Ratings: Moody’s: Aaa S&P: AAA Fitch: AAA (See “RATINGS” herein) NEW ISSUE—Book-Entry Only
This Official Statement has been prepared by the North Carolina Local Government Commission and the County of Forsyth, North Carolina (the “County”) to provide information in connection with the sale and issuance of the bonds described herein (the “Bonds”). Selected information is presented on this cover page for the convenience of the user. To make an informed decision regarding the Bonds, a prospective investor should read this Official Statement in its entirety. Unless indicated, capitalized terms used on this cover page have the meanings given in this Official Statement. County of Forsyth, North Carolina
$13,550,000 $34,000,000 General Obligation General Obligation Public Improvement Bonds Library Bonds Series 2014 Series 2014 Dated: Date of delivery Due: As shown on inside cover page
Tax Treatment In the opinion of Bond Counsel, which is based on existing law and assumes continuing compliance by the County with certain covenants to comply with the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), interest on the Bonds will not be includable in the gross income of the owners thereof for purposes of federal income taxation and will not be a specific preference item for purposes of the alternative minimum tax imposed by the Code on corporations and other taxpayers, including individuals; however, such interest will be includable in determining adjusted current earnings of corporations for purposes of computing the alternative minimum tax imposed by the Code on corporations. Furthermore, in the opinion of Bond Counsel, based on existing law, interest on the Bonds will be exempt from all State of North Carolina income taxes. See “TAX TREATMENT” herein.
Redemption The Bonds are subject to optional redemption at the times and price set forth herein.
Security The Bonds constitute general obligations of the County, secured by a pledge of the faith and credit and taxing power of the County.
Interest Payment Dates May 1 and November 1, commencing May 1, 2015.
Denominations $5,000 or any integral multiple thereof.
Expected Closing/Settlement Date November 4, 2014 with respect to the Public Improvement Bonds. November 5, 2014 with respect to the Library Bonds.
Bond Counsel Womble Carlyle Sandridge & Rice, LLP, Raleigh, North Carolina.
Financial Advisor DEC Associates, Inc., Charlotte, North Carolina.
The date of this Official Statement is October 14, 2014.
MATURITY SCHEDULE
$13,550,000 General Obligation Public Improvement Bonds, Series 2014
Due Principal Interest Initial Public Due Principal Interest Initial Public May 1 Amount Rate Offering Yields1 May 1 Amount Rate Offering Yields1 2016 $ 500,000 4.00% 0.30% 2025 $ 500,000 3.00% 2.04%2 2017 500,000 5.00 0.47 2026 775,000 3.00 2.122 2018 500,000 5.00 0.71 2027 775,000 3.00 2.252 2019 500,000 5.00 0.95 2028 775,000 3.00 2.382 2020 500,000 5.00 1.17 2029 1,400,000 3.00 2.512 2021 500,000 5.00 1.40 2030 1,425,000 3.00 2.572 2022 500,000 5.00 1.64 2031 1,425,000 3.00 2.642 2023 500,000 5.00 1.77 2032 1,425,000 3.00 2.702 2024 500,000 5.00 1.85 2033 550,000 3.00 2.762
$34,000,000 General Obligation Library Bonds, Series 2014
Due Principal Interest Initial Public Due Principal Interest Initial Public May 1 Amount Rate Offering Yields1 May 1 Amount Rate Offering Yields1 2016 $1,200,000 4.00% 0.30% 2025 $1,200,000 3.00% 2.04%2 2017 1,200,000 5.00 0.47 2026 1,925,000 3.00 2.122 2018 1,200,000 5.00 0.71 2027 1,925,000 3.00 2.252 2019 1,200,000 5.00 0.95 2028 1,925,000 3.00 2.382 2020 1,200,000 5.00 1.17 2029 3,500,000 3.00 2.512 2021 1,200,000 5.00 1.40 2030 3,575,000 3.00 2.572 2022 1,200,000 5.00 1.64 2031 3,575,000 3.00 2.642 2023 1,200,000 5.00 1.77 2032 3,575,000 3.00 2.702 2024 1,200,000 5.00 1.85 2033 2,000,000 3.00 2.762 ______1Information obtained from the underwriters of the Bonds.
2Priced to the May 1, 2024 call date at par.
COUNTY OF FORSYTH, NORTH CAROLINA ______
BOARD OF COMMISSIONERS
Richard V. Linville ...... Chairman
Gloria D. Whisenhunt ...... Vice Chair
Mark Baker
Walter Marshall
David R. Plyler
Bill Whiteheart
Everette Witherspoon
______
COUNTY STAFF
J. Dudley Watts, Jr...... County Manager Paul L. Fulton, Jr...... Chief Financial Officer Davida W. Martin, Esq...... County Attorney
FINANCIAL ADVISOR DEC Associates, Inc. Charlotte, North Carolina
BOND COUNSEL Womble Carlyle Sandridge & Rice, LLP Raleigh, North Carolina
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TABLE OF CONTENTS
Page
INTRODUCTION ...... 1 THE NORTH CAROLINA LOCAL GOVERNMENT COMMISSION ...... 1 THE BONDS ...... 2 Description ...... 2 Redemption Provisions ...... 2 Authorization and Purposes ...... 3 Security ...... 3 THE COUNTY ...... 4 General Description ...... 4 Demographic Characteristics ...... 4 Commercial, Industrial and Institutional Profile ...... 5 Economic Development ...... 9 Employment ...... 12 Government and Major Services ...... 13 Debt Information ...... 17 Tax Information ...... 20 2013-14 Budget Commentary ...... 21 2014-15 Budget Outlook...... 21 Pension Plans ...... 21 Other Post-Employment Benefits ...... 22 Contingent Liabilities...... 23 CONTINUING DISCLOSURE ...... 23 APPROVAL OF LEGAL PROCEEDINGS ...... 25 RATINGS ...... 26 TAX TREATMENT ...... 26 Opinion of Bond Counsel ...... 26 Original Issue Premium ...... 26 Other Tax Consequences ...... 27 UNDERWRITING ...... 27 MISCELLANEOUS ...... 28
APPENDICES A — The North Carolina Local Government Commission ...... A-1 B — Certain Constitutional Statutory, and Administrative Provisions Governing or Relevant to the Issuance of General Obligation Bonded Indebtedness by Units of Local Government of the State of North Carolina ...... B-1 C — Management’s Discussion and Analysis ...... C-1 D — Financial Statements ...... D-1 E — Proposed Forms of Bond Counsel Opinions ...... E-1 F — DTC’s Book-Entry Only System ...... F-1
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State of North Carolina Department of State Treasurer
State and Local Government Finance Division JANET COWELL and the Local Government Commission T. VANCE HOLLOMAN TREASURER DEPUTY TREASURER
INTRODUCTION
This Official Statement, including the cover page and the appendices hereto, is intended to furnish information in connection with the purchase of $13,550,000 General Obligation Public Improvement Bonds, Series 2014 (the “Public Improvement Bonds”) and the $34,000,000 General Obligation Library Bonds, Series 2014 (the “Library Bonds” and, together with the Public Improvement Bonds, the “Bonds”) of the County of Forsyth, North Carolina (the “County”).
The information furnished herein includes a brief description of the County and its economic condition, government, debt management, tax structure, financial operations, budget, pension plans and contingent liabilities. The County has assisted the North Carolina Local Government Commission (the “Commission”) in gathering and assembling the information contained herein.
This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy any securities other than the Bonds offered hereby, nor shall there be any offer or solicitation of such offer or sale of the Bonds in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. Neither the delivery of this Official Statement nor the sale of any of the Bonds implies that the information herein is correct as of any date subsequent to the date hereof. The information contained herein is subject to change after the date of this Official Statement, and this Official Statement speaks only as of its date.
This Official Statement is deemed to be a final official statement with respect to the Bonds within the meaning of Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Rule”). In accordance with the requirements of the Rule, the County has agreed in a resolution adopted by the Board of Commissioners for the County to certain continuing disclosure obligations. See “CONTINUING DISCLOSURE” herein.
THE NORTH CAROLINA LOCAL GOVERNMENT COMMISSION
The Commission, a division of the Department of State Treasurer, State of North Carolina (the “State”), is a State agency that supervises the issuance of the bonded indebtedness of all units of local government and assists these units in the area of fiscal management. Appendix A to this Official Statement contains additional information concerning the Commission and its functions.
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THE BONDS
Description
The Bonds will be dated as of their respective dates of delivery and will bear interest from their respective dates. Interest on the Bonds will be payable semiannually on each May 1 and November 1, commencing May 1, 2015, at the rates set forth on the inside cover page of this Official Statement. The Bonds will mature, subject to the right of prior redemption as described below, on May 1 in the years and amounts set forth on the inside cover page of this Official Statement.
Payment of interest will be made by the Bond Registrar on each interest payment date to the registered owner of the Bonds (or the previous Bond or Bonds evidencing the same debt as that evidenced by such Bonds) at the close of business on the record date for such interest, which shall be the 15th day (whether or not a business day) of the calendar month next preceding such interest payment date.
The Bonds will be issuable as fully registered bonds in a book-entry system maintained by The Depository Trust Company (“DTC”). DTC will act as securities depository for the Bonds. Purchases and transfers of the Bonds may be made only in authorized denominations of $5,000 and or integral multiple thereof in accordance with the practices and procedures of DTC. See Appendix F hereto for a description of DTC and the book-entry only system for the Bonds.
Redemption Provisions
The Bonds maturing on or prior to May 1, 2024 will not be subject to redemption prior to maturity. The Bonds maturing on May 1, 2025 and thereafter will be subject to redemption, at the option of the County, from any moneys that may be made available for such purpose, either in whole or in part on any date not earlier than May 1, 2024, at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, plus interest accrued thereon to the date fixed for redemption.
If less than all of the Bonds of any one maturity of either series shall be called for redemption, the particular Bonds or portions of Bonds of such series to be redeemed shall be selected by lot in such manner as the County in its discretion may determine; provided, however, that the portion of any Bond to be redeemed shall be in the principal amount of $5,000 or some whole multiple thereof and that, in selecting Bonds of such series for redemption, each such Bond shall be considered as representing that number of Bonds which is obtained by dividing the principal amount of such Bonds by $5,000. So long as a book-entry system with DTC is used for determining beneficial ownership of Bonds, if less than all of the Bonds within a maturity of either series are to be redeemed, DTC and its participants shall determine which of the Bonds within a maturity of such series are to be redeemed by lot. If less than all of the Bonds of either series stated to mature on different dates shall be called for redemption, the particular Bonds or portions of Bonds of such series to be redeemed shall be called in such manner as the County may determine.
Not more than sixty (60) nor less than thirty (30) days before the redemption date of any Bonds to be redeemed, whether such redemption be in whole or in part, the County shall cause a notice of such redemption to be filed with the Bond Registrar and to be mailed, postage prepaid, to the registered owner of each Bond to be redeemed in whole or in part to his address appearing upon the registration books of the County, provided that such notice to Cede & Co. shall be given by certified or registered mail or otherwise as prescribed by DTC. Failure to mail such notice or any defect therein shall not affect the validity of the redemption as regards registered owners to whom such notice was properly given.
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Any notice of redemption may state that the redemption to be effected is conditioned upon the receipt by the County on or prior to the redemption date of moneys sufficient to pay the principal of and premium, if any, and interest on the Bonds to be redeemed, and that if such moneys are not so received, such notice shall be of no force or effect and such Bond shall not be required to be redeemed. In the event that such notice contains such a condition and moneys sufficient to pay the redemption price and interest on such Bonds are not received by the County on or prior to the redemption date, the redemption shall not be made and the County shall within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received.
On the date fixed for redemption, notice having been given as hereinabove described, the Bonds or portions thereof called for redemption shall be due and payable at the redemption price provided therefor, plus accrued interest to such date. If moneys sufficient to pay the redemption price of the Bonds or portions thereof to be redeemed, plus accrued interest thereon to the date fixed for redemption, are held by the Bond Registrar in trust for the registered owners of the Bonds or portions thereof to be redeemed, interest on the Bonds or portions thereof called for redemption shall cease to accrue, such Bonds or portions thereof shall cease to be entitled to any benefits or security under the resolution providing for their issuance or to be deemed outstanding, and the registered owners of such Bonds or portions thereof shall have no rights in respect thereof except to receive payment of the redemption price thereof, plus accrued interest to such redemption date. If a portion of a Bond shall have been selected for redemption, a new Bond or Bonds of the same series and maturity, of any authorized denomination or denominations and bearing interest at the same rate shall be delivered for the unredeemed portion of the principal amount of such Bond.
Authorization and Purposes
The Public Improvement Bonds are being issued pursuant to the provisions of The Local Government Bond Act, as amended, Article 7, as amended, of Chapter 159 of the General Statutes of North Carolina, four bond orders duly adopted by the Board of Commissioners for the County on September 8, 2014, which bond orders are expected to take effect on October 12, 2014, and a resolution duly adopted by said Board on September 22, 2014. The issuance of the Public Improvement Bonds is contingent upon the bond orders authorizing the issuance of the Public Improvement Bonds taking effect prior to the issuance thereof.
The Library Bonds are being issued pursuant to the provisions of The Local Government Bond Act, as amended Article 7, as amended, of Chapter 159 of the General Statutes of North Carolina, a bond order duly adopted by the Board of Commissioners for the County on September 2, 2010, which bond order was approved by the vote of a majority of the qualified voters of the County who voted thereon at a referendum duly called and held on November 2, 2010, and a resolution duly adopted by said Board on September 22, 2014.
The Bonds are being issued to provide funds, together with any other available funds, to pay the cost of additions, expansions and improvements to public school, community college, parks and recreation, public building and library facilities.
Security
The County is authorized and required by law to levy on all property taxable by the County such ad valorem taxes, without limitation as to rate or amount, as may be necessary to pay the Bonds and the interest thereon.
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THE COUNTY
General Description
The County, created by an Act of the General Assembly of North Carolina in 1849, is located in the northwestern piedmont section of the State and includes the City of Winston-Salem, the County seat and fifth most populous city in the State. The County, with a land area of approximately 410 square miles, is located approximately 210 miles from the Atlantic coast, 250 miles southwest of Washington, D.C., and 290 miles northeast of Atlanta, Georgia.
The County is located in the heart of a 12-county region known as the Piedmont Triad. More than 1.6 million people live in the Piedmont Triad region. The Cities of Winston-Salem, Greensboro and High Point together form the urban core of the Piedmont Triad region. The region’s growth is actively promoted through the Piedmont Triad Partnership, a nonprofit organization chartered specifically for regional business recruitment, leadership development and regional strategic planning throughout the 12- county region.
New York, New York 463 Miles
Washington, D.C. 250 Miles
Atlanta, Georgia 290 Miles
Demographic Characteristics
According to the United States Department of Commerce, Bureau of the Census, the population of the County has been recorded as follows:
1990 2000 2010
265,878 306,067 350,670
The North Carolina Office of State Budget and Management has estimated the population of the County to be as follows:
2011 2012 2013
353,949 357,593 360,471
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Per capita income figures for the County and the State are presented in the following table:
Year County State
2008 $38,569 $35,729 2009 36,371 34,934 2010 36,879 35,462 2011 37,911 36,520 2012 39,583 37,910 ______Source: United States Department of Commerce, Bureau of Economic Analysis (latest data available).
The County contains eight incorporated municipalities along with portions of the Cities of High Point and King. According to the North Carolina Office of State Budget and Management, the July 2013 estimated population for each municipality is as follows:
Winston-Salem (population 235,527) Kernersville (population 23,966) Clemmons (population 19,158) Lewisville (population 12,910) Walkertown (population 4,791) Rural Hall (population 3,025) Tobaccoville (population 2,478) King (population 623) (primarily in Stokes County). Bethania (population 327) as well as a portion of two municipalities incorporated in neighboring counties – High Point (population 8) (primarily in Guilford County)
Commercial, Industrial and Institutional Profile
General. Local business activity consists of a mix of manufacturing, trade and service enterprises which contribute substantially to the County’s tax base. Major industries located in the County include health care, biotechnology, banking, tourism, education, textiles, tobacco, transportation and electronics. The County serves as the major employment center for the counties which comprise northwest North Carolina and portions of southwest Virginia.
A decline in tobacco, textiles and furniture industries, as well as a number of corporate downsizings, have resulted in significant transition in the County’s economy in recent years. While manufacturing accounted for almost 40% of total employment in the County 40 years ago, it accounted for only 9.1% as of the first quarter of 2014. Health care (19.3%), trade, transportation and utilities (18.2%), professional and business services (17.1%) and educational services (11.6%) currently account for the greatest share of the County’s employment.
Health Care. According to the North Carolina Employment Security Commission, the health care sector is the largest industry in the County, employing more than 33,700 workers, or 19.3% of the local labor force as of the first quarter of 2014. The County is home to two major medical centers: Wake Forest Baptist Medical Center (“WFBMC”), which operates Wake Forest Baptist Health, Wake Forest School of Medicine and Wake Forest Innovations, and Novant Health, Inc. (“Novant”), which operates Forsyth Medical Center, Medical Park Hospital and Kernersville Medical Center. These institutions have
5 earned the County a reputation as a regional and national center for medical research, development and treatment and are a driving force behind a burgeoning bio-technology industry in the County. WFBMC is an internationally respected, fully integrated academic medical center and health system. It was ranked by U.S. News & World Report as the top cancer hospital in North Carolina and the number two hospital in North Carolina overall. With over 13,000 employees, WFBMC is the largest employer in the County. WFBMC comprises Wake Forest Baptist Health, the integrated clinical structure that includes nationally ranked Brenner Children’s Hospital; Wake Forest School of Medicine, a leading center for medical education and research; and Wake Forest Innovations, which promotes the commercialization of research discoveries and operates Wake Forest Innovation Quarter, an urban research and technology park formerly known as the Piedmont Triad Research Park in downtown Winston-Salem.
WFBMC comprises 1,004 acute care, rehabilitation and psychiatric care beds, outpatient services and community health and information centers across the Piedmont Triad region. WFBMC’s primary clinical arm, Wake Forest Baptist Health, which composes an array of hospitals, emergency departments, clinics and primary care facilities, employs more than 900 physicians, 2,800 registered nurses, 567 residents, 116 fellows and 2,000 other professional clinicians. Wake Forest Health’s main campus hospital is an 885-bed tertiary care facility. Also on the main campus is the nationally recognized Brenner Children’s Hospital that consists of a 400,000 square-foot tower and houses a 160-bed “hospital within a hospital” that includes a pediatric emergency department, pediatric and neonatal intensive care units, infant, child and adolescent inpatient units and outpatient clinics.
Novant is a not-for-profit integrated system of 15 medical centers and 1,123 physicians in 343 clinic locations across four states, as well as numerous outpatient surgery centers, medical plazas, rehabilitation programs, diagnostic imaging centers and community health outreach programs. Novant is headquartered in Winston-Salem, North Carolina. It operates, through controlled affiliates, a number of facilities located in the County, including Forsyth Medical Center, the State’s second largest hospital, Medical Park Hospital and Kernersville Medical Center. Novant and its affiliates employ approximately 8,145 health care workers in the County.
Forsyth Medical Center is a 921-bed hospital offering a full range of medical, surgical, rehabilitative and behavioral health services. Medical Park Hospital is a 22-bed hospital specializing in elective, outpatient and short-stay surgeries. Kernersville Medical Center is a new addition to the Novant network and is a 50-bed hospital offering services in emergency, surgery, cardiovascular, diagnostics and cancer care.
The U.S. Department of Veteran Affairs recently chose a site next to the Kernersville Medical Center for a new health care center. This facility is expected to create 500 new jobs and be opened by the fall of 2016. The estimated total cost of this facility is $120 million.
Biotechnology. North Carolina is among the ten largest bioscience employer states in the country. A recent study completed for the North Carolina Biotechnology Center (“NCBiotech”) stated that since 2001, the State’s job growth was the fastest in the nation at 23.5%. One reason for the State’s competitive advantage is NCBiotech, which is a government sponsored organization geared towards the development of the biotechnology industry within the State. Another reason is the County’s contribution to the State’s prominence in this field due to such initiatives as the Wake Forest Innovation Quarter (formerly known as the Piedmont Triad Research Park) (the “Innovation Quarter”) and the partnership of local higher education institutions centered around research and training.
The Innovation Quarter is an interactive, master-planned urban-based park located in downtown Winston-Salem that provides office and laboratory facilities to biomedical, information technology,
6 nanotechnology, research and other support services tenants. Innovation Quarter started in 1994 as a 12- acre downtown research and technology park and now consists of approximately 145 developable acres. It is one of the fastest growing urban-based research parks in the United States. Innovation Quarter currently houses 46 tenants and 13 academic programs and employs over 1,000 people. By the end of 2014, Innovation Quarter is expected to house approximately 50 companies and academic departments, 3,000 scientists, engineers and other professionals, 1.1 million square feet of facilities, 2,200 residential units and 1,200 students with a total investment by all partners of approximately $600 million. At full build out in 2027, Innovation Quarter is expected to create up to 20,000 new jobs, include as much as 6.0 million square feet of buildings and cover over 200 acres.
Innovation Quarter is currently anchored by three tenants: WFBMC, Inmar and Wells Fargo Bank. WFBMC houses many of its bioscience departments, programs and research initiatives within one of the most recently finished facilities, Wake Forest Biotech Place. This facility is a $100 million, 242,000 square-foot building built through a public-private partnership between WFBMC and Wexford Science and Technology. Both groups received additional community support, as well as financial support from the County, the City of Winston-Salem and the federal government.
Inmar Inc. is a local retail technology and reverse logistics firm. Inmar opened its new headquarters in Innovation Quarter in 2014, locating from another facility in the County. More than 900 employees now work in this facility, of which 200 are new. Wexford Science and Technology invested $250 million to renovate Inmar’s headquarters and make it a highlight of the Innovation Quarter.
Local educational institutions are actively assisting the County’s biotechnology efforts. Wake Forest University and Virginia Polytechnic Institute (“Virginia Tech”) formed a joint biomedical engineering program that draws on the strengths of both institutions – Wake Forest University in medicine and Virginia Tech in engineering. Winston-Salem State University is leading a task force to establish a state-of-the-art supercomputing center to provide high speed informatics, visualization and computational infrastructure for the Innovation Quarter. Forsyth Technical Community College has the largest biotechnology degree program of any community college in the State and has the only degreed community college nanotechnology program in the Southeast. Laboratories for these two programs are being housed at Innovation Quarter as of the fall of 2014.
Manufacturing. Reynolds American, Inc., a Fortune 500 company headquartered in Winston- Salem, is the second largest U.S. tobacco company and has a product line that includes five of the nation’s ten best-selling brands. In July 2014, Reynolds began the process of buying Lorillard, Inc., another large tobacco company located in Greensboro, North Carolina. Once finalized, this would add the number two selling cigarette in the United State, to its list of best-selling brands. Early analysis predicts this buyout will bring new jobs to the County due to the manufacturing of the Newport brand in the company’s Tobaccoville facility.
Additional major manufacturers also have a presence in the County. The County is the headquarters for HanesBrands, Inc., which includes such brands as Hanes, Champion, Playtex and Bali. Other major manufacturers include Caterpillar, BE Aerospace, Corning Cable Systems, Herbalife and Deere-Hitachi.
Caterpillar Inc., a heavy-equipment manufacturer, operates an 850,000-square-foot manufacturing facility in Winston-Salem that manufactures massive axle assemblies for Caterpillar trucks. When this facility reaches full operating capacity, is expected to employ approximately 400 full-time workers and 100 contractors with an average salary of approximately $40,000. To date, Caterpillar has reported hiring 315 full time workers and 453 workers in total. Caterpillar expects to reach 400 full-time workers by the end of 2015.
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In late 2012, Herbalife Ltd., a global nutrition company, purchased the former Dell, Inc. facility to use as a manufacturing and distribution center. It began operations in May 2014. The company has hired over 200 employees and is expecting to hire a total of 268 employees by the end of 2014 and over 500 workers by the end of 2015. The Company is also making approximately $100 million of renovations to this facility which are expected to completed by the end of 2015.
Deere-Hitachi Construction Machinery Corp., which manufactures excavators, recently expanded its current presence in the County by investing approximately $97 million in a new manufacturing facility and an expansion of a current facility. The company moved into its new 300,000-square-foot facility at the end of 2013 and expects to complete the expansion of its current facility by the end of 2014. Once this expansion is complete, an additional 340 employees are expected to be hired over the next several years to match the company’s added manufacturing capacity.
Financial Services. There are more than three dozen state and nationally chartered banks, savings and loans and credit unions located in the County.
BB&T Corporation (“BB&T”), a Fortune 500 Company headquartered in Winston-Salem, is among the nation’s top financial holding companies with $188 billion in assets and market capitalization of $28.4 billion as of June 30, 2014. BB&T’s banking subsidiaries operate more than 1,800 branch offices in twelve states and Washington, D.C. and employ over 2,000 people in the County.
Wells Fargo Bank, National Association maintains a strong regional presence in the County, with approximately 2,800 jobs in Winston-Salem. Wells Fargo is the fourth largest financial holding company in the United States based on total assets of $1.6 trillion as of June 30, 2014.
Additional financial institutions located in the County include Bank of America, PNC Bank, SunTrust Bank, Capital Bank (formerly known as the Southern Community Bank & Trust), Carolina Farm Credit Service (successor to the Federal Land Bank and the Production Credit Association), Piedmont Federal Savings Bank, Truliant Federal Credit Union and Allegacy Federal Credit Union.
Tourism. The County’s hotel and motel room availability, as well as its sports and meeting complexes and attractions, have contributed greatly to its appeal as a site for meetings of all sizes and types. There are approximately 4,600 hotel and motel rooms in the County. The Lawrence Joel Veterans Memorial Coliseum complex owned and operated by Wake Forest University hosts nearly 100 events annually and can hold over 15,000 attendees. Additionally, the M.C. Benton, Jr. Convention Center features 170,000 square-feet of flexible meeting space, including five individual ballrooms, exhibit space, breakout rooms, boardrooms, reception areas and private dining rooms.
The County also enjoys several historical and cultural attractions. Each year approximately 500,000 people visit Old Salem Museum & Gardens, one of the most authentic historic restorations in the country that covers about 100 buildings over 90 acres. The Museum of Early Southern Decorative Arts and the Children’s Museum are also a part of Old Salem. Costumed interpreters re-create daily life during the late 18th and early 19th centuries in a former German-speaking trading center and Moravian church town known as Salem.
Arts and Recreation. A rich diversity of arts and culture is available for the enjoyment of County residents and visitors. The community is known for its support of the arts and for many years has had one of the highest per capita contributions to the arts of any community in the United States.
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The Arts Council of Winston-Salem and Forsyth County was established in 1949 and was the first Arts Council in the country. Today, the Arts Council provides grant funding and other support to a broad range of arts and cultural organizations, including The Winston-Salem Symphony, The North Carolina Black Repertory Company, The Little Symphony, Winston-Salem Delta Fine Arts, Piedmont Craftsmen, Piedmont Opera Theatre, Associated Artists, The Children’s Theatre, The Little Theatre of Winston-Salem, The Southeastern Center for Contemporary Art and Kernersville Little Theatre.
The County enjoys a number of additional arts and cultural organizations, including the Milton Rhodes Center for the Arts, which provides performing arts spaces, two art galleries, a theatre and the Sawtooth School for Visual Art; the University of North Carolina School of the Arts, which presents more than 300 public performances and screenings annually; The National Black Theatre Festival, which is the nation’s largest exposition of Black theatre groups; Reynolda House, which is home to a widely praised art collection; the Southeastern Center for Contemporary Art, which is a series of cascading galleries housed in the 1929 English-style home of the late industrialist James G. Hanes; and SciWorks, the Science Center and Environmental Park of Forsyth County, which features exhibits in physics, natural/biological science, astronomy, natural history and the health sciences.
The County also enjoys a variety of parks and recreational facilities. The Forsyth County Parks and Recreation Department has eight public parks comprised of over 1,200 acres. Triad Park, a joint venture between the County and Guilford County, is a regional centerpiece park comprised of 426 acres located along the joint border of the two counties in Kernersville. The County also owns Tanglewood Park which contains over 1,100 acres and offers a variety of recreational opportunities, including ten tennis courts, three golf courses, Mallard Lake, three bike trails, a variety of picnic shelters and enclosed buildings and a new aquatic center. Additionally, SciWorks offers a unique environmental park featuring a habitat-based nature trail exhibiting the flora and fauna indigenous to the State.
The County is home to several sports teams, including Winston-Salem Dash, a class A minor league baseball team affiliated with the Chicago White Sox; Wake Forest University NCAA Division I intercollegiate football, basketball, baseball, cross-country, tennis, soccer, volleyball, field hockey and golf teams; and Winston-Salem State University NCAA Division II intercollegiate football, basketball, track and field, cross-country, tennis, softball and volleyball.
The County is also home to the Dixie Classic Fair, which is the second largest fair in the State and draws crowds from a wide area.
Economic Development
Business Parks. The industrial site market in the County represents a substantial economic development resource for the area. The County and the City of Winston-Salem work with State and local economic development organizations to ensure that there is an inventory of attractive space available in business parks for prospective companies looking to relocate or expand.
Union Cross Business Park is a 403-acre park designated for light industrial uses and is home to a number of companies, including Bekaert Textiles, a Belgian textile manufacturer; Atlantic Coast Toyotalift; Exhibit Works, a leader in large-scale exhibits and displays; Liberty Hardware, a leader in home hardware products; Clearing House Payments Company, a New York-based financial services data center and operations facility; Polyvlies, a German fabric maker; Pepsi Bottling Ventures; and United Guaranty. To date, all of the Park’s fourteen buildings are occupied leaving 45 of the 403 acres left to be developed.
New Projects, Expansions and Changes. Reynolds American, Inc. announced in May 2014 that it will add over 200 jobs to its Tobaccoville Manufacturing Center to expand production of its VUSE e-
9 cigarette. Reynolds estimates this addition to be a multi-million dollar investment. This expansion, as well as the possible buyout of Lorillard, Inc., sustains Reynolds’ presence as a major manufacturer in the County.
