Comprehensive Annual Financial Report

Transcription

1 Comprehensive Annual Financial Report Fiscal Year, beginning April 1, 2017 and ending March 31, 2018 A component unit of the County of McHenry, Illinois U.S. Highway 14, Woodstock, IL MCCDistrict.org

2 (A Component Unit of the County of McHenry, Illinois) COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended March 31, 2018 Prepared by: Andy Dylak Director of Administration and Finance

3 TABLE OF CONTENTS Page(s) INTRODUCTORY SECTION Principal Officials... Organization Chart... Letter of Transmittal... Certificate of Achievement for Excellence in Financial Reporting... i ii iiix xi FINANCIAL SECTION INDEPENDENT AUDITOR S REPORT GENERAL PURPOSE EXTERNAL FINANCIAL STATEMENTS Management s Discussion and Analysis... MD&A 118 Basic Financial Statements GovernmentWide Financial Statements Statement of Net Position... 4 Statement of Activities... 5 Fund Financial Statements Governmental Funds Balance Sheet Reconciliation of Fund Balances of Governmental Funds to the Governmental Activities in the Statement of Net Position... 8 Statement of Revenues, Expenditures, and Changes in Fund Balances Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Governmental Activities in the Statement of Activities Notes to Financial Statements

4 TABLE OF CONTENTS (Continued) Page(s) FINANCIAL SECTION (Continued) GENERAL PURPOSE EXTERNAL FINANCIAL STATEMENTS (Continued) Required Supplementary Information Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund Schedule of Employer Contributions Illinois Municipal Retirement Fund Schedule of Changes in the Employer s Net Pension Liability and Related Ratios Illinois Municipal Retirement Fund Schedule of Changes in the Employer s Total OPEB Liability and Related Ratios Other Postemployment Benefit Plan Notes to Required Supplementary Information COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES MAJOR GOVERNMENTAL FUNDS Schedule of Revenues Budget and Actual General Fund Schedule of Expenditures Budget and Actual General Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Debt Service Fund Capital Improvements Fund Dedicated Projects Fund NONMAJOR GOVERNMENTAL FUNDS Combining Balance Sheet Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Insurance Fund Natural Resources Fund... 59

5 TABLE OF CONTENTS (Continued) Page(s) STATISTICAL SECTION Financial Trends Net Position by Component Change in Net Position Fund Balances of Governmental Funds Changes in Fund Balances of Governmental Funds Revenue Capacity Assessed Value and Estimated Actual Value of Taxable Property Property Tax Rates Direct and Overlapping Governments Principal Property Taxpayers Property Tax Levies and Collections Debt Capacity Ratios of Outstanding Debt by Type Ratios of General Bonded Debt Outstanding Direct and Overlapping Governmental Activities Debt Legal Debt Margin Demographic and Economic Information Demographic and Economic Statistics Principal Employers Operating Information FullTime Equivalent Employees by Function Operating Indicators by Function Capital Asset Statistics by Function OTHER INFORMATION UNAUDITED Municipal Securities Disclosure Requirements of the Securities Exchange Commission (SEC) Rule 15c212 Debt Service Extension Base Balance Sheets General Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance General Fund

6 INTRODUCTORY SECTION

7 Board of Trustees Stephen Barret, President Trout Valley, IL David Kranz, Vice President Woodstock, IL Peter Merkel, Treasurer McHenry, IL Vern Scacci, Secretary Woodstock, IL David Brandt Wonder Lake, IL John Henning Marengo, IL Carolyn Campbell Crystal Lake, IL Executive Leadership Team Elizabeth S. Kessler, MBA, CPRE Executive Director John Kremer, CPRP Director of Operations & Public Safety Andy Dylak Director of Administration & Finance Ed Collins Director of Land Preservation & Natural Resources Wendy Kummerer, CPRP Director of Marketing & Communications i

8 McHenry County Conservation District Organizational Structure Residents Board of Trustees Executive Director MCCF Board of Directors Development Director/Executive Director of MCCF Director of Land Preservation & Natural Resources Director of Marketing & Communications Director of Administration& Finance Director of Operations & Public Safety Natural Resources Communications Human Resources Sites & Fleet Wildlife Resource Center Volunteers Accounting & Finance Police Land Preservation Information Systems Education Services Facility Maintenance Planning ii

