ORDER NO.29897 "KERR COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS" FOR 2004-2005 AUDIT Came to be heard this the 28th day of August, 2006, with a motion made by Commissioner Letz, seconded by Commissioner Baldwin. The Court unanimously approved by vote of 4-0-0 to: Approve Kerr County Management's Discussion and Analysis for 2004-O5 Audit, as corrected. ~9~97 ~, as 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: August 28, 2006 OFFICE: Commissioner, Pct. 3 TIME PREFERRED: SUBJECT: Consider, discuss and take appropriate action on the "Ken County Management's Discussion and Analysis" for the 2004-2005 audit. EXECU'T`IVE 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 RECENED ON: All Agenda Requests will be screened by the County Judge's Office to determine if adequate information has been prepazed 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 MANAGEMENT'S DISCUSSION AND ANALYSIS All $ in Thousands Within this section of the Kerr County (County) annual fmancial report, the Ken County Commissioner's Court provides a narrative discussion and analysis of the financial activities of the County for the fiscal year ending September 30, 2005. The fmancial 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 aze $12,492 down from $13,1941ast year. • Total net assets are comprised of the following: 1. Capital assets, net of related debt, of $6,369 include property and equipment, net of accumulated depreciation. 2. Net assets of $1,658 aze restricted by debt covenants and or grantee laws or regulations. 3. Unrestricted net assets of $4,465 aze available to meet obligations of creditors and citizens. • Total governmental long-term debt of the County decreased from $10,162 to $6,388. In 2004 the debt associated with the Ken• County Juvenile Detention Facility, $4,975, was listed as a proprietary fund and not included under total governmental long-term debt. In 2005 this debt was included under total governmental long-term debt; however, the amount was reduced to $2,000 by agreement with the bond holders. • Governmental capital lease obligations increased by $582 to $723. • Expenditures exceeded revenues for governmental activities by $425. • The unreserved fund balance in the general fund as shown in the fund financial statements is $3,048 or 25% of general fund expenditures down from 38% last yeaz. This amount is within the guidelines recommended by the Commissioner's Court and the State Comptroller's Office. • 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 health claim in 2002. This lawsuit was still pending on September 30, 2005. • In September 2004 the Kerr County Juvenile Boazd as directors of the Kerr County Facilities Corporation and subsequently the Commissioner's Court both voted to not appropriate funds to pay debt service for the business-type activities (Kerr County Juvenile Detention Facility). • In 2005 the Commissioner's Court reached an agreement with the holders of the debt on the Kerr County Juvenile Detention Facility and the original 2002 Lease Revenue Bonds outstanding amount of $4,975 was replaced with a 2005 Certificate of obligation in the amount o~$2,000. • All current long term will be retired by 2012. 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 19) provide information about the activities of the County as a whole and present alonger-term view of the County's finances. Fund financial statements start on page 20. 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. Governmeot-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 year's revenues and expenses are taken into account regardless 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 are supported by fees charged 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 aze 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 fmancial 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 2 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 are presented separately. The fund financial statements for major funds begin on page 20. 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 are reported in governmental funds, which focus on how money flows into and out of those fiords and the balances left at yeaz-end that are available for spending. These funds aze 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 financial resources available in the near 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 aze 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 rovides to County units or to outside third parties, the services are reported in ~ Bt~ 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 financial activities of the Kerr County Juvenile Detention Facility. 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. Discussion and Analysis of the County Funds Governmental Funds The governmental funds statements on pages 20 through 22 include the general fund, road and bridge fund, and all other governmental funds 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 $21,540 for 2004-OS an increase of $5,242 from the previous yeaz. Total revenue for all governmental funds was $17,718 an increase of $1,541 from the previous yeaz. For 2004-OS ad valorem taxes accounted for $9,595 of the revenue to support these services; $2,409 came from other taxes, primarily sales taxes and the balance came from fees, grants and other revenues. Total governmental fund balances decreased by $1,637 in 2004-05. The general fund is the primary day-to-day operating fund that finances services such as the courts, law enforcement and general county operations. General fund operations resulted in an decrease in fund balance of $1,281 for 2004-05. The ending fund balance of $3,048 is 25.1% 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%. The road and bridge fund is reported as a single major governmental fund because it represents a material percentage of the total revenue and expenditures of all governmental funds. Total expenditures of $2,407 exceeded total revenues of $2,016. The result of operations was a decrease in fund balance of $159 from $511 in 2003-04 to $353 this year. All other governmental funds are combined to form the non-major govemmental fund category; the funds included in this combination aze itemized in the combining statements on pages 52 through 54 of the report. Combined fund balances decreased by $61 to $1,263. In 2005 the operation of the Kerr County Juvenile Detention Facility was substantially changed. The facility provides