Pepsi Bottling Ventures is nearing completion of an $82 million upfit of a 526,000 square-foot building in the Union Cross Business Park to expand and modernize its local bottling operations. A majority of the work was for a new distribution center that is now fully operational. The remaining upfit plans include consolidating their bottling operations into this new facility. Pepsi had previously announced in October 2010 that it would expand its customer service call center in Winston-Salem, adding approximately 200 jobs and investing $7 million in new construction. However, those plans changed, and Pepsi outsourced 260 call center positions to IBM, which is providing the service for them now.
United Furniture Industries plans to invest $5.2 million to upfit the former Hanesbrands, Inc. plant located in Winston-Salem for a furniture production and distribution center. United Furniture Industries was previously located at the Union Cross Business Park. The move will allow the company to expand operations and create at least 200 additional full-time jobs. The County and the City of Winston- Salem both contributed $150,000 in incentives for this project.
The vacancy in the Union Cross Business Park created by the United Furniture Industries move will be filled by MOM Brands Co., the company formerly known as Malt-O-Meal Co. The company will create a distribution center in this space. The County recently approved $102,639 in incentives for a German fabric maker, Polyvlies, to locate in the Union Cross Business Park. The company expects to create 30 new jobs at this facility. The City of Winston-Salem also approved $75,891 for this company.
The Smith Reynolds Airport continues to see growth. North State Aviation is undergoing a 60,000-square-foot expansion of its current facility, increasing its total space to over 300,000 square-feet. In 2011, North State received incentives for a project that included the hiring of 308 full-time workers. The company has already hired 290 full-time workers and expects to hit its 308 employee target in the near future.
BB&T recently announced a series of job cuts across their footprint. The County is expected to experience only a small percentage of such cuts, but the actual number has not been made public. BB&T employs over 2,000 people in the County. WFBMC has also reduced its work force by approximately 350 employees, citing increasing expenditures and reductions in health care reimbursements as the main reasons for such layoffs.
Downtown Winston-Salem. The City of Winston-Salem, with the support and collaboration of several nonprofit organizations and business leaders, continues to promote increased development in downtown Winston-Salem. One anchor of the downtown revitalization effort is the Innovation Quarter discussed above.
Additional developments near the Innovation Quarter include the Plant 64 project which repurposed an old tobacco factory into 243 upscale apartment units with future plans for retail shops. The total investment for this project is approximately $20 million. Bailey Park, a 1.6-acre park located within Innovation Quarter, will host cultural and music events while providing green space to residents living downtown. Construction of this park is scheduled for completion by the end of 2014.
The Brookstown Project, located in the downtown’s west side, is designed to create a major new residential, employment and entertainment district in the County. The first phase of this project is BB&T Ballpark, a new minor league baseball for the Winston-Salem Dash that opened in 2010 and serves as the
10 anchor for this project. Link Apartments Brookstown is another phase that was recently completed and provides 205 residential units next to the ballpark.
The iconic Reynolds Building in the heart of downtown was recently sold to Kimpton Hotel & Restaurant Group who plans to convert the tower that was used as a model for the Empire State building into a boutique hotel, apartments and a restaurant. The redevelopment costs are estimated to top $60 million. The redevelopment plans to generate 250 new jobs and a significant bump to the downtown property tax base. The hotel and apartments are scheduled to be completed by 2015.
Another significant change to the downtown area will be the renovation of the Central Library. A portion of the proceeds of the Bonds offered hereby provide approximately $28 million to complete this project.
Arts and entertainment continue to play an important part in the continued growth of downtown. Downtown attractions include the University of North Carolina School of the Arts Stevens Center, a performance space for the school’s productions; Winston-Salem Symphony and Piedmont Opera Theatre; the Children’s Museum of Winston-Salem; Old Salem Museum & Gardens; and the Milton Rhodes Art Center. Several live music clubs can be found in the downtown area featuring jazz, rhythm and blues and alternative music, along with coffeehouses featuring folk, bluegrass and acoustic music. Free outdoor concerts are held on Thursday, Friday and Saturday nights from May through September.
The following table summarizes the number and value of new building permits issued in the County for the past five fiscal years:
Fiscal Year Ended Non-Residential Residential June 30 Number Value Number Value Total Value
2010 1,045 $160,403,856 2,544 $141,294,101 $301,697,957 2011 1,319 198,700,467 2,332 144,017,959 342,718,426 2012 1,409 222,527,393 2,328 189,103,820 411,631,213 2013 1,337 179,903,885 2,071 139,053,715 318,957,600 2014 1,231 126,308,988 2,490 233,339,523 359,648,511 ______Source: Winston-Salem/Forsyth County Inspections Department.
Taxable retail sales in the County for the past five fiscal years are shown in the following table:
Fiscal Year Increase (Decrease) Ended Total Over June 30 Taxable Retail Sales Previous Year
2010 $3,748,879,626 (3.2)% 2011 3,920,362,498 5.2 2012 4,119,672,960 5.1 2013 4,087,882,705 (.8) 2014 4,185,903,565 2.4 ______
Source: North Carolina Department of Revenue Sales and Use Tax Division.
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Employment
The following table lists the twenty-five largest employers in the County as of July 2014:
Employer Description Employees*
Wake Forest Baptist Medical Center Academic Medical Center 13,398 Novant Health Medical Center and Health Services 8,145 Winston-Salem/Forsyth County Schools Educational System 7,600 Wells Fargo Bank, National Association Financial Services 2,800 City of Winston-Salem Government 2,660 Reynolds American Manufacturing Headquarters, Tobacco 2,500 Wake Forest University Education 2,400 Hanesbrands, Inc. Manufacturing Headquarters, Apparel 2,230 BB&T Financial Services Headquarters 2,200 Forsyth County Government 2,029 Forsyth Technical Community College Education 1,596 Wal-Mart Associates Inc. Retail Trade 1,300 B/E Aerospace Manufacturing, Aerospace 1,300 Winston-Salem State University Education 1,073 Deere-Hitachi Manufacturing, Machinery 1,059 Pepsi Consumer Goods Operations 1,050 Lowes Food Stores Retail Trade, Headquarters 960 Inmar Information Technology/Business Services 900 US Airways Transportation, Customer Service Center 900 Flow Automotive Automotive Trade and Service 875 Hayward Industries Manufacturing, Pool Equipment 750 Veterans Administration Government 685 National General Insurance Insurance 675 Aon Consulting Professional Services 650 Blue Cross & Blue Shield of NC Insurance 600 ______Source: Winston-Salem Chamber of Commerce. *Employment estimates may vary.
The North Carolina Employment Security Commission has estimated the percentage of unemployment in the County to be as follows:
2011 2012 2013 2014 2011 2012 2013 2014
January 10.4% 9.3% 8.8% 6.5% July 10.4% 9.5% 8.0% 6.7% February 10.3 9.0 8.3 6.2 August 10.4 9.3 7.5 6.8 March 9.8 8.6 7.8 6.3 September 9.9 8.4 6.7 N/A April 9.7 8.3 7.5 5.9 October 9.6 8.3 6.7 N/A May 10.0 9.3 7.8 6.4 November 9.4 8.3 6.5 June 10.6 9.3 8.2 6.3 December 9.5 8.3 6.1
By way of comparison, the North Carolina Employment Security Commission estimated the August 2014 percentage of unemployment in the State at 7.0% and in the United States at 6.3%.
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Government and Major Services
Government Structure. The County has a commission-manager form of government with a seven-member Board of Commissioners (the “Board”) comprising the governing body. The County is divided into two districts for election purposes, and Commissioners are elected on a staggered basis for terms of four years: two from one district; four from the second district; and one at large. The County Manager is appointed by, and serves at the pleasure of, the Board. The Board annually adopts a balanced budget and establishes a tax rate for the support of County programs. The County Manager has the responsibility for administering these programs in accordance with policies and the annual budget ordinance adopted by the Board.
Education. The County has a consolidated County-wide school system operated and administered by an elected Board of Education, which appoints a school superintendent. Winston- Salem/Forsyth County Public Schools (“WSFCS”), the fourth largest school system in the State and 78th largest in the nation, serves nearly 54,000 students enrolled in 81 schools.
WSFCS implemented the common core State standards in 2012-13 school year, and the test results reflect the use of more rigorous standards in reading, math and science. In 2013, WSFCS met 86% of its federal testing goals and 88% of its State testing goals. The 2012-13 school year graduation rate increased 1.2% to 82.1%, the highest percentage since the State began calculating the graduation rate in 2006.
State law provides a basic minimum educational program for each school administrative unit or district which is supplemented by the County and federal government. The State’s minimum program provides funds for operational costs only, but the building of public school facilities has been a joint State and County effort. Local financial support is provided by the County for capital and operating expenses not provided by the State. For the fiscal year ended June 30, 2014 and the fiscal year ending 2015, budgeted appropriations from the County to the school system are $110,242,759 for operating expenses and $4,187,686 for capital outlay and $108,020,219 for operating expenses and $5,730,636 for capital outlay, respectively.
For the fiscal year ended June 30, 2013, the school system received the following funding for operations:
Source Amount Percentage
Federal $ 55,300,000 10.3% State 291,400,000 54.0 Local 169,000,000 31.3 Other 23,900,000 4.4 Total $539,600,000 100.0%
Capital expenditures by the school system in the fiscal year ended June 30, 2013 included $24,358,773 funded by County general obligation bonds and annually appropriated General Fund transfers. A majority of this funding currently goes towards ongoing capital maintenance projects to maintain the school buildings . The County has no current plans to issue bonds to fund additional public school facilities.
The following table illustrates the number of schools and average daily membership for the past five school years:
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Middle School Elementary School High School Special Schools Year Grades (K-5) Grades (6-8) Grades (9-12) Grades (K-12) Total No. ADM1 No. ADM1 No. ADM1 No. ADM1 No. ADM1
2009-10 42 24,789 16 11,033 11 14,973 8 706 77 51,501 2010-11 41 25,132 16 11,657 11 14,254 10 781 78 51,824 2011-12 42 25,047 16 12,042 12 14,464 10 801 80 52,354 2012-13 42 25,260 13 12,224 14 15,264 10 624 79 53,372 2013-14 43 25,121 14 12,384 15 15,846 9 483 81 53,834 ______1Average daily membership or “ADM” (determined by actual records at the schools) is computed by the North Carolina Department of Public Education on a uniform basis for all public school units in the State. ADM figures are used for both teacher allotments and per capita distribution of local funds if there is more than one school administrative unit within a county. ADM for 2013-14 is an estimate by WS/FCS. NCDPI has yet to finalize ADM for each school for that year.
Source: Winston-Salem/Forsyth County Public Schools.
The County is also home to several institutions of higher learning. Forsyth Technical Community College (“FTCC”) is a post-secondary member institution of the North Carolina Community College System. The responsibility for financial support of FTCC is shared by the State and the County. The County appropriated $8,906,742 to FTCC for capital and operating expenses for the fiscal year ended June 30, 2014 and has budgeted an appropriation of $9,502,406 for the fiscal year ending June 30, 2015.
FTCC is the fifth largest community college in North Carolina with more than 35,000 students and 1,500 full or part time staff. FTCC has over 200 programs that lead to a degree, certificate or diploma in a number of fields, including health care, engineering technologies, criminal justice, automotive technology, logistics management, nanotechnology and biotechnology. FTCC has the largest Health Technology and Biotechnology degree programs in the State. Students in the college transfer program can begin their first two years of a four-year college or university program at FTCC. It also provides outplacement counseling for those who have been laid off or are looking for a different career. Some of the credit programs offered at FTCC include web technologies, race car technology, electronics engineering technology, business administration, early childhood education, architectural technology, interior design, nursing, biotechnology, nanotechnology, dental assisting, basic law enforcement, e- commerce and global logistics technology. FTCC has recently moved its nanotechnology and biotechnology programs to a new facility within the Innovation Quarter in downtown Winston-Salem.
FTCC also offers programs for high school students on the main campus. Early College at FTCC provides 9th grade students the opportunity to earn their high school diploma and get college credit at the same time, and with one more year after high school, to receive a two-year degree tuition-free. Middle College allows juniors and seniors in high school an opportunity to continue their studies on the main campus of FTCC while also earning college credit. Dual enrollment classes allow students to earn college credits tuition free on their own high school campus.
Wake Forest University is a private liberal arts university with a nationwide reputation for challenging academics, individualized teaching, small classes and state-of-the-art resources. The latest enrollment figures show a total undergraduate enrollment of 4,815. Since 1996, U.S. News & World Report has ranked Wake Forest University in the top 30 of its annual “America’s Best Colleges.” Wake Forest University is the parent organization of Wake Forest University Health Sciences, which conducts activities at the University’s Bowman Gray Campus, Wake Forest Innovations and various other locations. Wake Forest University Health Sciences operates the Wake Forest School of Medicine, principally on the Bowman Gray Campus, which is associated with the Wake Forest Baptist Health.
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Winston-Salem State University (“WSSU”), one of the sixteen constituent institutions of The University of North Carolina system, is a leading regional institution providing learning opportunities for a diverse student population. WSSU offers degrees in areas of high job demand such as nursing, computer science, biotechnology, education and information management. WSSU enrolls approximately 6,163 students and offers more than 40 undergraduate degree programs, ten graduate degree programs and five certificate programs. WSSU partners in biomedical research taking place in the Innovation Quarter and in numerous other organizational and philanthropic endeavors, including health care and safety studies. WSSU is the third largest producer of nurses in North Carolina, and it has the nation’s first bachelor of science degree dedicated to motorsports management.
The University of North Carolina School of the Arts (“UNCSA”), an arts conservatory of international renown, trains talented students for professional careers in the arts. The first state-supported residential school of its kind in the nation, UNCSA opened in 1965 on 67 acres and became part of the University of North Carolina system in 1972. High school and college students are currently enrolled in its five professional schools: Dance, Design & Production (including a Visual Arts Program), Drama, Filmmaking and Music. The school is accredited by the Commission on Colleges of the Southern Association of Colleges and Schools and awards the high school diploma, the College Arts Diploma, the Professional Artist Certificate and bachelor’s and master’s degrees. UNCSA’s School of Filmmaking trains students for professional careers in the film and television industries. The joint efforts of the School of Filmmaking and the area’s Film Commission have made the City of Winston-Salem and the County an attractive site for location shooting of feature films and television movies.
Founded in 1772, Salem College is the nation’s 13th oldest institution of higher education and the oldest women’s college according to the American Council on Education. Money magazine ranked Salem College as one of the top 25 “best buys” among liberal arts colleges in the Southeast. Committed to the liberal arts curriculum, Salem College offers 33 undergraduate majors, two graduate programs in teaching and education, and a continuing studies program for adults. The College shares a 64-acre campus with Salem Academy, a college preparatory boarding school for girls in grades 9 through 12. Salem Academy and College are located in the Old Salem historical district.
Transportation. Ground, air and water transportation routes are readily accessible to local commerce and industry. People and products move smoothly throughout the Piedmont Triad region, in part due to an efficient transportation network and the nation’s largest State-maintained highway system that conveniently links to major east coast interstates. Interstate 40 (Business) passes through the approximate center of the County and connects with Interstate 85 to the east and Interstate 77 to the west. Interstate 40 (Bypass) encircles the southern section of Winston-Salem, connecting with Interstate 40 (Business) near Clemmons to the west and near Kernersville to the east. U.S. Highway 52 runs north-to- south through the approximate center of the County and forms a perpendicular junction with Interstate 40 (Business) near downtown Winston-Salem. Proposed Interstate 74 would run north to south along the eastern leg of the proposed Northern Beltway. The Northern Beltway will be a multi-lane freeway that will loop around the northern part of Winston-Salem and have interchanges with Business 40, Interstate 40 and join with U.S. Highway 311. The Beltway is made up of an eastern and western section with the eastern section scheduled to begin construction in 2015.
Major expansion, maintenance and improvements of primary and secondary highways within the County are primarily the responsibility of the State. Each municipality within the County bears the primary responsibility for its local street system. As a participant in the Winton-Salem/Forsyth County Planning Board, the County is able to influence the development of local road systems. The County has no financial obligation with respect to the construction and maintenance of roads.
General aviation, air cargo and commuter services are provided by the Z. Smith Reynolds Airport located five minutes north of downtown Winston-Salem. The airport, which is owned by the County, is
15 operated by the Airport Commission of Forsyth County. Major air carrier service is provided at the Piedmont Triad International Airport (“PTIA”) located just off Interstate 40, approximately 20 miles east of downtown Winston-Salem. Passenger service at PTIA is provided by eight major airlines that serve over an average of 70,000 flyers each month. No County funds are used to support operations at Z. Smith Reynolds Airport or PTIA except occasionally to provide the local matching requirements for Federal Aviation Administration grants for Z. Smith Reynolds Airport.
The Piedmont Authority for Regional Transportation (“PART”) provides shuttle service in a ten- county area, including the County. Its operations are primarily funded by a five-cent tax levied on the short-term rental of private vehicles in Forsyth and Guilford Counties. PART provides 30-minute service, five days a week between Winston-Salem, Greensboro and High Point during peak travel periods with hourly service at other times of the day. Shuttle services are also available to PTIA and to any other destination within a three to four-mile range of the PTIA terminal.
AMTRAK Connector Service, which provides three daily round trips between Winston-Salem and the High Point Rail Station, has developed into a valued service for passengers traveling on the Piedmont and Carolinian passenger trains. Rail systems include Norfolk Southern Corporation, Yadkin Valley Railroad and the intrastate Winston-Salem Southbound Railway.
International ports are located approximately 250 miles to the east in Wilmington and Morehead City, North Carolina.
Human Services.
Social Services Programs. Social services programs are funded primarily by the federal government and the State with local matching funds provided by the County. Among the programs provided are Services to the Aged and Disabled, Aid to Families with Dependent Children, Special Assistance for Adults, Medicaid, Food Stamps and Services to Families and Children. For the fiscal year ended June 30, 2014, the County appropriated $52,167,177 to these programs. For the fiscal year ending June 30, 2015, the County has budgeted appropriations in the amount of $52,054,158.
Public Health Programs. Community health services provided to County residents include maternal and child health care, disease detection and prevention, health education, school nursing service, and environmental health programs. For the fiscal year ended June 30, 2014, the County appropriated $23,524,645 to these health programs. For the fiscal year ending June 30, 2015, the County has budgeted appropriations in the amount of $23,749,620.
CenterPoint Human Services. Comprehensive mental health services are available to residents of the County and Stokes County through in-patient and out-patient care, partial hospitalization, residential care and consultation and education. Treatment programs are provided in the areas of substance abuse, child and adult services and developmental disabilities. Major facilities include a sheltered workshop, a clinical facility and administrative offices. For the fiscal year ended June 30, 2014, the County appropriated $6,149,637 for CenterPoint Human Services. For the fiscal year ending June 30, 2015, the County has budgeted appropriations in the amount of $6,148,706.
Springwood Healthcare Center. The County owns the building that houses Springwood Healthcare Center, a 200-bed nursing facility with 100 skilled care beds and 100 intermediate care beds. The County sold the bed spaces for $3 million to Liberty Healthcare & Rehabilitation Services (“Liberty”) who will construct two new facilities using the bed licenses. The County will retain all real property and improvements at the property and close the facility. Liberty received approval from the State to begin construction on both of their new 100-bed facilities: Liberty Commons at Silas Creek and
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Liberty Commons at Kernersville. The Silas Creek facility will be close to previous site that housed Springwood Healthcare Center. The combined development costs for both facilities is $38.2 million.
Public Service Enterprises.
Water and Sewer System. The County is served by a consolidated water and sewer system administered by a Utility Commission which is appointed jointly by the County and the City of Winston- Salem and operated by the City of Winston-Salem. Water for the system comes from two sources, the Yadkin River and Salem Lake. The Yadkin River provides a large supply and is capable of supplying all of the area’s water needs for the foreseeable future. The County has no financial responsibility for operation of the water and sewer system.
Electric and Natural Gas Service. Duke Energy provides electric service to residents of the County, and Piedmont Natural Gas provides natural gas service to residents of the County.
Debt Information
Legal Debt Limit. In accordance with the provisions of the State Constitution and The Local Government Bond Act, as amended, the County had the statutory capacity to incur additional net debt in the amount of $2,003,000,000 as of June 30, 2014. For a summary of certain constitutional, statutory and administrative provisions governing or relating to the incurrence of debt by units of local government of the State, see Appendix B.
Outstanding General Obligation Debt.
Principal Outstanding as of June 30, June 30, June 30, June 30, 2011 2012 2013 2014
School $477,757,9271 $449,367,323 $429,353,0561 $397,657,724 Law Enforcement Facilities 12,975,199 12,080,566 12,330,7961 11,289,228 Other 40,116,8741 38,152,111 41,376,1481 38,988,048 Total $530,850,000 $499,600,000 $483,060,000 $447,935,000 ______1Bonds Issued: 2010-11 $14,225,000 General Obligation Public Improvement Bonds, Series 2010A, 6.07 years average maturity, 1.9569% true interest cost. $36,615,000 General Obligation Public Improvement Bonds, Series 2010B, 5.08 yeas average maturity, 1.6672% true interest cost. $80,380,000 Taxable General Obligation Public Improvement Bonds (Build America Bonds), Series 2010C, 16.08 years average maturity, 3.2171% true interest cost (net of subsidy). $26,405,000 Taxable General Obligation Public Improvement Bonds (Qualified School Construction Bonds), Series 2010D, 15.92 years average maturity.2148% true interest cost (net of subsidy). $50,295,000 General Obligation Refunding Bonds, Series 2010E, 8.625 years average maturity, 2.3382% true interest cost. 2012-13 $5,000,000 General Obligation Educational Facilities Bonds, Series 2013, 11.28 years average maturity, 2.1825% true interest cost. $13,750,000 General Obligation Public Improvement Bonds, Series 2013, 11.86 years average maturity, 2.3535% true interest cost. $35,090,000 General Obligation Refunding Bonds, Series 2013, 1.7264% true interest cost.
Note: Outstanding general obligation debt set forth above does not include refunded bonds which are in- substance defeased.
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General Obligation Debt Ratios.
Total GO Debt Total Assessed As of Total Assessed to Assessed GO Debt Valuation June 30 GO Debt1 Valuation Valuation Population2 Per Capita Per Capita
2010 $396,345,000 $33,856,365,200 1.17% 351,380 $1,127.97 $96,353 2011 530,850,000 33,838,688,700 1.57 353,949 1,499.79 95,603 2012 499,600,000 33,908,863,000 1.47 357,593 1,397.12 94,825 2013 483,060,000 34,362,675,716 1.41 360,471 1,340.08 95,327 2014 447,935,000 32,996,881,034 1.36 360,471 1,242.64 91,538 ______1Does not include refunded general obligation bonds which are in substance defeased. 2Estimate of North Carolina Office of State Budget and Management. For fiscal year ended June 30, 2014, the 2013 estimate is being used.
General Obligation Debt Service Requirements and Maturity Schedule.
Principal Bonds Fiscal Year Principal and Interest Now Offered
2014-15 $ 32,555,000 $ 55,204,428.25 -- 2015-16 31,375,000 52,731,296.99 $1,700,000 2016-17 30,700,000 50,517,346.99 1,700,000 2017-18 29,450,000 47,831,534.49 1,700,000 2018-19 29,465,000 46,234,553.23 1,700,000 2019-20 29,040,000 44,335,153.23 1,700,000 2020-21 28,995,000 42,631,704.81 1,700,000 2021-22 28,805,000 41,061,518.91 1,700,000 2022-23 28,790,000 39,473,613.91 1,700,000 2023-24 28,715,000 37,796,958.91 1,700,000 2024-25 28,905,000 36,341,578.91 1,700,000 2025-26 27,970,000 33,763,805.01 2,700,000 2026-27 27,895,000 32,308,051.25 2,700,000 2027-28 26,800,000 29,947,960.00 2,700,000 2028-29 24,600,000 26,424,127.50 4,900,000 2029-30 10,625,000 11,227,232.50 5,000,000 2030-31 1,750,000 1,844,375.00 5,000,000 2031-32 1,500,000 1,544,375.00 5,000,000 2032-33 -- -- 2,550,000 Total $447,935,000 $631,219,614.89 $47,550,000
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General Obligation Bonds Authorized and Unissued.
Date Authorized Bonds Purpose Approved and Unissued Now Offered Balance
Refunding 1 8/11/2008 $ 1,115,000 $ — $ 1,115,000 Refunding 1 8/10/2009 7,130,000 — 7,130,000 Refunding1 6/28/2010 31,705,000 — 31,705,000 Library 11/02/2010 40,000,000 34,000,000 6,000,000 Refunding 1 10/22/2012 10,910,000 — 10,910,000 School 8/25/2014 6,500,000 6,500,000 — Community College 8/25/2014 2,300,000 2,300,000 — Parks and Recreation 8/25/2014 1,000,000 1,000,000 — Public Facilities 8/25/2014 3,750,000 3,750,000 — $104,410,000 $47,550,000 $56,860,000 ______1The County does not intend to issue these bonds.
General Obligation Debt Information for Underlying Units as of June 30, 2014.
Bonds Authorized Total GO Total 2013 Assessed Tax Rate and Unissued Debt GO Debt Unit Population1 Valuation Per $100 Utility Other Utility Other Per Capita
Kernersville 23,966 $ 2,588,488,431 $.4975 $— $— $— $ 4,065,000 $169.62 Winston-Salem 235,527 21,713,470,088 .4910 — — — 80,395,000 341.34 (County Seat) ______1Estimate of North Carolina Office of State Budget and Management.
Other Long-Term Commitments. Other long-term commitments of the County as of June 30, 2013 are disclosed in the Notes to the Financial Statements included in Appendix D.
Debt Outlook. The County’s Major Capital Improvement Program (“CIP”) through the year 2020 consists of $74.65 million for projects which are expected to be funded from long-term financing (including the proceeds of the Bonds now being offered), $3.75 million in short-term equipment financing and $9.6 million in pay-as-you-go funding for capital maintenance and renovations. The long-term debt is expected to be incurred for the renovations of the central library and one other branch library ($34.0 million payable from the proceeds of the Library Bonds now being offered), K-12 schools capital maintenance projects ($19.5 million), community college projects ($6.9 million), County general capital maintenance ($6.75 million), park system development ($5.0 million), and Hall of Justice capital maintenance projects ($2.5 million). Short-term equipment financings are expected to be incurred for information systems projects ($3.75 million). An additional branch library renovation ($6.0 million) and the renovation of Carolina Hall at the community college ($3.6 million) are expected to be paid for through pay-as-you-go financing.
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Tax Information
General Information.
Fiscal Year Ended or Ending June 30, 2012 2013 2014 20153 Assessed Valuation: Assessment Ratio1 100% 100% 100% Real Property $28,019,913,529 $28,311,900,597 $25,962,868,887 $25,876,400,715 Personal Property 5,290,216,502 5,437,357,001 6,446,977,485 5,374,806,635 Public Service Companies2 598,732,969 613,418,118 587,034,662 554,005,820 Total Assessed Valuation $33,908,863,000 $34,362,675,716 $32,996,881,034 $31,805,213,170 Rate per $100 .674 .674 .7168 .7168 Levy $228,728,259 $232,728,259 $234,266,678 $227,979,768 ______1 Percentage of appraisal value has been established by statute. 2 Valuation of railroads, telephone companies and other utilities as determined by the North Carolina Property Tax Commission. 3 Estimated.
Note: Revaluation of real property became effective with the fiscal year 2014 tax levy.
Tax Collections.
Collected within the Fiscal Year of Fiscal Year the Levy Collection in Total Collections to Date Ended Percentage Subsequent Percentage June 30 Amount of Levy Years Amount of Levy
2011 $224,104,050 97.81% $4,279,951 $228,384,001 99.68% 2012 223,947,380 97.91 3,856,328 227,803,70 99.60 2013 228,359,406 98.05 3,414,74 231,501,148 99.39 2014 230,760,638 98.52 -- 230,760,638 98.52
Ten Largest Taxpayers for Fiscal Year 2014-15.
Percent of Type of Assessed Total Assessed Name Enterprise Valuation Valuation
R. J. Reynolds Industries, Inc. Tobacco, Food and Transportation $738,530,200 2.24% Duke Energy Corporation Electric Utility 314,669,600 0.95 Lowes Home Center Retail 297,406,770 0.90 JG Winston-Salem Real Estate Management 203,418,100 0.62 Wells Fargo Bank, N.A. Banking 196,410,950 0.60 Wake Forest University Education / Health Care 142,344,600 0.43 Wal-Mart Real Estate Business Trust Retail 124,172,000 0.38 Branch Banking & Trust Company Banking 114,775,650 0.35 Novant Health, Inc. Health Care 90,265,640 0.27 Hanesbrands, Inc. Apparel 86,726,160 0.26 $2,308,719,670 7.00%
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2013-14 Budget Commentary
The County’s General Fund budget for the fiscal year ended June 30, 2014 was in the amount of $399,819,198, an increase of $4,904,121, or 1.2%, from the fiscal year 2013 budget. The property tax rate was increased in a revaluation to $.7168 per $100 valuation. The tax rate was $.025 less than the revenue neutral rate of $.7418. The County Manager’s recommended General Fund budget was adopted with minor changes. There were no significant reductions in services which occurred as a result of the generally revenue neutral budget.
The projected outcome for the fiscal year ended June 30, 2014 is a decrease in General Fund balance of approximately $925,000. However, with the use of $2.775 million of the fund balance reserved for the County’s education debt leveling plan, the balance of the General Fund’s operations should have a positive variance of $1.85 million. The County performed favorably in regards to General Fund revenues (actual to budget) and expenses (actual to budget) for the fiscal year ended June 30, 2014 (99.50% of budgeted revenues and 94.67% of budgeted expenses.)
2014-15 Budget Outlook
The County’s adopted budget for the fiscal year ending June 30, 2015 is in the amount of $405,179,369, an increase of $5,288,171, or 1.3%, from the budget for the fiscal year ended June 30, 2014. The property tax rate remained unchanged at $.7168 per $100 valuation, which includes $.0451 to fund debt service related to bonds approved by voters in 2006 and 2008. The County Manager’s recommended budget was adopted with minor modifications, and there were no significant reductions in services which occurred as a result of the generally revenue neutral budget. However, the budgeted sales tax revenue increased by $2.1 million over the prior fiscal year’s budget. The County expects the operations for the year to be consistent with the previous year and result in no significant changes to General Fund balance.
