General Fund

Overall, net results for the General Fund have rebounded significantly since Q3 of last year with an increase of 33%. Conversely, net results in Q3 of FY 2020 were down 9% compared to the same period in FY 2019. This increase in net results is directly related to the strengthening of the economy. Details on notable revenues and expenditures by category are listed in the following section.

Overall, FY 2021 General Fund revenues are up $34.8 million, or 24%, over the same period in FY 2020. This is primarily due to the property tax base growth of 20%, a result of Wake County property tax revaluation while maintaining Cary’s $0.35 tax rate this fiscal year. Additionally, there is a $15 million increase in non-operating revenues due to the refinancing of the 2014 general obligation bonds. When debt is refinanced, new debt proceeds are reported as revenue. These new proceeds offset the use of funds to pay off the original debt. The payment toward the refinanced 2014 bonds is reported as additional debt expenditures in non-operating expenditures.

Operating Revenues

Property tax revenue is 53% 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 and commercial business equipment. Real property taxes were billed in July 2020 and were due no later than January 5, 2021. Given this tax due date, most real property tax revenue is received in 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 2021 budget for property tax is $114.3 million, and as of Q3, Cary received $113.9 million. This is a 20% increase from FY 2020, which is primarily due to the 20% growth in the Wake County tax base following the Wake County property tax revaluation while maintaining Cary’s $0.35 tax rate. Based on historical trends, property tax is expected to meet or slightly exceed the property tax budget.

Sales tax revenue is 14% of total budgeted revenue and is the second largest revenue source for the General Fund. As of Q3, this revenue is $1.8 million, or 9%, above Q3 of FY 2020. This revenue stream is distributed to municipalities by the North Carolina Department of Revenue about two and a half months after the month when taxable sales occurred. Cary received six distributions for July through December sales. The six sales tax distributions of FY 2021 are outpacing prior year’s Q3 results. This trend is not unique to Cary. The North Carolina League of Municipalities reported that total state sales tax distributions increased 6% compared to Q3 of FY 2020. This suggests that the COVID-19 pandemic has not impacted the buying power of residents as initially forecasted.

Current sales tax projections suggest this revenue will end the fiscal year at $40.6 million, which would be a 49% increase over the FY 2021 budget for sales tax and a 7% increase over FY 2020 actual results. When Cary adopted the FY 2021 budget, the economic impacts of the pandemic could not be predicted, and the sales tax budget was set to accommodate a 20% decrease in sales tax revenue. Since this revenue did not decline as anticipated, the additional sales tax revenue will help offset other revenue shortfalls, primarily for Parks, Recreation, and Cultural Resources (PRCR), which has been more severely impacted by the pandemic. 

Overall, Other Taxes and Licenses decreased 28% when compared to Q3 of the prior year. The COVID-19 pandemic significantly affected the tourism and travel industries. Due to this, the occupancy tax Cary receives from travelers renting hotel rooms decreased 59% compared to the prior year. While the FY 2021 budget accounted for a significant decrease in this revenue source, current occupancy tax projections suggest that this revenue will not meet reduced budget assumptions. 

Combined Restricted and Unrestricted Intergovernmental revenues increased by 40%. Decreases in revenues associated with utility sales tax and electric and natural gas were offset by $3 million in Coronavirus Aid, Relief, and Economic Security (CARES) Act funding received year-to-date.

Permits and Fees revenue increased 6% compared to Q3 of the prior year. The growth seen in this revenue source could be interpreted as a positive effect of pandemic-driven lifestyle changes with citizens choosing to invest in home improvements. Permit activity increased significantly in March as year-to-date permits for all types of construction increased 4% compared to this same time last year. Multi-family permits, including those for the Glenaire expansion and portions of Novel Cary, a luxury multi-family community in western Cary, almost doubled through Q3 of FY 2021 compared to FY 2020. 

A portion of permit fees are based on the square footage associated with the project. The overall revenue increase in this category is directly tied to the square footage with multi-family construction activity. With an increase in March’s permitting activity, permits and fees revenue is now expected to meet or exceed budget.

The Sales and Services category is made up of PRCR programming revenues, Solid Waste Sales and Services, and Other Sales and Services. The combined Sales and Services category decreased 20%. Solid Waste revenue, the largest revenue in Sales and Services, is performing slightly above expectations with little or no impact from the pandemic. However, revenues declined by $3.8 million in PRCR due to the closure of community centers and the cancelation of many camps and events in response to the pandemic. As COVID-19 cases decrease across the state, registrations for sports, shelter rentals, and outdoor in-person classes return. The decline in PRCR revenue is slightly offset by an increase in the Other Sales and Services category, which is mainly due to an increase in the sale of assets.

