General Fund 

Due to the timing of expenditures for technology, payroll and the unexpected COVID-19 pandemic, net results, according to the unaudited financials as of June 30, appear to have declined by more than 100 percent. Details on notable revenues and expenditures by category follow.

COVID-19’s economic effects significantly impacted Cary’s revenues. Overall, General Fund revenues increased 1 percent compared to the prior year thanks to the positive economic results of the first eight months of FY 2020. Had the economy and operations continued at the same pace, revenues as of Q4 could have been as much as 3 or 4 percent over the prior year and totaled about $6 million more in the final, year-end audited results. 

Property Tax

As the largest revenue source for the General Fund, property tax revenue represents 55 percent of total budgeted operating revenue. The economic effects of COVID-19 were limited to small reductions of collections for vehicle property taxes in Q4. Successful collections of taxes on real property occurred before the COVID-19 pandemic and offset these small losses so that property tax revenue met budget. In FY 2020, $96.2 million was budgeted for property tax collections (both real and personal property) based on an anticipated property tax base growth of 3 percent over the prior year. 

Taxes are based on an ad valorem tax levy on real property 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 2019 and were due no later than January 6, 2020. 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. 

Sales Tax

Sales tax revenue, the largest single component of the Other Taxes and Licenses category, represents 21 percent of total General Fund budgeted revenue. Sales tax is distributed to municipalities by the N.C. Department of Revenue about two and a half months after the month when taxable sales occurred. Given this schedule, as of June 30, Cary has received receipts for July through March sales. Cary will receive its last FY 2020 sales tax distribution in September.

As of Q4, Cary received $28.3 million of the $36.6 million budgeted for sales tax revenue, which is 7 percent greater than this same period in the prior year. March 2020 sales tax revenue declined 7 percent compared to March 2019 as a direct result of the stay-at-home orders issued at the beginning of the pandemic. The impact of continuing stay-at-home orders on the remaining three sales tax distributions is expected to be dramatic; Cary could see as much as $3 million less when compared to the growth trend Cary experienced in the first eight months of the fiscal year. The full effect on the FY 2020 final results will remain unknown until the final distribution in September. 

Governmental Revenue

Sales and Service

Overall, the Sales and Services category decreased 10 percent compared to the prior year. Revenue losses of approximately $3.2 million from pandemic-related cancellations of Parks, Recreation, and Cultural Resources programming and the closing of special venues were somewhat offset by increased revenues of $1.7 million for solid waste fees. Solid waste revenue grew compared to FY 2019 as a result of a $2.50 per month residential fee increase to cover increased recycling costs. Solid waste fees are billed and collected as part of water and sewer utility billing. During the pandemic, utility billing remained on schedule. However, Cary paused efforts to collect delinquent utility bills, consistent with Gov. Roy Cooper’s executive orders. While the solid waste fees were earned for services delivered during FY 2020, collections for delinquent accounts will be delayed over as many as 15 months beyond fiscal year end because delinquent accounts will be offered a 12-month payment plan when collection work restarts.

Operating expenses increased $12.5 million, or 8 percent, compared to the prior year. The growth in the General Government and Public Safety categories reflects the movement of personnel between departments, expenditures for technology system enhancements, and costs associated with the COVID-19 pandemic. Expenditures for the pandemic through Q4 total approximately $4.3 million. Staff is working to maximize eligibility for reimbursement from federal and state resources for the COVID-related expenditures, but the timeline and limitations for reimbursement are unknown at this time.

In accordance with state statutes regarding the use of procurement cards, Cary must report all outstanding encumbrances in the financial system at quarter end. Encumbrances represent funds that have been reserved in the financial system to satisfy a commitment to make a purchase. Considering these encumbrances and year-to-date spending, the General Fund has an estimated $9.5 million remaining in the operations budget for the remainder of the year before final adjustments for CAFR reporting.  

Utility Fund net results improved compared to the prior year because FY 2020 capital transfers were budgeted to be $13.8 million less than FY 2019 capital transfers. An analysis of revenues and expenditures is below.

Overall operating revenues are exceeding budget expectations. A 4 percent increase over the same period in FY 2019 reflects consumption increases and a 2 percent rate increase. Year-to-date revenue only includes 11 months of billing data and is 98 percent of budget. June services are billed in July, and final year-end service revenue could be as much as 10 percent to 12 percent over budget based on production estimates and the 2 percent increase in utility rates. The significant percentage change in non-operating revenue is due to an increase in investment income, which is discussed in the Cash and Investment section. Approximately $3.5 million of budgeted appropriations of reserves in non-operating revenue will likely not be needed to balance the final audited utility position.

On June 30, 2020, Cary had 466 active capital projects. Utility projects with a total budget of $522.9 million comprise 54 percent of the capital spending authorization. General capital projects total $443.1 million, or 46 percent of the total $966 million capital authorization.

FY 2020 Capital Project Spending

The dollar chart demonstrates the percentage breakdown of capital investment spending in FY 2020. The project-to-date chart compares the total capital budget authorization by project type to the life to date spending for all active projects.

• WakeMed Soccer Park stadium and structure improvements  
• USA Baseball improvements
• Street improvement projects

The Downtown Park project is still in design. Significant capital spending for the construction is expected to begin in 2021.