Pension Plans
The County participates in the North Carolina Local Governmental Employees’ Retirement System and the Supplemental Retirement Income Plan of North Carolina. The North Carolina Local Governmental Employees’ Retirement System (the “System”) is a service agency administered through a board of trustees by the State for public employees of counties, cities, boards, commissions and other similar governmental entities. While the State Treasurer is the custodian of System funds, administrative costs are borne by the participating employer governmental entities. The State makes no contributions to the System.
The System provides, on a uniform System-wide basis, retirement and, at each employer’s option, death benefits from contributions made by employers and employees. Employee members contribute six percent of their individual compensation. Each new employer makes a normal contribution plus, where applicable, a contribution to fund any accrued liability over a 24-year period. The normal contribution rate, uniform for all employers, was 7.07% of eligible payroll for general employees and 7.28% of eligible payroll for law enforcement officers. The accrued liability contribution rate is determined separately for each employer and covers the liability of the employer for benefits based on employees’ service rendered prior to the date the employer joins the system.
Members qualify for a vested deferred benefit at age 60 after at least five years of creditable service to the unit of local government. Unreduced benefits for general employees are available: at age 65, with at least five years of creditable service; at age 60, with at least 25 years of creditable service; or after 30 years of creditable service, regardless of age. Benefit payments are computed by taking an average of the annual compensation for the four consecutive years of membership service yielding the
21 highest average. This average is then adjusted by a percentage formula, by a total years of service factor, and by an age service factor if the individual is not eligible for unreduced benefits.
Contributions to the System are determined on an actuarial basis. The County’s contributions to the System for the years ended June 30, 2013, 2012 and 2011 were $5,505,610, $5,626,500, and $5,312,862, respectively. The contributions made by the County equaled the required contributions for each year.
For more information concerning the County’s participation in the North Carolina Local Governmental Employees’ Retirement System and the Supplemental Retirement Income Plan of North Carolina see the Notes to the County’s Audited Financial Statements and the required supplementary information in Appendix D.
Financial statements and required supplementary information for the North Carolina Local Governmental Employees’ Retirement System are included in the Comprehensive Annual Financial Report (“CAFR”) for the State. Please refer to the State’s CAFR for additional information.
Other Post-Employment Benefits
The County provides certain other post-employment benefits (OPEB) as part of the total compensation offered to attract and retain the services of qualified employees. These benefits include medical benefits, limited life insurance coverage for disability retirees only, and a $2,000 death benefit for all employees retiring with at least 15 years of continuous full-time County service, except disability retirees. Current policy allows retired County employees who meet eligibility criteria to participate in the County’s medical plan until they reach age 65 or are eligible for Medicare for the same premium as active employees. Coverage for eligible dependents on the plan the day before the employee retired may be continued until eligibility ceases. Based on the level of coverage, the County pays between 68.3% and 87.6% of the established premium cost, and the retiree pays the same premium as active employees.
The contribution requirements of the County are established and may be amended by the Board of Commissioners for the County. The required contribution is based on projected pay-as-you-go financing requirements and an additional amount to prefund benefits as determined annually by the Board of Commissioners for the County. The County pays the full costs of retiree death benefits and life insurance for disability retirees, which were $14,000 and $9,120, respectively, for fiscal year ended June 30, 2013. For fiscal year ended June 30, 2013, the County contributed $2,511,461 for healthcare benefits and also contributed $1,600,000 to prefund benefits.
For the fiscal year ended June 30, 2013, the County’s annual required contribution (ARC) was 6.65%. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The County contributed $4,830,186, or 5.9%, of annual covered payroll. The County self-funds its healthcare benefits, and premiums are set at a level to cover current costs and fund actuarially computed reserves. The ARC for the fiscal year ended June 30, 2013 was determined as part of the December 31, 2010 actuarial valuation using the projected unit credit actuarial cost method. The actuarial assumptions included (a) 6.00% investment rate of return and (b) projected medical cost increases of 5.0% to 10.5% per year. Item (b) included an inflation component of 3.00%. The assumptions did not include post-retirement benefit increases.
The following table presents, for each of the last four fiscal years, the County’s annual OPEB cost (calculated based on ARC), the percentage of annual OPEB cost the County contributed and the resulting net OPEB obligation. The net OPEB obligation shown for each year is the net OPEB obligation existing
22 at the beginning of such year plus the annual OPEB cost for such year and less the annual OPEB cost contributed by the County.
Fiscal Year Percentage of Annual Ended June 30, Annual OPEB Cost OPEB Cost Contributed Net OPEB Obligation 2010 6,345,621 59.7 8,939,062 2011 5,848,799 86.8 9,711,026 2012 5,644,091 105.7 9,386,825 2013 5,861,805 82.4 10,418,444
As of December 31, 2012, the most recent actuarial valuation date, the plan was 15.6% funded. The actuarial accrued liability for benefits was $63,379,261, and the actuarial value of assets was $9,915,644, resulting in an unfunded actuarial accrued liability (UAAL) of $53,463,617. The covered payroll (annual payroll of active employees covered by the plan) was $81,541,641, and the ratio of the UAAL to the covered payroll was 65.6%.
Contingent Liabilities
The County is involved in several claims and lawsuits, which it intends to defend vigorously. The County’s legal counsel is of the opinion that any possible liability of the County resulting from an adverse adjudication in such litigation and not covered by insurance would not have a materially adverse effect on the financial position of the County.
CONTINUING DISCLOSURE
In the resolutions adopted by the County authorizing the issuance of the Bonds, the County has undertaken, for the benefit of the beneficial owners of the Bonds, to provide to the Municipal Securities Rulemaking Board (the “MSRB”):
(a) by not later than seven months from the end of each fiscal year of the County, beginning with the fiscal year ended June 30, 2014, audited financial statements of the County for such fiscal year, if available, prepared in accordance with Section 159-34 of the General Statutes of North Carolina, as it may be amended from time to time, or any successor statute, or if such audited financial statements of the County are not available by seven months from the end of such fiscal year, unaudited financial statements of the County for such fiscal year to be replaced subsequently by audited financial statements of the County to be delivered within fifteen (15) days after such audited financial statements become available for distribution;
(b) by not later than seven months from the end of each fiscal year of the County, beginning with the fiscal year ended June 30, 2014, (i) the financial and statistical data as of a date not earlier than the end of the preceding fiscal year for the type of information included under the headings “THE COUNTY - Debt Information and - Tax Information” (excluding any information on underlying units) in this Official Statement and (ii) the combined budget of the County for the current fiscal year, to the extent such items are not included in the audited financial statements referred to in (a) above;
(c) in a timely manner, not in excess of ten business days after the occurrence of the event, notice of any of the following events with respect to the Bonds:
(1) principal and interest payment delinquencies;
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(2) non-payment related defaults, if material;
(3) unscheduled draws on debt service reserves reflecting financial difficulties;
(4) unscheduled draws on credit enhancements reflecting financial difficulties;
(5) substitution of credit or liquidity providers, or their failure to perform;
(6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds;
(7) modification to the rights of the beneficial owners of the Bonds, if material;
(8) Bond calls, if material, and tender offers;
(9) defeasances;
(10) release, substitution or sale of any property securing repayment of the Bonds, if material;
(11) rating changes;
(12) bankruptcy, insolvency, receivership or similar event of the County;
(13) the consummation of a merger, consolidation or acquisition involving the County or the sale of all or substantially all of the assets of the County, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and
(14) appointment of a trustee or a successor or additional trustee or the change of name of a trustee, if material; and
(d) in a timely manner, notice of a failure of the County to provide the required annual financial information described in (a) or (b) above on or before the date specified.
All information provided to the MSRB as described above shall be provided in an electronic format as prescribed by the MSRB and accompanied by identifying information as prescribed by the MSRB.
The County may meet the continuing disclosure filing requirements described above by complying with any other procedure that may be authorized or required by the United States Securities and Exchange Commission.
At present, Section 159-34 of the General Statutes of North Carolina requires the County’s financial statements to be prepared in accordance with generally accepted accounting principles and to be audited in accordance with generally accepted auditing standards.
The resolutions adopted by the County authorizing the issuance of the Bonds provide that if the County fails to comply with the undertaking described above, any beneficial owner of the Bonds of each series may take action to protect and enforce the rights of all beneficial owners of such series with respect
24 to such undertaking, including an action for specific performance; provided, however, that failure to comply with such undertaking shall not be an event of default and shall not result in any acceleration of payment of the Bonds. All actions shall be instituted, had and maintained in the manner provided in this paragraph for the benefit of all beneficial owners of the Bonds of each series.
Pursuant to each such resolution, the County has reserved the right to modify from time to time the information to be provided to the extent necessary or appropriate in the judgment of the County, provided that:
(a) any such modification may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of the County;
(b) the information to be provided, as modified, would have complied with the requirements of Rule 15c2-12 issued under the Securities Exchange Act of 1934 (“Rule 15c2-12”) as of the date of this Official Statement, after taking into account any amendments or interpretations of Rule 15c2-12, as well as any changes in circumstances; and
(c) any such modification does not materially impair the interests of the beneficial owners of the Bonds, as determined either by parties unaffiliated with the County (such as bond counsel), or by the approving vote of the registered owners of a majority in principal amount of the Bonds pursuant to the terms of such resolution, as it may be amended from time to time, at the time of such amendment.
In the event that the County makes such a modification, any annual financial information containing modified operating data or financial information is required to explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided.
The undertaking described above will terminate upon payment, or provision having been made for payment in a manner consistent with Rule 15c2-12, in full of the principal of and interest on all of the Bonds of each respective series.
Over the last five years, the County has complied in all material respects with the terms of its prior continuing disclosure undertakings under Rule 15c2-12.
APPROVAL OF LEGAL PROCEEDINGS
Certain legal matters incident to the authorization and issuance of the Bonds are subject to the approval of Womble Carlyle Sandridge & Rice, LLP, Raleigh, North Carolina, Bond Counsel, whose respective approving legal opinions will be available at the time of the delivery of each series of the Bonds. The proposed forms of such opinions are attached hereto as Appendix E.
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RATINGS
Moody’s Investors Service, Standard & Poor’s Ratings Services and Fitch Ratings have given the Bonds ratings of Aaa, AAA and AAA, respectively. Those ratings reflect only the respective views of such organizations, and an explanation of the significance of each such rating may be obtained only from the respective organization providing such rating. Certain information and materials not included in the Official Statement were furnished to such organizations. There is no assurance that such ratings will remain in effect for any given period of time or that any or all will not be revised downward or withdrawn entirely. Any downward revision or withdrawal of a rating may have an adverse effect on the market prices of the Bonds.
TAX TREATMENT
Opinion of Bond Counsel
In the opinion of Bond Counsel, under existing law and assuming continuing compliance by the County with certain covenants to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), regarding, among other matters, the use, expenditure and investment of the proceeds of the Bonds, and the timely payment of certain investment earnings to the United States Treasury, interest on the Bonds will not be includable in the gross income of the owners thereof for purposes of federal income taxation. Bond Counsel is also of the opinion that interest on the Bonds will not be a specific preference item for purposes of the alternative minimum tax imposed by the Code on corporations and other taxpayers, including individuals; however, such interest will be includable in determining adjusted current earnings of corporations for purposes of computing the alternative minimum tax imposed by the Code on corporations. In addition, in the opinion of Bond Counsel, under existing law, interest on the Bonds will be exempt from all State of North Carolina income taxes.
The Code and other laws of taxation, including the laws of taxation of the State of North Carolina, of other states and of local jurisdictions, may contain other provisions that could result in tax consequences, upon which Bond Counsel expresses no opinion, as a result of ownership or transfer of the Bonds.
Original Issue Premium
J.P. Morgan Securities LLC, as senior managing underwriter of the Bonds, has advised the Commission that the initial public offering prices of each maturity of each series of the Bonds ( the “Premium Bonds”) are greater than the amounts payable at maturity. The difference between (a) the initial offering prices to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents, wholesalers or other intermediaries) at which a substantial amount of each maturity of the Premium Bonds is sold and (b) the principal amount payable at maturity of such Premium Bonds constitutes original issue premium. In general, an owner of a Premium Bond must amortize the bond premium over the remaining term of the Premium bond based on the owner’s yield over the remaining term of the Premium Bond, determined based on constant yield principles (in certain cases involving a Premium Bond callable prior to its stated maturity date, the amortization period and yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on such Premium Bond). An owner of a Premium Bond must amortize the bond premium by offsetting the qualified stated interest allocable to each interest accrual period under the owner’s regular method of accounting against the bond premium allocable to that period. If the bond premium allocable to an accrual period exceeds the qualified stated interest allocable to that accrual period, the excess is a nondeductible loss. Under certain circumstances, the owner of a Premium Bond may realize a taxable gain upon disposition of the Premium bond even though it is sold or redeemed for an amount less than or equal to the owner’s original acquisition cost.
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Owners and prospective purchasers of Premium Bonds should consult their own tax advisors regarding the treatment of bond premium for federal income tax purposes, including various special rules relating thereto, and state and local tax consequences in connection with the ownership and disposition of Premium Bonds.
Other Tax Consequences
Ownership or transfer of, or the accrual or receipt of interest on, the Bonds may result in collateral federal, State of North Carolina, other state or local tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with excess passive income, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers who may be eligible for the federal earned income tax credit, and taxpayers subject to franchise, estate, inheritance, gift or capital gains taxes. Owners and prospective purchasers of the Bonds should consult their tax advisors as to any such possible tax consequences. Except to the extent covered in its legal opinion, Bond Counsel expresses no opinion regarding any such collateral tax consequences.
No assurance can be given that future legislation, including amendments to the Code or interpretations thereof, if enacted into law, or certain litigation or judicial decisions, if upheld, will not contain provisions or produce results which could, directly or indirectly, reduce the benefit of the excludability of interest on the Bonds from gross income for federal income tax purposes.
The Internal Revenue Service (the “Service”) has an ongoing program of auditing tax-exempt obligations to determine whether, in the view of the Service, interest on such tax-exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. No assurances can be given as to whether or not the Service will commence an audit of the Bonds.
Interest paid on tax-exempt obligations, such as the Bonds, will be subject to information reporting in a manner similar to interest paid on taxable obligations. Although such reporting requirement does not, in and of itself, affect the excludability of interest with respect to the Bonds from gross income for federal income tax purposes, such reporting requirement causes the payment of interest with respect to the Bonds to be subject to backup withholding if such interest is paid to beneficial owners who (a) are not “exempt recipients,” and (b) either fail to provide certain identifying information (such as the beneficial owner’s taxpayer identification number) in the required manner or have been identified by the Service as having failed to report all interest and dividends required to be shown on their income tax returns. Generally, individuals are not exempt recipients, whereas corporations and certain other entities generally are exempt recipients. Amounts withheld under the backup withholding rules from a payment to a beneficial owner would be allowed as a refund or credit against such beneficial owner’s federal income tax liability provided the required information is furnished to the Service.
UNDERWRITING
The underwriters for the Public Improvement Bonds are J.P. Morgan Securities LLC, Academy Securities and Estrada Hinojosa.1 Such underwriters have jointly and severally agreed, subject to certain conditions, to purchase all but not less than all of the Public Improvement Bonds. If all of the Public Improvement Bonds are sold at the public offering yields set forth on the inside cover page of this Official Statement, such underwriters anticipate total selling compensation of $33,447.50.1 The public offering prices or yields of the Public Improvement Bonds may be changed from time to time by such underwriters. ______1 Information provided by the underwriters of the Public Improvement Bonds.
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The underwriters for the Library Bonds are J.P. Morgan Securities LLC, Academy Securities and Estrada Hinojosa.2 Such underwriters have jointly and severally agreed, subject to certain conditions, to purchase all but not less than all of the Library Bonds. If all of the Library Bonds are sold at the public offering yields set forth on the inside cover page of this Official Statement, such underwriters anticipate total selling compensation of $72,361.49.2 The public offering prices or yields of the Library Bonds may be changed from time to time by such underwriters.
______2Information provided by the underwriters of the Library Bonds.
MISCELLANEOUS
Any statements in this Official Statement involving matters of opinion or estimates, whether or not expressly so stated, are intended as such and not as representations of fact.
Reference herein to the State Constitution and legislative enactments are only brief outlines of certain provisions thereof and do not purport to summarize or describe all provisions thereof.
The execution of this Official Statement has been duly authorized by the North Carolina Local Government Commission and the Board of Commissioners for the County.
NORTH CAROLINA LOCAL GOVERNMENT COMMISSION
By /s/T. Vance Holloman Secretary of the Commission
COUNTY OF FORSYTH, NORTH CAROLINA
By /s/Richard V. Linville Chairman of the Board of Commissioners
By /s/J. Dudley Watts, Jr. County Manager
By /s/Paul L. Fulton, Jr. Chief Financial Officer
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APPENDIX A
THE NORTH CAROLINA LOCAL GOVERNMENT COMMISSION
The Local Government Commission (the “Commission”) is composed of nine members: the State Treasurer, the Secretary of State, the State Auditor, the Secretary of Revenue and five others by appointment (three by the Governor, one by the General Assembly upon recommendation of the President Pro Tempore of the Senate and one by the General Assembly upon recommendation of the Speaker of the House of Representatives). The State Treasurer serves as Chairman and selects the Secretary of the Commission, who heads the administrative staff serving the Commission.
A major function of the Commission is the approval, sale and delivery of substantially all North Carolina local government bonds and notes. A second key function is monitoring certain fiscal and accounting standards prescribed for units of local government by The Local Government Budget and Fiscal Control Act. In addition, the Commission furnishes, upon request, on site assistance to units of local government concerning existing financial and accounting systems as well as aid in establishing new systems. Further, educational programs and materials are provided for local officials concerning finance and cash management.
Before any unit of local government can incur bonded indebtedness, the proposed bond issue must be approved by the Commission. In determining whether to give such approval the Commission may consider, among other things, the unit’s debt management procedures and policies, its compliance with The Local Government Budget and Fiscal Control Act and its ability to service the proposed debt. All general obligation issues are customarily sold on the basis of formal sealed bids submitted at the Commission’s offices in Raleigh and are subsequently delivered to the successful bidder by the Commission. The Commission maintains records for all units of local government of principal and interest payments coming due on bonded indebtedness in the current and future years and monitors the payment by the units of local government of debt service through a system of monthly reports.
As a part of its role in assisting and monitoring the fiscal programs of units of local government, the Commission attempts to ensure that the units of local government follow generally accepted accounting principles, systems and practices. The Commission’s staff also counsels the units of local government in treasury and cash management, budget preparation and investment policies and procedures. Educational programs, in the form of seminars or classes, are also provided by the Commission in order to accomplish these tasks. The monitoring of the financial systems of units of local government is accomplished through the examination and analysis of the annual audited financial statements and other required reports. The Local Government Budget and Fiscal Control Act requires each unit of local government to have its accounts audited annually by a certified public accountant or by an accountant certified by the Commission as qualified to audit local government accounts. A written contract must be submitted to the Secretary of the Commission for his approval prior to the commencement of the audit.
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The Commission has the statutory authority to impound the books and records of any unit of local government and assume full control of all its financial affairs (a) when the unit defaults on any debt service payment or, in the opinion of the Commission, will default on a future debt service payment if the financial policies and practices of the unit are not improved or (b) when the unit persists, after notice and warning from the Commission, in willfully or negligently failing or refusing to comply with the provisions of The Local Government Finance Act. When the Commission takes action under this authority, the Commission is vested with all of the powers of the governing board of the unit of local government as to the levy of taxes, expenditure of money, adoption of budgets and all other financial powers conferred upon such governing board by law.
In addition, if a unit of local government fails to pay any installment of principal or interest on its outstanding debt on or before its due date and remains in default for 90 days, the Commission may take such action as it deems advisable to investigate the unit’s fiscal affairs, consult with its governing board and negotiate with its creditors in order to assist the unit in working out a plan for refinancing, adjusting or compromising such debt. When a plan is developed that the Commission finds to be fair and equitable and reasonably within the ability of the unit of local government to meet, the Commission will enter an order finding that the plan is fair, equitable and within the ability of the unit to meet and will advise the unit to take the necessary steps to implement such plan. If the governing board of the unit declines or refuses to do so within 90 days after receiving the Commission’s advice, the Commission may enter an order directing the unit to implement such plan and may apply for a court order to enforce such order. When a refinancing plan has been put into effect, the Commission has the authority (a) to require any periodic financial reports on the unit’s financial affairs that the Secretary deems necessary and (b) to approve or reject the unit’s annual budget ordinance. The governing board of the unit of local government must also obtain the approval of the Secretary of the Commission before adopting any annual budget ordinance. The power and authority granted to the Commission as described in this paragraph will continue with respect to a defaulting unit of local government until the Commission is satisfied that the unit has performed or will perform the duties required of it in the refinancing plan and until agreements made with the unit’s creditors have been performed in accordance with such plan.
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APPENDIX B
CERTAIN CONSTITUTIONAL, STATUTORY AND ADMINISTRATIVE PROVISIONS GOVERNING OR RELEVANT TO THE INCURRENCE OF GENERAL OBLIGATION BONDED INDEBTEDNESS BY UNITS OF LOCAL GOVERNMENT OF THE STATE OF NORTH CAROLINA
Constitutional Provisions
The North Carolina Constitution (the “Constitution”) requires the General Assembly to enact general laws relating to the borrowing of money secured by a pledge of the faith and credit and the contracting of other debts by counties, cities and towns, special districts and other units, authorities and agencies of local government and prohibits enactment of special or local acts on this subject. These general laws may be enacted for classes defined by population or other criteria.
The General Assembly has no power under the Constitution to authorize any unit of local government to contract debts secured by a pledge of its faith and credit unless approved by a majority of the qualified voters of the unit who vote thereon, except for the following purposes:
(a) to fund or refund a valid existing debt;
(b) to supply an unforeseen deficiency in the revenue;
(c) to borrow in anticipation of the collection of taxes due and payable within the current fiscal year to an amount not exceeding 50% of such taxes;
(d) to suppress riots or insurrections;
(e) to meet emergencies immediately threatening the public health or safety, as conclusively determined in writing by the Governor; and
(f) for purposes authorized by general laws uniformly applicable throughout the State, to the extent of two--thirds of the amount by which the issuing unit’s outstanding indebtedness was reduced during the next preceding fiscal year.
The Constitution requires that the power of taxation be exercised in a just and equitable manner, for public purposes only, and never be surrendered, suspended or contracted away. Since general obligation bonded indebtedness pledges the taxing power, it may therefore be incurred only for “public purposes.” The North Carolina Supreme Court determines what is and is not a public purpose within the meaning of the Constitution.
The Constitution requires voter approval for any unit of local government to give or lend its credit in aid of any person, association or corporation, and such lending of credit must be for public purposes as authorized by general law. A loan of credit is defined by the Constitution as occurring when a unit of local government exchanges its obligations with or in any way guarantees the debts of an individual, association or private corporation.
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The Constitution does not impose a limit on the total indebtedness of a unit of local government.
Of the sources of revenue available to units of local government, only the property tax is subject to special Constitutional regulation. The Constitution does not mandate a general property tax; rather, it authorizes the General Assembly to classify property for taxation under two conditions: (1) each class of property selected for taxation must be taxed by uniform rule and (2) every classification must be made by general law uniformly applicable to every unit of local government. No class of property is accorded exemption from ad valorem taxation by the Constitution except property belonging to the State, counties and municipal corporations. The General Assembly may exempt cemeteries and property held for educational, scientific, literary, cultural, charitable or religious purposes and, to a value not exceeding $300, any personal property. The General Assembly may also exempt from taxation not exceeding $1,000 in value of property used as the place of residence of the owner. Property of the United States is exempt by virtue of the supremacy clause of the United States Constitution.
The Constitution requires that any property tax must be levied for purposes authorized by general law uniformly applicable throughout the State, unless approved by a majority of the qualified voters of the unit of local government who vote thereon.
Under the Constitution, property taxes levied for unit--wide purposes must be levied uniformly throughout the territorial jurisdiction of the taxing unit, but the General Assembly may enact general laws authorizing the governing body of any county, city or town to define territorial areas and to levy taxes within those areas in order to finance, provide or maintain services, facilities and functions in addition to or to a greater extent than those financed, provided or maintained for the entire county, city or town.
The Local Government Bond Act
No unit of local government has authority to incur general obligation bonded indebtedness otherwise than in accordance with the limitations and procedures prescribed in The Local Government Bond Act, G.S. Ch. 159, Art. 4 (the “Act”) and G.S. Ch. 159, Art. 7 or to issue short-¬term general obligation notes otherwise than in accordance with G.S. Ch. 159, Art. 9.
By statute, the faith and credit of the issuing unit are pledged for the payment of the principal of and interest on all bonds issued under the Act according to their terms, and the power and obligation of the issuing unit to levy taxes and raise other revenues for the prompt payment of installments of principal and interest or for the maintenance of sinking funds is unrestricted as to rate or amount.
The revenues of each utility or public service enterprise owned or leased by a unit of local government are required by statute to be applied in accordance with the following priorities: (1) to pay the operating, maintenance and capital outlay expenses of the utility or enterprise; (2) to pay when due the interest on and principal of outstanding bonds issued for capital projects that are or were a part of the utility or enterprise; and (3) for any other
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lawful purpose. In its discretion, an issuing unit may pledge the revenues (or any portion thereof) of a utility or enterprise for the payment of the interest on and principal of bonds issued under the Act to finance capital projects that are to become a part of the utility or enterprise.
Bonds may be issued only for purposes specifically authorized by the Act.
No bonds may be issued under the Act without the approval of the Local Government Commission. The criteria for approval have been summarized in the description of the powers of the Commission in Appendix B to this Official Statement.
The Act provides that, subject to certain exceptions, no bond order may be adopted by the governing body of a unit of local government unless it appears from a sworn statement of debt filed in connection therewith that the net debt of the unit does not exceed 8% of the assessed value of property subject to taxation by the issuing unit. Under current law, the mandated assessment ratio is 100% of appraised value. This limitation does not apply to funding and refunding bonds, bonds issued for water, gas or electric power purposes, or two or more of such purposes, certain sanitary sewer, sewage disposal or sewage purification plant bonds, bonds or notes issued for erosion control purposes or bonds or notes issued for the purposes of erecting jetties or other protective works to prevent encroachment by certain bodies of water.
“Net debt” is defined as gross debt less certain statutory exclusions and deductions. Gross debt, excluding therefrom debt incurred or to be incurred in anticipation of tax or other revenue collections or in anticipation of the sale of bonds other than funding or refunding bonds, is the sum of (i) outstanding debt evidenced by bonds, (ii) bonds authorized by orders introduced but not yet adopted, (iii) unissued bonds authorized by adopted orders and (iv) outstanding debt not evidenced by bonds. From gross debt are deducted (a) funding and refunding bonds (both those authorized by orders introduced but not yet adopted and those authorized but not yet issued), (b) the amount of money held in sinking funds or otherwise for the payment of any part of the principal of gross debt other than debt incurred for the purposes set forth in clause (e) below, (e) the amount of bonded debt included in gross debt and incurred, or to be incurred, for water, gas or electric light or power purposes, or two or more of such purposes, and certain bonded debt for sanitary sewer purposes, and (d) the amount of uncollected special assessments theretofore levied or estimated to be levied for local improvements for which any part of the gross debt (that is not otherwise deducted) was or is to be incurred, to the extent that the special assessments, when collected, will be applied to the payment of any part of the gross debt. Revenue bond indebtedness is not included in, nor deducted from, gross debt.
Bonds may be issued under an approved bond order at any time within seven years after the bond order takes effect. The effective date of the bond order is the date of formal passage of the bond order in the case of bonds that do not require voter approval and the date of voter approval in all other cases. If the issuance of bonds is prevented or prohibited by any order of any court or certain litigation, the period of time is extended by the length of time elapsing between the date of institution of the action or litigation and the date of its final disposition. The General Assembly may, prior to the expiration of the maximum
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period, also extend such period. In addition, such period may be extended from seven to ten years by the governing body of a unit of local government under certain circumstances with approval by the Commission. In any such case, no further voter approval is required.
The Commission has by regulation established the maximum useful lives of capital projects that may be financed by bonds. The maturity dates of any bonds issued for any project may not exceed the maximum useful life of the project, measured from the date of the bonds.
All bonds must mature in annual installments, the first of which must be payable not more than three years after the date of the bonds and the last of which must be payable within the maximum useful life of the project. Payment of an installment of principal may be provided for by the maturity of a bond, mandatory redemption of principal prior to maturity, a sinking fund, a credit facility or any other means satisfactory to the Commission. In addition, the Act prohibits “balloon installments” in that it requires that no installment of any issue may be greater than four times as large in amount as the smallest prior installment of the same issue. Bonds authorized by two or more bond orders may be consolidated into a single issue, and bonds of each issue may be issued from time to time in series with different provisions for each series. Each series is deemed a separate issue for the purposes of the limitations discussed in this paragraph. Bonds may be made payable from time to time on demand or tender for purchase as provided in the Act, and bonds may be made subject to redemption prior to maturity, with or without premium. The requirement that the bonds must mature in annual installments and the prohibition against balloon installments as described above does not apply to (a) refunding bonds, (b) bonds purchased by a State or federal agency or (c) bonds the interest on which is or may be includable in gross income for purposes of federal income tax, provided that the dates on which such bonds are stated to mature are approved by the Commission and the Commission may require that payment of all or any part of the principal of and interest and any premium on such bond be provided for by mandatory sinking fund redemption.
Short-Term Obligations
Bond Anticipation Notes - Units of local government are authorized to issue short term notes in anticipation of the sale of bonds validly authorized for issuance within the maximum authorized amount of the bonds. General obligation bond anticipation notes must be payable not later than seven years after the effective date of the bond order and shall not be renewed or extended beyond that time unless the period of time within which the bonds may be issued has been extended as mentioned above. The faith and credit of the issuing unit are pledged for the payment of general obligation bond anticipation notes, and the power and obligation of the issuing unit to levy taxes and raise other revenues for the prompt payment of such notes is unrestricted as to rate or amount. The proceeds of each general obligation bond issue are also pledged for the payment of any notes issued in anticipation of the sale thereof, and any such notes shall be retired from the proceeds of the bonds as a first priority.
