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Cost Recovery is a measure that quantifies the amount of expenses covered by revenues. In FY 2017, the Recreation Center’s revenue covered 79% of its expenses.
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The General Fund is the primary operating fund of a government. It accounts for all activity, unless required to be accounted for in other funds. City services such as public safety, street maintenance, community services, police, fire, and general government activities are accounted for in the General Fund. .
The majority of services under the General Fund are paid for by sales and use tax revenues (4th and 5th cent) and direct distributions of state shared funding. These revenue sources account for about 50% of General Fund revenue. Other significant revenue sources include auto and property tax revenue, miscellaneous tax revenue (severance, gas and fuels, and cigarette), mineral royalties, and other inter-governmental revenue, such as grants. The City of Laramie controls very few of its revenue sources. These include charges for services, licenses and permits, franchise fees, and some miscellaneous sources. Combined, these sources account for less than 15% of the City’s revenues. Since the City has so little control over revenue, a conservative approach is taken during budget planning which includes adopting a biennium budget. Biennium planning provides the City with forecasts necessary to take any action required, should revenue estimates not meet expectations.
The State of Wyoming levies a 4% sales tax upon all sales, purchases, and leases of tangible property sold or leased by persons engaged in the State. There is also a 4% tax levied upon the privilege of persons to use, store, or consume either purchased or leased tangible personal property. The state allocates the levies for both Sales and Use Tax as follows: •69% of the state’s tax goes to the state general fund, with 31% going back to local governments. •Of the local government share, the state deducts a 1% administrative fee. •Distribution is determined by computing the percentage that net sales and use taxes collected by vendors in each county (including cities and towns) bears to the total net sales collected from the state. •The state pays a flat $40,000 to each county annually. The county receives these monies in equal monthly installments and then the state distributes the remainder to each county in the proportion that the total population of the county bears to the total population of the state. •The city portion is also based on the total population of the city to the total population of the county. (Reference Wyoming Statute: W.S. 39-15-101 through 39-15-111, W.S. 39-16-101 through 39-16-111)
The 5th Cent Tax is levied upon retail sales as well as use and consumption of tangible personal property, upon admissions and services, and upon sales and storage. By statute this tax must be imposed at a rate in increments of one-half percent (.5%), not to exceed a rate of two (2%) percent. This tax must be renewed by voters every four years. Albany County voters renewed the 1% General Purpose Excise Tax in 2010, and then again in 2014. The Department of Revenue collects and disperses the monies, keeping 1% for an administration fee and distributing 99% to the City. (Reference Wyoming Statute: W.S. 39-15-203)
The City is required to account for specific purpose tax collections and expenditures in a separate capital fund (the SPT Fund) because these dollars are restricted for capital purposes. These purposes are approved by voters and include planning, design, construction, and improvements to the City’s water infrastructure, wastewater infrastructure, streets, solid waste disposal facilities, and maintenance of specific well head properties. They also include the protection of vulnerable properties noted in the Casper Aquifer protection plan. Albany County voters approved $42 million in specific purpose tax projects in 2010, and the 1% tax remains in place until the non-bonded projects are fully funded and debt payments (made from tax collections) fully pay off the bonded debt. The City’s portion of these projects totals $22,550,550. The City bonded 95% of its projects, and the assets received from the sale of these bonds are held by a trustee who distributes funds to vendors at the request of the City. (Reference Wyoming Statute: W.S. 39-15-204)
The City is subject to debt margin limits related to general obligation bonds. These limits are based upon the City’s assessed value. The limits on the general obligation bonds related to general projects are 4% of the City’s total assessed value. For wastewater projects financed by general obligation bonds, the debt limit is 8% of the City’s total assessed value. Per Wyoming Statute, there is no debt limit for water projects financed by the general obligation bonds. Other types of debt the City carries includes funding of loans at the State level for such programs as the Business Ready loans, Water Development Commission, and State Land and Investment Board. The City is authorized to do lease purchase options on equipment and other leasing needs. The Specific Purpose tax projects debt are being paid through the Specific Purpose Tax of 1% monthly collections.
As of 6/30/17, the General Fund is carrying a low amount of debt, all in the form on capital leases on equipment. There are various capital leases totaling $1.08M with terms ranging from 3 years to 15 years and interest rates ranging from 0% to 4.25%.
