' COMMISSIONERS' COURT AGENDA REQUEST PLEASE FURNISH ONE ORIGINAL AND NINE COPIES OF THIS REQUEST AND DOCUMENTS TO BE REVIEWED BY THE COURT. MADE BY: Jonathan Letz MEETING DATE: May 9, 2005 OFFICE: Commissioner, Pct. 3 TIME PREFERRED: SUBJECT: Consider and discuss the "Kerr County Management's Discussion and Analysis" for the 2003-2004 audit. EXECUTIVE SESSION REQUESTED: (PLEASE STATE REASON) NAME OF PERSON ADDRESSING THE COURT: Commissioner, Pct. 3 ESTIMATED LENGTH OF PRESENTATION: IF PERSONNEL MATTER -NAME OF EMPLOYEE: Time for submitting this request for Court to assure that the matter is posted in accordance with Title 5, Chapter 551 and 552, Government Code, is as follows: Meeting scheduled for Mondays: 5:00 P.M. previous Tuesday. THIS REQUEST RECEIVED BY: THIS REQUEST RECEIVED ON: All Agenda Requests will be screened by the County Judge's Office to determine if adequate information has been prepared for the Court's formal consideration and action at time of Court Meetings. Your cooperation will be appreciated and contribute towards you request being addressed at the earliest opportunity. See Agenda Request Rules Adopted by Commissioners' Court. Attached is the preliminary draft for the "Management's Discussion and Analysis" for the 2004 Audit. As you will recall from last years audit this is a new section for the annual audit under GASB. Last yeaz Tommy wrote this report. At the time of the audit presentation last year it was discussed that this document should come from the Commissioner's Court. Tommy gave the preliminary draft of the audit to me and the attached is what I have come up with so faz for the "Management's Discussion and Analysis" You will note that there are azeas that have not yet been written and other areas where the numbers have not been filled in. In general I followed the same format as last year. I feel this is an important document and I am placing it on the agenda now to get input from the court. Please review and think about what we should add or subtract. It is my understanding that we have a great deal of flexibility in this report. Remember this is a ROUGH DRAFT. DRAFT 050405 KERB COUNTY MANAGEMENT'S DISCOSSION AND ANALYSIS Within this section of the Kerr County (County) annual financial report, the Kerr County Commissioner's Court provides a narrative discussion and anatysis of the financial activities of the County for the fiscal year ending September 3Q, 2004. The financial performance is discussed within the context of accompanying fmancial statements and disclosures, which begin on page I5. Financial Highlights (thousands) • The County's net assets as indicated in the government-wide financial statements are $13,194. • Total net assets aze comprised of the following: 1. Capital assets, net of related debt, of $5,188 include property and equipment, net of accumulated depreciation. 2. Net assets of $4,247 aze restricted by debt covenants and or grantee laws or regulations. 3. Unrestricted net assets of $3,759 aze available to meet obligations of creditors and citizens. • Total govemmental long-term debt of the County decreased by $895 for a total long-term debt of $4,605 and govemmental capital lease obligations increased by $56 to $4,582. • On Mazch 27, 2004 the Commissioner's Court passed a court order to freeze property taxes for those over the age of 65 and the disabled. • Revenues exceeded expenditures for govemmental activities by $985. • The unreserved fund balance in the general fund as shown in the fund fmancial statements on page 18 is $4,330 or 38% of general fund expenditures. This amount is within the guidelines recommended by the Commissioner's Court and the State Comptroller's Office. • Long-term debt for business-type activities (Kerr County Juvenile Detention Facility) declined from $5,140 to $4,975. • On September 8, 2004 the Commissioner's Court was notified by the Kerr County Juvenile Board that the Kerr County Facilities Corporation was not going to appropriate funds to pay debt service for the business-type activities (Kerr County Juvenile Detention Facility). • On September 27, 2004 the Commissioner's Court voted to not appropriate funds for the business-type activities (Kerr County Juvenile Detention Facility). Using This Annual Report This annual report consists of a series of financial statements. The Statement of Net Assets and the Statement of Activities (pages 15 through 17) provide information about the activities of the County as a whole and present alonger-term view of the County's fmances. Fund fmancial statements start on page 18. For govemmental activities, these statements tell how these