short-term detention services and long-term rehabilitation services for juvenile offenders. The services are provided on a contractual basis with Kerr County and other counties within the state. This facility was owned by the Ken County Facility Corporation whose boazd of directors are the members of the Kerr County Juvenile Board. The Kerr County Juvenile Boazd and / or the Kerr County Facility Corporation were responsible for the operation and management of the Kerr County Juvenile Detention Facility in 2004. However, due to the decision by the Kerr County Facilities Corporation to not appropriate funds for debt service in September 2004 and subsequent negotiations between Kerr County and the holders of such debt, Kerr County took over operation of the facility in 2005. The agreement between Kerr County and the bond holders of the Kerr County Juvenile Detention Facility reduced the outstanding debt from $4,975 to $2,000. In 2004-OS operations of the Kerr County Juvenile Detention Facility resulted in a operating loss of $1,122 and required a transfer in from the general fund in the amount of $986. 4 Budget for 2005-06 ;P9 t. For the 2005-0~ fiscal year the County adopted a property tax rate of 3~2'f per hundred dollars of taxable value, no change from 2004-05. a combined property tax rate for general and non-major funds ret ined~pchanged 2004-OS at $~412.~T1~e r~ttd bridge fund property tax rate remained unchanged om 2004-OS at $.0309. The total budgeted expenditures for governmental funds in 2005-06 aze $19,564, a $1,484 increase from the total expenditure of $18,080 for 2003-04. Ad valorem property tax revenue are projected at $10,432 a projected increase from $9,013 in 2003-04. With no material growth in anticipated revenues, the County funded the 2005-06 governmental funds budget with $549 out of fund balances. A total budget for capital expenditures is $1,080 for 2005-06. This amount includes vehicles and equipment for the Sheriff's Department and vehicles and equipment for the Road & Bridge Department The County 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 Governmental Accounting Standard Boazd (GASB) regulations, 2005 is the third fiscal yeaz in which full accrual county-wide statements are required. The Statement of Activities reports annual expenditures by major function along with the changes 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 1) list assets in the order of liquidity beginning with cash and ending with 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. Table 1 Summary of Net Assets (thousands) Cash Receivables Other Non-current Assets Capital Assets Total Assets Governmental Activities 2004 2005 6,549 5,256 2,153 2,055 0 50 15,763 12,758 24,465 20,119 5 Accounts Payable 370 491 Other Liabilities and Deferred Revenue 1,945 1,856 Long-term Debt 8,956 5,279 Total Liabilities 11,271 7,626 Net Assets: Invested in capital assets, net of debt 5,188 6,369 Restricted 4,247 1,658 Unrestricted 3,759 4,465 Total Net Assets 13,194 12,492 Table 2 Changes in Net Assets (thousands) Revenues: Program Revenues Chages For Services Operating Grants & Contributions Capital Grants & Contributions General 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 Infrastmcture 8c Environmental Services Interest on long-term Debt Total Expenditures: Change in Net Assets Beginning Net Assets Net Assets Governmental Activities 2005 2004 4,202 3,364 211 624 254 237 9,628 9,035 2,409 2,287 0 185 96 1,385 2,226 18,274 17,869 2,723 2,424 3,368 3,128 3,856 3,586 3,972 3,850 1,220 798 892 801 2,359 2,481 309 504 18,699 17,572 -425 296 ]2,917 12,898 12,492 13,194 6 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 $18,274,or approximately 73% from general revenues as opposed to approximately 83% from general revenues in 2004. Total governmental expenditures were $18,788 resulting in a net decrease in net assets of $425. More detail about the increase is discussed in the Financial Analysis of the County Funds. Revenues and expenditures for governmental activities are compazed 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 department 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 Infrastmcture & Environmental Services Total Chazges for Services Investment Earnings Grants General Revenues Total Funded By Revenue % of Expenditures % of General Revenue 2005 Total 2005 Total Amount 889 2,723 l4% 1,834 67% 2,015 3,368 18% 1,353 40% 224 3,856 21% 3,632 94% 896 4,371 23% 3,475 80% 103 1,220 6% 1,117 92% 0 892 5% 892 100% 74 2,358 13% 2,284 97% 4,201 23% 18,788 14,587 185 1% 465 3% 13,422 73% 18,273 Capital Assets and Debt Administration Capital Assets: total capital assets decreased $2,615 due mostly to the agreement reached with bond holders of the Kerr County Juvenile Detention Facility that lowered the outstanding debt from $4,975 in 2004 to $2,000 in 2005. See Table 4 below. 7 Table 4 Capital Assets at Year-end (thousands) Land Buildings Equipment Construction in Progress Total Governmental Activities 2005 2004 497 497 14,984 18,074 7,643 7,168 23,124 25,739 Outstanding Debt Table 5 below reports the outstanding balances of each debt for 2004 and 2005 for governmental activities. In 2004 Kerr County listed business-type activities with an outstanding debt balance of $4,975 in addition to governmental activities with a debt balance of $4,605. The business- type activity was the Ken County Juvenile Detention Facility which in 2005 was included as governmental activities. The County has financed large capital improvement projects with bonds or note obligations. The total outstanding balance in 2005 was $5,665 which is a reduction of $3,915 from the total outstanding debt from the last year. The capital lease obligations were to acquire heavy equipment for Road and Bridge operations and to maintain a quality fleet of vehicles for the Sheriff's Department. Detailed information concerning long-term debt is available in the notes on pages 40 through 42. Outstanding Debt at Year-end (thousands) Governmental Activi ties 2005 2004 1998 Tax Anticipation Note 0 430 Original Amount ($2,650) Matures 2005 1994 General Obligation Bonds 3,210 3,580 Original Amount ($5,900) Matures 2012 2001 Public Finance General Oblig. Bonds 455 595 Original Amount ($990) Matures 2008 2002 Lease Revenue Bonds 0 4,975 Original Amount ($5,140) 2005 Certificate of Obligation Original Amount ($2,000) Matures 20 (0 2,000 Capital Lease Obligations 723 582 Total 6,388 10,162