Enterprise funds are used to account for goods and services for which user fees and charges are paid in exchange transactions, similar to a private business. The City of Laramie provides water, wastewater, and solid waste services that are accounted for in enterprise funds. The focus in these funds is the determination of operating income, changes in net position, financial position, and cash flows. The resources of Enterprise Funds do not support governmental funds, like the General Fund, except to provide for shared administrative services.
•The water fund has state loans with terms ranging from 15 years to 30 years and interest rates ranging from 2.5% to 4.0%. •The water fund has refunding water bonds and water bonds with terms of 15 years to 30 years with interest rates ranging from .91% to 4.50%. •The wastewater fund has state loans with terms ranging from 15 years to 20 years, all with the interest rate of 2.5%. •The solid waste fund has leases with terms ranging from 3 years to 7 years and interest rates ranging from 1.54% to 1.84%. The total debt obligation in the Enterprise funds at fiscal year-end 2017 was $9.71M. The Water fund had $6.72M in obligations, the Wastewater Fund had $2.39M in obligations, and the Solid Waste fund had capital lease obligations totaling $0.60M.
The budget that the City Council adopts is the City’s legal spending authority. The budget is adopted within 24 hours of the required budget hearing, which is held for the public between the 2nd and 3rd Tuesday in June. Revenues are budgeted by source. Expenditures are budgeted by department and classification or, in the case of capital budgets, for specific items or projects. The legal level of spending control is at the department level for operating expenditures and at the item or project level for capital expenditures. Budgets may be amended by the City Council through a public hearing process as defined by state statute and City management can transfer appropriations between line items or departments. A transfer does not result in a net budget increase.
The City earned an AA rating on its general obligation bonds and an AA rating on its refunding water bonds from Standard & Poor’s. Per the agency’s rating definitions, an obligation rated 'AA' differs from the highest-rated obligations only to a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. An ‘A’ rating has a strong capacity to meet financial commitments, but is somewhat susceptible to adverse economic conditions and changes in circumstances. The ratings rank from a ‘D’ to ‘AAA’, with ‘AAA’ being the highest rating. The plus (+) sign is used to show relative standing within the major rating category.
Depreciation is a non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence and recognizes the expense for an asset over its useful life (rather than all at once when the asset is purchased). Most assets are depreciable because they lose their value over time and must be replaced. Land and related items are not depreciable. The City recognizes depreciation in all funds in accordance with generally accepted accounting principles for Government Wide statements required for the Comprehensive Annual Financial Report (CAFR). However, the City is also statutorily required to recognize depreciation in its utility rate structure (§15-7-407) so that income generated by rates is sufficient to fund future replacements. In the Financial Outlook Report the depreciation is stated as a “memo” only number and is not included in the report of actual expenditures. This allows the reader to compare how much the City is funding in capital and equipment related to the depreciated number.
Fund balance and net position are measures of financial position. The sum of these accounts is a residual value, meaning it represents the difference between the assets and liabilities on an entity’s balance sheet. Fund balance is the term used for governmental funds, while net position is used when referring to Enterprise Fund net position. In technical terms, fund balance is the term used in external governmental financial reporting for statements prepared on the modified accrual basis of accounting and the current financial resources measurement focus. Net position is the term used in external governmental financial reporting for statements prepared on the accrual basis of accounting and the economic resources measurement focus. The value of net position does not represent a cash value – net position is driven by the associated assets and liabilities on the balance sheet. For example, Government Wide and Enterprise Fund statements for the City of Laramie are prepared using accrual accounting and an economic resources measurement focus. These conventions require recognition of assets at historical cost on the balance sheet. The value of a street at $1 million on the balance sheet increases both the value of total assets and net assets, assuming no offsetting debt. It is unlikely that the City would sell a street (e.g. convert the asset to cash) but the City’s net position is driven up by the recognition of this asset. Financial statement users should be careful to interpret net position as a function of the value of all the assets and liabilities on the balance sheet – not just those that are readily convertible to cash. The value of fund balance comes closer to representing a governmental entity’s “true” residual value because the focus is on currently available resources. For external reporting, only governmental funds are reported this way. For purposes of this financial outlook, Enterprise funds have also been prepared using this approach so that users can see net position in terms of currently available resources and be able to better assess the resources at the City’s disposal.