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Tax Anticipation Notes - Units of local government having the power to levy taxes are authorized to borrow money for the purpose of paying appropriations made for the current fiscal year in anticipation of the collection of taxes due and payable within the current fiscal year, and to issue negotiable notes in evidence thereof. Any tax anticipation note must mature not later than 30 days after the close of the fiscal year in which it is issued and may not be renewed beyond that time. No tax anticipation note shall be issued by the unit of local government if the amount thereof, together with the amount of all authorized or outstanding tax anticipation notes on the date the note is authorized, would exceed 50% of the amount of taxes uncollected as of the date of the proposed note authorization. The faith and credit of the issuing unit are pledged for the payment of tax anticipation notes, and the power and obligation of the issuing unit to levy taxes and raise other revenues for the prompt payment of such notes is unrestricted as to rate or amount.
Revenue Anticipation Notes - Units of local government are authorized to borrow money for the purpose of paying appropriations made for the current fiscal year in anticipation of the receipt of the revenues, other than taxes, estimated in their budgets to be realized in cash during such fiscal year, and to issue negotiable notes in evidence thereof. Any revenue anticipation note must mature not later than 30 days after the close of the fiscal year in which it is issued and may not be renewed beyond that time. No revenue anticipation note shall be issued if the amount thereof, together with the amount of all revenue anticipation notes authorized or outstanding on the date the note is authorized, would exceed 80% of the revenues of the issuing unit, other than taxes, estimated in its budget to be realized in cash during such fiscal year. Revenue anticipation notes are special obligations of the issuing unit, and neither the credit nor the taxing power of the issuing unit may be pledged for the payment of revenue anticipation notes.
Grant Anticipation Notes - Units of local government are authorized to borrow money for the purpose of paying appropriations made for capital projects in anticipation of the receipt of moneys from grant commitments for such capital projects from the State or the United States or any agencies of either, and to issue negotiable notes in evidence thereof. Grant anticipation notes must mature not later than 12 months after the estimated completion date of such capital project and may be renewed from time to time, but no such renewal shall mature later than 12 months after the estimated completion date of such capital project. No grant anticipation note may be issued if the amount thereof, together with the amount of all other notes authorized or issued in anticipation of the same grant commitment, exceeds 90% of the unpaid amount of said grant commitment. Grant anticipation notes are special obligations of the issuing unit, and neither the credit nor the taxing power of the issuing unit may be pledged for the payment of grant anticipation notes.
The Local Government Budget and Fiscal Control Act
The Local Government Budget and Fiscal Control Act, G.S. Ch. 159, Art. 3 (the “Fiscal Control Act”), sets forth procedures for the adoption and administration of budgets of units of local government. The Fiscal Control Act also prescribes certain accounting and auditing requirements. The Fiscal Control Act attempts to achieve close conformity with the accounting principles contained in the American Institute of Certified Public Accountants’ Industry Audit Guide, Audits of State and Local Government Units.
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Budget - The Fiscal Control Act requires the adoption of an annual balanced budget, which includes all appropriations required for debt service and for eliminating any deficit. Any deficit is required to be eliminated by the imposition of a property tax at a rate which will produce the revenue necessary to balance revenues and appropriations in the budget. The Secretary of the Commission is required to notify each local government unit by May 1 of each year of its debt service obligations for the coming fiscal year, including sums to be paid into sinking funds. At least 30 days prior to the due date of each installment of principal or interest on outstanding debt, the Secretary must notify each unit of the payment due, the due date, the place which the payments should be sent, and a summary of the legal penalties for failing to meet debt service obligations.
The Fiscal Control Act directs that the budget ordinance be adopted by the governing board of the unit of local government by July 1 of the fiscal year to which it applies. There is no penalty for failure to meet this deadline. The fiscal year begins July 1 and ends the following June 30. The governing board is required to hold a public hearing concerning the budget prior to its adoption. A project ordinance authorizing all appropriations necessary for the completion of a capital project or a grant project may be adopted in lieu of annual appropriations for each project and need not be readopted in any subsequent fiscal year.
Fiscal Control - The Fiscal Control Act sets forth certain fiscal control requirements concerning the duties of the finance officer; the system of accounting; budgetary accounting for appropriations; investment of idle funds; semiannual reports of financial information to the Commission; and an annual independent audit.
Except as otherwise provided by regulation of the Commission, the Fiscal Control Act requires a unit of local government to use the modified accrual basis of accounting in recording transactions. The Commission is empowered to prescribe regulations as to (a) features of accounting systems; (b) bases of accounting, including identifying in detail the characteristics of a modified accrual basis, identifying what revenues are susceptible to accrual, and permitting or requiring the use of a basis other than modified accrual in a fund that does not account for the receipt of a tax; and (c) definitions of terms not clearly defined in the Fiscal Control Act.
The Fiscal Control Act requires each unit of local government to have its accounts audited annually by an independent certified public accountant or by an independent accountant certified by the Commission as qualified to audit local government accounts. The audit must be conducted pursuant to a written contract containing the form, terms and fees for the audit. The Secretary of the Commission must approve this contract before the audit may begin and must approve invoices for the audit fee. Approval of final payment is not given until the audit report is rendered in accordance with the requirements of the contract. All audits are to be performed in conformity with generally accepted auditing standards.
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Major General Fund Revenue Sources
Ad Valorem Tax - Each unit of local government having authority to incur general obligation bonded indebtedness also has authority to levy ad valorem taxes on property having a situs within the unit. The ad valorem tax is levied on classes of property selected for taxation by the General Assembly through laws that are uniform throughout the State. The statute governing the listing, appraisal and assessment of property for taxation and the collection of taxes levied is the Machinery Act, G.S. Ch. 105, Subchapter II.
Tax Base - The basic class of property selected for taxation comprises all real and tangible personal property. Thus, unless a class of property is specifically excluded from the property tax base, exempted from taxation or specifically accorded some kind of preferential tax treatment, it must be taxed by each unit of local government exercising its authority to levy property taxes. Several classes of property have been selected for exclusion from the property tax base, exemption from taxation or taxation at reduced valuation or for special appraisal standards. The most significant of these classes are:
(1) Tangible household personal property is excluded from the property tax base.
(2) Stocks and bonds, accounts receivable and certain other types of intangible personal property are excluded from the property tax base.
(3) Property belonging to certain qualified owners and used wholly and exclusively for religious, educational, charitable, cultural, fraternal or civic purposes is wholly exempted from taxation. Property belonging to the United States, the State and units of local government is also exempt from taxation.
(4) Real and personal property owned by certain nonprofit homes for the aged, sick or infirm are excluded from property taxation, provided such homes are exempt from the State income tax.
(5) Certain kinds of tangible personal property held for business purposes are excluded from taxation, the most important of which are:
(a) Manufacturers’ inventories (raw materials, goods in process, finished goods, materials or supplies consumed in processing, crops, livestock, poultry, feed used in production of livestock and poultry, and other agricultural or horticultural products held for sale) and inventories of retail and wholesale merchants (tangible personal property held for sale and not manufactured, processed or produced by the merchant).
(b) Property imported through a North Carolina seaport terminal and stored at such terminal for less than 12 months awaiting further shipment.
(c) Certain pollution abatement and resource recovery equipment.
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(d) “Bill and hold” goods manufactured in North Carolina and held by the manufacturer for shipment to a nonresident customer.
(e) Nuclear materials held for or in the process of manufacture or processing or held by the manufacturer for delivery.
(f) Motor vehicle frames that belong to nonresidents and enter the State temporarily for the purpose of having a body mounted thereon.
(6) A homestead exemption of the greater of $25,000 or 50% of the appraised value of the residence is allowed if the property owner is a North Carolina resident, has income for the preceding calendar year of not more than the eligibility limit, and is at least 65 years of age or totally and permanently disabled.
(7) Certain agricultural, horticultural and forest land is eligible for taxation at its value for agricultural, horticultural or forest use.
Appraisal Standard - All property must be appraised at its true value in money, except agricultural, horticultural and forest land eligible for appraisal at its present-use value. Property must be assessed for taxation at 100% of its appraised value.
Frequency of Appraisal - Real property must be appraised at least once in every eight years. The requirement of octennial real property revaluations has been enforced since 1965, and no taxing unit has been permitted to postpone a scheduled revaluation since that time. Many units revalue real property more frequently than every eight years. Personal property is appraised annually.
Tax Day - All real and tangible personal property (other than most motor vehicles) subject to ad valorem taxation must be listed for taxation as of January 1 each year. Motor vehicles, with certain exceptions, must be listed annually in the name of the record owner on the day on which the current vehicle registration is renewed or the day on which the application is submitted for a new vehicle registration.
Tax Levy - Property taxes are levied in conjunction with the adoption of a budget which covers a July 1 to June 30 fiscal year. The property tax levy must be sufficient to raise during the fiscal year a sum of money equal to the difference between total appropriations and the total estimated receipts of all other revenues. In estimating the percentage of the levy that will be collected during the fiscal year, the taxing unit is prohibited from estimating a greater collection percentage than that of the prior fiscal year.
The tax rate may not exceed $1.50 per $100 assessed valuation unless the voters approve a higher rate. Tax levies by counties for the following purposes are not counted against the rate limit: courts, debt service, deficits, elections, jails, schools, mandated social services programs and joint undertakings with any other taxing unit with respect to any of these. Tax levies by cities for the following purposes are not counted against the rate limit: debt service, deficits and civil disorders.
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Tax Collection - The taxing unit has a lien by operation of law on all real property within its jurisdiction that attaches as of January 1 for all taxes levied for the fiscal year beginning on the following July 1. Taxes levied on a parcel of real property are a lien on that parcel but not on other real property owned by the taxpayer. Taxes levied on personal property are a lien on all real property owned by the taxpayer within the taxing unit. The tax lien enjoys absolute priority against all other liens and claims whatsoever except, in limited circumstances, federal tax liens and certain other prior liens and perfected security interests.
Except for motor vehicles, taxes fall due on September 1 following the date of levy and are payable at par until January 6. For the period January 6 to February 1, interest accrues at the rate of 2%, and for the period February 1 until the principal amount of the taxes, the accrued interest, and any penalties are paid, interest accrues at the rate of 3/4% per month or fraction thereof. Each taxing unit may enforce collection of its tax levy by (a) foreclosure of the lien on real property, (b) levy and sale of tangible personal property and (c) garnishment and attachment of intangible personal property. There is no right of redemption of real property sold in a tax foreclosure action.
Discounts for early payment of property taxes are allowed by some taxing units. To allow such discounts, the unit must adopt a discount schedule which must then be approved by the Ad Valorem Tax Division of the Department of Revenue.
No taxing unit has authority to release or refund any valid tax claim. The members of any governing board voting to make an unlawful release or refund of property taxes are personally liable for the amount unlawfully released or refunded.
The Commission periodically publishes statistics on the percentage of property tax levies collected before the close of the fiscal year for which levied. These statistics are available upon request.
Although the State has not levied a general property tax in more than forty years, it does continue general oversight of property tax administration by units of local government through the Ad Valorem Tax Division of the Department of Revenue. The Division has three main functions: (1) it appraises the property of electric power, gas, telephone and telegraph companies, the rolling stock of bus companies and motor freight carriers and the flight equipment of airlines; (2) it oversees local property tax administration; and (3) it provides staff assistance to the Property Tax Commission, an administrative appellate agency hearing listing and valuation appeals from local taxing units.
Local Government Sales and Use Taxes
The one percent local sales and use tax authorized by the Local Government Sales and Use Tax Act is levied by 99 of the 100 counties of the State (Mecklenburg County levies a virtually identical tax under a 1967 local act). The local sales tax base is the same as the State general sales tax base excluding exempt food sales, except that for goods sold to out- of-county purchasers for delivery out-of-county and sales of certain utility services. The situs of a transaction is the location of the retailer’s place of business. Sales of tangible
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personal property delivered to out-of-county purchasers will be subject to sales tax in the county in which the retailer’s place of business is located and will not be subject to the use tax of the destination county. The tax is collected by the State on behalf of local government, and the net proceeds, after deduction of the cost of collection and administration, are returned to the county of collection. The county governing board selects one of two formulas for allocation of the tax among the county and the municipalities therein. One formula calls for allocation on the basis of population and the other on the basis of ad valorem tax levy.
Counties are also authorized under the Supplemental Local Government Sales and Use Tax Act to levy a one-half percent sales tax. This sales tax is collected by the State, allocated to counties on a per capita basis and divided among each county and the municipalities located therein in accordance with the method by which the one percent sales and use taxes are distributed. An adjustment factor is applied to the per capita allocation for each county. All 100 counties levy this one-half percent supplemental sales tax.
Counties are also authorized under the Additional Supplemental Local Government Sales and Use Tax Act to levy an additional one-half percent sales tax. This additional supplemental sales tax is collected and distributed based on a point-of-origin allocation. During the first 16 fiscal years in which this tax is in effect, 60% of the revenue derived by counties from this tax is required to be used for public school capital outlay purposes or to retire any indebtedness incurred by the county for these purposes during the period beginning five years prior to the date the taxes took effect. Counties may be relieved of the percentage restriction if it can demonstrate to the satisfaction of the Local Government Commission that it is able to meet the aforementioned capital outlay needs without resorting to proceeds of such tax. All 100 counties levy this additional supplemental one-- half percent sales tax.
Counties were previously authorized under the Third One-Half Cent Local Government Sales and Use Tax Act, to levy an additional one-half cent local option sales tax. However, as a part of a Medicaid relief package for the counties, this third one-half cent tax was replaced by the Local Government Hold Harmless Provision. Effective October 1, 2008, this tax was reduced to one-fourth cent and the remaining one-fourth cent was eliminated effective October 1, 2009. The phase out of this tax is part of an effort to allow the State to assume the County’s portion of the Medicaid expense over a three year period. The State must guarantee that each county’s gain will be at least $500,000 for each fiscal year as a result of the State assuming the county Medicaid share. Once the Third One-Half Cent tax was completely phased out on October 1, 2009, if the amount of a county’s Medicaid cost assumed by the State plus $500,000 is less than the county’s repealed local sales tax amount, the State must reimburse the county for the amount of the difference. Counties are to hold municipalities that were incorporated as of October 1, 2008, harmless for the phase-out of the Third One-Half Cent tax. The hold harmless funds are paid to municipalities by the Secretary of Revenue each month from funds obtained by reducing the county’s monthly allocation of the one-percent local sales and use tax proceeds. The Medicaid relief package also provides for corresponding increases in the State sales tax to accompany the reduction of the Third One-Half Cent tax that was effective October 1,
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2008 and repealed on October 1, 2009. Thus, the State sales tax was increased by one- quarter cent on October 1, 2008 and by another one quarter cent on October 1, 2009.
Alcoholic Beverage Control Store Profits
The sale of liquor in the State is a government monopoly. Stores are operated by counties and municipalities that have been authorized and have chosen to establish them. The net profits of these stores are distributed to the units of local government in which they operate. The General Assembly has enacted numerous local acts prescribing different formulas for the distribution of profits. Local elections are authorized to permit sales of liquor by the drink by qualified restaurants and clubs. An additional tax of $20 per four liters is levied on liquor purchased by restaurants or clubs for resale as mixed beverages, and $10 of the $20 is paid to the State’s General Fund.
Intragovernmental Shared Revenues
The excise tax levied by the State on beer, fortified and unfortified wine is shared with counties and municipalities in which the sale of these beverages is lawful. Counties and cities where beer and wine are sold receive on a per capita basis an annual distribution equal to the following percentages of the net amount of excise taxes collected on the sale of beer and wine during the 12-month period ending March 31 each year: 23.75% of beer tax revenue, 62% of unfortified wine tax revenue and 22% of fortified wine tax revenue. A city or a county is eligible to share in both beer and wine excise tax revenues if beer and wine may legally be sold within its boundaries. If only one beverage may be sold, the city or county shares only in the excise tax for that beverage. Two hundred thousand dollars ($200,000) from the net proceeds of the excise tax collected on unfortified wine is appropriated quarterly to the Department of Commerce to be used to promote the North Carolina grape and wine industry. The local share of these collections is computed on the net proceeds after deducting the transfer to the Department of Commerce. Some counties and municipalities do not permit the sale of either beer or wine and thus do not receive any share of this revenue.
Under the utility franchise tax law, the State levies a gross receipts tax on certain public utilities at rates of 3.22% to 6%. Cities receive quarterly distributions equal to 3.09% of taxable gross receipts from sales within municipalities of electricity during the preceding calendar quarter, minus one-fourth of the city’s hold back amount and one fourth of the city’s proportionate share of the annual cost to administer.
The State levies a sales tax on the gross receipts of telecommunications and ancillary services at a statutorily prescribed rate. The rate is equal to the sum of the State’s sales tax rate and the rates of local sales taxes levied in each of the 100 Counties. Each quarter, the State distributes to cities 18.7 percent of these proceeds from that quarter, minus $2,620,948.
The State imposes a State excise tax on the distribution of piped natural gas, with statutorily prescribed rates that decrease with the amount of piped natural gas used by each customer. The State distributes quarterly to each city served by piped natural gas one- half of the tax attributed to sales within that city.
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Cities and towns receive annually a motor fuel tax allocation equal to the amount produced during the year by a 1.75 cents tax on each gallon of motor fuel sold in the State. Payments are made from the collections of the prior fiscal year. Under the present distribution formula, 75% of the funds are allocated on the basis of population of eligible municipalities and 25% are allocated on the basis of the mileage of public streets within cities and towns that are not a part of the State highway system.
All cities and counties receive shares of three State sales taxes on local cable franchise system revenues which currently are 7.7 percent of the net proceeds of taxes collected on telecommunications and ancillary services, 23.6 percent of the net proceeds of taxes collected on video programming services (other than direct-to-home satellite service), and 37.1 percent of the net proceeds of taxes collected on direct-to-home satellite services. The distributions can be used for any public purpose after earmarking provisions are met. The first $2 million of the local share of the proceeds from these three taxes must be used by the local governments to support local public, educational, or governmental (PEG) access channels. A city or county that imposed subscriber fees during the first six months of the 2006-07 fiscal year must use a portion of the funds distributed to it for the operation and support of PEG channels, equal to two times the amount of subscriber fee revenue the county or city certifies that it imposed during the period. In addition, a city or county that used part of its franchise tax revenue in fiscal year 2005-06 for the operation and support of PEG channels, or a publicly owned and operated television station, must continue the same level of support.
State and Local Fiscal Relations
The State finances from State revenues (primarily individual income taxes, corporate income taxes and sales taxes) several governmental programs that are largely financed from local revenues in other states, thus decreasing reliance on local property taxes for these purposes. The major programs of this nature are as follows:
Public Schools and Community Colleges -- The State provides approximately 70% of the funds required for current operating costs of the public school and community college systems, while county government finances the greater portion of the capital costs of these systems. North Carolina school administrative units do not have independent tax-levying authority. The local share of the costs of the public school and community college systems are raised primarily by county government from its general revenues including the local sales tax revenue.
Court System -- The State finances virtually all of the current operating costs of the General Court of Justice. County government is required to provide courthouses, certain jails and related judicial facilities.
Correctional System -- The State finances all of the cost of correctional facilities used for confinement of convicted felons and long--term (more than 30 days) misdemeanants. Counties and some municipalities furnish jails for short--term misdemeanants and prisoners awaiting trial.
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Highway System -- The State finances the entire cost of public roads and highways outside the corporate limits of cities and towns. Counties may voluntarily participate in improvements to public roads and highways. Within cities and towns, the State finances the cost of major thoroughfares and streets connecting elements of the State highway system. Cities share responsibility with the State for State-maintained roads inside city limits and take full responsibility for the remaining public streets within city limits.
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APPENDIX C Management Discussion and Analysis
The following is Management’s Discussion and Analysis of the financial activities of the County, lifted from the Comprehensive Annual Financial Report for Forsyth County for the fiscal year ended June 30, 2013. Management’s Discussion and Analysis provides an objective and easily readable short and long-term analysis of the County’s financial activities based on currently known facts, decisions, or conditions. Management’s Discussion and Analysis is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. The independent auditors of the County have applied certain limited procedures which consist primarily of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, they did not audit this information and did not express an opinion on it.
C-1 FORSYTH COUNTY, NORTH CAROLINA MANAGEMENT’S DISCUSSION AND ANALYSIS FISCAL YEAR ENDED JUNE 30, 2013
As management of Forsyth County, we offer readers of the County’s financial statements this narrative overview and analysis of the financial activities of the County for the fiscal year ended June 30, 2013. This narrative complements the data presented in the basic financial statements and we encourage readers to read the information presented here in conjunction with the transmittal letter at the front of this report and the County’s financial statements, which follow this narrative.
FINANCIAL HIGHLIGHTS # The assets and deferred outflows of resources of Forsyth County were lower than its liabilities at the close of the fiscal year by $223.9 million (net deficit). The deficit in total net position reflects the County’s issuance of debt as provided by State law for public school and community college facilities. The assets acquired with such debt are not owned by the County, and therefore, are not included in the County’s Statement of Net Position. Had this school and community college related debt (net of unspent proceeds) not been reported as a reduction of net position, total net position would be $230.6 million. # The County’s total net position increased by $5.3 million from net position of the prior period despite the payment of $28.7 million for public school and community college facilities that are not reported as assets of the County. # Forsyth County maintained its Aaa bond rating from Moody’s Investors Service and AAA rating from Fitch Ratings and Standard & Poor’s Corporation for the 18th consecutive year. New debt issued during the year included $13.8 general obligation bonds for maintenance and repair of County, school and community college facilities and $5 million educational facilities for the community college. # As of the close of the current fiscal year, Forsyth County’s governmental funds reported combined ending fund balances of $198.3 million, a decrease of $23.6 million in comparison with the prior year. This decrease is largely attributed to the reduction in restricted fund balances for debt funded capital project funds. # The balance in the Education Debt Leveling Plan decreased by a net $1.4 million for the year bringing the total available to pay for future education-related debt service to $32.6 million. # At the end of the current fiscal year, unassigned fund balance for the General Fund was $64.0 million or 16.8% of total general fund expenditures for the fiscal year.
OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis are intended to serve as an introduction to Forsyth County’s basic financial statements. The County’s basic financial statements have three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements (see Figure 1). The basic financial statements present two different views of the County through the use of government-wide statements and fund financial statements. In addition to the basic financial statements, this report contains supplementary information that will enhance the reader’s understanding of the financial condition of Forsyth County.
Required Components of Annual Financial Report
Management’s Discussion Basic Financial and Analysis Statements
Government-wide Fund Notes to the Financial Financial Financial Statements Statements Statements
Summary Detail
C-2 BASIC FINANCIAL STATEMENTS Government-wide Financial Statements The government-wide financial statements are designed to provide the reader with a broad overview of the County’s finances, in a manner similar to a financial statement of a private-sector business. The government-wide statements provide short and long-term information about the County’s financial status as a whole. The statement of net position presents information on all of Forsyth County’s assets and deferred outflows of resources and liabilities, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful way to gauge the County’s financial condition. The statement of activities presents information showing how the government’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both government-wide statements are intended to distinguish functions that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are expected to recover all or a significant portion of their costs through user fees and charges (business-type activities). Forsyth County has no business-type activities. Accordingly, the statement of net position and the statement of activities present only governmental activities, which include all of the County’s basic services such as public safety, environmental protection, health and social services, culture and recreation, community and economic development, education, and general administration. Property taxes, sales taxes and state and federal grant funds finance most of these activities. Additionally, these statements report only the activities of the primary government, Forsyth County, because the County’s component unit, the Forsyth County Industrial Facilities and Pollution Control Financing Authority, has no financial transactions or account balances to report. The government-wide financial statements are Exhibits 1 and 2 of this report. Fund Financial Statements The fund financial statements provide a more detailed look at the County’s most significant activities. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Forsyth County, like all other governmental entities in North Carolina, uses fund accounting to ensure and reflect compliance (or non-compliance) with finance-related legal requirements, such as the General Statutes or the County’s budget ordinance. All of the funds of Forsyth County can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds – Governmental funds are used to account for those functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on quantifying monies remaining at year-end that will be available for spending in the next year. Governmental funds are reported using an accounting method called modified accrual accounting, which provides a current financial resources focus. As a result, the governmental fund financial statements give the reader a detailed short-term view that helps him or her determine if there are more or less financial resources available to finance the County’s programs. The relationship between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds is described in reconciliations that are part of the fund financial statements. All of the County’s basic services were accounted for in 33 governmental funds for the year ended June 30, 2013. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund and three capital project funds, the 2007 School Facilities fund, the 2009 Educational Facilities fund and the 2009 Phillips Building Phases IA and IB fund, which are considered to be major funds. Data for the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds are provided in the form of combining statements elsewhere in this report. Forsyth County adopts an annual budget for its General Fund, as required by the North Carolina General Statutes. The budget is a legally adopted document that incorporates input from the citizens of the County, the management of the County, and the decisions of the Board about which services to provide and how to pay for them. It also authorizes the County to obtain funds from identified sources to finance these current period activities. The budgetary statement provided for the General Fund demonstrates how well the County complied with the budget ordinance and whether or not the County succeeded in providing the services as planned when the budget was adopted. Forsyth County’s budget is prepared on the modified accrual basis of accounting. The summary budgetary comparison statement on Exhibit 5 shows four columns: 1) the original budget as adopted by the Board; 2) the final budget as amended by the Board; 3) the actual resources, charges to appropriations, and ending balances in the General Fund; and 4) the difference or variance between the final budget and the actual resources and charges. A more detailed budgetary comparison schedule elsewhere in this report is presented at the legal level of budgetary control. The basic governmental fund financial statements are Exhibits 3, 4, and 5 of this report.
C-3 Proprietary Funds – Forsyth County has one kind of proprietary fund. Internal service funds are an accounting device used to accumulate and allocate costs internally among the functions of the County. The County uses an internal service fund to account for risk retention services for health and dental benefits provided to departments of the County on a cost reimbursement basis. The Employee Health Benefits fund has been included with the governmental activities in the government-wide financial statements, and it is presented in the proprietary fund financial statements, Exhibits 6, 7, and 8 of this report. Fiduciary Funds – Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support Forsyth County’s own programs. Two trust funds, the pension trust and the other post-employment benefit trust, and three agency funds comprise the County’s fiduciary funds. The basic fiduciary fund financial statements can be found on Exhibits 9 and 10. Notes to the Financial Statements – The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements are on pages 23 - 48 of this report. Other Information – In addition to the basic financial statements and accompanying notes, this report includes certain required supplementary information concerning Forsyth County’s progress in funding its obligation to provide pension benefits and other post- employment benefits (“OPEB”) to certain employees. Required supplementary information can be found on pages 49 - 52 of this report. Budgetary comparison schedules for major funds are presented following the required supplementary information on pensions and OPEB. The combining statements referred to earlier in connection with nonmajor governmental funds and individual fund statements and schedules can be found on pages 59 – 94 of this report.
GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as one useful indicator of a government’s financial condition. The liabilities of Forsyth County exceed assets and deferred outflows of resources by $223.9 million as of June 30, 2013. The deficit in total net position is a result of the County issuing debt for the construction, renovation, or acquisition of public school and community college facilities that are not reported as assets of the County. These facilities are necessary to provide for the education of the citizens of the County. North Carolina statutes do not permit public schools and community colleges to issue debt; responsibility for providing these facilities lies with the County. The titles to these assets are held by the Winston-Salem/Forsyth County Board of Education or Forsyth Technical Community College, and the assets are reported on their financial statements, as applicable. The outstanding amount of education-related debt, net of unspent proceeds, is $454.5 million at year-end and is reported as a reduction of unrestricted net position for governmental activities, resulting in a deficit balance of $335.7 million for this category of net position. Had the education-related debt not been reported as a reduction of unrestricted net position, the balance of unrestricted net position for governmental activities would be $118.8 million and total net position would be $230.6 million, an increase in total net position of $13.6 million over the prior year. The following summarizes Net Position at June 30, 2013 and 2012:
Forsyth County’s Net Position
Governmental Activities 2013 2012 Current and other assets $ 226,016,622 $ 252,562,406 Capital assets 167,317,166 162,892,911 Total assets 393,333,788 415,455,317
Deferred outflows of resources - unamortized bond refunding charges 12,742,215 9,697,682
Long-term liabilities outstanding 612,054,685 629,644,901 Other liabilities 17,914,210 21,034,107 Total liabilities 629,968,895 650,679,008
Net position: Net investment in capital assets 75,547,493 83,829,746 Restricted 36,231,000 31,151,206 Unrestricted deficit (335,671,385) (340,506,961) Total net position $ (223,892,892) $ (225,526,009)
C-4 A major portion of net position reflects the County’s $75.5 million investment in capital assets (e.g., land, buildings, machinery, and equipment) less any related debt still outstanding that was issued to acquire those items. Forsyth County uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although Forsyth County’s investment in its capital assets is reported net of the outstanding related debt, the resources needed to repay that debt must be provided by other sources, since the capital assets cannot be used to liquidate these liabilities. An additional $36.2 million of Forsyth County’s net position are subject to external restrictions on how they may be used. The deficit in unrestricted net position was reduced by $8.5 million. The change in unrestricted net position resulting from governmental activities is discussed in the following section. Governmental activities. Since the County has no business-type activities, the total change in net position is a result of governmental activities. The County’s net position increased by $5.3 million for the fiscal year ended June 30, 2013. The following summarizes the changes in net position for the years ended June 30, 2013 and 2012:
Forsyth County’s Changes in Net Position
Governmental Activities
2012 Revenues: Program revenues: Charges for services $ 33,765,659 $ 34,558,308 Operating grants and contributions 52,868,733 55,673,473 General revenues: Property taxes 239,530,106 235,293,490 Other taxes 55,234,499 54,996,320 Grants and contributions not restricted to specific programs 4,572,092 5,849,059 Other 1,151,425 3,034,192 Total revenues 387,122,514 389,404,842
Expenses: General government 39,642,837 43,252,315 Public safety 69,433,724 71,455,381 Environmental protection 2,442,611 2,642,585 Human services 77,395,541 76,403,049 Culture and recreation 15,886,345 15,830,605 Community and economic development 2,795,206 6,697,889 Education 152,410,053 181,325,863 Interest on long-term debt 21,796,354 21,732,376 Total expenses 381,802,671 419,340,063
Increase (decrease) in net position 5,319,843 (29,935,221) Net position, July 1 as previously reported (225,526,009) (195,590,788) Restatement (3,686,726) - Net position, July 1 as restated (229,212,735) - Net position, June 30 $ (223,892,892) $ (225,526,009)
As noted above, the balance of assets available to meet the government’s ongoing obligations is obscured by debt issued to finance capital assets that are not reported as assets of the County. In spite of the deficit reported in governmental activities, the County’s financial position is strong as evidenced by the following: # During a period of continued national and local economic difficulty program and general revenues decreased $2.3 million from the prior year. # Management diligence in cost control resulted in total program expenses, excluding debt-funded education expenses, decreasing by $3.7 million. # Education expenses of $28.7 million represent debt-funded outlays for which the resulting capital assets are not reported as assets of the County; however, liability for the applicable debt is reported on the County’s Statement of Net Position.
