Loading...
HomeMy Public PortalAboutComprehensive Annual Financial Report Year Ended June 30, 2020Town of Hillsborough North Carolina Comprehensive Annual Financial Report For Fiscal year ended June 30, 2020 Presented by the Financial Services Department Daphna Schwartz, Finance Director Keri Carnes, Financial Analyst Town of Hillsborough, North Carolina Table of Contents Introductory Section List of Principal Officials Organization Chart ii Letter of Transmittal iii GFOA Certificate of Achievement x Financial Section Report of Independent Auditor's 1 Management's Discussion and Analysis 5 Basic Financial Statements Exhibit Government -Wide Financial Statements: 1 Statement of Net Position 16 2 Statement of Activities 18 Fund Financial Statements: 3 Balance Sheet - Governmental Funds 22 4 Statement of Revenues, Expenditures and Changes in Fund Balance - Governmental Funds 24 5 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund 26 6 Statement of Net Position - Proprietary Funds 27 7 Statement of Revenues, Expenses and Changes in Net Position - Proprietary Funds 28 8 Statement of Cash Flows - Proprietary Funds 29 Notes to Financial Statements 31 Required Supplementary Financial Data Exhibit Law Enforcement Officers' Special Separation Allowance Required Supplementary Information: A Schedules of Changes in Total Pension Liability 63 Law Enforcement Officers' Special Separation Allowance Required Supplementary Information: B Schedules of Total Pension Liability as a Percentage of Covered Payroll 64 C Schedule of Changes in the Total OPEB Liability and Related Ratios 65 Local Government Employees' Retirement System Required Supplementary Information: D-1 Schedules of Proportionate Share of Net Pension Liability (Asset) 66 D-2 Schedules of Contributions 67 Town of Hillsborough, North Carolina Supplementary Information: Combining and Individual Fund Financial Statements Section Schedule Governmental Funds: 1 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund 69 2 Combining Balance Sheet - Nonmajor Governmental Funds 74 3 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Nonmajor Governmental Funds 76 4 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Town Barn Improvements Capital Project Fund 78 5 Schedule of Revenues, Expenditures, and Changes in Fund Balance -Budget and Actual - General Capital Projects Fund — Nonmajor Capital Project Fund 79 6 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Capital Reserve Fund — Nonmajor Capital Project Fund 80 7 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Downtown Improvements Capital Project Fund - Nonmajor Capital Project Fund 81 8 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Riverwalk CMAQ Capital Project Fund - Nonmajor Capital Project Fund 82 9 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Rail Station Capital Project Fund - Nonmajor Capital Project Fund 83 10 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Public Works Building Capital Project Fund - Nonmajor Capital Project Fund 84 11 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Public Safety Building Capital Project Fund - Nonmajor Capital Project Fund 85 Enterprise Funds: 12 Schedule of Revenues - Budget and Actual (Non-GAAP) - Water and Sewer Fund 86 13 Schedule of Expenditures - Budget and Actual (Non-GAAP) - Water and Sewer Fund 87 14 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Non-GAAP) - Water and Sewer Capital Projects Fund 90 15 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Non-GAAP) - Water and Sewer Capital Reserve Fund 91 16 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Non-GAAP) - Water Capital Reserve Fund 92 17 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Non-GAAP) - Sewer Capital Reserve Fund 93 18 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Non-GAAP) — WFER Carrstore Mill Creek Road Capital Project Fund 94 19 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Non-GAAP) - Stormwater Fund 95 Fiduciary Fund: 20 Statement of Changes in Assets and Liabilities - Special Assessment Debt Agency Fund 96 Other Schedules 21 Schedule of Ad Valorem Taxes Receivable 98 22 Analysis of Current Tax Levy 99 Town of Hillsborough, North Carolina Statistical Section Table Financial Trends Information: 1 Net Position by Component 102 2 Changes in Net Position... 104 3 Fund Balances, Governmental Funds 108 4 Changes in Fund Balance, Governmental Funds 110 Revenue Capacity Information: 5 Program Revenues by Function/Program 113 6 Tax Revenues by Source, Governmental Funds 115 7 Assessed Value and Actual Value of Taxable Property 116 8 Direct and Overlapping Property Tax Rates 117 9 Property Tax Revenue and Collections 118 10 Principal Property Taxpayers 119 11 Water Sold by Type of Customer and In and Out of Town 120 12 Water and Sewer Rates 122 Debt Capacity Information: 13 Ratios of Outstanding Debt by Type 124 14 Ratios of General Bonded Debt Outstanding 125 15 Direct and Overlapping Governmental Activities Debt 126 16 Legal Debt Margin Information 127 Demographic and Economic Information: 17 Demographic and Economic Statistics 130 18 Principal Employers 131 19 Full -Time Equivalent City Government Employees by Function/Program 132 Operating Information: 20 Operating Indicators by Function/Program 134 21 Capital Asset Statistics by Function/Program 136 Other Disclosures Continuing Disclosure Information Related to Utility Revenue Bonds 139 Compliance Section Independent Auditors' 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 145 Introductory Section Town of Hillsborough Board of Commissioners 2019-2020 From left: Commissioners Robb English and Kathleen Ferguson, Mayor km] Weaver, Commissioner Evelyn Lloyd, Mayor Pro Tem Mark Bell, and Commissioner Matt Hughes. Jenn Weaver — Mayor Mark Bell — Mayor Pro Tern Evelyn Lloyd — Commissioner Matt Hughes — Commissioner Robb English — Commissioner Town Officials Eric J. Peterson, Town Manager Daphna Schwartz, Finance Director Emily Bradford, Budget Director Jen Della Valle, Assistant to the Town Manager/Deputy Budget Director Marie Strandwitz, Utilities Director Katherine Cathey, Town Clerk/Human Resources Director Duane Hampton, Police Chief Margaret Hauth, Assistant Town Manager/Planning Director Ken Hines, Public Works Director Catherine Wright, Public Information Officer Robert Hornik, Town Attorney Town of Hillsborough Organization Chart Utilities Administration Budget Public Information Human Resources Town Clerk Safety & Risk Mgmt. Information Services — Financial Services Accounting Billing & Collections Planning Planning Public Space Economic Development _ Fire Marshal & Emergency Mgmt. Public Works Streets Solid Waste — Cemetery Fleet Maintenance Police Administration Patrol _ Investigations & Community Service Utilities Administration Water Treatment Plant Wastewater Treatment Plant Water Distribution & Wastewater Collection Stormwater Town of Hillsborough, North Carolina November 18, 2020 Honorable Mayor Weaver, 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, 2020, 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 an 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 Cherry Bekaert LLP, a firm of licensed certified public accountants, was selected and awarded the contract for the Fiscal Year 2020. 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. COVID-19 Fiscal year 2020 was challenging due to the impacts of COVID-19. The Town closed its offices to the public on March 16, 2020 and has not reopened. Many Town employees continue to work remotely. As of June 30, 2020, the Town had expended $42,380 for COVID-19 related supplies and services. The Town received $79,973 of CARES Act Coronavirus Relief Funds from Orange County in June 2020. On June 30, 2020, at the direction of the Board of Commissioners, the Town distributed these funds to local government and non-profit organizations to provide housing, food, and assistance with water and sewer utility bills to residents of the Town. The Town suspended water and sewer service disconnections for non-payment on all accounts as of March 20, 2020. Under Governor's Executive Orders 124 and 142, public utilities were prohibited from disconnecting service from March 31 through July 29, 2020. The Town resumed standard collection practices on August 1, 2020. All water and sewer accounts in arrears from January 2020 to July 2020 were automatically set up on a 12 -month equal installment payment plan. As of June 30, 2020, there were 1,883 accounts past due in the amount of $376,830. Town of Hillsborough, North Carolina Profile of the Government 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 7,809 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 many 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, planning, public spaces, street maintenance, solid waste collection, stormwater, 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. This is Jack. He is located at the Eno River Parking Deck in downtown Hillsborough. 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 1.58 MGD. The Town's water system serves a total of 6,399 customers, 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 treated discharge of 0.75 MGD. The town offers a seven -week course, The Citizen's Academy, aimed at helping citizens increase their knowledge of town government, as well as their interest and ability in influencing and participating in town decisions. The 2020 course was canceled due to COVID-19. Environmental Initiatives The town government mission statement charges personnel with enhancing the quality of life for the living beings and land within our town. Strategic objectives include conserving natural resources and expanding recreation, walkability, and connectivity. Below are some of the environmental initiatives of the town government. ➢ Updating and expanding the long-term visioning and planning document, the Comprehensive Plan, to include sustainability and climate change initiatives. ➢ Orange County Climate Council member. The council was formed in 2019 by Orange County and the towns of Carrboro, Chapel Hill, and Hillsborough as a collaborative effort among the municipal governments, the school systems, the University of North Carolina, non-profit organizations, and residents. The council's mission is to accelerate joint action addressing the climate emergency by sharing successful strategies and identifying equitable opportunities to reduce greenhouse gas emissions, provide stewardship of the natural world, and protect all county residents from climate impacts. Gold Park Wetlands Town of Hillsborough, North Carolina ➢ As a designated Tree City USA, the town's Public Space Division and Tree Board work to protect the town's trees and educate citizens about the importance of urban forestry. ➢ Hillsborough is a Bee City USA. The town works to raise awareness of the role pollinators play in sustaining more than 75 percent of the world's plant species and helps expand pollinator -friendly practices and environments in town. The town's Public Space Division and Tree Board are working in partnership with the Hillsborough Garden Club to develop the program and educational materials, including actions residents can take. ➢ The Town has adopted a resolution supporting the goal of using 100 percent clean energy by 2050 and fostering a resilient and sustainable community. ➢ The Town's Stormwater and Environmental Services Division was created to comply with many state and federal mandates for environmental stewardship. ➢ The town has partnered with Orange County for curbside collections of recyclables throughout the town and to provide collection bins for recyclables downtown and along the Riverwalk greenway. The town has invested in a battery -powered cart for use by Public Works Department employees when collecting trash and recyclables along Riverwalk. Additionally, the town collects appliances and scrap metal for recycling. ➢ The Water Distribution and Wastewater Collection Division works to prevent sanitary sewer overflows and environmental damage they cause. The division's fats, oil, and grease program included educational presentations at schools and public events about keeping these blockage -causing substances out of the Town's sewer system. ➢ As part of its efforts to make Hillsborough a more walkable community, the town has improved sidewalks and pedestrian crossings in the downtown area. It also has created new sidewalks and connections to the Riverwalk greenway in West Hillsborough. ➢ The town has contributed to Eno River water quality by building a wetland area in Gold Park and a BioDock in Kings Highway Park. ➢ Cates Creek Park is now home to a pollinator rain garden, and other pollinator gardens have been built in Gold Park and at the West King Street parking lot. ➢ The Town's ground maintenance contract includes environmentally friendly requirements for pruning and mulching and for the limited use of chemicals. Local Economy The Town of Hillsborough, Orange County, and the Research Triangle Park area are 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, education, healthcare, wholesale and retail businesses, as well as numerous service providers. Approximately 40% of Hillsborough's tax base is commercial in nature - this is a strong indicator of a healthy and diverse property tax base. The Town's unemployment rate has been below state and national rates throughout recent history. This trend continued during the current year in which the Town's unemployment rate as of June 2020 was 5.9% for Orange County, while the state and national rates were 7.6% and 11.1%, respectively. The Town's economy is uncertain due to COVID-19, but the issuance of building permits for residential and commercial developments continues to be exceptionally strong, even during the pandemic through June 2020. Government, Education, and Healthcare Orange County government is a major employer in Hillsborough. Many of the county's administrative buildings are located within town limits. One of those buildings is the Old Orange County Courthouse (c. 1844) is a Greek -revival Town of Hillsborough, North Carolina building designed and built by local builder John Berry. The courthouse is still in use for county judicial business and is open to the public for free visits. The courthouse lawn is home to many outdoor musical performances and festivals and acts as a "town square" in many respects. The Orange County Board of Education is in Hillsborough and serves thirteen schools throughout the county. Three of the thirteen schools are within the town limits and seven more are served by Hillsborough's water and sewer system. Durham Tech has a 20 -acre campus in Hillsborough. The college occupies a 40,000 square -foot brick structure that holds 22 instructional spaces, including classrooms, computer and science labs, a library, flexible use space, instructional and student support services areas, and faculty and student lounges. The facility has many "green" buildings features that contribute to energy efficiency