9 September 20 th, 2018 To: The Board of Trustees and Citizens of the McHenry County Conservation District I am pleased to submit the Comprehensive Annual Financial Report (CAFR) of the McHenry County Conservation District for the fiscal year ended March 31, Illinois State Statutes require the Conservation District to produce a complete set of audited financial statements for each fiscal year. This CAFR is provided to fulfill that requirement for the fiscal year The financial statements contained within the CAFR are prepared in accordance with Generally Accepted Accounting Principles (GAAP) of the United States of America, as established by the Governmental Accounting Standards Board. These financial statements were prepared by District Management, who is responsible for both the accuracy of the data, and the completeness and fairness of the report taken as a whole. The financial statements included in the CAFR were audited by the independent certified public accounting firm of Sikich LLP and received an unmodified opinion. (See the Independent Auditors Report on page I of the financial section.) Also, included within the CAFR is a section titled Management s Discussion and Analysis (MD&A). The MD&A provides an analytical overview and comparative summary of the District s financial activities and should be considered an integral part of the CAFR. The Management of the Conservation District has the responsibility to establish and maintain accounting policies and procedures and other internal controls for the preparation of complete and accurate financial statements in accordance with GAAP. Because the cost of internal controls should not exceed the anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements. We believe the data, as presented, is accurate in all material respects; that it is presented in a manner designed to fairly set forth the financial position and changes in financial position of the District as measured by the financial activity of its various funds; and that all disclosures necessary to enable the reader to gain maximum understanding of the District s financial affairs have been included. Profile of the Conservation District The Conservation District is a separate, autonomous, specialpurpose taxing district created by a group of ecologically conscientious citizens in 1971 and supported by the Illinois Conservation District Act of It is governed by a sevenmember, volunteer Board of Trustees who each serve a fiveyear term. The District exists to preserve, restore, and manage natural areas and open spaces within McHenry County for their intrinsic value and for the benefit of present and future generations. The District owns and manages more than 25,371 acres of open space, which consists of diverse woodlands, prairies, wetlands, ponds, creeks, and rivers. Within the District s land holdings there are (17) dedicated State Nature Preserves and (33) sites open to the public; featuring hiking, bicycle, equestrian, crosscountry skiing and snowmobile trails, picnic shelters, camp sites, fishing sites, educational facilities, cultural sites and rare, threatened and endangered plants and animals. Safety and security at its sites and programs iii

10 are provided by the District s police department; consisting of a welltrained staff of police officers, who are certified under the laws of the State of Illinois with full arresting authority. Local Economy The McHenry County Conservation District is statutorily restricted to fulfilling its mission within the geographic area of McHenry County. McHenry County covers a total area of 611 square miles and is located in the northeastern part of Illinois. The County is approximately 50 miles northwest of Chicago and consists of over 30 communities with considerable residential development concentrated in the eastern half of the County and more open space and less development toward the western half. The U.S. Census Bureau estimates the County s population to be 309,122 as of July 1, 2017; which is an increase of.69% over the 2016 estimate. While this is a relatively minimal increase, it represents a reversal of the declining population trend the County had been experiencing since The small increase in population is a marked change from an annual growth rate which had averaged almost 3% during the fifteen years prior to The State of Illinois is also experiencing a declining population, with the 2017 population estimated to have decreased by 0.3% to 12,802,023. The following chart shows the County s population by decade from 1980 through 2010 and the U.S. Census Bureau s estimated population for calendar years 2011 through ,000 McHenry County Population Actual ; Estimated (as of July 1) per US Census Bureau 308, , , , , , , , , , , , , , , ,000 50, iv

11 McHenry County continues to see positive signs in its local economy, with the 2017 average annual unemployment rate (not seasonally adjusted) falling to 4.5% from 5.3% in Comparatively, the State average unemployment rate for 2017 was 5.0% and the national rate was 4.9%. As of April 1 st, 2018, the County s unemployment rate had fallen to 3.3% and the County s labor force was 163,974; consisting of 158,626 employed and 5,348 unemployed. The comparable statistics for 2017 show a lower total labor force of 163,489; which consisted of 157,040 employed and 6,449 unemployed. McHenry County was not immune to the nationwide collapse of the housing market that followed the economic recession of and continued locally through From 2007 through 2012, the annual average median home value in McHenry County fell from a high of $227,000 to a low of $141,000; an almost 39% decline in median values. However, in 2013, home values in McHenry County began a strong recovery, rising more than 8% annually. This trend continued over the next four consecutive years, with average median residential home values increasing almost 6% in From the 2012 lows, average median home values have gained more than 42% and this upward trend is continuing through the first quarter of The following chart shows the average median single family home value by year from $260,000 McHenry County Average Median Home Values $240,000 $220,000 $200,000 $180,000 $160,000 $140,000 $229,500 $227,000 $200,000 $181,000 $171,000 $152,000 $141,000 $152,500 $175,530 $165,000 $190,000 $201,125 $120,000 $100, v

