ORDER N0.29199 KERR COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS 2003-2004 AUDIT On this the 13~' day of Tune 2005, upon motion made by Commissioner Letz, seconded by Commissioner Williams, the Court unanimously approved by a vote of 4-0-0, the Kerr County Management's Discussion and Analysis for the 2003-2004 audit as amended. COMMISSIONERS' COURT AGENDA REOUEST ~ C~ / "( PLEASE FURNISH ONE ORIGINAL AND NINE COPIES OF THIS REQUEST AND DOCUMENTS TO BE REVIEWED BY THE COURT. MADE BY: Jonathan Letz MEETING DATE: June 13, 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. KERB COUNTY ~ 9 / / 9 MANAGEMENT'S DISCUSSION AND ANALYSIS All $ in Thousands Within this section of the Kerr County (County) annual financial report, the Kerr County Commissioner's Court provides a nazrative discussion and analysis of the financial activities of the County for the fiscal yeaz ending September 30, 2004. The financial performance is discussed within the context of accompanying financial statements and disclosures, which begin on page 15. Budget and Financial Highlights • 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 are 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 governmental long-teen debt of the County decreased by $895 for a total long-term debt of $4,605 and governmental capital lease obligations increased by $56 to $4,582. • Revenues exceeded expenditures for governmental activities by $985. • The unreserved fund balance in the general fund as shown in the fund financial 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. • On Mazch 27, 2004 the Commissioner's Court passed a court order to freeze property taxes for [hose over the age of 65 and the disabled. • On February 9, 2004 the Commissioner's Court authorized the County Attorney to hire a litigation attorney on a 40% contingency fee basis to pursue claims or other remedies against Employee Benefit Administrators and / or others arising out of payment of $400 on a heath claim in 2002. • On September 8, 2004 the Commissioner's Court was nofified by the Kerr County Juvenile Boazd that the Kerr County Juvenile Board was not going to appropriate funds to pay lease payments used to make bond payments for the business-type activities (Kerr County Juvenile Detention Facility). • On September 27, 2004 the Commissioner's Court voted to not appropriate funds to pay lease payments used to make bond payments and provided notice of such non-appropriation to the lease revenue bondholders and the trustee of such bondholders of the Hill Country Juvenile Facility Corporation relative to business-type activities (Kerr County Juvenile Detention Facility). Using This Auuual 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-tens view of the County's finances. Fund financial statements start on page 18. For governmental activities, these statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also compare actual revenue collection and expenditures to budget. Notes to the financial statement are included to provide additional financial information. Government-wide Financial Statements Government-wide statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting methods used by most private-sector companies. Accrual of the current yeaz's revenues and expenses aze taken into account regardless of when cash is received or paid. The statements aze arvtaea mto two acnvrnes, governmental activities which include basic functions of county government and business-type activities which are supported by fees charged to customers. The government-wide financial statements include two statemems. One is the Statemera 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 ojActivities. 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 Tezas. The fund financial statements differ finm the government-wide statements in that Utey focus on significant funds rather the County as a whole. Major funds are presented separately. The fund financial statements for major funds begin on page 18. Fund data for non-major fiords is included in a combin' g statement on page 52. The basic funds are classified by type; each type used by the County is described in the following paragraphs. Governmental funds -Most of the County's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-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 fiord 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 financial resources available m the near fimue to finance County programs. In addition to the major govermnent fiords Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances budgetary comparison statements are included for the general fiord and major special revenue fiord. 