services were financed in the short term as well as what remains for future spending. Fund fmancial statements also compare actual revenue collection and expenditures to budget. Notes to the financial statement are included to provide additional fmancial information. Government-wide Financial Statements Government-wide statements include all assets and liabilities using the accrual basis of accounting, which is similaz to the accounting methods used by most private-sector companies. Accrual of the current yeaz's revenues and expenses are taken into account regazdless of when cash is received or paid. The statements are divided into two activities, governmental activities which include basic functions of county government and business-type activities which aze supported by fees changed to customers. The government-wide financial statements include two statements. One is the Statement of Net Assets; this statement presents all of the assets and liabilities of the County as a whole, with the difference reported as net assets. It answers the question as to whether the financial condition of the County is better or worse as result of the yeaz's activities. Over time, increases or decreases in the Count's net assets are one indicator of whether its financial health is improving or deteriorating. To assess the overall financial condition of the County, one must also consider non-financial conditions such as property tax base and condition of assets. The other government-wide financial statement is the Statement of Activities. This statement reports how each activity is funded by showing grants and program revenues related to each activity and how much reliance is placed on general revenues. The statement relates to the Statement of Net Assets in that it shows how current operations have changed net assets. Fund Financial Statements Funds are established to account for money designated for specific purposes by the Commissioner's Court or grantees such as the State of Texas. The fund financial statements differ from the government-wide statements in that they focus on significant funds rather the County as a whole. Major funds aze presented sepazately. The fund financial statements for major funds begin on page 18. Fund data for non-major funds is included in a combining statement on page 52. The basic funds are classified by type; each type used by the County is described in the following pazagraphs. Governmental funds -Most of the County's basic services aze reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at yeaz-end that are available for spending. These funds are reported using the modified accrual basis of accounting that measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the County's general government operations and the basic services it provides. Governmental fund information shows the amount of fmancial resources available in the neaz future to finance County programs. In addition to the major government funds Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances budgetary comparison statements are included for the general fund and major special revenue fund. These schedules compare actual revenue and expenditures with adopted and amended budgets. Proprietary funds -When the County charges customers for the full cost of the services it provides to County units or to outside thud parties, the services aze reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Assets and the Statement of Activities. The County has only one proprietary fund (business activity) which accounts for the fmancial activities of the Ken County Juvenile Detention Facility. A majority of the revenue for this service comes from counties outside of the County. Notes to the financial statements -The notes are presented immediately following the basic financial statements to provide additional information to facilitate the understanding of the government-wide and fund financial statements. The notes explain accounting policies and disclose additional information concerning fixed assets, long-term liabilities, and the County's retirement plan. The County as a Whole Our analysis of the County as a whole focuses on net assets (Table I) and changes in net assets (Table 2). Under Governmental Accounting Standard Board (GASB) regulations, 2004 is the second fiscal year in which full accrnal county-wide statements are required. The Statement of Activities reports annual expenditures by major function along with the charges for services and grant proceeds available to support each function. This presentation shows the cost of services that must be offset by general revenue such as