HOLLY, Michigan – Holly Village Council members were happy with the news this week as Chrystal Simpson and Tadd Harburn, both Certified Public Accountants for Plante and Moran, issued a “clean opinion” for the village’s audit for the year ending June 30, 2012.
It was primarily Simpson who talked about details of the audit during the Jan. 22 Holly Village Council meeting.
General fund revenues and expenses
Simpson said total revenues for the village amounted to $2.9 million, with the lion’s share of the revenues – approximately $1.3 million, coming from property taxes, down approximately $200,000 from 2011.
“It’s important to keep in mind when you’re budgeting that even when the property taxes start to turn around and come back, due to Proposal A which limits the increase to the lesser of 5 percent for inflation which in the past has only been 3 percent, it won’t increase nearly as fast as it increased over the last few years,” Simpson said.
Equally, general fund expenditures equaled $2.9 million, with the largest expense – the police department’s budget, operating at $1.3 million. Simpson said the balance decreased by about $24,000 from 2011 due to decreases in police salaries and wages.
As of June 30, 2012, fund balance for the village of Holly amounted to $678,450, Simpson said.
Other governmental funds
Governmental funds which include major and local streets, lake improvement funds, solid waste and garbage funds, Community Development Block Grant monies and funding for Holly Area Transportation amounted to approximately $741,000, Simpson said.
“The majority of revenue is actually Act 51 dollars related to your major and local streets, followed by $277,000 in special assessments,” Simpson said, adding that most of it is related to garbage disposal fees.
Expenditures for the governmental funds also equaled approximately $741,000, $300,000 of which is related to the fees paid for garbage costs, and $337,000 related to major and local street costs. “Your fund balance at the end of the year was about $513,000 combined for those funds,” she said.
As for a break down of the governmental funds, Simpson said the village had about $3.500 in prepaid expenses. “You do have some restrictive components of these funds, so $227,000 would be related to Act 51 dollars that haven’t been spent yet on eligible expenses,” she said. “About $23,000 related to the solid waste – you collect those special assessments and you have to spend that money for garbage disposal fees.”
Additionally, Simpson said the village had assigned approximately $190.000 for roads, and about $63,000 for the senior transportation fund. “You do have an unassigned deficit in your lake improvement fund and that’s mostly related to timing of the collections, so that will reverse next year and actually correct your deficit,” she said. “It’s just something with the snap shot in time that had to be deferred at the fund level.”
Water and sewer funds revenue and expenses
Total operating revenue for the water and sewer funds, Simpson said, was $2.4 million with $1 coming in for water, and $1.2 million for sewer user fees. Operating expenses amounted to $2.6 million, with $1.1 million going toward treatment fees related to those funds. Additionally, $981,000 in expenses was related to depreciation on the assets. “The water and sewer lines that are in the ground – you have to recognize a portion of expense each year over the life of the lines,” Simpson said.
Simpson said the operating income for the water and sewer funds had a loss of about $156,000. “That’s just looking at the funds – the operating revenue net of the operating expenses,” she said. “If you look at the bottom line – unrestricted net assets, you can see last year you only had about $316,000 in unrestricted assets.” Simpson said the village was able to increase that amount to $997,000. “That’s important because if you have maintenance that needs to be done, or you have a line that breaks, it gets expensive very quickly, so your only options are to set aside funds, hoping that you’ll have it in place when you get there or otherwise, you would have to go out for debt to be able to improve or replace those lines.”
Revenue bond coverage for Water and Sewer funds
While the village carries significant debt associated with the water and sewer funds, Simpson said it is the net revenues of the system, or what is available to pay the debt each year that is important.
“In 2010 and 2011, your principal and interest payments on the debt were actually more than your net revenues of the system,” she said. “As you can see in 2012, your net revenues are now enough to cover those debt payments going forward.
As for cash flow in the water and sewer funds, Simpson said operating activities, or the user fees charged and any expenses the village had to pay for those funds, caused the sewer and water fund to increase about $335,000 and $274,000 respectively. Simpson said the water fund also recorded cell tower lease revenue of approximately $43,000.
“Overall, you had a net increase in cash of about $415,000 in water, and $78,000 in sewer,” she said. “At the end of the year, cash for your sewer was about $636,000 and $1.2 million for the water.”
While there were no glaring issues in the audit, Harburn said Plante and Moran issued a letter to the village that talked about a few improvements that are relative to the controls that are in place for account reconciliations and year-end accrual entries, as well as segregation of duties at the village offices.
Harburn also recommended in addition to receiving monthly or quarterly budget-to-actual reports, council members should also receive a balance sheet.
Plante and Moran CPA, Tadd Har...
“Overall the finances for the village – the general fund held its own in terms of budget to actual, it was fairly consistent,” Harburn said. “Of course, the rate structure for the water and sewer fund did have a positive improvement on the overall cash flow and you’re able to pay your debt,” he added. “That was our biggest concern over the last couple of years, and it’s a big nut to chew, but certainly the rate structure is there now to be able to pay that debt you’re obligated to pay.”
In light of the better news on the sewer and water fund, Councilman George Kullis asked if the debt service fee currently paid by residents could be lowered. “Have we examined that?” Kullis asked. “Are we ahead of schedule and are we getting to a point where we can lower that?”
“Quite frankly, I don’t think you’re going to be able to lower it because the one debt schedule – the graph you have – you can see that your debt payments are at a high level for a long period of time.” Harburn said the rate structure for debt payment is set to cover the debt based on the number of user on the system at this time. “But you are putting aside a capital reserve, separate from the debt, and the village is seeing a large improvement there.”
Following the presentation and council questions, the audit was unanimously accepted.