The FY 2024 budget, adopted on June 24, was a focus this quarter. To recap, the $523.8 million budget maintains Cary’s tax rate at $0.345 per every $100 of assessed valuation.

On the Utility Fund side, the budget includes a 3% increase to utility rates. The FY 2024 budget focuses on priority areas such as housing, public safety, parks, stormwater, and the environment. This budget provides funding to staff the Downtown Cary Park, which is expected to open to the public in late 2023. 

There was no unusual financial activity to report during Q4. The results in this report are unaudited and will vary from the results in the FY 2023 Annual Comprehensive Financial Report (ACFR), which is distributed to Council in December. The following results are limited by the data available at the time, as not all revenues for the year will be known until late summer. Preliminary Q4 projections indicate Cary’s General Fund will end FY 2023 better than budget, which is in line with previous years’ results.

Preliminary net Q4 General Fund results reflect $41.5 million more in expenditures than revenues. As in years past, several significant revenue sources will not be received and attributed to FY 2023 until late summer. Sales tax is a primary example given the two-and-a-half-month lag between taxes collected at the point of sale in June and receipt of actual Q4 sales tax revenue in September. Staff estimates that Cary will receive approximately $14.5 million of additional sales tax revenue. 

Overall, FY 2023 General Fund revenues are up $10 million from the previous year. The increase in General Fund revenue is driven by operations, as most operating revenue categories increased. The next sections provide details on the changes in notable revenue categories.  

Operating Revenues

Property Tax revenue is 45% of total budgeted revenue and is the largest revenue source for the General Fund. Property 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, boats, airplanes, and commercial business equipment. Real property taxes were billed in July 2022 and were due no later than Jan. 5, 2023. Therefore, most real property tax revenue is received 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 property tax is $119.4 million, and as of Q4, property taxes have met budget. These collections remain steady when compared with FY 2022.

Sales Tax revenue is 20% of total budgeted revenue and is the second largest revenue source for the General Fund. This revenue through Q4 is $42.4 million, which is 11% more than Q4 of FY 2022. 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. Cary received nine distributions for July through March sales, and these have outpaced last year’s results by $4.3 million.

Current sales tax projections suggest this revenue will end the fiscal year at $56.9 million, which would be a 7% increase over the FY 2023 budget. Sales tax continues to outperform historical growth patterns for this revenue source. For several years, staff has been conservative during the budget process. This year, Cary budgeted 22% growth over the previous year. Given the continued growth in Cary and Wake County, sales tax will likely continue to outpace historical trends as long as the national economy remains strong.  

Restricted Intergovernmental revenue saw a $200,000 increase over FY 2022. The largest contributors to the increase are from seized drug funds and funding received for school resource officers.

Permits and Fees revenue decreased by 22% compared with FY 2022. The greatest drivers of the decrease were building permits and watershed maintenance fees. Despite the decrease in building permit fees overall, the number of permits associated with residential construction have increased over the prior year. The decrease in watershed maintenance fees was largely due to the completion of the Fenton complex project in FY 2022.  

The Sales and Services category is made up of PRCR programming revenue, solid waste sales and services, and other sales and services. Solid waste revenue, the largest revenue in this category, increased $1.1 million over FY 2022 primarily due to the budgeted rate increase. PRCR revenues increased $1.1 million due to the increase in attendance at many in-person programs and events. The 44% increase in other sales and services revenue is due to the increase in surplus sales of vehicles. The supply chain shortage delayed receipt of many new vehicles, which came in during this fiscal year. Therefore, Cary was able to sell some of the older vehicles.  

Overall, General Fund expenditures increased 18%. There were several planned factors that impacted operations during the year. Increases were recognized as a result of initiatives in Marketing and IT, personnel costs, inflation, and the timing of vehicle purchases due to supply chain issues experienced in the prior year. The $6.3 million increase in nonoperating expenditures is from increased debt service payments, which include the first payment on bonds issued in FY 2022. 

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 Q4. After accounting for year-to-date spending and the encumbrances listed, the General Fund has met the expenditure budget.

As of Q4, FY 2023 expenditures outpaced revenues by $1.3 million, which is consistent with the previous year.

The Utility Fund’s operating revenues increased 3% through Q4 compared with that same period in FY 2022. The increases in water and sewer revenue are the direct result of the 3% volumetric rate increase approved in the FY 2023 budget. Audited revenues are expected to meet the budget as of fiscal year end. 

Nonoperating revenues remained consistent with Q4 of FY 2022. The $200,000 increase is due to an increase in interest on investments.

Overall, Utility Fund expenditures have increased 4% compared with FY 2022. Operational expenditures have increased 14% primarily due to inflationary increases in the costs of chemicals and electrical power. Also affecting operational costs is Cary’s ramping up of its water meter modernization program. Nonoperational costs decreased $2.8 million due to the payoff of the 2010 general obligation bonds in 2022.  

The following table shows the total outstanding encumbrances for the Utility Fund remaining at the end of Q4. After accounting for year-to-date spending and the encumbrances, the Utility Fund has about $11 million in the operations budget for expenditures not recorded as of this report.

Cary has 535 active capital projects; utility capital projects with a total budget of $430.9 million constitute 41% of the capital spending authorizations, and general capital projects total $618.3 million, or 59% of the $1 billion budget authorization.

Capital project spending totaled $130.8 million through Q4. The 53% increase in capital project spending from the prior year is mainly from a mixture of parks, downtown, and sewer related investments. The three largest investments in capital for the community through Q4 were $26.4 million for the Downtown Cary Park, $8.4 million for the Winding Pine Regional Pump Station and Force Main, and $8 million for USA Baseball facility improvements.

Midyear Appropriations

The FY 2023 operating budget includes $1 million to support emerging or unforeseen program needs during the fiscal year. These funds were not used during FY 2023. The General Government Midyear Appropriations table identifies all fund balance appropriations approved during the year for the General Fund. 

The Capital Project Fund 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.

Q4 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-priority 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 $1.8 million was conducted during Q4.

Budget Public Input and Recommendations

Cary ended FY 2023 with a cash and investment balance of more than $505 million. Interest earnings totaled about $8.2 million in FY 2023, which is an increase of more than $1.8 million compared with FY 2022. FY 2023 actual interest earnings are $2.8 million over the budget of $5.4 million. This was anticipated, as interest rates have continued to increase over this past year as the Federal Reserve continues to raise rates. While interest rates continue to rise, the portfolio still includes securities that were purchased when rates were lower. Until the lower-earning securities mature, interest earnings will increase at a slower rate than the rise in interest rates. Due to the rise in interest rates, the FY 2024 budget for interest income is about $1.7 million more than FY 2023 actual earnings.  

In accordance with accounting standards, Cary reports the market value of all investments at the end of every fiscal year to reflect the impact on the financial results in the unlikely case that Cary would have to sell all its investments at fiscal year-end market prices. This acknowledgment of year-end market value is referred to as a “mark to market” adjustment. This adjustment depends on the change in market values over the prior year.

Due to the rapid increase in interest rates in the last half of the year, Cary’s mark to market adjustment for FY 2023 will decrease interest earnings on the audited year-end financial statements by about $1 million. While Cary is required to report this adjustment on the financial statements, Cary will not realize this loss in interest earnings because investments are generally held until maturity to meet future cash flow needs.