Executive Summary December 31, 2016 City of Fargo, North Dakota

Transcription

1 Executive Summary December 31,

2 Executive Summary Year Ended December 31, 2016 Purpose of the Executive Summary The City receives audited financial statements each year, however the document is long and readers may find it difficult to read and understand. In an effort to help facilitate understanding we have put together an executive summary containing summarized information from the audited financial statements, as well as graphs and ratios. We believe the City Commission, management, and citizens of Fargo will have a clearer picture of the financial condition of the City by reading this summary. This is not a required report and we offer no opinion on the executive summary. We hope this executive summary encourages discussion of the City s financial condition and to: Alert the City Commission and management to financial condition trends, both favorable and unfavorable. Put the City s financial condition in perspective by compiling data for several years. We obtained the idea of an executive summary format based on a review of the Comprehensive Annual Financial Report (CAFR) of the City of Sioux Falls, South Dakota, done by the Internal Audit department of the City in May Audit Opinion The City received a clean audit opinion. What does that really mean? The audit opinion is a brief report that appears with the financial statements. A clean audit opinion is more precisely referred to as an unmodified opinion. An unmodified opinion means that the financial statements have been prepared using accounting principles generally accepted in the United States of America (GAAP), do not contain material misstatements, and are fairly presented. Some readers of financial statements with an unmodified (clean) audit opinion believe that the auditors are signifying that the organization has a financial clean bill of health. They may believe the auditors are indicating that there is no fraud, that the organization is using its resources effectively and efficiently, and that the organization is in compliance with all laws and regulations. The auditor s report (audit opinion) on a financial statement audit is merely the auditor s professional opinion, based on audit work, on whether the financial statements were prepared in accordance with GAAP and are free from material misstatement. Audit of Federal Funds All non-federal entities that expend $750,000 or more of Federal awards in a year are required to obtain an annual audit in accordance with the Single Audit Act. A single audit is intended to provide a cost-effective audit in that one audit is conducted in lieu of multiple audits of individual programs. During 2016 the City expended approximately $51.8 million in Federal awards. For single audit planning purposes the City was determined to be a high-risk auditee. The City received an unmodified opinion on compliance for the major federal award programs report. 1

3 General Fund Cash and Investments (In Thousands) $40,000 $35,000 $35,096 $35,571 $30,000 $29,545 $28,771 $31,110 $25,000 $20,000 $15,000 $10,000 $5,000 $- 2

4 Liquidity Liquidity refers to an organization s ability to pay short-term financial obligations. Liquidity involves determining the level of cash on hand and in the bank and other assets that can be easily converted to cash. This cash position is compared to accounts payable and other current liabilities as well as that portion of long-term liabilities that are due within one year. Because a significant portion of the City s current debt obligations are covered by certified special assessments each year, current portion of the special assessments receivable are considered to be easily converted to cash and are included in the formula. The formula for calculating the liquidity ratio is: Cash and cash equivalents + Current portion of special assessments receivable Accounts payable and other current liabilities + Long-term liabilities due within one year Business Type Activities Governmental Activities Governmental activities include the general fund, special revenue funds, capital projects fund, and debt service fund. Business-type activities include the proprietary funds such as Airport, Water, Wastewater, Storm Sewer, Solid Waste, FargoDome, Southeast Cass Sewer, Vector Control, and Forestry. A liquidity ratio of less than one to one (for example 0.8) is considered by financial analysts to be a negative factor in an organization s financial condition. Liquidity is a controversial financial indicator according to many analysts. Because the ratio can change daily according to receipt of cash, any analysis of the liquidity ratio must be done at the same time of the year for a meaningful comparison. 1 This comparison was done with the year-end cash and liability position. 1 Evaluating Financial Condition: a Handbook for Local Governments, page 71 3

5 Pledged Revenue Coverage A financial indicator related to debt is the Pledged Revenue Coverage ratio. This is the amount of cash flow available to meet annual interest and principal payments on debt. A ratio of 1.0 is ideal and would mean that there are adequate revenues to cover debt payments. A ratio of less than 1.0 would mean there are not sufficient revenues to cover required debt payments. The formula for calculating Pledged Revenue Coverage is: Governmental Activities 2 : Net Revenue Available for Debt Service Principal + Interest Long-Term Debt Payments Special Assessment Bonds Sales Tax Revenue Bonds NOTE: At the end of 2016, there was $16,848,334 in prepaid special assessments that can be used to make debt service payments. 2 Comprehensive Annual Financial Report for the year ended December 31, 2015, page 155 4

