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HomeMy WebLinkAboutAgenda - 10-28-2008 - 5ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: October 28, 2008 Action Agenda Item No. 5 _SUBJECT: Review of Capital Project Funds DEPARTMENT: Finance PUBLIC HEARING: (Y/N) No ATTACHMENT(S): Sample Projects INFORMATION CONTACT: Gary Humphreys, 245-2453 PURPOSE: To discuss issues related to the School and County Capital Project Funds. BACKGROUND: In preparation for year end reconciliation, areview of the School and County capital project funds revealed a difference in budgeted and actual revenues. The analysis was limited to the information available in the MUNIS financial system which was implemented during FY 2003. In general, the differences in budgeted and actual revenues exist because: 1. Differences existing prior to the transition from the financial legacy system to MUNIS business system in 2003 were never corrected; 2. Proceeds from past debt financings were set aside in an unallocated account or line item instead of being allocated to specific projects; 3. Grant monies were budgeted and not awarded/received; 4. Total expenditures exceeded the project budget by varying amounts; 5. Specific projects were budgeted but monies were never transferred from the General Fund; or 6. Bond monies to be issued are already budgeted but the revenue is not yet received. Specific examples of the types of differences described above are presented on the Attachment. Based on staff's internal analysis, $9.64 million in unencumbered revenues within the capital project funds can be transferred to projects where there are shortfalls. This includes the $5.5 million in Park Bonds which is fully committed. This will leave a revenue shortfall of $5.89 million. The chart below summarizes the funds available and net shortfall by capital fund. Source of Funds School Capital County Capital ` Pro'ect Fund Pro'ect Fund Additional Funds Needed $8,430,000 $7,100,000 Unallocated Alternative Financing 1,347,000 Unallocated Bonds 907,000 School Capital Reserve Funds 580,000 From Closed Projects 455,000 Parks Open Space Bonds to be issued 5,500,000 Interest Earnin s 850,000 Total Funds Available $3,289,000 $6,350,000 Net Shortfall $5,141,000 $750,000 Total Both Funds $5,891,000 Auditor Responsibility Two reasons external audits would not have revealed these misalignments are: 1) The County's annual audit focuses on the financial statements as a whole which are not presented at the individual project level. These problems only become apparent when analyzed at the individual project level. 2) The capital project funds are budgeted on a project length or multi-year basis. The fact that revenue received for particular revenue is less than budget at the end of a fiscal year is not an abnormal condition. It requires knowledge of when the specific funding sources for a project are expected to be received to determine whether a problem exists. This type of analysis is beyond the scope of the audit. The presentation of the financial statements for the two capital project funds has been expanded for FY 2007-08 to provide a comparison of budget and actual project expenditures for auditor review. Staff Proposal for Covering Remaining Shortfall As stated earlier, $5.89 million in additional capital funding is needed to cover the shortfall. Based on current year cash flow needs, at least $3.5 million of the shortfall is needed in the current fiscal year. The remaining $2.391 million will be needed in FY 2009-10. Staffs analysis shows the majority of the remaining shortfalls resulted from differences between the pay-as-you-go funds budgeted for projects in the two capital project funds and the amount of money transferred to the two capital projects funds from the General Fund. Most of these differences existed when the conversion to MUNIS was made. This means they occurred prior to the end of fiscal year 2003 over one or more fiscal years. If those additional amounts of pay- as-you-go revenue had been transferred from the General Fund, the fund balance would be less than it currently stands. Staff recommends the Board approve atwo-year funding plan to replenish the shortfall by appropriating General Fund available fund balance. 3 Based on preliminary estimates, the County's General Fund available fund balance at the end of FY 2007-08 is projected to be approximately 14.4% of expenditures or $24.7 million. If this plan is implemented, based on conservative projections, the projected available fund balance at the end of FY 2008-09 could be approximately 12% of expenditures or $21.85 million. The appropriation of $2.391 in FY 2009-10 would decrease the fund balance to 11.1 % or $21.64 million. While this percentage amount is higher than the Local Government Commission recommendation of a minimum 8 percent of expenditures, it is well below the County's informal target of 15 percent of expenditures. Staff will bring budget amendments to the Board to implement the recommended action if approved by the Board. Additionally, budget amendments will be brought to the Board in those cases where project expenditures have exceed the project budgets and where appropriation of other identified sources, such as the transfer of the remaining School Capital Reserve Funds, is necessary. As best practice, local governments should only appropriate fund balance for non-recurring purposes such as capital. While it is preferable to be able to achieve the fund balance goal in order to meet needs in time of fiscal stress the use of the fund balance to meet non-recurring priorities is understandable. It would be prudent to not let the fund balance fall below 11 % in order to provide for cash flow as well as maintaining the County's excellent bond rating. Once funding the shortfall is completed it will be necessary to take steps to rebuild the fund balance of the General Fund. As a point of reference, North Carolina counties with populations of 100,000 and above had an average available fund balance of more than 19 percent at the end of FY 2006-07. Another benchmark to consider is that the average fund balance for all North Carolina counties at the end of FY 2006-07 was in excess of 21 percent. FINANCIAL IMPACT: The financial impact of the recommended action is the projected reduction of the fund balance of the General Fund to as low as 11.1 % of projected FY 2009-10 expenditures. RECOMMENDATION(S): The County Manager recommends the Board discuss and provide direction to staff for the November 6th BOCC regular meeting. Sample Projects The project information below provides actual examples of the types of differences described in the abstract. Project A Revenue Alternative Financing Public School Building Funds General Fund transfer Expenditures Budget. Actual Difference $ 655,000 $ 305,000 $ (350,000) 455,000 - (455,000) 415.000 765,000 350.000 $1,525,000 $1,070,000 $(455,000) $1,525,000 $1,522,248 $ 2,752 4 There are unallocated alternative financing proceeds which can be allocated to this project to make up the $350,000 shortfall in alternative financing revenue. There are no additional funds available from Public School Building Facility funds. However, some of the shortfall has already been offset by the allocation of General Fund transfer in excess of the budget. This leaves $105,000 needed to complete funding of this project after the allocation of the additional $350,000 alternative financing revenue. Project B Revenue Budget Actual Difference Alternative Financing $1,745,000 $1,745,000 - General Fund transfer 1,025,000 375,000 $ (650.000) $2,770,000 $2,120,000 $ (650,000) Expenditures $2,770,000 $2,591,775 $ 178,225 There is an additional $650,000 from general fund transfer that has not been provided to fully fund the project budget. Additional revenue will need to be allocated to the project. Protect C Revenue Budget Actual Difference General Fund transfer $4,440,000 $4,440,000 - County Capital Reserve 100.000 100.000 - $4,540,000 $4,540,000 - Expenditures $4,540,000 $4,576,873 (36,873) This project has been fully funded to the budgeted amount but expenditures are $36,873 over. budget. Additional revenue will need to be budgeted and allocated to the project. Project D Revenue Budget Actual Difference 2001 Park Bonds $1,750,000 $ 750,000 $(1,000,000) This project requires an additional $1 million from Park Bonds. However this additional revenue is to come from the planned future issuance of debt approved by the Board so it will be fully funded.