12 Billions LongTerm Financial Planning In November of 2014, Standard & Poor s assigned a debt rating of AA+/Stable and Moody s assigned a debt rating of Aa1/ with a neutral outlook, which was an improvement from its most recent prior rating of AA1/ with a negative outlook. With low unemployment, a solid recovery in the housing market and a return to growth of the County s Equalized Assessed Value (EAV), the District is in a much more favorable financial position than it was One of the key components of the District s financial viability is property tax revenue, which accounted for approximately 83% of the District s total FY 2018 budgeted operating revenue. Historically, property taxes are typically a very stable source of revenue and help ensure the District has the resources needed to carry out its operations. The reliability of this main source of revenue allows the District s Board of Trustees to set the General Fund s unassigned reserve balance to a minimal level of 25% (or 3 months) of total annual operating expenses. The District s General Fund levy is subject to a maximum statutory tax rate as established within the Illinois Conservation District Act (70 ILCS 410/). The maximum statutory rate is 1/10 th of 1% of the Equalized Assessed Value (EAV) of the County. With more than 80% of McHenry County s EAV being made up of residential homes, the EAV closely follows the changes of assessed values of residential properties over time. The EAV is determined using a three year average of assessed property values which helps to even out the tax impacts of sudden changes in home values to both homeowners and taxing bodies alike. While home values started to decline in 2008; due to the three year averaging the EAV did not begin a notable decline until McHenry County s EAV fell more than 34% from 2008 through 2014; from a high of $10.5 billion in 2008 to a low of $6.9 billion in The below graph shows the EAV of McHenry County for the calendar years 2007 through McHenry County Equalized Assessed Value $12 $10 $10.2 $10.5 $10.4 $9.7 $8.8 $8 $7.9 $7.2 $6.9 $7.1 $7.5 $8.0 $6 $4 $2 $ vi

13 The sharp decline in the EAV of the County resulted in the District reaching the 1/10 th of 1% maximum General Fund statutory tax rate in However, in August of 2014, the Illinois Property Tax code was amended to allow taxing bodies to issue a separate levy for Social Security and Medicare taxes and this new levy was not subject to the District s General Fund statutory tax rate. This gave the District much needed General Fund statutory rate relief until the County s EAV could begin to recover. Due to the critical importance of property tax revenue to the District s financial stability, the District developed a financial model to forecast the County s EAV. The model has proven to be very accurate over the last seven years (with a correlation coefficient >.97) and allows the District to accurately forecast changes to the EAV two years into the future and quantify the potential impact of those changes on property tax revenues. The model projects the EAV will grow by 6.8% and 7.1% for calendar years 2018 and 2019 respectively; moving the District s current General Fund levy comfortably away from the maximum statutory rate. The District s ability to increase its property tax levy is statutorily restricted by the Illinois Property Tax Extension Limitation Law (PTELL). PTELL statutorily restricts the increase to the General Fund, Social Security and Insurance/Tort levies to 5% or the change in the Consumer Price Index (CPI) for the previous calendar year, whichever is lower. PTELL also allows for a small additional increase in the property tax levy for new development within the County; which has averaged only approximately $50,000 over the last several years. The District s General Fund unrestricted fund balance reflects the District s success at conservatively managing its financial resources and efficiently managing the operations of the District. In December of 2016, the District Board of Trustees assigned the portion of unrestricted fund balance that was in excess of the minimum requirement (25% of annual operating expenses) to be utilized for the repair and replacement of capital infrastructure as defined within the District s Capital Asset Management Plan (CAMP). As of March 31 st, 2018, $4,078,217 of the unrestricted fund balance was assigned to the CAMP needs. vii

14 The following chart shows a history of the General Fund s Unrestricted and Unassigned Fund Balances for fiscal years 2009 through fiscal year The chart shows the Fund Balance as a % of total annual operating expenses, excluding capital outlays. 90% General Fund Unrestricted & Unassigned Fund Balance FY2009 FY % 80% 70% 60% 57% 57% 60% 60% 55% 55% 56% 56% 53% 53% 60% 60% 65% 65% 69% 69% 75% 50% 40% 30% 28% 28% 20% 10% 0% Unrestricted Fund Balance Unassigned Fund Balance Relevant Financial Policies Internal Controls Management of the District is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the District are protected from loss, theft, or misuse, and to ensure that adequate accounting data is compiled to allow the preparation of financial statements in conformity with Generally Accepted Accounting Principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes; (1) the cost of a control should not exceed the benefits likely to be derived, and (2) the valuation of costs and benefits requires estimates and judgments by management. viii

