December 17, 2007

Hodges gave an explanation of several new audit requirements over the last several years and emphasized the auditor’s role in local government financial activities. She told members that the County received a “clean” audit opinion for this fiscal year and that their firm was pleased with the County’s internal control structure.

County Finance Director Rodney Miller discussed several aspects of the County’s financial report. Overall, County revenues increased from the prior year. Property tax revenues increased from $63,318,810 to $65,090,641, from June 30, 2006 to June 30, 2007. Property tax collection rates remain high at 97% and the County’s tax rate of 49 cents per $100 valuation for the 2006-2007 fiscal year was the 15th lowest among all 100 North Carolina counties.

On the expenditure side, when purely local funding is considered, education received the highest percentage of County funding, at 52%. Catawba County appropriated $34,222,295 for operating expenditures for education, or 22% of the total budget.

Human service expenditures represented the largest total operating cost of County government, 42% of total expenditures, because State and Federal funds appropriated for the County’s three human service agencies are audited and reflected in the report. Human service expenditures (for Mental Health Services, Public Health and Social Services) decreased by 1.9% from fiscal year 2005-2006.

County departments also used funds efficiently, as reflected by the fact that the departments collectively spent $1,808,107 less than budgeted for fiscal year 2006-2007.

Miller also discussed the County’s fund balance which, compared to its operating expenditures, is an important benchmark used by State officials and bond rating agencies.

“The County’s total fund balance increased by $4,440,803 in fiscal year 2006-2007, which equates to 2.6% of the operating budget for the year” Miller said. “Two specific revenue sources saw significant increases, namely sales taxes and interest earned on investments, which is indicative of a growing economy. Sales tax revenues grew by $2.7 million, or 8.8%, while investment income increased by $1.2 million, accounting for the bulk of the increase in fund balance. In addition, the County has maintained a sound financial position by carefully controlling spending, with continued pressure to meet the service demands of County citizens. The County's unreserved fund balance, as a percentage of general fund expenditures, was 17.2% on June 30, 2007, which is equal to approximately two months of operating expenses."

Catawba County has traditionally had a goal to keep two months’ worth of operating expenses in reserve in part because of cash flow issues, since property tax bills are sent to taxpayers in July but revenues are very slow to come in because many taxpayers wait until near the January deadline to make payments. The reserve is also kept in case of emergency circumstances, and to insure adequate funds are available to meet urgent economic development opportunities that may arise during the course of a given year.

The County’s fund balance had been below the two months’ operating expense threshold for several years since reserve funds were used to meet the loss of revenues from the State, from the now discontinued intangibles tax, and during an economic recession. The County expects the increase in fund balance from fiscal year 2005-2006 to fiscal 2006-2007 to be needed because of several unknowns and commitments over the next several years. Factors include a projected decrease in lottery sales statewide, planned school construction expenditures, and the loss of an undetermined amount of fund balance as the County will continue to support Mental Health Services when Mental Health separates from Catawba County on July 1, 2008 and becomes a separate entity under the State of North Carolina’s Mental Health Reform Plan.

“There were no questioned costs as a result of the audit of the County’s Federal and State programs," Hodges concluded. "The Catawba County Board of Commissioners, Rodney Miller and his staff should be commended for their excellent work."