and cost savings. University of North Carolina (UNC) Medical Center operates a UNC Health Care Hillsborough Campus, which is a 68 -bed community hospital. The facility includes a Medical Office Building, Emergency Department, Outpatient Surgery, and Inpatient Services. The hospital is the first in North Carolina to receive the Geriatric Emergency Department Accreditation (GEDA) from the American College of Emergency Physicians (ACEP). This certifies that staff has been specially trained to assess older patients more comprehensively. UNC is one of about 20 hospitals accredited nationwide. Even though the hospital recently opened in 2015, expansion plans have been submitted and going through the development review process. The expansion will add an estimated 100 jobs, 30 rehabilitation beds, 50 acute care beds, and a dialysis unit. Recreational, Visitor, and Cultural Events The Town's three percent hotel/motel and one percent prepared food and beverage taxes have provided a dedicated resource for promoting Hillsborough as a destination for arts and culture, unique cuisine, outdoor recreation, and historical landmarks. Most events scheduled after March 2020 were canceled due to COVID-19. The Tourism Development Authority (TDA), a component unit of the town, promotes travel, tourism, and conventions; sponsors tourism -related events, and finances tourism -related capital projects. The Tourism Board drives economic development by promoting travel, tourism, and visitor services. It sponsors programs and activities designed to improve Hillsborough's attractiveness to visitors. The Tourism Board has contracted with the Alliance for Historic Hillsborough to operate the Hillsborough Visitors Center. The center offers a gift shop, tours, exhibits, and gardens. Hillsborough has many festivals and events throughout the year, such as: ➢ Art in the Heart of Hillsborough ➢ Last Fridays Concert Series ➢ Hillsborough Garden Tour ➢ Last Fridays Artwalk ➢ Carolina Tarwheels Bikefest ➢ Farm Fare Tasting Event ➢ Hillsborough Hog Day BBQ Festival ➢ Moorefields Bluegrass Festival ➢ River Park Concert ➢ Historic Hillsborough Half Marathon & 5K ➢ Handmade Parade ➢ Hillsborough Halloween Spirits Tours ➢ Solstice Celebration Lantern Walk ➢ Hillsborough Holiday Parade and Tree Lighting ➢ Candlelight Holiday Home Tour Ayr Mount is a Federal -era plantation house built in 1815 in Hillsborough by William Kirkland. Gold Park Town of Hillsborough, North Carolina Hillsborough is rich with museums and historical sites. ➢ Alexander Dickson House (late 18thcentury) ➢ Ayr Mount (1800's Federal -era plantation house) ➢ Burwell School Historic Site (1800's) ➢ Dickerson's Chapel AME Church (1790) ➢ First Baptist Church (c.1860/1868) ➢ Hillsborough United Methodist Church (c.1860) ➢ Hillsborough Presbyterian Church (c.1816) Recreation, sports, and leisure opportunities abound in Hillsborough. ➢ Cates Creek Park ➢ Mayo Park ➢ Murray Street Park ➢ Gold Park ➢ Hillsborough Heights Park ➢ Kings Highway Park ➢ Turnip Patch Park ➢ Exchange Park ➢ Fairview Park ➢ Hillsborough Youth Athletic Association baseball fields ➢ River Park ➢ Cates Creek Greenway ➢ Margaret Lane Cemetery (c.1885) ➢ Moorefields (c.1785) ➢ Occaneechi Village Replica Site ➢ Old Orange County Courthouse (c.1844) ➢ Old Town Cemetery (c.1757) ➢ Orange County Historical Museum ➢ Ruffin-Roulhac House (c.1821) ➢ St. Matthew's Episcopal Church (c. 1825/1826) Riverwalk Picnic Table ➢ Calvin Street Greenway ➢ Riverwalk ➢ Historic Occoneechee Speedway Trail ➢ Occoneechee Mountain State Natural Area ➢ Kings Highway Park ➢ Duke Forest ➢ Ayr Mount ➢ Occoneechee Golf Club ➢ Central Recreation Center ➢ Triangle Area Polo Club & Arena ➢ Orange County Sporstplex Residential Growth Hillsborough's population will increase significantly over the next few years. The Town continues to receive commercial inquires and experience expansion of existing businesses. The following neighborhoods are under development or will be in the near future. Town of Hillsborough, North Carolina ➢ Waterstone is comprised of single-family and townhome developments as well as apartment homes. Construction began in 2014 with the final permits being issued in FY2017. Construction is nearly complete in the residential sections of Waterstone. The development will add 750 residential units and more than 1,500 residents to Hillsborough. ➢ Forest Ridge is a 233 single-family unit project on U.S. 70 A. About 25 permits remain to be issued for this neighborhood. ➢ The Fiori Hill project plan proposes 46 single-family dwellings on 17.6 acres adjacent to Forest Ridge. About twelve permits remain to be issued for this neighborhood. ➢ The Collins Ridge master plan includes 950 dwellings (houses, townhouses, and apartments) and 88 affordable rental units. Construction is scheduled to start by the end of the calendar year 2020. Long -Term Financial Planning For quite a few years the town's approach to building its budget and a multi -year financial plan has been: 1) take care of what we've got, 2) invest for the future, and 3) minimize rate impacts on the community. COVID-19 is a health and economic crisis that needs no further explanation as everyone is acutely aware of its impacts. It's further complicated due to the difficulty in forecasting the length and severity of the financial impacts on global, national, and local economies, especially if there is a second or third wave of infections. Revenue assumptions are critical as they are the primary factor in determining expenditure limits for the budget. Assumptions from local governments across North Carolina varied wildly as budgets were being developed for the fiscal year 2021, with far greater ranges than anyone on the budget team has ever seen. There were no common baselines when it came to projecting key revenue sources, such as property tax collection rates, sales taxes, Powell Bill (state gas tax), food and beverage, accommodations tax, water and sewer revenues, and many others. The fiscal year 2021 budget was the first budget presented to Hillsborough's town board in the last 23 years that was not in a multi -year format. Hillsborough is one of the only local governments in the state that uses a multi- year format. During budget development while in the early stages of COVID-19, it was difficult to accurately project for three months, much less three years. To minimize wasted time and help everyone focus attention on the most pressing issues, the document was prepared in a traditional one-year format. Hopefully, the situation will stabilize going into the fiscal year 2022 and staff can resume with the multi -year format that's been so successful. Due to the uncertainty, the following approaches were used in developing the FY21 budget: 1) simplify and prioritize, 2) increase options and 3) prepare for more tight budgets ahead. 1. Simplify and prioritize by focusing on the basics: core service delivery, asset maintenance, and retaining employees since skill, experience, and know-how are a service organization's most important resource. Most everything else will need to wait until the situation stabilizes, then financial condition and priorities can be reassessed. 2. Increase options to have the financial flexibility to deal with the unexpected issues that will arise, especially if it gets worse in FY21 and continues into FY22 or beyond. Increasing options are being done through conservative projections on the revenue side and trimming expenses to protect the town's financial reserves. Many requests, even those that have been planned for some time have been cut, delayed, or reduced. Most vacant positions are being frozen. Making tough decisions today gives us more options to weather unexpected challenges, especially if it's a prolonged event. Now is the easiest time to do this. Underestimating potential financial impacts creates significant risks for the organization and its ability to serve our community. Being overly optimistic with revenue estimates means potentially having to make significant mid -year cuts- this narrows options and unnecessarily makes the situation more complicated. If things turn out to be better than projected, then it's a relatively easy adjustment to add unfunded items back into the budget. 3. Prepare for more tight budgets ahead. While everyone hopes the recovery will be quick and robust it's important to remember that during recessions governments are often the last to feel the impact, compared to businesses, but also last to recover. After emerging from the recession there is usually a backlog of deferred Town of Hillsborough, North Carolina vehicle and equipment replacements, and other maintenance projects to address before high priority projects can be funded, thus further extending the length of the recovery. Major Initiatives The Town's future capital plans are established in a seven-year Capital Improvement Plan which is revised during the yearly budget preparation. During the year, the Town funded and managed many significant projects including the following: General Government ➢ Street Repaving - This initiative is being funded without debt and uses the Town's Powell Bill (gas tax allocation- $165,000) and General Fund revenues ($185,000) to pay for the improvements. The plan addresses (1) the highest priority street repaving and repair needs and, (2) will identify the average annual cost and lane miles for repaving, while also decreasing the life cycle costs associated with maintaining the street system. ➢ Valley Forge Stormwater Project — The purpose of this $600,000 project is to replace three 90" pipes crossing under Valley Forge Road. The pipes have deteriorated due to age, current flow, and damage from debris. This project was monitored throughout FY2020 and will be completed in FY2021. Water and Sewer Fund ➢ Reservoir Phase II -To address long-term water supply needs and accommodate the type of growth that matches the Town's vision, Phase 2 expansion of the West Fork Eno River Reservoir began construction in April 2018. Revenue bonds were sold on May 9, 2018, providing over $11.1 million in funding for the project. The remaining funds were raised through a bank placement in February 2020 to pay for the remaining road project required to finish the project. Debt payments for the project are $840,550 for FY21, $839,828 in FY22 and $840,374 in FY23. Phase 2 will yield an additional 1.2 million gallons per day of water capacity. Debt Administration Hillsborough's current debt burden is above the North Carolina state average and below the national average for municipalities, with net overall debt at $4,212 per capita. The largest part of the outstanding debt is for the wastewater treatment plant and the reservoir. Additional debt incurred over recent years will support robust projected growth, provide vital services to the Town's new citizens, and is not atypical of a growing community like Hillsborough. Responsible financial planning and revenues resulting from growth will ensure the Town maintains a stable financial position. There has been no new general bonded debt over the last 22 fiscal years, and no debt service expenditures on general obligation bonded debt have been incurred in the General Fund during the last 22 fiscal years. The Town has avoided a heavy debt load, which has plagued many municipalities, in its General Fund. Debt service costs make up 9.57% of General Fund expenditures. This includes short-term debt for equipment needs like garbage trucks, leaf collection equipment, police vehicles, as well as long-term debt for building renovations and park construction. Revenue bonds were issued for the first time to fund the expansion of the West Fork Eno Reservoir for $11.1 million in FY18. A second revenue bond issue for $3.7 million was issued in FY20. Debt payments account for 23.11% of Water and Sewer Fund expenditures, which was an increase over the previous fiscal year. The debt payments are a significant expense for a relatively small utility system, however, the primary reason for the higher percentage in the Water and Sewer Fund is continued emphasis on maintaining the water and sewer infrastructure of the Town. 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 to avoid incurring unreasonable risks inherent in over -investing in specific instruments, or maturities. Without exception, no more than 50% of the Town's total investment portfolio will be invested in a single security type. Town of Hillsborough, North Carolina 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, 2019. The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for the 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 25 consecutive years (fiscal years ended 1994 through 2019). We believe our current report continues to conform to the Certificate of Achievement Program requirements, and we will submit it to the GFOA. 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 the independent certified public accountants, Cherry Bekaert, LP, 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 responsibly and progressively. Respectfully submitted, Eric J. Peterson Dap.hAL Sciuilat Daphna Schwartz, CPA Town Manager Finance Director G�9 Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to Town of Hillsborough North Carolina For its Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2019 Executive Director/CEO Financial Section This page left intentionally blank. Cherry Bekaert"P CPAs & Advisors Report of Independent Auditor To the Honorable Mayor and Town Council 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 (the "Town"), as of and for the year ended June 30, 2020, and the related notes to the financial statements, which collectively comprise the Town'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. Auditor's 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 from material misstatement. The financial statements of the Hillsborough Tourism Board and Hillsborough Tourism and Development Authority 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 Town'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 Town'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 presentation of the financial statements. 