15 Budgetary Controls The Conservation District s budget process must conform with the directives of both the Illinois Conservation District Act (70 ILCS 410/) as well as the Illinois Municipal Budget Law (50 ILCS 330/1). The budget process starts with the Board and Executive Leadership Team developing a strategic plan and operational budget directives that support the plan. Each departmental manager is responsible for developing their department s operational budget in conformance with the established budget directives. A zerobased budget methodology is utilized, requiring all department managers to reset the assumed budget amount of each line item expense to zero ($0.00) at the beginning of the budget development process. They must then provide costs and detailed descriptions to support every budget expense they are requesting. Working from the completed department operational budgets, the Executive Leadership Team then develops a Tentative Budget for all funds which is presented to the Board of Trustees for approval. After formal Board approval, the Tentative Budget is made available for the public to review and comment on for a period of 30 days. At the request of the County, the District may also make budget presentations to committees of the County and/or the County Board Chairman. After the 30 day review period, there is a formal public hearing held on the Tentative Budget, followed by another public presentation of any changes made to the Tentative Budget before it is formally adopted by ordinance by the District s Board of Trustees. Once these steps are completed, a resolution accepting the District s budget ordinance is statutorily required to be adopted by the Board of McHenry County, Illinois. During the fiscal year, budget variances are reviewed by District management on a monthly basis and are reviewed by the Board of Trustees on a quarterly basis. Debt Administration In December of 2014, the District issued $108,215,000 in General Obligation refunding bonds (and additional premium) to retire $116,370,000 of General Obligation Bonds in order take advantage of a very favorable interest rate environment. The bond refunding yielded a net present value savings of $12.1 million dollars over the life of the refunded bonds. As of March 31, 2018, the District had $91,070,000 of General Obligation bonds outstanding. Under current statute, the District s total debt is subject to a legal limitation not to exceed 1.725% of the County s EAV. As such, the District s statutory debt capacity as of March 31, 2018 was $42,035,181. As of March 31, 2018, the District s most recent ratings for the 2014 bond refunding were Aa1 as assigned by Moody s Ratings Services and AA+ as assigned by Standard & Poor s. Both of these ratings are the second highest ratings available by the agencies and reflect the sound financial position of the District. The main reason sited during the 2014 reviews, by both Moody s and Standard & Poor s, for not receiving the highest rating at that time was concern over the County s declining EAV; a trend which, as previously discussed, has reversed. ix

16 Major Initiatives With no new debt issuances, no significant sources of new revenue, and the addition of approximately 10,000 acres of open space over the last 15 years, the District continues to be in a maintenance mode; focusing on maintaining existing infrastructure vs. investing in large new initiatives. Existing funding is used almost exclusively for the repair and replacement of existing infrastructure; trails, roads and site amenities in accordance with the District s 10year Capital Asset Management Plan. New projects are only initiated when a new specific funding source can be identified or when a minimal investment can be maximized through intergovernmental agreements and the joint cost sharing of projects. The District will likely continue in this maintenance mode for at least the next several years. Site & Trail Improvements Construction was completed on the Harts Road Parking Area Renovations project in Glacial Park Conservation Site. Improvements updated the amenities to meet current design standards, resolve ADA noncompliance issues and transform the site infrastructure to ensure longterm maintenance is less costly and time consuming. Construction was completed on the Valley Road Bridge approaches and new retaining wall in Glacial Park Conservation Site. Construction was completed on the replacement of the fishing pier on Lake Atwood in The Hollows Conservation Site. Construction and repairs to the concrete surface was completed on the Prairie Trail South La Fox River Drive Bridge. Construction was completed on multiple asphalt resurfacing projects throughout the District, sites includes: Rush Creek, Silver Creek and Stickney Run. Construction was completed on the emergency stream bank stabilization of Crystal Creek, directly adjacent to the Prairie Trail in Algonquin, IL. Acknowledgements This Comprehensive Annual Financial Report is being submitted to the Government Finance Officers Association of the United States and Canada in pursuit of a Certificate of Achievement for Excellence in Financial Reporting. In order to be awarded the certificate, a governmental unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report, whose contents conform to program standards. The certificate is the highest form of recognition in the area of governmental accounting and financial reporting, and its attainment represents a significant accomplishment. The preparation of this report could not have been accomplished without the services of the Accounting Supervisor and the Division Directors and Department Managers who assisted in gathering information. I would also like to express my appreciation for the support and encouragement provided by our Executive Director and Board of Trustees. And lastly, I would like to acknowledge our independent auditors, Sikich LLP, whose professional assistance and guidance have been instrumental in completing this report. Respectfully submitted, Andy Dylak Director of Finance & Administration x