C-5 FINANCIAL ANALYSIS OF THE COUNTY’S FUNDS As noted earlier, Forsyth County uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. For the fiscal year ended June 30, 2013, the County’s four major funds were the General Fund, and three capital projects funds, the 2007 School Facilities Fund, 2009 Educational Facilities Fund and the 2009 Phillips Building Phases IA and IB fund. Governmental Funds. The focus of Forsyth County’s governmental funds is to provide information on near-term inflows, outflows, and balances of usable resources. Such information is useful in assessing Forsyth County’s financing requirements. Specifically, fund balance available for appropriation can be a useful measure of a government’s net resources available for spending at the end of the fiscal year. The General Fund is the primary operating fund of the County. At the end of the current fiscal year, the fund balance in the General Fund was General Fund - Year Ending Fund Balance and % of Subsequent Year Budget $143.5 million, a decrease of $4.7 million, with
$115.6 million available for appropriation and $148.3 $64 million considered unassigned. To meet the
cash flow needs of the County and to provide for unforeseen needs or opportunities, the millions governing body of Forsyth County has $
determined that the County should maintain a in minimum available fund balance (net of committed fund balance) of 16% of its subsequent year’s general fund expenditures. The County exceeded this policy target ending the 2013 fiscal year with an available fund balance, net of committed fund balance, of $77.9 million, 19.5% of its 2014 budget. $9.5 million of fund balance was appropriated to balance the fiscal 2014 budget leaving 17.1% available fund balance of which 16% was set aside in accordance with the County’s fund balance policy. $3.1 million and $1.1 million were assigned for fiscal 2014 capital maintenance and special management projects, respectively. Key factors that resulted in the reduction of $4.7 million in the General Fund fund balance include: # Continued diligence in the collection of property taxes which resulted in a 98.1% collection percentage aiding property tax revenue to increase $4.8 million over the prior year. # Estimates exceeded total revenues by $1.4 million primarily due to property tax collections exceeding expectation which offset the under-realization of intergovernmental revenues, sales taxes and charges for services. Intergovernmental revenues were $4.1 million under-budget primarily due to under spending which resulted in reduced reimbursement for human services grants. Sales taxes were under realized by $992,000. Charges for services were under realized by $642,000 across a variety of departments. # Expenditure appropriations were under-spent by $20.1 million. Significant under-expenditures occurred in public safety ($5.8 million), human services ($7.3 million), culture and recreation ($1.1 million) and debt service ($1.3 million). In public safety, outlays for the sheriff’s department and emergency services were $3.5 million and $1.2 million under-budget, respectively. In human services, savings were in public health ($4.0 million) and social services ($3.0 million). The Parks and Recreation Department and the libraries were $739,000 and $372,000 under budget, respectively. # General fund expenditures exceeded revenues by $7.9 million before transfers out of the General Fund to the 2012 Pay-Go fund ($3.1 million) and a transfer to the 2012 Motive Equipment fund ($1.2 million). # Transfers to the General Fund of $4.5 million in lottery proceeds to pay debt service, $1.4 million from the Fire Tax Districts Funds, $1.2 million from capital project funds closed during the year partially offset the shortfall, however the net change in fund balance was a reduction of $4.7 million. In accordance with the County’s fund balance policies, the following designations of fund balance have been made: # The unspent balance of proceeds from 4.1 cents on the ad valorem tax rate and interest earned thereon totaled $32.6 million and has been committed for the retirement of education debt authorized in the November 2006 and 2008 referendums. This commitment is a key component of the Education Debt Leveling Plan. # The unspent balance of the Dell incentives reimbursement totaled $3.9 million and has been committed for economic development activities. # The unspent balance of the proceeds from the sale of timber on Idols Road totaled $50,000 and has been committed for timber management at Tanglewood Park. # The amount by which available fund balance net of committed fund balance and fund balance appropriated for fiscal year 2014 budget exceeds 16% of the subsequent year’s budgeted expenditures totaled $4.5 million of which $1.1 million has been
C-6 assigned for special management projects, $292,000 assigned for fire and rescue needs, and $3.1 million assigned for capital maintenance projects in the subsequent year. As of the end of the fiscal year, the County’s governmental funds reported combined fund balances of $198.3 million, a decrease of $23.6 million from the prior year. The primary reason for this decrease is the $18.8 million decrease in fund balance in the 2007 Schools Facilities fund, the $9.6 million decrease in the 2009 Phillips Building Phases 1A and 1B fund, partially offset by the $9.6 million increase in the aggregate nonmajor fund balances. Approximately 38.7%, or $76.6 million of total combined fund balance, is restricted or non- spendable. $40.2 million of this restricted total is restricted for debt funded capital expenditures. $43.8 million is committed for future debt service, economic development projects, timber management or capital projects. $14.0 million is assigned for subsequent fiscal year 2014 expenditures, capital maintenance projects or fire and rescue purposes. The remainder of the fund balance is unassigned. General Fund Budgetary Highlights. During the fiscal year, the County revised the budget on several occasions. Generally, budget amendments fall into one of three categories: 1) amendments made to adjust the estimates that are used to prepare the original budget ordinance once exact information is available; 2) amendments made to recognize new funding amounts from external sources, such as Federal and State grants; and 3) increases in appropriations that become necessary to maintain services or initiate new programs where timing is critical. Amendments to the General Fund budget totaled $10.2 million. Unanticipated state and federal grants totaling $2.5 million were appropriated for public safety and crisis intervention and low income energy assistance programs. Additional appropriations of $7.6 million were made from fund balance, including $3.1 million to fund the 2012 Pay-Go Capital Project Ordinance, $2.8 million to fund the purchase of a new property tax assessment and collection system and $800,640 for a loan to CenterPoint Human Services which will be repaid over the next three years. Although $22.7 million of fund balance was appropriated in the final budget, as discussed above, the net change in fund balance for the year was a decrease of $4.7 million.
CAPITAL ASSETS AND DEBT ADMINISTRATION Capital assets. Forsyth County’s investment in capital assets for its governmental activities as of June 30, 2013, totals $167.3 million (net of accumulated depreciation), a $4.4 million increase from the prior year. These assets include land, buildings, construction-in-progress, park facilities, equipment, vehicles and software.
Forsyth County’s Capital Assets (net of depreciation)
Governmental Activities 2013 2012 Land $ 12,888,256 $ 12,888,256 Art collections 517,907 517,907 Construction-in-progress 30,227,513 20,406,047 Buildings 103,632,159 107,868,740 Improvements other than buildings 10,624,118 10, 535,526 Equipment 5,715,454 6,410,337 Vehicles 3,548,194 4,106,151 Software 163,565 159,947 Total Capital Assets $ 167,317,166 $ 162,892,911
Major capital asset transactions during the year include: # Continued renovation of the Phillips Building for sheriff administrative offices totaling $9.5 million. # Public safety equipment projects totaling $399,000. # Triad Park development totaling $327, 000. Additional information on the County’s capital assets can be found in Note 4e on page 34 of the Basic Financial Statements.
Long-term Debt. At June 30, 2013, Forsyth County had total bonded debt outstanding of $483.1 million, all of which is backed by the full faith and credit of the County. Other long-term debt represents obligations secured solely by specified property. The County’s total liability for bonded debt, certificates of participation, limited obligation bonds and other installment financing agreements was $562.8 million, a decrease of $23.5 million. New debt included $13.8 million in general obligation bonds to fund capital maintenance projects in county, school and community college facilities and $5.0 million in general obligation bonds to complete funding of community college
C-7 projects. The County also issued $35.1 million general obligation refunding bonds during the year which produced an economic gain of $2.7 million over the next 14 years. At June 30, 2013 and 2012, the County’s bonded and non-bonded debt consisted of:
Forsyth County’s Outstanding Debt
Governmental Activities 2013 2012 General obligation bonds $ 483,060,000 $ 499,600,000 Certificates of Participation and Limited Obligation Bonds 77,610,000 83,830,000 Installment purchase obligations 2,141,649 2,835,543 Total Outstanding Debt $ 562,811,649 $ 586,265,543
As mentioned in the financial highlights section of this document, Forsyth County maintained for the 18th consecutive year its Aaa bond rating from Moody’s Investors Service and AAA rating from Standard and Poor’s Corporation and Fitch Ratings. This bond rating is a clear indication of the sound financial condition of Forsyth County. Forsyth County is one of the few counties in the country that maintains the highest financial rating from all three major rating agencies. This achievement is a primary factor in keeping interest costs on the County’s outstanding debt low. The State of North Carolina limits the amount of general obligation debt that a unit of government can issue to 8% of the total assessed value of taxable property located within that government’s boundaries. The current debt limitation for Forsyth County is $2.7 billion. The County’s total bonded debt is 1.47% of assessed valuation, well below the 8% of assessed valuation legal debt limit. Additional information regarding Forsyth County’s long-term debt can be found in Note 4i on pages 36 - 40 of the Basic Financial Statements. ECONOMIC FACTORS AND NEXT YEAR’S GENERAL FUND BUDGET AND RATES The County has adopted a General Fund budget for the fiscal year ending June 30, 2014 in the amount of $399.8 million, a decrease of $4.5 million or 1.1% from the final 2013 budget of $404.3 million. The property tax rate of $0.7168 per hundred dollars assessed value was increased from the prior year rate of $.6740 due to a property revaluation which took effect for the year ending June 30, 2014. $15.8 million of the County’s $115.6 million available fund balance was appropriated, of which $1.8 million was for the reappropriation of prior year encumbrances, $4.4 million was from the Education Debt Leveling Plan, and $200,000 was from the Register of Deeds restricted fund balance . Fund balance available net of committed fund balance and fund balance appropriated for fiscal year 2014 budget remains 15.5% of 2013 expenditures. Significant factors considered in the preparation of the fiscal year 2014 County budget include: # Property revaluation and increased tax rate resulting in a $4.2 million decrease in estimated property tax revenue. # Sales tax revenue will reflect some rebound and with growth forecast to produce $4.4 million, or 8.6% in additional revenue. # Reduced lottery proceeds will continue to cause acceleration in the use of funds from the Education Debt Leveling Plan to cover education related debt costs. REQUESTS FOR INFORMATION This report is designed to provide an overview of Forsyth County’s finances for those with an interest in this area. Questions concerning any of the information found in this report or requests for additional information should be directed to the Chief Financial Officer, Forsyth County Government Center, 201 N. Chestnut Street, Winston-Salem, NC 27101- 4120.
C-8 APPENDIX D
Financial Information
Financial Statements
The financial statements of Forsyth County have been audited by certified public accountants for the fiscal years ended June 30, 2013, 2012, and 2011. Copies of these financial statements containing the unqualified reports of the independent certified public accountants are available on the County’s website at www.forsyth.cc/Finance/ or by contacting Mr. Paul L. Fulton, Jr., Chief Financial Officer, 201 N. Chestnut Street, Winston-Salem, North Carolina 27101-4120, telephone number (336) 703-2050.
The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to Forsyth County for its Comprehensive Annual Financial Report for the past twenty-nine years, including the fiscal year ended June 30, 2012. To receive this award, the highest form of recognition in governmental financial reporting, a government unit must publish a financial report which complies with both generally accepted accounting principles in the United States of America and applicable legal requirements. The county believes that the annual financial report for the fiscal year ended June 30, 2013, continues to meet the requirements under the Certificate of Achievement Program and has submitted it to the GFOA for review.
The County financial statements are presented under Government Accounting Standards Board Statement No. 34 (GASB 34) model. This model, in addition to presenting the government-wide financial statements which are shown on pages D-3 through D-4 of this official statement, also includes fund and budgetary reporting.
The government-wide financial statements are prepared on the full accrual basis of accounting, which in the past has only been used to report the assets, liabilities, revenues, and expenses of providing enterprise-type services. The government-wide statements as prepared under GASB Statement No. 34 now report capital assets and all long-term obligations for both its governmental-type and business-type activities. As a result, government officials can now demonstrate operational accountability in their stewardship of public funds in the long-term in addition to demonstrating fiscal accountability in the short-term through the budgetary statements.
Fund reporting is presented to report on the government’s most important funds individually as major funds instead of reporting all funds in the aggregate by fund type. The General Fund is always a major fund for a unit of government, and other governmental or enterprise funds may qualify as well. In addition to presenting the budget as it stands at fiscal year-end, the budget is presented as originally adopted by the governing board. This information will provide readers the opportunity to see what changes have been made to the budget over the course of the fiscal year and to evaluate the County’s ability to manage and estimate its resources. See page D-9 for the presentation of the County’s budgetary statement.
The following financial statements are the Basic Financial Statements of the County and the notes thereto, lifted from the Comprehensive Annual Financial Report of the County for the fiscal year ended June 30, 2013.
D-1 Forsyth County Basic Financial Statements
D-2 FORSYTH COUNTY, NORTH CAROLINA Exhibit 1 Statement of Net Position June 30, 2013
Governmental Activities ASSETS Cash and cash equivalents / investments $ 147,844,223 Investments - restricted 43,075,006 Cash and investments held by fiscal agent 16 Taxes receivable (net) 4,655,896 Accounts receivable (net) 7,372,613 Accrued interest on investments 36,410 Due from other governments 22,307,257 Prepaid items 725,201 Capital assets: Land, collections, and construction-in-progress 43,633,676 Other capital assets, net of depreciation 123,683,490
Total capital assets 167,317,166
Total assets 393,333,788
DEFERRED OUTFLOWS OF RESOURCES
Unamortized bond refunding charges 12,742,215
LIABILITIES
Accounts payable and accrued liabilities 6,349,041 Unearned revenue 1,852,181 Accrued interest payable 7,039,341 Due to other governments 2,673,647 Long-term liabilities: Due within one year 49,347,680 Due in more than one year 562,707,005 Total liabilities 629,968,895
NET POSITION
Net investment in capital assets 75,547,493 Restricted for: Stabilization by state statute 32,381,666 Public safety 2,403,308 Human services 307,420 Community and economic development 107,111 Other purposes 1,031,495 Unrestricted deficit (335,671,385) Total net position $ (223,892,892)
The notes to the financial statements are an integral part of this statement.
D-3 FORSYTH COUNTY, NORTH CAROLINA Exhibit 2 Statement of Activities For the Fiscal Year Ended June 30, 2013
Program Revenues
Operating Charges for Grants and Governmental Functions Expenses Services Contributions Activities Governmental: General government $ 39,642,837 3,743,500 564,085 (35,335,252) Public safety 69,433,724 17,540,753 4,468,936 (47,424,035) Environmental protection 2,442,611 220,956 747,815 (1,473,840) Human services 77,395,541 8,055,427 40,842,999 (28,497,115) Culture and recreation 15,886,345 4,079,006 904,113 (10,903,226) Community and economic development 2,795,206 58,979 713,754 (2,022,473) Education 152,410,053 67,038 4,627,031 (147,715,984) Interest on long-term debt 21,796,354 - - (21,796,354) Total governmental activities $ 381,802,671 33,765,659 52,868,733 (295,168,279)
General revenues: Taxes: Property taxes, levied for general purposes 239,530,106 Local option sales tax 52,933,206 Occupancy taxes, levied for economic development 558,116
Gross receipts tax 314,099
Excise stamp tax 1,429,078 Grants and contributions not restricted to specific programs 4,572,092 Investment earnings, unrestricted 141,520
Miscellaneous, unrestricted 1,009,905
Total general revenues 300,488,122 Change in net position 5,319,843 Net position - beginning, previously reported (225,526,009) Restatement (3,686,726)
Net position - beginning, restated (229,212,735)
Net position - ending (223,892,892)
The notes to the financial statements are an integral part of this statement.
D-4 FORSYTH COUNTY, NORTH CAROLINA Exhibit 3 Balance Sheet Governmental Funds Page 1 of 2 June 30, 2013 Capital Projects Funds
2009 Phillips 2007 2009 Building Nonmajor Total School Educational Phases 1A Governmental Governmental General Fund Facilities Facilities and 1B Funds Funds ASSETS
Cash and cash equivalents / investments $ 128,983,140 - - - 10,787,029 139,770,169 Investments - restricted - 10,192,011 13,962,650 3,724,737 15,195,608 43,075,006 Cash and investments held by fiscal agent 16 - - - - 16 Receivables (net): Property taxes 3,860,896 - - - 92,863 3,953,759 Occupancy taxes 47,820 - - - - 47,820 Other taxes 39,531 - - - - 39,531 Accounts 7,206,073 - - - - 7,206,073 Other - - - - 29,199 29,199 Accrued interest 33,994 - - - 2,416 36,410 Due from other governments 20,610,015 577,707 5,820 495,563 747,938 22,437,043 Due from other funds 2,685 - - - - 2,685 Prepaid items 251,658 - - - - 251,658 Total assets $ 161,035,828 10,769,718 13,968,470 4,220,300 26,855,053 216,849,369
LIABILITIES AND FUND BALANCES Liabilities:
Accounts payable and accrued liabilities $ 5,427,482 - - 304,555 435,804 6,167,841 Due to other governments 2,673,647 - - - - 2,673,647 Due to other funds - - - - 2,685 2,685 Unearned revenue 1,384,545 - - - 180,854 1,565,399
Total liabilities 9,485,674 - - 304,555 619,343 10,409,572 Deferred Inflows of Resources:
Unavailable taxes 3,860,896 - - - 92,863 3,953,759 Unavailable other revenue 4,179,226 - - - - 4,179,226
Total deferred inflows of resources 8,040,122 - - - 92,863 8,132,985 Fund balances:
Nonspendable - Prepaid items 251,658 - - - - 251,658 Restricted for: Stabilization by state statute 27,703,645 577,707 5,820 2,906,968 1,187,526 32,381,666 Register of Deeds 998,397 - - - - 998,397 Capital projects - 10,192,011 13,962,650 1,008,777 - 25,163,438 Other 33,098 - - - - 33,098 Restricted, reported in nonmajor: Special revenue funds - - - - 2,817,839 2,817,839 Capital project funds - - - - 15,002,922 15,002,922 Committed Education Debt Leveling Plan 32,610,986 - - - - 32,610,986 Economic Development 3,912,372 - - - - 3,912,372 Timber Management - Tanglewood Park 50,000 - - - - 50,000 Committed, reported in nonmajor: Capital project funds - - - - 7,257,834 7,257,834 Assigned Subsequent Year Budget 9,454,339 - - - - 9,454,339 Management Special Projects 1,149,360 - - - - 1,149,360 Capital maintenance projects 3,082,710 - - - - 3,082,710 Fire and rescue protection 292,397 - - - - 292,397 Unassigned 63,971,070 - - - (123,274) 63,847,796 Total fund balances 143,510,032 10,769,718 13,968,470 3,915,745 26,142,847 198,306,812 Total liabilities, deferred inflows of resources and fund balances $ 161,035,828 10,769,718 13,968,470 4,220,300 26,855,053 216,849,369
The notes to the financial statements are an integral part of this statement. (continued)
D-5 FORSYTH COUNTY, NORTH CAROLINA Exhibit 3 Balance Sheet Governmental Funds Page 2 of 2 June 30, 2013
Amounts reported for governmental activities in the statement of net position are different because:
Fund balances - total governmental funds $ 198,306,812
Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. 167,317,166 Other long-term assets and deferred outflows of resources are not available to pay for current-period expenditures and, therefore, are deferred in the funds. 13,215,758 Earned revenue that is not available to pay current period expenditures is deferred in the funds. 8,747,771 An internal service fund is used by management to charge the costs of health and dental benefits to individual funds. Assets and liabilities of the internal service fund are included in governmental activities of the statement of net assets. 5,697,683 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds. (617,178,082)
Net position of governmental activities $ (223,892,892)
The notes to the financial statements are an integral part of this statement.
D-6 FORSYTH COUNTY, NORTH CAROLINA Exhibit 4 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Fiscal Year Ended June 30, 2013 Capital Projects Funds
2009 Phillips 2007 2009 Building Nonmajor Total School Educational Phases 1A Governmental Governmental General Fund Facilities Facilities and 1B Funds Funds Revenues:
Property taxes $ 233,537,613 - - - 6,480,321 240,017,934 Occupancy taxes 558,116 - - - - 558,116 Local option sales taxes 51,508,792 - - - 1,424,414 52,933,206 Other taxes 314,099 - - - - 314,099 Licenses and permits 867,200 - - - - 867,200 Intergovernmental 51,166,575 - - - 6,502,473 57,669,048 Charges for services 24,936,829 - - - 8,800 24,945,629 Investment earnings 106,525 8,999 6,051 4,133 26,856 152,564 Other 8,972,682 - - - 69,203 9,041,885 Total revenues 371,968,431 8,999 6,051 4,133 14,512,067 386,499,681 Expenditures: Current: General government 36,031,427 - - - - 36,031,427 Public safety 60,520,345 - - - 7,542,173 68,062,518 Environmental protection 2,477,195 - - - - 2,477,195 Human services 70,607,949 - - - 753 70,608,702 Culture and recreation 14,488,772 - - - - 14,488,772 Community and economic development 2,370,701 - - - 427,051 2,797,752 Education 698,383 - - - - 698,383 Intergovernmental: Human services 6,742,601 - - - - 6,742,601 Education 122,983,166 17,030,798 5,112,163 - 6,569,303 151,695,430 Debt service: Principal retirement 39,097,635 - - - - 39,097,635 Interest and other charges 23,839,569 - 87,509 69,012 134,743 24,130,833 Capital outlay - - - 9,520,796 3,615,530 13,136,326 Total expenditures 379,857,743 17,030,798 5,199,672 9,589,808 18,289,553 429,967,574 Excess (deficiency) of revenues over expenditures (7,889,312) (17,021,799) (5,193,621) (9,585,675) (3,777,486) (43,467,893) Other financing sources (uses): General obligation bond issuance - - 5,000,000 - 13,750,000 18,750,000 Premium on general obligation bonds - - 88,267 - 723,710 811,977 Refunding bond issuance 35,090,000 - - - - 35,090,000 Premium on refunding bonds 8,795,717 - - - - 8,795,717 Transfers in 7,095,195 - - - 6,617,411 13,712,606 Transfers out (4,275,955) (1,735,000) - - (7,701,651) (13,712,606) Payment to refunded bond escrow agent (43,562,043) - - - - (43,562,043) Total other financing sources (uses) 3,142,914 (1,735,000) 5,088,267 - 13,389,470 19,885,651 Net change in fund balances (4,746,398) (18,756,799) (105,354) (9,585,675) 9,611,984 (23,582,242) Fund balance - June 30, 2012 148,256,430 29,526,517 14,073,824 13,501,420 16,530,863 221,889,054 Fund balance - June 30, 2013 $ 143,510,032 10,769,718 13,968,470 3,915,745 26,142,847 198,306,812
The notes to the financial statements are an integral part of this statement. (continued)
D-7 FORSYTH COUNTY, NORTH CAROLINA Exhibit 4.1 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Fiscal Year Ended June 30, 2013
Amounts reported for governmental activities in the statement of activities are different because:
Net change in fund balances - total governmental funds $ (23,582,242)
Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. 4,522,873
The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins, and donations) is to decrease net position. (98,618)
Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds. 453,532
The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction has any effect on net position. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. 19,223,243
Expenses in the statement of activities that do not require the use of current financial resources are not reported as expenditures in the governmental funds. 1,463,840
Internal service funds are used by management to charge the costs of health and dental benefits to individual funds. The profit or loss generated by the internal service fund is eliminated on the statement of activities. 3,337,215
Change in net position of governmental activities $ 5,319,843
The notes to the financial statements are an integral part of this statement.
D-8 FORSYTH COUNTY, NORTH CAROLINA Exhibit 5 Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual General Fund For the Fiscal Year Ended June 30, 2013
Budgeted Amounts Variance with Original Final Actual Amounts Final Budget Revenues:
Property taxes $ 228,276,841 228,276,841 233,537,613 5,260,772 Occupancy taxes 485,000 485,000 558,116 73,116 Local option sales taxes 52,500,789 52,500,789 51,508,792 (991,997) Other taxes 260,950 260,950 314,099 53,149 Total taxes 281,523,580 281,523,580 285,918,620 4,395,040 Licenses and permits 774,270 774,270 867,200 92,930 Intergovernmental 52,930,206 55,294,153 51,166,575 (4,127,578) Charges for services 25,598,856 25,578,856 24,936,829 (642,027) Investment earnings 525,000 525,574 106,525 (419,049) Other 9,597,345 9,709,737 8,972,682 (737,055) Total revenues 370,949,257 373,406,170 371,968,431 (1,437,739)
Expenditures: Current: General government 39,981,510 39,585,317 36,031,427 3,553,890 Public safety 64,634,960 66,334,601 60,520,345 5,814,256 Environmental protection 2,714,283 2,794,293 2,477,195 317,098 Human services 74,929,430 77,878,534 70,607,949 7,270,585 Culture and recreation 15,567,861 15,604,180 14,488,772 1,115,408 Community and economic development 2,316,752 2,792,894 2,370,701 422,193 Education 706,618 765,330 698,383 66,947 Intergovernmental: Human services 6,258,706 7,059,346 6,742,601 316,745 Education 121,177,974 122,984,166 122,983,166 1,000
Debt service: Principal retirement 39,097,637 39,097,637 39,097,635 2 Interest and other charges 24,963,840 25,105,834 23,839,569 1,266,265
Total expenditures 392,349,571 400,002,132 379,857,743 20,144,389
Excess (deficiency) of revenues over expenditures (21,400,314) (26,595,962) (7,889,312) 18,706,650
Other financing sources (uses): Refunding bonds issued - 141,994 35,090,000 34,948,006
Premium on refunding bonds - - 8,795,717 8,795,717
Transfers in 8,076,971 8,076,971 7,095,195 (981,776)
Transfers out (1,760,755) (4,275,955) (4,275,955) -
Payment to refunded bond escrow agent - - (43,562,043) (43,562,043) Total other financing sources (uses) 6,316,216 3,943,010 3,142,914 (800,096)
Net change in fund balance $ (15,084,098) (22,652,952) (4,746,398) 17,906,554
Fund balance - June 30, 2012 148,256,430 Fund balance - June 30, 2013 $ 143,510,032
The notes to the financial statements are an integral part of this statement.
D-9 FORSYTH COUNTY, NORTH CAROLINA Exhibit 6 Statement of Net Position Proprietary Fund - Internal Service Fund June 30, 2013 Governmental Activities ASSETS Current assets: Cash and cash equivalents / investments $ 8,074,054 Accounts receivable (net) 4,737 Accrued interest 2,519 Due from other governments 299 Total assets 8,081,609 LIABILITIES Current liabilities:
Accounts payable 181,200 Claims liability 1,915,944 Unearned revenue 286,782 Total liabilities 2,383,926 NET POSITION Unrestricted $ 5,697,683
The notes to the financial statements are an integral part of this statement.
FORSYTH COUNTY, NORTH CAROLINA Exhibit 7 Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Fund - Internal Service Fund For the Fiscal Year Ended June 30, 2013 Governmental Activities Operating revenues: Charges for services $ 23,489,341 Total operating revenues 23,489,341 Operating expenses:
Professional services 2,450,261 Claims 17,674,742 Other 44,749 Total operating expenses 20,169,752 Operating income (loss) 3,319,589
Nonoperating revenues:
Interest earnings 17,626 Change in net position 3,337,215 Net position at beginning of year 2,360,468 Net position at end of year $ 5,697,683
The notes to the financial statements are an integral part of this statement.
D-10 FORSYTH COUNTY, NORTH CAROLINA Exhibit 8 Statement of Cash Flows Proprietary Fund - Internal Service Fund For the Fiscal Year Ended June 30, 2013
Governmental Activities Cash flows from operating activities: Cash received from user departments and participants $ 24,328,281 Cash paid to suppliers, participants and others (21,153,272) Net cash provided (used) by operating activities 3,175,009 Cash flows from investing activities:
Interest and dividends on investments 15,930 Net increase (decrease) in cash and cash equivalents 3,190,939 Cash/cash equivalents / investments at beginning of year 4,883,115
Cash/cash equivalents / investments at end of year $ 8,074,054
Reconciliation of operating income to net cash provided by operating activities: Operating income (loss) $ 3,319,589 Adjustments to reconcile operating income to net cash provided (used) by operating activities: Decrease in accounts receivable 3,298 Increase in due from other governments (299) Increase in accounts payable 91,980 Decrease in claims payable (215,401) Decrease in unearned revenue (24,158) Total adjustments (144,580) Net cash provided (used) by operating activities $ 3,175,009
The notes to the financial statements are an integral part of this statement.
D-11 FORSYTH COUNTY, NORTH CAROLINA Exhibit 9 Statement of Fiduciary Net Position Fiduciary Funds June 30, 2013
Pension / Other Post-employment Benefit Trust Funds Agency Funds
ASSETS
Cash and cash equivalents / investments $ 260,239 1,152,491 Cash and investments held by fiscal agent: Cash and equivalents 859 - Short-Term OPEB Fund 2,429,882 - Long-Term OPEB Fund 932,731 - OPEB Equity Funds 7,220,039 - Receivables: Property taxes - 5,591,515 Accrued interest 86 16 Total assets 10,843,836 6,744,022
LIABILITIES
Due to other governments 5,990 6,704,895 Other liabilities - 39,127 Total liabilities 5,990 6,744,022
NET POSITION Held in trust for pension/other post-employment benefits $ 10,837,846 -
The notes to the financial statements are an integral part of this statement.
