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HomeMy Public PortalAboutComprehensive Annual Financial Report Year Ended June 30, 2014Comprehensive Annual Financial Report Year Ended June 30, 2014 Town of Hillsborough, North Carolina Tom Stevens Mayor Eric J. Peterson Town Manager Heidi Lamay Finance Director Town of Hillsborough Finance Department Carolyn Glasgow, Assistant Finance Director Robert TeCarr, Financial Analyst Sarah Butcher, Accounts Payable Clerk THIS PAGE LEFT INTENTIONALLY BLANK. Town of Hillsborough, North Carolina TABLE OF CONTENTS Page No. INTRODUCTORY SECTION List of Principal Officials ............................................................................ i Organizational Chart ................................................................................. ii Letter of Transmittal .................................................................................. iii GFOA Certificate of Achievement ............................................................. ix FINANCIAL SECTION Independent Auditors’ Report ................................................................... 1 Management’s Discussion and Analysis .................................................. 5 Exhibit Basic Financial Statements Government-Wide Financial Statements: 1 Statement of Net Position ...................................................................... 19 2 Statement of Activities ........................................................................... 20 Fund Financial Statements: 3 Balance Sheet - Governmental Funds .................................................. 22 4 Statement of Revenues, Expenditures and Changes in Fund Balance - Governmental Funds ........................................................... 23 5 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund ..................................... 25 6 Statement of Net Position - Proprietary Fund ....................................... 26 7 Statement of Revenues, Expenses and Changes in Net Position - Proprietary Fund .................................................................. 27 8 Statement of Cash Flows - Proprietary Fund ........................................ 28 9 Statement of Fiduciary Assets and Liabilities - Special Assessment Debt Agency Fund .......................................................... 30 Notes to Financial Statements .................................................................. 31 Exhibit Required Supplementary Financial Data Law Enforcement Officers’ Special Separation Allowance Required Supplementary Information A-1 Schedule of Funding Progress .............................................................. 71 A-2 Schedule of Employer Contributions ..................................................... 72 Notes to the Required Schedules.......................................................... 72 Town of Hillsborough, North Carolina TABLE OF CONTENTS (Continued) Exhibit Required Supplemental Financial Data (Continued) Page No. Other Postemployment Benefits Required Supplementary Information B-1 Schedule of Funding Progress .............................................................. 73 B-2 Schedule of Employer Contributions ..................................................... 74 Notes to the Required Schedules.......................................................... 74 Schedule Supplementary Information Combining and Individual Fund Financial Statements Section Governmental Funds 1 General Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual .................................. 77 2 Schedule of Revenues and Expenditures Compared with Budget - Riverwalk Phase II Capital Project Fund .............................. 81 3 Schedule of Revenues and Expenditures Compared with Budget - Major General Capital Projects Fund ................................... 82 4 Schedule of Revenues and Expenditures Compared with Budget - Nonmajor General Capital Reserve Fund ............................ 83 5 Combining Balance Sheet - Nonmajor Governmental Funds .............. 84 6 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds ........... 85 7 Schedule of Revenues and Expenditures Compared with Budget - Riverwalk Phase III Capital Project Fund ............................. 86 8 Schedule of Revenues and Expenditures Compared with Budget - Riverwalk CMAQ Capital Project Fund ................................. 87 Enterprise Fund 9 Schedule of Revenues Compared with Budget (Non-GAAP) - Water and Sewer Fund ........................................................................ 88 10 Schedule of Expenditures Compared with Budget (Non- GAAP) - Water and Sewer Fund ......................................................... 89 11 Schedule of Revenues and Expenditures Compared with Budget (Non-GAAP) - Water and Sewer Capital Projects Fund ..................................................................................................... 92 12 Schedule of Revenues and Expenditures Compared with Budget (Non-GAAP) - Water and Sewer Capital Reserve Fund ..................................................................................................... 93 Town of Hillsborough, North Carolina TABLE OF CONTENTS (Continued) Schedule Additional Financial Data Page No. 13 Schedule of Ad Valorem Taxes Receivable ............................................. 97 14 Analysis of Current Tax Levy .................................................................... 98 Table STATISTICAL SECTION Financial Trends Information 1 Net Position by Component ................................................................... 103 2 Changes in Net Position… .................................................................... 104 3 Fund Balances, Governmental Funds................................................... 105 4 Changes in Fund Balances, Governmental Funds ............................... 106 Revenue Capacity Information 5 Program Revenues by Function/Program ............................................. 108 6 Tax Revenues by Source, Governmental Funds .................................. 109 7 Assessed Value and Actual Value of Taxable Property ....................... 110 8 Direct and Overlapping Property Tax Rates ......................................... 111 9 Property Tax Review and Collections ................................................... 112 10 Principal Property Taxpayers ................................................................ 113 11 Water Sold by Type of Customer and In and Out of Town ................... 114 12 Water and Sewer Rates ........................................................................ 115 Debt Capacity Information 13 Ratios of Outstanding Debt by Type ..................................................... 117 14 Ratios of General Bonded Debt Outstanding ........................................ 118 15 Direct and Overlapping Governmental Activities Debt .......................... 119 16 Legal Debt Margin Information .............................................................. 120 Demographic and Economic Information 17 Demographic and Economic Statistics .................................................. 122 18 Principal Employers ............................................................................... 123 19 Full-Time Equivalent City Government Employees by Function/Program ................................................................................. 124 Operating Information 20 Operating Indicators by Function/Program ........................................... 126 21 Capital Asset Statistics by Function/Program ....................................... 127 Town of Hillsborough, North Carolina TABLE OF CONTENTS (Continued) Schedule Page No. COMPLIANCE SECTION Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards .................................................................................. 131 Report on Compliance with Requirements Applicable to Its Major Federal Program and Internal Control over Compliance in Accordance with OMB Circular A-133 and the State Single Audit Implementation Act ......................................................................... 133 Report on Compliance with Requirements Applicable to Its Major State Program and Internal Control over Compliance in Accordance with OMB Circular A-133 and the State Single Audit Implementation Act ......................................................................... 135 15 Schedule of Findings and Questioned Costs ........................................... 137 16 Schedule of Prior Year Audit Findings ...................................................... 141 17 Schedule of Expenditures of Federal and State Awards .......................... 142 INTRODUCTORY SECTION THIS PAGE LEFT INTENTIONALLY BLANK. Town of Hillsborough, North Carolina - i - LIST OF PRINCIPAL OFFICIALS Board of Town Commissioners Tom Stevens, Mayor L. Eric Hallman ................................................................ Mayor Pro Tem Brian J. Lowen .................................................................. Commissioner Evelyn P. Lloyd ................................................................. Commissioner Frances L. Dancy.............................................................. Commissioner Michael F. Gering ............................................................. Commissioner Town Officials Eric J. Peterson, Town Manager Heidi Lamay, Finance Director Emily Bradford, Budget Officer Kenneth Keel, Town Engineer/Utilities Director Katherine Cathey, Town Clerk/Personnel Officer Duane Hampton, Police Chief Margaret Hauth, Planning Director Ken Hines, Public Works Director Catherine Wright, Public Information Officer Jennifer Della Valle, Management Analyst/Assistant PIO Robert Hornik, Town Attorney Town of Hillsborough, North Carolina - ii - ORGANIZATIONAL CHART - iii - December 5, 2014 Honorable Mayor Stevens, Board of Town Commissioners, and Citizens of Hillsborough Hillsborough, North Carolina 27278 The Comprehensive Annual Financial Report of Hillsborough, North Carolina for the fiscal year ended June 30, 2014, is submitted for your review and use. The Town, like all other local governments in the state, is required by state law to publish a complete set of financial statements within four months of the close of each fiscal year. Responsibility for the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the Town. As management, we assert that, to the best of our knowledge, this financial report is complete and reliable in all material respects, and is reported in a manner designed to fairly present the financial position and results of the operations of the governmental and business-type activities. All disclosures necessary to gain the maximum understanding of the Town’s financial affairs have been included. The Town’s management is responsible for establishing and maintaining an internal control structure that is designed to ensure the Town’s assets are protected from loss, theft or misuse, and to ensure adequate accounting data are compiled to allow for the preparation of financial statements which conform with accounting principles generally accepted in the United States of America (GAAP). Since the cost of internal controls should not outweigh their benefits, the Town’s internal control structure has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. North Carolina statutes and the Town’s Ordinance require an annual audit by independent certified public accountants. The accounting firm of Dixon Hughes Goodman LLP, a firm of licensed certified public accountants, was selected and awarded the contract for Fiscal Year 2014. The goal of an independent audit is to provide reasonable assurance that the financial statements are free of material misstatement. An independent audit involves examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and the significant estimates made by management; and evaluating the overall financial statement presentation. Generally accepted accounting principles require that management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This transmittal letter is designed to complement the Management’s Discussion & Analysis and should be read in conjunction with it. The Town’s MD&A can be found immediately following the independent auditor’s report. - iv - THE REPORTING ENTITY AND ITS SERVICES Founded in 1754, Hillsborough, the county seat of Orange County, is located at the intersection of interstates 85 and 40, near several urban centers and universities. The small town setting is six to 30 miles from Chapel Hill, Durham, and Raleigh. Hillsborough’s 6,398 residents have easy access to employment opportunities within the Research Triangle Park area. Within Hillsborough, the economy is centered on government, retail, service providers, and manufacturing. Orange County and the Town of Hillsborough are major local employers. The Town’s historical sites attract a large number of tourists. The Town is operated under the council-manager form of government. Commissioners on the five- member, nonpartisan board serve four-year staggered terms and are elected at large. The mayor, also elected at large, serves a two-year term, chairs the board meetings, and votes when a tie occurs. The Town provides a full range of municipal services, including police, fire inspection and protection, parks, street maintenance, solid waste collection, and cemetery. The Town provides financial support to certain boards, agencies and commissions to assist their efforts in serving citizens. The Town has evaluated its relationship with each of these entities according to criteria established by Governmental Accounting Standards Board Statement 14 and has determined that the Hillsborough Tourism Development Authority and Hillsborough Tourism Board are required to be included in the financial report. The Town operates its own water and sanitary sewer systems. The Town’s water treatment plant has a capacity of three million gallons per day (MGD) and is currently treating an average daily flow of 1.161 MGD. The Town’s water system serves a total population of 14,709, which includes Town residents and customers from outlying areas. The sanitary sewer system has a treatment capacity of 3 MGD, with a current average daily flow of 0.950 MGD. - v - ECONOMIC CONDITIONS AND OUTLOOK The Town of Hillsborough, Orange County and the Research Triangle Park area have experienced limited growth in recent years, but are still considered to be among the most desirable areas of the country to live and work, according to several national surveys. The economy of Hillsborough is diversified with government, manufacturing, wholesale and retail businesses, as well as numerous service providers. Approximately 42.00% of Hillsborough’s tax base is commercial in nature - this is a strong indicator of a healthy and diverse property tax base. Local industries are involved in a range of operations, from simple assembly to complex manufacturing processes resulting in products such as hydraulic equipment, electronic equipment, and computerized medical diagnostic equipment. The Town’s unemployment rate has been below state and national rates over the past 18 years. This trend continued during the current year in which the Town’s unemployment rate, as of June 2014, was 4.8% for Orange County, while the state and national rates were 6.5% and 6.1%, respectively. The Town’s economy is expected to remain stable because of the benefits derived from a lower unemployment rate, a stable employment base, and the March 2004 annexation of a 337-acre mixed-use development called Waterstone. While taking longer to develop than expected, Waterstone is expected to increase the Town’s population by 25% and increase the tax base by 25% over the next seven years. The single-family and townhome developments are expected to start construction and sales in late 2014. Work on the apartment complex is scheduled for 2015. These three residential projects alone will add over 500 residential units and more than 1,000 residents to Hillsborough. U.N.C. Hospitals purchased 90 of the 337 acres in FY09 to construct a $220 million medical use facility. The hospital is scheduled to open in July 2015. The medical office section opened in 2013; this includes administrative offices and a variety of medical services. In addition to the Waterstone development, Hillsborough is seeing growth throughout town. Current projects which are beginning construction include: Corbin Creek Woods (18 units), Forrest Ridge (233 units), and Elfin Pond Townhomes (104 units). The combination of these developments and growth in Waterstone will roughly increase Hillsborough's population by 30% over the next four years. Other projects, commercial and residential, are currently in the planning stages by various developers throughout town. The Town's investment several years ago in the 20-acre lot primarily obtained as a rail station site is strategically located adjacent to both of the rail lines, downtown, Daniel Boone Villages, and the Collins property (138 acres of undeveloped land). This is the planned site for a rail station and potential public-private partnership for development in this area. The Sustainable Cities Design Academy grant award for the Town in early 2014 will provide a concept plan by late 2014 to help with economic development efforts in this area. This encourages the type of infill development that is congruent with the Town's long-term vision, as well as being more sustainable and affordable from a municipal service provision perspective. The stable outlook reflects the continued economic development within the Town and maintenance of the Town’s good financial position. Reserve levels are sufficient and within the Town’s adopted policy. The outlook also reflects the expectation that the Town will effectively manage its debt burden and capital needs. - vi - LONG-TERM FINANCIAL PLANNING AND MAJOR INITIATIVES Each year, the Town prepares a multiyear operational and capital improvement budget. While this is the eighteenth year a multiyear financial planning format has been used; FY08 was the first year that a balanced scorecard system was used to implement and communicate the board’s mission, vision, and strategic priorities. During the year, the Town funded and managed many significant projects including the following:  The Wastewater Plant upgrade began in September 2011. The project is to be completed in two phases. Phase I was substantially completed by June of 2014. Final close-out on the project is anticipated late in 2014. Phase II is estimated to begin construction 7 to 12 years from now. The upgrade is needed due to the limitations in hydraulic capacity and to meet the new Falls Lake nutrient reduction criteria, which will go into effect in 2016.  Completed the second of a four-year $2.0 million street repaving and repair plan. The plan is being funded without debt and uses the Town's Powell Bill (gas tax allocation) and General Fund revenues to pay for the four-year project. The plan addresses (1) the highest priority street repaving and repair needs and, (2) via an updated pavement condition survey in early 2015, will identify the average annual cost and lane miles for repaving, while also decreasing the life cycle costs associated with maintaining the street system.  Riverwalk Phases II and III are scheduled for completion and the grand opening in October 2014 ($2.24 million with annual debt payments of about $128,000 starting in FY14) will run from Allison Street near Occoneechee Mountain east, through downtown, and connect with Orange County’s River Park, passing just south of Cameron Street, and extending west until connection with the Classical American Homes Preservation Trust property near the Historic Occoneechee Speedway and its trail system, ending near Cameron Street. The Trust plans to complete trail and bridge work sometime in the next year or two that will extend the connection to the Speedway, as well as the Mountains to Sea Trail.  Congestion Mitigation and Air Quality (CMAQ) Grant Sidewalk, Pedestrian Safety and Accessibility Project ($124,000) - Pedestrian and bicycle connectors for Nash, Calvin and Allison streets; sidewalk/accessibility; curb, gutter and other improvements; and connections for Gold Park and Riverwalk. This would complete the western connection from Gold Park to Allison Street and add a sidewalk with access trails near Occoneechee Mountain State Natural Area. The project cost of $124,000 to leverage $496,000 of CMAQ funds is scheduled for 2015.  The Town is in the process of addressing future capital facility needs that will be critical in serving Hillsborough's growing population. Land and buildings are being acquired near the current Town Hall that can eventually be used to relocate the Town Hall Annex, Police Department headquarters, and Fire Station that are currently located downtown. All three facilities are outdated, in need of upgrade, and are occupying property that would be better used to compliment current business uses in the downtown district. Town staff is starting work on a space study in early 2015 to help plan for operational facility needs over the next 20 years. The study is critical as a second fire station will soon be needed in the southern part of town. In addition, the current public works facilities are in exceptionally poor shape and located adjacent to the Eno River in the flood plain. - vii -  To address long-term water supply needs and accommodate the type of growth that match the Town's vision, Phase 2 expansion of the West Fork Eno River Reservoir is currently in the design stage. Phase 2 will yield an additional 1.2 million gallons per day of water capacity. Construction must be completed by the end of calendar year 2018 to comply with the current permit. Delay in construction means that new permit requirements could more than double the current $8.6 million estimate for the project. Construction is projected to start in 2016. DEBT ADMINISTRATION Hillsborough’s debt burden is below average, with net overall debt at $811 per capita. There has been no new general bonded debt over the last 17 fiscal years, and no debt service expenditures on general obligation bonded debt have been incurred in the General Fund during the last 17 fiscal years. The Town has avoided a heavy debt load, which has plagued many municipalities, in its General Fund. Debt service costs make up 7.8% of General Fund expenditures. Additionally, no new bonded debt is recorded in the Water and Sewer Fund. A final payment of $14,700 was paid in FY13, with no outstanding as of June 30, 2014. While there is no remaining bond debt, other debt payments account for 10.78% of expenditures. FINANCIAL POLICIES The Town of Hillsborough has adopted a policy to maintain a General Fund balance level between 20% and 60% of operating expenditures, with a target of 33% or the equivalent of four months of operating expenditures. The Town has diversified its investment by security type and institution to avoid incurring unreasonable risks inherent in over-investing in specific instruments, individual financial institutions or maturities. Without exception, no more than 50% of the Town’s total investment portfolio will be invested in a single security type or with a single financial institution. OTHER INFORMATION The Government Finance Officers Association (GFOA) of the United States and Canada awarded a Certificate of Achievement for Excellence in Financial Reporting to the Town of Hillsborough for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2013. The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of a state and local government financial report. To be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized comprehensive annual financial report that conforms to program standards. The annual report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year. The Town of Hillsborough has received a Certificate of Achievement for the last 20 consecutive years (fiscal years ended 1994 through 2013). We believe our current report continues to conform to the Certificate of Achievement program requirements, and we will submit it to the GFOA. - viii - ACKNOWLEDGMENTS We appreciate the assistance and dedication of the Finance Department staff throughout the year, especially during the preparation of this report. We would like to thank all members of the department who contributed to its preparation and to the independent certified public accountants, Dixon Hughes Goodman LLP, for their assistance. The cooperation of each Town department is appreciated, as we work together in conducting the Town’s financial operations. We also express our appreciation to the mayor and the members of the Board of Commissioners for their continued support, guidance, and advice in planning and conducting the financial activities of the Town in a responsible and progressive manner. The Town’s improving financial condition in the General Fund and willingness to address the challenges facing the Water and Sewer Fund are a tribute to that involvement. Respectfully submitted, Heidi Lamay Eric J. Peterson Heidi Lamay Town Manager Finance Director - ix - - x - THIS PAGE LEFT INTENTIONALLY BLANK. FINANCIAL SECTION THIS PAGE LEFT INTENTIONALLY BLANK. - 1 - INDEPENDENT AUDITORS’ REPORT To the Honorable Mayor and Members of the Board of Town Commissioners Town of Hillsborough Hillsborough, North Carolina Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Town of Hillsborough, North Carolina, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the Town of Hillsborough’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of the Hillsborough Tourism Development Authority and the Hillsborough Tourism Board were not audited in accordance with Government Auditing Standards. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall financial statement presentation of the financial statements. - 2 - We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Town of Hillsborough, North Carolina, as of June 30, 2014, and the respective changes in its financial position and cash flows, where appropriate, thereof, and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that Management’s Discussion and Analysis and the Law Enforcement Officers’ Special Separation Allowance and the Other Postemployment Benefits Schedules of Funding Progress and Employer Contributions on pages 5 through 16 and pages 71 through 74, respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of the financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consist of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provided us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Town of Hillsborough’s basic financial statements. The introductory section, combining and individual fund financial statements, budgetary schedules, other schedules, and the statistical section, as well as the schedule of expenditures of federal and state awards as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and the State Single Audit Implementation Act, are presented for purposes of additional analysis and are not a required part of the basic financial statements. - 3 - The combining and individual fund financial statements, budgetary schedules, other schedules and the schedule of expenditures of federal and state awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund financial statements, budgetary schedules, other schedules and the schedule of expenditures of federal and state awards are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The introductory information and the statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 5, 2014, on our consideration of the Town of Hillsborough’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance, and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Town of Hillsborough’s internal control over financial reporting and compliance. High Point, North Carolina December 5, 2014 - 4 - THIS PAGE LEFT INTENTIONALLY BLANK. TOWN OF HILLSBOROUGH, NORTH CAROLINA MANAGEMENT’S DISCUSSION AND ANALYSIS June 30, 2014 - 5 - As management of the Town of Hillsborough (the “Town”), we offer readers of the Town’s financial statements this narrative overview and analysis of the financial activities of the Town for the fiscal year ended June 30, 2014. Readers are encouraged to consider this information in conjunction with additional information furnished in the Town’s financial statements, which follow this narrative. Financial Highlights  The assets of the Town exceeded its liabilities and deferred inflows of resources at the close of the fiscal year by $53,935,109 (net position).  The Town’s total net position increased by $8,296,746 primarily due to infrastructure improvements, an increase in the sewer rates and developer-paid capital facility fees in the business-type activities net position.  As of the close of the current fiscal year, the Town’s governmental funds reported ending fund balances of $7,075,105, a net increase of $646,081 in comparison to the prior year. This is the result of increased revenues over budget. Approximately 29% of this total amount or $2,027,354 is nonspendable, or restricted.  At the end of the current fiscal year, unassigned fund balance for the General Fund was $4,151,581, or 54.6% of total General Fund expenditures, including other financing uses, for the fiscal year.  The Town’s total debt increased by $2,376,588 during the current fiscal year. The Town had additional borrowing on revolving loans payable of $2,472,930 and installment purchases of $2,727,143. These additional borrowings were offset by retirement of $2,838,631 in existing debt during the year.  The Town maintained its A2 (Moody’s Investor Service) and A (Standard & Poor’s) bond ratings for the 20th consecutive year. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the Town of Hillsborough’s basic financial statements. The Town’s basic financial statements consist of 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 Town through the use of government-wide statements and fund financial statements. In addition to the basic financial statements, this report contains other supplemental information that will enhance the reader’s understanding of the financial condition of the Town of Hillsborough. TOWN OF HILLSBOROUGH, NORTH CAROLINA MANAGEMENT’S DISCUSSION AND ANALYSIS June 30, 2014 - 6 - Required Components of Annual Financial Report Figure 1 Basic Financial Statements The first two statements (Exhibits 1 and 2) in the basic financial statements are the Government- Wide Financial Statements. They provide both short- and long-term information about the Town’s financial status. The next statements (Exhibits 3 through 9) are Fund Financial Statements. These statements focus on the activities of the individual parts of the Town’s government. These statements provide more detail than the government-wide statements. There are four parts to the Fund Financial Statements: (1) the governmental funds statements; (2) the budgetary comparison statements; (3) the proprietary fund statements; and (4) the fiduciary fund statements. The next section of the basic financial statements is the notes section. The notes to the financial statements explain in detail some of the data contained in those statements. After the notes, supplemental information is provided to show details about the Town’s individual funds. Budgetary information required by the General Statutes also can be found in this part of the statements. Management’s Discussion and Analysis Basic Financial Statements Notes to the Financial Statements Fund Financial Statements Government-Wide Financial Statements Summary Detail TOWN OF HILLSBOROUGH, NORTH CAROLINA MANAGEMENT’S DISCUSSION AND ANALYSIS June 30, 2014 - 7 - Government-Wide Financial Statements The government-wide financial statements are designed to provide the reader with a broad overview of the Town’s finances, similar in format to the financial statements of a private-sector business. The government-wide statements provide short-and long-term information about the Town’s financial status as a whole. The two government-wide statements report the Town’s net position and how they have changed. Net position is the difference between the Town’s total assets and total liabilities and deferred inflows of resources. Measuring net position is one way to evaluate the Town’s financial condition. The government-wide statements are divided into three categories: (1) governmental activities; (2) business-type activities; and (2) component units. The governmental activities include most of the Town’s basic services such as public safety, fire, street maintenance, solid waste collection, cemetery and general administration. Property taxes and state and federal grant funds finance most of these activities. The business-type activities are those that the Town charges customers to provide. These include the water and sewer services offered by the Town. The final category is the component units. Although legally separate from the Town, the Tourism Development Authority and the Tourism Board are important to the Town. The Town exercises control over these entities by appointing its members and remits a percentage of taxes collected to each of these entities. The government-wide financial statements are on pages 19 through 21 of this report. Fund Financial Statements The fund financial statements (see Figure 1) provide a more detailed look at the Town’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. The Town of Hillsborough, like all other governmental entities in North Carolina, uses fund accounting to ensure and reflect compliance (or noncompliance) with finance-related legal requirements, such as the General Statutes or the Town’s budget ordinance. All of the funds of the Town 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. Most of the Town’s basic services are accounted for in governmental funds. These funds focus on how assets can readily be converted into cash flow in and out, and what monies are left 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 that provides a short-term spending 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 Town’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 a reconciliation that is a part of the fund financial statements. TOWN OF HILLSBOROUGH, NORTH CAROLINA MANAGEMENT’S DISCUSSION AND ANALYSIS June 30, 2014 - 8 - The Town of Hillsborough adopts an annual budget for its General Fund, as required by the General Statutes. The budget is a legally adopted document that incorporates input from the citizens of the Town, the management of the Town, and the decisions of the Board about which services to provide and how to pay for them. It also authorizes the Town to obtain funds from identified sources to finance these current-period activities. The budgetary statement provided for the General Fund demonstrates how well the Town complied with the budget ordinance and whether or not the Town succeeded in providing the services as planned when the budget was adopted. The budgetary comparison statement uses the budgetary basis of accounting and is presented using the same format, language, and classifications as the legal budget document. The statement 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. To account for the difference between the budgetary basis of accounting and the modified accrual basis, a reconciliation showing the differences in the reported activities is shown at the end of the budgetary statement. Proprietary Funds - The Town of Hillsborough has one type of proprietary fund. Enterprise Funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The Town uses enterprise funds to account for its water and sewer activity. These funds are the same as those functions shown in the business-type activities in the Statement of Net Position and the Statement of Activities. Fiduciary Funds – Fiduciary funds are used to account for resources held for the benefit of parties outside of the government. The Town of Hillsborough has one fiduciary fund, which is an agency fund. 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 31 through 67 of this report. Other Information - In addition to the basic financial statements and accompanying notes, this report includes certain required supplementary information concerning the Town’s progress in funding its obligation to provide pension benefits to its employees. Required supplementary information can be found beginning on page 71 of this report. Interdependence with Other Entities – The Town depends on financial resources flowing from, or associated with, both the federal government and the State of North Carolina. Because of this dependency, the Town is subject to changes in specific flows of intergovernmental revenues based on modifications to federal and state laws and federal and state appropriations. TOWN OF HILLSBOROUGH, NORTH CAROLINA MANAGEMENT’S DISCUSSION AND ANALYSIS June 30, 2014 - 9 - 2014 2013 2014 2013 2014 2013 Current assets 8,346,930$ 7,183,439$ 10,566,525$ 8,657,753$ 18,913,455$ 15,841,192$ Other assets 19,673 23,548 - - 19,673 23,548 Capital assets, net 14,504,644 9,832,147 49,452,191 46,922,155 63,956,835 56,754,302 Total assets 22,871,247 17,039,134 60,018,716 55,579,908 82,889,963 72,619,042 Long-term liabilities outstanding 3,825,096 2,929,625 21,676,034 20,205,653 25,501,130 23,135,278 Other liabilities 1,560,803 1,113,188 1,865,115 2,681,756 3,425,918 3,794,944 Total liabilities 5,385,899 4,042,813 23,541,149 22,887,409 28,927,048 26,930,222 Deferred inflows of resources 27,806 26,909 - - 27,806 26,909 Net position: Net investment in capital asset 10,924,631 6,723,808 27,110,293 26,017,050 38,034,924 32,740,858 Restricted 1,700,808 1,831,742 2,591,211 2,590,989 4,292,019 4,422,731 Unrestricted 4,832,103 4,390,314 6,776,063 4,084,460 11,608,166 8,474,774 Total net position 17,457,542$ 12,945,864$ 36,477,567$ 32,692,499$ 53,935,109$ 45,638,363$ Governmental Activities Business-Type Activities Total Government-Wide Financial Analysis The Town of Hillsborough’s Net Position Figure 2 As noted earlier, net position may serve over time as one useful indicator of a government’s financial condition. The assets of the Town of Hillsborough exceeded liabilities and deferred inflows of resources by $53,935,109 as of June 30, 2014. The Town’s net position increased by $8,296,746 for the fiscal year ended June 30, 2014. However, the largest portion (70.52%) reflects the Town’s net investment in capital assets (e.g., land, buildings, machinery, equipment, distribution and collection systems and infrastructure, less any related debt still outstanding that was issued to acquire those items). The Town uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the Town’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 portion of the Town of Hillsborough’s net position, $4,292,019 (7.96%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of $11,608,166 (21.52%) is unrestricted and may be used to meet the Town’s ongoing obligation to citizens and creditors. TOWN OF HILLSBOROUGH, NORTH CAROLINA MANAGEMENT’S DISCUSSION AND ANALYSIS June 30, 2014 - 10 - Several particular aspects of the Town’s financial operations positively influenced the total unrestricted governmental net position:  Continued diligence in the collection of property taxes by maintaining a tax collection percentage of 98.1%, which is comparable to the 2013 statewide average of 97.5%.  Numerous cost savings measures implemented by all departments.  Many departments finishing the year with expenditures under budget.  Increase to the sewer rate yielding higher than expected revenues.  Continued low cost of debt due to the Town’s good bond rating and low interest rates. The Town of Hillsborough’s Changes in Net Position Figure 3 2014 2013 2014 2013 2014 2013 Revenues: Program revenues: Charges for services 144,942$ 341,181$ 9,025,607$ 7,686,356$ 9,170,549$ 8,027,537$ Operating grants and contributions 316,576 175,347 - - 316,576 175,347 Capital grants and contributions 3,741,958 334,525 1,028,171 - 4,770,129 334,525 General revenues: Property taxes 5,404,126 5,142,069 - - 5,404,126 5,142,069 Local option sales taxes 1,114,306 1,072,463 - - 1,114,306 1,072,463 Gross receipts on short-term rental property 7,117 9,535 - - 7,117 9,535 Privilege licenses 43,891 96,469 - - 43,891 96,469 Motor vehicle license fees 31,420 47,054 - - 31,420 47,054 Solid waste disposal 2,451 3,904 - - 2,451 3,904 Unrestricted intergovernmental revenues 809,190 734,401 - - 809,190 734,401 Other 42,108 30,263 2,601 4,177 44,709 34,440 Total revenues 11,658,085 7,987,211 10,056,379 7,690,533 21,714,464 15,677,744 Expenses: General government 1,524,025 1,301,963 - - 1,524,025 1,301,963 Public safety 3,619,529 3,395,465 - - 3,619,529 3,395,465 Transportation 500,491 497,540 - - 500,491 497,540 Environmental protection 833,623 580,312 - - 833,623 580,312 Economic and physical development 367,389 485,977 - - 367,389 485,977 Community activities and projects 119,251 64,878 - - 119,251 64,878 Parks and recreation 55,849 36,267 - - 55,849 36,267 Interest on long-term debt 126,250 105,022 - - 126,250 105,022 Water and sewer - - 6,271,311 6,279,271 6,271,311 6,279,271 Total expenses 7,146,407 6,467,424 6,271,311 6,279,271 13,417,718 12,746,695 Increase in net position 4,511,678 1,519,787 3,785,068 1,411,262 8,296,746 2,931,049 Beginning net position 12,945,864 11,426,077 32,692,499 31,281,237 45,638,363 42,707,314 Net position, June 30 17,457,542$ 12,945,864$ 36,477,567$ 32,692,499$ 53,935,109$ 45,638,363$ Business-Type Activities TotalGovernmental Activities TOWN OF HILLSBOROUGH, NORTH CAROLINA MANAGEMENT’S DISCUSSION AND ANALYSIS June 30, 2014 - 11 - Governmental Activities. Governmental activities increased the Town’s net position by $4,511,678, thereby accounting for 54.38% of the total growth in the net position of the Town of Hillsborough. Key elements of this increase are as follows:  Contribution of $3,050,033 of capital assets during the year.  Increased property tax revenue due to changes in state law for property taxes on registered motor vehicles. Business-Type Activities. Business-type activities increased the Town’s net position by $3,785,068, accounting for 45.62% of the total growth in the government’s net position. Key elements of this increase are as follows:  An increase in sewer revenue resulting from a sewer rate increase of 8.8%.  Increases in water and sewer facility fees due to increased development activity.  Contributions of capital assets in the amount of $1,028,171.  Cost-cutting measures resulting in lower than expected expenses. Financial Analysis of the Town of Hillsborough’s Funds As noted earlier, the Town of Hillsborough uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds. The focus of the Town’s governmental funds is on providing information on near-term inflows, outflows, and balances of usable resources. Such information is useful in assessing the Town’s financing requirements. The General Fund is the chief operating fund of the Town. At the end of the current fiscal year, the Town of Hillsborough’s fund balance available in the General Fund was $5,125,070, while total fund balance reached $6,117,466. The Governing Body of the Town of Hillsborough has determined that the Town should maintain an available fund balance of 20% to 60% (with a targeted or preferred goal of 33%) of general fund expenditures in case of unforeseen needs or opportunities, in addition to meeting the cash flow needs of the Town. The Town currently has fund balance available for appropriation of 67.2% of general fund expenditures, while total fund balance represents 80.2% of the same amount. At June 30, 2014, the governmental funds of the Town reported a combined fund balance of $7,075,105, with a net increase in fund balance of $646,081. This increase is partially related to property taxes, which increased $293,645 from last year. The increase in property taxes was driven mostly by changes in state law related to property taxes on registered motor vehicles. In addition, proceeds from installment debt obligations for certain construction projects have outpaced the construction activity. TOWN OF HILLSBOROUGH, NORTH CAROLINA MANAGEMENT’S DISCUSSION AND ANALYSIS June 30, 2014 - 12 - General Fund Budgetary Highlights. During the fiscal year, the Town 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. The difference between the original budget and the final budget is attributed in part to the following:  $34,000 was saved by delaying conceptual design on rail station.  $615,369 was saved by delaying acquisition of two properties, 604 and 618 N. Churton Street.  $194,783 was saved with lower than anticipated street-resurfacing costs.  $58,171 was saved by delaying the purchase of two patrol cars. Actual operating revenues for the General Fund were more than the budgeted amount by $785,545. Expenditures were $1,201,076 less than budgeted, primarily due to the delaying of purchases and bids coming in lower than anticipated. Proprietary Funds. The Town’s proprietary funds provide the same type of information found in the government-wide statements, but in more detail. Unrestricted net position of the Water and Sewer Activities at the end of the fiscal year amounted to $6,776,063, a 65.09% or $2,691,603 increase from the previous year. The increase is largely contributed to revenues exceeding expenditures in the current year. The total growth in net position was $3,785,068. Other factors concerning the fund’s finances have been addressed in the discussion of the Town’s business-type activities. Capital Asset and Debt Administration Capital Assets. The Town’s investment in capital assets for its governmental and business-type activities as of June 30, 2014 totals $63,956,835 (net of accumulated depreciation). These assets include buildings, land, machinery and equipment, infrastructure, park facilities and vehicles. Major capital asset transactions during the year include the following:  The continued construction of the Wastewater Treatment Plant ($1,834,892)  The continued development of Riverwalk Phase II ($1,536,175)  Street resurfacing ($433,222) Major developer-dedicated capital asset transactions during the year include the following:  Acquisition of Waterstone streets ($1,183,844)  Acquisition of Woodsedge pump station and outfall ($389,664)  Acquisition of Cates Creek outfall - Phase 2 ($485,817)  Acquisition of various infrastructure ($2,019,379) TOWN OF HILLSBOROUGH, NORTH CAROLINA MANAGEMENT’S DISCUSSION AND ANALYSIS June 30, 2014 - 13 - The Town of Hillsborough’s Capital Assets (Net of Accumulated Depreciation) Figure 4 2014 2013 2014 2013 2014 2013 Land 2,672,428$ 2,672,428$ 6,005,443$ 6,005,443$ 8,677,871$ 8,677,871$ Construction in progress 2,179,190 559,883 19,796,803 17,982,370 21,975,993 18,542,253 Buildings and improvements 2,815,842 2,951,288 2,078,652 2,163,115 4,894,494 5,114,403 Plant and distribution systems - - 20,724,837 19,992,834 20,724,837 19,992,834 Infrastructure 6,003,162 2,647,821 492,676 352,683 6,495,838 3,000,504 Equipment 84,798 100,053 257,636 322,361 342,434 422,414 Vehicles 749,224 877,126 96,144 103,349 845,368 980,475 Total 14,504,644$ 9,808,599$ 49,452,191$ 46,922,155$ 63,956,835$ 56,730,754$ Governmental Activities Business-Type Activities Total Additional information on the Town’s capital assets can be found in Note 4.A.5. of the basic financial statements. Long-Term Debt. As of June 30, 2014, the Town of Hillsborough had no outstanding bonded debt. The Town’s debt represents revolving loans payable and installment purchases secured solely by revenues of the project or specified purchases. The Town of Hillsborough’s Outstanding Debt General Obligation Bonds, Revolving Loans Payable and Installment Purchases Figure 5 2014 2013 2014 2013 2014 2013 Revolving loan payable -$ -$ 18,644,077$ 16,247,369$ 18,644,077$ 16,247,369$ Deferred amount on refundings - - (54,277) (69,423) (54,277) (69,423) Installment purchases 4,024,586 3,084,791 3,939,307 4,914,368 7,963,893 7,999,159 Total 4,024,586$ 3,084,791$ 22,529,107$ 21,092,314$ 26,553,693$ 24,177,105$ Governmental Activities Business-Type Activities Total The Town’s total debt increased by $2,376,588 during the current fiscal year, primarily due to the revolving loans payable for Riverwalk Phases II and III. As mentioned in the financial highlights section of this document, the Town maintained, for the 19th consecutive year, its A2 bond rating from Moody’s Investor Service and A rating from Standard and Poor’s Corporation. This bond rating is a clear indication of the sound financial condition of the Town of Hillsborough. This achievement is a primary factor in keeping interest costs low on the Town’s outstanding debt. TOWN OF HILLSBOROUGH, NORTH CAROLINA MANAGEMENT’S DISCUSSION AND ANALYSIS June 30, 2014 - 14 - North Carolina General Statutes limit 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 legal debt margin for the Town of Hillsborough is $58,836,614. The Town does not have any bonds authorized but unissued at June 30, 2014. Additional information regarding the Town’s long-term debt can be found in Note 4.B.8 of the basic financial statements. Economic Factors and Next Year’s Budgets and Rates The following key economic indicators reflect the stability and prosperity of the Town of Hillsborough.  Low unemployment. Orange County’s unemployment rate of 4.8% as of June 30, 2014, is well below the state average of 6.5%.  Water/sewer rate increase. In the new fiscal year, beginning July 1, 2014, the water rate remained the same and the sewer rate increased by 8.8%.  No increase in property tax rate. The property tax rate will not increase in FY15.  No general obligation debt in the General Fund. Budget Highlights for the Fiscal Year Ending June 30, 2015 Governmental Activities: With new development starting to ramp up in FY14 and an increase expected for FY15, forecasts for the primary sources of revenue (e.g., property and sales tax) were calculated using a 1% growth factor. As in prior years, the Town’s budget development was guided by three principles: (1) take care of what we’ve got; (2) invest in Hillsborough’s future; and (3) minimize rate impacts on the citizens/customers. Original budgeted operational expenditures in the General Fund were expected to increase 15.66% to $8,770,269 over FY14 original budget. Appropriated fund balance of $782,995 was recommended to balance the FY 2015 budget. The largest increments are in employee compensation, including funding compensation and benefits adjustments, two new positions, street repair, and the first year of debt service on Riverwalk Phases II and III. TOWN OF HILLSBOROUGH, NORTH CAROLINA MANAGEMENT’S DISCUSSION AND ANALYSIS June 30, 2014 - 15 - The Town started a major four-year street resurfacing program in FY13, estimated at $2 million, to address key needs and avoid escalating repair costs. For Year 3 of the plan, the Town anticipates spending $529,000, plus $210,000 in unused funds from FY14 due to lower than expected bids, to improve the highest priority streets. Other budget highlights in brief:  Expenses to increase by 3.9%  Merit system budgeted at 3.25% average raise for employees  Debt payments for Riverwalk Phases II and III $176,520 annually  Pedestrian/vehicular downtown access improvements: $120,000 plus $375,000 in NCDOT contributions. Business-Type Activities: Water rates will not increase in 2015, while sewer rates will increase by 8.8% to cover loan payments associated with the wastewater treatment expansion in FY15. Original budgeted operational expenditures in the Water/Sewer Fund are expected to increase by 13.07% to $9,524,302 over FY 2014 original budget. Actual expenditures for FY 2014 were $750,669 under budget, primarily due to debt financing the entire South Zone Water Tank rather than using capital reserve fees to reduce the debt issuance amount. Debt service payments will begin in FY15 with the capital reserve funds being used to cover the payments for the first few years. Many cuts and deferments were made to this year’s budget to avoid a more significant rate increase and to limit the further use of net position. It was determined through an engineering and financial analysis in early 2007 that it is considerably more cost effective for Hillsborough to upgrade and expand its wastewater treatment plant, which is more than 35 years old, than to pipe the Town’s wastewater to the City of Durham for treatment ($17.5 million vs. $108 million). Now a $19.2 million upgrade/expansion, this project is critical, as the Town must meet new, more stringent nitrogen discharge limits into the local Eno River. The design work was completed in FY11 and construction started midyear FY12. Construction was completed in January 2014. TOWN OF HILLSBOROUGH, NORTH CAROLINA MANAGEMENT’S DISCUSSION AND ANALYSIS June 30, 2014 - 16 - The Town continues work to correct sewer inflow and infiltration problems ($50,000 annually). This project is critical, as inflow and infiltration create a variety of serious issues, such as decreased plant treatment capacity, pump station overflows, lower quality treatment of discharged water and increased operational costs. Other budget highlights in brief:  Wastewater Treatment Plant expansion loan repayment beings in FY15 with annual debt service of $1.46 million.  