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 respective 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 as of June 30, 2020, and the respective changes in financial position, and, where applicable, cash flows 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 the management's discussion and analysis and the required supplementary financial data as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a required part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of 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 consisted 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 provide 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's basic financial statements of the Town. The introductory section, combining and individual fund statements and schedules, other schedules, and statistical section, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund statements and schedules and other schedules 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, based on our audit, the information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory 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 assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 18, 2020 on our consideration of the Town's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grants agreements, and other matters. The purpose of the 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's internal control over financial reporting and compliance. Raleigh, North Carolina November 18, 2020 This page left intentionally blank. Town of Hillsborough, North Carolina Management's Discussion and Analysis Management's Discussion and Analysis 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, 2020. 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 and deferred outflows of resources of the Town exceeded its liabilities and deferred inflows of resources at the close of the fiscal year by $81,371,842. • The Town's total net position increased by $3,131,557 due to general fund and water and sewer fund revenues coming in over budget, expenditures and expenses were also less than budgeted due to projects, maintenance and repairs and other operating costs that were delayed due to the COVID-19 pandemic. • As of the close of the current fiscal year, the Town's governmental funds reported ending fund balances of $9,042,047, a net increase of $1,576,629 from the prior year. This is the result of an increase in net position for the general fund and a positive increase in the capital project activity. Approximately 20.47% of this total amount or $1,851,081 is nonspendable, or restricted. • At the end of the current fiscal year, unassigned fund balance for the General Fund was $6,438,825, or 59.96% of total General Fund expenditures, including other financing uses, for the fiscal year. • The Town's total debt increased by $1,185,485 during the current fiscal year due to new bonds issued in the amount of $3,271,000 offset by the retirement of existing debt during the year in the amount of $2,085,515. • The Town obtained an AA bond rating from S&P (Standard & Poors) on May 2, 2018. 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. 5 Town of Hillsborough, North Carolina Management's Discussion and Analysis Required Components of Annual Financial Report Figure 1 Management's Discussion and Analysis Basic Financial Statements Government -Wide Financial Statements Fund Financial Statements Notes to the Financial Statements Summary ► Detail 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 8) 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. 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 deferred outflows of resources 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 (3) component units. The governmental activities include most of the Town's basic services such as public safety, fire, street maintenance, solid waste collection, planning, public spaces, parks, 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 stormwater as well as 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. 6 Town of Hillsborough, North Carolina Management's Discussion and Analysis The government -wide financial statements are on pages 16 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. 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 and stormwater 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. 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 33 through 65 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, as well as information related to the total OPEB liability and related ratios. Required supplementary information can be found beginning on page 67 of this report. 7 Town of Hillsborough, North Carolina Management's Discussion and Analysis 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. Government -wide financial analysis The Town of Hillsborough's Net Position Figure 2 Governmental Business -Type Activities Activities Total 2020 2019 2020 2019 2020 2019 Current assets $ 9,707,979 $ 9,071,171 $ 24,187,465 $ 20,377,576 $ 33,895,444 $ 29,448,747 Other assets - - - - Capital assets, net 23,573,145 23,997,360 62,459,019 61,735,518 86,032,164 85,732,878 Total assets 33,281,124 33,068,531 86,646,484 82,113,094 119,927,608 115,181,625 Deferred outflows of resources 1,182,611 1,336,851 489,909 562,168 1,672,520 1,899,019 Long-term liabilities outstanding 7,303,538 8,228,935 30,574,754 28,647,755 37,878,292 36,876,690 Other liabilities 537,216 484,748 1,232,365 1,325,865 1,769,581 1,810,613 Total liabilities 7,840,754 8,713,683 31,807,119 29,973,620 39,647,873 38,687,303 Deferred inflows of resources 402,835 109,915 177,578 42,588 580,413 152,503 Net position: Net investment in capital assets 19,779,745 20,511,801 38,149,486 38,536,890 57,929,231 59,048,691 Restricted 1,851,081 3,757,005 - 2,677,877 1,851,081 6,434,882 Unrestricted 4,589,320 1,312,978 17,002,210 11,444,287 21,591,530 12,757,265 Total net position, ending $ 26,220,146 $ 25,581.784 $ 55,151,696 $ 52,659,054 $ 81,371,842 $ 78.240.838 As noted earlier, net position may serve over time as one useful indicator of a government's financial condition. The assets and deferred outflows of resources of the Town exceeded its liabilities and deferred inflows of resources at the close of the fiscal year by $81,371,842 as of June 30, 2020. The Town's net position increased by $3,131,557 for the fiscal year ended June 30, 2020. However, the largest portion (71.19%) 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, $1,851,081 (2.28%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of $21,591,530 (26.53%) is unrestricted and may be used to meet the Town's ongoing obligation to citizens and creditors. 8 Town of Hillsborough, North Carolina Management's Discussion and Analysis Several particular aspects of the Town's financial operations positively influenced the total unrestricted net position: • Continued diligence in the collection of property taxes by maintaining a tax collection percentage in excess of 99%. • Many departments finishing the year with expenditures under budget. • Continued low cost of debt due to low interest rates. The Town of Hillsborough's Changes in Net Position Figure 3 Governmental Activities Business -Type Activities Total 2020 2019 2020 2019 2020 2019 Revenues: Program revenues: Charges for services $ 316,812 $ 210,734 $ 10,936,743 $ 12,549,822 $ 11,253,555 $ 12,760,556 Operating grants and contributions 267,790 221,637 32,361 267,790 253,998 Capital grants and contributions 236,211 3,379,916 996,128 - 1,232,339 3,379,916 General revenues: Property taxes 7,389,956 6,510,109 7,389,956 6,510,109 Local option sales taxes 1,719,865 1,708,025 - - 1,719,865 1,708,025 Gross receipts on short-term rental property 11,517 13,593 - - 11,517 13,593 Other Miscellaneous Taxes 30,986 6,347 - 30,986 6,347 Unrestricted inter- governmental revenues 1,055,076 1,135,259 - 1,055,076 1,135,259 Other 501,366 (1,825,646) (105,484) 2,365,272 395,882 539,626 Total revenues 11,529,579 11,359,974 11,827,387 14,947,455 23,356,966 26,307,429 9 Town of Hillsborough, North Carolina Management's Discussion and Analysis The Town of Hillsborough's Changes in Net Position Figure 3 (Continued) Expenses: General government Public safety Transportation Environmental protection Economic and physical development Community activities and projects Parks and recreation Interest on long-term debt Stormwater Water and sewer Total expenses Increase in net position Net position, beginning Net position, ending Governmental Activities 2020 2019 $ 2,391,829 5,559,342 1,024,817 558,337 557,378 166,373 511,512 121,076 $ 1,865,007 4,705,989 718,593 468,057 488,592 34,311 493,868 140,004 Business -Type Activities 2020 2019 $ $ 527,372 8,807,373 566,231 9,355,337 10,890,664 8,914,421 9,334,745 9,921,568 20,225,409 18,835,989 638,915 2,445,553 2,492,642 5,025,887 3,131,557 7,471,440 25,581,231 23,136,231 52,659,054 47,633,167 78,240,285 70,769,398 $ 26,220,146 $ 25,581,784 $ 55,151,696 $ 52,659,054 $ 81,371,842 $ 78,240.838 Total 2020 2019 $ 2,391,829 5,559,342 1,024,817 558,337 557,378 121,076 527,372 8,807,373 $ 1,865,007 4,705,989 718,593 468,057 488,592 166,373 34,311 511,512 493,868 140,004 566,231 9,355,337 Governmental activities. Governmental activities increased the Town's net position by $638,915, thereby accounting for 20.40% of the total growth in the net position of the Town of Hillsborough. Key elements of this increase are as follows: • Property taxes revenue increased over $879,000. The FY19 property taxes included a tax abatement that lowered the revenue by $446,940. This abatement was attributable to several years of payments, however it was absorbed in FY19. .After taking the abatement into consideration, the increase is almost $433,000. This increase can be attributed to the Town's 7% growth rate. There were 203 new residential properties added to the tax base for FY20 collections. Business -type activities. Business -type activities increased the Town's net position by $2,492,642, accounting for 79.60% of the total growth in the government's net position. Key elements of this increase are as follows: • The Water and Sewer Fund experienced a decrease in charges for services due to COVID-19. The Town also delayed many expenses due to the outbreak that were still not fully expended as of the end of the year. • The Water and Sewer fund received capital contributions for dedications and Water and Sewer development in the amount of $996,128. 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. 10 Town of Hillsborough, North Carolina Management's Discussion and Analysis 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 $7,188,375, while total fund balance reached $8,471,021. The Governing Body of the Town of Hillsborough has determined that the Town should maintain a 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 66.94% of general fund expenditures, while total fund balance represents 78.89% of the same amount. At June 30, 2020, the governmental funds of the Town reported a combined fund balance of $9,042,047, with a net increase in fund balance of $1,576,629. This increase is primarily related to capital project revenues. General fund budgetary highlights. During the fiscal year, the Town revised the budget at least once a month. 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. Actual operating revenues for the General Fund were more than the budgeted amount by $722,722. Expenditures were $1,435,913 less than budgeted, primarily due to the impacts of COVID-19, delaying of purchases and multiple long-term vacancies. 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 Fund at the end of the fiscal year amounted to $10,385,294, a 4.29% or $464,411 decrease from the previous year. Restricted net position increased $3,179,489 due to developer donations collected in the current and prior fiscal years, which primarily consist of system development fees accounted for in capital reserve funds. Charges for services were down over 1.6 million due to a drop in the collection of system development fees. System development fees are a charge assessed on new development to fund capital improvements necessitated by and attributable to that new development or to recoup the costs of existing facilities that serve the new development. The total growth in net position was $2,492,642. Unrestricted net position of the Stormwater Fund at the end of the fiscal year amounted to $759,550, a 27.75% or $164,968 increase from the previous year. The increase is largely attributed to expenditures being less than expected. 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, 2020 totals $86,032,164 (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: • Vehicles ($141,950) • Street resurfacing ($210,150) Major developer -dedicated capital asset transactions during the year include the following: • Forest Ridge Booster Pump Station ($539,500) 11 Town of Hillsborough, North Carolina Management's Discussion and Analysis The Town of Hillsborough's Capital Assets (Net of Accumulated Depreciation) Figure 4 Land Construction in progress Buildings and improvements Plant and distribution systems Infrastructure Equipment Vehicles Intangibles Governmental Activities Business -Type Activities Total 2020 2019 2020 2019 2020 2019 $ 4,657,781 $ 4,634,594 145,692 49,297 $ 6,133,088 11,067,121 6,200,607 6,286,045 16,922,750 11,653,414 325,571 590,080 11,759,238 389,865 878,321 25,299,114 2,395,631 407,414 233,901 $ 6,132,444 $ 10,790,869 $ 10,767,038 9,205,410 11,212,813 9,254,707 17,915,526 23,123,357 24,201,571 25,417,324 2,466,199 279,668 318,947 25,299,114 25,417,324 14, 049, 045 14, 225, 437 732,985 669,533 823,981 1,197,268 Total $ 23,573,145 $ 23,997,360 $ 62,459,019 $ 61.735,518 $ 86,032,164 $ 85,732,878 Additional information on the Town's capital assets can be found in Note 3.A.5. of the basic financial statements. Long-term debt. As of June 30, 2020, the Town of Hillsborough had outstanding bonded debt of $13,426,000 which represents bonds secured solely by specified revenue sources (revenue bonds). The remainder of the Town's debt represents revolving loans payable and installment purchases secured solely by revenues of the project or specified purchases. Revolving loan payable Special revenue bonds Premium on bonds Installment purchases The Town of Hillsborough's Outstanding Debt Revolving Loans Payable and Installment Purchases Figure 5 Governmental Activities 2020 2019 Business -Type Activities Total 2020 2019 2020 2019 $ $ $ 14,336,167 $ 15,397,010 $ 14,336,167 $ 15,397,010 13,426,000 10,155,000 13,426,000 10,155,000 - - 913,641 970,330 913,641 970,330 3,793,400 4,632,280 423,833 552 936 4,217,233 5,185,216 Total $ 3,793,400 $ 4,632,280 $ 29,099,641 $ 27,075.276 $ 32,893,041 $ 31,707.556 The Town's total debt increased by $1,185,485 during the current fiscal year due to repayments of $2,085,515 offset by newly issued special revenue bonds of $3,271,000. 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 $89,551,324. The Town does not have any bonds authorized but unissued at June 30, 2020. Additional information regarding the Town's long-term debt can be found in Note 3.B.8 of the basic financial statements. 