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18 FINANCIAL SECTION

19 1415 West Diehl Road, Suite 400 Naperville, IL INDEPENDENT AUDITOR S REPORT The Honorable President Members of the Board of Trustees McHenry County Conservation District McHenry County, Illinois We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the McHenry County Conservation District (the District), a discretely presented component unit of the County of McHenry, Illinois, as of and for the year ended March 31, 2018 and the related notes to financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 1

20 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the McHenry County Conservation District as of and for the year ended March 31, 2018, in conformity with accounting principles generally accepted in the United States of America. We have previously audited the District s financial statements, and our report dated July 13, 2017, expressed an unmodified opinion on those audited financial statements. In our opinion, the summarized comparative information presented herein as of and for the year ended March 31, 2017, is consistent, in all material respects, with the audited financial statements from which it has been derived. Change in Accounting Principle The District adopted GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which established standards for measuring and recognizing liabilities, deferred inflows and outflows of resources and expenses; and modified certain disclosures in the notes to financial statements and the required supplementary information as discussed in Note 12 to the basic financial statements. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and the required supplementary information listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements as a whole. The introductory section, combining and individual fund financial statements and schedules, statistical section, and other information are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying 2

21 accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory section, statistical section, and other information have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Naperville, Illinois August 21,

22 GENERAL PURPOSE EXTERNAL FINANCIAL STATEMENTS

23 MANAGEMENT DISCUSSION AND ANALYSIS This section of the McHenry County Conservation District s Comprehensive Annual Financial Report presents management s discussion and analysis of the District s financial activity during the fiscal year ended March 31, As the management of the District, we welcome this opportunity to offer readers this narrative overview and analysis designed to focus on current activities, comparative changes and currently known facts. For a more complete perspective of the District s financial condition, please read this discussion and analysis in conjunction with the District s basic financial statements and footnotes. PROFILE OF THE DISTRICT Created by a group of ecologically conscientious citizens in 1971 and supported by the Illinois Conservation District Act of 1963, the McHenry County Conservation District began with the mission to preserve open space, and to provide environmental education programs and resources for recreational opportunities to the public. Fortyseven (47) years later, the McHenry County Conservation District continues as a special district governed by a sevenmember Board of Trustees who are appointed by the Chairman of the McHenry County Board, with the consent of the McHenry County Board. While the District is considered a component unit of the County of McHenry, it is an independent agency with its own taxing authority which is utilized to support its mission of preservation, education and recreation. The majority of funding for the District s operations is generated through a General Fund ( Corporate ) tax levy which is statutorily limited to 1/10 th of one percent of the equalized assessed value (EAV) of all properties in McHenry County. The Corporate levy request is driven by the District s annual operating budget in support of the goals and objectives as approved by the District s Board of Trustees. As a component unit of the County, the District s annual budget is not considered adopted until a resolution accepting the District s budget is formally adopted by the County Board of McHenry County, Illinois. Additionally, the District has statutory authority to issue both referendum and nonreferendum debt for the purposes of land acquisition, site improvements and the protection and restoration of wildlife and natural habitats. FINANCIAL HIGHLIGHTS Financial highlights of the fiscal year 2018 include the following: The total net position of the District, the amount by which assets plus deferred outflows of resources exceeds liabilities plus deferred inflows of resources, was $140,209,934 as of March 31, 2018 and includes: o $5,530,505 which is unrestricted and available to meet the ongoing needs of the agency. o $720,634 which is restricted for specific purposes; and. o $133,958,795 which is the net investment in capital assets. The District s net position increased by $7,680,222 or 5.8% during the fiscal year. The vast majority of the increase was derived from total revenues exceeding total expenses for the reporting period. As of March 31, 2018, the District s governmental funds reported a combined ending fund balance of $11,226,854. This is an increase of $512,442 or 4.8% which is explained in detail in the Governmental Fund Financial Analysis section of this report. $978,834 was expended for site and trail improvements and natural restoration projects which are explained in detail on pages (15) and (16) of this MD&A. (See independent auditor s report) MD&A 1