D-12 FORSYTH COUNTY, NORTH CAROLINA Exhibit 10 Statement of Changes in Fiduciary Net Position Fiduciary Funds For the Fiscal Year Ended June 30, 2013
Pension / Other Post-employment Benefit Trust Funds
ADDITIONS Contributions:
Employer $ 4,837,851 Plan members 391,211 Total contributions 5,229,062
Net investment income 1,173,015
Total additions 6,402,077
DEDUCTIONS Benefits 3,544,361
Change in net position 2,857,716
Net position, beginning 7,980,130 Net position, ending $ 10,837,846
The notes to the financial statements are an integral part of this statement.
D-13 Notes to the Financial Statements
Forsyth County, North Carolina June 30, 2013
1. Summary of Significant Accounting Policies The accounting policies of Forsyth County conform to generally accepted accounting principles as applicable to governments. The following is a summary of the more significant policies: a. Reporting Entity Forsyth County (the “County”) was created by an act of the General Assembly of North Carolina in 1849. The County operates under a commission-manager form of government with seven commissioners comprising the governing body. The County is divided into two districts for election purposes, and commissioners are elected on a staggered basis for terms of four years: two from one district; four from the second district; and one at large. The County Manager is appointed by and serves at the pleasure of the Board of Commissioners. The County provides the following services to its citizens: public safety, environmental protection, human services, culture and recreation programs, community and economic development, and education. Mental health programs are provided in part through the County’s contribution to CenterPoint Human Services. Elementary and secondary education and professional, technical and vocational training beyond the secondary level are provided by other governmental agencies. The Forsyth County Industrial Facilities and Pollution Control Financing Authority exists to issue and service revenue bond debt of private businesses for economic development purposes. The seven-member governing board of the Authority is appointed by the County Commissioners. The County can remove any member of the Authority’s board with or without cause. The Authority is considered to be a component unit of the County; however, it has no financial transactions or account balances, and, therefore, it is not presented in the government-wide financial statements. The Authority does not issue separate financial statements.
b. Basis of Presentation, Basis of Accounting Basis of Presentation Government-wide Statements: The statement of net position and the statement of activities report information on all of the non-fiduciary activities of the County. Eliminations have been made to minimize the double-counting of internal activities. These statements present the governmental activities of the County, which encompass all the financial activities of the County, except for fiduciary activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other non-exchange transactions. The statement of activities presents a comparison between direct expenses and program revenues for each function of the County’s governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expense allocations that have been made in the funds have been reversed for the Statement of Activities. Program revenues include (a) fees, fines, and charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the County’s funds, including its fiduciary funds. Separate statements for each fund category – governmental, proprietary, and fiduciary – are presented. The emphasis of the fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. The proprietary fund, Employee Health Benefits internal service fund, is reported individually for that fund type. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Non- operating revenues, such as subsidies, result from nonexchange transactions. Other non-operating items such as investment earnings are ancillary activities. The County reports the following major governmental funds: General Fund. This is the County’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. 2007 School Facilities Fund. This fund accounts for the construction and renovation of school buildings and acquisition of necessary land, furnishings and equipment to provide additional school facilities in the County. These capital projects are financed by proceeds of general obligation bonds authorized by a 2006 referendum.
D-14 2009 Educational Facilities Fund. This fund accounts for the acquisition by the community college of existing facilities from the schools and the renovation and equipping of those facilities for community college purposes; and the acquisition, construction, renovation, and furnishing of replacement facilities by the schools to be used for public school educational and administrative purposes. Proceeds of general obligation bonds authorized by a 2008 referendum fund these projects. 2009 Phillips Building (Phase 1A and 1B) Fund. This fund accounts for the acquisition and renovation of an existing building adjacent to the Law Enforcement Detention Center known as the Phillips Building for sheriff administrative offices. Proceeds of limited obligation bonds fund this project. Additionally, the County reports the following fund types: Proprietary - Internal Service Fund. The Employee Health Benefits Fund accounts for risk retention services for health and dental benefits provided to departments of the County on a cost reimbursement basis. Fiduciary - Pension/Other Post-employment Benefit Trust Funds. The pension trust fund accounts for the activities of the Law Enforcement Officers’ Special Separation Allowance Fund, which accumulates resources for pension benefit payments to qualified public safety employees. The other post employment benefit trust fund accounts for the activities of the Healthcare Plan Fund, which accumulates resources to pay other post employment benefits for qualified retired County employees. Fiduciary - Agency Funds. Agency funds are custodial in nature and do not involve the measurement of operating results. These funds account for assets held by the County on behalf of others. The County maintains the following agency funds: the Protective Payee Fund, which accounts for monies held by the County on behalf of specific clients of Social Services; the Fines and Forfeitures Fund, which accounts for legal fines and forfeitures that the County is required to remit to the Winston- Salem/Forsyth County Schools; and the Tax Agency Fund, which accounts for property taxes and occupancy taxes collected on behalf of the County and other governments and the three percent interest on the first month of delinquent motor vehicle taxes that the County is required to remit to the North Carolina Department of Motor Vehicles.
Measurement Focus, Basis of Accounting In accordance with North Carolina General Statutes, all funds of the County are maintained during the year using the modified accrual basis of accounting. Government-wide, Proprietary, and Fiduciary Fund Financial Statements. The government-wide, proprietary, and pension and other post-employment benefit trust funds financial statements are reported using the economic resources measurement focus. The government-wide, proprietary and fiduciary fund financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the County gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Amounts reported as program revenues include charges to customers or applicants for goods, services, or privileges provided, operating grants and contributions, and capital grants and contributions. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services or producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the County internal service fund are charges for health and dental premiums. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Governmental Fund Financial Statements. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. The County considers all revenues reported in the governmental funds to be available if the revenues are collected within ninety days after year-end, except for property taxes. Property taxes are not recognized as revenue because the amount is not susceptible to accrual. At June 30, taxes receivable are materially past due and are not considered to be an available resource to finance operations of the current year. Property taxes receivable are recorded net of an allowance for estimated uncollectible delinquent taxes, with the net receivable recorded as deferred inflows of resources until collected. Also, as of January 1, 1993, State law altered the procedures for the assessment and collection of property taxes on registered motor
D-15 vehicles. For those motor vehicles registered under the staggered system, property taxes are due the first day of the fourth month after the vehicles are registered. The billed taxes are applicable to the fiscal year in which they become due. Sales taxes collected and held by the State at year-end on behalf of the County are recognized as revenue. Intergovernmental revenues and sales and services, other than those that are invoiced, are not susceptible to accrual because generally they are not measurable until received in cash. Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been satisfied. Under the terms of grant agreements, the County funds certain programs by a combination of specific cost-reimbursement grants, categorical block grants, and general revenues. Thus when program expenses are incurred, there are both restricted and unrestricted net position available to finance the program. It is the County’s policy to first apply cost-reimbursement grant resources to such programs, followed by categorical block grants, and then by general revenues. Additionally, when both restricted and unrestricted non-grant resources are available for use, it is the government’s policy to use restricted resources first, then unrestricted resources as they are needed. c. Budgetary Data The County’s budgets are adopted as required by the North Carolina General Statutes. An annual budget is adopted for the General Fund and for four special revenue funds: the Fire Tax Districts Fund, Law Enforcement Equitable Distribution Fund, Emergency Telephone System Fund, and Moser Bequest for Care of Elderly Fund. All annual appropriations lapse at fiscal year end. The State Public School Building Capital Fund, the 2009, 2010, 2011, 2012, 2013 and 2014 Housing Funds, and the 2009, 2009 Recovery Act, and 2011 Justice Assistance Funds, which are special revenue funds, and all capital projects funds are budgeted under project ordinances. All budgets are prepared using the modified accrual basis of accounting. Expenditures may not legally exceed appropriations at the departmental level for the General Fund, except for Nondepartmental and intergovernmental education expenditures. Certain Nondepartmental appropriations are not expended until they are transferred to a specific department, so they are set apart from other Nondepartmental appropriations. Budgetary control for intergovernmental education expenditures is for current expense and capital outlay for each entity. The legal level of control varies for annually budgeted special revenue funds. Appropriations in the Fire Tax Districts Fund are controlled at the fire tax district level. The Law Enforcement Equitable Distribution Fund is controlled by an appropriation for a transfer to the General Fund. The Emergency Telephone System Fund and the Moser Bequest for Care of Elderly Fund have legal appropriation control at the program level. Amendments are required for revisions to appropriations at the legal level of control in annually budgeted funds, and these amendments may be approved by the County Manager and reported to the Board of Commissioners as long as they do not alter total expenditures of the fund. Amendments that alter total expenditures of any fund must be approved by the Board of Commissioners. During the year, Board amendments to the original budget totaling $10.2 million included several for unanticipated intergovernmental and private grant funding that totaled $2.4 million and appropriations of fund balance totaling $7.6 million. The latter included $3.1 million for pay-go projects, $3.0 million for tax system upgrades, $800,000 for a one-time reimbursable grant to CenterPoint, and $251,000 for unexpended SCAAP funds. The budget ordinance must be adopted by July 1 of the fiscal year or the governing board must adopt an interim budget that covers the period until the annual ordinance can be adopted. d. Assets, Liabilities, Deferred Inflows and Outflows, and Fund Equity
Deposits and Investments All deposits of the County are made in board-designated official depositories and are secured as required by North Carolina General Statutes. State statutes authorize the County to invest in obligations of the United States or obligations fully guaranteed both as to principal and interest by the United States; obligations of the State of North Carolina; bonds and notes of any North Carolina local government or public authority; obligations of certain non-guaranteed federal agencies; certain high quality issues of commercial paper and bankers’ acceptances; and the North Carolina Capital Management Trust (NCCMT). The securities of the NCCMT Cash Portfolio, an SEC-registered (2a-7) money market mutual fund, are valued at fair value, which is the NCCMT’s share price. The NCCMT Term portfolio securities are valued at fair value. Money market investments and investments that have a remaining maturity at the time of purchase of one year or less are reported at cost or amortized cost. The County’s investments with a maturity of more than one year at acquisition and non-money market investments are carried at fair value as determined by quoted market prices. As permitted under State law, from time to time the County invests in securities which are callable and which provide for periodic interest rate increases. These investments are stated at fair value in the County’s financial statements. General Statute 159-30.1 allows the County to establish an Other Postemployment Benefit (OPEB) Trust under the management of the State Treasurer and G.S. 159-30(g) allows the County to make contributions to the Fund. The Fund is not registered with the Securities and Exchange Commission. The State Treasurer in her discretion may invest the proceeds in equities of certain publicly held companies and long or short term fixed income investments as detailed in G.S. 147-69.2(1-6) and (8). Funds submitted are managed in three different sub-funds, the State Treasurer’s Short Term Investment Fund (STIF) consisting of short
D-16 to intermediate treasuries, agencies and corporate issues authorized by G.S. 147-69.1, the long-term investment fund (LTIF) consisting of investment grade corporate securities, treasuries, and agencies, and various BlackRock Alpha Tilts Funds authorized under G.S. 147-69.2(8). Neither the STIF nor the LTIF is registered with the Securities and Exchange Commission. The STIF securities are reported at cost. The LTIF securities are reported at fair value. Both the STIF and LTIF maintain a constant $1 per share value. The reported value of the OPEB Trust’s position in the STIF and LTIF is the same as the fair value of the pool shares. Under the authority of G.S. 147.69.3, no unrealized gains or losses of the STIF are distributed to participants of the fund. The BlackRock Alpha Tilts funds are valued at fair value. Cash and Cash Equivalents The County pools moneys from all funds, except the Other Post-employment Benefit Trust Fund, to facilitate disbursement and investment and to maximize investment income. Therefore, all cash and investments are essentially demand deposits and are considered cash and cash equivalents. Restricted Investments The unexpended bond proceeds of the County are classified as restricted investments because their use is completely restricted to the purpose for which the bonds were originally issued. Receivables and Payables The County levies ad valorem taxes on property other than motor vehicles on July 1, the beginning of the fiscal year, in accordance with State law. The taxes are due on September 1 (lien date); however, penalties and interest do not accrue until the following January 6. These taxes are based on the assessed values as of January 1, 2012. All trade and property tax receivables are shown net of an allowance for uncollectibles. Historical collection experience is used to estimate the trade accounts receivable allowance. The allowance for uncollectible property taxes is estimated using the average collection rate for the last three years on back year taxes. Outstanding balances between funds at fiscal year end result from use of pooled funds for cash flow purposes by capital projects funds or grant special revenue funds that will be reimbursed in the short-term by drawdowns from cash held by fiscal agent or grantors, respectively; or from year-end accruals of reimbursements due to the General Fund from special revenue funds. These balances are reported as “due to/from other funds.” Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. These outlays are accounted for using the consumption method. The prepaid pension obligation is reported in the government-wide financial statements. Capital Assets Capital assets, which include property, plant, and equipment, are reported in the government-wide financial statements; the County has no infrastructure, acquired before or after implementation of GASB Statement No. 34, to report. Capital assets as defined by the County are buildings and improvements other than buildings with an initial, individual cost of $20,000 or more, and all other assets, except licensed software, with an initial, individual cost of $5,000 or more and an estimated useful life of three years or more. Licensed software is capitalized when its initial cost is greater than $10,000 and its annual maintenance fee is significantly less than the initial cost. Internally developed software is capitalized when development cost exceeds $100,000 and expected useful life is 3 years or greater. Assets are recorded at cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets’ lives are not capitalized. Capital assets are depreciated using the straight-line method over the following estimated useful lives, in years:
Estimated Asset Class Useful Lives Buildings 20 - 40 Improvements other than buildings 20 Equipment 3 - 10 Computer software 3 - 6
Deferred outflows and inflows of resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflow of resources. This separate financial statement element, Deferred Outflows of Resources, represents a consumption of net position that applies to a future period and so will not be recognized as an expense or expenditure until then. The County has one item that meets this criterion - a charge on refunding that had previously been classified as a contra-liability. In addition to liabilities, the statement of financial position can also report a separate section for deferred inflows of resources. This separate financial statement element, Deferred Inflows of Resources, represents an acquisition of net position that applies to a future period and so will not be recognized as revenue until then. The County has no deferred inflows at June 30, 2013.
Long-term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities on the statement of net position. Bond premiums and discounts are deferred and amortized over the life of
D-17 the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are recognized in the current period. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, in the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Compensated Absences The County permits its employees to accumulate a limited amount of vacation leave, holiday leave and compensatory time which, if not used, will be paid upon termination of service at the rates of pay then in effect. All vacation, holiday and compensatory pay, including salary-related payments that are directly connected with this leave pay, are accrued when incurred in the government-wide financial statements. The County allows unlimited accumulation of sick leave. Employees do not receive any payment for unused sick time upon separation or retirement. However, employees eligible for retirement benefits may use their unused sick leave in the determination of length of service for retirement benefit purposes. Since the County has no obligation for accumulated sick leave until it is actually taken, no accrual for sick leave has been made. Net Position Net position in the government-wide and proprietary fund financial statements are classified as follows: Net investment in capital assets. This category of net position quantifies the County’s investment in capital assets, net of related debt. Restricted. Restricted net position represent constraints on resources that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments or imposed by law through state statute. Restrictions on net position are as follows: Restricted for Stabilization by State Statute. This portion of net position represents the net position restricted under State law [G.S. 159-8(a)]. Restricted for Public Safety. This portion of net position represents the aggregate of net position for six special revenue funds: the Fire Tax Districts Fund; the Law Enforcement Equitable Distribution Fund; the Emergency Telephone System Fund; and the 2009, 2009 Recovery Act, and 2011 Justice Assistance Funds. Restricted for Human Services. This portion of net position represents net position of the Moser Bequest for Care of the Elderly. Restricted for Community and Economic Development. This portion of net position represents net position of the 2009, 2010, 2011, 2012 and 2013 Housing special revenue funds. Restricted for Other Purposes. This portion of net position is restricted for Register of Deeds, soil and water conservation, social services and library purposes. Unrestricted. The difference in total net position and the two categories above, net investment in capital assets and restricted net position, is unrestricted net position.
Fund Balance In the fund financial statements, fund balance is composed of five classifications designed to disclose the hierarchy of constraints placed on how fund balance can be spent. The governmental fund types classify fund balances as follows: Nonspendable. This classification includes amounts that cannot be spent because they are either not in spendable form or legally or contractually required to be maintained intact. Prepaid items – This portion of fund balance is not an available resource because it represents the year-end balance of prepaid items, which are not spendable resources. Restricted. This classification includes revenue sources that are statutorily restricted for specific purposes, or restricted for specific purposes by grantors or creditors. Restricted for Stabilization by State Statute. This portion of fund balance is not available for appropriation under State law [G.S. 159-8(a)]. This amount is usually comprised of receivable balances that are not offset by deferred inflows and encumbrances related to purchase orders and contracts outstanding at year end that will be honored by the County in the next fiscal year. Restricted for Register of Deeds. This represents the unspent portion of Register of Deeds fees whose use is restricted by State statute for expenditure on computer and imaging technology in the office of the Register of Deeds. Restricted for Capital Projects. This portion of fund balance is restricted by revenue source for capital expenditures.
D-18 Restricted for Other. This portion of fund balance is restricted by revenue source for soil and water conservation, social services and library purposes. Restricted for Fire Protection. This portion of fund balance is restricted by revenue source for fire protection expenditures. Restricted for Law Enforcement. This portion of fund balance is restricted by revenue source for law enforcement purposes. Restricted for Emergency Telephone System. This portion of fund balance is restricted by revenue source for certain emergency telephone system expenditures. Restricted for Human Services. This portion of fund balance is restricted by revenue source for mental health, social services and public health purposes. Restricted for Housing and Community Redevelopment. This portion of fund balance is restricted by revenue source for housing rehabilitation and home buyer related purposes. Committed. This classification includes amounts that can only be used for specific purposes imposed by majority vote of the governing board. Any changes or removal of specific purposes requires majority action by the governing body. Committed for Education Debt Leveling Plan. In the General Fund, unspent revenue generated by 4.1 cents of the ad valorem tax rate and interest on the unspent portions thereof is committed for retirement of general obligation education debt authorized by the November 2006 and 2008 referendums. Committed for Economic Development. In the General Fund, unspent revenue generated by the repayment of economic development incentives by Dell Corporation is committed for future economic development purposes. Committed for Timber Management – Tanglewood Park. In the General Fund, unspent revenue generated by the sale of timber is committed for timber management purposes at Tanglewood Park. Committed for Capital Projects. This portion of fund balance is committed by action of the governing board for certain school and County capital expenditures. Assigned. The portion of fund balance that the governing board, with or without formal action, has assigned for specific management purposes. The governing board may delegate to the County Manager or Chief Financial Officer the authority to assign a portion of fund balance to promote sound financial operations of the County or to meet a future obligation. Assignment calculations may be made after the end of the fiscal year during the process of preparation of the financial statements. Assigned for Subsequent Year Budget. This represents the portion of fund balance appropriated in the adopted 2013-2014 Budget Ordinance that is not already classified in restricted or committed. Assigned for Management Special Projects. This represents the portion of fund balance assigned for special management projects. Assigned for Capital Maintenance Projects. In the General Fund, unassigned fund balance in excess of 16% of the subsequent year’s budget is assigned for capital maintenance and capital outlay in the subsequent year. Of the total assigned, the first $2.1 million is designated for planned capital maintenance, and the remainder is for pay-as-you-go capital expenditures. Assigned for Fire and Rescue Protection. This represents the portion of fund balance assigned for fire and rescue protection expenditures. Unassigned. This portion of fund balance has not been restricted, committed, or assigned to specific purposes or other funds. The County has a revenue spending policy that provides guidance for programs with multiple revenue sources. The Finance Officer will use resources in the following order: debt proceeds, federal funds, State funds, local non-County funds, and County funds. For purposes of fund balance classification expenditures are to be spent from restricted fund balance first, followed in- order by committed fund balance, assigned fund balance and lastly unassigned fund balance. The Finance Officer has the authority to deviate from this policy if it’s in the best interest of the County. The County has adopted a minimum fund balance policy for the General Fund which instructs management to conduct the business of the County in such a manner that available fund balance is at least equal to or greater than 16% of budgeted expenditures. Any portion of the General Fund balance in excess of 16% of budgeted expenditures may be appropriated for one- time expenditures and may not be used for any purpose that would obligate the County in a future budget.
D-19 2. Reconciliation of Government-wide and Fund Financial Statements Explanation of certain differences between the governmental fund balance sheet and the government-wide statement of net position The governmental fund balance sheet includes a reconciliation between fund balance – total governmental funds and net position – governmental activities as reported in the government-wide statement of net position. The net adjustment of $(422,199,704) consists of several elements detailed in the following table.
Description Detail Net Adjustment
Capital assets used in governmental activities are not financial resources and are therefore not reported in the funds. Total capital assets on the government-wide statement of net assets comprise this adjustment. $ 167,317,166
Pension assets resulting from contributions in excess of the annual required contribution, and deferred outflows of resources are not financial resources and therefore are not reported in the funds. Pension assets 473,543 Unamortized bond refunding charges 12,742,215 13,215,758
Some of the County’s revenue will be collected after year-end, but is not available soon enough to pay for the current period’s expenditures, so it is reported as deferred revenue in the funds. Property taxes and accrued interest on property taxes 4,568,545 Other revenue 800,640 Interest earnings 8,257 Fees and miscellaneous 3,370,329 8,747,771
An internal service fund is used by management to charge the costs of health and dental benefits to individual funds. The assets and liabilities of the Employee Health Benefits Fund are included in governmental activities in the statement of net assets. Cash and cash equivalents 8,074,054 Accounts receivable and amounts due from other governments 7,555 Accounts payable (181,200) Claims and judgments – health and dental (1,915,944) Unearned revenue (286,782) 5,697,683
Long-term liabilities applicable to the County’s governmental activities are not due and payable in the current period. Thus, they do not require current resources to pay and, accordingly, are not reported in the fund statements. Accrued interest payable (7,039,341) Bonds, installment purchases, limited obligation bonds and certificates of participation (562,811,649) Compensated absences (7,471,465) Claims and judgments – excluding health and dental (1,609,423) Net OPEB obligation (10,418,444) Unamortized issuance premiums (27,827,760) (617,178,082)
Total adjustment $ (422,199,704)
D-20 Explanation of certain differences between the governmental fund statement of revenues, expenditures, and changes in fund balances and the government-wide statement of activities The governmental fund statement of revenues, expenditures, and changes in fund balances includes a reconciliation between net change in fund balances – total governmental funds and change in net position of governmental activities as reported in the government-wide statement of activities. Additional detail on the elements that comprise the total adjustment of $ 28,902,085 is given in the table that follows.
Description Detail Net Adjustment Capital outlay expenditures are recorded in the fund statements but are capitalized as assets in the statement of activities. $ 13,503,017 Depreciation expense, the allocation of capital assets over their useful lives, is recorded on the statement of activities but not in the fund statements. (8,980,144) $ 4,522,873
The statement of activities reports gains and losses arising from the trade-in, sale, or disposal of existing capital assets. Conversely, governmental funds do not report any gain or loss on such transactions, but report the sale proceeds.
The change in net assets differs from the change in fund balance by the net cost of capital assets sold and donated assets received. (98,618)
Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Reverse deferred inflows recorded at July 1, 2012:
Property taxes and accrued interest on property taxes (5,056,374) Grants (86,889) Interest earnings (12,546) Fees and miscellaneous (3,138,430) Record deferred inflows in the fund statements at June 30, 2013: Property taxes and accrued interest on property taxes 4,568,545 Other revenue 800,640 Interest earnings 8,257 Fees and miscellaneous 3,370,329 453,532 On the fund statements, new debt issued during the year is recorded as a source of funds, and principal payments on debt are recorded as a use of funds. Neither transaction affects the statement of activities. New debt issued (19,885,651) Principal payments on debt 39,108,894 19,223,243
Expenses reported in the statement of activities that do not require the use of current resources to pay are not recorded as expenditures in the fund statements. Compensated absences (35,005) Reductions in claims and judgments – excluding health and dental 147,100 Prepaid pension benefit obligation 48,885 Net OPEB obligation (1,031,619) Accrued interest 218,850 Amortized charge on refundings (2,332,510) Amortized debt premiums 4,448,139 1,463,840
Internal service fund profit or loss generated by customers within the primary government is eliminated from the statement of activities. 3,337,215
Total adjustments $ 28,902,085
D-21 3. Stewardship, Compliance, and Accountability Excess of Expenditures over Appropriations The following budget variances are not in compliance with legal budgetary control. Appropriations in the Fire Tax Districts Funds are by fire tax district. The transfer to the General Fund from each fire tax district equals the actual amount of sales tax proceeds realized by the district for the fiscal year. Transfers which exceeded the amount appropriated were a result of actual sales tax revenue exceeding projections. Transfer of residual fund equity from the 2007 Forsyth Technical Community College fund that was closed during the fiscal year exceeded appropriation in that fund.