Budget

A key accomplishment in Q4 was preparation for FY 2021 that began July 1, 2020.  On June 25, 2020, Council approved a $427.6 million budget allocating $283.9 million for operations and $143.7 million for capital improvements. The FY 2021 budget focuses on maintaining services in the wake of Cary’s ongoing pandemic response and pushes forward with commitments to projects to maintain and enhance Cary’s transportation and transit systems, fire needs, parks, recreation and cultural resources, the downtown area, and other general government needs. The capital project budget includes some of the projects approved by 80 percent of Cary voters in the Shaping Cary’s Tomorrow bond referendum held in October 2019. The remaining bond projects are included in the capital plan.

Following the Wake County property reassessment as of January 1, 2020, as part of the budget, the Council unanimously supported a property tax rate of $0.35 per $100 valuation. This tax rate, while higher than the revenue-neutral rate of $0.30, remains the lowest among Wake County’s municipalities. The additional $16 million of tax revenue generated by this rate will offset revenue losses due to the pandemic and set Cary’s finances on a sustainable path in preparation for future debt service approved in the Shaping Cary’s Tomorrow 
bond referendum. 

Council left solid waste fees unchanged at $19.50 per month and decreased utility volumetric rates 4 percent. For the second consecutive year, the budget includes no new staff positions. The FY 2021 budget does not include any employee merit pay or cost of living increases.

As in previous years, the FY 2021 budget was developed as part of Cary’s rolling budget process, in which budget conversations happen between council and staff year-round. As part of that process, citizens were, and continue to be, encouraged to share their 
priorities with Council any time of year during the Public Speaks Out portion of regular Council meetings; via email at budgetinput@carync.gov; by phone at 919-469-4307; by posting on Cary’s Facebook page at www.facebook.com/TownofCaryNC; and on Twitter by tagging @TownofCary and using the hashtag #TOCbudget.

The Adopted Budget will be available online and in print in late September. The FY 2021 Recommended Budget is available for review at www.townofcary.org/budget.

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 Q4.

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. Accordingly, budget adjustments totaling $1,734,396 were approved by the manager to address organizational realignments and reprioritize resources for expenditures such as consulting services and pandemic-related expenses:

Citizens are invited to share their budget priorities throughout the year through social media, voicemail and email. A total of 17 budget public input comments were received in Q4 through all of our input channels including the statutorily required budget public hearing.   

Cary ended FY 2020 with a cash and investment balance of over $517 million. Cash resources for all funds are pooled to maximize efficiency and interest earning potential. About $40 million is maintained in bank accounts to ensure immediate access to funds. 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. Although prudent, by prioritizing safety, Cary’s ability to earn investment income is limited. The majority of funds are invested in low-risk, fixed-income securities such as federal agency obligations. These securities typically provide a slightly higher yield compared to federal treasury bill securities. Staff seeks opportunities to invest in AAA-rated North Carolina local government debt to diversify the portfolio. At any one time, the portfolio includes approximately 150 different investments that are scheduled to mature approximately every three to seven days over the next three to four years to match projected disbursements for payroll and other expenses.

These investment earnings are allocated to each of the funds based on average share of the total pool. The General Fund comprises approximately 20 percent of Cary’s cash and investments. Just under $2.2 million of the interest income was attributed to the General Fund, which is about $33,000 over budget. The majority of Cary’s cash and investments, about two-thirds, are attributed to the capital funds for resources committed but unspent for general and utility capital projects.

In accordance with accounting standards, Cary reports the market value of all investments every fiscal year-end to reflect the impact on the financial results in the unlikely case that Cary had to sell all its investments at fiscal year-end market prices. This acknowledgement of year-end market value is referred to as a “mark to market” adjustment. The adjustment increases or decreases interest earnings reported depending on market interest rates at June 30. In a rising rate environment, as interest rates go up, the price of a fixed-income security goes down. Likewise, when interest rates fall, as the market is currently experiencing, the price of a fixed-income security goes up. Cary’s mark to market adjustment for FY 2020 will increase interest earnings on the audited year-end financial statements by $9 million. While Cary is required to report this adjustment on the financial statements, Cary will not realize this gain in interest earnings because Cary generally holds investments until maturity to meet future cash flow needs.

On June 3, 2020, the Federal Reserve released its first economic update since December 2019. The forecasts presented predict a slow path to recovery. In reaction to this, the Federal Reserve left interest rates unchanged. Federal Reserve Chair Jerome Powell also indicated that it is safe to assume there would be no rate increase through at least 2022.

In contrast to this outlook, Wake County released a report on July 2, 2020 noting that the Wake County property market increased significantly in June following a two-month decline.  

“In Wake County, June 2020 real estate activity in dollar terms was up 35 percent compared to May 2020 and was nearly even with the pre-recession month June 2019. The number of deeds recorded in June was greater than in both May of this year and June 2019,” the report said.

All signs prior to the COVID-19 pandemic indicated that Cary, and the Research Triangle area as a whole, are often considered “recession resistant.” SmartAsset’s March 5, 2020 article “Most Recession-Resistant Cites – 2020 Edition” placed Cary at No. 8, Raleigh at No. 9 and Durham at No. 18 out of 25 cities across the United States. The group cited Cary’s high rankings in the review categories of employment, housing and social assistance as the primary drivers behind this distinction. Cary’s “relatively high change in home value during the Great Recession, increasing about 4.5 percent and a relatively low 2018 mortgage delinquency rate of 1.4 percent” also factored into the favorable ranking.

There is no way of knowing exactly how or to what degree national, state and regional economies will be affected by the pandemic or how long effects could last. Cary staff and Council will continue to work together  to make judicious choices to serve Cary’s current citizens and protect our financial position so that resources will be available in the future to continue to maintain the high quality level of services that Cary citizens expect.