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FINANCIAL INFORMATION FOR NORTH CAROLINA MUNICIPALITIES

Financial information for North Carolina Municipalities is divided into two sections. One section contains statewide totals and averages for municipalities by population classification. The other section displays financial information for individual municipalities. The financial information is obtained from the annual audits and the Annual Financial Information Report (AFIR) filed with the Local Government Commission (LGC). Population Data is obtained from the NC Office of State Budget, Planning and Management Web site and real estate tax data is obtained from the NC Department of Revenue.

In viewing population group averages it is important to note that all averages now displayed are weighted by dollars. For example the average tax rate is now computed by dividing the total levy for the population group by the total assessed valuation and multiplying the result by 100 to provide a rate per $100 of assessed valuation.

Municipality data for individual municipalities are organized under the following headings: Financial Profile; General Fund; Enterprise Fund; Cash, Investments and Financing; Annual Financial Information Report Detail; and Financial Graphs and Comparisons. Municipalities with water/sewer systems display a water/sewer report; likewise municipalities with electric systems have a corresponding report. Municipality data for population groups contain all of the above except Enterprise Fund the detail AFIR data, water/sewer reports and electric system reports.

Municipalities that have ceased operations with no activity in the latest reporting year are not included in the displays or the prior year averages. Data on these municipalities is available at the AFIR web site described below.

Financial Profile

The Financial Profile is compiled from the AFIR submitted by each of the municipalities. The AFIR is a joint project between the LGC and the US Census Bureau. The information for the Profile is taken from various lines and columns in the AFIR. It represents a composite view to the municipality across all of its funds. The actual AFIR form has rows which are numbered and columns which are lettered.

The revenue and expenditure information included in this section is summarized below. The information was compiled from the Annual Financial Information Reports (LGC-37). Within each category, data items are reported using the modified accrual basis of accounting, which is the required budgetary basis under North Carolina law. The line and column references shown on the five-year schedule and listed below are for the latest AFIR year. Because line numbers may change from year-to-year, prior year lines are adjusted to match current year line definitions.

                        REVENUES BY SOURCE

Property Tax – collection of current year and prior year tax levies, interest on delinquent taxes, late listing penalties, and other costs of collecting delinquent taxes. The amount is the total of AFIR lines 10, 12, 13, and 14.

Utility – water and sewer sales; electric power sales; natural gas sales; tap, connection, and reconnection fees; penalties; and interest charges. The amount is the total of AFIR lines 86-88.

Sales Tax – collections of the one percent local option sales tax and both of the one-half of one percent local option sales taxes (Articles 40 and 42). The amount is the sum of AFIR lines 16-18.5

Sales and Services – parking revenues, rents and royalties, airport revenues, fire protection charges, solid waste charges, ambulance and rescue squad charges, cemetery revenues, recreation service revenues, library service revenues, other cultural and recreational service revenues, and mass transit revenues. The amount is the total of AFIR lines 74-85.

Intergovernmental – federal, State, and local financial assistance including payments in lieu of taxes, equitable sharing of federally forfeited property; categorical grants; controlled substance tax; intangibles tax received from the State; distributions of utility franchise taxes, beer and wine taxes, and Powell Bill funds; food stamp purchases tax reimbursements; manufacturers’ and retailers’ and wholesalers’ inventory tax reimbursements; senior citizens' exemption reimbursements; and court fees, including facilities and arrest fees. The amount is the total of AFIR lines 27-70.

Debt Proceeds – proceeds from the sale of bonds and notes excluding any bond anticipation notes that were sold but redeemed by the sale of new bonds; proceeds of lease-purchase agreements. The amount is the sum of lines 99 and 100 on the AFIR.

Miscellaneous – collection of taxes from special tax districts; animal taxes; privilege licenses; motor vehicle licenses; other licenses; local occupancy taxes; prepared food taxes; 911 charges; building and other permits; inspection fees; investment earnings; special assessments; private contributions and donations; sales of materials, fixed assets, and real property; non-government contributions for streets and traffic signals; ABC Board distributions; and other miscellaneous revenues. The amount is the total of AFIR lines 11, 15, 19-26, 71-73, 89-98, and 101.