4. Detailed Notes on All Funds a. Deposits In accordance with the County’s investment policy, all the deposits of the County are either insured or collateralized by using the pooling method. Under the pooling method, which is a collateral pool, all uninsured deposits are collateralized with securities held by the State Treasurer’s agent in the name of the State Treasurer. Since the State Treasurer is acting in a fiduciary capacity for the County, these deposits are considered to be held by the County’s agent in the County’s name. The amount of the pledged collateral is based on an approved averaging method for non-interest-bearing deposits and the actual current balance for interest- bearing deposits. Depositories using the pooling method report to the State Treasurer the adequacy of their pooled collateral covering uninsured deposits. The State Treasurer does not confirm this information with the County or with the escrow agent. Due to the inability to measure the exact amounts of collateral pledged for the County under the pooling method, the potential exists for under-collateralization, and this risk may increase in periods of high cash flows. However, the State Treasurer of North Carolina enforces strict standards of financial stability for each depository that collateralizes public deposits under the pooling method. The State Treasurer enforces standards of minimum capitalization for all pooling method financial institutions. The County relies on the State Treasurer to monitor those financial institutions. The County analyzes the financial soundness of any other financial institution used by the County. The County complies with the provisions of G.S. 159-31 when designating official depositories and verifying that deposits are properly secured. At June 30, 2013, the deposit portion of the County’s cash and investment pool was $29,008,722. The bank balances totaled $29,475,627, of which $250,000 was covered by federal depository insurance and the remainder was covered by collateral held under the pooling method. At June 30, 2013, the County’s petty cash funds totaled $20,776. b. Investments As of June 30, 2013, the County had the following investments:
Reported Less than More than WAM Investment Type Value Fair Value 1 year 1-2 years 2 years (Years) NCCMT $ 105,912,047 105,912,047 105,912,047 - - .0018 Commercial Paper 32,712,767 32,689,693 32,689,693 - - .0360 Agency Securities 24,677,663 24,677,663 - 996,245 23,681,418 .5574
Total Portfolio $ 163,302,477 163,279,403 138,601,740 996,245 23,681,418
Portfolio weighted average maturity 0.5952 years
Interest Rate Risk. As a means of limiting its exposure to fair value losses arising from rising interest rates, the County’s investment practice gives consideration to shortening maturities during periods of rising interest rates. The County manages its exposure to interest rate risk by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. To further reduce its exposure to interest rate risk, the County invests in multi- step coupon securities for some of its longer term maturities. As of June 30, 2013, $12,000,000 of the County’s $23,681,418 in investments with maturities beyond two years are step or multi-step securities. Information about the sensitivity of the fair values of the County’s investments to market interest rate fluctuations is provided by the above table that shows the distribution by maturity and the weighted average maturity of the County’s investment holdings as of June 30, 2013. Credit Risk. In accordance with the County’s investment policy, the County limits investments to the provisions of G.S. 159-30 and restricts the purchase of securities to the highest possible ratings whenever particular types of securities are rated. State law and the County’s investment policy limit investments in commercial paper to those issuers carrying the highest ratings issued by
D-22 nationally recognized statistical rating organizations (NRSROs). As of June 30, 2013, the County’s investments in the bonds of U.S. Agencies were rated with one or more of the following ratings: AAA by Standard & Poor’s, AAA by Fitch Ratings, Aaa by Moody’s Investors Service. The County’s investment in the NC Capital Management Trust Cash Portfolio carried a credit rating of AAAm by Standard & Poor’s as of June 30, 2013. The County’s investment in the NC Capital Management Trust Term Portfolio is unrated. The Term Portfolio is authorized to invest in obligations of the U.S. government and agencies, and in high grade money market instruments as permitted under North Carolina General Statutes 159-30 as amended. Custodial Credit Risk. For an investment, the custodial credit risk is the risk that in the event of the failure of the counterparty, the County will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The County’s investment policy provides limited guidance on custodial credit risk, but management procedures are that the County shall utilize a third party custodial agent for book entry transactions, all of which shall be held in the County’s name. The custodial agent shall be a trust department authorized to do trust work in North Carolina who has an account with the Federal Reserve. Certificated securities shall be in the custody of the Chief Financial Officer. Concentration of Credit Risk. The County places no limit on the amount that may be invested in any one issuer. Five percent (5%) or more of the County’s investments are in commercial paper issued by Dealers Capital (13.4%), FCAR II (13.4%), FCAR I (11.3%), Deutsche Bank Financing (6.7%), ING Funding (6.7%) and bonds issued by the Federal Farm Credit Bank (13.4%), Federal National Mortgage Association (13.4%), Federal Home Loan Bank (10.0%) and Federal Home Loan Mortgage Corporation (5.0%). Other Post-Employment Benefits Trust At June 30, 2013, the Healthcare Plan had $10,583,511 invested in a Local Government Other Post-Employment Benefits (OPEB) Trust established pursuant to G.S. 159-30.1. The OPEB Trust is deposited with the State Treasurer and may be invested in public equities and both long-term and short-term fixed income obligations as determined by the State Treasurer pursuant to the General Statutes. At year-end, the OPEB Trust was invested as follows: State Treasurer’s Short Term Investment Fund (STIF), 23.0%; State Treasurer’s Long Term Investment Fund (LTIF), 8.8%; and, BlackRock’s Global Ex-US Alpha Tilts Fund B and BlackRock’s Russell 3000 Alpha Tilts Fund B 68.2% (the equities were split with 77% in domestic securities and 23% in international securities). The Blackrock Global Ex-US Alpha Tilts Fund B is priced at $17.8953 per share and the Blackrock Russell 3000 Alpha Tilts Fund B is priced at $38.4784 per share at June 30, 2013. Interest Rate Risk: The County does not have a formal investment interest rate policy that manages its exposure to fair value losses arising from increasing interest rates for the Healthcare Plan Fund. The State Treasurer’s Short Term Investment Fund (STIF) is unrated and had a weighted average maturity of 1.6 years at June 30, 2013. The State Treasurer’s Long Term Investment Fund (LTIF) is unrated and had a weighted average maturity of 15.9 years at June 30, 2013. Credit Risk: The County does not have a formal investment policy regarding credit risk for the Healthcare Plan Fund. The STIF is unrated and authorized under NC General Statute 147-69.1. The State Treasurer’s STIF is invested in highly liquid fixed income securities consisting primarily of short to intermediate term treasuries, agencies, and money market instruments. The LTIF is unrated and authorized under NC General Statute 147-69.1 and 147-69.2. The State Treasurer’s LTIF is invested in treasuries, agencies and corporate bonds with longer term maturities. c. Property tax – Use-value Assessment on Certain Lands In accordance with the general statutes, agriculture, horticulture, and forestland may be taxed by the County at the present-use value as opposed to market value. When the property loses its eligibility for use-value taxation, the property tax is recomputed at market value for the current year and the three preceding fiscal years, along with the accrued interest from the original due date. This tax is immediately due and payable. The following are property taxes that could become due if present use-value eligibility is lost. These amounts have not been recorded in the financial statements. Year Levied Tax Interest Total
2010 $ 2,297,761 752,517 3,050,278 2011 2,297,761 545,718 2,843,479 2012 2,297,761 338,920 2,636,681 2013 2,297,761 132,121 2,429,882 Totals $ 9,191,044 1,769,276 10,960,320
D-23 d. Receivables Receivables at June 30, 2013 for the County’s individual major funds and nonmajor governmental funds in the aggregate are net of applicable allowances for uncollectible accounts as follows:
Gross Allowance for Net Description Receivable Uncollectible Accounts Receivable
Property taxes General fund $ 8,410,317 (4,549,421) 3,860,896 Nonmajor governmental funds 183,376 (90,513) 92,863 Occupancy taxes General fund 47,820 - 47,820 Other taxes General fund 39,531 - 39,531 Accounts General fund 29,709,870 (22,503,797) 7,206,073 Nonmajor governmental funds 29,199 - 29,199 Accrued interest General fund 33,994 - 33,994 Nonmajor governmental funds 2,416 - 2,416
Total receivables $38,456,523 (27,143,731) 11,312,792
Governmental funds report deferred inflows in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At June 30, 2013, the various components of unavailable and unearned revenue were as follows:
Unavailable Unearned Description Revenue Revenue
Delinquent property taxes receivable General fund $ 3,860,896 - Nonmajor governmental funds 92,863 - Intergovernmental and private grants General fund - 1,071,761 Nonmajor governmental funds - 180,854 Fees and other revenue – General fund 4,170,969 312,784 Investment earnings – General fund 8,257 - Total unavailable / unearned revenue for governmental funds $ 8,132,985 1,565,399
D-24 e. Capital Assets Capital asset activity for the year ended June 30, 2013, was as follows:
Beginning Ending Balances Increases Decreases Balances
Governmental activities: Capital assets not being depreciated:
Land $ 12,888,256 -- -- 12,888,256 Art collections 517,907 -- -- 517,907 Construction-in-progress 20,406,047 10,100,751 (279,285) 30,227,513 Total capital assets not being depreciated 33,812,210 10,100,751 (279,285) 43,633,676
Capital assets being depreciated:
Buildings 180,723,286 313,319 (61,200) 180,975,405 Improvements other than buildings 19,249,747 865,661 -- 20,115,408 Equipment 36,401,847 1,549,200 (759,054) 37,191,993 Vehicles 15,323,100 1,051,660 (66,646) 16,308,114 Software 7,833,317 107,874 -- 7,941,191 Total capital assets being depreciated 259,531,297 3,887,714 (886,900) 262,532,111 Less accumulated depreciation for: Buildings 72,854,546 4,524,655 (35,955) 77,343,246 Improvements other than buildings 8,714,221 777,069 -- 9,491,290 Equipment 29,991,510 1,983,962 (498,933) 31,476,539 Vehicles 11,216,949 1,590,202 (47,231) 12,759,920 Software 7,673,370 104,256 -- 7,777,626 Total accumulated depreciation 130,450,596 8,980,144 (582,119) 138,848,621 Total capital assets being depreciated, net 129,080,701 (5,371,715) (304,781) 123,683,490 Capital assets, net $162,892,911 5,008,321 (584,066) 167,317,166
Depreciation expense charged to functions for the year ended June 30, 2013, was as follows: Depreciation Function Expense
General government $ 4,029,142 Public safety 2,772,452 Environmental protection 40,562 Human services 722,287 Culture and recreation 1,390,708 Community and economic development 5,587 Education 19,406 Total $ 8,980,144
D-25 Construction Commitments Active construction projects as of June 30, 2013 include: renovation of the Phillips Building for Sheriff administrative offices and minimum security inmate housing and continued development of Triad Park. At June 30, 2013, commitments with contractors on these projects are as follows:
Remaining Project Spent-to-Date Commitment
Phillips Building renovation $ 25,746,730 1,927,863 Triad Park development 80,938 93,388 Totals $ 25,827,668 2,021,251
f. Interfund Receivables, Payables, and Transfers Certain special revenue funds account for revenues that are used to reimburse eligible expenditures in the General Fund. Accrual of these revenues at year-end results in interfund receivables and payables at June 30. Amounts advanced from the cash and investment pool are also included in due to and due from other funds. Sales tax paid on certain State Public School Building Capital Fund projects will be refunded by the State, so the cash and investment pool advances funds for these payments. At June 30, 2013, interfund receivables and payables are as follows:
Receivable Fund - Payable Fund General Fund
Nonmajor governmental funds: 2010 Housing Fund – advance from cash and investment pool $ 2,631 2009 Justice Assistance Fund – advance from cash and investment pool 54
Total $ 2,685
The following is a summary of interfund transfers for the year ended June 30, 2013:
Transfers in: Nonmajor
General Governmental Transfers out: Fund Funds Total
General Fund $ -- 4,275,955 4,275,955 2007 Schools Facilities -- 1,735,000 1,735,000 Nonmajor governmental funds 7,095,195 606,456 7,701,651 Totals $ 7,095,195 6,617,411 13,712,606
The General Fund transferred $3,088,000 to the 2013 Pay-Go fund, $1,162,200 to the 2012 Motive Equipment fund and $25,755 to the 2013 Housing grant project fund to provide local matching funds for a grant. The 2007 Schools Fund transferred $1,735,000 to the 2012 Winston-Salem/Forsyth County Schools Capital Maintenance fund for ongoing schools maintenance projects. Transfers of $7,095,195 to the General Fund from nonmajor governmental funds were for debt service, including $4,500,161 in lottery proceeds from the Public School Building Capital fund. Other transfers to the General Fund from nonmajor governmental funds included $1,180,749 residual equity from the 2007 Forsyth Technical Community College fund which was closed during the year; $1,383,947 from the Fire Tax Districts special revenue fund to support the County fire department; and $30,338 from the Law Enforcement Equitable Distribution special revenue fund for law enforcement programs. Residual equity transfers of $378,123 and $228,333 were made from the 2008 Pay-Go fund and 2010 Pay-Go fund, respectively, to the 2013 Pay-Go fund.
D-26 g. Payables
Payables at June 30, 2013, were as follows:
2009 Phillips Building Nonmajor General (Phase 1A and 1B) Governmental Description Fund Fund Funds Total
Vendors $ 3,797,190 304,555 435,804 4,537,549 Salaries and benefits 1,630,292 -- -- 1,630,292 Totals $ 5,427,482 304,555 435,804 6,167,841 h. Leases Operating Leases The County leases buildings, office facilities, and equipment under non-cancelable operating leases. Total costs for such leases were $1,135,683 for the year ended June 30, 2013. The future minimum lease payments due under operating leases with initial or remaining non-cancelable lease terms in excess of one year are as follows:
Year ending June 30 Operating Leases
2014 $ 817,920 2015 719,963 2016 240,727 2017 60,545 2018 62,790 2019 – 2023 342,956 2024 – 2028 397.065 2029 – 2033 439,737 2034 10,114 Total minimum lease payments $ 3,091,817
The total rental expenditures for all operating leases were $1,525,348 for the year ended June 30, 2013. i. Long-term obligations Long- term obligation activity Changes in long-term obligations during the year ended June 30, 2013, were as follows:
Restated Balance Balance Due Within June 30, 2012 Additions Reductions June 30, 2013 One Year
Governmental activities: Compensated absences $ 7,436,460 8,401,018 8,366,013 7,471,465 4,876,095 General obligation bonds 499,600,000 53,840,000 70,380,000 483,060,000 35,125,000 Unamortized premiums 18,090,727 9,607,694 3,917,367 23,781,054 -- Installment purchase obligations 2,835,543 -- 693,894 2,141,649 751,484 Certificates of participation and limited obligation bonds 83,830,000 -- 6,220,000 77,610,000 5,735,000 Unamortized premiums 4,577,478 -- 530,772 4,046,706 -- Net OPEB obligation 9,386,825 5,861,805 4,830,186 10,418,444 -- Claims and judgments 3,887,868 18,793,868 19,156,369 3,525,367 2,860,101 Total general long-term obligations $ 629,644,901 96,504,385 114,094,601 612,054,685 49,347,680
The net other postemployment benefit obligation, compensated absences, and claims and judgments typically are liquidated in the General Fund. Of the latter, health and dental claims are paid from the Employee Health Benefits internal service fund.
D-27 Arbitrage In accordance with Section 148 of the Internal Revenue Code of 1986, as amended, and Sections 1.103-13 to 1.103-15 of the related Treasury Regulations, the County must rebate to the federal government “arbitrage profits” earned on governmental bonds issued after August 31, 1986. Arbitrage profits are the excess of the amount earned on investments over the interest paid on the borrowings. At June 30, 2013, the County had no liability for arbitrage. General Obligation Bonds The County issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities for governmental activities. All general obligation bonds are backed by the full faith, credit and taxing power of the County, and principal and interest requirements are appropriated in the General Fund when due. On January 8, 2013, the County issued $13,750,000 general obligation public improvement bonds, Series 2013 for the maintenance and repair of school and community college facilities, as well as various County maintenance and improvement projects. Interest rates range from 2.0 to 4.0 percent, with a final maturity of May 1, 2032. On January 9, 2013, the County issued $5,000,000 general obligation educational facilities bonds, Series 2013 for the renovation and equipping of community college facilities. Interest rates range from 2.0 to 2.5 percent, with a final maturity of May 1, 2032. The American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) authorizes the County to issue taxable bonds known as “Build America Bonds” to finance capital expenditures for which the County could issue tax-exempt bonds and to elect to receive a subsidy payment from the federal government equal to 35% of the amount of each interest payment on such taxable bonds. The County has designated its 2010C Bonds as “Build America Bonds” for purposes of the Recovery Act and expects to receive such subsidy payments from the federal government. The County received $1,345,855 in such federal subsidy during the year ended June 30, 2013. Due to the federal sequestration that took effect March 1, 2013, the County expects a slight reduction in the amount of subsidy payments received in the following fiscal year. The County now expects to receive $22,049,439 in such subsidies over the life of the bonds, a $106,995 reduction from previous estimates. The Recovery Act also authorizes the County to issue taxable bonds known as “Qualified School Construction Bonds” to finance construction, rehabilitation or repair of public school facilities or for the acquisition of land on which a public school facility is to be constructed. Under the Act, the County may elect to receive a subsidy payment from the United States Treasury in an amount calculated as provided in the Recovery Act. The County has designated its 2010D Bonds as “Qualified School Construction Bonds” for purposes of the Recovery Act and expects to receive such subsidy payments from the federal government. The County received $1,270,081, or 96.5% of the interest paid on the 2010D Bonds, in such federal subsidy during the year ended June 30, 2013. Due to the federal sequestration that took effect March 1, 2013, the County expects a slight reduction in the amount of subsidy payments received in the following fiscal year. The County now expects to receive $20,125,059 in such subsidies over the life of the bonds, an $100,971 reduction from previous estimates. Such cash subsidy payments are not pledged to the repayment of the 2010C or 2010D Bonds, but are expected to be a source of payment of debt service on the bonds. Such cash subsidy payments do not constitute a full faith and credit guarantee of the federal government, but are required to be paid by the United States Treasury under the Recovery Act. If such cash subsidy payments from the United States Treasury are reduced or eliminated as a result of the change in the law, the 2010C and 2010D Bonds are subject to extraordinary optional redemption. On January 9, 2013, the County issued $35,090,000 general obligation refunding bonds to provide resources to purchase U.S. Government securities that were placed in an irrevocable trust for the purpose of generating resources for future debt service payments of $7,185,000 general obligation public improvement bonds, Series 2006, $16,000,000 general obligation School bonds, Series 2006, $4,500,000 general obligation Community College bonds, Series 2007, and $10,500,000 general obligation School bonds, Series 2007. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the statement of net position. The reacquisition price exceeded the net carrying amount of the old debt by $5,377,043. This amount is being netted against the new debt and amortized over the life of the new debt, which is the same as the life of the refunded debt. This advance refunding was undertaken to reduce total debt service payments over the next 14 years by $3,087,269 and resulted in an economic gain of $2,663,881. In prior years, the County defeased certain general obligation bonds by placing the proceeds of refunding bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the County’s financial statements. On June 30, 2013, $56,985,000 of outstanding general obligation bonds are considered defeased. On June 24, 2004, the County sold two $15,000,000 issues of general obligation School bonds that initially bear interest at a weekly variable rate. The County has the option to convert to a flexible term rate, a medium-term rate, or a fixed rate by written notice at least 25 days in advance of the proposed conversion date. The current variable rate is determined weekly based on the lowest interest rate necessary to enable the remarketing of the bonds at par plus accrued interest, as determined by the remarketing agent, and shall not exceed an annual rate of 12%. At June 30, 2013, the rate of interest for both issues was 0.06%. The County issued $30,000,000 general obligation School bonds on April 19, 2007, that initially bear interest at a weekly variable rate. The County has the option to convert to a flexible term rate, a medium-term rate, or a fixed rate by written notice at least 25 days in advance of the proposed conversion date. The current variable rate is determined weekly based on the lowest interest rate necessary to enable the remarketing of the bonds at par plus accrued interest, as determined by the remarketing agent, and
D-28 shall not exceed an annual rate of 12%. At June 30, 2013, the rate of interest was 0.06%.
A summary of outstanding general obligation bonds follows: Principal Effective Amount Outstanding Purpose of Issue Date of Issue Interest Rate Issued June 30, 2013
Governmental Activities School Building 06-24-04 Var Rate % $ 15,000,000 11,000,000 06-24-04 Var Rate 15,000,000 11,000,000 02-21-06 4.0735 22,500,000 2,900,000 04-19-07 3.9543 30,000,000 7,050,000 04-19-07 Var Rate 30,000,000 25,750,000 09-17-08 4.1701 80,000,000 62,400,000 09-02-10 4.9860 26,405,000 26,405,000 01-09-13 2.4014 5,000,000 5,000,000 Community College 04-01-07 3.9543 12,500,000 2,900,000 Educational Facilities 06-23-09 3.7687 36,250,000 32,950,000 Public Improvement 02-21-06 4.0735 10,185,000 1,200,000 09-16-08 4.1175 11,120,000 9,720,000 09-01-10 2.0350 14,225,000 11,375,000 09-02-10 2.0350 36,615,000 27,465,000 09-02-10 3.1682 80,380,000 80,380,000 01-08-13 2.2334 13,750,000 13,750,000 Refunding 09-01-03 4.1925 8,785,000 690,000 02-01-04 3.0633 30,855,000 8,860,000 09-17-08 2.8798 28,885,000 16,665,000 09-16-09 2.5103 42,870,000 40,595,000 09-02-10 2.0350 50,295,000 49,915,000 01-09-13 1.7692 35,090,000 35,090,000 Totals $635,710,000 483,060,000
Of the $303,315,000 public improvement bonds issued, $45,080,000 funded County facilities and capital projects, $236,358,000 funded School facilities, and $21,877,000 funded Community College facilities. Annual debt service requirements to maturity for general obligation bonds are as follows:
June 30 Principal Interest Total
2014 $ 35,125,000 19,475,626 54,600,626 2015 32,555,000 18,168,676 50,723,676 2016 31,375,000 17,093,936 48,468,936 2017 30,700,000 15,815,602 46,515,602 2018 29,450,000 14,655,924 44,105,924 2019 - 2023 145,095,000 55,818,823 200,913,823 2024 - 2028 140,285,000 27,379,277 167,664,277 2029 - 2032 38,475,000 2,565,110 41,040,110 Totals $ 483,060,000 170,972,974 654,032,974
There are $90,860,000 in authorized but unissued general obligation bonds at June 30, 2013. Conduit Debt Obligations Forsyth County Industrial Facility and Pollution Control Financing Authority has issued industrial revenue bonds to provide financial assistance to private businesses for economic development purposes. These bonds are secured by the properties financed as well as by letters of credit and are payable solely from payments received from the private businesses involved. Ownership of the acquired facilities is in the name of the private business served by the bond issuance. Neither the County, the Authority, the State, nor any political subdivision thereof is obligated in any manner for the repayment of the bonds. Accordingly, the bonds are not reported as liabilities in the accompanying financial statements. As of June 30, 2013, there were four series of industrial revenue bonds outstanding, with an aggregate principal amount payable of $25,200,000.
D-29 Certificates of Participation and Limited Obligation Bonds Outstanding certificates of participation and limited obligation bonds are as follows: Principal Outstanding
Purpose of Issue June 30, 2013 Governmental Activities Issued May 31, 2012 to finance County facility renovation and construction; interest varies from 2.00% to 5.00% $ 16,290,000 Issued December 22, 2009 to finance County facility renovation and construction; interest varies from 3.00% to 5.00% 12,750,000 Issued August 9, 2005 to finance renovation of an elementary school and a middle school; interest varies from 4.00% to 5.00% 8,450,000 Issued May 5, 2005 to advance refund portions of three previous issues; interest varies from 3.50% to 5.00% 40,120,000
Total $ 77,610,000
Debt service requirements to maturity for certificates of participation and limited obligation bonds are as follows:
Year Ending June 30 Principal Interest Total
2014 $ 5,735,000 3,530,088 9,265,088 2015 5,910,000 3,272,787 9,182,787 2016 6,100,000 3,010,988 9,110,988 2017 6,300,000 2,732,938 9,032,938 2018 6,510,000 2,442,988 8,952,988 2019 - 2023 31,715,000 7,813,788 39,528,788 2024 - 2028 9,775,000 2,748,750 12,523,750 2029 - 2033 5,565,000 721,500 6,286,500 Total $ 77,610,000 26,273,825 103,883,825
Principal and interest requirements for certificates of participation are provided by a General Fund appropriation in the year in which they are due.
D-30 Installment Purchases As authorized by State law, the County has entered into installment financing agreements, for which interest is payable semiannually, as follows: Principal Amount Outstanding Purpose of Issue Date of Issue Interest Rate Issued June 30, 2013
Governmental Activities Computer equipment and software 01-06-09 4.49 % $ 276,000 60,288 06-01-09 3.91 750,000 162,052 07-01-11 2.82 2,400,000 1,919,309 Totals $ 3,426,000 2,141,649
Annual maturities are as follows:
Year Ending June 30 Principal Interest Total
2014 $ 751,484 56,850 808,334 2015 544,170 35,393 579,563 2016 845,995 23,349 869,344 Total $ 2,141,649 115,592 2,257,241
As of June 30, 2013, the County’s legal debt limit was $2,749,014,057, computed at 8% of the total appraised property valuation of $34,362,675,716. With $506,841,054 in County, School, and Community College bonds outstanding at June 30, 2013 and $83,798,355 committed under certificates of participation, limited obligation bonds and installment purchases, the County could issue additional bonds up to $2,158,374,648 if authorized. j. Fund Balances Restricted for Stabilization by state statute. The amounts reported on the governmental funds balance sheet identified as Restricted for Stabilization by state statute are comprised of the following: 2009
2007 2009 Phillips Building Nonmajor Total General School Educational (Phases Governmental Governmental Fund Facilities Facilities 1A and 1B) Funds Funds
Restricted by state statute $ 24,012,550 577,707 5,820 495,563 779,553 25,871,193 Encumbrances 3,942,753 -- -- 2,411,405 407,973 6,762,131 Less: Prepaid items (251,658) ------(251,658) Totals $ 27,703,645 577,707 5,820 2,906,968 1,187,526 32,381,666
Restricted for Other. The amounts reported in the general fund balance sheet identified as Restricted for Other is comprised of $22,791 for soil and water conservation activities, $5,623 for library expenditures and $4,684 for social services purposes. The following schedule provides information on the portion of General Fund fund balance that is available for appropriation.
Total fund balance – General Fund $ 143,510,032 Less: Nonspendable 251,658 Restricted 28,735,140 Committed 36,573,358 Assigned 13,978,806 Minimum fund balance reserve $ 63,971,070
D-31 Subsequent Years Budget Appropriation. The following schedule provides information on the portion of restricted and committed fund balance that has been appropriated in the budget for the fiscal year ending June 30, 2014: Subsequent
Year’s Budget Unappropriated Appropriation Fund Balance Total
Restricted for: Register of Deeds $ 200,000 798,397 998,397 Committed for: Education Debt Leveling Plan 4,350,404 28,260,582 32,610,986
5. Other Information a. Pension Costs North Carolina Local Governmental Employees’ Retirement System Plan Description. Forsyth County contributes to the statewide Local Governmental Employees’ Retirement System (LGERS), a cost- sharing multiple-employer defined benefit pension plan administered by the State of North Carolina. LGERS provides retirement and disability benefits to plan members and beneficiaries. Article 3 of G. S. Chapter 128 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. The Local Governmental Employees’ Retirement System is included in the Comprehensive Annual Financial Report (CAFR) for the State of North Carolina. The State’s CAFR includes financial statements and required supplementary information for LGERS. That report may be obtained by writing to the Office of the State Controller, 1410 Mail Service Center, Raleigh, North Carolina 27699-1410, visiting their website at www.ncosc.net or by calling (919) 981-5454. Funding Policy. Plan members are required to contribute 6.0% of their annual covered salary. The County is required to contribute at an actuarially determined rate. The current rate for employees not engaged in law enforcement and for law enforcement officers is 6.74% and 6.77%, respectively, of annual covered payroll. The contribution requirements of members and of Forsyth County are established and may be amended by the North Carolina General Assembly. The County’s contributions to LGERS for the years ended June 30, 2013, 2012, and 2011 were $5,505,610, $5,626,500, and $5,312,862, respectively. The contributions made by the County equaled the required contributions for each year.
Law Enforcement Officers’ Special Separation Allowance Plan Description. Forsyth County administers a public employee retirement system (the Separation Allowance), a single-employer defined benefit pension plan that provides retirement benefits to the County’s qualified sworn law enforcement officers. The Separation Allowance is equal to .85% of the annual equivalent of the base rate of compensation most recently applicable to the officer for each year of creditable service. Article 12D of G.S. Chapter 143 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. The Separation Allowance is reported in the County’s report as a pension trust fund, and no stand-alone financial report is issued for the plan. All full-time County law enforcement officers are covered by the Separation Allowance. At December 31, 2012, the Separation Allowance’s membership consisted of: Retirees currently receiving benefits 44 Active plan members 218 Total 262
Summary of Significant Accounting Policies Basis of Accounting. Financial statements for the Separation Allowance are prepared using the accrual basis of accounting. Employer contributions to the plan are recognized when due and when the County has made a formal commitment to provide the contributions. Benefits are recognized when due and payable in accordance with the terms of the plan. Method Used to Value Investments. Investments are reported at fair value. Short-term discount notes, deposits, repurchase agreements, and the North Carolina Capital Management Trust are reported at cost or amortized cost, which approximates fair value. Certain longer term United States Government and United States Agency securities are valued at the last reported sales price. Funding Policy. The County is required by Article 12D of G.S. Chapter 143 to provide these retirement benefits and has chosen to fund the amounts necessary to cover the benefits earned by making contributions based on actuarial valuations. For the current year, the County contributed $703,270, or 7.19% of annual covered payroll. There were no contributions made by employees.
D-32 The County’s obligation to contribute to this plan is established and may be amended by the North Carolina General Assembly. Administration costs of the Separation Allowance are financed through investment earnings. Annual Pension Cost and Net Pension (Asset) Obligation The County’s annual pension cost and net pension obligation for the current year were as follows: Annual required contribution $ 644,775 Interest on net pension obligation (12,740) Adjustment to annual required contribution 22,350
Annual pension cost 654,385 Contributions made (703,270) Increase in net pension asset (48,885) Net pension asset, beginning of year (424,658) Net pension asset, end of year $ (473,543)
The annual required contribution for the fiscal year ended June 30, 2013 was determined as part of the December 31, 2011 actuarial valuation using the projected unit credit actuarial cost method. The actuarial assumptions included (a) 3.00% investment rate of return and (b) projected salary increases of 4.25% to 7.85% per year. Item (b) included an inflation component of 3.00%. The assumptions did not include post-retirement benefit increases. The actuarial value of assets was market value. The unfunded actuarial accrued liability is being amortized as a level percentage of pay on a closed basis. The remaining amortization period at December 31, 2011 was 19 years. Three-Year Trend Information
Fiscal Year Annual Pension Percentage of Net Pension Ended Cost (APC) APC Contributed (Asset) Obligation
6/30/2011 $ 568,139 112.08% $(354,299) 6/30/2012 549,286 112.81% (424,658) 6/30/2013 654,385 107.47% (473,543) Funded Status and Funding Progress. As of December 31, 2012, the most recent actuarial valuation date, the plan was 2.50% funded. The actuarial accrued liability for benefits was $6,863,867, and the actuarial value of assets was $171,585, resulting in an unfunded actuarial accrued liability (UAAL) of $6,692,282. The covered payroll (annual payroll of active employees covered by the plan) was $9,775,803, and the ratio of the UAAL to the covered payroll was 68.46%. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits. The following are financial statements for the Law Enforcement Officers’ Special Separation Allowance Trust Fund included in Exhibits 9 and 10 of the Basic Financial Statements at June 30, 2013.
LAW ENFORCEMENT OFFICERS’ SPECIAL SEPARATION ALLOWANCE TRUST FUND STATEMENT OF NET POSITION June 30, 2013 ASSETS
Cash and cash equivalents / investments $ 260,239 Accrued interest receivable 86 Total assets 260,325 LIABILITIES Due to other governments 5,990 Total liabilities 5,990
NET POSITION Held in trust for pension benefits $ 254,335
D-33 LAW ENFORCEMENT OFFICERS’ SPECIAL SEPARATION ALLOWANCE TRUST FUND STATEMENT OF CHANGES IN NET POSITION For the Fiscal Year Ended June 30, 2013
ADDITIONS Employer contributions $ 703,270 Net investment income 540 Total additions 703,810 DEDUCTIONS Benefits 618,569 Change in net position 85,241 Net position – beginning 169,094 Net position – ending $ 254,335
Supplemental Retirement Income Plan for Law Enforcement Officers Plan Description. The County contributes to the Supplemental Retirement Income Plan (Plan), a defined contribution pension plan administered by the Department of State Treasurer and a Board of Trustees. The Plan provides retirement benefits to law enforcement officers employed by the County. Article 5 of G.S. Chapter 135 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. The Supplemental Retirement Income Plan for Law Enforcement Officers is included in the Comprehensive Annual Financial Report (CAFR) for the State of North Carolina. The State’s CAFR includes the pension trust Supplemental Retirement Income Plan for Law Enforcement Officers. That report may be obtained by writing to the Office of the State Controller, 1410 Mail Service Center, Raleigh, North Carolina 27699-1410, visiting their website at www.ncosc.net or by calling (919) 981-5454. Funding Policy. Article 12E of G.S. Chapter 143 requires that the County contribute each month an amount equal to 5.0% of each officer’s salary, and all amounts contributed are vested immediately. Also, the law enforcement officers may make voluntary contributions to the Plan. The County’s contributions for the year ended June 30, 2013 were $494,129, exclusive of voluntary employee contributions. Register of Deeds’ Supplemental Pension Fund Plan Description. The County contributes to the Register of Deeds’ Supplemental Pension Fund (Fund), a noncontributory, defined contribution plan administered by the North Carolina Department of State Treasurer. The Fund provides supplemental pension benefits to any eligible county register of deeds who is retired under the Local Governmental Employees’ Retirement System (LGERS) or an equivalent locally sponsored plan. Article 3 of G.S. Chapter 161 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. The Register of Deeds’ Supplemental Pension Fund is included in the Comprehensive Annual Financial Report (CAFR) for the State of North Carolina. The State’s CAFR includes financial statements and required supplementary information for the Registers of Deeds’ Supplemental Pension Fund. That report may be obtained by writing to the Office of the State Controller, 1410 Mail Service Center, Raleigh, North Carolina 27699-1410, visiting their website at www.ncosc.net or by calling (919) 981-5454. Funding Policy. On a monthly basis, the County remits to the Department of State Treasurer an amount equal to 1.5% of the monthly receipts collected pursuant to Article 1 of G.S. Chapter 161. Immediately following January 1 of each year, the Department of State Treasurer divides 93% of the amount in the Fund at the end of the preceding calendar year into equal shares, up to the statutory maximum, to be disbursed as monthly benefits. The remaining 7% of the Fund’s assets may be used by the State Treasurer in administering the Fund. For the fiscal year ended June 30, 2013, the County’s required and actual contributions were $35,611. b. Other Post-employment Benefits (OPEB) Healthcare, Life Insurance, and Death Benefits Plan Description. Forsyth County administers a single-employer defined benefit Healthcare Plan (the Plan). The Board of County Commissioners established and may amend the benefit provisions of the Plan. As of July 1, 2007, the Plan provides postemployment healthcare benefits to retirees of the County until they reach age 65 or are eligible for Medicare, provided they participate in the North Carolina Local Governmental Employees’ Retirement System (System) and (1) have at least 5 years of creditable service with the County if employed prior to July 1, 2007; (2) have at least twenty years of creditable service with the County if employed on or after July 1, 2007. Coverage on eligible dependents that are on the retiree’s policy the day before retirement may be continued until eligibility ceases. Based on level of coverage, the County pays between 68.3% and 87.6% of the established premium cost, and the retiree pays the same premium as active employees.