12 Town of Hillsborough, North Carolina Management's Discussion and Analysis 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 5.9% as of June 30, 2020 is below the state average of 7.5%. • No increase in property tax rate. • No general obligation debt in the General Fund. Budget highlights for the fiscal year ending June 30, 2021 Governmental activities: The property tax rate remains at 62 cents for FY21. This will be the eighth consecutive year without a property tax rate increase. Expenses increase by 3.4% in FY21.To address the novel coronavirus financial implications, no merit adjustments were given, and capital projects, as well as non -mission critical expenditures were delayed if possible. Other budget highlights in brief: • Connection Feasibility Study ($45,000) • Fire Chief ($35,000) • Valley Forge Road Project ($475,000) • Garbage Truck ($310,000) • Comprehensive Plan ($75,000) • Rail Station ($34,000) Business -type activities: Water and Sewer Fund In order to provide financial relief to customers during the novel coronavirus, the projected 5% rate increases to both water and sewer rates for FY21 were delayed. Operational expenditures in the Water/Sewer Fund are expected to increase by 10.4% in FY21. It is important to note that this total reflects cuts and deferments made to FY20 year-end expenditures and that FY21 includes projects that are funded with one-time revenue sources of water and sewer system development fees. Other budget highlights in brief • 16 -inch Water Main Interconnects ($465,000) • Economic Development District Water Line Extension ($259,404) • River Pump Station Design ($200,000) • Infrastructure Rehabilitation ($150,000) 13 Town of Hillsborough, North Carolina Management's Discussion and Analysis Stormwater Fund Stormwater rates will not increase, and expenses will increase by 11%% in FY21. Other budget highlight in brief: • Valley Forge Road Project ($100,000) 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 Finance Director, Town of Hillsborough,105 East Corbin Street, Post Office Box 429, Hillsborough, North Carolina 27278 or Finance(a hillsboroughnc.gov. 14 Basic Financial Statements 15 Town of Hillsborough, North Carolina Statement of Net Position June 30, 2020 Exhibit 1 (2 pages) Primary Government Component Units Governmental Business -Type Activities Activities Total Hillsborough Tourism Hillsborough Development Tourism Authority Board ASSETS Current assets: Cash and investments $ 7,977,124 $ 12,173,396 $ 20,150,520 $ 258,470 $ 359,586 Receivables: Taxes receivable, net 153,685 - 153,685 Accrued interest receivable, property taxes 25,257 25,257 - Accounts receivable, net 60,953 1,681,287 1,742,240 87 16 Due from other governments 988,641 - 988,641 - Due from primary government - - - 8,248 53,748 Prepaid expenses 215 215 - 689 Restricted assets: Cash and investments 502,319 10,332,567 10,834,886 Total current assets 9,707,979 24,187,465 33,895,444 Noncurrent assets: Capital assets: Land and construction -in - progress 4,803,473 17,200,209 22,003,682 Other capital assets, net of depreciation 18,769,672 45,258,810 64,028,482 266,805 414,039 Total capital assets 23,573,145 62,459,019 86,032,164 Total noncurrent assets 23,573,145 62,459,019 86,032,164 Total assets 33,281,124 86,646,484 119,927,608 266,805 414,039 DEFERRED OUTFLOWS OF RESOURCES Pension deferrals OPEB deferrals 1,127,025 55,586 1,182,611 462,797 1,589,822 27,112 82,698 489,909 1,672,520 The notes to the financial statements are an integral part of this statement. 16 Exhibit 1 (2 pages) Primary Government Component Units Governmental Business -Type Activities Activities Total Hillsborough Tourism Hillsborough Development Tourism Authority Board LIABILITIES Current liabilities: Accounts payable and accrued liabilities $ 375,525 $ 458,628 $ 834,153 $ 230 $ 10,230 Payable from restricted assets - customer deposits - 583,611 583,611 - Accrued interest payable 50,226 190,126 240,352 - Unearned revenue 49,469 - 49,469 - Due to component units 61,996 61,996 - - Current portion of long-term liabilities 944,693 1,586,982 2,531,675 - - Total current liabilities 1,481,909 2,819,347 4,301,256 230 10,230 Long-term liabilities: Net pension liability 1,690,884 781,966 2,472,850 Total pension liability 783,583 783,583 Total OPEB liability 713,727 461,563 1,175,290 Due in more than one year 3,170,651 27,744,243 30,914,894 Total noncurrent liabilities 6,358,845 28,987,772 35,346,617 Total liabilities DEFERRED INFLOWS OF RESOURCES Pension deferrals OPEB deferrals Total deferred inflows 7,840,754 31,807,119 71,080 10,418 331,755 167,160 402,835 177,578 39,647,873 81,498 498,915 580,413 NET POSITION Net investment in capital assets 19,779,745 38,149,486 57,929,231 Restricted for: Stabilization by state statute 1,473,671 - 1,473,671 Streets 200,490 200,490 Water and sewer projects - 5,857,366 5,857,366 Capital projects 176,920 176,920 Unrestricted 4,589,320 11,144,844 15,734,164 230 10,230 8,335 258,240 53,764 350,045 Total net position $ 26,220,146 $ 55,151,696 $ 81,371,842 $ 266,575 $ 403,809 The notes to the financial statements are an integral part of this statement. 17 Town of Hillsborough, North Carolina Statement of Activities Year Ended June 30, 2020 Exhibit 2 (4 pages) Program Revenues Operating Capital Charges Grants and Grants and Functions/Programs Expenses for Services Contributions Contributions Primary government Governmental activities: General government $ 2,391,829 296,255 $ 10,895 Public safety 5,559,342 17,667 20,500 - Transportation 1,024,817 202,395 Environmental protection 558,337 - Economic and physical development 557,378 34,000 Community activities and projects 166,373 - - - Parks and recreation 511,512 2,890 236,211 Interest on long-term obligations 121,076 - - Total governmental activities 10,890,664 316,812 267,790 236,211 Business -type activities: Water and sewer 8,807,373 10,265,866 Stormwater 527,372 670,877 Total business -type activities 996,128 9,334,745 10,936,743 - 996,128 Total primary government $ 20,225,409 $ 11,253,555 $ 267,790 $ 1,232,339 Component units Hillsborough Tourism Development Authority $ 55,854 $ Hillsborough Tourism Board 361,935 Total component units $ 417,789 $ $ - $ The notes to the financial statements are an integral part of this statement. 18 Exhibit 2 (4 pages) Net Revenue (Expense) and Changes in Net Position Primary Government Component Units Governmental Business -Type Activities Activities Tourism Development Tourism Total Authority Board $ (2,084,679) - $ (2,084,679) (5,521,175) - (5,521,175) (822,422) (822,422) (558,337) (558,337) (523,378) (523,378) (166,373) (166,373) (272,411) (272,411) (121,076) (121,076) (10,069,851) - (10,069,851) (10, 069, 851) 2,454,621 2,454,621 143,505 143,505 2,598,126 2,598,126 2,598,126 (7,471,725) (55,854) (361, 935) (55,854) (361,935) The notes to the financial statements are an integral part of this statement. 19 Town of Hillsborough, North Carolina Statement of Activities Year Ended June 30, 2020 Exhibit 2 (4 pages) Program Revenues Operating Capital Charges Grants and Grants and Functions/Programs Expenses for Services Contributions Contributions General revenues: Taxes: Property taxes, levied for general purposes Local option sales taxes Gross receipts on short-term rental property Other Miscellaneous taxes Unrestricted intergovernmental revenues Investment earnings, unrestricted Payment from Town of Hillsborough Gain (loss) on disposal of capital assets Miscellaneous Transfers Total general revenues and transfers Change in net position Net position, beginning Net position, ending The notes to the financial statements are an integral part of this statement. 20 Exhibit 2 (4 pages) Net Revenue (Expense) and Changes in Net Position Primary Government Component Units Governmental Business -Type Activities Activities Total Tourism Development Tourism Authority Board 7,389,956 $ - $ 7,389,956 $ $ 1,719,865 1,719,865 - - 11,517 11,517 30,986 30,986 - - 1,055,076 - 1,055,076 - 171,563 119,062 290,625 - - - - - 60,347 371,326 - (83,384) (83,384) - - 131,951 56,690 188,641 - 197,852 (197,852) - - 10,708,766 (105,484) 10,603,282 60,347 371,326 638,915 2,492,642 3,131,557 4,493 9,391 25,581,231 52,659,054 78,240,285 262,082 394,418 $ 26,220,146 $ 55,151,696 $ 81,371,842 $ 266,575 $ 403,809 The notes to the financial statements are an integral part of this statement. 21 Town of Hillsborough, North Carolina Balance Sheet Governmental Funds June 3o, 2020 Exhibit 3 (2 pages) Major Fund Total Total General Nonmajor Governmental Fund Funds Funds ASSETS Cash and investments $ 7,698,625 $ 278,499 $ 7,977,124 Taxes receivable 153,685 153,685 Accounts receivable, net 60,953 - 60,953 Due from other governments 823,200 165,441 988,641 Due from other funds 160,038 - 160,038 Restricted assets Cash and investments 200,490 301,829 502,319 Total assets $ 9,096,991 $ 745,769 $ 9,842,760 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES LIABILITIES Accounts payable and accrued liabilities $ 360,820 $ 14,705 $ 375,525 Due to other funds - 160,038 160,038 Unearned revenue 49,469 - 49,469 Due to component units 61,996 61,996 Total liabilities 472,285 174,743 647,028 DEFERRED INFLOWS OF RESOURCES 153,685 - 153,685 FUND BALANCES Restricted for: Stabilization by state statute 1,082,156 391,515 1,473,671 Streets 200,490 200,490 Capital projects - 176,920 176,920 Committed for: Capital projects - 189,441 189,441 Assigned for: Subsequent year's expenditures 749,550 749,550 Unassigned 6,438,825 (186,850) 6,251,975 Total fund balances 8,471,021 Total liabilities, deferred inflows of resources and fund balances 571,026 9,042,047 $ 9,096,991 $ 745,769 $ 9,842,760 The notes to the financial statements are an integral part of this statement. 22 Town of Hillsborough, North Carolina Balance Sheet Governmental Funds June 3o, 2020 Exhibit 3 (2 pages) Amounts reported for governmental activities in the statement of net position are different because: Total fund balances, governmental funds $ 9,042,047 Capital assets used in governmental activities are not financial resources and therefore not reported in the funds. 23,573,145 Deferred outflows of resources related to pensions and OPEB are not reported in the funds 1,182,611 Other long-term assets (accrued interest receivable from property taxes) are not available to pay from current -period expenditures and therefore are inflows of resources in the funds 25,257 Liabilities for earned revenues considered deferred inflows of resources in the fund statements 153,685 Deferred inflows of resources related to pensions and OPEB are not reported in the funds (402,835) Some liabilities, including accrued interest, are not due and payable in the current period, and therefore are not reported in the funds. (4,165,570) Total pension liability (783,583) Net pension liability (1,690,884) Total OPEB liability (713,727) Net position of governmental activities $ 26,220,146 The notes to the financial statements are an integral part of this statement. 23 Town of Hillsborough, North Carolina Statement of Revenues and Expenditures and Changes in Fund Balance Governmental Funds Year Ended June 30, 2020 Revenues General revenues: Ad valorem taxes Other taxes and licenses Unrestricted intergovernmental revenues Restricted intergovernmental revenues Investment earnings Contribution from property owners Other general revenues Total general revenues Functionally related revenues: Use and rental fees Total revenues Expenditures General government Public safety Transportation Environmental protection Economic and physical development Community activities and projects Parks and recreation Debt service: Principal retirement Interest and fiscal charges Total expenditures Revenues over (under) expenditures Other financing sources (uses) Transfer to Public Safety Facility Capital Project Fund Transfer to Riverwalk CMAQ Capital Projects Fund Transfer to General Capital Projects Fund Transfer from Town Barn Improvements Capital Projects Fund Transfer from Downtown Improvements Capital Projects Fund Transfer to Water and Sewer Fund Transfer from General Fund Total other financing sources (uses) Net change in fund balances Fund balances, beginning Fund balances, ending Major Fund General Fund Exhibit 4 (2 pages) Total Nonmajor Funds Total Governmental Funds $ 7,422,863 $ $ 7,422,863 1,738,597 1,738,597 1,081,038 1,081,038 317,212 1,022,499 1,339,711 170,325 1,238 171,563 11,147 11,147 87,365 - 87,365 10,817,400 344,892 11,162,292 1,939,539 5,006,500 684,311 462,129 473,494 250,962 511,512 846,287 121,076 10,295,810 866,482 (312,000) (50,343) (80,000) 55,368 36,487 (350,488) 515,994 7,955,027 1,034,884 11,852,284 344,892 1,034,884 12,197,176 290,142 2,229,681 5,006,500 684,311 462,129 16,395 489,889 250,962 7,378 518,890 846,287 121,076 313,915 10,609,725 720,969 1,587,451 (10,822) 350,488 339,666 1,060,635 (489,609) (312,000) (50,343) (80,000) 55,368 36,487 (10,822) 350,488 (10,822) 1,576,629 7,465,418 $ 8,471,021 $ 571,026 $ 9,042,047 The notes to the financial statements are an integral part of this statement. 24 Town of Hillsborough, North Carolina Statement of Revenues and Expenditures and Changes in Fund Balance Governmental Funds Year Ended June 30, 2020 Exhibit 4 (2 pages) 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 $ 1,576,629 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 depreciation ($1,079,609) exceeded capital outlays ($416,149) in the current period. (663,459) The effect of transfers related to Capital Assets and Debt 208,674 Contributions to the pension plan in the current fiscal year are not included in the statement of activities 73,284 Benefit payments paid and adminstrative expense for the LEOSSA are not included in the statement of activities 13,652 Benefit payments paid and adminstrative expense for the OPEB are not included in the statement of activities 3,072 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Change in unavailable revenue for taxes 811 Change in deferred revenues related to grants receivable. (976,793) The repayment of the principal of long-term debt ($846,287) consumes the current financial resources of governmental funds. This transaction has no effect on net position. 846,287 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 interest on general long-term debt 7,408 Compensated absences 11,358 Pension expense (519,729) OPEB expense 57,721 Changes in net position of governmental activities $ 638,915 The notes to the financial statements are an integral part of this statement. 25 Town of Hillsborough, North Carolina Statement of Revenues and Expenditures and Changes in Fund Balance Budget and Actual General Fund Year Ended June 30, 2020 Exhibit 5 Revenues General revenues Ad valorem taxes Other taxes and licenses Unrestricted intergovernmental revenues Restricted intergovernmental revenues Investment earnings Other general revenues Total general revenues Functionally related revenues Use and rental fees Total revenues Expenditures General government Public safety Transportation Environmental protection Economic and physical development Community activities and projects Parks and recreation Contingency Total expenditures Revenues under expenditures Other financing sources (uses) Transfer from Downtown Improvements Capital Project Fund Transfer from Town Barn Improvements Capital Project Fund Transfer to Riverwalk - CMAQ Fund Transfer to Public Safety Facility Capital Project Fund Transfer to General Capital Projects Fund Total other financing sources (uses) Appropriated fund balance Net change in fund balance Fund balance, beginning Fund balance, ending Original Budget $ 7,148,600 1,528,555 1,034,900 190,000 175,000 30,500 10,107, 555 145,200 10,252,755 2,168,493 4,934,416 963,093 561,861 490,396 464,655 766,574 250,000 10,599,488 (346,733) 346,733 Final Budget $ 7,146,469 1,493, 929 755,615 292,644 170,000 236,021 10,094,678 653,997 10,748,675 2,805,489 5,592,917 974,755 571,240 550,870 405,699 830,753 11,731,723 (983,048) 55,368 (50,343) (312,000) (80,000) (386,975) 1,370,023 Actual $ 7,422,863 1,738,597 1,081,038 317,212 170,325 87,365 10,817,400 344,892 11,162,292 2,222,021 5,234,108 725,329 538,452 473,494 349,753 752,653 10,295,810 866,482 36,487 55,368 (50,343) (312,000) (80,000) (350,488) Variance Positive (Negative) $ 276,394 244,668 325,423 24,568 325 (148,656) 722,722 (309,105) 413,617 583,468 358,809 249,426 32,788 77,376 55,946 78,100 1,435,913 1,849,530 36,487 36,487 (1,370,023) 515,994 $ 515,994 7,955,027 $ 8,471,021 The notes to the financial statements are an integral part of this statement. 