property and sales taxes. The Summary of Net Assets (Table t) list assets in the order of liquidity beginning with cash and ending in fixed assets. Receivables include unpaid property taxes and unpaid court cost and fines assessed by the courts. Each receivable is reported net of a reserve for uncollectable accounts. Historical collection data for property taxes shows an average annual collection rate of 98 percent. Total land and improvements are $ ;this amount is net of accumulated depreciation of $ (_% of cost). Other assets (equipment) reported at $ is net of accumulated depreciation of $ ;these assets aze % depreciated. We have to conclude that many assets exist with limited useful life that must be replaced in the neaz future. Liabilities aze reported by current (payable in one year) and long-term classifications. Information concerning long-term debt is detailed on page 40 in the notes to the financial statements. Net assets at year-end are $ ; a total of $ is restricted for specific purposes as required by state law or by County policy. The $ in unrestricted net assets are available for funding general operations. Table 1 Summary of Net Assets (thousands) Cash Receivables Capital Assets Total Assets Accounts Payable Other Liabilities and Deferred Revenue Long-term Debt Total Liabilities Net Assets: Invested in capital assets, net of debt Restricted Umestricted Total Net Assets Table 2 Changes in Net Assets (thousands) Governmental Business-Type Total Activities Activities Primary Govt. 2003 2004 2003 2004 2003 2004 6,443 6,490 2,530 59 8,973 6,549 1,739 1,948 290 205 x,029 2,153 11,315 10,907 3,022 4,856 14,337 15,763 19,497 19,345 5,842 5,120 25,339 24,465 421 338 27 32 448 370 1,767 1,612 197 333 1,964 1,945 5,047 4,148 4,982 4,808 10,029 8,956 7,235 6,098 5,206 5,173 12,441 11,271 5,289 5,719 (2,118) (531) 3,171 5,188 2,550 3,836 2,027 411 4,577 4,247 4,423 3,692 727 67 5,150 3,759 12,262 li,247 636 (53) 12,898 li,194 Revenues: Program Revenues Charges For Services Operating Grants & Contributions Capital Grants & Contributions Genera] Revenues Property Taxes Other Taxes Grants & Contributions Investment Earnings Other General Revenues Total Revenues: Expenditures: General Government Administration of Justice Public Safety Corrections Health & Human Services Community & Economic Development Infrastructure & Endvonmental Governmental Business-Type Total Activities Activities Primary Govt. 2004 2003 2004 2003 2004 2003 2,256 2,609 1,108 1,513 3,364 4,122 397 977 227 296 624 1,273 237 19 237 19 9,035 9,009 9,035 9,009 2,287 2,124 2,287 2,124 89 95 7 32 96 127 2,226 1,701 2,226 1,701 16,527 16, 534 1, 342 1, 841 17, 869 18,375 2,424 2,567 2,424 2,567 3,128 2,903 3,128 2,903 3,586 3,063 3,586 3,063 2,068 1,871 1,782 1,722 3,850 3,593 798 929 798 929 801 820 801 820 2,481 3,034 9 2,481 3,034 Services Interest on long-term Debt Total Expenditures: Change in Net Assets Beginning Net Assets Net Assets 256 334 248 308 504 642 15,542 15,522 2,030 2,030 17,572 17,552 985 -689 296 12,262 636 12,898 13,247 -53 13,]94 The Changes in Net Assets (Table 2) itemizes the basic sources of revenue and expenditures as to the services provided. Total revenue for governmental activities was $16,527, or approximately 83% from general revenues as opposed to approximately 75% from general revenues in 2003. Total governmental expenditures were $15,542 resulting in a net increase in net assets of $985. More detail about the increase is discussed in the Financial Analysis of the County Funds. Revenues and expenditures for governmental activities are compared in Table 3 showing the relation between the cost of services and the revenue generated from users of the service. This table also shows how much general revenue (property and sales taxes) and grants are needed to provide each service. For the past several years the County has maintained a constant property tax rate relying on the steady growth of the County for additional revenues. This growth has also helped to maintain sales tax revenue. As all other entities in this country, the County has experienced a significant decline in investment revenues. The service requiring the least general revenue is that of the courts and clerk offices of the courts. The County has a collection departrnent that focuses on the collection of fines and fees assessed by the courts. Table 3 Governmental Activities (thousands) General Government Administration of Justice Public Safety Corrections Health & Human Services Community & Economic Development Infrastructure & Environmental Services Total Chazges for Services Investment Earnings Grants General