D-34 All employees that retire with fifteen or more continuous years of full-time service, other than those that retire under a disability retirement, are eligible to receive a benefit in the amount of $2,000 in the event of death. This benefit is provided at no cost to the retiree. Those members that retire under a disability retirement are entitled to a life insurance benefit equal to one and a half times salary at the time they retire, subject to age reductions. The County pays the full cost of the life insurance premium. The County has elected to partially pay the future overall cost of coverage for these benefits. A separate report was not issued for the Plan. Membership of the Plan consisted of the following at December 31, 2012, the date of the latest actuarial valuation:
Retirees currently receiving benefits 820 Active plan members: General employees 1,847 Law enforcement officers 218 Total 2,885
Funding policy. The contribution requirements of plan members and the County are established and may be amended by the Board of County Commissioners. The required contribution is based on projected pay-as-you-go financing requirements and an additional amount to prefund benefits as determined annually by the Board of County Commissioners. The County pays the full costs of retiree death benefits and life insurance for disability retirees, which were $14,000 and $9,120, respectively, for fiscal year 2013. The monthly cost of healthcare benefits is shared by the County and covered retirees, respectively, as follows: retiree-only coverage, $600 and $85; retiree and one dependent, $747 and $198; and retiree and more than one dependent, $1,044 and $485. For fiscal year 2013, the County contributed $ 2,511,461 for healthcare benefits, and retiree Plan members contributed $ 391,211. Additionally, the County contributed $1,600,000 to prefund benefits. The current ARC rate is 6.65% of annual covered payroll. For the current year, the County contributed $4,830,186 or 5.9% of annual covered payroll. The County self-funds its healthcare benefits, and premiums are set at a level to cover current costs and fund actuarially computed reserves. The County obtains life insurance coverage through a private insurer. The County’s required contribution, set by the Board of County Commissioners, is the same for all employees. Summary of Significant Accounting Policies. The Plan’s financial statements are prepared using the accrual basis of accounting. Plan member contributions are recognized in the period in which the contributions are due. Employer contributions to the plan are recognized when due and when the County has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of each plan. Annual OPEB Cost and Net OPEB Obligation. The County’s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the County’s annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the County’s net OPEB obligation for the Plan benefits: Annual required contribution $5,779,512 Interest on net OPEB obligation 563,210 Adjustment to annual required contribution 480,917
Annual OPEB cost (expense) 5,861,805 Contributions made (4,830,186) Increase in net OPEB obligation 1,031,619 Net OPEB obligation, beginning of year 9,386,825 Net OPEB obligation, end of year $10,418,444
The annual required contribution for the fiscal year ended June 30, 2013 was determined as part of the December 31, 2010 actuarial valuation using the projected unit credit actuarial cost method. The actuarial assumptions included (a) 6.00% investment rate of return and (b) projected medical cost increases of 5.0% to 10.5% per year. Item (b) included an inflation component of 3.00%. The assumptions did not include post-retirement benefit increases. The actuarial value of assets was market value. The unfunded actuarial accrued liability is being amortized as a level percentage of pay on a closed basis. The remaining amortization period at December 31, 2010 was 29 years.
D-35 The County’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2013 and the preceding three years were as follows:
Fiscal Year Annual OPEB Percentage of Annual Net OPEB Ended Cost OPEB Cost Contributed Obligation
6/30/2010 $ 6,345,621 59.7% $ 8,939,062 6/30/2011 5,848,799 86.8% 9,711,026 6/30/2012 5,644,091 105.7% 9,386,825 6/30/2013 5,861,805 82.4% 10,418,444
Funded Status and Funding Progress. As of December 31, 2012, the most recent actuarial valuation date, the plan was 15.6% funded. The actuarial accrued liability for benefits was $63,379,261, and the actuarial value of assets was $9,915,644, resulting in an unfunded actuarial accrued liability (UAAL) of $53,463,617. The covered payroll (annual payroll of active employees covered by the plan) was $81,541,641, and the ratio of the UAAL to the covered payroll was 65.6%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and healthcare trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members at that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The following are financial statements for the Other Post-Employment Benefit Trust Fund included in Exhibits 9 and 10 of the Basic Financial Statements at June 30, 2013.
OTHER POST-EMPLOYMENT BENEFIT TRUST - HEALTHCARE PLAN STATEMENT OF NET POSITION June 30, 2013 ASSETS Cash and investments held by fiscal agent $ 10,583,511 NET POSITION Held in trust for other post-employment benefits $ 10,583,511
OTHER POST-EMPLOYMENT BENEFIT TRUST - HEALTHCARE PLAN STATEMENT OF CHANGES IN NET POSITION For the Fiscal Year Ended June 30, 2013 ADDITIONS Contributions:
Employer $ 4,134,581 Plan members 391,211 Total contributions 4,525,792 Net investment income 1,172,475 Total additions 5,698,267 DEDUCTIONS Benefits 2,925,792 Change in net position 2,772,475 Net position – beginning 7,811,036 Net position – ending $ 10,583,511
D-36 c. Risk Management The County is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees on the job; certain employee, dependent, and retiree health care costs; and natural disasters. These risks of loss are handled through a combination of risk retention and insurance. The County uses the Employee Health Benefits Fund (an internal service fund) to account for and finance its risks of loss for employee, dependent, and retiree health care. Other risks of loss are accounted for in the General Fund. The County’s risk retention program provides coverage for a maximum of $600,000 for each workers’ compensation claim, $175,000 for each health care claim, $75,000 for each auto liability and general liability claim, $250,000 each public officials and law enforcement claim, and $100,000 for each property damage claim. The County purchases commercial insurance for claims in excess of coverage provided by this program. Settled claims have not exceeded this commercial coverage in any of the past three fiscal years. The County carries commercial flood insurance with maximum coverage of $10,000,000 per year for property in areas that have been mapped and designated “X” (an area with moderate to minimal flood hazard) by the Federal Emergency Management Agency (FEMA.) Most of the County’s property is located in areas designated “X.” The County has some property of lower value located in areas designated “A” (an area close to a river, lake, or stream) by FEMA, and the County has purchased flood insurance with maximum coverage of $1,000,000 per year for this property. In accordance with G.S. 159-29, the County’s employees that have access at any given time to $100 or more of the County’s funds are performance bonded through a commercial surety bond. The chief financial officer and tax collector are individually bonded for $100,000 and $150,000, respectively. The remaining employees that have access to funds are bonded under a blanket bond for $750,000. Claims liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNRs). For losses other than employee, dependent, and retiree health care costs, the County’s actuarially determined claims liability, which does not include non-incremental claims adjustment expenses, is $ 1,609,423 at June 30, 2013. It is reported in the Statement of Net Position as a long-term liability, and $944,157 is considered due within one year. The County’s actuarially determined claims liability for employee, dependent, and retiree health care costs is $ 1,915,944 at June 30, 2013. It is reported as a current liability in the proprietary fund Statement of Net Position and as a long-term liability, due within one year, in the government-wide Statement of Net Position. Fiscal year 2013 was the fifth year of the County’s risk retention program for employee, dependent, and retiree health care costs, and premiums were established at a level to cover future catastrophic losses as well as the actuarially determined claims liability, and also to enable matching revenues and expenses over a reasonable period of time without significant year-to-year increases. The net position of $5,697,683 in the Employee Health Benefits Fund are designated for these purposes. Changes in the claims liability amount in fiscal 2011 through fiscal 2013 were as follows:
Current-Year Beginning Claims and Changes Claims Ending Balance in Estimates Payments Balance
2010-2011 $3,325,812 19,991,353 (19,682,687) 3,634,478 2011-2012 3,634,478 21,648,955 (21,395,565) 3,887,868 2012-2013 3,887,868 18,793,868 (19,156,369) 3,525,367
The County also provided risk management services, contractually, to local agencies and municipalities. There was no transfer or pooling of risks between or among any of the participants, and each participant was completely responsible for (and only responsible for) its own claims liabilities. d. Contingent Liabilities The County has received proceeds from a number of Federal and State of North Carolina grants. Periodic audits of these grants are required, and certain costs may be questioned as not being appropriate expenditures under the grant agreements. Such audits could result in the refund of grant moneys to the grantor agencies. Management believes that any required refunds will be immaterial. The County is involved in several other claims and lawsuits, which it intends to defend vigorously. The County’s legal counsel estimates that any possible liability to the County resulting from such litigation and not covered by insurance would not have a material adverse effect on the financial position of the County at June 30, 2013.
D-37 e. Related Organization The County’s governing board is responsible for a majority of the board appointments of the Airport Commission of Forsyth County, but the County’s accountability for this organization does not extend beyond making these appointments. The Airport Commission was established by state statute for the purpose of operating an airport on land owned by the County, and it is funded primarily by airport revenue and federal grants. In fiscal year 2013, Forsyth County provided risk management services totaling $5,500 to the Airport Commission, and $1,375 of this amount comprised a receivable at year-end. f. Joint Ventures The County, in conjunction with the State of North Carolina and the Winston-Salem/Forsyth County Board of Education, participates in a joint venture to operate Forsyth Technical Community College. Each of the three participants appoints four members of the thirteen-member board of trustees of the community college. The president of the community college’s student government serves as an ex officio nonvoting member of the community college’s board of trustees. The community college is included as a component unit of the State. The County has the basic responsibility for providing funding for the facilities of the community college and also provides some financial support for the community college’s operations. In addition to providing annual appropriations for the facilities, the County periodically issues general obligation bonds or certificates of participation to provide financing for new facilities. The County has an ongoing financial responsibility for the community college because of the statutory responsibilities to provide funding for the community college’s facilities. The County contributed $8,122,096 and $4,805,491 to the community college for operating and capital purposes, respectively, during the fiscal year ended June 30, 2013. In addition, the County made debt service payments of $ 4,220,734 during the fiscal year on general obligation bonds and certificates of participation issued for community college capital facilities. The participating governments do not have an equity interest in the joint venture; therefore, no equity interest has been reflected in the County’s financial statements at June 30, 2013. Complete financial statements for the community college may be obtained from the community college’s administrative offices at 2100 Silas Creek Parkway, Winston-Salem, North Carolina, 27103. The County participates with Stokes County, Davie County and Rockingham County, North Carolina in CenterPoint Human Services to provide services for general mental health, mental disorder, developmental disabilities, substance abuse and mental health education in Forsyth, Stokes, Davie, and Rockingham Counties. CenterPoint’s board is comprised of sixteen voting members who are appointed as follows: six members appointed by Forsyth County; two members appointed by Davie County; two members appointed by Rockingham County; two members appointed by Stokes County; three members recommended by the Consumer and Family Advisory Committee; and, one member appointed by the Secretary of the Department of Health and Human Services. The County has an ongoing financial responsibility for CenterPoint because it provides funding for a substantial portion of its annual budget. The County contributed $6,742,601 for CenterPoint operations for the fiscal year ended June 30, 2013. Additionally, the County provided services to CenterPoint during the year for which it invoiced $1,926,095, of which $182,406 was outstanding at year-end. The participating governments do not have an equity interest in the joint venture, so no equity interest has been reflected in the financial statements at June 30, 2013. Complete financial statements for CenterPoint may be obtained from its administrative offices at 4045 University Parkway, Winston-Salem, North Carolina, 27106. In conjunction with the City of Winston-Salem and the Greater Winston-Salem Chamber of Commerce, Inc., the County takes part in a joint venture to operate the Forsyth County Tourism Development Authority, which was established pursuant to state statute for the purpose of furthering the development of travel, tourism, and conventions in the County. The Authority board is comprised of nine members of which the County and the City of Winston-Salem each appoint four, and the Chamber appoints one. The Authority receives approximately 61.0% of room occupancy taxes which are levied and collected by the County. For the year ended June 30, 2013, occupancy taxes totaling $2,480,515 were distributed to the Authority. The County also provided $15,610 in financial services to the Authority during fiscal year 2013. The participating governments and agency do not have an equity interest in the joint venture, so no equity interest has been reflected in the financial statements at June 30, 2013. Complete financial statements for the Authority can be obtained from the Authority’s finance officer at Forsyth County Government Center, 201 N. Chestnut Street, Winston-Salem, North Carolina 27101. g. Jointly Governed Organizations The County, in conjunction with eleven other counties and 61 municipalities, is a member of the Piedmont Triad Regional Council (PTRC). The PTRC is a voluntary association of municipal and county governments, enabled by state law to promote regional issues and cooperation among members and to coordinate funding from federal and state agencies. Each participating government appoints one member to the Council’s governing board. The County paid membership fees of $73,641 to the Council during the fiscal year ended June 30, 2013. The County participates with Guilford County and three municipalities in the Piedmont Triad International Airport Authority which operates the airport of the same name. Each participating government has one appointment to the seven-member board except Guilford County, which has three appointments. The County made no payments to the Airport Authority in the fiscal year ended June 30, 2013.
D-38 h. Change in Accounting Principles Effective July 1, 2012, the County adopted the provisions of Governmental Accounting Standards Board (“GASB”) Statement 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position (Statement No. 63). This implementation required the County to present a Statement of Net Position, replacing previously presented Statement of Net Assets, in the County’s basic financial statements. The County’s implementation also required the Statement of Net Position to present deferred outflows and inflows of resources in separate sections following total assets and total liabilities sections, respectively. Effective July 1, 2012, the County adopted the provisions of GASB Statement 65, Items Previously Reported as Assets and Liabilities (Statement No. 65). The provisions of Statement No. 65 relevant to the County related to changes in the accounting and reporting of bonded debt activities. Specifically, bond issuance costs incurred are recorded as current period expenditures as opposed to being deferred and amortized over the maturity period of the debt. Statement 65 also requires that deferred charges (credits) resulting from the refunding of debt be presented as a deferred outflows (inflows) of resources and not as assets or liabilities. As the provisions of Statement No. 65 were effective July 1, 2012, net position as of that date has been adjusted as follows:
Governmental Activities
Net position, as previously reported $ (225,526,009) Adjustments: Debt issuance costs (3,686,726)
Net Position, as adjusted $ (229,212,735)
D-39
The following financial statements have been compiled from the audited financial statements of the County for the fiscal years ended June 30, 2013, 2012 and 2011.
D-40 Forsyth County, North Carolina General Fund Balance Sheet As of June 30, 2013, 2012, and 2011
2013 2012 2011 Assets
Cash and cash equivalents/investments $ 128,983,140 $ 132,060,083 $ 134,987,908 Cash and investments held by fiscal agent 16 8,373 16,083 Receivables, net: Property taxes 3,860,896 4,040,782 4,261,359 Occupancy taxes 47,820 48,965 39,582 Other taxes 39,531 33,796 35,180 Accounts 7,206,073 7,967,360 4,083,027 Accrued interest 33,994 17,866 89,874 Due from other governments 20,610,015 20,427,898 19,709,983 Due from other funds 2,685 129,415 80,142 Prepaid items 251,658 172,691 180,133 Total assets $ 161,035,828 $ 164,907,229 $ 163,483,271
Liabilities and Fund Balances
Liabilities: Accounts payable and accrued liabilities $ 5,427,482 $ 5,160,836 $ 7,770,512 Due to other governments 2,673,647 3,549,449 2,529,398 Unearned revenue 1,384,545 715,938 391,577 Total liabilities 9,485,674 9,426,223 10,691,487 Deferred Inflows of Resources: Unavailale taxes 3,860,896 4,040,783 4,261,359 Unavailable other revenue 4,179,226 3,183,793 2,259,340 Total deferred inflows of resources 8,040,122 7,224,576 6,520,699
Fund balances: Nonspendable - Prepaid items 251,658 172,691 180,133 Restricted for: Stabilization by state statute 27,703,645 26,929,491 26,793,164 Register of deeds 998,397 932,546 832,831 Other 33,098 36,406 37,378 Committed Education Debt Leveling Plan 32,610,986 33,967,754 36,119,464 Economic Development 3,912,372 3,874,305 4,189,305 Timber Management - Tanglewood Park 50,000 50,000 50,000 Assigned Subsequent Year Budget 9,454,339 8,883,698 14,196,439 Management Special Projects 1,149,360 1,950,000 - Capital maintenance projects 3,082,710 8,109,492 1,461,707 Fire and rescue protection 292,397 292,397 292,397 Unassigned 63,971,070 63,057,650 62,118,267 Total fund balances 143,510,032 148,256,430 146,271,085 Total liabilities and fund balances $ 161,035,828 $ 164,907,229 $ 163,483,271
The accompanying note is an integral part of this financial statement.
D-41 Forsyth County, North Carolina General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances For the Fiscal Years Ended June 30, 2013, 2012, and 2011
2013 2012 2011 Revenues: Property taxes $ 233,537,613 $ 228,768,132 $ 228,288,003 Occupancy taxes 558,116 542,596 483,945 Local option sales taxes 51,508,792 51,528,727 48,333,547 Other taxes 314,099 290,674 271,131 Licenses and permits 867,200 766,104 902,447 Intergovernmental 51,166,575 54,282,727 50,525,874 Charges for services 24,936,829 23,276,406 22,884,593 Investment earnings 106,525 539,304 545,288 Other 8,972,682 12,892,312 8,883,423 Total revenues 371,968,431 372,886,982 361,118,251 Expenditures: General government 36,031,427 36,548,586 36,208,234 Public safety 60,520,345 61,637,544 61,541,449 Environment protection 2,477,195 2,633,817 2,613,354 Human services 70,607,949 70,142,751 68,481,046 Culture and recreation 14,488,772 14,430,037 14,657,631 Community and economic development 2,370,701 5,595,400 1,834,001 Education 698,383 788,811 1,391,488 Intergovernmental: Human services 6,742,601 5,692,674 5,679,583 Education 122,983,166 117,971,849 118,032,212 Debt service: Principal 39,097,635 37,906,327 29,909,022 Interest and fiscal charges 23,839,569 24,560,845 22,645,641 Total expenditures 379,857,743 377,908,641 362,993,661 Revenues over expenditures (7,889,312) (5,021,659) (1,875,410) Other financing sources (uses): Refunding bond issuance 35,090,000 - 50,295,000 Premium on refunding bonds 8,795,717 - 7,503,955 Transfers in Special revenue funds 7,095,195 6,435,266 10,341,558 Capital project funds - 2,351,663 216,000 Transfers out Special revenue funds (2,540,955) (44,925) (44,925) Capital project funds (1,735,000) (1,735,000) (6,369,276) Payment to refunded bond escrow agent (43,562,043) - (57,398,372) Total other financing sources 3,142,914 7,007,004 4,543,940 Revenues and other sources over expenditures and other uses (4,746,398) 1,985,345 2,668,530 Fund balances, beginning of year 148,256,430 146,271,085 143,602,555 Fund balances, end of year $ 143,510,032 $ 148,256,430 $ 146,271,085
The accompanying note is an integral part of this financial statement.
D-42 THIS PAGE LEFT BLANK INTENTIONALLY
D-43
The following budget statements have been compiled from the budget ordinances and related amendments of the County for the fiscal years ended June 30, 2014 and 2015.
D-44 Forsyth County Compiled Budget - Annually Budgeted Funds For the Fiscal Year Ending June 30, 2014
General Fund Estimated revenues: Property taxes$ 228,645,507 Occupancy taxes 450,000 Local option sales taxes 55,932,451 Other taxes 260,970 Total taxes 285,288,928 Licenses and permits 840,880 Intergovernmental 54,767,832 Charges for services 25,219,143 Investment earnings 396,100 Other 11,067,312 Total revenues 377,580,195
Expenditures: Current: General government 42,404,841 Public safety 66,228,304 Environmental protection 2,485,733 Human services 77,379,250 Culture and recreation 15,433,811 Community and economic development 2,657,436 Education 842,137 Intergovernmental: Human services 6,149,637 Education 121,602,187 Debt service: Principal retirement 41,565,057 Interest and other charges 23,353,139 Total expenditures 400,101,532
Excess (deficiency) of revenues over expenditures (22,521,337)
Other financing sources (uses): Operating transfers from other funds: Special Revenue Funds 5,791,172 Capital Projects Funds 1,667,118 Operating transfers to other funds: General Fund - Special Revenue Funds (318,152) Capital Projects Funds (4,970,870) Appropriated fund balances 20,352,069 Total other financing sources (uses) 22,521,337
Estimated revenues and other sources over appropriations and other uses $ -
NOTE: The compiled budget should most closely resemble the financial statements of the most recently audited fiscal year.
D-45 Forsyth County Compiled Budget - Annually Budgeted Funds For the Fiscal Year Ending June 30, 2015
General Fund Estimated revenues: Property taxes$ 228,644,163 Occupancy taxes 560,000 Local option sales taxes 58,006,460 Other taxes 310,970 Total taxes 287,521,593 Licenses and permits 855,737 Intergovernmental 53,694,203 Charges for services 24,638,199 Investment earnings 355,400 Other 11,723,531 Total revenues 378,788,663
Expenditures: Current: General government 46,346,199 Public safety 65,849,014 Environmental protection 2,511,445 Human services 76,318,244 Culture and recreation 15,198,499 Community and economic development 2,611,474 Education 871,858 Intergovernmental: Human services 6,148,706 Education 121,518,261 Debt service: Principal retirement 40,840,433 Interest and other charges 23,490,075 Total expenditures 401,704,208
Excess (deficiency) of revenues over expenditures (22,915,545)
Other financing sources (uses): Operating transfers from other funds: Special Revenue Funds 6,645,319 Capital Projects Funds 2,096,000 Operating transfers to other funds: General Fund - Special Revenue Funds (27,690) Capital Projects Funds (6,802,145) Appropriated fund balances 21,004,061 Total other financing sources (uses) 22,915,545
Estimated revenues and other sources over appropriations and other uses $ -
NOTE: The compiled budget should most closely resemble the financial statements of the most recently audited fiscal year.
D-46 APPENDIX E
Suite 2100 150 Fayetteville Street Raleigh, NC 27601
Mailing Address: Post Office Box 831 Raleigh, NC 27602 Telephone: (919) 755-2100
A LIMITED LIABILITY Fax: (919) 755-2150 PARTNERSHIP Web site: www.wcsr.com
[Proposed Form of Bond Counsel Opinion for Public Improvement Bonds]
November__, 2014
Board of Commissioners for the County of Forsyth, North Carolina
We have examined, as bond counsel to the County of Forsyth, North Carolina (the “County”), existing law, certified copies of such legal proceedings and such other proofs as we have deemed necessary to deliver this opinion, relative to $13,550,000 County of Forsyth, North Carolina General Obligation Public Improvement Bonds, Series 2014, dated their date of delivery (the “Bonds”).
As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation.
Based on such examination we are of the opinion, as of the date hereof and under existing law, that:
1. Such proceedings and proofs show lawful authority for the issuance and sale of the Bonds pursuant to The Local Government Finance Act, Chapter 159, as amended, of the General Statutes of North Carolina.
2. The Bonds constitute valid and binding general obligations of the County, for the payment of the principal of and interest on which all taxable real and tangible personal property within the County is subject to the levy of ad valorem taxes, without limitation as to rate or amount.
3. Assuming continuing compliance by the County with certain covenants to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), regarding, among other matters, use, expenditure and investment of Bond proceeds, and the timely payment of certain investment earnings to the United States Treasury, interest on the Bonds is not includable in the gross income of the owners thereof for purposes of federal income taxation. Interest on the Bonds is not a specific preference item for purposes of the alternative minimum tax imposed by the Code on corporations and other taxpayers, including individuals; however, such interest is includable in determining adjusted current earnings of corporations for purposes of computing the alternative minimum tax imposed by the Code on corporations.
4. Interest on the Bonds is exempt from all State of North Carolina income taxes.
E-1 The Code and other laws of taxation, including the laws of taxation of the State of North Carolina, of other states and of local jurisdictions, may contain other provisions that could result in tax consequences, upon which we render no opinion, as a result of the ownership or transfer of the Bonds or the inclusion in certain computations of interest that is excluded from gross income for purposes of federal and North Carolina income taxation.
The rights of the owners of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore and hereafter enacted to the extent constitutionally applicable, and their enforcement may also be subject to the exercise of judicial discretion in appropriate cases.
We express no opinion herein as to the accuracy, adequacy or completeness of the Official Statement relating to the Bonds.
This opinion is given as of the date hereof, and we assume no obligation to update, revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.
E-2
Suite 2100 150 Fayetteville Street Raleigh, NC 27601
Mailing Address: Post Office Box 831 Raleigh, NC 27602 Telephone: (919) 755-2100
A LIMITED LIABILITY Fax: (919) 755-2150 PARTNERSHIP Web site: www.wcsr.com
[Proposed Form of Bond Counsel Opinion for Library Bonds]
November __, 2014
Board of Commissioners for the County of Forsyth, North Carolina
We have examined, as bond counsel to the County of Forsyth, North Carolina (the “County”), existing law, certified copies of such legal proceedings and such other proofs as we have deemed necessary to deliver this opinion, relative to $34,000,000 County of Forsyth, North Carolina General Obligation Library Bonds, Series 2014, dated their date of delivery (the “Bonds”).
As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation.
Based on such examination we are of the opinion, as of the date hereof and under existing law, that:
1. Such proceedings and proofs show lawful authority for the issuance and sale of the Bonds pursuant to The Local Government Finance Act, Chapter 159, as amended, of the General Statutes of North Carolina.
2. The Bonds constitute valid and binding general obligations of the County, for the payment of the principal of and interest on which all taxable real and tangible personal property within the County is subject to the levy of ad valorem taxes, without limitation as to rate or amount.
3. Assuming continuing compliance by the County with certain covenants to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), regarding, among other matters, use, expenditure and investment of Bond proceeds, and the timely payment of certain investment earnings to the United States Treasury, interest on the Bonds is not includable in the gross income of the owners thereof for purposes of federal income taxation. Interest on the Bonds is not a specific preference item for purposes of the alternative minimum tax imposed by the Code on corporations and other taxpayers, including individuals; however, such interest is includable in determining adjusted current earnings of corporations for purposes of computing the alternative minimum tax imposed by the Code on corporations.
4. Interest on the Bonds is exempt from all State of North Carolina income taxes.
E-3 The Code and other laws of taxation, including the laws of taxation of the State of North Carolina, of other states and of local jurisdictions, may contain other provisions that could result in tax consequences, upon which we render no opinion, as a result of the ownership or transfer of the Bonds or the inclusion in certain computations of interest that is excluded from gross income for purposes of federal and North Carolina income taxation.
The rights of the owners of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore and hereafter enacted to the extent constitutionally applicable, and their enforcement may also be subject to the exercise of judicial discretion in appropriate cases.
We express no opinion herein as to the accuracy, adequacy or completeness of the Official Statement relating to the Bonds.
This opinion is given as of the date hereof, and we assume no obligation to update, revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.
E-4
APPENDIX F
BOOK-ENTRY ONLY SYSTEM
Beneficial ownership interests in the Bonds will be available only in a book-entry system. The actual purchasers of the Bonds (the “Beneficial Owners”) will not receive physical certificates representing their interests in such Bonds purchased. So long as The Depository Trust Company (“DTC”), New York, New York, or its nominee is the registered owner of the Bonds, references in this Official Statement to the registered owners of the Bonds shall mean DTC or its nominee and shall not mean the Beneficial Owners of the Bonds.
The following description of DTC, of procedures and record keeping on beneficial ownership interests in the Bonds, payment of interest and other payments with respect to the Bonds to DTC Participants or to Beneficial Owners, confirmation and transfer of beneficial ownership interests in the Bonds and of other transactions by and between DTC, DTC Participants and Beneficial Owners is based on information furnished by DTC.
DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered bonds registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond certificate will be issued for each maturity of the Bonds of each series, each in the aggregate principal amount of such maturity and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of the Bonds. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each Beneficial Owner is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchases. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive physical certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
F-1
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual identities of the Beneficial Owners of the Bonds; DTC’s records reflect only the identities of the Direct Participants to whose accounts the Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants are responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the County as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting and voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Principal and interest and redemption premiums, if any, on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the County, on each payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC (nor its nominee), the County or the Commission, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, interest and redemption premiums, if any, is the County’s responsibility, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the County. Under such circumstances, in the event that a successor depository is not obtained, Bonds are required to be printed and delivered.
The Commission or the County may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC.
The information in this Appendix concerning DTC and DTC’s book-entry system has been obtained from DTC, and the County takes no responsibility for the accuracy thereof.
The County cannot and does not give any assurances that DTC, Direct Participants or Indirect Participants will distribute to the Beneficial Owners of the Bonds (a) payments of principal of, premium,
F-2 if any, and interest on the Bonds, (b) confirmations of their ownership interests in the Bonds or (c) redemption or other notices sent to DTC or Cede & Co., its partnership nominee, as the registered owner of the bonds, or that they will do so on a timely basis, or that DTC, Direct Participants or Indirect Participants will serve and act in the manner described in this Official Statement.
THE COUNTY HAS NO RESPONSIBILITY OR OBLIGATIONS TO DTC, THE DIRECT PARTICIPANTS, THE INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO (1) THE ACCURACY OR ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT; (2) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OR ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OF, PREMIUM, IF ANY OR INTEREST ON THE BONDS; (3) THE DELIVERY BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER THAT IS REQUIRED OR PERMITTED TO BE GIVEN TO OWNERS OF THE BONDS UNDER THE TERMS OF THE RESOLUTIONS AUTHORIZING THE ISSUANCE OF THE BONDS; AND (4) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS OWNER.
F-3