26 Town of Hillsborough, North Carolina Statement of Net Position Proprietary Funds June 30, 2020 Exhibit 6 ASSETS Current assets: Cash and investments Accounts receivable, net Prepaid expenses Restricted assets: Cash and investments Total current assets Noncurrent assets: Capital assets: Land and construction -in -progress Other capital assets, net of depreciation Total capital assets Total noncurrent assets Total assets DEFERRED OUTFLOWS OF RESOURCES Pension deferrals OPEB deferrals Total deferred outflows of resources LIABILITIES Current liabilities: Accounts payable and accrued liabilities Payable from restricted assets - customer deposits Accrued interest payable Current portion of long-term liabilities Total current liabilities Long-term liabilities: Net pension liability Total OPEB liability Due in more than one year Total noncurrent liabilities Total liabilities DEFERRED INFLOWS OF RESOURCES Pension deferrals OPEB deferrals Total deferred inflows of resources NET POSITION Net investment in capital assets Restricted for: Water and sewer projects Unrestricted Total net position Major Water and Sewer Fund Nonmajor Stormwater Fund Total $ 11,369,532 $ 803,864 $ 12,173,396 1,649,368 31,919 1,681,287 215 215 10, 332, 567 23,351,682 17,166, 396 43,439,152 60,605,548 60,605,548 83,957,230 428,768 24,657 453,425 448,470 583,611 190,126 1,586,982 2,809,189 721,261 441,002 27,737,931 28,900,194 31, 709, 383 9,632 152,965 162,597 36,296,015 835,783 33,813 1,819,658 1,853,471 1,853,471 2,689,254 34,029 2,455 36,484 10,158 10,158 60,705 20,561 6,312 87,578 97,736 786 14,195 14,981 1,853,471 10,332,567 24,187,465 17,200,209 45,258,810 62,459,019 62,459,019 86,646,484 462,797 27,112 489,909 458,628 583,611 190,126 1,586,982 2,819,347 781,966 461,563 27,744,243 28,987,772 31, 807,119 10,418 167,160 177,578 38,149,486 5,857,366 5,857,366 10,385,294 759,550 11,144,844 $ 52,538,675 $ 2,613,021 $ 55,151,696 The notes to the financial statements are an integral part of this statement. 27 Town of Hillsborough, North Carolina Statement of Revenues, Expenses and Changes in Net Position Proprietary Funds Year Ended June 3o, 2020 Exhibit 7 Major Nonmajor Water and Stormwater Sewer Fund Fund Total Operating revenues Charges for services $ 9,954,986 $ 666,355 $ 10,621,341 System Development Fees 456,628 - 456,628 Other operating revenues 310,880 4,522 315,402 Total operating revenues 10,722,494 670,877 11,393,371 Operating expenses Personnel services 2,914,587 278,959 3,193,546 Depreciation 1,695,988 56,645 1,752,633 Other current charges 3,372,024 191,768 3,563,792 Total operating expenses 7,982,599 Operating income 2,739,895 527,372 8,509,971 143,505 2,883,400 Nonoperating revenues (expenses) Investment earnings 119,062 - 119,062 Amortization of premium on bonds payable 56,690 - 56,690 Gain (loss) on disposal of capital assets (83,384) (83,384) Interest and fees (824,774) - (824,774) Total nonoperating revenues (expenses) (732,406) - (732,406) Income before capital contributions and transfers 2,007,489 143,505 2,150,994 Capital contributions and transfers: Transfer to General Fund (208,674) (208,674) Transfer from Town Barn Capital Improvements 10,822 - 10,822 Capital contributions - dedications 539,500 - 539,500 Total capital contributions and transfers 341,648 - 341,648 Change in net position 2,349,137 143,505 2,492,642 Net position, beginning of year 50,189,538 2,469,516 52,659,054 Net position end of year $ 52,538,675 $ 2,613,021 $ 55,151,696 The notes to the financial statements are an integral part of this statement. 28 Town of Hillsborough, North Carolina Statement of Cash Flows Proprietary Funds Year Ended June 30, 2020 Exhibit 8 (2 pages) Major Nonmajor Water and Stormwater Sewer Fund Fund Total Cash flows from operating activities Cash received from customers $ 10,603,551 $ 674,102 $ 11,277,653 Cash paid for goods and services (3,272,139) (304,067) (3,576,206) Cash paid to or on behalf of employees for services (2,762,718) (176,437) (2,939,155) Net cash provided by operating activities 4,568,694 Cash flows from capital and related financing activities Acquisition and construction of capital assets (2,434,452) Proceeds from issuance of long-term debt 3,271,000 Principal paid on bonds, notes and installment purchases (1,189,949) Interest paid on bonds and installment purchases (809,460) Other income 10,822 Net cash used by capital and related financing activities (1,152,039) Cash flows from investing activities Interest on investments Net cash provided by investing activities 193,598 4,762,292 (35,182) (2,469,634) 3,271,000 (1,189,949) (809,460) 10,822 (35,182) (1,187,221) 119,062 - 119,062 119,062 119,062 Net increase (decrease) in cash and cash equivalents 3,535,717 158,416 3,694,133 Cash and cash equivalents, beginning 18,166,382 645,448 18,811,830 Cash and cash equivalents, ending $ 21,702,099 $ 803,864 $ 22,505,963 Cash and cash equivalents Unrestricted $ 11,369,532 $ 803,864 $ 12,173,396 Restricted 10,332,567 - 10,332,567 Total cash and cash equivalents $ 21,702,099 $ 803,864 $ 22,505,963 The notes to the financial statements are an integral part of this statement. 29 Town of Hillsborough, North Carolina Statement of Cash Flows Proprietary Funds Year Ended June 30, 2020 Exhibit 8 (2 pages) Major Nonmajor Water and Stormwater Sewer Fund Fund Total Reconciliation of operating income to net cash provided by operating activities Operating income $ 2,739,895 $ 143,505 $ 2,883,400 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 1,695,988 56,645 1,752,633 Provision for uncollectible accounts 24,174 - 24,174 Changes in assets and liabilities: Accounts receivable (143,158) 3,225 (139,933) Deferred outflows of resources for pensions 73,702 7,336 81,038 Deferred outflows of resources for OPEB (7,996) (788) (8,784) Accounts payable and accrued liabilities 124,543 (24,176) 100,367 Deposits 31,765 - 31,765 Total OPEB liability (136,992) (13,634) (150,626) Net pension liability 78,628 7,825 86,453 Deferred inflows of resources for pensions 4,538 451 4,989 Deferred inflows of resources for OPEB 118,234 11,767 130,001 Compensated absences payable (34,627) 1,442 (33,185) Net cash provided by operating activities Supplemental schedule of noncash investing and financing activities Capital asset additions included in accounts payable and accrued liabilities Capital contribution from developer $ 4,568,694 $ 193,598 $ 4,762,292 $ 181,373 $ 181,373 $ 539,500 - $ 539,500 The notes to the financial statements are an integral part of this statement. 30 Town of Hillsborough, North Carolina Notes to Financial Statements Notes to Financial Statements 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 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) 296-9451. B. Basis of presentation Government -wide statements: The statement of net position and the statement of activities display information about the primary government and its component unit. These statements 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. 31 Town of Hillsborough, North Carolina Notes to Financial Statements Fund financial statements: The fund financial statements provide information about the Town's funds, including the fiduciary fund. Separate statements for each fund category — governmental, proprietary, and fiduciary - 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 result from nonexchange transactions. Other nonoperating revenues are ancillary activities such as investment earnings. 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. The Town reports the following nonmajor governmental funds: Consolidated 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. Downtown Improvements Capital Project Fund. This fund is used to account for certain improvements to the downtown area of the Town. 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. Town Barn Improvements Capital Project Fund. The fund is used to account for various renovations and upgrades to the Town Barn and North Campus, including certain data processing equipment. This project was completed and closed during the current fiscal year. Rail Station Capital Project Fund. This fund will account for design, engineering, construction and construction oversight of the passenger rail station which is approximately 6,000 square foot building with about 100 parking spaces, utilities, and site access Public Works Building Capital Project Fund. This fund will account for design, project management, construction, construction inspection, and water and sewer utilities for a new Public Works Building. Public Safety Building Capital Project Fund. This fund will account for construction costs for the renovation of the Public Safety Building. 32 Town of Hillsborough, North Carolina Notes to Financial Statements 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 the Water and Sewer Capital Reserve Funds have been consolidated with the Water and Sewer Fund. The Town reports the following nonmajor enterprise fund: Stormwater Fund. This fund is used to account for the operations of the Town's stormwater management department. 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, proprietary, and fiduciary fund financial statements. The government -wide, proprietary, and fiduciary 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. Issuance of general long-term debt and acquisitions under capital leases are reported as other financing sources. 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. 33 Town of Hillsborough, North Carolina Notes to Financial Statements 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. Sales taxes are considered a shared revenue for the Town because the tax is levied by Orange County and then remitted to and distributed by the State. Most intergovernmental revenues and sales and services are not susceptible to accrual, because generally they are not measurable until received in cash. All taxes, including those dedicated for specific purposes are reported as general revenues rather than program revenues. 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. 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, the Water and Sewer Fund, and the Stormwater Fund. All annual appropriations lapse at the fiscal year end. Project ordinances are adopted for the General Capital Projects Fund, the Water and Sewer Capital Projects Fund, and the Water and Sewer Capital Reserve Fund. The water and sewer 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. Non -participating interest earning investment contracts are accounted for at cost. The NCCMT Government Portfolio, a SEC -registered (2a- 7) external investment pool, is measured at fair value. The NCCMT-Term Portfolio bond fund, has no rating and is measured at fair value. As of June 30, 2020, the Term portfolio has a duration of .15 years. Because the NCCMT Government and Term Portfolios have a weighted average maturity of less than 90 days, they are presented as an investment with a maturity of less than 6 months. (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. 34 Town of Hillsborough, North Carolina Notes to Financial Statements (3) Restricted assets The Water and Sewer Fund, General Fund, and General Capital Projects 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 $ 200,490 General Capital Projects Fund 186,700 General Capital Reserve Fund Developer donations - future capital projects 115,129 Total governmental activities 502,319 Business -type activities: Water and Sewer Fund Unspent debt proceeds 3,891,590 Customer deposits 583,611 Developer donations - perpetual maintenance 407,338 Developer donations - water and sewer needs 5,450,028 Total business -type activities 10,332,567 Total restricted cash $ 10.834,886 (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, 2018. 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. 35 Town of Hillsborough, North Carolina Notes to Financial Statements 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 Donated capital assets received prior to July 1, 2015 are recorded at their estimated fair value at the date of donation. Donated capital assets received after July 1, 2015 are recorded at acquisition value. All other purchased or constructed assets are recorded at cost or estimated historical cost. 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 the following estimated useful lives: Asset Class Estimated Useful Lives 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 two items that meet this criterion: pension deferrals for the 2020 fiscal year, and OPEB deferrals for the 2020 fiscal year. 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 several items that meet the criterion for this category: taxes receivable, grants receivable, pension deferrals and OPEB deferrals. (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 and discounts 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. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether withheld from the actual debt proceeds received or not, are reported as debt service expenditures. (io) 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 36 Town of Hillsborough, North Carolina Notes to Financial Statements 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. 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: 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 — North Carolina G.S. 159-8 prohibits units of government from budgeting or spending a portion of their fund balance. This is one of several statutes enacted by the North Carolina State Legislature in the 1930's that were designed to improve and maintain the fiscal health of local government units. Restricted by State statute (RSS), is calculated at the end of each fiscal year for all annually budgeted funds. The calculation in G.S. 159-8(a) provides a formula for determining what portion of fund balance is available for appropriation. The amount of fund balance not available for appropriation is what is known as "restricted by State statute". Appropriated fund balance in any fund shall not exceed the sum of cash and investments minus the sum of liabilities, encumbrances, and deferred revenues arising from cash receipts, as those figures stand at the close of the fiscal year next preceding the budget. Per GASB guidance, RSS is considered a resource upon which a restriction is "imposed by law through constitutional provisions or enabling legislation." RSS is reduced by inventories and prepaids as they are classified as nonspendable. Outstanding Encumbrances are included within RSS. RSS is included as a component of Restricted Net position and Restricted fund balance on the face of the balance sheet. 