The components of fund balance represent different uses of available resources and are categorized by the level of the restriction. In the CAFR, these categories are presented for governmental fund basis statements, but not for enterprise fund statements. The classifications of net resources are defined as follows: •Nonspendable: Cannot be spent due to form or because they must be maintained in tact •Restricted: Externally enforceable limitations exist for the use of these resources •Committed: Self imposed limitations exist that were enacted at the highest level of decision making •Assigned: Limitations exist that result from internally assigning resources for an intended use •Unassigned: Remaining resources after all other categories are accounted for
In preparing the financial outlook for years 2013-2016, all statements are presented using the current financial resources measurement focus for internal reporting purposes. The aim of this approach is to report current inflows, outflows, and balances of expendable financial resources. The balance sheets for the Enterprise Funds have been modified to this measurement focus from that required for CAFR reporting, but the General Fund and Recreation Center amounts are presented the same as the CAFR fund statements. The modified balance sheet also presents the same breakout for Net Position in Enterprise Funds that is required for governmental fund basis reporting on the CAFR. The categories represent net assets or fund balance to be used in some way by the City at that point in time.
Starting in FY 2017, the Financial Outlook presents the Statement of Net Position as displayed in the CAFR. Currently available resources are then highlighted to illustrate how the City assesses its resource levels.
An operating reserve is the amount available to stabilize a government’s finances by providing a cushion against future unexpected cash flow shortages, expenses, or losses. It is similar to an individual having a rainy day savings account. The City’s reserve policy strives to have 3-6 months of the annual budget in unassigned fund balance or net assets. Days of Operation Reserve is presented for each fund in the financial outlook. The calculation shows how many months the City could survive, based on the current annualized budget, if all of its fund balance (net assets) commitments were realized. For example, as of fiscal year end 2017, the General Fund has 5.1 months of operation in reserves. If all the commitments on fund balance materialized today, the City could survive for 5.1 months on its unassigned reserves.
The Recreation Center’s revenues are derived from memberships and user fees, grants, merchandise sales, interest from the recreation endowment, and from donations and recreation mill levy monies. The majority of revenue comes from charges for services and intergovernmental revenues. Charges for services include memberships and user fees and merchandise sales. Intergovernmental revenues include the recreation mill and grants. Occasionally transfers are needed from the General Fund to cover a revenue shortfall, but the transfer amount is not included in the percent of Cost Recovery calculation.
The City recognizes the net effect of the revenue due to its Enterprise Funds for water, sewer, and solid waste services used by the City general services and the expenses incurred centrally to support enterprise operations. Examples of administrative expenses charged to utility and solid waste operations include utility billing services and a proportionate share of accounting and payroll services, human resources services, and management services. In addition, the General Fund pays for services provided by Enterprise such as Water, Sewer and garbage collection at all related buildings and parks. The “net effect” of the revenue and expense activities is recognized as an exchange transaction or Fund transfer between the City’s General Fund and its Enterprise Funds (Water & Wastewater and Solid Waste). In FY 2014-15, the City began billing for utility services (garbage collection, water, etc.) used in its buildings. In the past, these charges were accounted for as part of the net fund transfer and reduced the total amount due to the General Fund from the Enterprise Funds. As compared to prior years, the net fund transfer appears significantly higher starting in FY 2015. However, the transfer is higher because the service use credits are now being accounted for independently, but the net effect to the Enterprise Funds is the same.
In consultation with the Public Works Director, Utility and Solid Waste managers develop operational and capital budgets required to meet their needs. These needs are then vetted with the City Manager before being presented to the Council as the recommended budget. Through detailed budget analysis including an update of the 10-year financial plan by staff and rate design by consultants, revenue requirements are determined and a rate increase proposed to Council to support the recommended budget. The Council reviews the anticipated revenues and expenditures for the funds along with the rate increase. Through the process of three ordinance readings at Council meetings, plus a public hearing, new rates are implemented as necessary to properly maintain the integrity of the water, wastewater, and solid waste infrastructure.
As you can see on the Financial Outlook, user fees are the primary revenue source for the Enterprise funds. The other primary source is intergovernmental revenue, which consists primarily of grants and is used to pay for specific capital improvements. The City has been quite successful in its pursuit of grants, which has the direct impact of lessening the revenue requirement carried by user rates. These amounts are not available for operating budgets, but they do provide much needed capital improvement resources.
The financial outlook is an internal report prepared by management to enhance financial understanding and disclosure whereas the Comprehensive Annual Financial Report (CAFR) is prepared to be in compliance with external financial reporting standards promulgated by the Governmental Accounting Standards Board.