                        EXPENDITURES BY FUNCTION

Utility – expenditures for operating municipal water and sewer systems, electric power systems, and natural gas systems. The amount is the total of AFIR lines 154-156.

Debt Service – principal, interest, and fees paid or accrued on debt. The amount is the total of AFIR lines 161-166.

Transportation – expenditures for traffic engineering, streets and highways including Powell Bill, street cleaning, parking facilities, mass transit, and airport. The amount is the total of lines 127-135 and 175C

General Government – expenditures for the governing body, administration, elections, finance, tax billing and collection, legal services, construction and maintenance of public buildings not related to other functions, courts facilities, net central services, and general governmental activities shared with the county. The amount is the total of AFIR lines 109-118 and 174C.

Public Safety – expenditures for the police department, patrol, identification units, detective bureaus, vice squads, emergency communications; emergency management activities, fire protection and prevention, inspectors, rescue and ambulance services, animal control, law enforcement officers’ special separation allowance, and the supplemental retirement income plan for law enforcement officers. The amount is the total of AFIR lines 119-126, 169B and 171B.

Other – expenditures for solid waste; drainage and watershed; cemeteries; planning and zoning; economic and community development; housing and urban renewal; special employment programs; public health, mental health, and social services programs; subsidies paid to hospitals; legal aid; recreation and parks; coliseums; museums; libraries; unallocated fringe benefits; and miscellaneous expenditures. The amount is the total of AFIR lines 136-157, 167, 170, 172, 173C, 176C, 177C, and 177C.

                        EXPENDITURES BY OBJECT

Salaries and Wages – gross expenditures for salaries and wages. The amount is the total of AFIR lines (109-160 A Column only).

Capital Outlay – expenditures for construction outlays and for the purchase of land, equipment, and existing structures. The amount is the total of AFIR lines (109-160 C and D Columns only).

Other Operating – expenditures for fringe benefits and all other current operating expenditures except salaries and wages and payments to other governments. The amount is the total of AFIR lines (109-160 B Column only), 161-172, (173-178 C column only).

General Fund

                                        Revenue and expenditures are taken from the annual audit report.

Fund Balance Available is the amount of surpluses from previous years that may be appropriated for expenditure.

Fund Balance % of Net expenditures is calculated by dividing the Fund Balance Available by (Expenditures + Transfers Out – Capital Lease Proceeds).

Enterprise Funds:

This section lists all of the enterprise funds for the municipality and displays the combined financial results. The information here comes from the annual audit report.

Cash, Investments and Financing

The information for this section comes from the NC Department of Revenue, the AFIR and financing records maintained by the State and Local Government Finance Division. All of the averages shown are weighted by dollars. The assessed to sales ratio, assessed valuation and tax rates come from the NC Department of Revenue. Tax rates and assessed valuations are adjusted by the assessed to sales ratio to make municipalities with differing revaluation years comparable.

Annual Financial Information Report Detail

Detailed municipality financial information is collected annually in a joint project between the US Census bureau and the State and Local Government Finance Division. The report consolidates reporting across all of the municipality funds with the exception of income and expenses of trust and agency funds where the municipality is not the beneficial owner. Bond sale proceeds that are used to retire existing debt are also not included. The Annual Financial Information Report (AFIR) consolidates the financial information using the modified accrual mounts found in the annual audited financial statements. Excel workbooks showing all AFIR data for all municipalities for several years are available at  http://www.treasurer.state.nc.us/DSTHome/StateAndLocalGov/AuditingAndReporting/AFIR.htm

Water/Sewer Report

A water sewer report is included for municipalities with water and/or sewer systems. All of the group averages shown in this report are weighted by dollars. The calculation involves summing the various accounts for all units in the group and then making the calculation.