24 $10,395,688 or 92.6% of the combined ending fund balance constitutes unrestricted fund balance. The District has committed or assigned $8,117,646 dollars of the unrestricted fund balance for specific future needs of the District. The District s equalized assessed value (EAV) for all taxable properties increased 5.7%, from $7,536,449,930 to $7,965,517,767 for the 2017 calendar year. As of March 31, 2018, the District had $91,070,000 of General Obligation bonds outstanding and had additional statutory debt capacity of $42,035,181. For the reporting period ending March 31, 2018, the District complied with GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pension (OPEB) and recorded an OPEB liability related to the implicit subsidy for retired employees who choose to stay on the District s health insurance. The District reported a total related OPEB liability of $318,091 as of March 31, OVERVIEW OF THE FINANCIAL STATEMENTS The McHenry County Conservation District s basic financial statements comprise three components: 1) Districtwide Financial Statements; 2) Fund Financial Statements; and 3) Notes to the Financial Statements. Required Supplementary Information is included in addition to the basic financial statements. Districtwide Financial Statements are designed to provide readers with a broad overview of the District s finances, in accordance with full accrual accounting concepts, in a manner similar to a privatesector business. Revenues are recognized when they are earned, and expenses are recognized as soon as a liability is incurred, regardless of the timing of the cash flows. The Statement of Net Position presents information on all of the District s assets, plus deferred outflows of resources; and liabilities, plus deferred inflows of resources; with the difference between the two reported as the net position. [assets + deferred outflows of resources] [liabilities + deferred inflows of resources] = [net position] Certain revenues and expenses are reported in this statement for items that will only result in cash flows in future fiscal periods such as uncollected property taxes and earned but unused vacation paid leave. Over time, increases and decreases in the net position may serve as a useful indicator of whether the financial position of the District is improving or deteriorating. The Statement of Activities presents information showing how the District's net position changed during the most recent fiscal year. All changes in the net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. The Districtwide Financial Statements can be found on pages 4 and 5 of the financial statements. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District, like other state and local governments, uses fund accounting to demonstrate and ensure compliance with financerelated legal requirements. The District has only one type of fund: governmental funds. (See independent auditor s report) MD&A 2

25 Governmental funds are used to account for essentially the same functions reported as governmental activities in the Districtwide Financial Statements. However, governmental fund financial statements focus on nearterm inflows and outflows of expendable resources, as well as on the balance of expendable resources available at the end of the fiscal year. This information is useful in evaluating the District s nearterm financial position. Because the focus of governmental funds is narrower than that of the Districtwide Financial Statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the Districtwide Financial Statements. By doing so, readers may better understand the longterm impact of the District s nearterm financing decisions. Both the governmental fund Balance Sheet and the governmental fund Statement of Revenue, Expenditures, and Changes in Fund Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The District maintains six individual governmental funds. Information is presented separately in the governmental fund Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balance for the major funds which include: General Fund, Debt Service Fund, Capital Improvements Fund and the Dedicated Accounts Capital Fund. Information for the Insurance Special Revenue Fund and the Natural Resources Special Revenue Fund are combined and presented under the nonmajor caption within the governmental funds financial statements. The Governmental Fund Financial Statements can be found on pages 611 of this report. Notes to the Financial Statement provide additional information that is essential to a full understanding of the data provided in the Districtwide and Fund Financial Statements. The Notes to the Financial Statements can be found on pages 1237 of the financial statements. Required Supplementary Information is presented concerning the District s General Fund budgetary schedule, as well as the schedule of employer contributions and schedule of changes in the employer s net pension liability and related ratios for the Illinois Municipal Retirement Fund (IMRF) and the schedule of changes in the employer s total OPEB liability and related ratios for the Other Postemployment Benefits Plan. The District adopts an annual appropriated budget for all of its Funds. Budgetary comparison schedules have been provided to demonstrate compliance with the formally approved budget. The IMRF and Other Postemployment Benefits Plan schedules have been provided to present IMRF s and the District s progress in funding its obligation to provide pension and other postemployment benefits to District employees. Required supplementary information can be found on pages 3842 of this report. DISTRICTWIDE FINANCIAL ANALYSIS: The Districtwide Financial Statements include all governmental and proprietary activities of a government. The District has only governmental activities and no proprietary activities; therefore only governmental activities are reported in the Governmentwide Financial Statements. Statement of Net Position. As noted earlier, the net position may serve over time as a useful indicator of the District s financial position. As of March 31, 2018 the District s [assets plus deferred outflows of resources] exceeded [liabilities plus deferred inflows of resources] by $140,209,934. This is an increase of $7,680,222 or 5.8% over the previous year and is explained in detail in the Change in Net Position section of this report. The table on the next page reflects a condensed comparative Statement of Net Position. (See independent auditor s report) MD&A 3

