Ahoskie audit confirms ‘red’ numbers

Published 9:53 am Monday, March 19, 2018

AHOSKIE – The Town of Ahoskie knew a year ago its total fund balance was in the red, and its fiscal year (FY) 2016-17 audit report confirms it.

Chris Burton, a certified public accountant with Carr, Riggs and Ingram, presented the town’s audit report Monday at the Ahoskie Town Council’s regular meeting.

Burton noted that Ahoskie ended FY 2016-17 with a total fund balance in its General Fund of $1,468, 404.

After subtracting for Stabilization by State Statute ($1,375,238), Powell Bill Funds for Transportation ($108,497), Public Safety ($11, 415), and Economic Development ($837,223), the town was in the red in the amount of $863,969.

A municipality is required to have at least eight percent of total general fund expenditures in its unassigned fund balance because if it goes below that amount it could trigger state intervention of the town’s finances.

“We got a clean opinion,” Burton said. “Internal controls within the town are working great. We’re doing fine, but we’ve probably got finances.”

The assets and deferred outflows of resources of the Town of Ahoskie exceeded its liabilities and deferred inflows of resources at the close of the fiscal year by $17,869,215 (net position).

The government’s total net position decreased by $1,408,768 due to decreases in the governmental activities and business-type net position.

“This was due to decreases in governmental activities in the general fund and business activities which is the water and sewer fund,” Burton noted.

As of the close of the past fiscal year, Ahoskie’s governmental funds reported combined ending fund balances of $1,652,126, a decrease of $177,962 in comparison with 2016. Exactly $1,666,456 of that amount is non-spendable or restricted.

At the end of the past fiscal year, the unassigned fund balance for the General Fund was (minus) $863,969.

“That is mainly because the water fund owes the general fund $900,000,” Burton stated.

The Town of Ahoskie’s total debt increased by $1,057,821 during the last fiscal year. The beginning total debt balance for the fiscal year was $19,819,561. As of June 30, 2017, the total debt was $20,877,382.

The governmental fund debt increased by $1,587,231 during the current fiscal year. The key factor in this increase was new debt issued to finance a street improvement project.

“That was because of the street paving you had done,” he explained. “The note associated with that is the USDA loan.”

Ahoskie’s business-type fund debt balance decreased by $529,410 during 2016-17. The key factors in this decrease were principal payments made on outstanding debt. The beginning debt balance was $13,855,034. The ending debt balance was $13,325, 624.

“That was just because of usual payments,” Burton said.

On June 30, 2017, the Town of Ahoskie had a legal debt margin of $9,354,914. On June 30, 2016, the Town of Ahoskie had a legal debt margin of $7,987,158.

“That’s because of a combination of your property valuation went up (sp), plus your debt went down,” he acknowledged.

Among the factors positively influencing the town’s financial operations, the total unrestricted net position:

Steady property tax collections did decrease from 97.23 percent from 2015-16 to 96.79 in 2016-17.

Property tax revenues (including interest and penalties) fell short of budgeted projections in 2016-17.

“The past year you had a shortfall in budgeted property taxes of $34,000 – budgeted compared to actual,” Burton continued. “Your actual was up from the prior year.”

The General Fund balance at the beginning of the fiscal year 2016-17 was $1,399,740. At year-end (June 30 ’17) the General Fund balance was $1,468,404, an increase of $68,664.

“The good news is that increase,” noted Burton.

The Enterprise Fund cash balance at the beginning of the fiscal year 2016-17 was $208,270. At year end, the cash balance was $220,785, an increase of $12,515 in cash and cash equivalents due to the capital outlay needs of the town.

“That’s restricted monies,” explained Burton. “In the past that’s been restricted for specific usage. It’s a capital reserve fund.”

Burton said those funds had been there as long as he’s been doing the town’s audit (over 25 years) and was set aside for buying equipment for the town for future use.

“The Board can choose to release those funds,” said Town Manager Kerry McDuffie. “Then those funds would go toward our unassigned fund balance and help us out. We haven’t bought the equipment yet; the funds are just being set aside. It’s not considered part of our fund balance because we chose to not let it be part of our fund balance.”

McDuffie said one of the suggestions could be to use the funds to pay down on the $860,000 negative fund balance, getting it down to $648,000 fund balance.

“It’s not going to affect how much cash we (Ahoskie) have on hand,” McDuffie said. “But it will look better to the Local Government Commission of how much cash we have on hand.”

Projecting for 2017-18, Burton said garbage collections produce $553,000 of the total General Fund revenue, and will not be cause for a garbage rate increase. However, water rates, which increased 10 percent in 2016-17 will probably have to go up another 10 percent next year to make up for the $921,880 change in net position

“The water fund has spent more than they’ve brought in over the years,” Burton stated. “That’s why we need to go up on revenues.”

He suggested not doing it all at one time, as this year’s rate increase produced a revenue increase of $300,000.

“There’s two ways to balance it,” said McDuffie. “Either raise revenues or cut expenses. Over the next three years we’re going to have to do a 30 percent rate increase, or we’re going to have to cut our operating expenses.”

The town manager said the reduction in force that took place last month cut wastewater treatment plant personnel down from 10 persons to six.

Councilman Charles Reynolds inquired what would be the savings to the town with the reduction in force.

“I don’t know about specifically wastewater,” McDuffie replied. “But the eight positions we’ve eliminated across the General Fund – including wastewater – is a saving of $591,000.”

Burton said of the operating income loss of $233,512, two larger expenses came out: $575,506 in interest, and $597,870 was transferred to the General Fund.

McDuffie suggested each department needs to pay for itself out of its annual budget; even where some town employees have split their working time.

“What’s happening is we may be transferring too much, and that (interest amount) may be too high,” he explained. “We’ve got to balance that (the work) out with the transfer of money.”

Burton said budgeted water and sewer revenues went from $1.5 under budget to around $600,000 under budget. Improvements had been made and revenues went up $500,000, so he suggested taking a closer look at lowering future transfers from the water fund to the General Fund. He closed his report by saying once approved by the LGC, and then the Town Council would receive a final copy.

Councilman Charles Freeman asked what options were available in lieu of a water rate increase.

“A prepared food tax would take an action by the General Assembly,” answered McDuffie.

The ‘Prepared Meals Tax in North Carolina’, as its known, is a 1% tax that is imposed upon meals that are prepared at restaurants. The tax is only imposed by local jurisdictions upon the granting of approval by the state legislature.

“A lot of tax that’s collected in restaurants is from people who don’t live in town,” McDuffie added.

“Water and sewer have to carry themselves,” said Town Attorney Buddy Jones. “You can’t tax something else; they have to be a stand-alone business.”

Before exiting, Burton reminded Council that these figures were all for the FY 2016-17 and that the General Ledger for 2017-18 should show a reduction in expenses, and that would be good news for the town.