Continue design work on West Fork Eno Reservoir Phase II expansion ($600,000). Design began in FY14 ($200,000).  Elimination of two Wastewater Treatment Plant positions (savings of $118,000). Efficiency improvements eliminate need for overnight shifts.  Merit system budgeted at 3.25% average raise for employees.  High-deductible health insurance alternative offered at no cost to employees and given initial monies for deposit to health savings account. Employees who elect to stay on existing health will pay 5 percent of the cost. Requests for Information This report is designed to provide an overview of the Town’s finances. Questions concerning any of the information found in this report or requests for additional information should be directed to the Director of Finance, Town of Hillsborough, 137 North Churton Street, Post Office Box 429, Hillsborough, North Carolina 27278. - 17 - BASIC FINANCIAL STATEMENTS - 18 - THIS PAGE LEFT INTENTIONALLY BLANK. Exhibit 1 Hillsborough Tourism Hillsborough Governmental Business-Type Development Tourism ASSETS Activities Activities Total Authority Board Current assets: Cash and investments 5,778,941$ 6,253,361$ 12,032,302$ 80,015$ 183,436$ Receivables: Taxes receivable, net 158,716 - 158,716 - - Accrued interest receivable, property taxes 8,164 - 8,164 - - Accounts receivable, net 43,908 1,135,876 1,179,784 - - Due from other governments 1,018,989 - 1,018,989 - - Due from primary government - - - 37,041 48,036 Prepaid expenses 9,129 4,345 13,474 - 788 Restricted assets Cash and investments 1,329,083 3,172,943 4,502,026 - - Total current assets 8,346,930 10,566,525 18,913,455 117,056 232,260 Noncurrent assets: Net pension asset 19,673 - 19,673 - - Capital assets: Land and construction-in-progress 4,851,618 25,802,246 30,653,864 - - Other capital assets, net of depreciation 9,653,026 23,649,945 33,302,971 - - Total capital assets 14,504,644 49,452,191 63,956,835 - - Total noncurrent assets 14,524,317 49,452,191 63,976,508 - - Total assets 22,871,247 60,018,716 82,889,963 117,056 232,260 LIABILITIES Current liabilities: Accounts payable and accrued liabilities 716,157 273,226 989,383 - 18,388 Payable from restricted assets - customer deposits 103,942 394,523 498,465 Accrued interest payable 34,430 21,856 56,286 - - Due to component units 85,077 - 85,077 - - Current portion of long-term liabilities 621,197 1,175,510 1,796,707 - - Total current liabilities 1,560,803 1,865,115 3,425,918 - 18,388 Long-term liabilities: Due in more than one year 3,825,096 21,676,034 25,501,130 - - Total liabilities 5,385,899 23,541,149 28,927,048 - 18,388 DEFERRED INFLOWS OF RESOURCES 27,806 - 27,806 - - NET POSITION Net investment in capital assets 10,924,631 27,110,293 38,034,924 - - Restricted for: Stabilization by state statute 920,240 - 920,240 37,041 48,036 Streets 190,494 - 190,494 - - Travel and tourism - - - - - Capital projects 590,074 - 590,074 - - Water and sewer projects - 2,591,211 2,591,211 - - Unrestricted 4,832,103 6,776,063 11,608,166 80,015 165,836 Total net position 17,457,542$ 36,477,567$ 53,935,109$ 117,056$ 213,872$ TOWN OF HILLSBOROUGH, NORTH CAROLINA STATEMENT OF NET POSITION June 30, 2014 Primary Government Component Units The accompanying notes are an integral part of this statement. - 19 - Operating Capital Charges Grants and Grants and Functions/Programs Expenses for Services Contributions Contributions Primary government: Governmental activities: General government 1,524,025$ 126,909$ 4,294$ 1,257,734$ Public safety 3,619,529 13,893 - - Transportation 500,491 - 312,282 - Environmental protection 833,623 - - 2,059,224 Economic and physical development 367,389 - - - Community activities and projects 119,251 - - - Parks and recreation 55,849 4,140 - 425,000 Interest on long-term obligations 126,250 - - - Total governmental activities 7,146,407 144,942 316,576 3,741,958 Business-type activities: Water and sewer 6,271,311 9,025,607 - 1,028,171 Total business-type activities 6,271,311 9,025,607 - 1,028,171 Total primary government 13,417,718$ 9,170,549$ 316,576$ 4,770,129$ Component units: Hillsborough Tourism Development Authority 3,765$ -$ -$ -$ Hillsborough Tourism Board 302,155 - - - Total component units 305,920$ -$ -$ -$ General revenues: Taxes: Property taxes, levied for general purposes Local option sales taxes Gross receipts on short-term rental property Privilege licenses Motor vehicle license fees Solid waste disposal Unrestricted intergovernmental revenues Investment earnings, unrestricted Payment from Town of Hillsborough Miscellaneous Total general revenues not including transfers Transfers Total general revenues and transfers Change in net position Net position - beginning Net position - ending Program Revenues TOWN OF HILLSBOROUGH, NORTH CAROLINA STATEMENT OF ACTIVITIES Year Ended June 30, 2014 The accompanying notes are an integral part of this statement. - 20 - Exhibit 2 Tourism Governmental Business-Type Development Tourism Activities Activities Total Authority Board (135,088)$ -$ (135,088)$ (3,605,636) - (3,605,636) (188,209) - (188,209) 1,225,601 - 1,225,601 (367,389) - (367,389) (119,251) - (119,251) 373,291 - 373,291 (126,250) - (126,250) (2,942,931) - (2,942,931) - 3,782,467 3,782,467 - 3,782,467 3,782,467 (2,942,931) 3,782,467 839,536 (3,765)$ -$ - (302,155) (3,765) (302,155) 5,404,126 - 5,404,126 - - 1,114,306 - 1,114,306 - - 7,117 - 7,117 - - 43,891 - 43,891 - - 31,420 - 31,420 - - 2,451 - 2,451 - - 809,190 - 809,190 - - 2,209 2,601 4,810 - 10 - - - 67,558 301,976 39,899 - 39,899 - 29,665 7,454,609 2,601 7,457,210 67,558 331,651 - - - - - 7,454,609 2,601 7,457,210 67,558 331,651 4,511,678 3,785,068 8,296,746 63,793 29,496 12,945,864 32,692,499 45,638,363 53,263 184,376 17,457,542$ 36,477,567$ 53,935,109$ 117,056$ 213,872$ Primary Government Component Units Net Revenue (Expense) and Changes in Net Position - 21 - Exhibit 3 Riverwalk Consolidated Phase II General Capital Capital Total Total Project Projects Nonmajor Governmental ASSETS General Fund Fund Funds Funds Cash and investments 5,665,766$ -$ 7,070$ 106,105$ 5,778,941$ Taxes receivable 158,716 - - - 158,716 Accounts receivable, net 43,908 - - - 43,908 Prepaid items 72,156 - - - 72,156 Due from other governments 976,533 42,456 - - 1,018,989 Restricted assets Cash and investments 294,436 223,236 590,074 221,337 1,329,083 Total assets 7,211,515$ 265,692$ 597,144$ 327,442$ 8,401,793$ LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES LIABILITIES Accounts payable and accrued liabilities 525,974$ 187,077$ -$ 3,106$ 716,157$ Payable from restricted assets - customer deposits 103,942 - - - 103,942 Due to component units 85,077 - - - 85,077 Total liabilities 714,993 187,077 - 3,106 905,176 DEFERRED INFLOWS OF RESOURCES 379,056 42,456 - - 421,512 FUND BALANCES Nonspendable Prepaid items 72,156 - - - 72,156 Restricted for: Stabilization by state statute 920,240 - - - 920,240 Streets 190,494 - - - 190,494 Capital projects - 36,159 590,074 218,231 844,464 Committed for: Capital projects - - - 106,105 106,105 Assigned for: Subsequent year’s expenditures 782,995 - - - 782,995 Unassigned 4,151,581 - 7,070 - 4,158,651 Total fund balances 6,117,466 36,159 597,144 324,336 7,075,105 Total liabilities, deferred inflows of resources and fund balances 7,211,515$ 265,692$ 597,144$ 327,442$ Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and therefore not reported in the funds.14,504,644 Liabilities for earned but deferred revenues in the fund statements, including accrued interest receivable on property taxes.401,870 Some assets, including net pension asset are reported in governmental activities, but not reported in the fund statements.19,673 Prepaid expenses in the fund statements for debt service payments that represent a reduction of long-term obligations in governmental activities.(63,027) Some liabilities, including accrued interest, are not due and payable in the current period, and therefore are not reported in the funds.(4,480,723) Net position of governmental activities 17,457,542$ TOWN OF HILLSBOROUGH, NORTH CAROLINA BALANCE SHEET - GOVERNMENTAL FUNDS June 30, 2014 Major Funds The accompanying notes are an integral part of this statement. - 22 - Exhibit 4 Page 1 of 2 Riverwalk Consolidated Phase II General Capital Capital Total Total Project Projects Nonmajor Governmental General Fund Fund Funds Funds Revenues General revenues Ad valorem taxes 5,429,114$ -$ -$ -$ 5,429,114$ Other taxes and licenses 1,199,185 - - - 1,199,185 Unrestricted intergovernmental revenues 809,190 - - - 809,190 Restricted intergovernmental revenues 386,172 382,544 - - 768,716 Investment earnings 1,854 234 74 47 2,209 Other general revenues 48,337 - - - 48,337 Total general revenues 7,873,852 382,778 74 47 8,256,751 Functionally related revenues Use and rental fees 140,802 - - - 140,802 Total revenues 8,014,654 382,778 74 47 8,397,553 Expenditures General government 1,354,095 - 1,445,207 - 2,799,302 Public safety 3,455,438 - - - 3,455,438 Transportation 851,502 - - - 851,502 Environmental protection 806,210 - 52 - 806,262 Economic and physical development 367,389 - - - 367,389 Community activities and projects 119,251 - - - 119,251 Parks and recreation 55,850 1,536,175 - 83,131 1,675,156 Debt service Principal retirement 474,458 - - - 474,458 Interest and fiscal charges 118,711 - - - 118,711 Total expenditures 7,602,904 1,536,175 1,445,259 83,131 10,667,469 Revenues over (under) expenditures 411,750 (1,153,397) (1,445,185) (83,084) (2,269,916) Other financing sources (uses) Transfers to General Fund - - (126,054) - (126,054) Transfers from General Fund - - - 43,000 43,000 Transfer from General Capital Reserve Fund 126,054 - - - 126,054 Transfer to Riverwalk Phase III Fund (43,000) - - - (43,000) Contribution from property owners - - 1,445,207 - 1,445,207 Proceeds of refunding installment purchases 1,277,143 - - - 1,277,143 Debt service - principal on refunding (1,256,353) - - - (1,256,353) Installment purchase obligations issued - 1,210,000 - 240,000 1,450,000 Total other financing sources 103,844 1,210,000 1,319,153 283,000 2,915,997 Net change in fund balances 515,594 56,603 (126,032) 199,916 646,081 Fund balances, beginning 5,601,872 (20,444) 723,176 124,420 6,429,024 Fund balances, ending 6,117,466$ 36,159$ 597,144$ 324,336$ 7,075,105$ Major Funds Year Ended June 30, 2014 TOWN OF HILLSBOROUGH, NORTH CAROLINA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUNDS The accompanying notes are an integral part of this statement. - 23 - Exhibit 4 Page 2 of 2 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities: Net change in fund balances - total governmental funds 646,081$ Amounts reported for governmental activities in the statement of activities are different because: 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 ($2,246,332) exceeded depreciation ($600,819) in the current period.1,645,513 The net effect of transactions involving capital assets donated to the Town. 3,050,533 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Change in deferred revenues related to property taxes. (24,988) Change in deferred revenues related to grants receivable. 234,991 The repayment of the principal of long-term debt ($1,730,811) consumes the current financial resources of governmental funds. This transaction has no effect on net position.1,730,811 The issuance of the principal of long-term debt ($2,727,143) provides current financial resources to governmental funds. This transaction has no effect on net position.(2,727,143) Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Change in accrued and prepaid interest on general long-term debt (7,542) Compensated absences 2,112 Net pension obligation (3,875) Net OPEB obligation (34,815) Changes in net position of governmental activities 4,511,678$ TOWN OF HILLSBOROUGH, NORTH CAROLINA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUNDS Year Ended June 30, 2014 The accompanying notes are an integral part of this statement. - 24 - Exhibit 5 Variance Original Final Positive Budget Budget Actual (Negative) Revenues General revenues Ad valorem taxes 5,119,000$ 5,132,000$ 5,429,114$ 297,114$ Other taxes and licenses 1,072,200 1,072,484 1,199,185 126,701 Unrestricted intergovernmental revenues 630,000 659,964 809,190 149,226 Restricted intergovernmental revenues 165,150 204,814 386,172 181,358 Investment earnings 2,500 2,500 1,854 (646) Other general revenues 15,000 16,545 48,337 31,792 Total general revenues 7,003,850 7,088,307 7,873,852 785,545 Functionally related revenues Use and rental fees 123,000 123,000 140,802 17,802 Total revenues 7,126,850 7,211,307 8,014,654 803,347 Expenditures General government 1,417,667 1,671,752 1,469,658 202,094 Public safety 3,597,458 3,735,913 3,581,492 154,421 Transportation 1,011,963 1,082,226 851,502 230,724 Environmental protection 671,998 842,682 906,112 (63,430) Economic and physical development 295,000 275,300 367,389 (92,089) Community activities and projects 198,739 908,524 178,579 729,945 Parks and recreation 256,285 287,583 248,172 39,411 Contingency 100,000 - - - Total expenditures 7,549,110 8,803,980 7,602,904 1,201,076 Revenues over (under) expenditures (422,260) (1,592,673) 411,750 2,004,423 Other financing sources (uses) Transfer to Goldpark/Riverwalk Project Fund (34,000) - - - Transfer from General Capital Reserve Fund 126,054 126,054 126,054 - Transfer to Riverwalk Phase III Fund - (43,000) (43,000) - Transfer to Riverwalk - CMAC Fund - - - - Installment purchase obligations issued - 615,370 - (615,370) Proceeds of refunding installment purchases - - 1,277,143 1,277,143 Debt service - principal - - (1,256,353) (1,256,353) Total other financing sources 92,054 698,424 103,844 (594,580) Appropriated fund balance 330,206 894,249 - (894,249) Net change in fund balance -$ -$ 515,594 515,594$ Fund balance, beginning 5,601,872 Fund balance, ending 6,117,466$ GENERAL FUND Year Ended June 30, 2014 TOWN OF HILLSBOROUGH, NORTH CAROLINA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL The accompanying notes are an integral part of this statement. - 25 - Exhibit 6 Proprietary Fund Type ASSETS Enterprise Current assets: Cash and investments 6,253,361$ Accounts receivable, net 1,135,876 Prepaid expenses 4,345 Restricted assets: Cash and investments 3,172,943 Total current assets 10,566,525 Capital assets: Land and construction-in-progress 25,802,246 Other capital assets, net of depreciation 23,649,945 Total capital assets 49,452,191 Total noncurrent assets 49,452,191 Total assets 60,018,716 LIABILITIES Current liabilities: Accounts payable and accrued liabilities 273,226 Payable from restricted assets - customer deposits 394,523 Accrued interest payable 21,856 Current portion of long-term liabilities 1,175,510 Total current liabilities 1,865,115 Long-term liabilities: Due in more than one year 21,676,034 Total liabilities 23,541,149 NET POSITION Net investment in capital assets 27,110,293 Restricted for: Water and sewer projects 2,591,211 Unrestricted 6,776,063 Total net position 36,477,567$ TOWN OF HILLSBOROUGH, NORTH CAROLINA STATEMENT OF NET POSITION - PROPERIETARY FUND June 30, 2014 The accompanying notes are an integral part of this statement. - 26 - Exhibit 7 Proprietary Fund Type Enterprise OPERATING REVENUES Charges for services 7,404,183$ Other operating revenues 1,621,424 TOTAL OPERATING REVENUES 9,025,607 OPERATING EXPENSES Personnel services 2,495,982 Depreciation 787,434 Other current charges 2,873,028 TOTAL OPERATING EXPENSES 6,156,444 OPERATING INCOME 2,869,163 NONOPERATING REVENUES (EXPENSES) Investment earnings 2,601 Interest and fees (114,867) TOTAL NONOPERATING EXPENSES (112,266) INCOME BEFORE CAPITAL CONTRIBUTIONS AND TRANSFERS 2,756,897 CAPITAL CONTRIBUTIONS AND TRANSFERS Capital contribution from developer 1,028,171 TOTAL CAPITAL CONTRIBUTIONS AND TRANSFERS 1,028,171 CHANGE IN NET POSITION 3,785,068 NET POSITION, BEGINNING OF YEAR 32,692,499 NET POSITION, END OF YEAR 36,477,567$ Year Ended June 30, 2014 TOWN OF HILLSBOROUGH, NORTH CAROLINA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION - PROPRIETARY FUND The accompanying notes are an integral part of this statement. - 27 - Exhibit 8 Page 1 of 2 Proprietary Fund-Type Enterprise CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers 8,978,367$ Cash paid for goods and services (2,968,781) Cash paid to or on behalf of employees for services (2,453,160) NET CASH PROVIDED BY OPERATING ACTIVITIES 3,556,426 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets (2,996,789) Proceeds from issuance of long-term debt 2,472,930 Principal paid on bonds, notes and installment purchases (1,051,283) Interest paid on bonds and installment purchases (130,046) NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES (1,705,188) CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 2,601 NET CASH PROVIDED BY INVESTING ACTIVITIES 2,601 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,853,839 CASH AND CASH EQUIVALENTS, BEGINNING 7,572,465 CASH AND CASH EQUIVALENTS, ENDING 9,426,304$ CASH AND CASH EQUIVALENTS Unrestricted 6,253,361$ Restricted 3,172,943 TOTAL CASH AND CASH EQUIVALENTS 9,426,304$ Year Ended June 30, 2014 TOWN OF HILLSBOROUGH, NORTH CAROLINA STATEMENT OF CASH FLOWS - PROPRIETARY FUND The accompanying notes are an integral part of this statement. - 28 - Exhibit 8 Page 2 of 2 Proprietary Fund-Type Enterprise Year Ended June 30, 2014 TOWN OF HILLSBOROUGH, NORTH CAROLINA STATEMENT OF CASH FLOWS - PROPRIETARY FUND RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income 2,869,163$ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 787,434 Provision for uncollectible accounts 95,000 Changes in assets and liabilities: Decrease in accounts receivable (150,269) Increase in prepaid expense 336 Increase in accounts payable and accrued liabilities (82,389) Increase in deposits 8,029 Increase in OPEB liability 23,893 Increase in compensated absences payable 5,229 NET CASH PROVIDED BY OPERATING ACTIVITIES 3,556,426$ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Capital asset additions included in accounts payable and accrued liabilities 719,176$ Capital contribution from developer 1,028,171$ The accompanying notes are an integral part of this statement. - 29 - Exhibit 9 Special Assessment ASSETS Debt Cash 171,082$ Total assets 171,082$ LIABILITIES Due to others 171,082$ Total liabilities 171,082$ TOWN OF HILLSBOROUGH, NORTH CAROLINA STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES - June 30, 2014 SPECIAL ASSESSMENT DEBT AGENCY FUND The accompanying notes are an integral part of this statement. - 30 - TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 31 - Note 1. Summary of Significant Accounting Policies The accounting policies of the Town of Hillsborough (the “Town”) conform to accounting principles generally accepted in the United States of America (“GAAP”) as applicable to governments. The Governmental Accounting Standards Board (“GASB”) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the more significant accounting policies: A. Reporting Entity The Town of Hillsborough is a municipal corporation which is governed by an elected mayor and a five-member board. As required by GAAP, these financial statements present the Town and its component units, which are legally separate entities for which the Town is financially accountable. The discretely presented component units presented below are reported in separate columns in the Town’s financial statements in order to emphasize that they are legally separate from the Town. Hillsborough Tourism Development Authority (“the Authority”) The Authority was created on April 9, 2012 by resolution of the Town, under the authority of the North Carolina General Assembly. The Authority is responsible for promoting travel and tourism in the Hillsborough area. The Authority receives revenue from a three percent occupancy tax, which is levied and collected by the Town and the remitted net of administration fees. The members of the Authority are appointed by the Town’s Board of Commissioners. Hillsborough Tourism Board (“the Board”) The Board was created on November 8, 1993, by resolution of the Town, under the authority of the North Carolina General Assembly. The Board is responsible for promoting tourism within the Town of Hillsborough. The Board receives revenues through a one percent prepared food and beverage tax, which is levied and collected by the Town and remitted net of administration fees. The Board is composed of nine members appointed by the Town’s Board of Commissioners. Requests for complete financial statements for each of the component units may be directed to the Finance Officer, c/o Hillsborough Tourism Development Authority or c/o Hillsborough Tourism Board, Hillsborough, North Carolina, or by telephone at (919) 732-2104. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 32 - Note 1. Summary of Significant Accounting Policies (Continued) B. Basis of Presentation Government-Wide Statements: The statement of net position and the statement of activities include the financial activities of the overall government. These statements distinguish between the governmental and business-type activities of the Town. Governmental activities generally are financed through taxes, intergovernmental revenues, and other non-exchange transactions. Business-type activities are financed in whole or in part by fees charged to external parties. The statement of activities presents a comparison between direct expenses and program revenues for the different business-type activities of the Town and for each function of the Town’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 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 Town’s funds. Separate statements for each fund category - governmental and proprietary - are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. 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. Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions or ancillary activities. The Town’s fiduciary fund is presented in the fund financial statements as an agency fund. Since by definition these assets are being held for the benefit of a third party and cannot be used to address activities or obligations of the government, these funds are not incorporated into the government-wide statements. The Town reports the following major governmental funds: General Fund - The General Fund is the general operating fund of the Town. It is used to account for all financial resources except those required to be accounted for in another fund. The primary revenue sources are ad valorem taxes, state grants, and various other taxes and licenses. The primary expenditures are for general government administration, public safety, street maintenance and construction, and sanitation services. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 33 - Note 1. Summary of Significant Accounting Policies (Continued) B. Basis of Presentation (Continued) Riverwalk Phase II Capital Project Fund - The project will connect Gold Park/Riverwalk Phase I to downtown. The connection will serve as a highly desirable recreation amenity, pedestrian route and economic development investment by adding an additional attraction to downtown that should draw more tourists. General Capital Projects Fund - This fund is used to accumulate expenditures related to multiple capital projects budgeted to be completed within one year. The General Capital Reserve Fund is consolidated in the General Capital Projects Fund. The Town reports the following nonmajor governmental funds: Riverwalk Phase III Capital Project Fund - Phase III of Riverwalk will extend Riverwalk east toward lands owned by Classical American Home Preservation Trust to make its outside connections to the trails at the Historic Occoneechee Speedway. This trail portion will have a natural, unpaved surface to protect sensitive lands and denote a transition from an urban greenway to less formal trails operated by the trust for the public’s use. Riverwalk CMAQ Capital Project Fund - Three important sidewalk components are grouped for funding purposes through the Congestion Mitigation and Air Quality program within the Department of Transportation. Riverwalk provides a viable alternative to driving by allowing many residents of Hillsborough to walk or bike into downtown, whether for work, shopping, or recreation. These sidewalk connections are along Eno Mountain Road and provide access into the Occoneechee State natural area (connecting to Gold Park); South Nash Street near the commercial area and the rail trestle, and Calvin Street, connecting to Gold Park and Riverwalk. The Town reports the following major enterprise fund: Water and Sewer Fund - This fund is used to account for the Town’s water and sewer operations. For financial reporting purposes, the Water and Sewer Capital Projects Fund (“WS Capital Projects Fund”) and Water and Sewer Capital Reserve Fund (“WS Capital Reserve Fund”) have been consolidated with the Water and Sewer Fund. The Town reports the following fiduciary fund: Special Assessment Debt Agency Fund - This fund is used to account for proceeds that the Town has received from special assessments that have not been remitted to Regions Bank. Regions Bank is the Trustee of the Series 2013 Special Revenue Bonds. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 34 - Note 1. Summary of Significant Accounting Policies (Continued) C. Measurement Focus and Basis of Accounting In accordance with North Carolina General Statutes, all funds of the Town are maintained during the year using the modified accrual basis of accounting. Government-Wide and Proprietary Fund Financial Statements. The government-wide and proprietary fund financial statements are reported using the economic resources measurement focus. The government-wide and proprietary 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 Town gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, 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 and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Amounts reported as program revenue include (1) charges to customers or applicants for goods, services, or privileges provided, (2) operating grants and contributions, and (3) capital grants and contributions, including special assessments. 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 and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the Town’s enterprise funds are charges to customers for sales and services. The Town also recognizes as operating revenue the portion of tap fees intended to recover the cost of connecting new customers to the water and sewer system. 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. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 35 - Note 1. Summary of Significant Accounting Policies (Continued) C. Measurement Focus and Basis of Accounting (Continued) The Town considers all revenues available if they are collected within 90 days after year end, except for property taxes. Ad valorem taxes receivable are not accrued as a revenue, because the amount is not susceptible to accrual. At June 30, taxes receivable for property other than motor vehicles are materially past due and are not considered to be an available resource to finance the operations of the subsequent year. Also, as of September 1, 2013, state law altered the procedures for the assessment and collection of property taxes on registered motor vehicles in North Carolina. Effective with this change in the law, the State of North Carolina is responsible for billing and collecting the property taxes on registered motor vehicles on behalf of all municipalities and special tax districts. Property taxes are due when vehicles are registered. The billed taxes are applicable to the fiscal year in which they are received. Uncollected taxes that were billed in periods prior to September 1, 2013 and for limited registration plates are shown as a receivable in these financial statements and are offset by deferred inflows of resources. Sales taxes and certain intergovernmental revenues, such as utilities franchise tax, collected and held by the state at year end on behalf of the Town, are recognized as revenue. Intergovernmental revenues and sales and services are not susceptible to accrual, because generally they are not measurable until received in cash. Grant revenues that are unearned at year end are recorded as deferred inflows of resources. Under the terms of grant agreements, the Town 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 Town’s policy to first apply cost- reimbursement grant resources to such programs, followed by categorical block grants, and then by general revenues. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 36 - Note 1. Summary of Significant Accounting Policies (Continued) D. Budgetary Data The Town’s budgets are adopted by the governing board as required by the North Carolina General Statutes. An annual budget is adopted for the General Fund and the Water and Sewer Fund. All annual appropriations lapse at the fiscal year end. Project ordinances are adopted for the Riverwalk Phase II Capital Project Fund, Riverwalk Phase III Capital Project Fund, Riverwalk CMAQ Capital Project Fund, General Capital Projects Fund, Water and Sewer Capital Projects Fund, and the Water and Sewer Capital Reserve Fund. The enterprise fund projects and capital reserve are consolidated with the Water and Sewer Fund for reporting purposes. All budgets are prepared using the modified accrual basis of accounting. Expenditures may not legally exceed appropriations at the functional level for all annually budgeted funds and at the object level for the multiyear funds. The Town Manager is authorized by the budget ordinance to transfer appropriations and may allow any amount of money to be transferred between functional areas within a fund. The Town Manager is also authorized to effect interdepartmental transfers within the same fund, not to exceed 10% of the appropriated monies for the department whose allocation is reduced. The Finance Director may make minor adjustments to the budget without obtaining prior governing board approval by formal budget amendment. Such changes must be within a fund and not between two or more funds. The Finance Director is required to inform the board at the next meeting after the budget adjustment is made. Budget amendments typically involve larger sums of money and require the governing board’s approval. During the year, several amendments to the original budget were necessary. E. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Fund Equity 1. Deposits and Investments All deposits of the Town are made in board-designated official depositories and are secured as required by state law (G.S. 159-31). The Town may designate, as an official depository, any bank or savings association whose principal office is located in North Carolina. Also, the Town may establish time deposit accounts such as NOW and SuperNOW accounts, money market accounts, and certificates of deposit. State law [G.S. 159-30(c)] authorizes the Town 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 nonguaranteed federal agencies; certain high quality issues of commercial paper and bankers’ acceptances; and the North Carolina Capital Management Trust (“NCCMT”). The Town’s investments are reported at fair value as determined by quoted market prices. The securities of the NCCMT Cash Portfolio, a Security Exchange Commission- registered (2a-7) money market mutual fund, are valued at fair value, which is the NCCMT’s share price. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 37 - Note 1. Summary of Significant Accounting Policies (Continued) E. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Fund Equity (Continued) 2. Cash and Cash Equivalents The Town pools money from several funds 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. For purposes of the statement of cash flows, the Enterprise Fund considers all short- term and long-term fixed-income investments (including restricted assets) to be cash equivalents. 3. Restricted Assets The Water and Sewer Fund, Riverwalk Phase II Fund, and Riverwalk Phase III Fund have unexpended debt proceeds that are classified as restricted assets because their use is completely restricted to the purpose for which the debt agreements were originally issued. Customer deposits held by the Town before any services are supplied are restricted to the service for which the deposit was collected. Powell Bill funds are also classified as restricted cash because they can only be expended for the purposes of maintaining, repairing, constructing, reconstruction or widening of local streets per G.S. 136-41.4. In addition, contributions from developers that are restricted by Town ordinance are restricted to the purpose of the donation. Town of Hillsborough Restricted Cash Governmental Activities General Fund Streets $ 190,494 Customer deposits 103,942 Riverwalk Phase II Fund Unspent debt proceeds 223,236 Riverwalk Phase III Unspent debt proceeds 221,337 General Capital Projects Fund Developer donations - future capital projects 590,074 Total Governmental Activities 1,329,083 Business-Type Activities Water and Sewer Fund Unspent debt proceeds 187,209 Customer deposits 394,523 Developer donations - perpetual maintenance 441,138 Developer donations - water and sewer needs 2,150,073 Total Business-Type Activities 3,172,943 Total Restricted Cash $ 4,502,026 TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 38 - Note 1. Summary of Significant Accounting Policies (Continued) E. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Fund Equity (Continued) 4. Ad Valorem Taxes Receivable In accordance with state law [G.S. 105-347 and G.S. 159-13(a)], the Town levies ad valorem taxes on property other than motor vehicles on July 1, the beginning of the fiscal year. The taxes are due on September 1 (lien date); however, interest does not accrue until the following January 6. These taxes are based on the assessed values as of January 1, 2013. As allowed by state law, the Town has established a schedule of discounts that apply to taxes that are paid prior to the due date. In the Town’s General Fund, ad valorem tax revenues are reported net of such discounts. 5. Allowances for Doubtful Accounts All receivables that historically experience uncollectible accounts are shown net of an allowance for doubtful accounts. This amount is estimated by analyzing the percentage of receivables written off in prior years. 6. 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 statements, and expensed as items are used. 7. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items) are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than a certain cost and an estimated useful life in excess of two years. Minimum capitalization costs are as follows: Cost Land and easements $ 1 Buildings, improvements 10,000 Distribution system 15,000 Vehicles, furniture and equipment 5,000 Infrastructure 35,000 TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 39 - Note 1. Summary of Significant Accounting Policies (Continued) E. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Fund Equity (Continued) 7. Capital Assets (Continued) Assets are recorded at historical cost or estimated historical cost, if purchased or constructed. Donated capital assets are recorded at their estimated fair value at time of donation. The cost 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 their estimated useful lives: Useful Life Buildings and building improvements 30 years Infrastructure 40 years Plant and distribution systems 50 years Furnishings, fixtures, equipment and computers 5 to 10 years Vehicles 3 to 5 years 8. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows 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 Town has no items that meet this criterion. In addition to liabilities, the statement of financial position will sometimes 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 Town has two items that meet the criterion for this category: taxes receivable and grants receivable. In addition, the Town has unearned revenue items that meet this criterion for this category: prepaid privilege licenses and other prepaid fees. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 40 - Note 1. Summary of Significant Accounting Policies (Continued) E. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Fund Equity (Continued) 9. Long-Term Obligations In the government-wide financial statements and the proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities or business-type activities, or proprietary fund-type statement of net position. Long-term debt premiums, discounts and loss on defeasance are deferred and amortized over the life of the debt using the straight-line method that approximates the effective interest method. Long-term debt is reported net of the applicable premiums or discounts. Debt issuance costs, except for prepaid insurance costs, are expensed in the reporting period in which they are incurred. Prepaid insurance costs are expensed over the life of the debt. In fund financial statements, governmental fund types recognize debt premiums and discounts, as well as debt issuance costs, during the current period. The face amount of debt issued is reported as other financing sources, while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 10. Compensated Absences The vacation policy of the Town provides for the accumulation of up to 240 hours earned vacation leave, with such leave being fully vested when earned. For the Town’s government-wide and proprietary funds, an expense and a liability for compensated absences and the salary-related payments are recorded as the leave is earned. The Town has assumed a first-in, first-out method of using accumulated compensated time. The portion of that time that is estimated to be used in the next fiscal year has been designated as a current liability and included in the long-term liabilities due within one year on the government-wide financial statements. The Town’s sick leave policy provides for an unlimited accumulation of earned sick leave. Sick leave does not vest, but any unused sick leave accumulated at the time of retirement may be used in determination of length of service for retirement benefit purposes. Since the Town has no obligation for the accumulated sick leave until it is actually taken, no accrual for sick leave has been made. 11. Net Position/Fund Balances Net Position Net position in government-wide and proprietary fund financial statements is classified as net investment in capital assets, restricted, and unrestricted. 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. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 41 - Note 1. Summary of Significant Accounting Policies (Continued) E. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Fund Equity (Continued) 11. Net Position/Fund Balances (Continued) Fund Balances In the governmental fund financial statements, fund balance is comprised of five classifications designed to disclose the hierarchy of constraints placed on how the fund balance can be spent. The governmental fund types classify fund balances as follows: Nonspendable Fund Balance - This classification includes amounts that cannot be spent because they are either (a) not in spendable form, or (b) legally or contractually required to be maintained intact. Prepaid items - Portion of fund balance that is not available for appropriation because it represents the year-end fund balance of prepaid items, which are not expendable, available resources. Restricted Fund Balance - This classification includes amounts that are restricted to specific purposes externally imposed by creditors or imposed by law. Restricted for Stabilization by State Statute - Portion of fund balance that is restricted by state statute [G.S. 159-8(a)]. Restricted for Streets - Powell Bill portion of fund balance that is restricted by revenue source for street construction and maintenance expenditures. This amount represents the balance of the total unexpended Powell Bill funds. Restricted for Capital Projects - Portion of fund balance representing unexpended contributions from developers and debt proceeds that are restricted by Town ordinance and the developers for future general capital projects. Committed Fund Balance - Portion of fund balance that can only be used for specific purposes imposed by the government through majority vote of the Town’s governing body – the Board of Town Commissioners (highest level of decision-making authority). Any changes or removal of specific purpose requires majority action by the governing body. Committed for Capital Projects - Portion of fund balance that can only be used for the construction of capital projects. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 42 - Note 1. Summary of Significant Accounting Policies (Continued) E. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Fund Equity (Continued) 11. Net Position/Fund Balances (Continued) Fund Balances (Continued) Assigned Fund Balance - Portion of fund balance the Town of Hillsborough intends to use for specific purposes that are considered neither restricted nor committed. Unassigned fund balances may be assigned by the Town Board, Town Manager, or Finance Director for specific purposes through the budget process or agenda items. Assigned for Subsequent Year’s Expenditures - Portion of fund balance that is appropriated in the next year’s budget that is not already classified in restricted or committed. The governing body approves the appropriation. Unassigned Fund Balance - Portion of fund balance that has not been restricted, committed, or assigned to specific purposes or other funds. The Town of Hillsborough has a revenue-spending policy that provides guidance for programs with multiple revenue sources. The Finance Officer will use resources in the following hierarchy: bond and installment financing proceeds, federal funds, state funds, local non-town funds, and town 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, finally, unassigned fund balance. The Finance Officer has the authority to deviate from this policy, if it is in the best interest of the Town. The Town of Hillsborough has adopted a policy to maintain the General Fund fund balance level between 20% and 60% of operating expenditures, with a target of 33%, or the equivalent of four months of operating expenditures. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 43 - Note 2. Reconciliation of GAAP and Budgetary Basis Expenditures The accompanying schedule reconciles certain General Fund transactions, which are treated differently on Exhibit 4 (GAAP basis) and Exhibit 5 (budgetary basis). These differences relate to capital lease transactions and are summarized below: Increase Exhibit 4 (Decrease) Exhibit 5 General government $ 1,354,095 $ 115,563 $ 1,469,658 Public safety 3,455,438 126,054 3,581,492 Environmental protection 806,210 99,902 906,112 Community activities and projects 119,251 59,328 178,579 Parks and recreation 55,850 192,322 248,172 Debt service Principal retirement 474,458 (474,458) (1) - Interest and fiscal charges 118,711 (118,711) (1) - (1) Reclassification of debt service payments. Note 3. Stewardship, Compliance and Accountability A. Contract Violations The Trust Agreement between the Town and Regions Bank, as Trustee, for the Series 2013 Special Revenue Bonds, requires the Town to pay any revenues it receives to the Trustee within five business days of receipt. At June 30, 2014, the Town had revenues in the amount of $171,082 that had not been remitted to the Trustee within the required time period. These amounts are included as cash in the Agency Fund at June 30, 2014. B. Excess of Expenditures over Appropriations For the fiscal year ended June 30, 2014, expenditures made in the Town’s General Fund exceeded the authorized appropriations made by the governing board for environmental protection by $63,430; economic and physical development by $92,089; and debt service - principal on refunding by $1,256,353. The over-expenditure of environmental and protection occurred because the Town took possession of $129,998 of recycling carts earlier than anticipated. The over-expenditure of economic and physical development occurred due to an under-estimation of proceeds payable to the Hillsborough Tourism Development Authority and the Hillsborough Tourism Board. The over-expenditure of debt-service principal on refunding occurred because the Town budgeted the related debt service expenditures net of proceeds of refunding installment purchases. Management and the board will more closely review the budget to actual reports to ensure compliance in future years. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 44 - Note 4. Detail Notes on All Funds A. Assets 1. Deposits All of the deposits of the Town, the Authority, and the Board are either insured or collateralized by using one of two methods. Under the Dedicated Method, all deposits that exceed the federal depository insurance coverage level are collateralized with securities held by the Town’s, the Authority’s, or the Board’s agents in the entities’ names. 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 Town, the Authority, and the Board, these deposits are considered to be held by their agents in the entities’ names. The amount of the pledged collateral is based on an approved averaging method for noninterest-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 Town, the Authority, the Board, or the escrow agent. Because of the inability to measure the exact amounts of collateral pledged for the Town, the Authority, or the Board 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 Town has no formal policy regarding custodial credit risk for deposits, but relies on the State Treasurer to enforce standards of minimum capitalization for all pooling method financial institutions and to monitor them for compliance. The Town complies with the provisions of G.S. 159-31 when designating official depositories and verifying that deposits are properly secured. The Authority and the Board have no formal policy regarding custodial credit risk for deposits. At June 30, 2014, the Town’s deposits had a carrying amount of $7,590,537 and a bank balance of $8,148,899. Of the bank balance, $500,000 was covered by federal depository insurance and $7,648,899 in interest-bearing deposits were covered under the Pooling Method. The Town had $1,050 in petty cash on hand at June 30, 2014. At June 30, 2014, the Authority’s deposits had a carrying amount of $80,015 and a bank balance of $80,015. All of the bank balance was covered by federal depository insurance. At June 30, 2014, the Board’s deposits had a carrying amount of $183,436 and a bank balance of $183,436. All of the bank balance was covered by federal depository insurance. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 45 - Note 4. Detail Notes on All Funds (Continued) A. Assets (Continued) 2. Investments At June 30, 2014, the Town had $8,942,741 invested with the North Carolina Capital Management Trust’s Cash Portfolio, which carried a credit rating of AAAm by Standard and Poor’s. The Town has no policy regarding credit risk of its investments. 3. Due from Other Governments Amounts due from other governments consist of the following: Governmental Activities General Fund Sales and use tax distribution $ 318,048 Utilities franchise and telecommunications tax 111,827 Other government agencies 359,492 Sales tax refunds 187,166 976,533 Riverwalk Phase II Capital Project Fund Grant receivable 42,456 $ 1,018,989 4. Receivables - Allowance for Doubtful Accounts The amounts presented in the Balance Sheet and the Statement of Net Position for the year ended June 30, 2014 is net of the following allowances for doubtful accounts, which are based on historical percentages of receivables not expected to be collected. General Fund Taxes receivable $ 77,417 Enterprise Fund $ 245,000 TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 46 - Note 4. Detail Notes on All Funds (Continued) A. Assets (Continued) 5. Capital Assets Governmental capital asset activity for the year ended June 30, 2014 was as follows: Beginning Ending Balances Increases Decreases Transfers Balances Governmental activities: Capital assets not being depreciated: Land $ 2,672,428 $ - $ - $ - $ 2,672,428 Construction-in- progress 559,883 1,619,307 - - 2,179,190 Total capital assets not being depreciated 3,232,311 $ 1,619,307 $ - $ - 4,851,618 Capital assets being depreciated: Buildings and improvements 4,160,980 $ - $ - $ - 4,160,980 Infrastructure 2,775,901 3,483,756 - - 6,259,657 Equipment 520,004 10,605 - - 530,609 Vehicles 2,794,127 183,197 115,419 - 2,861,905 Total capital assets being depreciated 10,251,012 $ 3,677,558 $ 115,419 $ - 13,813,151 Less accumulated depreciation for: Buildings and improvements 1,209,692 $ 135,446 $ - $ - 1,345,138 Infrastructure 128,079 128,416 - - 256,495 Equipment 419,951 25,860 - - 445,811 Vehicles 1,917,002 311,097 115,419 - 2,112,681 Total accumulated depreciation 3,674,724 $ 600,819 $ 115,419 $ - 4,160,125 Total capital assets being depreciated, net 6,576,288 9,653,026 Governmental activity capital assets, net $ 9,808,599 $ 14,504,644 TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 47 - Note 4. Detail Notes on All Funds (Continued) A. Assets (Continued) 5. Capital Assets (Continued) Depreciation expense was charged to functions/programs of the primary government as follows: General government $ 157,157 Public safety 241,185 Transportation 109,452 Environmental protection 93,025 $ 600,819 TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 48 - Note 4. Detail Notes on All Funds (Continued) A. Assets (Continued) 5. Capital Assets (Continued) Business-type capital asset activity for the year ended June 30, 2014 was as follows: Beginning Ending Balances Increases Decreases Transfers Balances Business-type activities: Capital assets not being depreciated: Land $ 6,005,443 $ - $ - $ - $ 6,005,443 Construction-in- progress 17,982,370 2,240,142 - (425,709) 19,796,803 Total capital assets not being depreciated 23,987,813 $ 2,240,142 $ - $ (425,709) 25,802,246 Capital assets being depreciated: Buildings and improvements 8,441,940 $ 12,300 $ - $ - 8,454,240 Plant and distribution systems 26,766,820 875,481 - 425,709 28,068,010 Infrastructure 380,626 152,690 - - 533,316 Equipment 1,319,871 2,760 - - 1,322,631 Vehicles 608,835 34,097 - - 642,932 Total capital assets being depreciated 37,518,092 $ 1,077,328 $ - $ 425,709 39,021,129 Less accumulated depreciation for: Buildings and improvements 6,278,825 $ 96,763 $ - $ - 6,375,588 Plant and distribution systems 6,773,986 569,187 - - 7,343,173 Infrastructure 27,943 12,697 - - 40,640 Equipment 997,510 67,485 - - 1,064,995 Vehicles 505,486 41,302 - - 546,788 Total accumulated depreciation 14,583,750 $ 787,434 $ - $ - 15,371,184 Total capital assets being depreciated, net 22,934,342 23,649,945 Business-type activity capital assets, net $ 46,922,155 $ 49,452,191 TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 49 - Note 4. Detail Notes on All Funds (Continued) A. Assets (Continued) 5. Capital Assets (Continued) Construction Commitments The Town has active construction projects as of June 30, 2014 with the following remaining commitments: Project Spent-to-Date Commitment Riverside/Crawford water improvements $ 209,272 $ 85,728 Riverwalk Phase II 1,389,059 211,172 Riverwalk Phase III 15,200 161,520 Riverwalk CMAQ-Sidewalk 17,895 82,897 West Fork Eno Reservoir 152,622 45,100 Lake Ben Johnson dredging 355,965 30,718 Waterstone Water Tank 125,745 68,615 Wastewater Treatment Facility Expansion 20,164,929 1,403,058 Total $ 22,430,687 $ 2,088,808 B. Liabilities 1. Pension Plan and Postemployment Obligations Local Governmental Employees’ Retirement System Plan Description. The Town of Hillsborough 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, or by calling (919) 981-5454. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 50 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 1. Pension Plan and Postemployment Obligations (Continued) Funding Policy. Plan members are required to contribute 6% of their annual covered salary. The Town 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 7.07% and 7.28%, respectively, of annual covered payroll. The contribution requirements of members and of the Town of Hillsborough are established and may be amended by the North Carolina General Assembly. The Town’s contributions to LGERS for the years ended June 30, 2014, 2013, and 2012 were $334,884, $298,865, and $296,822, respectively. The contributions made by the Town equaled the required contributions for each year. Law Enforcement Officers’ Special Separation Allowance Plan Description. The Town of Hillsborough administers a public employee retirement system (the “Separation Allowance”), a single-employer defined benefit pension plan that provides retirement benefits to the Town’s qualified sworn law enforcement officers. The Separation Allowance is equal to 0.85% of the annual equivalent of the base rate of compensation most recently applicable to the officer for each year of creditable service. The retirement benefits are not subject to any increases in salary or retirement allowances that may be authorized by the General Assembly. Article 12D of G.S. Chapter 143 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. A stand-alone financial statement has not been issued for this plan. All full-time law enforcement officers of the Town are covered by the Separation Allowance. At December 31, 2013, the Separation Allowance’s membership consisted of: Retirees receiving benefits 3 Terminated plan members entitled to, but not yet receiving benefits - Active plan members 27 Total 30 Summary of Significant Accounting Policies: Basis of Accounting. The Town has chosen to fund the Separation Allowance on a pay-as-you-go basis. Pension expenditures are made from the General Fund, which is maintained on the modified accrual basis of accounting. Method Used to Value Investments. No funds are set aside to pay benefits and administration costs. These expenditures are paid as they come due. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 51 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 1. Pension Plan and Postemployment Obligations (Continued) Law Enforcement Officers’ Special Separation Allowance (Continued) Contributions: The Town is required by Article 12D of G.S. Chapter 143 to provide these retirement benefits and has chosen to fund the benefit payments on a pay-as-you-go basis through appropriations made in the General Fund operating budget. The Town’s obligation to contribute to this plan is established and may be amended by the North Carolina General Assembly. There were no contributions made by employees. The annual required contribution for the current year was determined as part of the December 31, 2013 actuarial valuation using the projected unit credit actuarial cost method. The actuarial assumptions included (a) a 5.00% investment rate of return and (b) projected salary increases ranging from 4.25% to 7.85% per year. Both (a) and (b) included an inflation component of 3.00%. The unfunded actuarial accrued liability is being amortized as a level of dollar of pay on a closed basis. The remaining amortization period at December 31, 2013, was 17 years. The assumptions did not include postretirement benefit increases. Annual Pension Cost and Net Pension Obligation. The Town’s annual pension cost and net pension obligation to the Separation Allowance for the current year were as follows: Annual required contribution $ 52,791 Interest on net pension asset (1,177) Adjustment to annual required contribution 1,919 Annual pension cost 53,533 Contributions made 49,658 Decrease in net pension asset 3,875 Net pension asset, beginning of year (23,548) Net pension asset, end of year $ (19,673) TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 52 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 1. Pension Plan and Postemployment Obligations (Continued) Law Enforcement Officers’ Special Separation Allowance (Continued) Three-Year Trend Information: Fiscal Annual Percentage Net Pension Year Pension of APC Obligation Ended Cost (APC) Contributed (Asset) 6/30/2012 $ 53,076 119.97% $ (27,876) 6/30/2013 52,458 91.75% (23,548) 6/30/2014 53,533 92.76% (19,673) Funded Status and Funding Process: As of December 31, 2013, the most recent actuarial valuation date, the plan was not funded. The actuarial accrued liability for benefits and the unfunded actuarial accrued liability (“UALL”) were $405,686. The covered payroll (annual payroll of active employees covered by the plan) was $1,397,887, and the ratio of the UAAL to the covered payroll was 29.02%. 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. Supplemental Retirement Income Plan Plan Description. The Town of Hillsborough contributes to the Supplemental Retirement Income Plan (the “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 Town. 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 CAFR for the state of North Carolina. The state’s CAFR includes the pension trust fund financial statements for the Internal Revenue Section 401(k) plan that includes the 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, or by calling (919) 981-5454. Additionally, the Town has elected to include all permanent, full-time employees under this plan. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 53 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 1. Pension Plan and Postemployment Obligations (Continued) Supplemental Retirement Income Plan (Continued) Funding Policy. Article 12E of G.S. Chapter 143 requires the Town to contribute each month an amount equal to 5% of each officer’s salary, and all amounts contributed are vested immediately. The Town has elected to contribute each month an amount equal to 5.0% of each participating general employee’s salary. Also, the participants may make voluntary contributions to the Plan. Contributions for the year ended June 30, 2014 were $320,626, which consisted of $228,498 from the Town and $92,128 from employees. 2. Other Postemployment Benefit Obligations Plan Description. According to a Town resolution, the Town administers a single- employer defined benefit Healthcare Plan (the “HC Plan”). The HC Plan provides post-retirement healthcare benefits until they become eligible for Medicare to retirees of the Town who were hired before February 1, 2009, who have at least 20 years of creditable service, and who attain age 55 for regular employees and age 52 for law enforcement employees. Employees hired on or after February 1, 2009, must complete 30 years of service and attain age 60 for regular employees and age 57 for law enforcement employees before becoming eligible for post-retirement benefits. The Town pays the full cost of coverage for these benefits. The Town’s Board of Commissioners may amend the benefit provisions. A separate report was not issued for the HC Plan. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 54 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 2. Other Postemployment Benefit Obligations (Continued) Law Enforcement Non-Law Enforcement Retired Employees’ Years of Hired Before Hired On or After Hired Before Hired On or After Creditable Service February 9, 2009 February 9, 2009 February 9, 2009 February 9, 2009 Less than 20 years’ continuous service Not eligible for Not eligible for Not eligible for Not eligible for coverage coverage coverage coverage 20 or more years’ continuous service: Before age 52 Not eligible for Not eligible for Not eligible for Not eligible for coverage coverage coverage coverage Age 52 to 55 Full coverage Not eligible for Not eligible for Not eligible for paid for by Town coverage coverage coverage Age 55 until eligible for Medicare Full coverage Not eligible for Full coverage Not eligible for paid for by Town coverage paid for by Town coverage 30 or more years’ continuous service: Before age 57 Not eligible for Not eligible for Not eligible for Not eligible for coverage coverage coverage coverage Age 57 to 60 Full coverage Full coverage Not eligible for Not eligible for paid for by Town paid for by Town coverage coverage Age 60 until eligible for Medicare Full coverage Full coverage Full coverage Full coverage paid for by Town paid for by Town paid for by Town paid for by Town Membership of the HC Plan consisted of the following at December 31, 2011, the date of the latest actuarial valuation: Law General Enforcement Employees Officers Retirees and dependents receiving benefits - 5 Active plan members 59 28 Total 59 33 Funding Policy. The Town pays the cost of coverage for the healthcare benefits paid to qualified retirees under a Town resolution that can be amended by the Board of Commissioners. The Town’s members pay up to $1,431 per month for full family coverage. The Town has chosen to fund the healthcare benefits on a pay-as-you-go basis. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 55 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 2. Other Postemployment Benefit Obligations (Continued) The current annual required contribution of the employer (“ARC”) rate is 2.71% of annual covered payroll. For the current year, the Town contributed $58,800 or 1.36% of annual covered payroll. The Town obtains healthcare coverage through private insurers. The Town’s obligation to contribute to the plan is established and may be amended by the Board of Commissioners. Summary of Significant Accounting Policies. Postemployment expenditures are made from the General Fund, which is maintained on the modified accrual basis of accounting. No funds are set aside to pay benefits and administration costs. These expenditures are paid as they come due. Annual Other Postemployment Benefits (“OPEB”) Cost and Net OPEB Obligation. The Town‘s annual OPEB cost (expense) is calculated based on the 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 costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The following table shows the components of the Town’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the Town’s net OPEB obligation for the healthcare benefits: Annual required contribution $ 116,258 Interest on net OPEB obligation 9,112 Adjustment to annual required contribution (7,862) Annual OPEB cost 117,508 Contributions made (58,800) Increase in net OPEB obligation 58,708 Net OPEB obligation, beginning of year 288,479 Net OPEB obligation, end of year $ 347,187 The Town’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2014, 2013, and 2012 were as follows: For the Percentage of Year Ended Annual OPEB Annual OPEB Net OPEB June Cost (APC) Cost Contributed Obligation 2012 $ 128,907 38.1% $ 227,811 2013 117,508 48.3% 288,479 2014 117,508 50.04% 347,187 TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 56 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 2. Other Postemployment Benefit Obligations (Continued) Funded Status and Funding Progress. As of December 31, 2011, the most recent actuarial valuation date, the plan was not funded. The actuarial accrued liability for benefits and, thus, the UAAL was $1,169,128. The covered payroll (annual payroll of active employees covered by the plan) was $4,337,051, and the ratio of the UAAL to the covered payroll was 27.0%. 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 assets, consistent with the long-term perspective of the calculations. In the December 31, 2011 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions included a 4% investment rate of return (net of administrative expenses), which is the expected long-term investment returns on the employer’s own investments calculated, based on the funded level of the plan at the valuation date, and an annual medical cost trend increase of 9.50% to 5.00% annually. The investment rate included a 3.00% inflation assumption. The assumed rate of return reflects the fact that no assets are set aside with the Town that are legally held exclusively for retiree health benefits. The UAAL is being amortized as a level percentage of pay on an open basis. The remaining amortization period at December 31, 2011 was 30 years. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 57 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 3. Other Employment Benefit The Town has also elected to provide death benefits to employees through the Death Benefit Plan for Members of the Local Governmental Employees’ Retirement System (“Death Benefit Plan”), a multiple-employer, state-administered, cost-sharing plan funded on a one-year term cost basis. The beneficiaries of those employees who die in active service after one year of contributing membership in the System, or who die within 180 days after retirement or termination of service, and have at least one year of contributing membership in the System at the time of death, are eligible for death benefits. Lump-sum death benefit payments to beneficiaries are equal to the employee’s 12 highest months’ salary in a row during the 24 months prior to the employee’s death, but the benefit may not exceed $50,000 or be less than $25,000. All death benefit payments are made from the Death Benefit Plan. The Town has no liability beyond the payment of monthly contributions. The contributions to the Death Benefit Plan cannot be separated between the post-employment benefit amount and the other benefit amount. The Town considers these contributions to be immaterial. 4. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities at June 30, 2014 were as follows: Governmental Business-Type Activities Activities Total Payable to vendors and others $ 530,576 $ 205,036 $ 735,612 Accrued payroll and related liabilities 185,581 68,190 253,771 Total accounts payable and accrued liabilities $ 716,157 $ 273,226 $ 989,383 TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 58 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 5. Deferred Inflows of Resources Deferred inflows of resources at year end is comprised of the following: Unavailable Unearned Revenue Revenue Taxes receivable $ 158,716 $ - Prepaid privilege license - 14,115 Grant receivable 234,990 - Other prepaid receipts - 13,691 $ 393,706 $ 27,806 6. Risk Management The Town is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Town participates in three self-funded risk financing pools administered by the North Carolina League of Municipalities. Through these pools, the Town obtains general liability coverage of $3 million per occurrence; auto liability coverage of $2 million per occurrence; property coverage up to the total insurance values of the property policy; workers’ compensation coverage up to statutory limits; and employee health coverage with lifetime limit. The property/liability and workers compensation pools are reinsured through commercial companies for single occurrence claims against general liability and auto liability in excess of $1 million, property in excess of $500,000, and $1 million up to statutory limits for workers’ compensation. The health pool is reinsured for annual employee health claims in excess of $350,000. The property liability pool has an aggregate limit for the total property losses in a single year, with the reinsurance limit based upon a percentage of the total insurance values. The Town carries commercial insurance for all other risks of loss, including property ($47,961,142); general liability ($3 million per occurrence); law enforcement liability ($2 million per occurrence); public employees scheduled bond ($60,000 - includes $50,000 for the finance director and $10,000 for the deputy tax collector), public employees blanket bond/crime ($10,000); computer equipment ($290,000); municipal equipment ($556,174); fine arts ($550,000); animal mortality ($32,800); and public officials’ liability ($1 million per occurrence). There have been no significant reductions in insurance coverage in the prior year, and settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 59 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 6. Risk Management (Continued) The old motor pool facility is in an area of the state that has been mapped and designated an “A” area (an area close to a river) by the Federal Emergency Management Agency. Flood coverage on the old, dilapidated facility has been discontinued since the building is now used for storage only. Other town structures are designated as “B, C and X” areas (low-risk areas) and are insured for flood damage through the Interlocal Risk Financing Fund of North Carolina pool for $5 million per occurrence and aggregate with a $50,000 deductible. There is no coverage through the Interlocal Fund for structures in any flood zone other than “B, C, and X.” The Board carried commercial coverage for Non-profit Organization Directors and Officers Liability with coverage of $1,000,000 for all claims. The Authority did not have insurance coverage separate from the Town. Both the Board and the Authority do not carry flood insurance nor have any employees. 7. Claims and Contingent Liabilities The Town has elected to pay the direct cost of employment security benefits in lieu of paying unemployment taxes. A liability for such payments could accrue in the period following the discharge of an employee. 8. Long-Term Obligations a. Installment Purchases Governmental Activities: Note payable to BB&T, executed April 2008, in the amount of $1,226,000 for the construction of a Town Park and Improvements. The note is payable in 30 semi-annual payments of $40,867 plus interest at 3.73%, and is secured by such assets. $ 735,600 Note payable to BB&T, executed March 2010, in the amount of $137,400 for the purchase of a garbage truck. The note is payable in ten semi-annual payments of $14,813 with interest payable at 2.79%, and is secured by the truck. 29,048 TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 60 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 8. Long-Term Obligations (Continued) a. Installment Purchases (Continued) Governmental Activities (Continued): Note payable to BB&T, executed in July 2013, in the amount of $438,057 for the refinance of a note payable for the purchase of land for municipal operations. The note is payable in 21 semi-annual payments of $20,860 plus interest at 2.22%, and is secured by land. The previous note payable on the land for municipal operations included interest at 3.92%. $ 396,337 Note payable to BB&T, executed in July 2013, in the amount of $839,086 for the refinance of a note payable for the purchase of real property and a building to be used as the fleet maintenance facility. The note is payable in 23 semi- annual payments of $36,482 plus interest at 2.44%, and is secured by real property and a building. The previous note payable on the fleet maintenance facility included interest at 3.79%. 766,122 Note payable to SunTrust, executed August 2010, in the amount of $107,000 for the purchase of a brush truck. The note is payable in five annual payments of $23,007 with interest payable at 2.5%, and is secured by the truck. 44,321 Note payable to BB&T, executed May 2012, in the amount of $227,000 for the purchase of a garbage truck. The note is payable in six semi-annual payments of $23,634 with interest payable at 1.48%, and is secured by the truck. 138,203 TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 61 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 8. Long-Term Obligations (Continued) a. Installment Purchases (Continued) Governmental Activities (Continued): Note payable to SunTrust, executed November 2011, in the amount of $812,021 for the purchase of a fire truck. The note is payable in 14 semi-annual payments of $63,027 with interest payable at 2.185%, and is secured by the truck. $ 537,455 Note payable to BB&T, executed August 2013, in the amount of $1,450,000 for the purchase of land for Riverwalk Phases II and III. The note is payable in 20 semi- annual payments of $72,500 plus interest and matures in August 2023. Interest is payable at 2.35% and the note payable is secured by land. 1,377,500 4,024,586 Less current portion 494,894 $ 3,529,692 The future minimum payments on the notes payable as of June 30, 2014 are as follows: Fiscal Year Ending June 30, Principal Interest Total 2015 $ 494,894 $ 94,403 $ 589,297 2016 526,107 87,487 613,594 2017 506,909 74,515 581,424 2018 462,768 62,226 524,994 2019 465,434 50,396 515,830 2020 - 2024 1,531,990 105,622 1,637,612 2025 36,484 445 36,929 $ 4,024,586 $ 475,094 $ 4,499,680 TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 62 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 8. Long-Term Obligations (Continued) a. Installment Purchases (Continued) Business-Type Activities: Enterprise Fund - Water/Sewer Fund Note payable to SunTrust, executed August 2010, in the amount of $450,000 for a sewer main rehabilitation project. The note is payable in ten semi-annual payments of $47,724 with interest payable at 2.2%, and is secured by the property. $ 140,030 Note payable to BB&T, executed April 2010, in the amount of $750,000 for the purchase and installation of water meters. The note is payable in ten semi-annual payments of $80,643 with interest payable at 2.69%, and is secured by the water meters. 158,258 Note payable to BB&T, executed May 2009, in the amount of $5,525,000 for the advance refunding of debt of the 1998 Water serial bonds and the Cedar Grove Reservoir installment debt. The note was payable in 20 semi-annual payments of varying amounts with interest payable at 3.69%. The note was modified on July 15, 2013. The modifications separated the debt into two tranches. The first tranche in the amount of $1,939,000 has varying annual principal payments through October 2017 with interest at 1.66%. The second tranche in the amount of $1,469,000 has varying annual principal payments through October 2019 with interest at 1.88%. The note is secured by improvements (a). 2,800,000 TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 63 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 8. Long-Term Obligations (Continued) a. Installment Purchases (Continued) Business-Type Activities (Continued): Enterprise Fund - Water/Sewer Fund (Continued) Note payable to BB&T, executed March 2012, in the amount of $1,051,273 for the construction of water tanks and lines. The note is payable in 20 semi-annual payments of $52,564 plus interest at 2.26%, and is secured by the water tanks and lines. $ 841,019 3,939,307 Less current portion 969,219 $ 2,970,088 The long-term debt requirements to maturity for the Enterprise Fund are as follows: Fiscal Year Ending June 30, Principal Interest Total 2015 $ 969,219 $ 74,638 $ 1,043,857 2016 768,323 51,824 820,147 2017 723,127 38,292 761,419 2018 599,127 26,293 625,420 2019 330,127 17,539 347,666 2020 - 2022 549,384 16,873 566,257 $ 3,939,307 $ 225,459 $ 4,164,766 a) The provisions of this loan agreement contain certain financial covenants related to the maintenance of fund balance. At June 30, 2014, the Town was in compliance with such covenants. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 64 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 8. Long-Term Obligations (Continued) b. General Obligation Indebtedness The Town’s legal debt margin at June 30, 2014 was $58,836,614. c. Revolving Loans Payable On May 7, 2002, the Town was approved for a maximum loan amount of $1,802,952 from the U.S. Environmental Protection Agency passed through the North Carolina Department of Environmental and Natural Resources under the Drinking Water State Revolving Fund Program. The loan proceeds were used to upgrade the water plant. The loan is repayable in equal principal payments of $76,222 plus interest of 2.66% through fiscal year ending 2026. The total amount outstanding at June 30, 2014 was $914,669. Annual debt service requirements to maturity for this Revolving Loan Payable are as follows: Fiscal Year Ending Business-Type Activities June 30, Principal Interest Total 2015 $ 76,222 $ 24,330 $ 100,552 2016 76,222 22,303 98,525 2017 76,222 20,275 96,497 2018 76,222 18,248 94,470 2019 76,222 16,220 92,442 2020 - 2024 381,112 50,688 431,800 2025 - 2026 152,447 6,083 158,530 $ 914,669 $ 158,147 $ 1,072,816 On October 6, 2011, the Town was approved for a maximum loan amount of $18,894,640 from the U.S. Environmental Protection Agency passed through the North Carolina Department of Environmental and Natural Resources under the Clean Water State Revolving Fund. The loan proceeds are being used for the Wastewater Treatment Plant Upgrade and Expansion Project. Project-to-date drawdowns were $17,729,408 at June 30, 2014. Repayment terms will be set upon the completion of the project, which is expected to be completed in fiscal 2015. As such, this amount is included in long-term liabilities. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 65 - Note 4. Detail Notes on All Funds (Continued) B. Liabilities (Continued) 8. Long-Term Obligations (Continued) d. Changes in Long-Term Debt Current Balance Portion of Balance June 30, Long-Term July 1, 2013 Increases Decreases 2014 Liabilities Governmental activities: Installment purchases $ 3,084,791 $ 2,727,143 $ 1,787,348 $ 4,024,586 $ 494,894 Compensated absences 220,946 126,303 128,414 218,835 126,303 Other postemployment benefits 168,057 69,685 34,870 202,872 - Net pension obligation (asset) (23,548) (49,658) (53,533) (19,673) - Reclassification of net pension asset 23,548 49,658 53,533 19,673 - $ 3,473,794 $ 2,923,131 $ 1,950,632 $ 4,446,293 $ 621,197 Business-type activities: Installment purchases $ 4,914,368 $ - $ 975,061 $ 3,939,307 $ 969,219 Less deferred amount for loss on defeasance (69,423) - (15,146) (54,277) (15,147) Revolving loans payable 16,247,369 2,472,930 76,222 18,644,077 76,222 Other postemployment benefits 120,422 47,823 23,930 144,315 - Compensated absences 172,893 145,216 139,987 178,122 145,216 $ 21,385,629 $ 2,665,969 $ 1,200,054 $ 22,851,544 $ 1,175,510 Compensated absences for governmental activities have typically been liquidated in the General Fund. e. Refunding In July 2013, the Town refinanced two installment purchase agreements with new debt with BB&T. The refinance amount approximated the net carrying amount of the old debt. This refinance was undertaken to reduce total debt service payments by $65,265 and resulted in an economic gain of $60,798. f. Special Assessment Debt In October 2013, the Town issued $4,630,000 of Special Assessment Revenue Bonds to finance the construction of public infrastructure in the Waterstone District. The Town is in no manner obligated to repay this special assessment debt and functions only as an agent for the property owners by remitting collections of special assessments to the Trustee. At June 30, 2014, $4,215,000 of special assessment debt remained outstanding. TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 66 - Note 4. Detail Notes on All Funds (Continued) C. Interfund Balances and Activity Transfers to/from other funds: Transfers to/from other funds at June 30, 2014 consist of the following: From the General Fund to the Riverwalk Phase III Fund for partial funding of construction costs $ 43,000 From the General Capital Reserve Fund to the General Fund for debt service payments (126,054) $ (83,054) D. Net Investment in Capital Assets Governmental Business-type Capital assets $ 14,504,644 $ 49,452,191 Less: related debt Installment purchases (4,024,586) (3,885,030) Revolving loans payable - (18,644,077) Add: unexpended debt proceeds 444,573 187,209 Net investment in capital assets $ 10,924,631 $ 27,110,293 E. Fund Balance The following schedule provides management and citizens with information on the portion of General Fund fund balance that is available for appropriation. Total fund balance General Fund $ 6,117,466 Less: Prepaid items 72,156 Stabilization by state statute 920,240 Streets - Powell Bill 190,494 Appropriated fund balance in 2014 budget 782,995 Working capital/fund balance policy 4,151,581 Remaining fund balance General Fund $ - The outstanding encumbrances are amounts needed to pay any commitments related to purchase orders and contracts that remain unperformed at year end. General Fund Encumbrances $ 92,333 TOWN OF HILLSBOROUGH, NORTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 - 67 - Note 5. Jointly Governed Organization The Town, in conjunction with seven counties and 37 other municipalities, established the Triangle J Council of Governments (the “Council”). The participating governments established the Council to coordinate various funding received from federal and state agencies. Each participating government appoints one member to the Council’s governing board. The Town paid membership fees of $2,433 to the Council during the fiscal year ended June 30, 2014. Note 6. Significant Effects of Subsequent Events In August 2014, the Town entered into a note payable with BB&T in the amount of $599,000 for the purchase of a document management system, garbage truck and leaf truck. The note is payable in ten semi-annual payments of $62,257, which includes interest at 1.5% and matures in July 2019. The note payable is secured by the related equipment. In August 2014, the Town entered into a note payable with BB&T in the amount of $615,368 for the purchase of land and buildings. The note is payable in 30 semi-annual payments of $20,512 plus interest at 2.88% and matures in August 2029. The note payable is secured by certain real property. - 68 - THIS PAGE LEFT INTENTIONALLY BLANK. - 69 - REQUIRED SUPPLEMENTARY FINANCIAL DATA This section contains additional information required by generally accepted accounting principles.  Schedule of Funding Progress for the Law Enforcement Officers’ Special Separation Allowance.  Schedule of Employer Contributions for the Law Enforcement Officers’ Special Separation Allowance.  Notes to the Required Schedules for the Law Enforcement Officers’ Special Separation Allowance.  Schedule of Funding Progress for the Other Postemployment Benefits.  Schedule of Employer Contributions for the Other Postemployment Benefits.  Notes to the Required Schedules for the Other Postemployment Benefits. - 70 - THIS PAGE LEFT INTENTIONALLY BLANK. Exhibit A-1 Actuarial Accrued UAAL as a Actuarial Liability (AAL) - Unfunded Percentage Actuarial Value of Projected AAL Funded Covered of Covered Valuation Assets Unit Credit (UAAL) Ratio Payroll Payroll Date (a) (b) (b) - (a)(a) (b)(c)((b) - (a)) (c) 12/31/2004 -$ 341,964$ 341,964$ 0.00% 977,961$ 34.97% 12/31/2005 - 428,649 428,649 0.00% 1,104,377 38.81% 12/31/2006 - 429,075 429,075 0.00% 1,229,480 34.90% 12/31/2007 - 478,258 478,258 0.00% 1,275,715 37.49% 12/31/2008 - 484,358 484,358 0.00% 1,466,263 33.03% 12/31/2009 - 515,994 515,994 0.00% 1,373,891 37.56% 12/31/2010 - 460,998 460,998 0.00% 1,371,368 33.62% 12/31/2011 - 431,911 431,911 0.00% 1,358,876 31.78% 12/31/2012 - 417,455 417,455 0.00% 1,381,255 30.22% 12/31/2013 - 405,686 405,686 0.00% 1,397,887 29.02% TOWN OF HILLSBOROUGH, NORTH CAROLINA LAW ENFORCEMENT OFFICERS' SPECIAL SEPARATION ALLOWANCE REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF FUNDING PROGRESS - 71 - Exhibit A-2 Year Annual Annual Ended Required Percentage June 30 Contribution Contributed 2005 33,740$ 84.37% 2006 37,461 130.81% 2007 41,898 129.86% 2008 44,968 166.93% 2009 46,154 186.67% 2010 50,211 171.59% 2011 54,616 127.66% 2012 52,909 120.35% 2013 52,117 92.35% 2014 52,791 94.07% NOTES TO THE REQUIRED SCHEDULES Valuation date December 31, 2013 Actuarial cost method Projected unit credit Amortization method Level dollar closed Remaining amortization period 17 years Asset valuation method Market value Actuarial assumptions: Investment rate of return * 5.00% Projected salary increases * 4.25% - 7.85% * Includes inflation at: 3.00% Cost of living adjustments N/A The information presented in the required supplementary schedules was determined as part of the actuarial valuations at the dates indicated. Additional information as of the latest actuarial valuation follows: TOWN OF HILLSBOROUGH, NORTH CAROLINA LAW ENFORCEMENT OFFICERS' SPECIAL SEPARATION ALLOWANCE REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF EMPLOYER CONTRIBUTIONS - 72 - Exhibit B-1 Actuarial Accrued UAAL as a Actuarial Liability (AAL) -Unfunded Percentage Actuarial Value of Projected AAL Funded Covered of Covered Valuation Assets Unit Credit (UAAL) Ratio Payroll Payroll Date (a) (b) (b) - (a)(a) (b)(c)((b) - (a)) (c) 12/31/2008 -$ 1,167,518$ 1,167,518$ 0.00% 4,590,807$ 25.4% 12/31/2011 - 1,169,128 1,169,128 0.00% 4,337,051 27.0% TOWN OF HILLSBOROUGH, NORTH CAROLINA SCHEDULE OF FUNDING PROGRESS REQUIRED SUPPLEMENTARY INFORMATION OTHER POSTEMPLOYMENT BENEFITS - 73 - Exhibit B-2 Year Annual Annual Ended Required Percentage June 30 Contribution Contributed 2011 119,002$ 38.34% 2012 128,907 38.10% 2013 117,508 48.37% 2014 117,508 50.04% NOTES TO THE REQUIRED SCHEDULES Valuation date December 31, 2011 Actuarial cost method Projected unit credit Amortization method Level percent of pay, open Remaining amortization period 30 years Asset valuation method Market value Actuarial assumptions: Investment rate of return * 4.00% Medical cost trend rate 9.5% - 5.0% Year of ultimate trend rate 2018 * Includes inflation at: 3.00% TOWN OF HILLSBOROUGH, NORTH CAROLINA OTHER POSTEMPLOYMENT BENEFITS REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF EMPLOYER CONTRIBUTIONS The information presented in the required supplementary schedules was determined as part of the actuarial valuations at the dates indicated. Additional information as of the latest actuarial valuation follows: - 74 - - 75 - SUPPLEMENTARY INFORMATION - 76 - THIS PAGE LEFT INTENTIONALLY BLANK. Schedule 1 Page 1 of 4 2013 Variance Positive Budget Actual (Negative)Actual Revenues General revenues Ad valorem taxes Current 5,095,000$ 5,354,006$ 259,006$ 5,083,545$ Prior 20,000 35,968 15,968 30,743 Penalties and interest 17,000 39,140 22,140 21,181 5,132,000 5,429,114 297,114 5,135,469 Other taxes and licenses Local option sales tax 988,284 1,114,306 126,022 1,072,463 Gross receipts on short-term rental property 2,500 7,117 4,617 9,535 Privilege licenses 35,000 43,891 8,891 96,469 Motor vehicle license fees 43,000 31,420 (11,580) 47,054 Solid waste disposal 3,700 2,451 (1,249) 3,904 1,072,484 1,199,185 126,701 1,229,425 Unrestricted intergovernmental revenues Franchise tax 330,000 399,167 69,167 376,653 Beer and wine tax 25,000 27,536 2,536 25,190 Food and beverage tax 259,664 315,932 56,268 277,648 Occupancy tax 45,300 66,555 21,255 54,910 659,964 809,190 149,226 734,401 Restricted intergovernmental revenues Powell Bill 165,000 182,284 17,284 179,248 Local grants - 129,998 129,998 - Other 39,814 73,890 34,076 30,525 204,814 386,172 181,358 209,773 Investment earnings 2,500 1,854 (646) 3,488 Other general revenues 16,545 48,337 31,792 34,079 Total general revenues 7,088,307 7,873,852 785,545 7,346,635 Functionally related revenues Use and rental fees Zoning permits 30,000 41,196 11,196 240,806 Cable franchise 50,000 51,620 1,620 53,493 Time Warner Cable PEG fees 35,000 34,093 (907) 32,266 Fire inspection fees 8,000 13,893 5,893 11,426 Total functionally related revenues 123,000 140,802 17,802 337,991 Total revenues 7,211,307 8,014,654 803,347 7,684,626 2014 TOWN OF HILLSBOROUGH, NORTH CAROLINA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Year Ended June 30, 2014 with Comparative Actual Amounts for Year Ended June 30, 2013 - 77 - Schedule 1 Page 2 of 4 2013 Variance Positive Budget Actual (Negative)Actual 2014 TOWN OF HILLSBOROUGH, NORTH CAROLINA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Year Ended June 30, 2014 with Comparative Actual Amounts for Year Ended June 30, 2013 Expenditures General government Governing body Personnel services $ 38,836$ $ 41,847$ Other services and charges 166,903 196,720 Reimbursement from enterprise fund (115,477) (109,070) 165,883 90,262 75,621 129,497 Ruffin-Roulhac Other services and charges 62,054 40,703 Reimbursement from enterprise fund (24,606) (30,196) 39,144 37,448 1,696 10,507 Administration Personnel services 446,141 373,107 Other services and charges 347,948 291,154 Reimbursement from enterprise fund (386,041) (376,114) 475,071 408,048 67,023 288,147 Finance Personnel services 366,490 314,617 Other services and charges 100,519 90,970 Reimbursement from enterprise fund (201,252) (193,842) 271,753 265,757 5,996 211,745 Planning Personnel services 288,807 267,187 Other services and charges 96,578 55,095 424,359 385,385 38,974 322,282 Motor pool Personnel services 227,859 221,052 Other services and charges 169,135 154,035 Debt service payments 115,563 104,744 Reimbursement from enterprise fund (229,799) (214,751) 295,542 282,758 12,784 265,080 Total general government 1,671,752 1,469,658 202,094 1,227,258 Public safety Police department Personnel services 2,067,837 1,958,269 Other services and charges 277,121 212,884 Capital outlay 84,818 16,967 2,556,117 2,429,776 126,341 2,188,120 - 78 - Schedule 1 Page 3 of 4 2013 Variance Positive Budget Actual (Negative)Actual 2014 TOWN OF HILLSBOROUGH, NORTH CAROLINA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Year Ended June 30, 2014 with Comparative Actual Amounts for Year Ended June 30, 2013 Fire inspections/code enforcement Personnel services $ 108,374$ $ 106,157$ Other services and charges 18,593 12,512 Capital outlay 7,845 - Debt service payments 126,054 126,053 265,452 260,866 4,586 244,722 Safety Personnel services 81,105 77,781 Other services and charges 148,020 100,247 Reimbursement from enterprise fund (102,377) (92,610) 143,444 126,748 16,696 85,418 Fire protection Other services and charges 764,102 742,120 770,900 764,102 6,798 742,120 Total public safety 3,735,913 3,581,492 154,421 3,260,380 Transportation Street department/Powell Bill Personnel services 196,344 183,372 Other services and charges 212,535 242,541 Capital outlay 442,623 367,743 1,082,226 851,502 230,724 793,656 Total transportation 1,082,226 851,502 230,724 793,656 Environmental protection Sanitation department Personnel services 225,899 205,217 Other services and charges 340,847 144,838 Capital outlay 1,380 - Debt service payments 99,902 113,681 591,218 668,028 (76,810) 463,736 Cemetery Other services and charges 22,715 18,255 Capital outlay 69,597 - 99,177 92,312 6,865 18,255 Stormwater Personnel services 85,945 43,534 Other services and charges 54,275 71,902 Capital outlay 20,762 - Reimbursement from enterprise fund (15,210) (11,866) 152,287 145,772 6,515 103,570 Total environmental protection 842,682 906,112 (63,430) 585,561 - 79 - Schedule 1 Page 4 of 4 2013 Variance Positive Budget Actual (Negative)Actual 2014 TOWN OF HILLSBOROUGH, NORTH CAROLINA GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Year Ended June 30, 2014 with Comparative Actual Amounts for Year Ended June 30, 2013 Economic and physical development Tourism Other services and charges $ 367,389$ $ 485,977$ 275,300 367,389 (92,089) 485,977 Total economic and physical development 275,300 367,389 (92,089) 485,977 Community activities and projects Contributions 28,420 28,420 Other services and charges 90,831 36,458 Debt service payments 59,328 59,527 Total community activities and projects 908,524 178,579 729,945 124,405 Parks and recreation Other services and charges 55,850 36,267 Debt service payments 192,322 114,506 Total parks and recreation 287,583 248,172 39,411 150,773 Total expenditures 8,803,980 7,602,904 1,201,076 6,628,010 Revenues over (under) expenditures (1,592,673) 411,750 2,004,423 1,056,616 Other financing sources (uses) Transfer to Nash Street Sidewalk Fund - - - (7,246) Transfer to Riverwalk Phase III Fund (43,000) (43,000) - (238,381) Transfer to Riverwalk - CMAC Fund - - - (124,000) Transfer from General Capital Reserve Fund 126,054 126,054 - - Installment purchase obligations issued 615,370 - (615,370) - Proceeds of refunding installment purchases - 1,277,143 1,277,143 - Debt service - principal - (1,256,353) (1,256,353) - Total other financing sources (uses) 698,424 103,844 (594,580) (369,627) Appropriated fund balance 894,249 - (894,249) - Net change in fund balance -$ 515,594 515,594$ 686,989 Fund balance, beginning 5,601,872 4,914,883 Fund balance, ending 6,117,466$ 5,601,872$ - 80 - Schedule 2 Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) Revenues Restricted intergovernmental revenues State grants 1,055,766$ 432,000$ 382,544$ 814,544$ (241,222)$ Local grants 20,000 10,000 - 10,000 (10,000) Interest earned - - 234 234 234 Total revenues 1,075,766 442,000 382,778 824,778 (250,988) Expenditures Land acquisition 959,369 959,368 - 959,368 1 Legal and administrative 164,826 7,107 126,457 133,564 31,262 Design 346,455 314,816 27,523 342,339 4,116 Construction 1,477,843 - 1,382,195 1,382,195 95,648 Contingency 157,915 - - - 157,915 Total expenditures 3,106,408 1,281,291 1,536,175 2,817,466 288,942 Revenues under expenditures (2,030,642) (839,291) (1,153,397) (1,992,688) 37,954 Other financing sources Transfer from General Fund 820,705 818,847 - 818,847 (1,858) Installment purchase obligation issued 1,209,937 - 1,210,000 1,210,000 63 Total other financing sources 2,030,642 818,847 1,210,000 2,028,847 (1,795) Net change in fund balance -$ (20,444)$ 56,603 36,159$ 36,159$ Fund deficit, beginning (20,444) Fund balance, ending 36,159$ TOWN OF HILLSBOROUGH, NORTH CAROLINA MAJOR CAPITAL PROJECT FUND SCHEDULE OF REVENUES AND EXPENDITURES COMPARED WITH BUDGET - RIVERWALK PHASE II CAPITAL PROJECT FUND From Project Inception and for the Year Ended June 30, 2014 Actual - 81 - Schedule 3 Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) Revenues Investment earnings -$ 107$ -$ 107$ 107$ Total revenues - 107 - 107 107 Expenditures Capital equipment 919,000 911,914 - 911,914 7,086 Fleet maintenance facility 1,117,258 1,117,258 - 1,117,258 - Garbage truck 250,000 224,459 52 224,511 25,489 Municipal operations site 655,623 655,622 - 655,622 1 Construction 4,630,000 - 1,445,207 1,445,207 3,184,793 Total expenditures 7,571,881 2,909,253 1,445,259 4,354,512 3,217,369 Revenues under expenditures (7,571,881) (2,909,146) (1,445,259) (4,354,405) 3,217,476 Other financing sources Installment purchase obligations issued 2,861,600 2,838,621 - 2,838,621 (22,979) Contribution from property owners 4,630,000 - 1,445,207 1,445,207 (3,184,793) Transfer from General Fund 80,281 77,647 - 77,647 (2,634) Total other financing sources 7,571,881 2,916,268 1,445,207 4,361,475 (3,210,406) Net change in fund balance -$ 7,122$ (52) 7,070$ 7,070$ Fund balance, beginning 7,122 Fund balance, ending 7,070 Amounts reported for Revenue, Expenditures and Changes in Fund Balance are different for the Budgeted/Actual Statement due to consolidation of the 74 (126,054) 716,054 597,144$ General Capital Reserve Fund Transfers out - Capital Reserve Fund (Consolidated General Capital Projects Fund) TOWN OF HILLSBOROUGH, NORTH CAROLINA MAJOR GENERAL CAPITAL PROJECTS FUND SCHEDULE OF REVENUES AND EXPENDITURES COMPARED WITH BUDGET From Project Inception and for the Year Ended June 30, 2014 Actual Interest on investments Fund balance, beginning (Capital Reserve Fund) Fund balance, ending - 82 - Schedule 4 Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) Revenues Capital contributions 1,105,000$ 1,105,000$ -$ 1,105,000$ -$ Interest on investments 13,711 14,085 74 14,159 448 Total revenues 1,118,711 1,119,085 74 1,119,159 448 Expenditures 589,626 - - - 589,626 Revenues over expenditures 529,085 1,119,085 74 1,119,159 590,074 Other financing uses Transfer to General Fund (126,054) - (126,054) (126,054) - Transfer to Water Sewer Capital Reserve Fund (403,031) (403,031) - (403,031) - Total other financing sources (529,085) (403,031) (126,054) (529,085) - Net change in fund balance -$ 716,054$ (125,980) 590,074$ 590,074$ Fund balance, beginning 716,054 Fund balance, ending 590,074$ BUDGET- GENERAL CAPITAL RESERVE FUND From Project Inception and for the Year Ended June 30, 2014 Actual TOWN OF HILLSBOROUGH, NORTH CAROLINA GENERAL CAPITAL RESERVE FUND SCHEDULE OF REVENUES AND EXPENDITURES COMPARED WITH - 83 - Schedule 5 Riverwalk Riverwalk Phase III CMAQ Total Capital Capital Nonmajor Project Project Governmental ASSETS Fund Fund Funds Cash and investments -$ 106,105$ 106,105$ Restricted assets: Cash and investments 221,337 - 221,337 Total assets 221,337$ 106,105$ 327,442$ LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES LIABILITIES Accounts payable and accrued liabilities 3,106$ -$ 3,106$ Total liabilities 3,106 - 3,106 FUND BALANCES Restricted for: Capital projects 218,231 - 218,231 Committed for: Capital projects - 106,105 106,105 Total fund balances 218,231 106,105 324,336 Total liabilities and fund balances 221,337$ 106,105$ 327,442$ TOWN OF HILLSBOROUGH, NORTH CAROLINA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS June 30, 2014 - 84 - Schedule 6 Riverwalk Riverwalk Phase III CMAQ Total Capital Capital Nonmajor Project Project Governmental Fund Fund Funds Revenues Investment earnings 47$ -$ 47$ Total revenues 47 - 47 Expenditures Current Parks and recreation 65,236 17,895 83,131 Total expenditures 65,236 17,895 83,131 Revenues under expenditures (65,189) (17,895) (83,084) Other financing sources Installment purchase obligations issued 240,000 - 240,000 Transfer from General Fund 43,000 - 43,000 Total other financing sources 283,000 - 283,000 Net change in fund balances 217,811 (17,895) 199,916 Fund balances, beginning 420 124,000 124,420 Fund balances, ending 218,231$ 106,105$ 324,336$ TOWN OF HILLSBOROUGH, NORTH CAROLINA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS Year Ended June 30, 2014 - 85 - Schedule 7 Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) Revenues Interest on investments -$ -$ 47$ 47$ 47$ Total revenues - - 47 47 47 Expenditures Land acquisition 232,381 232,381 - 232,381 - Legal and administrative 3,000 2,830 - 2,830 170 Engineering 3,000 2,750 - 2,750 250 Design 58,000 - 44,036 44,036 13,964 Construction 201,000 - 21,200 21,200 179,800 Contingency 24,000 - - - 24,000 Total expenditures 521,381 237,961 65,236 303,197 218,184 Revenues under expenditures (521,381) (237,961) (65,189) (303,150) 218,231 Other financing sources Installment purchase obligations issued 240,000 - 240,000 240,000 - Transfer from General Fund 281,381 238,381 43,000 281,381 - Total other financing sources 521,381 238,381 283,000 521,381 - Net change in fund balance -$ 420$ 217,811 218,231$ 218,231$ Fund balance, beginning 420 Fund balance, ending 218,231$ TOWN OF HILLSBOROUGH, NORTH CAROLINA NONMAJOR CAPITAL PROJECT FUND SCHEDULE OF REVENUES AND EXPENDITURES COMPARED WITH BUDGET- RIVERWALK PHASE III CAPITAL PROJECT FUND From Project Inception and for the Year Ended June 30, 2014 Actual - 86 - Schedule 8 Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) Revenues Restricted intergovernmental revenues State grants 25,000$ -$ -$ -$ (25,000)$ Federal grants 496,000 - - - (496,000) Capital contributions 5,000 - - - (5,000) Total revenues 526,000 - - - (526,000) Expenditures Design 101,000 - 17,895 17,895 (83,105) Construction 549,000 - - - (549,000) Total expenditures 650,000 - 17,895 17,895 (632,105) Revenues under expenditures (124,000) - (17,895) (17,895) 106,105 Other financing sources Transfer from General Fund 124,000 124,000 - 124,000 - Net change in fund balance -$ 124,000$ (17,895) 106,105$ 106,105$ Fund balance, beginning 124,000 Fund balance, ending 106,105$ TOWN OF HILLSBOROUGH, NORTH CAROLINA NONMAJOR CAPITAL PROJECT FUND SCHEDULE OF REVENUES AND EXPENDITURES COMPARED WITH BUDGET- RIVERWALK CMAQ CAPITAL PROJECT FUND From Project Inception and for the Year Ended June 30, 2014 Actual - 87 - Schedule 9 2013 Variance Positive Budget Actual (Negative)Actual Revenues Operating revenues Water charges 3,825,600$ 3,880,029$ 54,429$ 3,963,645$ Sewer charges 3,302,547 3,619,154 316,607 3,239,341 Other receipts 1,478,499 1,621,424 142,925 353,760 8,606,646 9,120,607 513,961 7,556,746 Nonoperating revenues Interest on investments 3,000 2,379 (621) 3,419 Total revenues 8,609,646$ 9,122,986$ 513,340$ 7,560,165$ Year Ended June 30, 2014 with Comparative 2014 Actual Amounts for Year Ended June 30, 2013 TOWN OF HILLSBOROUGH, NORTH CAROLINA ENTERPRISE FUND SCHEDULE OF REVENUES COMPARED WITH BUDGET (NON-GAAP) - WATER AND SEWER FUND - 88 - Schedule 10 Page 1 of 3 2013 Variance Positive Budget Actual (Negative)Actual Expenditures Engineering Personnel services $ 377,345$ $ 361,159$ Other services and charges 1,134,402 1,080,693 Total engineering 1,552,696 1,511,747 40,949 1,441,852 Billing and collection Personnel services 330,383 318,267 Other services and charges 105,323 93,720 Repairs and maintenance 2,967 515 Debt service payments 161,286 161,286 Total billing and collection 627,949 599,959 27,990 573,788 Water plant Personnel services 494,037 468,419 Other services and charges 293,697 343,049 Repairs and maintenance 25,524 44,878 Debt service payments 118,949 121,285 Total water plant 1,094,460 932,207 162,253 977,631 Water distribution Personnel services 376,167 347,758 Other services and charges 234,929 217,456 Repairs and maintenance 17,870 18,548 Capital outlay 48,222 109,023 Debt service payments 25,183 25,658 Total water distribution 963,244 702,371 260,873 718,443 Wastewater collection Personnel services 375,722 346,131 Other services and charges 291,226 237,423 Repairs and maintenance 8,268 12,502 Capital outlay 24,579 75,051 Debt service payments 197,306 216,460 Total wastewater collection 977,848 897,101 80,747 887,567 2014 TOWN OF HILLSBOROUGH, NORTH CAROLINA ENTERPRISE FUND SCHEDULE OF EXPENDITURES COMPARED WITH BUDGET (NON-GAAP) - WATER AND SEWER FUND Year Ended June 30, 2014 with Comparative Actual Amounts for Year Ended June 30, 2013 - 89 - Schedule 10 Page 2 of 3 2013 Variance Positive Budget Actual (Negative)Actual 2014 TOWN OF HILLSBOROUGH, NORTH CAROLINA ENTERPRISE FUND SCHEDULE OF EXPENDITURES COMPARED WITH BUDGET (NON-GAAP) - WATER AND SEWER FUND Year Ended June 30, 2014 with Comparative Actual Amounts for Year Ended June 30, 2013 Wastewater plant Personnel services $ 513,206$ $ 523,495$ Other services and charges 402,335 451,868 Repairs and maintenance 27,680 20,115 Capital outlay - 23,474 Debt service payments - 14,700 Total wastewater plant 1,072,659 943,221 129,438 1,033,652 Reservoir Other services and charges 17,958 24,359 Repairs and maintenance 11,097 12,357 Debt service payments 678,604 714,532 Total reservoir 764,057 707,659 56,398 751,248 Total expenditures 7,052,913 6,294,265 758,648 6,384,181 Revenues over expenditures 1,556,733 2,828,721 1,271,988 1,175,984 Other financing uses Transfer to Water and Sewer Capital Reserve Fund (2,020,699) (2,020,699) - (515,547) Transfer from Water and Sewer Capital Reserve Fund 338,128 - (338,128) - Transfer to Water and Sewer Capital Projects Fund (822,063) (483,935) 338,128 (432,000) Total other financing uses (2,504,634) (2,504,634) - (947,547) Excess of revenues and other uses over (under) expenditures and other uses (947,901) 324,087 1,271,988 228,437 Appropriated fund balance 947,901 - (947,901) - Excess of revenues and other uses over expenditures and other uses -$ 324,087$ 324,087$ 228,437$ - 90 - Schedule 10 Page 3 of 3 Reconciliation of budgetary basis (modified accrual) to full accrual basis Excess of revenues and other sources over expenditures and other uses 324,087$ Reconciling items: Interest income from Water and Sewer Capital Reserve Fund 222 Payment of principal on notes, bonds and installment purchases 1,051,283 Capital outlay 72,801 Noncapitalizable capital project expenditures (299,752) Capitalized