Overall, expenditures surpassed revenues this quarter. This is expected and consistent with prior years as revenues are not received evenly over the year. Expenditures decreased overall by 6% due to a $6 million decrease in non-operating expenditures.

Overall, FY 2022 General Fund revenues increased 12% compared with the same period in FY 2021. Revenues often fluctuate year to year due to the timing of allocations from state and federal sources. 

Operating Revenues

Property Tax revenue is 51% 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 2021 and are due no later than Jan. 5, 2022. Therefore, most real property tax revenue will be received during Q2. 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. In FY 2022, the property tax rate decreased by a half-cent to $0.345. Despite the reduction in the property tax rate, Cary received $18.8 million in both real and personal property tax revenue this quarter, which is a 6% increase over the same period last year. In Q3 of FY 2022, Cary staff will know if this increase is due to timing of receipts or notable growth in the tax base.

The Other Taxes and Licenses category saw an increase of 25% compared with the prior year. This reflects an increase in occupancy tax revenue resulting from increased visitors to the area compared with reduced travel during the early pandemic in Q1 of FY 2021. 

Although the revenue loss of about $8,000 cannot be seen in the summarized quarterly results, in Q1 the North Carolina legislature granted Cary the authority to not levy beer and wine license fees. To reduce the burden on Cary businesses and administrative staff, Cary sought this permission to eliminate data gathering, licensure, and a bureaucratic mandated fee schedule that generated only marginal revenue and required duplicate information for businesses that sell beer and wine.

Restricted intergovernmental revenues increased 100% compared with the prior year due to the increase in school resource officer revenue. Due to the pandemic’s impact on Wake County Public Schools in FY 2021, virtual learning replaced the need to have resource officers working at the schools; therefore, Wake County was not billed for these services. Since in-school instruction resumed, this revenue stream was restored.

The PRCR sales and services category increased well over 100% compared with Q1 of FY 2021, when the onset of the pandemic caused Parks, Recreation, and Cultural Resources (PRCR) to close facilities, rentals, and camps. Near the end of FY 2021, PRCR began to offer virtual camps and classes and started to safely reopen facilities, which led to a rebound in these revenues. 

Solid waste sales and services increased slightly because the solid waste and recycling fees increased $1 from $19.50 to $20.50 per month to cover a higher percentage of the cost of the service.

Miscellaneous revenues declined by 88% compared with FY 2021. The decline reflects the timing of receipts of revenue from N.C. Department of Transportation. Year-to-date totals are expected to return to normal in Q2. 

Non-operating revenues increased by over 100% in Q1 of FY 2022 compared with the same period last year primarily due to bond proceeds. Cary received $500,000 in bond premiums from the bond sale to cover the bond issuance expenditures in FY 2022. 

General Fund operating spending trends are slightly higher than FY 2021 but are consistent with budgetary expectations. Although total General Fund expenditures decreased 6% compared with the prior year, operating expenditures increased by 8% primarily due to increases in both general government and PRCR expenditures. In Q1 of FY 2021, PRCR programming ran well below typical levels, as Cary’s facilities remained closed to ensure citizen and employee safety during the early phases of the COVID-19 pandemic. This year, Q1 spending reflects a more typical experience, as Cary’s facilities have reopened and in-person PRCR programming has returned. Non-operating expenditures decreased 20% as a result of smaller budgeted General Fund transfers for operating and capital needs.

Encumbrances represent funds that have been reserved in Cary’s financial reporting system to satisfy a commitment to make a purchase. The following table shows the total outstanding encumbrances in the financial system that are remaining at the end of Q1.

After accounting for year-to-date spending and the encumbrances listed below, the General Fund has nearly $148 million of budgeted funds available for the remainder of the fiscal year.

 Utility Fund net results in FY 2022 improved 38% from FY 2021 due to decreases in non-operating expenditures. In FY 2021, non-operating expenditures reflected a $5 million transfer into the Health Fund for the Utility Fund’s other post-employment benefits (OPEB) obligation and increases in transfers to capital projects. 

Utility revenues have seen nearly a $1 million increase in FY 2022 compared with FY 2021. The marginal increases in water and sewer revenue are due in part to the small rate increases in the FY 2022 budget. The implications of these increases on a household using 5,000 gallons of water per month is a $2.10 utility bill increase per month. Increased demand due to weather variations and customer growth account for the remainder of the revenue growth.