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 third parties, the services are reported in proprietary fiords. Proprietary fiords are repotted 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 fiord (business activity) which accounts for the financial activities of the Kerr County Juvenile Detention Facility. Notes to the fnnancial statements The notes are presented immediately following the basic financial statements to provide additional information to facilitate the understanding of the government-wide and fiord financial statemenu. The notes exphtin accounting policies and disclose additional information concerning fixed assets, long-term liabilities, and the County's retirement play Discussion and Analysis of the County Funds Govetrtmenla/ Funds The governmental funds. statements on pages 18 through 22 include the general fund, road and bridge fiord, and all other governmental fiords combined. These statements focus on short-term transactions and the impact they have on financial resources and future financial requirements. Total expenditures for all governmental funds were 516,298 for 2003-04 a decrease of 5327 from the previous yeaz. Total revenue for all governmental funds was 516,177 an increase of 5201 from the previous yeaz. For 2003-04 ad valorem taxes accounted for 59,013 of the revenue to support these services; 52,287 came from other taxes, primarily sales taxes and the balance came from fees, grants and outer revenues. Total governmental fiord balances increased by 542 in 2003-04. The general fund is the primary day-today operating fund that finances services such as the courts, law enforcement and general county operations. General fund operations resulted in an increase in fund balance of 540 for 2003-04. The ending fund balance of $4,330 is 38.8% of total expenditures; this percentage satisfies the 25% recommendation by the State Comptroller and the County's policy is to have a minimum operating reserve of 25%. In December 2002 the Commissioner's Court, on the advice of the county's employee health plan administrator, Employee Benefit Administrators, authorized the expenditure of $400 to cover an employee healthcare claim. The Commissioner's Court was advised by EBA that the county would almost certainly recover this amount once the claim was completely processed. The county recovered a portion of this amount The matter was forwarded to the Coumy Attorney David Motley for advise. During 2003 a majority of the Commissioners' Court (Commissioners Baldwin, Williams & Letz) requested the County Attorney to pursue mediation and other means short of litigation. The County Attorney refused and advised the court that be would only pursue the matter by hiring an outside litigation attorney familiar with this type of clainr. On February 9, 2004 the Commissioner's Court authorized the County Attorney to hire a litigation attorney on a 40% contingency fee basis to pursue claims or other remedies against Employee Benefit Administrators and / or others arising out of payment of 5400 on a heath claim in 2002. In 2003-04 the county continued its review and adjustments, as needed, to all county employee pay levels. The plan was to include a financial incentive for longevity for county employees, improve the pay scale of the employees at the lower end of the pay scale, adjust pay levels as needed due to changes in job responsibility and improved efficiency and maintain a competitive pay scale with other entities especially in the azea of law enforcement. The road and bridge fund is reported as a single major governmental fiord because it represents a material percentage of the total revenue and expenditures of all governmental funds. Total expenditures of 52,184 ex total revenues of 52,093. The result of operations was a decrease in fund balance of 53 from 5514 in 2002-03 to 5511 this year. All other governmental funds are combined to form the non-major governmental fiord category; the fiords included in this combination are itemized in the combining statements on pages 52 through 62 of the report. Combined fund balances ixre~ed by 595 to 51,374. Expenditrres exceeded revenues in the indigent heahh care teanl by 511. The indigent health care program is an unfunded mandate by the State. Proprietary Funds As stated previorxsly, 