interest on borrowings during construction period 11,686 Depreciation (787,434) Interest expense accrual adjustment 18,639 Vacation pay accrual adjustment (5,229) Increase in OPEB liability (23,893) Bad debts (95,000) Capital contributions - donated property 1,028,171 Amortization of deferred loss on refunding (15,147) Transfer to Water and Sewer Capital Projects Fund 483,935 Transfer to Water and Sewer Capital Reserve Fund 2,020,699 Change in net position 3,785,068$ TOWN OF HILLSBOROUGH, NORTH CAROLINA ENTERPRISE FUND SCHEDULE OF EXPENDITURES COMPARED WITH BUDGET (NON-GAAP) - WATER AND SEWER FUND Year Ended June 30, 2014 with Comparative Actual Amounts for Year Ended June 30, 2013 - 91 - Schedule 11 Variance Project Prior Current Total Positive Authorization Years Year to Date (Negative) Revenues Restricted intergovernmental revenues State grant 492,000$ 492,000$ -$ 492,000$ -$ Federal grant 156,000 156,250 - 156,250 250 Interest on investments 5,219 5,021 - 5,021 (198) Total revenues 653,219 653,271 - 653,271 52 Expenditures - wastewater treatment plant Expansion design 1,578,595 1,566,094 12,501 1,578,595 - Legal and administrative 1,435,430 1,105,231 276,535 1,381,766 53,664 Construction 17,262,728 14,694,190 1,519,719 16,213,909 1,048,819 Miscellaneous 60,934 9,797 26,137 35,934 25,000 20,337,687 17,375,312 1,834,892 19,210,204 1,127,483 Expenditures - sewer outfall Construction 402,300 402,279 - 402,279 21 Miscellaneous 1,765 155 - 155 1,610 404,065 402,434 - 402,434 1,631 Expenditures - capital improvements Sewer Outfall Phase II 1,374,581 1,288,043 - 1,288,043 86,538 Lawrence Road 1,084,488 854,682 125,488 980,170 104,318 Lake Ben Johnson 2,557,178 297,331 311,312 608,643 1,948,535 Water meter replacement 750,000 662,705 42,178 704,883 45,117 Other improvements 100,000 - 38,074 38,074 61,926 5,866,247 3,102,761 517,052 3,619,813 2,246,434 Expenditures - West Fork Eno Reservoir Services and charges 200,000 - 152,622 152,622 47,378 200,000 - 152,622 152,622 47,378 Total expenditures 26,807,999 20,880,507 2,504,566 23,385,073 3,422,926 Revenues under expenditures (26,154,780) (20,227,236) (2,504,566) (22,731,802) 3,422,978 Other financing sources (uses) Proceeds from state revolving loan 18,894,640 15,256,478 2,472,930 17,729,408 (1,165,232) Proceeds from installment purchases 3,752,631 2,252,243 - 2,252,243 (1,500,388) Transfer from Water and Sewer Capital Reserve Fund 1,044,553 879,553 - 879,553 (165,000) Transfer from Water and Sewer Fund 2,662,956 1,840,893 483,935 2,324,828 (338,128) Transfer to Water and Sewer Fund (200,000) (200,000) - (200,000) - Total other financing sources 26,154,780 20,029,167 2,956,865 22,986,032 (3,168,748) Excess of revenues and other sources over (under) expenditures and other uses -$ (198,069)$ 452,299$ 254,230$ 254,230$ BUDGET (NON-GAAP) - WATER AND SEWER CAPITAL PROJECTS FUND From Project Inception and for the Year Ended June 30, 2014 Actual TOWN OF HILLSBOROUGH, NORTH CAROLINA ENTERPRISE FUND SCHEDULE OF REVENUES AND EXPENDITURES COMPARED WITH - 92 - Schedule 12 Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) Revenues Interest on investments 262,942$ 263,771$ 222$ 263,993$ 1,051$ Expenditures 3,604,420 - - - 3,604,420 Revenues over (under) expenditures (3,341,478) 263,771 222 263,993 3,605,471 Other financing sources (uses) Transfers from Water and Sewer Fund 5,019,938 3,061,412 2,020,699 5,082,111 62,173 Transfers from General Capital Reserve Fund 403,031 403,031 - 403,031 - Capital contributions 1,066,190 1,066,190 - 1,066,190 - Transfers to Water and Sewer Fund (1,683,128) (1,345,000) - (1,345,000) 338,128 Transfers to Water and Sewer Capital Projects Fund (1,464,553) (1,299,553) - (1,299,553) 165,000 Total other financing sources 3,341,478 1,886,080 2,020,699 3,906,779 565,301 Excess of revenues and other sources over expenditures -$ 2,149,851$ 2,020,921$ 4,170,772$ 4,170,772$ BUDGET (NON-GAAP) - WATER AND SEWER CAPITAL RESERVE FUND From Project Inception and for the Year Ended June 30, 2014 Actual TOWN OF HILLSBOROUGH, NORTH CAROLINA ENTERPRISE FUND SCHEDULE OF REVENUES AND EXPENDITURES COMPARED WITH - 93 - - 94 - THIS PAGE LEFT INTENTIONALLY BLANK. - 95 - ADDITIONAL FINANCIAL DATA This section contains additional information on property taxes.  Schedule of Ad Valorem Taxes Receivable  Analysis of Current Tax Levy - 96 - THIS PAGE LEFT INTENTIONALLY BLANK. Schedule 13 Uncollected Uncollected Balance Collections Balance Fiscal Year July 1, 2013 Additions and Credits June 30, 2014 2013-2014 -$ 5,418,579$ 5,315,921$ 102,658$ 2012-2013 139,832 - 88,924 50,908 2011-2012 39,760 - 16,989 22,771 2010-2011 28,935 - 19,130 9,805 2009-2010 11,836 - - 11,836 2008-2009 15,344 - - 15,344 2007-2008 15,149 - - 15,149 2006-2007 7,124 - - 7,124 2005-2006 538 - - 538 258,518 5,418,579$ 5,440,964$ 236,133 Less allowance for uncollectible accounts: General Fund (85,842) (77,417) 172,676$ 158,716$ Reconciliation of collections and credits with revenues: Taxes - ad valorem - General Fund 5,429,114$ Motor vehicle license fees - General Fund 31,420 Penalties and interest (39,140) Adjustments and refunds 19,570 5,440,964$ TOWN OF HILLSBOROUGH, NORTH CAROLINA SCHEDULE OF AD VALOREM TAXES RECEIVABLE June 30, 2014 - 97 - Schedule 14 Property Excluding Registered Registered Property Total Motor Motor Valuation** Rate Levy* Vehicles Vehicles Original levy Property taxed at current year’s rate 778,290,000$ 0.6800 5,292,372$ 4,950,713$ 341,659$ Motor vehicle taxed at prior year rate 7,475,000 0.6800 50,830 - 50,830 Motor vehicle license fees - 64,572 - 64,572 Penalties and interest - 10,805 10,805 - Total property valuation 785,765,000$ 5,418,579 4,961,518 457,061 Uncollected taxes at June 30, 2014 102,658 80,340 22,318 Current year’s taxes collected 5,315,921$ 4,881,178$ 434,743$ Current levy collection percentage 98.11% 98.38% 95.12% ** Property tax valuation prior to the discoveries and abatements. Town-Wide Total Levy TOWN OF HILLSBOROUGH, NORTH CAROLINA Year Ended June 30, 2014 ANALYSIS OF CURRENT TAX LEVY * Total adjusted levy includes discoveries and abatements. - 98 - - 99 - STATISTICAL SECTION - 100 - THIS PAGE LEFT INTENTIONALLY BLANK. Statistical Section Contents Page Financial Trends Information 102 These schedules contain trend information to help the reader understand how the Town's financial performance and well-being have changed over time. Revenue Capacity Information 107 These schedules contain information to help the reader assess the Town's most significant local revenue sources, property taxes, and water and sewer charges. Debt Capacity Information 116 These schedules present information to help the reader assess the affordability of the Town's current levels of outstanding debt and the Town's ability to issue additional debt in the future. Demographic and Economic Information 121 These schedules offer demographic and economic indicators to help the reader understand the environment within which the Town's financial activities take place. Operating Information 125 These schedules contain service and infrastructure data to help the reader understand how the information in the Town's financial report relates to the services the Town provides and the activities it performs. This part of the Town of Hillsborough's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the Town's overall financial health. Sources:Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The Town implemented GASB Statement 34 in 2004; schedules presenting government-wide information include information beginning in that year. - 101 - Financial Trends Information - 102 - Table 12005 2006 2007 2008 2009 2010 2011 2012 2013 2014Governmental activitiesNet investment in capital assets 1,443,364$ 1,536,427$ 1,774,382$ 1,736,635$ 2,375,505$ 3,268,065$ 5,338,508$ 5,870,981$ 6,723,808$ 10,924,631$ Restricted 92,377 2,282 192,078 1,660,871 563,417 806,780 2,121,546 1,570,832 1,831,742 1,700,808 Unrestricted 3,647,212 3,908,306 4,228,407 3,329,482 4,891,494 5,402,272 3,766,961 3,984,264 4,390,314 4,832,103 Total governmental activities net position 5,182,953$ 5,447,015$ 6,194,867$ 6,726,988$ 7,830,416$ 9,477,117$ 11,227,015$ 11,426,077$ 12,945,864$ 17,457,542$ Business-type activitiesNet investment in capital assets 13,758,384$ 14,310,390$ 15,946,393$ 20,174,460$ 21,590,822$ 21,736,659$ 24,316,110$ 26,632,441$ 26,017,050$ 27,110,293$ Restricted - 1,834,599 1,607,258 2,011,464 2,438,955 2,128,459 1,721,067 1,974,677 2,590,989 2,591,211 Unrestricted 4,442,662 3,685,563 4,031,059 4,268,347 3,495,837 4,020,580 3,518,417 2,674,119 4,084,460 6,776,063 Total business-type activities net position 18,201,046$ 19,830,552$ 21,584,710$ 26,454,271$ 27,525,614$ 27,885,698$ 29,555,594$ 31,281,237$ 32,692,499$ 36,477,567$ Primary governmentNet investment in capital assets 15,201,748$ 15,846,817$ 17,720,775$ 21,911,095$ 23,966,327$ 25,004,724$ 29,654,618$ 32,503,422$ 32,740,858$ 38,034,924$ Restricted 92,377 1,836,881 1,799,336 3,672,335 3,002,372 2,935,239 3,842,613 3,545,509 4,422,731 4,292,019 Unrestricted 8,089,874 7,593,869 8,259,466 7,597,829 8,387,331 9,422,852 7,285,378 6,658,383 8,474,774 11,608,166 Total primary government net position 23,383,999$ 25,277,567$ 27,779,577$ 33,181,259$ 35,356,030$ 37,362,815$ 40,782,609$ 42,707,314$ 45,638,363$ 53,935,109$ TOWN OF HILLSBOROUGHNET POSITION BY COMPONENTLast Ten Fiscal Years(accrual basis of accounting)- 103 - Table 2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Expenses Governmental activities: General government 600,763$ 967,939$ 990,096$ 1,153,096$ 1,341,151$ 1,511,119$ 1,353,757$ 1,402,445$ 1,301,963$ 1,524,025$ Public safety 2,557,909 2,801,042 3,165,228 3,320,666 3,477,812 3,389,490 3,379,456 2,597,911 3,395,465 3,619,529 Transportation 627,203 467,796 1,189,355 1,217,558 435,870 390,313 486,940 1,510,493 497,540 500,491 Environmental protection 394,738 638,351 49,052 63,118 546,472 534,476 595,447 546,612 580,312 833,623 Economic and physical development 179,113 198,650 210,430 217,638 237,278 247,420 256,092 243,163 485,977 367,389 Community activities and projects 56,115 62,521 54,100 227,721 105,026 40,961 49,505 40,996 64,878 119,251 Parks and recreation - - - 12,801 31,657 60,629 36,844 51,500 36,267 55,849 Unallocated interest expense 2,261 337 10,690 21,248 77,316 107,315 108,598 104,518 105,022 126,250 Total governmental activities expenses 4,418,102 5,136,636 5,668,951 6,233,846 6,252,582 6,281,723 6,266,639 6,497,638 6,467,424 7,146,407 Business-type activities: Water and sewer 4,873,478 5,153,557 5,120,765 5,472,746 5,616,181 6,093,635 5,758,760 6,151,253 6,279,271 6,271,311 Total business-type activities expenses 4,873,478 5,153,557 5,120,765 5,472,746 5,616,181 6,093,635 5,758,760 6,151,253 6,279,271 6,271,311 Total primary government expenses 9,291,580$ 10,290,193$ 10,789,716$ 11,706,592$ 11,868,763$ 12,375,358$ 12,025,399$ 12,648,891$ 12,746,695$ 13,417,718$ Program Revenues Governmental activities: Charges for services: General government 95,542$ 99,131$ 140,920$ 159,868$ 113,738$ 131,750$ 149,790$ 160,990$ 326,565$ 126,909$ Public safety 4,693 24,573 21,036 15,290 14,453 10,825 10,273 15,593 11,426 13,893 Transportation - - - - - 2,951 - - - - Environmental protection 24,707 - - - - - - - - - Parks and recreation - - - - - - 2,170 2,970 3,190 4,140 Operating grants and contributions 196,913 195,675 254,312 337,166 309,510 202,067 183,874 228,457 175,347 316,576 Capital grants and contributions 77,561 29,817 159,063 265,947 686,984 1,001,630 1,191,157 203,301 334,525 3,741,958 Total governmental activities program revenues 399,416 349,196 575,331 778,271 1,124,685 1,349,223 1,537,264 611,311 851,053 4,203,476 Business-type activities: Charges for services: Water and sewer 5,631,972 5,555,602 6,193,895 6,320,471 6,292,642 6,425,750 6,755,260 7,366,996 7,686,356 9,025,607 Capital grants and contributions 636,077 1,037,089 434,712 3,754,896 290,891 - 658,828 100,000 - 1,028,171 Total business-type activities program revenues 6,268,049 6,592,691 6,628,607 10,075,367 6,583,533 6,425,750 7,414,088 7,466,996 7,686,356 10,053,778 Total primary government program revenues 6,667,465$ 6,941,887$ 7,203,938$ 10,853,638$ 7,708,218$ 7,774,973$ 8,951,352$ 8,078,307$ 8,537,409$ 14,257,254$ Net (Expense) Revenue Governmental activities (4,018,686)$ (4,787,440)$ (5,093,620)$ (5,455,575)$ (5,127,897)$ (4,932,500)$ (4,729,375)$ (5,886,327)$ (5,616,371)$ (2,942,931)$ Business-type activities 1,394,571 1,439,134 1,507,842 4,602,621 967,352 332,115 1,655,328 1,315,743 1,407,085 3,782,467 Total primary government net expense (2,624,115)$ (3,348,306)$ (3,585,778)$ (852,954)$ (4,160,545)$ (4,600,385)$ (3,074,047)$ (4,570,584)$ (4,209,286)$ 839,536$ General Revenues and Other Changes in Net Position Governmental activities: Taxes 4,000,103$ 4,366,328$ 5,056,393$ 5,203,555$ 5,479,986$ 5,898,215$ 5,808,387$ 5,816,041$ 6,371,494$ 6,603,311$ Unrestricted inter- governmental revenues 486,084 516,245 544,091 575,308 625,798 615,770 635,907 651,381 734,401 809,190 Investment earnings, unrestricted 74,974 161,770 219,162 196,325 109,920 29,889 10,838 4,748 3,874 2,209 Miscellaneous 4,784 7,159 21,826 12,508 15,621 35,327 24,141 16,250 26,389 39,899 Total governmental activities 4,565,945 5,051,502 5,841,472 5,987,696 6,231,325 6,579,201 6,479,273 6,488,420 7,136,158 7,454,609 Business-type activities: Investment earnings 91,026 190,372 246,246 233,136 107,104 27,967 14,568 6,869 4,177 2,601 Miscellaneous - - 70 30,691 - - - - - - Total business-type activities 91,026 190,372 246,316 263,827 107,104 27,967 14,568 6,869 4,177 2,601 Total primary government 4,656,971$ 5,241,874$ 6,087,788$ 6,251,523$ 6,338,429$ 6,607,168$ 6,493,841$ 6,495,289$ 7,140,335$ 7,457,210$ Change in Net Position Governmental activities 547,259$ 264,062$ 747,852$ 532,121$ 1,103,428$ 1,646,701$ 1,749,898$ 199,062$ 1,519,787$ 4,511,678$ Business-type activities 1,485,597 1,629,506 1,754,158 4,866,448 1,074,456 360,084 1,669,896 1,725,643 1,411,262 3,785,068 Total primary government 2,032,856$ 1,893,568$ 2,502,010$ 5,398,569$ 2,177,884$ 2,006,785$ 3,419,794$ 1,924,705$ 2,931,049$ 8,296,746$ TOWN OF HILLSBOROUGH CHANGES IN NET POSITION Last Ten Fiscal Years (accrual basis of accounting) - 104 - Table 32005 2006 2007 2008 2009 2010 2011 2012 2013 2014Governmental fundsReserved 1,054,154$ 626,383$ 743,476$ 852,658$ 904,063$ 1,430,710$ -$ -$ -$ -$ Unreserved 2,850,044 3,451,245 3,826,566 5,333,079 4,606,586 4,472,052 - - - - Nonspendable - - - - - - 477 68,649 4,305 72,156 Restricted - - - - - - 2,121,546 1,797,832 1,831,742 1,955,198 Committed - - - - - - 204,943 240,640 131,490 106,105 Assigned - - - - - - 215,354 88,094 330,206 782,995 Unassigned - - - - - - 3,153,904 3,691,038 4,131,281 4,158,651 Total governmental funds 3,904,198$ 4,077,628$ 4,570,042$ 6,185,737$ 5,510,649$ 5,902,762$ 5,696,224$ 5,886,253$ 6,429,024$ 7,075,105$ TOWN OF HILLSBOROUGHFUND BALANCES, GOVERNMENTAL FUNDSLast Ten Fiscal Years(modified accrual basis of accounting)- 105 - Table 42005 2006 2007 2008 2009 2010 2011 2012 2013 2014RevenuesAd valorem taxes 3,028,512$ 3,291,685$ 3,863,679$ 3,843,372$ 4,317,508$ 4,819,371$ 4,610,003$ 4,716,460$ 5,135,469$ 5,429,114$ Other taxes and licenses 976,728 1,067,530 1,197,964 1,216,236 1,178,406 1,131,562 1,163,501 1,124,696 1,229,425 1,199,185 Unrestricted intergovernmental 486,084 516,245 544,091 575,308 625,798 615,770 635,907 651,381 734,401 809,190 Restricted intergovernmental 225,520 221,614 257,092 364,818 755,912 306,662 1,234,870 453,755 308,007 768,716 Investment earnings 74,974 161,770 219,834 195,632 109,920 29,889 10,838 4,748 3,874 2,209 Capital contributions - - 135,000 235,000 235,000 200,000 200,000 100,000 - - Use and rental 124,941 123,704 161,956 175,158 128,191 142,575 160,063 176,583 337,991 140,802 Other general revenues 11,330 11,038 42,440 30,733 31,106 31,518 67,071 69,669 34,079 48,337 Total revenues 4,928,089 5,393,586 6,422,056 6,636,257 7,381,841 7,277,347 8,082,253 7,297,292 7,783,246 8,397,553 ExpendituresCurrentGeneral government 808,069 1,055,473 1,090,839 1,255,061 1,986,459 2,552,912 1,232,665 1,235,107 1,122,514 2,799,302 Public safety 2,468,317 2,788,016 3,281,406 3,349,295 3,499,641 3,263,200 3,347,597 3,164,361 3,134,327 3,455,438 Transportation 603,152 677,493 843,439 633,474 408,258 720,627 1,718,386 1,693,664 1,011,557 851,502 Environmental protection 383,286 618,358 364,861 510,948 470,448 580,854 583,919 476,415 471,880 806,262 Economic and physical development 179,113 198,650 210,430 217,638 237,278 247,420 256,092 243,163 485,977 367,389 Community activities and projects 56,114 62,521 54,461 227,721 105,026 54,137 54,946 325,666 64,878 119,251 Parks and recreation - - 109,096 102,046 1,722,062 344,499 791,184 239,105 430,831 1,675,156 Debt servicePrincipal retirement 43,318 17,246 36,638 62,140 178,595 238,111 303,074 283,126 407,246 474,458 Interest and fiscal charges 2,673 900 7,972 11,938 68,762 93,874 107,928 98,896 111,265 118,711 Total expenditures 4,544,042 5,418,657 5,999,142 6,370,261 8,676,529 8,095,634 8,395,791 7,759,503 7,240,475 10,667,469 Excess of revenues over (under) expenditures 384,047 (25,071) 422,914 265,996 (1,294,688) (818,287) (313,538) (462,211) 542,771 (2,269,916) Other financing sources (uses)Transfers in - - 111,232 - 43,023 628,118 717,582 440,409 369,627 169,054 Transfers out - - (111,232) - (43,023) (628,118) (717,582) (843,440) (369,627) (169,054) Sale of equipment - - - - - - - - - - Insurance recovery - - - - - - - 16,250 - - Contribution from property owners - - - - - - - - - 1,445,207 Debt service - principal on refunding - - - - - - - - - (1,256,353) Proceeds from installment notes - 198,501 69,500 1,349,700 619,600 1,210,400 107,000 1,039,021 - 2,727,143 Total other financing sources - 198,501 69,500 1,349,700 619,600 1,210,400 107,000 652,240 - 2,915,997 Net change in fund balances384,047$ 173,430$ 492,414$ 1,615,696$ (675,088)$ 392,113$ (206,538)$ 190,029$ 542,771$ 646,081$ Capital outlay included in functional expenditures above 220,500$ 416,105$ 484,601$ 313,810$ 2,491,483$ 1,907,332$ 2,280,672$ 1,501,851$ 997,107$ 2,083,826$ Debt service as a percentage of noncapital expenditures 1.06% 0.36% 81.00% 1.22% 4.00% 5.36% 6.72% 6.10% 8.30% 6.91%CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDSLast Ten Fiscal Years(modified accrual basis of accounting)TOWN OF HILLSBOROUGH- 106 - Revenue Capacity Information - 107 - Table 52005 2006 2007 2008 2009 2010 2011 2012 2013 2014Function/programGovernmental activities:General government 143,037$ 102,708$ 140,920$ 159,868$ 348,738$ 331,750$ 382,843$ 354,227$ 361,590$ 1,388,937$ Police 32,021 54,323 64,210 134,722 14,453 28,874 10,273 15,593 11,426 13,893 Transportation 183,954 185,394 192,890 216,544 274,275 543,741 848,978 228,521 185,847 312,282 Environmental protection 40,404 6,611 8,940 - - - - - - 2,059,224 Economic and physical development - - 16,302 1,190 235 - - - - - Community activities and projects - 160 - - - - - - - - Parks and recreation - - 152,069 265,947 486,984 444,858 295,170 12,970 292,190 429,140 Subtotal governmental activities 399,416 349,196 575,331 778,271 1,124,685 1,349,223 1,537,264 611,311 851,053 4,203,476 Business-type activities:Water and sewer 6,268,049 6,592,691 6,628,607 10,075,367 6,583,533 6,425,750 7,414,088 7,466,996 7,686,356 10,053,778 Subtotal business-type activities 6,268,049 6,592,691 6,628,607 10,075,367 6,583,533 6,425,750 7,414,088 7,466,996 7,686,356 10,053,778 Total primary government 6,667,465$ 6,941,887$ 7,203,938$ 10,853,638$ 7,708,218$ 7,774,973$ 8,951,352$ 8,078,307$ 8,537,409$ 14,257,254$ TOWN OF HILLSBOROUGHPROGRAM REVENUES BY FUNCTION/PROGRAMLast Ten Fiscal Years(accrual basis of accounting)- 108 - Table 6 Fiscal Ad Valorem Year Taxes 2005 3,028,512$ 2006 3,291,685 2007 3,863,679 2008 3,843,372 2009 4,317,508 2010 4,819,371 2011 4,610,003 2012 4,716,460 2013 5,135,469 2014 5,429,114 Change b 2005 - 2014 79.27% b Ad Valorem tax revenue increased by 79.29 percent in the past ten years. This is primarily due to property values being re-evaluated every four years. During the last ten years, there were two re-evaluation periods 2005 and 2009. The four-year re-evaluation period along with increasing property values and steady growth has caused a significant increase in Ad Valorem Revenue from 2005 to 2014. TOWN OF HILLSBOROUGH TAX REVENUES BY SOURCE, GOVERNMENTAL FUNDS a Last Ten Fiscal Years (modified accrual basis of accounting) a This table presents the Town's most significant source of revenues. All other taxes and revenues are either comparatively insignificant or levied by a governmental entity other than the Town of Hillsborough. - 109 - Table 7 Total Assessed Total Direct Value as a Fiscal Real Personal Public-Service Assessed Tax Percent of Year Property *Property Companies Value Rate Actual Value 2005 406,242,350$ 68,875,306$ 11,632,900$ 486,750,556$ 0.6200 100.00% 2006 498,764,816 69,532,409 11,634,060 579,931,285 0.5660 100.00% 2007 532,148,273 78,065,817 12,257,142 622,471,232 0.6200 100.00% 2008 535,719,952 81,267,458 11,297,072 628,284,482 0.6350 100.00% 2009 552,914,553 77,727,711 11,612,614 642,254,878 0.6700 100.00% 2010 657,426,788 83,569,294 11,954,916 752,950,998 0.6200 100.00% 2011 653,238,545 84,168,694 10,825,503 748,232,742 0.6200 100.00% 2012 661,688,578 85,866,250 11,371,703 758,926,531 0.6200 100.00% 2013 667,581,857 83,022,657 11,710,268 762,314,782 0.6800 100.00% 2014 674,676,352 99,378,379 11,710,269 785,765,000 0.6800 100.00% TOWN OF HILLSBOROUGH ASSESSED VALUE AND ACTUAL VALUE OF TAXABLE PROPERTY Last Ten Fiscal Years Note:Property in the city is reassessed each year. Property is assessed at actual value; therefore, the assessed values are equal to actual value. Tax rates are per $100 of assessed value. Source: Annual County Report of Valuation and Property Tax Levies. * Real property values exclude tax-exempt property. - 110 - Table 8 Fiscal Basic Total Fire Year Rate Direct District b County 2005 0.620 0.620 - 0.8800 2006 0.566 0.566 - 0.8430 2007 0.620 0.620 - 0.9030 2008 0.635 0.635 - 0.9500 2009 0.670 0.670 - 0.9980 2010 0.620 0.620 - 0.8580 2011 0.620 0.620 - 0.8580 2012 0.620 0.620 - 0.8580 2013 0.680 0.680 - 0.8580 2014 0.680 0.680 - 0.8780 Source: Orange County TOWN OF HILLSBOROUGH DIRECT AND OVERLAPPING PROPERTY TAX RATES Last Ten Fiscal Years (rate per $100 of assessed value) b The Fire District Tax applies to properties outside of the city limits. Municipality Rates Note:The Town's basic property tax rate may be increased only by a majority vote of the elected Town Board of Town Commissioners. a Overlapping rates are those of local and county governments that apply to property owners within the Town of Hillsborough. Overlapping Rates a - 111 - Table 9.FiscalYear Taxes Levied CollectionsEnded for the Percentage in Subsequent PercentageJune 30, Fiscal Year Amount of Levy Years Amount of Levy2005 3,071,757$ 3,017,398$ 98.23% 48,604$ 3,066,002$ 99.81%2006 3,333,473 3,274,376 98.23% 50,053 3,324,429 99.73%2007 3,893,091 3,833,657 98.47% 52,310 3,885,967 99.82%2008 4,035,215 3,828,830 94.89% 191,236 4,020,066 99.62%2009 4,380,999 4,295,618 98.05% 70,037 4,365,655 99.65%2010 4,732,461 4,641,581 98.09% 79,044 4,720,625 99.75%2011 4,690,863 4,557,501 97.16% 123,557 4,681,058 99.79%2012 4,755,200 4,641,541 97.61% 90,888 4,732,429 99.52%2013 5,225,057 5,085,225 98.82% 88,924 5,174,149 99.03%2014 5,418,579 5,315,921 98.11% - 5,315,921 98.11%Sources: Orange County Board of Equalization and Assessment, and Orange County Department of Finance.Fiscal Year of the Levy Total Collections to DateTOWN OF HILLSBOROUGHPROPERTY TAX REVIEW AND COLLECTIONSLast Ten Fiscal YearsCollected within the- 112 - Table 10Percentage Percentageof Total City of Total CityTaxable Taxable Taxable TaxableAssessed Assessed Assessed AssessedTaxpayer Value Rank Value Value Rank ValueHillsborough Apartments Partners LLC 16,213,700$ 1 2.06%Walmart Real Estate Business Trust 13,675,468 2 1.74% 12,758,748$ 1 2.62%PHE Inc. 9,455,194 4 1.20% 7,419,828 3 1.52%HD Development of Maryland INC 9,560,634 3 1.21%Daniel Boone LTD 8,791,758 5 1.12% 8,343,619 2 1.71%SLF II NC Waterstone LLC 8,787,243 6 1.12%Hillsborough Commons LTD 8,497,192 7 1.08% 6,562,050 7 1.35%MDCO LLC 8,453,597 8 1.07%Brookshire, Inc. 6,812,774 9 0.86%Alcurt Hillsborough, LLC 6,353,971 10 0.81%Flint Ridge, Ltd.4,807,691 10 0.99%Parker-Hannifan Corp.7,161,208 4 1.47%R.T. Holdings, LLC6,587,606 6 1.35%Central Telephone Co.4,991,435 9 1.03%Stihl, Inc.5,680,180 8 1.17%Fred B. Johnston Co.6,975,686 5 1.43%Total 96,601,531$ 12.26% 71,288,051$ 14.64%Source: Orange County Property Assessment Division2014TOWN OF HILLSBOROUGHPRINCIPAL PROPERTY TAXPAYERSCurrent Year and Nine Years Ago2005- 113 - Table 11Type of Customer2005 2006 2007 2008 2009 2010 2011 2012 2013 2014In-town residential 94,229,920 94,742,851 92,359,968 90,776,263 88,082,088 91,194,583 103,459,804 102,937,205 102,755,771 111,836,111 Out-of-town residential 100,538,030 103,325,114 105,793,065 104,552,882 101,568,087 106,627,659 112,868,479 120,107,805 130,921,523 111,241,276 In-town commercial 86,181,370 82,678,001 90,080,216 85,878,132 88,318,823 89,569,350 74,881,598 73,507,962 76,624,165 78,590,500 Out-of-town commercial 25,506,520 30,042,380 29,297,960 28,156,261 23,213,084 22,056,653 18,219,706 18,296,584 18,153,125 17,908,575 Total gallons billed 306,455,840 310,788,346 317,531,209309,363,538301,182,082 309,448,245309,429,587 314,849,556 328,454,584 319,576,462 Total water and sewer charges (revenue) 4,887,937$ 5,215,333$ 5,699,410$ 5,743,722$ 6,043,820$ 6,194,638$ 6,405,307$ 6,928,835$ 7,262,510$ 7,359,481$ Total average rate per 1,000 gallons 15.95$ 16.78$ 17.95$ 18.57$ 20.07$ 20.02$ 20.00$ 22.00$ 22.11$ 23.03$ Source: Town of Hillsborough, Water Billing Office.Revenue collected includes late payment penalties.TOWN OF HILLSBOROUGHIN AND OUT OF TOWNWATER SOLD BY TYPE OF CUSTOMER ANDLast Ten Fiscal Years- 114 - Table 12Rate perRate perRate per Rate perRate per Rate perRate per Rate perFiscal 0-30001,0000-30001,0000-30001,0000-30001,000YearGallons Gallons Gallons GallonsGallons Gallons Gallons Gallons2005 * 19.35$ 6.45$ 17.43$ 5.81$ 37.74$ 12.58$ 33.99$ 11.33$ 2006 ^ 19.35 6.45 19.02 6.34 37.74 12.58 37.11 12.37 200719.95 6.65 20.52 6.84 38.91 12.97 40.02 13.34 200820.16 6.72 21.33 7.11 39.30 13.10 41.61 13.87 200921.75 7.25 22.74 7.58 42.40 14.13 44.36 14.79 201021.75 7.25 22.74 7.58 42.40 14.13 44.36 14.79 201121.75 7.25 23.88 7.96 42.42 14.14 46.56 15.52 201223.04 7.68 25.98 8.66 44.94 14.98 50.67 16.89 201324.21 8.07 28.26 9.42 47.22 15.74 55.11 18.37 201421.79 8.07 30.11 11.15 42.50 15.74 58.70 21.74 Rate changes are effective with July 1 water usage unless otherwise stated.Prior to 7/1/14, a flat charge was billed for 0 to 3,000 gallons. Any usage over 3,000 gallons was billed per 1,000 gallons rate.Beginning 7/1/14, a flat charge is billed for 0 to 2,700 gallons. Any usage over 2,700 gallons is billed per 1,000 gallons rate.