Permit and fee revenue increased as utility bill collection practices began to return to normal in FY 2022. In FY 2021, Cary paused late fee collections and disconnections to recognize the financial hardships imposed on citizens and businesses by the pandemic. As the economic effects from the pandemic began to improve, Cary restarted collecting these fees during Q4 of FY 2021, resulting in increases in fee revenue in the permits and fees category. 

Utility operating spending trends are consistent with FY 2021 and within budgetary expectations. Non-operating expenditures decreased 20% compared with the prior year. This decrease was budgeted in contrast to the FY 2021 transfer to the Health Fund to reserve resources for the Utility Fund’s future retiree health obligations. Transfers from the Utility Fund to capital projects for FY 2022 increased more than $500,000 compared with the transfers made in FY 2021.

The following table shows the total outstanding encumbrances for the Utility Fund remaining at the end of Q1. After accounting for year-to-date spending and the encumbrances, the Utility Fund has approximately $65 million in the budget for use for the remainder of the year.

Cary has 492 active capital projects. Utility capital projects, with a total budget of $430.4 million, constitute 42% of the capital budget authorization. General capital projects total $597.6 million, or 58%, of the total $1 billion capital budget authorization.

Capital project spending totaled $12 million in Q1 of FY 2022. The fluctuation in capital spending is due to the timing in which projects become active and those near completion. The three largest investments in capital for the community in Q1 were $3 million for the Downtown Cary Park, $900,000 for construction of a diffused air system at the North Cary Water Reclamation Facility, and $800,000 for the Crossroads water storage tank and pump station. Because the mix of capital projects changes over time, there are no discernible patterns in capital spending.

Mid-Year Appropriations

One million dollars was included in the FY 2022 operating budget to support emerging or unforeseen needs arising during the fiscal year. There were no Q1 mid-year appropriations by Council, leaving the full $1 million available for use during the remainder of the fiscal year. Additionally, there were no Q1 appropriations of general or utility capital reserve fund balance for capital needs.

Q1 Delegated Budget Authority Action

Throughout the fiscal year, challenges and opportunities develop that warrant financial resources not included in the original budget. Staff can often redirect 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 Q1 of FY 2022. Council did approve movement of already appropriated capital funding dollars to several related capital projects as noted on the following table.

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 no budget public input comments received via these channels in Q1. 

At the beginning of Q1, Cary’s cash and investments totaled about $507 million and grew to more than $600 million by the end of the quarter because of the bond sale. About $40 million is maintained in bank accounts to ensure that Cary has immediate access to funds. In addition, the bond proceeds are maintained in bank accounts so they are available for large capital expenditures to support bond projects. 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. At any one time, Cary holds about 150 different investments that are scheduled to mature about every three to seven days over the next three to four years to match projected disbursements for payroll and expenditures. Cary earned just over $1 million in interest income in the first quarter. Interest earnings have dropped because of lower market interest rates; the FY 2022 budget anticipated this decrease in investment income.

Cary’s cash and investment program is overseen by a fixed-fee independent consultant. The financial advisors compile the weekly cash flow forecast and provide market insights, advice, and reporting on a quarterly basis.

On Aug. 31, Cary issued $125 million of Shaping Cary’s Tomorrow bonds at record low interest rates. Ten different financial institutions bid on the bonds with Wells Fargo bidding the lowest rate of 1.45% for this financing over 20 years. This sale was Cary’s largest to date for new projects and was the first debt issuance of the $225 million authorized by voters in 2019. The bond proceeds flowed into the capital funds to finance the construction of the Downtown Cary Park as well as other parks and transportation projects.  

As part of the competitive sale process, Cary received confirmation of its existing top AAA general obligation bond ratings from the three primary credit rating agencies: Moody’s, Fitch, and Standard & Poor’s. These independent ratings are the highest possible and reflect Cary’s strong financial position. The ratings earn the trust and interest of the investment markets, leading to multiple bids at the lowest possible interest rates at the time of the bond sale. Low interest rates minimize Cary’s debt interest expenditures, which minimizes the requirements for tax revenues for Cary taxpayers.