 

The information displayed in that report is listed below:

a. Total operating revenues = Charges for services plus other operating revenues.

b. Total operating expenses = All operating expenses including depreciation and the provision for bad debts

c. Operating margin = Total operating revenues less total operating expenses. This ratio is an indicator of the profitability of a unit’s water and sewer operating activities. If a unit’s operating margin is significantly below the amounts for other similar units, it may be an indication that user fees are too low and/or that operating expenses are too high.

d. Operating transfers in (out) = Total operating transfers in less total operating transfers out. This ratio shows the net operating transfers made from (to) all other funds of the municipality. A positive ratio gives an indication of the extent to which the water and sewer fund is being subsidized by other funds. A negative ratio gives an indication of the extent to which the water and sewer fund is being used to subsidize other funds.

e. Net income excluding capital contributions = Total operating and non-operating revenues less total operating and non-operating expenses plus operating transfers in less operating transfers out and capital contributions. This ratio is an indicator of the overall profitability of the water and sewer system after payments are made for operating expenses, interest on long-term debt, miscellaneous expenses, and operating transfers to (from) other funds.

Key Ratios and Cashflow

f. Quick ratio = Total quick assets divided by Total current liabilities. Note: Quick assets do not include inventories or prepaid items. This ratio gives an indication of the water and sewer system’s ability to pay its current bills, thereby providing a measure of short-term liquidity. Because the quick ratio is a snapshot of the system’s liquidity at a point in time, it may vary considerably throughout the year. A widely accepted minimum benchmark for the ratio of quick assets to current liabilities is 2 to 1; in other words, a water and sewer system should have at least $2 in quick assets for each $1 of current liabilities.

g. Days sales in receivables = Net customer accounts receivable x 365 divided by Charges for services. This ratio gives an indication about how quickly payments are being collected. Each unit should have procedures in place to ensure that customers will make payments within the prescribed due date. If this ratio is much greater than the maximum number of days allowed before payment is due, the unit may be inefficient in collecting payments from customers. The inability to convert receivables into cash on a timely basis negatively affects cash flows, and therefore, investment earnings. Instances where this ratio is significantly lower than the maximum numbers of days allowed may be an indication that unbilled receivables have not been recorded in the financial statements at the end of the fiscal year.

h. Days cash on hand = Unrestricted cash and cash equivalents x 365 divided by (Total operating expenses less depreciation and amortization expenses). This ratio provides an indication of the adequacy of a water and sewer system’s unrestricted cash and investment balances. A water and sewer system needs to maintain adequate cash and investment balances for working capital purposes and to enable it to survive a prolonged economic downturn or to take advantage of strategic opportunities.

i. Cashflow from operations = Total operating revenues less total operating expenses plus depreciation expense along with changes in receivable, prepaid, inventory and payable balances that effect cash balances. This statistic measures the liquidity of a water and sewer system’s operations before any effects of cash used for or provided by capital acquisitions/sales or debt financing. Non-cash charges (i.e. depreciation expense) are also added back to net operating income to arrive at cashflow from operations. A relatively small or negative cashflow can be an indicator that fees for services are insufficient to adequately cover the costs of day-to-day operations. It can also be an indicator of excessive operating costs. Comparisons should be made to similar-sized units to determine areas for cost-savings and improved efficiencies.

j. Debt to equity = Total long-term debt divided by Total fund equity. This ratio provides an indication of how strong a unit’s water and sewer finances are by comparing what it owes to the amount of its fund equity. Fund equity may result from operations or from capital contributions for the construction or acquisition of fixed assets. It is typically used by lenders in evaluating risk. A high ratio may be an indication of above average debt levels and increased risk.

k. Debt per capita = Total long-term debt divided by Total municipal population. This ratio provides an indication of the extent to which debt financings have been used to pay for water and sewer capital improvements.

l. Capital outlays. This report shows capital outlays made in each of the last five fiscal years as reported on the Annual Financial Information Report (AFIR). Units should continue to make capital improvements to their facilities and are encouraged to utilize sound management practices by adopting long-range capital improvement plans to address their projected needs. Situations where capital outlays are not being made on a somewhat consistent or periodic basis might indicate the lack of a capital improvements plan.