Revenues Total Funded By Revenue % of Expenditures % of General Revenue 2004 To[al 2004 Total Amount 813 2,424 16% 1,611 66% 929 3,128 20% 2,199 70% 205 3,586 23% 3,381 94% 209 2,068 14% 1,859 90% 100 798 5% 698 87% 0 801 5% 801 100% 0 2,481 16% 2,481 100% 2,256 14% 15,286 13,030 89 I% 634 4% 13,548 82% 16,527 Capital Assets and Debt Administration Capital Assets: total capital assets increased $1,996 due mostly to the $1,507 for the issuance of new bonds and refinancing old bonds in business-type activities (Kerr County Juvenile Detention Facility). See Table 4 below. Table 4 Capital Assets at Year-end (thousands) Governmental Business-Type Total Activities Activities Primary Govt. 2004 2003 2004 2003 2004 2003 Land 390 390 107 107 497 497 Buildings 13,238 13,228 4,836 2,214 18,074 15,442 Equipment 6,964 6,485 204 204 7,168 6,689 Construction in Progress 0 0 0 l,1 I5 0 1,115 Total 20,592 20,103 5,147 3,640 25,739 23,743 10 Outstanding Debt Table 5 below reports the outstanding balances of each debt for 2003 and 2004 for governmental and business-type activities. The County has fmanced large capital improvement projects with bonds or note obligations. The capital lease obligations were to acquire heavy equipment for Road and Bridge operations and to maintain a quality fleet of vehicles for the Sherift's Department. In 2003-04 the County retired debt related to governmental activities by $839. For business-type activities the long-term debt was $4,175 Detailed information concerning long-term debt is available in the notes on pages 40 through 42. Table 5 Outstanding Debt at Year-end (thousands) 1998 Tax Anticipation Note Original Amount ($2,650) Matures 2005 1994 General Obligation Bonds Original Amount ($5,900) Matures 2012 2001 Public Finance General Oblig. Bonds Original Amount ($990) Matures 2008 2002 Lease Revenue Bonds Original Amount ($5,140) Matures 2023 Capital Lease Obligations Total Governmental Business-Type Total Activities Activities Activities 2004 2003 2004 2003 2004 2003 430 840 430 840 3,580 3,930 3,580 3,930 595 730 595 730 4,975 5,140 4,975 5,140 582 526 582 526 5,187 6,026 4,975 5,140 10,162 11,166 Financial Analysis of the County Funds (thousands) Governmental Funds xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxa~cxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx:x:uxxxxx~cxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Proprietary Funds As stated previously, the County's proprietary funds statements reports the activities of the Kerr County Juvenile Detention Facility. The facility provides short-term detention services and long-term rehabilitation services for juvenile offenders. The services aze provided on a contractual basis with Ken County and other counties within the state. This facility is owned by the Kerz County Facility Corporation whose board of directors are the members of the Kerr County Juvenile Boazd. 11 The Ken County Juvenile Board approved an addition to the facility to increase capacity to 75 beds. Funding for this project was obtained from the sale of $5,140 Lease Revenue Bonds. The amount was enough to complete the addition and pay off an existing mortgage on the existing facility of $1,947. The financial situation of the Ken County Juvenile Detention Facility substantially worsened in 2004 and on September 8, 2004 the Ken County Juvenile Boazd notified the Commissioner's Court of non-appropriation of funds to service the debt payments due on the facility. On September 27, 2004 the Commissioner's Court voted not to appropriate funds to make such debt payments. Budgetary Highlights xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Budget for 2004-OS For the 2004-OS fiscal yeaz the County adopted a property tax rate of .3721 per hundred dollazs of taxable value, no change from 2003-04. The combined property tax rate for general and non-major funds was reduced by $ .The road and bridge fund property tax rate was increased by in an effort to build the working capital balance. Taxable property values increased approximately %, a significant decline from the 5% to 7% growth in recent years. With no material growth in anticipated revenues, the County funded the 2004-OS general and non-major budget with $ of fund balances. The remaining fund balances aze budgeted to remain within the levels as established by County policy. A total budget for capital expenditures is $_ , a significant reduction from $ in 2003-04. This budget includes three new vehicles for Constables and replacement vehicles and equipment fot the Sheriff's Department and Road & Bridge. Long-term debt retirement is budgeted to be $ 12