Non-Operating Revenues

Non-Operating revenues through Q3 increased 882% compared to the same period in FY 2020. This increase reflects the use of $15.3 million of bond proceeds to refinance Cary’s 2014 general obligation bonds.

Overall, General Fund expenditures increased 23%. This is primarily driven by the $30.5 million increase in non-operating expenditures for transfers to capital project spending, as well as $15.3 million in expenditures to refinance the 2014 general obligation bonds. A reduction in operational expenditures due to the pandemic slightly offset the increase in non-operating expenditures. More specifically, the 3% decrease in General Fund operating expenditures is primarily driven by a $5.4 million decrease in operations, including Public Works and PRCR, spending. For the safety of our citizens, Town Hall and some recreational facilities remained closed to the public, limiting normal operations and decreasing the need for temporary salaries and overtime. Conversely, spending in General Government increased $2.9 million due to the timing of payment for software maintenance, consulting services, and software licenses.

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 remaining in the financial system at the end of Q3. When these encumbrance amounts are combined with year-to-date spending, the General Fund has an adequate amount of $52.9 million remaining in the operations budget for the remainder of the year.

Utility Fund net results through Q3 of FY 2021 decreased by more than 100% compared to FY 2020 due to increases in non-operating expenditures, which included transfers to capital projects and a contribution toward the Utility Fund’s Other Post Employment Benefit obligation. For more detailed information see the Utility Fund expenditures section.   

The Utility Fund’s operating revenues decreased 7% through Q3 of FY 2021 compared to that same period in FY 2020. This decline reflects decreased demand for irrigation and commercial water use and is in line with weather variations and pandemic-related change in building use. This decline in demand and the 4% volumetric water and sewer rate decrease approved in the FY 2021 budget account for the majority of the decrease in revenue. The suspension of nonpayment and late payment fees during the pandemic also reduced revenue in FY 2021 compared to FY 2020. 

Non-operating revenues increased $100.3 million compared to Q3 of FY 2020. This increase is directly related to refinancing the Utility Fund’s portion of the 2014 general obligation bonds as well as refinancing revenue bonds and state revolving loans. Like the General Fund, the $99.6 million in debt proceeds is offset by $99.6 million in debt-related expenditures. 

The COVID-19 pandemic has not impacted utility operational spending. Utility operations and spending trends are consistent with FY 2020 budgetary and service-level expectations. Non-operating expenditures increased more than $100 million compared to FY 2020 primarily due to debt-related expenditures incurred by refinancing the 2014 general obligation bonds, revenue bonds, and state revolving loans. The remaining increase in non-operating expenditures includes a $10.6 million increase in transfers to capital projects and a $5 million contribution toward the Utility Fund’s Other Post Employment Benefit obligation. 

The following table shows the total outstanding encumbrances for the Utility Fund remaining at the end of Q3. When including these encumbrance amounts with year-to-date spending, the Utility Fund has adequate funds of $26.6 million in the operating budget for use for the remainder of the year. 

Cary has 499 active capital projects with about $1.1 billion committed in resources. Utility and General capital projects each represent 50% of the capital authorizations, or $537.7 million and $543.9 million, respectively.

Capital project spending totaled $69.8 million through Q3. A Q1 purchase of open space property in Chatham County is the primary reason for the increase in capital project spending in FY 2021 compared to FY 2020. Some of the largest investments during Q3 were $1.7 million for construction of a diffused air system at the North Cary Water Reclamation Facility; $1.6 million for construction on the Carpenter Fire Station Road bridge and intersection improvements project; and $1.1 million for construction on the Reedy Creek Road improvement project. 

Mid-Year Appropriations

The FY 2021 operating budget includes $1 million to support emerging or unforeseen needs during the fiscal year. There has been only one appropriation through Q3 from these funds, leaving a remaining balance of $935,000. There have been no general capital project appropriations from General Capital Fund balance since the first quarter of FY 2021. To date, Cary has appropriated $1.4 million of General Capital Fund balance. 

Budget Public Input and Recommendations

Citizens are invited to share their budget priorities throughout the year via social media, voicemail, and email. There were 103 budget public input comments in Q3. 

At the end of Q3, Cary’s cash and investments totaled $538 million. Cash balances generally peak in Q3 due to the influx of property tax receipts, which are due in early January. Interest rates have fallen during the pandemic and are not expected to increase until late 2023 or early 2024. Staff expects interest earnings to fall slightly below budget for FY 2022. However, the impact will not impair the overall financial position of Cary.

Planning for the first issuance of $100 million of Shaping Cary’s Tomorrow bonds began this quarter. Council will be asked to take formal action in July, and the sale is scheduled to take place August 31. The first issuance will primarily fund the construction of the Downtown Park.