26 District's Net Position As of March 31, 2018, 2017 and Assets Current assets $ 31,400,637 $ 30,924,980 $ 31,529,995 Capital assets 237,290, ,590, ,740,853 Total assets 268,690, ,515, ,270,848 Deferred outflow of resources Unamortized loss on refunding 5,750,462 6,389,403 7,028,343 Pension Items 801, , ,584 Other postemployment benefits 109,368 Total deferred outflow of resources 6,661,433 7,284,078 7,825,927 Liabilities Current and other liabilities 1,664,221 1,759,903 1,515,522 Long term liabilities 112,454, ,927, ,601,274 Total liabilities 114,119, ,687, ,116,796 Defferred inflows of resources Deferred revenue property taxes 19,312,951 19,312,796 19,377,077 Pension Items 1,703, , ,116 Other postemployment benefits 6,682 Total deferred inflow of resources 21,023,291 19,582,662 19,657,193 Net position Net investment in capital assets 133,958, ,559, ,630,062 Restricted 720,634 1,320,105 1,714,531 Unrestricted 5,530,505 4,650,302 4,978,193 Total net position $ 140,209,934 $ 132,529,712 $ 123,322,786 Current assets include: cash, short term investments, prepaid expenses and receivables of the District. The total current assets increased by $475,657 or 1.5% during the current fiscal year. The increase is largely the result of cash balances growing $448,544 during the same period; which is due to revenues exceeding expenditures and the timing of those receipts and disbursements during the normal business cycle. Capital assets include: land and land improvements, buildings and building improvements, fixtures, equipment and vehicles. Capital assets were substantially unchanged, declining by $300,127 or just.13% and they will be discussed further in the Capital Asset section. Current and other liabilities include: accounts payable, accrued liabilities, interest payable and unearned revenue. Current liabilities decreased by $95,682 or 5.4% from the prior period. The decrease is largely the result of the following: Unearned revenue decreased by $170,303 from the prior period. In the prior year, the District received an advanced payment of $295,900 as part of a wetland mitigation agreement for restoration work which had not been started during the prior fiscal year. During FY 2018, the majority of the work had been completed and the District recognized the revenue accordingly; reducing the balance of the unearned revenue. (See independent auditor s report) MD&A 4

27 Interest payable decreased by $58,742 from the prior year as a result of the District making the annual contractual payments on the General Obligation bonds, reducing the outstanding principal balances. The reductions are offset by an increase in accounts payable which is simply the result of the timing of the actual payment of expenditures during the normal business cycle. Longterm liabilities consist of debt in the form of general obligation bonds and the related unamortized premium as well as an installment contract related to a land purchase in In December of 2014, the District issued $108,215,000 in General Obligation Refunding Bonds (and additional premium) to retire $116,370,000 of General Obligation Bonds, reducing the total outstanding bonds by approximately $8 million dollars. The bond refunding yielded a net present value savings of $12.1 million dollars over the life of the refunded bonds. As of March 31, 2018, the District s total General Obligation bonds outstanding were $91,070,000. Additionally, the District owes $4.3 million dollars on an installment loan that was entered into in 2006 to purchase a parcel of land known as the Harry J. and Helen R. Pichen Trust parcel. The principal is due in full on or before December 31, Deferred inflows of resources include property taxes levied in September of 2017 that were not collected until after March 31, Because the District does not receive the property taxes associated with the 2017 levy until the next fiscal year, the tax revenues cannot be utilized to finance expenditures of the reporting period ending March 31, As such, GASB Statement No. 65 requires that this future revenue be reported as a Deferred Inflow of Resources. The total deferred property taxes were substantially unchanged from the prior year as the District s total 2017 property tax levy (combined total of all levies) was not increased over the 2016 levy. The largest portion of the District s net position is the $133,958,795 invested in capital assets (net of related debt) and accounts for 95.5% of total net position. Investments in capital assets (net of related debt) increased $7.4 million dollars or 5.8% over the prior period. The change in capital assets (net of related debt) includes the following: The District s total outstanding General Obligation bonds decreased by $6.8 million dollars as the annual contractual payments on the bonds reduced the outstanding principal balances; $978,834 from nondebt related sources was invested into site and trail improvements; $299,693 from nondebt related sources was invested in land acquisitions, this includes the donation of a parcel valued at $285,000; $134,511 from nondebt related sources was invested in building improvements; $84,330 from nondebt related sources was invested in vehicles and equipment; and Depreciation expense of $1.8 million dollars was recognized during the year, reducing the assets (net of accumulated depreciation) by the same amount. Although the District s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. (See independent auditor s report) MD&A 5