* Rates effective October 1, 2003 ^ Rates effective September 1, 2005 The construction of a reservoir in 1998 and renovations of an aging water and wastewater treatment plant have caused significant increases in water and sewerrates over the past ten years. TOWN OF HILLSBOROUGHWATER AND SEWER RATESLast Ten Fiscal YearsOut-of-Town WaterOut-of-Town SewerIn-Town WaterIn-Town Sewer- 115 - Debt Capacity Information - 116 - Table 13GovernmentalActivitiesGeneral TotalFiscal Installment Obligation Revolving Installment Primary PerYearLoans Bonds Loans Loans GovernmentCapita a2005 17,246$ 4,960,000$ 1,182,224$ 4,156,325$ 10,315,795$ 1,862$ 2006 198,501 4,575,000 1,524,446 3,781,350 10,079,297 1,777 2007 231,363 4,189,000 1,448,224 3,388,902 9,257,489 1,502 2008 1,518,923 3,803,000 1,372,001 2,978,369 9,672,293 1,550 2009 1,959,928 122,000 1,295,779 6,172,366 9,550,073 1,450 2010 2,932,216 86,000 1,219,557 6,258,012 10,495,785 1,572 2011 2,736,142 50,000 1,143,336 5,741,602 9,671,080 1,582 2012 3,440,001 14,000 5,575,878 5,871,812 14,901,691 2,388 2013 3,084,791 - 16,247,369 4,914,368 24,246,528 3,850 2014 4,024,586 - 18,644,077 3,939,307 26,607,970 4,170 Note: Details regarding the Town's outstanding debt can be found in the notes to the financial statements.TOWN OF HILLSBOROUGHRATIOS OF OUTSTANDING DEBT BY TYPELast Ten Fiscal YearsBusiness-Type Activitiesa See Table 17 for population data. These ratios are calculated using population for the prior calendar year.- 117 - Table 14 Percentage of General Actual Taxable Fiscal Obligation Value a of Per Year Bonds Total Property Capita b 2005 4,960,000$ 4,960,000$ 1.02% 875$ 2006 4,575,000 4,575,000 0.79% 742 2007 4,189,000 4,189,000 0.67% 671 2008 3,803,000 3,803,000 0.61% 578 2009 122,000 122,000 0.00% 18 2010 86,000 86,000 0.00% 13 2011 50,000 50,000 0.00% 8 2012 14,000 14,000 0.00% 2 2013 - - 0.00% - 2014 - - 0.00% - a See Table 7 for property value data. b Population data can be found in Table 17. General Bonded Debt Outstanding Note: Details regarding the Town's outstanding debt can be found in the notes to the financial statements. TOWN OF HILLSBOROUGH RATIOS OF GENERAL BONDED DEBT OUTSTANDING Last Ten Fiscal Years - 118 - Table 15 . Town's Orange Co. Estimated G.O. Bonds Estimated Share of Outstanding Percentage Overlapping Governmental Unit Debt Applicable a Debt Debt repaid with property taxes 77,150,000$ 4.778% 3,686,227$ Town's overlapping debt 3,686,227 Town's direct debt 2,156,977 Total direct and overlapping debt 5,843,204$ Sources:Assessed value data used to estimate applicable percentages provided by the Orange County Property Assessment Division. Debt outstanding data provided by each governmental unit. Note:Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the Town. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of Hillsborough. This process recognizes that, when considering the Town's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt of each overlapping government. a For debt repaid with property taxes, the percentage of overlapping debt applicable is estimated using taxable assessed property values. Applicable percentages were estimated by determining the portion of another governmental unit's taxable assessed value that is within the Town's boundaries and dividing it by each unit's total taxable assessed value. TOWN OF HILLSBOROUGH DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT June 30, 2014 - 119 - Table 16Assessed value 785,765,000$ Debt limit (8% of assessed value) 62,861,200 Debt applicable to limit:Installment loans (4,024,586) Legal debt margin 58,836,614$ 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Debt limit 38,940,044$ 46,394,503$ 49,797,699$ 50,262,759$ 51,380,390$ 60,236,080$ 59,858,619$ 60,714,122$ 60,985,183$ 62,861,200 Total net debt applicable to limit 17,246 198,501 231,363 1,518,923 1,959,928 2,932,216 2,736,142 3,440,001 3,084,791 4,024,586 Legal debt margin 38,922,798$ 46,196,002$ 49,566,336$ 48,743,836$ 49,420,462$ 57,303,864$ 57,122,477$ 57,274,121$ 57,900,392$ 58,836,614$ Total net debt applicable to the limit as a percentage of debt limit 0.04% 0.43% 0.46% 3.02% 3.81% 4.87% 4.57% 5.67% 5.06% 6.40%TOWN OF HILLSBOROUGHLEGAL DEBT MARGIN INFORMATIONLast Ten Fiscal YearsLegal Debt Margin Calculation for Fiscal Year 2014Note: Under state finance law, the Town's outstanding general obligation debt should not exceed 8 percent of total assessed property value. - 120 - Demographic and Economic Information - 121 - Table 17Personal PerIncome Capita(thousandsPersonal Median School UnemploymentYearPopulationof dollars)Income Age Enrollment Rate 2005 5,671 4,807,305$ 40,184$ 32.41 1,094 4.3%2006 6,162 5,205,261 42,637 32.30 1,203 3.6%2007 6,240 5,772,365 46,279 33.00 1,180 3.9%2008 6,584 6,107,990 48,100 33.10 1,272 4.6%2009 6,677 6,186,352 47,925 33.30 1,272 7.0%2010 6,751 6,268,886 46,713 33.18 1,279 6.6%2011 6,113 * * 33.42 1,305 7.3%2012 6,239 * * 33.62 1,420 7.1%2013 6,298 * * 33.99 1,433 5.3%2014 6,381 4,905,216 34,949 33.10 1,3704.8%* Information not yet availableNote:Population, median age, and education level information are based on surveys conducted during the last quarter of the calendar year.Personal income information is a total for the year. Unemployment rate information is an adjusted yearly average. School enrollment is based on thecensus at the start of the school year.TOWN OF HILLSBOROUGHDEMOGRAPHIC AND ECONOMIC STATISTICSLast Ten Calendar YearsSources:Population and median age information provided by the State Library of North Carolina. Personal income information provided by theOrange County Economic Development Office. Unemployment data provided by the Employment Security Commission. School enrollment dataprovided by the Orange County Board of Education.Note:Personal income, per capita personal income, median age, and unemployment are not available at the town level and is reported at the countylevel. Unemployment is reported for the month of June of each year.- 122 - Table 18Percentage ofPercentage ofTotal Town Total Town EmployerEmployees Population Employees PopulationOrange County Schools 1,259 19.73% 961 16.95%Orange County Government 900 14.10% 830 14.64%Sports Endeavors, Inc. dba Eurosport 325 5.09% 500 8.82%PHE 350 5.49% 325 5.73%McDonald's 70 1.10% 38 0.67%Brookshire Nursing Center 100 1.57% 130 2.29%Piedmont Electric 113 1.77% 115 2.03%Builders First 100 1.57% 95 1.68%Triangle Sportsplex 80 1.25% 90 1.59%Town of Hillsborough 84 1.32% 83 1.46%Total 3,381 53.68% 3,167 55.85%Source: Town Economic Development Division and Employment Security Commission.Note: Information regarding Town's total employment is not available. * Data not available2014TOWN OF HILLSBOROUGHPRINCIPAL EMPLOYERSCurrent Year and Nine Years Ago2005- 123 - Table 19 Function/Program 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 General government Administration 2 2 3 3 3 4 4 3 3 5 Finance 4 5 5 4 4 4 4 4 4 4 Planning 2 3 3 3 4 3 3 3 3 4 Safety - - - 1 1 1 1 1 1 1 Stormwater - - - - - - - - - 1 Police Officers 25 25 26 29 29 26 26 25 27 24 Civilians 3 3 1 2 3 2 2 - - - Public works Streets 4 6 3 4 4 4 4 3 3 3 Sanitation 4 4 5 5 4 4 4 4 4 4 Motor pool 3 3 3 3 3 3 3 3 3 3 Utilities Engineering 2 2 3 3 4 4 4 4 4 4 Billing and collection 6 7 6 6 7 6 5 5 5 5 Water 6 6 6 6 6 6 6 6 6 6 Wastewater 10 10 9 9 10 10 8 8 8 7 Water distribution/ wastewater collection 10 11 10 11 7 8 8 11 11 11 Fire inspections - 1 1 1 1 1 1 1 1 1 Total 81 88 84 90 90 86 83 81 83 83 Source: Town Finance Office. Positions reported at June 30th are positions filled. TOWN OF HILLSBOROUGH FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION/PROGRAM Last Ten Fiscal Years - 124 - Operating Information - 125 - Table 20Function/Program 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014PolicePhysical arrests 609 748 792 562 524 546 475 560 538 521Calls for service 8,198 8,247 7,273 11,181 12,490 9,619 12,889 15,039 14,569 12279Traffic citations 966 1,039 1,538 1,877 1,937 1,712 1,182 1,134 1,651 1212Number of policeman positions 27 27 27 29 29 29 29 29 26 26.5FireNumber of stations 1 1 1 1 1 1 1 1 1 1Emergency responses (EMS and fire) 1,275 1,449 1,802 1,960 1,918 1,865 1,835 1,770 1,866 1950Fires extinguished 41 11 6 6 30 75 19 78 70 45Number of paid firemen 15 20 19 23 23 24 24 25 24 24Number of volunteers 26 19 15 15 12 15 12 14 19 15Inspections * 297 387 289 269 213 211 258 177 132Refuse collection Refuse collected (tons per day) 7.1 6.7 6.3 6.3 6.7 6.1 5.95 - 6.34 5.90Recyclables collected (tons per day)*********0.02Other public worksStreet resurfacing (miles) - 2.1 2.2 1.5 0.5 - - - 2.25 2.13Potholes repaired 259 227 84 51 103 45 41 36 30 36Parks and recreationNumber of parks 1 2 3 6 6 6 6 6 6 6LibraryVolumes in collection 79,998 86,272 94,273 84,465 78,770 75,506 86,526 97,536 93,421 93,886 Total volumes borrowed 152,435 167,000 178,911 184,301 209,023 203,450 287,938 351,216 397,379 396,164 WaterNew connections 1,128 1,056 949 841 826 939 815 767 736 799Water main breaks a20 46 32 36 46 41 10 30 20 15Average daily consumption (millions of gallons per day) 1.225 1.168 1.235 1.101 1.143 1.124 1.129 1.048 0.913 1.103Peak daily consumption (millions of gallons) 2.291 1.721 1.770 1.770 1.938 1.626 1.653 1.576 1.653 1.685WastewaterAverage daily sewage treatment (millions of gallons) 0.753 0.679 0.726 0.740 0.872 0.888 0.757 0.765 0.902 1.133EducationNumber of schools b3 4 3 3 3 3 3 3 3 3Number of teachers 117 117 113 105 105 111 111 113 113 112Number of students 1,094 1,203 1,180 1,272 1,272 1,279 1,305 1,420 1,433 1,370 Number of classrooms c110 112 110 95 95 95 65 65 65 65Sources: Various city departments.aPartial year data for FY05b Alternative school added for students who have not been successful in the traditional school setting in FY06Last Ten Fiscal YearsOPERATING INDICATORS BY FUNCTION/PROGRAMTOWN OF HILLSBOROUGHYTBD (Yet to be determined)c Core classes only reported in FY11, FY12 and FY13- 126 - Table 21.Function/Program 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014PoliceStations 2 2 2 2 2 2 2 2 2 2Patrol units 19 22 23 23 26 26 28 27 26 27Fire stations 1 1 1 1 1 1 1 1 1 1Refuse collectionCollection trucks >2 3 3 3 6 6 6 7 7 8Other public worksStreets (miles) - paved 31.50 30.84 32.89 32.89 36.15 36.15 36.15 36.15 36.15 36.15Streets (miles) - unpaved 0.86 0.86 0.86 0.86 0.73 0.73 0.73 0.73 0.73 0.91Streetlights 618 620 621 623 623 633 633 633 633 678Traffic signals (all state-owned) - - - - - - - - - - Parks and recreationAcreage b29.48 30.23 30.24 72.62 72.62 72.62 72.62 74.10 74.10 74.10 Playgrounds 1 3 3 4 4 4 4 4 4 4 WaterWater mains (miles) 120.0 121.0 126.0 146.8 146.8 147.0 147.0 148.0 148.0 150Fire hydrants 583 ^600 ^612 ^622 ^656 ^597 614 663 c621 619Storage capacity (thousands of gallons) *3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3000WastewaterSanitary sewers (miles) 64.0 64.0 70.0 86.4 86.4 86.4 86.4 89.0 93.0 93Storm sewers (miles) a- - - 36.0 36.0 73.0 73.0 73.0 73.0 75Treatment capacity (millions of gallons) 3.0 3.0 3.0 3.0 3.0 3.0 3.0 - 3.0 3Area (square miles) 5.370 5.390 5.520 5.530 5.740 5.740 5.740 5.740 5.760 5.80Sources: Various city departments.a Storm sewer data not available.b Includes two parks owned by the Town but are located outside of the city limits. c 2012 figure included private hydrants - 2013 actual number of hydrants from GIS^ Estimated* Added one million-gallon underground clear water storage tank in FY05 which took the place of a 200,000 gallon tank.> Includes brush and leaf trucks 2009 forwardNote: No capital asset indicators are available for the general government or library function.TOWN OF HILLSBOROUGHCAPITAL ASSET STATISTICS BY FUNCTION/PROGRAMLast Ten Fiscal Years- 127 - - 128 - THIS PAGE LEFT INTENTIONALLY BLANK. - 129 - COMPLIANCE SECTION - 130 - THIS PAGE LEFT INTENTIONALLY BLANK. - 131 - REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS INDEPENDENT AUDITORS’ REPORT To the Honorable Mayor, Members of the Board of Town Commissioners, and the Town Manager Town of Hillsborough, North Carolina We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the accompanying financial statements of the governmental activities, business-type activities, the aggregate discretely presented component units, each major fund and the aggregate remaining fund information of the Town of Hillsborough (the “Town”) as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the Town’s basic financial statements, and have issued our report thereon dated December 5, 2014. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Town’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Town’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Town’s internal control. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies, and therefore material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying schedule of findings and responses, we identified a certain deficiency in internal control that we consider to be a material weakness. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. We consider the deficiency described in the accompanying schedule of findings and responses to be a material weakness: 2014-1. - 132 - A significant deficiency is a deficiency or a combination of deficiencies in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Town of Hillsborough’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Town of Hillsborough’s Response to Finding The Town of Hillsborough’s response to the findings identified in our audit is described in the accompanying schedule of findings and responses. The Town’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. We noted certain matters that we reported to management of the Town of Hillsborough in a separate letter dated December 5, 2014. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. High Point, North Carolina December 5, 2014 - 133 - REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO ITS MAJOR FEDERAL PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 AND THE STATE SINGLE AUDIT IMPLEMENTATION ACT INDEPENDENT AUDITORS’ REPORT To the Honorable Mayor, Members of the Board of Town Commissioners, and the Town Manager Town of Hillsborough, North Carolina Report on Compliance for Its Major Federal Program We have audited the Town of Hillsborough’s (“the Town”) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement and the Audit Manual for Governmental Auditors in North Carolina, issued by the Local Government Commission, that could have a direct and material effect on the Town’s major federal program for the year ended June 30, 2014. The Town’s major federal program is identified in the summary of auditors’ results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its federal program. Auditors’ Responsibility Our responsibility is to express an opinion on compliance for the Town’s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; OMB Circular A- 133, Audits of States, Local Governments, and Non-Profit Organizations; and the State Single Audit Implementation Act. Those standards, OMB Circular A-133, and the State Single Audit Implementation Act require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Town’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination on the Town’s compliance. - 134 - Opinion on the Major Federal Program In our opinion, the Town complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, 2014. Report on Internal Control over Compliance Management of the Town is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit, we considered the Town’s internal control over compliance with requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Town’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency or a combination of deficiencies in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis. A significant deficiency in internal control over compliance is a deficiency or combination of deficiencies in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. High Point, North Carolina December 5, 2014 - 135 - REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO ITS MAJOR STATE PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 AND THE STATE SINGLE AUDIT IMPLEMENTATION ACT INDEPENDENT AUDITORS’ REPORT To the Honorable Mayor, Members of the Board of Town Commissioners, and the Town Manager Town of Hillsborough, North Carolina Report on Compliance for Its Major State Program We have audited the Town of Hillsborough’s (the “Town”) compliance with the types of compliance requirements described in the Audit Manual for Governmental Auditors in North Carolina, issued by the Local Government Commission, which could have a direct and material effect on the Town’s major state program for the year ended June 30, 2014. The Town’s major state program is identified in the summary of auditors’ results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its federal program. Auditors’ Responsibility Our responsibility is to express an opinion on compliance for the Town’s major state program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; OMB Circular A- 133, Audits of States, Local Governments, and Non-Profit Organizations; and the State Single Audit Implementation Act. Those standards, applicable sections of OMB Circular A-133, and the State Single Audit Implementation Act require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major state program occurred. An audit includes examining, on a test basis, evidence about the Town’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major state program. However, our audit does not provide a legal determination on the Town’s compliance. - 136 - Opinion on the Major State Program In our opinion, the Town complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major state program for the year ended June 30, 2014. Report on Internal Control over Compliance Management of the Town is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit, we considered the Town’s internal control over compliance with requirements that could have a direct and material effect on a major state program to determine the auditing procedures for the purpose of expressing our opinion on compliance for each major state program, and to test and report on internal control over compliance in accordance with applicable sections of OMB Circular A-133 and the State Single Audit Implementation Act, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Town’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency or a combination of deficiencies in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a state program will not be prevented or detected and corrected on a timely basis. A significant deficiency in internal control over compliance is a deficiency or combination of deficiencies in internal control over compliance with a type of compliance requirement of a state program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of applicable sections of OMB Circular A-133 and the State Single Audit Implementation Act. Accordingly, this report is not suitable for any other purpose. High Point, North Carolina December 5, 2014 TOWN OF HILLSBOROUGH, NORTH CAROLINA Schedule 15 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Page 1 of 4 Year Ended June 30, 2014 - 137 - I. Summary of Auditors’ Results Financial Statements Type of auditors’ report issued: Unmodified Internal control over financial reporting:  Material weaknesses identified? X Yes No  Significant deficiencies identified that are not considered to be material weaknesses? Yes X None reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major federal program:  Material weaknesses identified? Yes X No  Significant deficiencies identified that are not considered to be material weaknesses? Yes X None reported Noncompliance material to federal awards? Yes X No Type of auditors’ report issued on compliance for major federal programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of Circular A-133? Yes X No Identification of major federal program: CFDA Number Name of Federal Program or Cluster 66.458 Capitalization Grants for Clean Water State Revolving Funds Dollar threshold used to distinguish between Type A and Type B programs: $ 300,000 Auditee qualified as low-risk auditee? Yes X No TOWN OF HILLSBOROUGH, NORTH CAROLINA Schedule 15 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Page 2 of 4 Year Ended June 30, 2014 - 138 - I. Summary of Auditors’ Results (Continued) State Awards Internal control over major state program:  Material weaknesses identified? Yes X No  Significant deficiencies identified that are not considered to be material weaknesses? Yes X None reported Noncompliance material to state awards? Yes X No Type of auditors’ report issued on compliance for major state programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of Circular A-133? Yes X No Identification of major state programs: State Number Name of Program DENR 23 PART F TOWN OF HILLSBOROUGH, NORTH CAROLINA Schedule 15 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Page 3 of 4 Year Ended June 30, 2014 - 139 - II. Financial Statement Findings MATERIAL WEAKNESS Finding 2014-1: Financial Accounting Closing Procedures Criteria: Certain asset and liability accounts were not reconciled and adjusted as of June 30. Condition: Monthly, quarterly, and annual account reconciliations were not being performed and reviewed in a timely manner. Effect: The lack of reconciliation of certain asset and liability accounts resulted in the identification of several adjusting journal entries during the audit process. Cause: The Town did not have a formalized review and reconciliation process for certain balance sheet accounts. Recommendation: We recommend the Town establish more effective review and reconciliation policies and procedures such as reconciliations of all accounts on a routine basis, whether monthly, quarterly or annually, based on the specific accounts and the nature of activity during the year. Certain areas where we noted the need for more effective review and reconciliation policies and procedures include the following balance sheet accounts:  Cash  Property taxes  Water and Sewer Fund accounts receivable and allowance for doubtful accounts  Miscellaneous receivables  Due from other governments  Capital assets retainage payable  Accrued liabilities  Long-term debt View of Responsible Official and Planned Corrective Action: The Town is in the process of formalizing its policies and procedures to ensure timely and accurate reconciliations are being performed. The Town is also considering hiring additional accounting staff to be able to implement a more formal process. III. Federal Awards Findings and Questioned Costs There were no findings related to the federal awards for the fiscal year ended June 30, 2014. TOWN OF HILLSBOROUGH, NORTH CAROLINA Schedule 15 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Page 4 of 4 Year Ended June 30, 2014 - 140 - IV. State Award Findings and Questioned Costs There were no findings related to the state awards for the fiscal year ended June 30, 2014. TOWN OF HILLSBOROUGH, NORTH CAROLINA Schedule 16 SCHEDULE OF PRIOR YEAR AUDIT FINDINGS Year Ended June 30, 2013 - 141 - There were no prior year audit findings. Schedule 17 Federal Federal CFDA/ (Direct and State Pass-Through) State Local Grantor/Program Title Number Grant Number Expenditures Expenditures Expenditures Federal grants: U.S. Environmental Protection Agency Passed through the NC Department of Environmental and Natural Resources Capitalization Grant for Clean Water State Revolving Fund 66.458 E-SRF-T-10-0269 18,390,316$ -$ -$ Total U.S. Environmental Protection Agency 18,390,316 - - U.S. Department of Homeland Security Passed through the NC Department of Public Safety - Division of Emergency Assistance Federal Emergency Management Agency Public Assistance Program 97.036 101,646 33,527 - Total U.S. Department of Homeland Security 101,646 33,527 - Total assistance - federal programs 18,491,962 33,527 - State grants: NC Department of Transportation Direct Programs Powell Bill DOT 4 - 182,284 - Total NC Department of Transportation - 182,284 - NC Department of Environmental and Natural Resources Direct Programs Solid Waste Management Outreach Program 5823 - 58,425 64,267 PART F DENR 23 4848 - 425,000 425,000 Total NC Department of Environmental and Natural Resources - 483,425 489,267 Total assistance - state programs - 665,709 489,267 Total assistance 18,491,962$ 699,236$ 489,267$ Basis of Presentation Loans Outstanding Pass-Through CFDA Grantor's Amount Program Title Number Number Outstanding Capitalization Grant for State Revolving Fund 66.458 E-SRF-T-10-0269 17,729,408$ The accompanying schedule of expenditures of federal and state awards includes the federal and state grant activity of the Town of Hillsborough and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133,Audits of States, Local Governments, and Non-Profit Organizations , and the State Single Audit Implementation Act. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in, the preparation of the basic financial statements. TOWN OF HILLSBOROUGH, NORTH CAROLINA SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS Year Ended June 30, 2014 The Town of Hillsborough had the following loan balances outstanding at June 30, 2014. These loan balances outstanding are also included in the federal expenditures presented in the schedule. NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS - 142 -