Electric System Report

An electric system report is displayed for those municipalities with electric systems. All of the group averages shown in this report are weighted by dollars. The calculation involves summing the various accounts for all units in the group and then making the calculation. The information displayed in that report is listed below:

a. Total Operating Revenues - Charges for services plus other operating revenues.

a. Electric Power Purchases - Wholesale cost of power purchased from the power agency as a percentage of total operating revenues.

b. Other Operating Expenses - Total operating expenses less electric power purchases as a percentage of total operating revenues. NOTE: Other operating expenses do not include interest expense or capital outlay. Interest expense is reported as a non-operating expense, and capital outlay is not an expense but is reported on the balance sheet as part of fixed assets. Electric power purchases and other operating expenses. Units should be working to control expenses in the Electric Fund, particularly within the category "Other Operating Expenses", which is the major expense area within a unit’s control. Although the largest operating expense item is "Electric Power Purchases", this amount is not entirely within a unit's control since the wholesale rates are set by the power agency. If the percentage of electric power purchases is significantly above other units, it may be that cost increases imposed by the power agency have not been passed on to customers but instead have been absorbed by the Electric Fund, or possibly that an effective load management system has not been implemented. Because of the changes in the utility industry, units may be forced to absorb future cost increases to remain competitive with investor-owned utilities. 

c. Operating margin - Total operating revenues less total operating expenses as a percentage of total operating revenues. This ratio is an indicator of the profitability of the electric operating activities. If a unit’s operating margin is significantly below the amounts for other similar units, it may be an indication that user fees are too low or that operating expenses are too high. In the

d. Operating transfers out (in) - Total operating transfers out less total operating transfers in as a percentage of total operating revenues. Note: Negative amounts indicate transfers from other funds to the Electric Fund. This ratio shows the net operating transfers made to (from) all other funds of the municipality. A positive ratio gives an indication of the extent to which the Electric Fund is being used to subsidize other funds. A negative ratio gives an indication of the extent to which the Electric Fund is being subsidized by other funds. As a goal, units should only make transfers to other funds if they have met their working capital needs and if they have sufficient reserves for rate stabilization purposes and capital outlays.

e. Net income excluding capital contributions- Total operating revenues plus total non-operating revenues less total operating expenses, capital contributions, total non-operating expenses, and transfers to (from) other funds as a percentage of total operating revenues. This ratio is an indicator of the overall profitability of the electric system after payments are made for interest on long-term debt and miscellaneous expenses. Key Ratios

f. Quick ratio. Total quick assets divided by Total current liabilities. Note: Quick assets are defined as current assets less inventories and prepaid items. This ratio gives an indication of the Electric Fund’s ability to pay its current bills, thereby providing a measure of short-term liquidity. Because the quick ratio is snapshot of a utility’s liquidity at a point in time, it may vary considerably throughout the year. A widely accepted minimum benchmark for the ratio of quick assets to current liabilities is 2 to 1; in other words, an electric system should have at least $2 in quick assets for each $1 of current liabilities. A quick ratio that is significantly below this level may be explained in part by excessive transfers being made from the Electric Fund.

g. Coverage ratio. Net income plus operating transfers out (in), purchased power expense, depreciation expense, and interest expense divided by (Purchased power expense plus principal payments and interest expense on electric system debt) Note: A coverage ratio of less than 1.0 indicates the electric system does not generate adequate income to cover the cost of purchased power and debt service payments on electric system debt.

This ratio is a measure of the degree of protection creditors have from a default on debt obligations. As the ratio approaches 1 to 1, there is a greater risk that the Electric Fund will not be able to make its debt service payments and power purchases from its current year’s cash flows.

h. Days sales in receivables. Net accounts receivable x 365 days divided by Charges for services Note: Net accounts receivable includes any unbilled receivables.