28 An additional portion of the District s net position; $720,634 or.5% of the total, represents resources that are subject to restrictions on how they may be used. The portion of the net position that is restricted includes assets held for the specific purposes of: tort liability, scholarships, contractual obligations related to natural restoration mitigations, land acquisitions, debt service, and the payment of employee related Social Security expenses. The restricted portion of the net position decreased by $599,471 dollars or 45% from the prior year. This is largely due to the restricted net position related to natural restoration obligations decreasing by $554,625. This was the result of specific natural restoration initiatives, as required under wetland mitigation agreements, being completed and the restrictions on the related net assets were no longer applicable as of March 31 st, The remaining balance of $5,530,505 dollars of unrestricted net position represents the portion of net position that have no restrictions and are available to meet the District s ongoing obligations to citizens and creditors. This is an increase of $880,203 from the prior period and represents the approximate amount by which total revenues exceed total expenses, less the amount invested in capital (net of related debt), for the reporting period. The District is able to report positive balances in all three categories of net position which is consistent with the last several reporting periods. The Statement of Net Position can be found on page 4 of the audited financial statements. (See independent auditor s report) MD&A 6

29 Change in Net Position. The Following table summarizes the District s Change in Net Position for the current reporting and prior reporting periods ended March 31, 2018, 2017 and District's Change in Net Position For the Fiscal Years Ended March 31, 2018, 2017, and Revenues Charges for services $ 1,540,864 $ 1,184,058 $ 1,194,249 Grant revenues 198,147 1,108,181 51,500 Tax revenues 19,657,304 19,719,453 19,739,695 Investment earnings 150,115 90,132 90,471 Contributions 1,127,694 1,586,094 1,687,506 Misc & gain on disposal 101,374 95,760 78,192 Total Revenues 22,775,498 23,783,678 22,841,613 Governmental activities General governmental 1,682,162 1,643,294 1,733,391 Operation and programs 9,077,661 8,507,855 8,796,935 Land develop & acquisition 152,038 53, ,815 Interest on debt 4,065,361 4,372,563 4,623,046 Total expenses 14,977,222 14,576,752 15,272,187 Change in net position 7,798,276 9,206,926 7,569,426 Net position, April 1st 132,529, ,322, ,527,505 Change in accounting principle (154,510) (2,774,145) Prior period adjustment 36,456 Net position, April 1st restated 132,411, ,322, ,753,360 Net position March 31st $ 140,209,934 $ 132,529,712 $ 123,322,786 (See independent auditor s report) MD&A 7

30 Governmental Activities. The revenues and expenses resulting from the District s operations are discussed below. The following table shows a comparative summary of revenues for the District for the fiscal years ended March 31, 2018, 2017 and District's Comparative Statement of Revenues For the Fiscal Years Ended March 31, 2018, 2017, and 2016 % Change 2017 vs Revenues Tax revenues 0.3% $ 19,657,304 $ 19,719,453 $ 19,739,695 Rental income 10.3% 1,148,311 1,041,031 1,063,143 Programs & services 174.5% 392, , ,106 Grants operating 0.0% 5,000 Grants capital 82.0% 198,147 1,103,181 51,500 Contributions operating 26.5% 12,460 16,954 6,803 Contributions capital 28.9% 1,115,234 1,569,140 1,680,703 Investment income 66.6% 150,115 90,132 90,471 Miscellaneous 9.4% 77,286 70,669 67,711 Gain (loss) on disposal assets 4.0% 24,088 25,091 10,481 Total Revenues 4.2% $ 22,775,498 $ 23,783,678 $ 22,841,613 Tax Revenues: The District s General/Corporate, Social Security, and Insurance/Tort property tax levies (which collectively makeup the aggregate levy) are limited by the Illinois Property Tax Extension Limitation Laws (PTELL). PTELL limits the District s annual property tax levy increase to the prior year s aggregate levy; increased by the percentage of growth in the Consumer Price Index (CPI) during the previous calendar year. Prior to the economic downturn of 2008, the limited property tax levy increases allowed under PTELL were significantly subsidized by additional property taxes generated from new development within McHenry County. The new development allowed the District s tax levy and associated property tax revenue to significantly exceed the CPI growth restrictions. However, since 2008, there has been significantly less new development within the County, resulting in minimal additional property tax revenue over the last nine years. Total tax revenues were $19,657,304 for the fiscal year, which include property taxes revenues of $19,455,555 and personal property replacement taxes of $201,749. Collectively, tax revenues make up 86.3% of the District s total revenue for the fiscal year. When the onetime sources of revenues (which include; grant revenues, contributions, and gain on disposal of capital assets) are excluded from total revenues, the property tax revenues account for 91.7% of total ongoing revenues. Total tax revenues decreased $62,149 or 0.3% from the prior period and include the following changes: The General Fund s combined Corporate and Social Security property tax revenue increased by $96,108 or 1.3% as the levy was increased from the prior year as allowed under PTELL; (See independent auditor s report) MD&A 8