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). The Board of Town Commissioners can, by adoption of an ordinance prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the ordinance remains in place until a similar action is taken (the adoption of another ordinance) to remove or revise the limitation. 37 Town of Hillsborough, North Carolina Notes to Financial Statements Committed for capital projects - Portion of fund balance that can only be used for the construction of capital projects. 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. Unassigned fund balance is the residual classification for the General Fund. Other governmental funds cannot report positive unassigned fund balance but can report negative unassigned fund balance if expenditures incurred for specific purposes exceeded the amounts restricted, committed, or assigned to those purposes. 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 minimum fund balance policy for the General Fund which instructs management to conduct the business of the Town in such a manner that available fund balance is between 20% and 60% of operating expenditures, with a target of 33%, or the equivalent of four months of operating expenditures. (12) Defined benefit cost -sharing plans For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Local Governmental Employee's Retirement System (LGERS) and additions to/deductions from LGERS' fiduciary net position have been determined on the same basis as they are reported by LGERS. For this purpose, plan member contributions are recognized in the period in which the contributions are due. The Town's employer contributions are recognized when due and the Town has a legal requirement to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of LGERS. Investments are reported at fair value. 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 debt transactions and are summarized below: General government Public safety Transportation Environmental protection Community activities and projects Parks and recreation Debt service: Principal retirement Interest and fiscal charges (1) Reclassification of debt service payments. Exhibit 4 $ 1,939,539 5,006,500 684,311 462,129 250,962 511,512 846,287 121,076 Increase (Decrease) $ 282,482 227,608 41,018 76,323 98,791 241,141 (846,287) (1) (121,076) (1) Exhibit 5 $ 2,222,021 5,234,108 725,329 538,452 349,753 752,653 38 Town of Hillsborough, North Carolina Notes to Financial Statements 3. Detail Notes on All Funds A. Assets (i) Deposits and Investments 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, 2020, the Town's deposits had a carrying amount of $5,801,773 and a bank balance of $6,253,903. Of the bank balance, $518,176 was covered by federal depository insurance and $5,735,727 in interest -bearing deposits were covered under the Pooling Method. The Town had $1,050 in petty cash on hand at June 30, 2020. At June 30, 2020, the Authority's deposits had a carrying amount and bank balance of $258,470. All of the bank balance was covered by federal depository insurance. At June 30, 2020, the Board's deposits had a carrying amount of $359,586 and a bank balance of $359,845. Of the bank balance, $250,000 was covered by federal depository insurance, and $109,845 of demand deposits were covered under the Pooling Method. Investments At June 30, 2020, the Town's investment balances were as follows: Investments by Type Valuation Book Measurement Value at Method 6/30/2020 Maturity Rating NC Capital Management Trust - Fair Value Government Portfolio Level 1 $ 16,710,902 N/A AAAm NC Capital Management Trust - Term Fair Value Portfolio Level 1 1,024,419 0.15 years Unrated NC Capital Management Trust — Fair Value Government Portfolio - Capital Reserve Level 1 6,630,069 N/A AAAm NC Capital Management Trust —Government Fair Value Portfolio —Perpetual Maintenance Level 1 817,192 N/A AAAm Total $ 25,182,582 All investments are measured using the market approach: using prices and other relevant information generated by market transactions involving identical or comparable assets of a group of assets. 39 Town of Hillsborough, North Carolina Notes to Financial Statements Level of fair value hierarchy: Level 1 - Debt securities are valued using directly observable, quoted prices (unadjusted) in active markets for identical assets. The Town does not have a formal investment policy. Credit Risk. The Town has no formal policy regarding credit risk, but has internal management procedures that limits the Town's investments to the provisions of G.S. 159-30 and restricts the purchase of securities to the highest possible ratings whenever particular types of securities are rated. The Town's investment in the NC Capital Management Trust Government Portfolio carried a credit rating of AAAm by Standard & Poor's as of June 30, 2020. The Town's investment in the NC Capital Management Trust Term Portfolio is unrated. The Term Portfolio is authorized to invest in obligations of the U.S. government and agencies, and in high grade money market instruments permitted under NC G.S. 159-30 as amended. (3) Due from other governments Amounts due from other governments consist of the following: Governmental Activities General Fund: Sales and use tax distribution $ 463,462 Utilities franchise and telecommunications tax 134,215 Other government agencies 96,518 Sales tax refunds 129,005 823,200 Riverwalk CMAQ Capital Project Fund CMAQ grant funds 165,441 $ 988,641 (4) Receivables - allowances for doubtful accounts The amounts presented in the Balance Sheet and the Statement of Net Position for the year ended June 30, 2020 are net of the following allowances for doubtful accounts: General Fund: Taxes receivable Water and Sewer Enterprise Fund $ 43,668 $ 67,101 40 Town of Hillsborough, North Carolina Notes to Financial Statements (5) Capital assets Governmental capital asset activity for the year ended June 30, 2020 was as follows: Governmental activities: Capital assets not being depreciated: Land Construction -in - progress Total capital assets not being depreciated Capital assets being depreciated: Buildings and improvements Infrastructure Equipment Vehicles Total capital assets being depreciated Less accumulated depreciation for: Buildings and improvements Infrastructure Equipment Vehicles Beginning Balances Increases $ 4,634,594 $ 49,297 96,395 Decreases $ Transfers Ending Balances $ 23,187 $ 4,657,781 4,683,891 $ 96.395 $ $ 23,187 8,722,959 $ 12,845,332 951,474 4,278,378 26,798,143 $ 210,150 19,890 89,714 $ $ 208,674 7,384 145,692 4,803,473 8,931,633 13,062,866 971,364 4,368,092 319,754 $ - $ 216.058 27,333,955 2,436,914 $ 294,112 $ 1,086,094 323,358 561,609 84,184 3,400,057 377,955 Total accumulated depreciation 7,484,674 $ 1,079.609 Total capital assets being depreciated, net 19,313,469 Governmental activity capital assets, net $ 23.997.360 $ $ $ Depreciation expense was charged to functions/programs of the primary government as follows: General government Public safety Transportation Economic and physical development Environmental protection $ 251,487 338,257 324,164 84,115 81,586 $ 1,079,609 2,731,026 1,409,452 645,793 3,778,012 8,564,283 18,769,672 $ 23,573.145 41 Town of Hillsborough, North Carolina Notes to Financial Statements Business -type capital asset activity for the year ended June 30, 2020 was as follows: Beginning Balances Increases Ending Decreases Transfers Balances Business -type activities: Capital assets not being amortized or depreciated: Land $ 6,132,444 $ 39,015 $ 61,371 $ 23,000 $ 6,133,088 Construction -in -progress 9,205,410 1,861,711 - 11,067,121 Total capital assets not being amortized or depreciated 15,337,854 $ 2.248,198 $ 61,371 $ 23 000 17,200,209 Capital assets being amortized or depreciated: Buildings and improvements 28,110,010 $ 26,183 $ Plant and distribution systems 35,302,307 539,500 Infrastructure 2,873,050 - Equipment 1,665,614 248,176 Vehicles 1,022,759 52,236 Total capital assets being amortized or depreciated 6,657 17,820 $ (208,674) 27,927,519 35, 835,150 2,873,050 (20,538) 1,893,252 1,057,175 68,973,740 $ 866,095 $ 24.477 $ (229.212) 69,586,146 Less accumulated depreciation and amortization for: Buildings and improvements 10,194,484 $ 810,285 $ - $ - 11,004,769 Plant and distribution systems 9,884,983 651,053 - - 10,536,036 Infrastructure 406,851 70,568 477,419 Equipment 1,385,946 99,892 - 1,485,838 Vehicles 703,812 120,835 1,373 823,274 Total accumulated depreciation and amortization 22,576,076 $ 1,752,633 $ 1,371 $ 24,327,336 Depreciable assets, net Business -type activity capital assets, net 46,397,664 45,258,810 $ 61,735.518 $ 62.459.019 (6) Construction commitments The Town has active construction projects as of June 30, 2020 with the following remaining commitments: Project Carr Mill St - Atkins Orange Grove Churton Sewer Remaining Spent to Date Commitment $ 120,154 $ 59,569 283,532 14,923 Total $ 403,686 $ 74,492 42 Town of Hillsborough, North Carolina Notes to Financial Statements B. Liabilities (1) Pension plans and postemployment obligations (a) Local Governmental Employees' Retirement System Plan description. The Town of Hillsborough is a participating employer in 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 membership is comprised of general employees and local law enforcement officers (LEDs) of participating local governmental entities. Article 3 of G.S. Chapter 128 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. Management of the plan is vested in the LGERS Board of Trustees, which consists of 13 members - nine appointed by the Governor, one appointed by the State Senate, one appointed by the House of Representatives, and the State Treasurer and State Superintendent, who serve as ex -officio members. 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. Benefits provided. LGERS provides retirement and survivor benefits. Retirement benefits are determined as 1.85% of the member's average final compensation times the member's years of creditable service. A member's average final compensation is calculated as the average of a member's four highest consecutive years of compensation. Plan members are eligible to retire with full retirement benefits at age 65 with five years of creditable service, at age 60 with 25 years of creditable service, or at any age with 30 years of creditable service. Plan members are eligible to retire with partial retirement benefits at age 50 with 20 years of creditable service or at age 60 with five years of creditable service. Survivor benefits are available to eligible beneficiaries of members who die while in active service or within 180 days of their last day of service and who have either completed 20 years of creditable service regardless of age or have completed five years of service and have reached age 60. Eligible beneficiaries may elect to receive a monthly Survivor's Alternate Benefit for life or a return of the member's contributions. The plan does not provide for automatic post -retirement benefit increases. Increases are contingent upon actuarial gains of the plan. LGERS plan members who are LEOs are eligible to retire with full retirement benefits at age 55 with five years of creditable service as an officer, or at any age with 30 years of creditable service. LEO plan members are eligible to retire with partial retirement benefits at age 50 with 15 years of creditable service as an officer. Survivor benefits are available to eligible beneficiaries of LEO members who die while in active service or within 180 days of their last day of service and who also have either completed 20 years of creditable service regardless of age, or have completed 15 years of service as a LEO and have reached age 50, or have completed five years of creditable service as a LEO and have reached age 55, or have completed 15 years of creditable service as a LEO if killed in the line of duty. Eligible beneficiaries may elect to receive a monthly Survivor's Alternate Benefit for life or a return of the member's contributions. Contributions. Contribution provisions are established by General Statute 128-30 and may be amended only by the North Carolina General Assembly. Town employees are required to contribute 6% of their compensation. Employer contributions are actuarially determined and set annually by the LGERS Board of Trustees. The Town's contractually required contribution rate for the year ended June 30, 2020 was 9.70% of compensation for law enforcement officers and 8.95% for general employees, actuarially determined as an amount that, when combined with employee contributions, is expected to finance the costs of benefits earned by employees during the year. Contributions to the pension plan from the Town were $587,827 for the year ended June 30, 2020. Refunds of contributions. Town employees who have terminated service as a contributing member of LGERS, may file an application for a refund of their contributions. By state law, refunds to members with at least five years of service include 4% interest. State law requires a 60 -day waiting period after service termination before the refund may be paid. The acceptance of a refund payment cancels the individual's right to employer contributions or any other benefit provided by LGERS. 43 Town of Hillsborough, North Carolina Notes to Financial Statements Pension liabilities, pension expense, and deferred outflows of resources and deferred inflows of resources related to pensions At June 30, 2020, the Town reported a liability of $2,472,850 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2019. The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of December 31, 2018. The total pension liability was then rolled forward to the measurement date of June 30, 2019 utilizing update procedures incorporating the actuarial assumptions. The Town's proportion of the net pension liability was based on a projection of the Town's long-term share of future payroll covered by the pension plan, relative to the projected future payroll covered by the pension plan of all participating LGERS employers, actuarially determined. At June 30, 2019 (measurement date), the Town's proportion was 0.09055%, which was a decrease of 0.00258% from its proportion measured as of June 30, 2018. For the year ended June 30, 2020, the Town recognized pension expense of $1,113,523. At June 30, 2020, the Town reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Differences between expected and actual experience Changes of assumptions Net difference between projected and actual earnings on pension plan investments Changes in proportion and differences between Town contributions and proportionate share of contributions Town contributions subsequent to the measurement date Total Deferred Outflows of Resources $ 423,415 403,034 60,316 5,976 587,828 Deferred Inflows of Resources 32,451 $ 1,480,569 $ 32,451 $587,828 of the amount reported as deferred outflows of resources related to Town contributions subsequent to the measurement date that will be recognized as a decrease of the net pension liability in the year ended June 30, 2021. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending June 30: 2021 2022 2023 2024 2025 Thereafter $ 439,272 128,279 231,248 61,491 $ 860,290 Actuarial assumptions. The total pension liability in the December 31, 2018 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation Salary increases Investment rate of return 3.0 percent 3.50 to 8.10 percent, including inflation and productivity factor 7.00 percent, net of pension plan investment expense, including inflation The plan currently uses mortality tables that vary by age, gender, employee group (i.e., general, law enforcement officer) and health status (i.e., disabled and healthy). The current mortality rates are based on published tables and 44 Town of Hillsborough, North Carolina Notes to Financial Statements based on studies that cover significant portions of the U.S. population. The healthy mortality rates also contain a provision to reflect future mortality improvements. The actuarial assumptions used in the December 31, 2018 valuation were based on the results of an actuarial experience study for the period January 1, 2010 through December 31, 2014. Future ad hoc COLA amounts are not considered to be substantively automatic and are therefore not included in the measurement. The projected long-term investment returns and inflation assumptions are developed through review of current and historical capital markets data, sell -side investment research, consultant whitepapers, and historical performance of investment strategies. Fixed income return projections reflect current yields across the U.S. Treasury yield curve and market expectations of forward yields projected and interpolated for multiple tenors and over multiple year horizons. Global public equity return projections are established through analysis of the equity risk premium and the fixed income return projections. Other asset categories and strategies' return projections reflect the foregoing and historical data analysis. These projections are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class as of June 30, 2019 are summarized in the following table: Asset Class Fixed income Global equity Real estate Alternatives Credit Inflation protection Total Long -Term Expected Target Real Rate Allocation of Return 29.0% 42.0% 8.0% 8.0% 7.0% 6.0% 100.0% 1.4% 5.3% 4.3% 8.9% 6.0% 4.0% The information above is based on 30 -year expectations developed with the consulting actuary for the 2018 asset, liability, and investment policy study for the North Carolina Retirement Systems, including LGERS. The long-term nominal rates of return underlying the real rates of return are arithmetic annualized figures. The real rates of return are calculated from nominal rates by multiplicatively subtracting a long-term inflation assumption of 3.05%. All rates of return and inflation are annualized. Discount rate. The discount rate used to measure the total pension liability was 7.00%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on these assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of the current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the Town's proportionate share of the net pension liability to changes in the discount rate. The following presents the Town's proportionate share of the net pension liability calculated using the discount rate of 7.00 percent, as well as what the Town's proportionate share of the net pension asset or net pension liability would be if it were calculated using a discount rate that is one percentage point lower (6.00 percent) or one percentage point higher (8.00 percent) than the current rate: 45 Town of Hillsborough, North Carolina Notes to Financial Statements 1% Discount 1% Decrease Rate Increase (6.00%) (7.00%) (8.00%) Town's proportionate share of the net pension liability (asset) $ 5,655,860 $ 2,472,850 $ (172,876) Pension plan fiduciary net position. Detailed information about the pension plan's fiduciary net position is available in the separately issued Comprehensive Annual Financial Report (CAFR) for the State of North Carolina. (b) Law Enforcement Officers' Special Separation Allowance (i) 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 under the age of 62 who have completed at least 30 years of creditable service or have attained 55 years of age and have completed five or more years of creditable service. The Separation Allowance is equal to 0.85 percent 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. All full-time law enforcement officers of the Town are covered by the Separation Allowance. At the December 31, 2018 valuation date, the Separation Allowance's membership consisted of: Retirees receiving benefits Terminated plan members entitled to, but not yet receiving benefits Active plan members 2 29 Total 31 (ii) 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. Benefits are recognized when due and payable in accordance with the terms of the plan. The Separation Allowance has no assets accumulated in a trust that meets the criteria which are outlined in GASB Statement 73. (iii) Actuarial assumptions: The entry age actuarial cost method was used in the December 31, 2018 valuation. The total pension liability in the December 31, 2018 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.50 percent Salary increases 3.50 to 7.35 percent, including inflation and productivity factor Discount rate 3.26 percent The discount rate is based on the yield of the S&P Municipal Bond 20 Year High Grade Rate Index as of December 31, 2018. Mortality rates are based on the RP -2014 series mortality tables with adjustments for mortality improvements based on Scale AA. 46 Town of Hillsborough, North Carolina Notes to Financial Statements (iv) Change in actuarial assumptions: On the prior measurement date (December 31, 2018), the Municipal Bond Index Rate, on which the discount rate is based, was 3.64%. Since the Prior Measurement Date, the Municipal Bond Index Rate has increased to 3.26% as of the Measurement Date (December 31, 2019). This resulted in a $25,289 increase in the Total Pension Liability. (v) 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. Administration costs of the Separation Allowance are financed through investment earnings. The Town paid $13,652 as benefits came due for the reporting period. (vi) Pension liabilities, pension expense, and deferred outflows of resources and deferred inflows of resources related to pensions: At June 30, 2020, the Town reported a total pension liability of $783,583. The total pension liability was measured as of December 31, 2019 based on a December 31, 2018 actuarial valuation. The total pension liability was then rolled forward to the measurement date of December 31, 2019 utilizing update procedures incorporating the actuarial assumptions. For the year ended June 30, 2020, the Town recognized pension expense of $79,585. Deferred Deferred Outflows of Inflows of Resources Resources Differences between expected and actual experience $ 53,695 $ 23,983 Changes of assumptions 44,165 25,064 Town benefit payments and plan administrative expense made subsequent to the measurement date 11,393 Total $ 109,253 $ 49,047 The $11,393 paid as benefits came due subsequent to the measurement date have been reported as deferred outflows of resources. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending June 30, 2021 $ 13,133 2022 13,133 2023 14,597 2024 7,974 2025 (24) Thereafter Total $ 48,813 (vii) Sensitivity of the Town's total pension liability to changes in the discount rate: The following presents the Town's total pension liability calculated using the discount rate of 3.26 percent, as well as what the Town's total pension liability would be if it were calculated using a discount rate that is 1 -percentage - point lower (2.26 percent) or 1 -percentage -point higher (4.26 percent) than the current rate: 47 Town of Hillsborough, North Carolina Notes to Financial Statements 1% Decrease (2.26%) Discount Rate (3.26%) 1% Increase (4.26%) Total pension liability $ 854.415 $ 783,583 $ 718.882 Schedule of Changes in Total Pension Liability Law Enforcement Officers' Special Separation Allowance Beginning balance Service cost Interest on the total pension liability Changes of benefit terms Differences between expected and actual experience in the measurement of the total pension liability Changes of assumptions or other inputs Benefit payments Ending balance of the total pension liability 2020 $ 727,333 46,881 26,226 (28,494) 25,289 (13,652) $ 783,583 The plan currently uses mortality tables that vary by age, and health status (i.e., disabled and healthy). The current mortality rates are based on published tables and based on studies that cover significant portions of the U.S. population. The healthy mortality rates also contain a provision to reflect future mortality improvements. The actuarial assumptions used in the December 31, 2018 valuation were based on the results of an experience study completed by the Actuary for the Local Government Employees' Retirement System for the five year period ending December 31, 2014. (c) Total expense, liabilities and deferred outflows and inflows of resources related to pensions Following is information related to the proportionate share and pension expense for all pension plans: LGERS LEOSSA Total Pension expense $ 1,113,523 Pension liability 2,472,850 Proportionate share of net pension liability 0.09055% Deferred outflows of resources Differences between expected and actual experience Changes of assumptions Net difference between projected and actual earnings on plan investments Changes in proportion and differences between contributions and proportionate share of contributions Benefit payments and administrative costs paid subsequent to the measurement date $ 423,415 403,034 60,316 5,976 587,828 $ 79,585 783,583 N/A $ 1,193,108 3,256,433 N/A $ 53,695 $ 477,110 44,165 447,199 60,316 5,976 11,393 599,221 48 Town of Hillsborough, North Carolina Notes to Financial Statements Deferred inflows of resources Differences between expected and actual experience Changes in proportion and differences between employer contributions and proportionate share of contributions Change of Assumptions 23,983 23,983 32,451 - 25,064 32,451 25,064 (d) 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. 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, 2020 were $536,658, which consisted of $317,250 from the Town and $219,408 from employees. (2) Other postemployment benefit Healthcare Benefits 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 9, 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 9, 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. Retired Employees' Years of Creditable Service Less than 20 years' continuous service 20 or more years' continuous service: Before age 52 Age 52 to 55 Age 55 until eligible for Medicare 30 or more years' continuous service: Before age 57 Law Enforcement Hired Before February 9, 2009 Hired On or After February 9, 2009 Not eligible for Not eligible for coverage coverage Not eligible for Not eligible for coverage coverage Full coverage Not eligible for paid for by Town coverage Full coverage Not eligible for paid for by Town coverage Full coverage Not eligible for paid for by Town coverage Non -Law Enforcement Hired Before February 9, 2009 Not eligible for coverage Not eligible for coverage Not eligible for coverage Full coverage paid for by Town Full coverage paid for by Town Hired On or After February 9, 2009 Not eligible for coverage Not eligible for coverage Not eligible for coverage Not eligible for coverage Not eligible for coverage 49 Town of Hillsborough, North Carolina Notes to Financial Statements Age 57 to 60 Age 60 until eligible for Medicare Full coverage Full coverage Full coverage Not eligible for paid for by Town paid for by Town paid for by Town coverage 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 June 30, 2019, the date of the latest actuarial valuation: Retirees and dependents receiving benefits Active plan members Law General Enforcement Employees Officers 3 2 74 31 Total 77 33 Total OPEB liability The Town's total OPEB liability of $1,175,291 was measured as of June 30, 2019 and was determined by an actuarial valuation as of June 30, 2019. Actuarial assumptions and other inputs. The total OPEB liability in the June 30, 2019 actuarial valuation was determined using the following actuarial assumptions and other inputs, applied to all periods included in the measurement unless otherwise specified: Inflation 2.50 percent, including real wage growth Salary increases 3.50 to 7.75 percent, including inflation and productivity factor Discount rate 3.50 percent Healthcare cost trend rates 7.00% decreasing to an ultimate rate of 4.50% by 2026 The discount rate is based on the June average of the Bond Buyer General Obligation 20 -year Municipal Bond Index published weekly by The Bond Buyer. Changes in the total OPEB liability Beginning balance at July 1, 2019 $ 1,634,361 Service cost 55,104 Interest on the total OPEB liability 60,865 Changes of benefit terms Differences between expected and actual experience in the measurement of the total OPEB liability (461,361) Changes of assumptions or other inputs 27,076 Benefit payments (140,755) Ending balance of the total OPEB liability at June 30, 2020 $ 1 175 290 Changes in assumptions and other inputs reflect a change in the discount rate from 3.89% to 3.50%. Mortality rates were based on the RP -2014 mortality tables, with adjustments for experience and generational mortality improvements using Scale MP -2015. The demographic actuarial assumptions for retirement, disability incidence, withdrawal, and salary increases used in the June 30, 2019 valuation were based on the results of an actuarial experience study for the period January 1, 2010 - December 31, 2014, adopted by the LGERS Board. 