This ratio gives an indication of how quickly payments are being collected. Each unit should have procedures in place to ensure that electric customers are making payments within the prescribed due date. If this ratio is much greater than the maximum number of days allowed before payment is due, the unit may be inefficient in collecting payments from its customers. The inability to convert receivables into cash on a timely basis negatively affects cash flows, and therefore, investment earnings. Situations where the "Days Sales in Receivables" ratio is significantly lower than the maximum number of days allowed may indicate that units have not accrued unbilled receivables at the end of the fiscal year.

i. Days cash on hand. - Unrestricted cash and investments x 365 days divided by Total operating expenses less depreciation and amortization expenses. This ratio provides an indication of the adequacy of an electric system’s unrestricted cash and investment balances. The Electric Fund needs to maintain adequate cash and investment balances to enable it to finance its operations, respond to changing market conditions, survive a prolonged economic downturn, or to take advantage of strategic opportunities. A unit whose "Days Cash on Hand" ratio is significantly below the averages presented in this report may find that its cash reserves are inadequate. A below average ratio may be an indication that large transfers have been made to other funds. Also, it may indicate that a rate stabilization fund is not being maintained and/or that sufficient reserves for future capital outlays are not being set aside.

j. The report shows the actual transfers from the Electric Fund to the General Fund for the last five years in dollars, as a percentage of Electric Fund fixed assets, and as a tax rate equivalent. Because of recent developments in the electric power industry, municipal electric systems may be forced to compete directly with investor-owned utilities in the sale of electric power. To remain competitive, units will need to keep retail rates, especially the rates charged to its critical industrial and commercial customers, as low as possible and to find ways of offsetting the higher wholesale costs of electric power. As a result, units will need to significantly reduce their Electric Fund transfers. The staff of the Local Government Commission recommends that each power agency participant adopts a transfer policy and that transfers not exceed 3 percent of gross fixed assets.

k. Units with electric systems that are making substantial transfers to the General Fund should determine if their costs of providing general governmental services are in line with the costs incurred by non-electric municipalities of a similar size. To assist in making this determination, Table B includes a computation of what the unit’s tax rate would have to be in order for the General Fund to operate without Electric Fund transfers. Also, this table presents the corresponding average tax rate for non-electric municipalities of a similar size. The tax rates presented in the last three columns of this table have been adjusted by multiplying the tax rate by the assessment-to-sales ratio of the county in which a unit is located. (Note: An assessment-to-sales ratio is calculated annually for each county by the N.C. Department of Revenue. This ratio is based on a sample of selected real estate transactions within a county and equals the assessed valuation divided by the actual sales price. At the beginning of a revaluation cycle, market values and assessed values for a unit are approximately the same. However, by the end of a revaluation cycle, assessed values are usually much lower than market values. This adjustment makes tax rates between units more comparable, given that units are at different points in their revaluation cycles.) If a unit’s tax rate without Electric Fund transfers is significantly above the non-electric average, then the unit may be providing an above average level of general governmental services, incurring higher costs to provide a basic level of general governmental services, or may not be fully utilizing all available General Fund revenue sources. The electric fund transfers as tax rate equivalent and the tax rate without Electric Fund transfers could be overstated as a result of the unit using operating transfers to reimburse the General Fund for administrative services rather than using the proper accounting for reimbursements. (See "Accounting for Reimbursements and Quasi-External Transactions" above.)

l. The report shows gross fixed assets of the Electric Fund and the estimated loss in property tax revenues that results from the unit’s ownership of the utility. Local officials can use this information in estimating a payment-in-lieu of taxes amount from the Electric Fund to the General Fund. However, this estimate would normally exceed the amount of property taxes that would have been paid by an investor-owned utility since the N.C. Department of Revenue reduces the cost amounts of utility assets in calculating the assessed values subject to taxation. This reduction is determined according to complex guidelines specified in the General Statutes. In addition, the gross fixed assets amount used in this calculation was not reduced for Electric Fund fixed assets located outside the unit’s corporate boundaries.

Ten Years of Comparative Data on Electric Fund Transfers as a Percentage of General Fund Revenues

m. Units making large transfers from the Electric Fund to the General Fund should be looking for ways to reduce the level of transfers made each year. This memorandum includes an analysis of transfers made over the last ten fiscal years, which can be used to determine if the General Fund has been reducing its reliance on Electric Fund transfers.

Analysis of Capital Outlay Expenditures of Municipal Electric Systems

n. The report shows capital outlays made in each of the last five fiscal years. Units should continue to make capital improvements to their electric systems and are encouraged to utilize sound management practices by adopting long-range capital improvement plans to address their projected needs. Situations where capital outlays are not being made on a consistent basis might indicate the lack of a capital improvement plan.