6 Pledged Revenue Coverage Business-Type Activities 3 : Water Revenue Bonds SRLF Notes Payable Comprehensive Annual Financial Report for the year ended December 31, 2015, page 156 5

7 General Fund Revenues Years Ended December 31, 2014 through December 31, % 3% 3% 1% % Intergovernmental Taxes and franchise fees Charges for services 23% Licenses and permits Fines and forfeits Investment income 31% Other 6% 3% 3% 1% % Intergovernmental Taxes and franchise fees Charges for services 25% Licenses and permits Fines and forfeits Investment income 33% Other 6% 2% 3% 1% % Intergovernmental Taxes and franchise fees Charges for services 27% Licenses and permits Fines and forfeits Investment income 35% Other Intergovernmental $ 24,825,032 $ 23,737,000 $ 21,543,645 Taxes and franchise fees 26,186,531 27,213,243 28,702,567 Charges for services 19,161,378 20,609,014 22,161,433 Licenses and permits 7,224,633 4,990,708 4,832,453 Fines and forfeits 2,265,238 2,443,652 2,121,582 Investment income 2,724,205 2,143,968 2,525,865 Other 907, ,969 1,030,903 Total $ 83,294,401 $ 82,090,554 $ 82,918,448 6

8 General Fund Expenditures Years Ended December 31, 2014 through December 31, % 9% 12% 12% 5% 1% % 18% Public safety General government Public health and welfare Public works Public transportation Recreation and culture Capital outlay General support 8% 11% 12% 12% 12% 5% 5% 2% 6% 3% 1% 8% 18% 18% % % Public safety General government Public health and welfare Public works Public transportation Recreation and culture Capital outlay General support Public safety General government Public health and welfare Public works Public transportation Recreation and culture Capital outlay General support Public safety $ 31,097,859 $ 33,326,475 $ 35,804,818 General government 14,255,796 15,087,608 15,850,432 Public health and welfare 9,647,197 10,412,765 10,762,458 Public works 9,646,066 9,716,904 10,662,455 Public transportation 7,162,185 7,031,084 7,092,990 Recreation and culture 4,364,445 4,390,993 4,770,797 Capital outlay 3,710,639 4,425,376 2,611,766 General support 1,186,071 1,279,711 1,135,179 Total $ 81,070,258 $ 85,670,916 $ 88,690,895 7

9 Budget to Actual General Fund Year Ended December 31, 2016 Variance With Original Budget Final Budget Actual Final Budget Revenues Taxes $ 29,123,995 $ 29,113,995 $ 28,702,567 $ (411,428) Licenses and permits 4,580,000 4,580,000 4,832, ,453 Intergovernmental revenues 26,662,005 21,549,569 21,543,645 (5,924) Charges for services 17,217,850 21,496,550 22,161, ,883 Fines and forfeits 2,641,000 2,641,000 2,121,582 (519,418) Investment income 1,957,000 2,457,000 2,525,865 68,865 Miscellaneous Revenue 1,117,150 1,169,097 1,030,903 (138,194) Total revenues 83,299,000 83,007,211 82,918,448 (88,763) -0.1% Negative Expenditures General government 15,861,468 16,385,803 15,850, ,371 Public safety 34,929,918 36,263,025 35,804, ,207 Public works 11,214,525 10,944,796 10,662, ,341 Public health and welfare 9,840,631 10,443,146 10,762,458 (319,312) Recreation and culture 4,541,670 4,562,577 4,770,797 (208,220) Public transportation 7,821,638 7,336,456 7,092, ,466 General support 945, ,150 1,057,122 (76,972) Capital outlay 7,166,000 5,087,381 2,611,766 2,475,615 Debt Service: Principal ,352 (68,352) Interest and fiscal charges - - 9,705 (9,705) Total expenditures 92,321,000 92,003,334 88,690,895 3,312, % Positive Revenues Over (Under) Expenditures (9,022,000) (8,996,123) (5,772,447) 3,223,676 Other Financing Sources (Uses) Transfers in 10,996,000 10,996,000 11,515, ,029 Transfer out (1,794,000) (5,764,660) (5,522,130) 242,530 Total other financing sources (uses) 9,202,000 5,231,340 5,992, ,559 Net Change in Fund Balance $ 180,000 $ (3,764,783) 220,452 $ 3,985,235 Fund Balance - Beginning 39,176,052 Fund Balance - Ending $ 39,396,504 8

