 million, or 91%, because FY 2021 included a general obligation debt issuance to refinance existing debt.

Operating Revenues

Property tax revenue is 50% 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 includes land and buildings. Vehicles and commercial business equipment are included in personal property valuations. Real property taxes were billed in July 2021 and were due no later than January 5, 2022. Therefore, most real property tax revenue is received during Q2. The majority of 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 2022 budget for property tax is $116.2 million, and as of Q3, Cary had received $114.3 million. Property tax is expected to slightly exceed the property tax budget. 

Sales tax revenue is 19% of budgeted General Fund revenue and is the second largest revenue source for the General Fund. Sales tax revenue through Q3 is $26.1 million, or 22% more than the same quarter of last fiscal year. This revenue stream is distributed to municipalities by the North Carolina Department of Revenue two and a half months after the month the taxable sales occurred. This continued increase in sales tax continues to outpace expectations and has been attributed to significant retail sales, the current strength of the economy, and rising prices in some sectors.

Collectively, permits and fees revenue increased 19% compared with the prior year. Increases in this area are directly influenced by development activity in multi-family and non-residential developments. The Fenton property was influential in Q3’s growth. More detail on permit activity can be found within the Shape and Live chapters of this report.

Parks, Recreation, and Cultural Resources (PRCR) sales and services increased 267% compared with Q3 of FY 2021 as programs returned from pandemic cancellations. PRCR receipts are expected to meet budget as of year-end.

The 91% decline through Q3 in non-operating revenue reflects a reduction in revenue due to a $15 million bond refinancing that occurred in FY 2021.

Overall, General Fund expenditures are relatively unchanged compared with Q3 of last year. Operating expenditures are up 13%, while non-operating expenditures are down 27%. Operating expenditure increases reflect inflationary increases and the return of programming costs in PRCR programming and facility operations. Pandemic response and workforce management continue to impact General Government service areas like Human Resources. The decline in non-operating spending is due to the combination of the timing of the debt refinancing and operating and capital needs.

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 Q3. When including these encumbrance amounts with year-to-date spending, the General Fund has nearly $65 million of budgeted funds available for the remainder of the fiscal year.

Utility Fund net results through Q3 of FY 2022 improved by 66% compared with FY 2021 due largely to a debt transaction in FY 2021. 

Utility Fund operating revenues increased $4.1 million, or 7%, in comparison with the same period in FY 2021. The increase in revenue is due in part to the nominal rate increases adopted in the FY 2022 budget and a 4% increase in utility consumption. Consumption varies depending on weather-related irrigation and increases in meter installations for new development among other factors. 

Non-operating revenues declined by $100.8 million, or 99%, through Q3 of FY 2022 compared with the same period in FY 2021. In the prior year, utility debt was refinanced for debt service savings. 

Overall Utility Fund expenditures decreased by 62% when compared with Q3 of the prior year. This decrease is primarily due to debt that was repaid when it was refinanced in FY 2021. Operating expenditures are up 3%, primarily due to increases in inflation-driven field operation supply costs, which account for the bulk of the operating spending variance.  

The following table shows total encumbrances for the Utility Fund that are remaining at the end of Q3. When including these encumbrance amounts with year-to-date spending, the Utility Fund has roughly $27 million remaining in the budget for the remainder of the year.

Cary has 517 active capital projects. General capital projects, with a total of budget of $605.7 million, constitute 58% of the capital budget authorization. Utility capital projects total $430.4 million, or 42% of the total $1 billion capital budget authorization.

Year-to-date capital project spending totaled $55.5 million. The fluctuation in capital spending is due to the timing of projects becoming active and nearing completion. The three largest investments in capital for the community in Q3 were $2.2 million for the Downtown Cary Park, $3 million for construction of street improvement projects, and $1.6 million for the North Cary Water Reclamation Facility diffused air system. Because the mix of capital projects changes over time, there are no discernible patterns in capital spending. 

Mid-year Appropriations

The FY 2022 operating budget includes $1 million to support emerging or unforeseen program needs during the fiscal year. A total of $324,000 of this funding was directed to the purchase of fire truck idle reduction technology in Q3, leaving $676,000 available for future use. The following table summarizes all mid-year General Fund appropriations year-to-date.

Q3 General Government Mid-Year Appropriations 

The following table notes year-to-date mid-year appropriations related to general and utility capital projects. These appropriations were approved by Council and reflect both Town funds and funds received from outside agencies for specific uses.

Q3 Delegated Budget Authority Action

Throughout the fiscal year, challenges and opportunities can 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. One inter-functional budget adjustment totaling just over $3 million was approved during Q3 of FY 2022.

Budget Public Input and Recommendations

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

At the end of Q3, Cary’s cash and investments totaled $595 million. Consistent with prior year patterns, cash balances peaked in Q3 due to the influx of property tax receipts, which were due in early January. The Federal Reserve increased the federal fund rate at the March 2022 meeting by 0.25%, and additional 0.50% rate hikes are anticipated at both the May and June meetings. Economists predict that the federal funds rate will be at 2.50% by calendar year end 2022. Since most investing has taken place for this fiscal year, once property tax receipts begin again this fall, Cary will be able to take advantage of these higher rates.  

Due to the rising rate environment, current projections indicate total interest earnings will be about $1 million over budget for FY 2022. These revenues over budget will benefit all of the operating and capital funds relative to the cash balances in each fund.