Burlington’s latest financial review seems to show a considerable gap between the city’s revenues and the cost of its governmental activities – which appears to have left a dwindling amount of disposable cash for the city’s leaders to draw on in the event of a crisis.
This disconnect between revenues and outlays is perhaps the most glaring result to have emerged from the city’s latest annual audit, which examined all of Burlington’s financial transaction for the 12-month cycle that ended on June 30, 2024. This detail is nevertheless being taken in stride by Burlington’s finance director, who insists that the deficit reported in the audit is more of a paper tiger than an actual threat to the financial health of the municipality.
At first blush, the results of the city’s audit really do seem to suggest some serious monetary challenges for Burlington’s higherups.
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In particular, this state-mandated financial review shows that the city expended a grand total of $103.9 million from its “governmental” funds during this period – an increase of about 19 percent from the previous year. The audit revealed that these same funds took in $89.3 million in revenues during the latest financial cycle, which represented a relatively modest increase of about 2 percent from a year earlier. In addition, these funds saw their associated savings decrease by nearly $5.2 million – of which $1.4 million evaporated from the city’s general fund, which bankrolls the vast majority of the city’s programs and services.
These potentially disconcerting figures ultimately received no mention at all when the audit’s results were formally presented to the members of Burlington’s city council earlier this month.
Conducted as per usual by the Burlington-based firm of Stout, Stewart, McGowen & King, the audit was the top item of business when the council convened its latest monthly work session on December 2. Yet, Patricia Rhodes, a partner with the city’s auditing firm, concerned herself mainly with the integrity of the city’s own bookkeeping when she presented the results of her firm’s financial review to the council.
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Rhodes ultimately assured the city’s leaders that their financial records were second to none in terms of their reliability.
“The opinion that we are rendering on the financial statements,” she said during her oral report to the council, “is an unmodified opinion, which is the best and cleanest opinion that can be received.”
Rhodes went on to note that her firm could find nothing amiss with the city’s internal financial controls. She also mentioned several other auspicious metrics, such as a robust property tax collection rate, which the audit report put at 98.76 percent, and an Aa2 bond rating with Moody’s.
Taking care of ‘business’
Rhodes chose not to plumb through the particulars of the city’s various funds and accounts. These figures were nevertheless laid out in a 245-page audit report that was distributed to each member of the council during the work session.
The data in the audit report was broken down between the city’s governmental activities and its “business-type” operations, such as Burlington’s water and sewer system and the Link Transit bus service. In the latter case, the city is required to set up a separate, self-contained fund for each business-type activity, which relies on its own independent revenue stream to cover its costs. These revenues come largely from user fees in the case of the water and sewer system, while Link Transit relies heavily on the proceeds of state and federal grants.
According to the city’s audit, Burlington’s water and sewer fund spent $32,462,568 of the $35,081,572 that it absorbed during the past fiscal year. In the meantime, Link Transit burned up just $2,919,123 of the $6,808,487 it took in during that period. The same pattern was replicated by the city’s stormwater fund, whose outflow amounted to $916,829 of $1,792,936 it received from the monthly stormwater fee that’s tacked onto the city’s utility bills.
A section of the city’s audit report called “management’s summary and analysis” attributed the bulk of the surpluses in the latter two funds to the timing of capital outlays. In Link Transit’s case, the associated fund has ballooned by roughly $5 million in federal grants for replacement vehicles, while the city’s stormwater fund saw its operating expenses drop by $736,258 due to the completion of outfall improvements and the consummation of a large equipment purchase.
In the final analysis, these three funds spent less than $36.3 million of the nearly $43.7 million that they accumulated, allowing them to finish the year with a combined surplus of almost $7.4 million.
‘Governmental’ breakdown
In contrast to the experience of the city’s business-type activities, its governmental functions ended the fiscal year in the hole – although apparently not as deep as it might have appeared based on the data presented to the council last Monday.
According to the city’s audit report, Burlington’s governmental funds expended a total of $103,865,244 from its during the past fiscal year, while they reported revenues in the amount of $89,273,993. (As a point of comparison, the previous year’s audit put the revenues and expenditures for these same funds at $87,443,073 and $87,169,560, respectively).
According to the city’s finance department, roughly two thirds of this apparent deficit consisted of capital outlays that the city council had consciously allocated over the course of multiple fiscal years. But even when these outlays are factored out of the equation, the city’s governmental activities still seemed to have found themselves down by more than $5 million by the time that the past fiscal year came to a close.
The lion’s share of Burlington’s governmental activities are footed by the city’s general fund, which took in a total of $85,533,998 during the past fiscal year, according to the city’s audit report. The aforementioned management’s summary attributes 46.7 percent of these revenues to property taxes, which reportedly rose by almost $2 million during the course of the year. Meanwhile, sales tax receipts saw a comparatively “modest” 3 percent gain, according to the management’s summary.
According to the city’s audit report, these general fund’s revenues were offset by expenditures of $91,212,854 – or just over $4 million more than the previous year’s outlays. According to the management’s summary, this rise in expenditures can be partly chalked up to personnel-related increases, such as a 4-percent cost of living adjustment for staff members other than the city’s police officers. The management’s summary also points to nearly $20.1 million in mid-year budget amendments that included nearly $5.2 million in vehicle replacements, $4.7 million for new pickleball courts, $1.5 million in IT upgrades, and another $1.5 million for police tech.
In any event, these outlays left the city’s general fund with a theoretical deficit of $5,678,856. This figure is nevertheless somewhat misleading, according to Peggy Reece, Burlington’s director of finance and risk management.
In an interview with The Alamance News, Reece pointed out that the city transferred nearly $7.6 million out of the general fund in the past fiscal year – with more than two thirds of this money having been set aside in a specialized capital fund.
“You see transfers from other funds and transfers to other funds,” she went on to explain, “and the council made the decision to transfer out $5.3 million of that to support capital projects.”
Fund balancing act
When all was said and done, these intrafund transfers had a noticeable impact on the savings associated with the city’s general fund. According to the audit report, these accumulated reserves, or fund balance, finished the year at $33,780,538 – down from the $35,098,294 that the city had posted a year earlier.
According to the city’s finance department, most of this money is either off limits for statutory reasons or has been previously set aside by the council for a variety of purposes. As a result, the general fund ended the year with just $3,438,787 in “unassigned” dollars – or money that the city is free and clear to spend at the drop of a hat.
In order to ensure the financial stability of the state’s cities and counties, North Carolina’s Local Government Commission has traditionally recommended a general fund balance equal to at least eight percent of a jurisdiction’s annual outlays.
According to the management’s summary, Burlington’s unassigned fund balance amounts to a mere 3.8 percent of the $91.2 million which the general fund had paid out over the course of the year. This proportion is even lower than the previous year’s figure of 4.6 percent, which might seem like it would’ve set off alarm bells for the city’s administrators.
Reece is emphatic, however, that size of Burlington’s unassigned fund balance poses no cause for concern since the city has other potentially usable savings attached to general fund.
“We have $10.5 million in assigned fund balance that the council could choose to do something different with,” she explained. “We had also budgeted more fund balance [to make ends meet] than we actually used.”