10 Fund Balance General Fund Year Ended December 31, 2016 Fund balance is the cumulative difference between fund assets and fund liabilities. Fund balance is further divided into nonspendable, restricted, committed, assigned, and unassigned categories. Nonspendable fund balances represent amounts that cannot be spent because they are not in spendable form, such as inventory and prepaid expenses. Restricted fund balance is legally restricted and cannot be appropriated for other spending. Committed fund balance is intended for a specific activity and imposed by formal action of the City Commission but is not legally restricted. Assigned fund balance is also intended for a specific activity by city designated individuals, but is also not legally restricted. Unassigned fund balance can be thought of as reserved or a rainy day fund. A positive fund balance: Contributes to a favorable bond rating Produces investment income Provides a source of working capital to meet cash flow needs Offers a cushion for unexpected expenditures or revenue shortfalls The Government Finance Officers Association (GFOA) encourages local governments to adopt a policy on the fund balance in the general fund such that the unrestricted (committed, assigned, and unassigned) portion of fund balance is maintained at no less than 5 to 15 percent. 4 In the General Fund, the City strives to maintain an unassigned fund balance to be used for unanticipated emergencies of approximately 25 percent of the total current year general fund expenditures. 5 4 Appropriate Level of Unreserved Fund Balance in the General Fund, GFOA Best Practice, City of Fargo 2015 Comprehensive Annual Financial Report, page 39 9

11 Fund Balance General Fund Year Ended December 31, 2016 The City s unassigned fund balance as a percentage of expenditures in the General Fund for the last five years is as follows: 35.0% 34.0% 33.9% 33.0% 32.0% 31.6% 31.9% 32.5% 31.0% 30.0% 29.0% 29.1% 28.0% 27.0% 26.0% The actual amount of unassigned fund balance in the General Fund at the conclusion of the last five years was: $ 23,280,959 $ 22,428,922 $ 25,881,011 $ 29,041,175 $ 28,854,936 10

12 Operating Expenditures per Capita General Fund Year Ended December 31, 2016 Calculating the operating expenditures of the City s general fund relative to changes in population is a commonly used financial indicator. If the cost of providing services is rising faster than the population, this may be an indicator of inefficiency or decreased productivity. Any calculation should take into account the effects of inflation. Additionally, increased services provided by the local government can affect this ratio. Operating expenditures are used to calculate this ratio because capital expenditures, such as buildings and heavy equipment, can fluctuate tremendously and make trend analysis difficult. The formula for calculating operating expenditures per capita is: Operating expenditures (constant dollars) Population A warning trend would be increasing operating expenditures per capita that are not explainable by inflation or increased services. The operating expenditures per capita in the general fund, adjusted for inflation, are as follows: $ $700 $600 $ $ $ $615 $615 $500 $400 $300 Fargo Average Other Cities* $200 $100 $0 Average increase in operating expenditures per capita for the City of Fargo from was 2.91% per year. *Average Other Cities includes information available within CAFR data on the City of Bismarck, Sioux Falls, Grand Forks, and Minot s websites. NOTE: For 2016 Bismarck and Grands Forks CAFR information was not available therefore both cities were excluded. 11

13 Airport Fund 10,000,000 9,000,000 8,210,273 9,334,604 9,290,804 9,136,669 8,000,000 7,354,616 7,000,000 6,000,000 5,000,000 4,203,410 4,406,929 4,969,966 4,941,290 4,970,394 Operating revenues Operating expenses 4,000,000 3,000,000 3,151,206 3,803,344 4,364,638 4,349,514 4,166,275 Operating income 2,000,000 1,000,000 - Operating revenues consist of charges for services and general property taxes. Average increase in this item from was 4.85% per year. Operating expenses consist of salaries and benefits, materials and supplies, and other miscellaneous expenses. Depreciation is excluded from this amount. Average increase in this item from was 6.44% per year. Operating income is the difference between operating revenues and operating expenses. 12