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 are provided on a contractual basis with Ketr County and other cormties within the state. This facility is owned by the Kerr County Facility Corporation whose board of directors are the members of the Kerr Coau[y Juveo7e Board. The Kerr County Juvenile Board and / ce the Kerr County Facility Corporation were responsible fa the operation and management of the Kerr County Juvenile Detention Facility. Details of this fiord is oa pages 23 through 25. The Kerr County Juvenile Board approved ao addition to the facility to increase capacity to 75 beds. At this time N~ facility had substantial cash re.serves. Fandmg for this project was obtained from the sale of 55,140 Lease Revanue Bonds. The amamt was enough to campleze the addition and pay off an existing moRgage on the existing facility of 51,947. The financial situation of the Kerr County Juvenile Detention Facility substantially worsened in 2004. Total revenue from operaions deceased by 5499 from Y1,841 to 51,342 and total expenditures from operazions were unchanged at 52,030 resulting in decrease in fiord balance from 5636 th 5(53). During this period the Commissioner's Court was not inwlved with a~ operations or of this facility. The Commissioner's Corot was not informed during this period by the Kerr County Juvenile Board that the financial sihmtion was - On September 8, 2004 the Kerr County Juvenile Board notified the Commissioner's Court of non-appropriation of funds to service the debt paymerds due ~ the facility. The Commissioner's Cast did. not receive a frill exp}as~ion of the fmaocial prnbl~s or other potemsl problems at the facility. On September 27, 2004 the Commissioner's Court voted not to appropriate funds to make such debt payments. Budget for 2004-05 For the 2004-05 fiscal year the County adopted a property tax rate of .3721 per hundred dollars of taxable value, no change from 2003-04. The combined property tax rate for general and non-major funds remained unchanged from 2003-04 at $.3412. The road and bridge fund property tax rate remained unchanged from 2003-04 at $.0309. The total budgeted expenditures for govermne~l funds in 2004-05 is $17,190 a $892 increase from the total expenditure of $16,298 for 2003-04. Ad valorem property tax revenue are projected at $6,355 a projected increase from $5,980 in 2003-04. With no material growth in anticipated revenues, the County funded the 2004-05 general and non-major budget with $990 out of fund balances. A total budget for capital expenditures is $508 for 2004-05. This amount includes $I SO for improvements at the HIlh Country Youth Exhibit Center and includes vehicles and equipment for the Sheriffs Department in the amount of S44 and vehicles and equipment for the Road & Bridge Department in the amount of $138. Long-term debt principal retirement is budgeted to be $940. the final payment on the 1998 tax anticipation note is budgeted to be made during this budget year. The Couuty as a Whole Our analysis of the County as a whole focuses on net assets (Table 1) and changes in net assets (Table 2). Under Govemmema! Aceamting Standard Board (GABS) regulations, 2004 is the second fiscal yeaz in which full accrual 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. '[his presentation shows the cost of services that must be otlset by general revenue such as property and sales taxes. The Summary of Net Assets (Table 1) list assets in the order of liquidity beginning with cash and endmg in fixed assets. Receivables include unpaid property taxes and unpaid court ~ and 5nes assessed by the courts. Each receirable is reported net of a reserve for unoolledable aa:ormts_ Historical collection data for property taxes shows an average amrm[ ootlectiao rate of 98 percent. Table 1 Samorary of tqd Assets (fioassuds) G ovenmmt i i al Ba tes-1~pe P Total G Activ t es 2003 2004 A 2(103 r 2004 ovt. imary 2003 2004 Cash 6,443 6,490 2,530 S9 8,973 6,549 Receivables 1,739 1,948 290 205 2,029 2,153 Capital Assets 11,315 10,907 3,022 4,856 14,337 15,763 TotalAssels 19,497 19,345 5,842 5,120 25,339 24,465 Accorarts Payable 421 338 27 32 448 370 Other IJabilities and Deferred Revenue 1,767 1,612 197 333 1,964 1,945 Long-term Debt 5,047 4,148 4,982 4,808 10,029 8,956 TotalI,iabiGfies 7,235 6,098 5,206 5,173 12,441 11,27t Net Assets: Invested inppital assets, n~ ofdebt 5,289 5,719 (2,118) (531) 3,171 5,188 Restricted 2,550 3,836 2,027 411 4,577 4,247 Unrestricted 4,423 3,692 727 67 S,I50 3,759 Total