14 Utility Funds 50,000,000 45,000,000 40,000,000 42,987,202 42,838,783 42,380,894 42,916,509 46,445,461 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 21,310,358 21,676,844 23,218,844 22,741,198 19,619,939 19,639,696 24,582,722 18,333,787 25,716,614 20,728,847 Operating revenues Operating expenses Operating income Transfers out 10,000,000 10,742,921 12,243,340 11,692,435 12,733,751 13,688,204 5,000,000 - This represents the Water, Wastewater, Storm Sewer, and Solid Waste funds. Operating revenues consist of charges for services. Average increase in this item from was 1.61% per year. Operating expenses consist of salaries and benefits, materials and supplies, and other miscellaneous expenses. Depreciation is excluded from this amount. Average increase in this item from was 4.14% per year. Operating income is the difference between operating revenues and operating expenses. Transfers out are the annual appropriations to the City s General Fund, special revenue funds, capital projects funds, and other enterprise funds. 13

15 FargoDome Fund 7,000,000 6,000,000 5,000,000 5,161,637 5,447,421 5,363,487 6,442,044 5,750,601 6,069,576 5,404,584 6,578,942 5,606,400 4,000,000 3,000,000 4,707,374 Operating revenues Operating expenses Operating income 2,000,000 1,000, , , , ,263 83,934 Operating revenues consist of charges for services. Average increase in this item from was 5.49% per year. Operating expenses consist of salaries and benefits and other miscellaneous expenses. Depreciation is excluded from this amount. Average increase in this item from was 3.82% per year. Operating income is the difference between operating revenues and operating expenses. 14

16 FargoDome Fund The balance in the FARGODOME Capital Escrow Fund (in thousands) at the conclusion of the previous five years is as follows: $45,000,000 $40,000,000 $38,632 $40,622 $38,452 $35,000,000 $34,539 $33,275 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $- The decrease from the prior year is attributed to a project that was paid for during 2016 to acquire and install certain video boards and technology and certain related renovations to the FARGODOME facilities to accommodate the use of new video boards. Debt was issued in early 2017 to reimburse the FARGODOME fund for the cost of this project 15

17 Other Proprietary Funds 4,500,000 4,000,000 3,500,000 3,000,000 3,672,429 3,740,032 3,824,210 3,498,107 3,516,620 3,266,896 3,923,673 4,019,445 3,648,250 3,776,662 2,500,000 2,000,000 Operating revenues Operating expenses Operating income (loss) 1,500,000 1,000, , , , , , ,783 - This represents the Southeast Cass Sewer, Vector Control, Street Lighting and Forestry funds. Operating revenues consist of charges for services. Average increase in this item from was 1.89% per year. Operating expenses consist of salaries and benefits, materials and supplies, and other miscellaneous expenses. Depreciation is excluded from this amount. Average increase in this item from was 3.12% per year. Operating income (loss) is the difference between operating revenues and operating expenses. 16

18 Property Tax General Fund 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Fargo Bismarck Grand Forks Minot Sioux Falls This represents the property tax for each City as a percentage of total general fund revenues from *Note: 2016 Bismarck and Grand Forks CAFR s were not available. 17

19 Property Tax General Fund Fargo Bismarck Grand Forks Minot Sioux Falls % 38.0% 36.7% 14.5% 37.1% % 36.5% 36.4% 18.3% 34.8% % 39.6% 36.7% 17.5% 37.1% % 41.8% 37.4% 31.7% 37.1% % 37.3% 36.5% *Note: 2016 Bismarck and Grand Forks CAFR s were not available. Property tax amounts per City: Fargo Bismarck Grand Forks Minot Sioux Falls 2012 $ 20,030,055 $ 10,032,159 $ 12,120,178 $ 3,429,905 $ 46,479, $ 20,793,070 $ 10,044,252 $ 12,461,713 $ 4,504,472 $ 48,547, $ 21,507,831 $ 12,463,045 $ 13,539,639 $ 4,720,060 $ 51,025, $ 22,779,266 $ 12,847,186 $ 13,644,445 $ 7,858,702 $ 53,344, $ 23,782,357 $ - $ - $ 8,857,271 $ 55,003,521 General Fund total revenues per City: Fargo Bismarck Grand Forks Minot Sioux Falls 2012 $ 72,392,512 $ 26,373,386 $ 33,017,698 $ 23,632,360 $ 125,210, $ 79,972,799 $ 27,529,455 $ 34,281,315 $ 24,565,848 $ 139,687, $ 83,294,401 $ 31,447,807 $ 36,886,352 $ 26,904,988 $ 137,738, $ 82,090,554 $ 30,722,359 $ 36,501,831 $ 24,789,564 $ 143,934, $ 82,918,448 $ - $ - $ 23,751,660 $ 150,883,746 18