Net Assets 12,262 13,247 636 (53) 12,898 13,194 Table 2 Changes in Net Assets (thoussuds) Governmental Business-Type Total Activities Activities Primary Govt 2004 2003 2004 2003 2004 2003 Revenues: Program Revenues Charges For Services Operating Grants & Contributions Capital Grants & Contributions General Revenues Property Taxes Other Taxes Grants & Contributions Investment Earnings Other General Revenues Total Revenues: Eapenditures: General Government Administration of Justice Public Safety Corrections Health & Human Services Community & Economic Development Infrastructure 8c Environmental Services Interest on long-term Debt Total Expenditures: Change in Net Assets Begiming Ne[ Assets Net Assets 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 t 6,527 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 2,481 3,034 256 334 248 308 504 642 15,542 15,522 2,030 2,030 17,572 17,552 985 -689 296 12,262 636 12,898 13,247 -53 13,194 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 816,527, or approximately 83% from general revenues as opposed to approximately 75% from general revceues in 2003. Total governmental expenditures were 815,542 resulting in a net increase in net of 5985. More detail about the increase is discussed in the Financial Analysis of the Co~mty Funds. Revenues and expenditures for govennental activities are compared in Table 3 showing the relation between Ure cost of services and the revenue generated &nm users of the service. 'ILis table also shows how much general revenue (property and sales tierces) and grams are needed to provide each service. For the past several years the Comty has maintained a constant property tax rrte relying on the steady growth of the County for add'dinnat revenues This growth has also helped to maimain sake tax revenue. As all other entities in this cotmtry, the Coooty has experienced a signi5caot decline in investmem revenues- The service requiring the least general revenue is that of the cants and clerk offices of the courts. The Canty has a collection department that focuses on the collu:tion of tines and fees by the costs Table 3 t:overvn-entsl Activii4es (thoasaeds) Funded By Revenue % of E xpenditures % of General Revenue 2004 Total 2004 Total Amount °.G General Government 813 2,424 16% 1,611 66% Admnisbation ofJustice 929 3,128 20Yo 2,199 10% Public Safety 208 3,586 23% 3,381 94% Cortecxions 209 2,068 14°/. 1,859 90% Health & Hunan Services 100 798 5% 698 87% Community & Economic Development 0 801 5% 801 100% Infrastructure & Fnvironmcetal Services 0 2,481 16% 2,481 100% Total Charges for Services 2,256 14•rb 15,286 13,030 20 Investment Earnings Grants General Revenues Total 89 1% 634 4% 13,548 82% 16,527 Capital Assets and Debt Administration Capital Assets: total capital assets increased 51,996 due mostly to the 51,507 for the issuance of new bonds and re5nancing old bonds inbusiness-type activities (Kerr County Juvenile Detention Facility). See Table 4 below. Table 4 Capital Assets at Year-end (thousands) Land Buildings Equipment Construction in Progress Total Outstanding Debt Governmental Business-Type Total Activities Activities Primary Govt. 2004 2003 2004 2003 2004 2003 390 390 107 107 497 497 13,238 13,228 4,836 2,214 18,074 15,442 6,964 6,485 204 204 7, l68 6,689 0 0 0 1,115 0 1,115 20,592 20,103 5,147 3,640 25,739 23,743 Table 5 below reports the outstanding balances of each debt for 2003 and 2004 for governmental and business-type activities. The County has financed large capital improvemetrt projects with bonds or note obligations. The ppital lease obligations were to acquire heavy equipme~ for Road and Bridge operations and to maoYam a gustily Beet of vehicles for the Shestiffs Departrnent. to 2003-04 the County retired debt related to governmental activities by 5839. For business-type activities the long term debt was 54,175 Detailed information concerning loug-term debt is available m the notes on pages 40 tlra~b 42. Table 5 Outstaading Debt at Year-end (thousands) Governmental Basiaess-Type Total Activities Activities Activities 2004 2003 2004 2003 2004 20(}3 1998 Tax Anticipation Note Original Amormt (52,650) Adauues 2005 1994 General Obligation Bonds Original Amount (55,900) trlahnes 2012 2001 Public Finance General Obtig. Bonds Original AmouW (5990) Mabaes 2008 2002 Lease Revemre Bonds Original Amwmf (55,140) Matures 2023 Capital Lease Obligations Total 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,(87 6,026 4,975 S,I40 10,162 11,166 II