50 Town of Hillsborough, North Carolina Notes to Financial Statements The remaining actuarial assumptions (e.g., initial per capita costs, health care cost trends, rate of plan participation, rates of plan election, etc.) used in the June 30, 2019 valuation were based on a review of recent plan experience done concurrently with the June 30, 2019 valuation. Sensitivity of the total OPEB liability to changes in the discount rate. The following presents the total OPEB liability of the Town, as well as what the Town's total OPEB liability would be if it were calculated using a discount rate that is 1 percentage point lower (2.50 percent) or 1 percentage point higher (4.50 percent) than the current rate: Total OPEB liability 1% Decrease (2.50%) $ 1,271,219 Discount Rate (3.50%) 1% Increase (4.50%) $ 1.175,290 $ 1,087,104 Sensitivity of the total OPEB liability to changes in the healthcare cost trend rates. The following presents the total OPEB liability of the Town, as well as what the Town's total OPEB liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage point higher than the current rate: 1% Decrease Current Healthcare Trend Rate 1% Increase Total OPEB liability $ 1,065.858 $ 1.175.190 $ 1,300,853 OPEB expense and deferred outflows of resources and deferred inflows of resources related to OPEB For the year ended June 30, 2020, the Town recognized OPEB expense of $101,029. At June 30, 2020, the Town reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Differences between expected and actual experience Changes of assumptions Benefit payments and administrative costs made subsequent to the measurement date Total Deferred Outflows of Resources Deferred Inflows of Resources $ 6,747 $ 412,019 24,020 86,896 51,931 $ 82,698 $ 498.915 $51,931 reported as deferred outflows of resources related to OPEB resulting from benefit payments made and administrative expenses incurred subsequent to the measurement date will be recognized as a decrease of the total OPEB liability in the year ended June 30, 2021. Other amounts reported as deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: Year Ending June 30, 2021 2022 2023 2024 2025 Thereafter Total $ (61,176) (61,176) (61,176) (61,176) (61,176) (162,268) $ (468,148) 51 Town of Hillsborough, North Carolina Notes to Financial Statements (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. Contributions are determined as a percentage of monthly payroll based upon rates established annually by the State. Separate rates are set for employees not engaged in law enforcement and for law enforcement officers. The Town considers these contributions to be immaterial. (4) Accounts payable and accrued liabilities Accounts payable and accrued liabilities at June 30, 2020 were as follows: (5) Payable to vendors and others Accrued claims and judgments Accrued payroll and related liabilities Total accounts payable and accrued liabilities Deferred outflows and inflows of resources Governmental Activities Business - Type Activities Total $ 152,924 $ 356,389 $ 509,313 222,599 102,239 324,838 $ 375,523 $ 458,628 $ 834,151 Deferred outflows of resources at year end is comprised of the following: Contributions to pension plan in current fiscal year Benefit payments and administrative expenses for LEOSSA made subsequent to measurement date Benefit payments made for OPEB subsequent to measurement date Differences between actual and expected experience Changes in proportion and differences between contributions and proportionate share of contributions Changes of assumptions Net difference between projected and actual earnings on pension plan investments Total Deferred Outflows $ 587,828 11,393 51,931 483,857 5,976 471,219 60,316 $ 1,672,520 52 Town of Hillsborough, North Carolina Notes to Financial Statements Deferred inflows of resources at year end is comprised of the following: Governmental Statement of Funds Net Position Balance Sheet Taxes receivable, less penalties Capital grant funds receivable but unavailable Changes in assumptions Changes in proportion and differences between Town contributions and proportionate share of contributions Differences between expected and actual experience Total - $ 153,685 111,960 32,451 436,002 $ 580,413 $ 153,685 (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; and workers' compensation coverage up to statutory limits. 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 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 ($55,875,094); general liability ($5 million per occurrence); law enforcement liability ($5 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 ($447,500); municipal equipment ($985,307); fine arts ($500,000); and public officials' liability ($5 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. 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 Authority and the Board carried commercial coverage for Public Officials Liability with coverage of $1,000,000 for all claims. 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. 53 Town of Hillsborough, North Carolina Notes to Financial Statements (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 2.22%, and is secured by such assets. $ 245,200 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%. $ 146,018 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%. 328,338 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. 214,803 Note payable to BB&T, executed August 2014, in the amount of $615,368 for the purchase of land for municipal operations. The note is payable in 30 semi-annual payments of $20,512 plus interest and matures in August 2029. Interest is payable at 2.88% and the note payable is secured by the land. 389,733 Note payable to BB&T, executed August 2015, in the amount of $481,000 for the purchase of a fire truck. The note is payable in ten semi-annual payments of $50,201 with interest payable at 1.57%, and is secured by the truck. 49,810 Note payable to BB&T, executed December 2016, in the amount of $317,000 for the purchase of a dump truck and knuckle boom truck. The note is payable in nine semi-annual payments of $36,637 with interest payable at 1.57%, and is secured by the trucks. 99,861 Note payable to BB&T, executed September 2017, in the amount of $465,522 for the purchase of police vehicles. The note is payable in nine semi-annual payments of $54,509 with interest payable at 1.86%, and is secured by the vehicles. 265,102 54 Town of Hillsborough, North Carolina Notes to Financial Statements Note payable to Capital One, executed April 2018, in the amount of $2,770,000 to finance renovations for the Town's North Campus location and the Town Barn. The note is payable in fifteen annual payments of $239,296 with interest payable at 3.56%, and is secured by the mortgaged property. This note is allocated 83.65% to governmental activities, and 16.35% to business -type activities, and accordingly, the annual payments made out of the general fund will be $200,171, which commenced on January 1, 2019. Less current portion 2,054,535 3,793,400 (735,839) $ 3.057,561 The future minimum payments on the notes payable as of June 30, 2020 are as follows: Year Ending June 30, Principal 2021 2022 2023 2024 2025 2026 - 2030 2031 - 2033 Business -type activities: Enterprise fund - Water/Sewer Fund: 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. Note payable to Capital One, executed April 2018, in the amount of $2,770,000 to finance renovations for the Town's North Campus location and the Town Barn. The note is payable in fifteen annual payments of $239,296 with interest payable at 3.56%, and is secured by the mortgaged property. This note is allocated 83.65% to governmental activities, and 16.35% to business -type activities, and accordingly, the annual payments made out of the general fund will be $200,171, which commenced on January 1, 2019. Less current portion $ 735,839 573,197 427,683 275,932 223,614 996,973 560,162 Interest $ 109,958 92,943 79,528 68,927 60,711 201,784 40,349 Total $ 845,797 666,140 507,211 344,859 284,325 1,198,757 600,511 $ 3,793.400 $ 654.200 $ 4,447,600 $ 22,260 401,573 423,833 (47,089) $ 376.744 55 Town of Hillsborough, North Carolina Notes to Financial Statements The long-term debt requirements to maturity as of June 30, 2020 for the Enterprise Fund are as follows: Year Ending June 30, Principal Interest Total 2021 $ 47,089 $ 14,548 $ 61,637 2022 25,713 13,412 39,125 2023 26,628 12,497 39,125 2024 27,576 11,549 39,125 2025 28,558 10,567 39,125 2026 - 2030 158,782 36,842 195,624 2031 - 2033 109,487 7,886 117,373 $ 423,833 $ 107,301 $ 531.134 a. The provisions of this loan agreement contain certain financial covenants related to the maintenance of fund balance. At June 30, 2020, the Town was in compliance with such covenants. b. General obligation indebtedness The Town's legal debt margin at June 30, 2020 was $89,551,324. 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. 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, 2020 was $457,335. Annual debt service requirements to maturity for this Revolving Loan Payable as of June 30, 2020 are as follows: Business -Type Activities Year Ending June 30, Principal Interest Total 2021 $ 76,222 $ 12,166 $ 88,388 2022 76,222 10,138 86,360 2023 76,222 8,110 84,332 2024 76,222 6,082 82,304 2025 76,222 4,056 80,280 2026 76,225 2,028 78,251 $ 457,335 $ 42,580 $ 499,915 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 were used for a Wastewater Treatment Plant Upgrade and Expansion Project. The loan is repayable in equal principal payments of $890,500 plus interest of 2.455% through fiscal year ending 2034. The total amount outstanding at June 30, 2020 was $12,467,005. 56 Town of Hillsborough, North Carolina Notes to Financial Statements Annual debt service requirements to maturity for this Revolving Loan Payable as of June 30, 2020 are as follows: Business -Type Activities Year Ending June 30, 2021 2022 2023 2024 2025 2026 - 2030 2031 - 2034 Principal Interest $ 890,500 890,500 890,500 890,500 890,500 4,452,500 3,562,005 $ 306,064 284,204 262,342 240,480 218,618 765,160 218,620 Total $ 1,196, 564 1,174, 704 1,152, 842 1,130,980 1,109,118 5,217,660 3,780,625 $ 12,467,005 $ 2,295,488 $ 14,762,493 On October 6, 2014, the Town was approved for a maximum loan amount of $2,029,398 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. The loan proceeds are being used for the Waterstone Elevated Water Tank Project. The first payment was made on the note in April 2016. The loan is repayable in a principal payment of $72,078 due on May 1, 2019, followed by equal principal payments of $94,122 annually on May 1st, with no interest, through fiscal year ending 2035. The total amount outstanding at June 30, 2020 was $1,411,828. Annual debt service requirements to maturity for this Revolving Loan Payable as of June 30, 2020 are as follows: Year Ending June 30, 2021 2022 2023 2024 2025 2026 - 2030 2031 - 2034 Business -Type Activities Principal Interest $ 94,122 $ 94,122 94,122 94,122 94,122 470,610 470,608 Total $ 94,122 94,122 94,122 94,122 94,122 470,610 470,608 $ 1.411 828 $ - $ 1,411,828 d. Special revenue bonds payable On May 24, 2018, the City issued $10,155,000 of special revenue bonds secured by water and sewer utility revenues for improvements to the water and sewer system, including renovation and expansion of the Town's West Fork of the Eno Reservoir; $6,500,000 were issued as serial bonds and $3,655,000 were issued as term bonds. The purchase price of the bonds was $11,180,846, resulting in a premium upon issuance of $1,025,846. The serial bonds carry interest rates of 4.00% to 5.00% and mature between October 1, 2020, and October 1, 2038. The term bonds were divided into two lots with $1,765,000 paying 3.375% due between October 1, 2039 and October 1, 2040, and $1,890,000 paying 3.50% due between October 1, 2041 and October 1, 2042. All term bonds are subject to mandatory redemption in prescribed amounts before the maturity dates. $10,155,000 remains outstanding at June 30, 2020. 57 Town of Hillsborough, North Carolina Notes to Financial Statements Annual debt service requirements to maturity for these special revenue bonds payable as of June 30, 2020 are as follows: Business -Type Activities Year Ending June 30, 2021 2022 2023 2024 2025 2026 - 2030 2031 - 2035 2036 - 2040 2041 - 2043 Principal Interest $ 25,000 25,000 30,000 30,000 30,000 180,000 3,090,000 3,960,000 2,785,000 $ 449,969 448,844 447,469 445,969 444,469 2,197, 344 1,802,594 932,413 147,928 Total $ 474,969 473,844 477,469 475,969 474,469 2,377,344 4,892,594 4,892,413 2,932,928 $ 10,155.000 $ 7 316.999 $ 17 471.999 e. Combined Utility Systems Revenue Bond, Series 2020 On February 12, 2020, the City issued $3,271,000 of special revenue bonds secured by water and sewer utility revenues for road improvements near the Town's water reservoir, as part of the comprehensive plan to improve and expand the reservoir. The bonds carry an interest rate of 1.98% and mature April 1, 2030. $3,271,000 remains outstanding at June 30, 2020. Annual debt service requirements to maturity for these special revenue bonds payable as of June 30, 2020 are as follows: Year Ending June 30, 2021 2022 2023 2024 2025 2026 - 2030 f. Debt Covenant Business -Type Activities Principal Interest $ 292,000 307,000 310,000 317,000 325,000 1,720,000 $ 73,581 58,984 52,906 46,768 40,491 103,376 $ 3.271.000 $ Total $ 365,581 365,984 362,906 363,768 365,491 1,823,376 376106 $ 3.647.106 The Town is in compliance with the covenants as to rates, fees, rentals and charges in Section 4 of the Master Trust Agreement, authorizing the issuance of the Water and Sewer Revenue Bonds, Series 2018. Section 4.03 of the Master Trust Agreement requires the sum of the income available for debt service and 15% of the system fund balance to be no less than 120% of the long-term debt service requirement for parity indebtedness and the income available for debt service will be not less than the sum of the long-term debt service requirement for parity indebtedness and subordinate indebtedness and the debt service on all installment debt and system general obligation debt. 58 Town of Hillsborough, North Carolina Notes to Financial Statements The debt service coverage ratio calculation is as follows: Operating revenues Operating expenses ** Operating income Nonoperating revenues (expenses) Income available for debt service 15% of Unrestricted Net Position* Total Balance for 120% Parity $ 10,722,494 (6,286,611) 4,435,883 (732,406) 3,703,477 1,557,794 $ 5,261,271 Debt service, principal and interest (Revenue bond only) $ 450,468 Debt service coverage ratio on first -lien debt 11.68 Debt service all debt (total balance for 100%) $ 1,999,969 Debt service coverage ratio on all debt together 1.85 *System Fund Balance ** Depreciation excluded from operating expenses g. Changes in long-term debt Balance July 1, 2019 Governmental activities: Direct placement installment purchases $ Compensated absences Other postemployment benefits Net pension liability (LGERS) Total pension liability (LEOSSA) 4,632,280 333,301 Increases Decreases $ - $ 202,670 1,022,172 1,513,849 177,035 727,333 56,250 $ 8,228,935 Business -type activities: Direct placement installment purchases $ Revolving loans payable Special revenue bonds payable Premium on bonds payable Other postemployment benefits Net pension liability (LGERS) Compensated absences $ 435.955 552,936 $ 15,397,010 10,155,000 970,330 612,189 695,513 264,777 $ 28.647.755 3,271,000 86,453 72,230 $ 3,429,683 Balance June 30, 2020 838,880 $ 214,005 308,467 Current Portion of Long -Term Liabilities 3,793,400 $ 735,839 321,966 208,854 713,705 1,690,884 783,583 $ 1.361.352 $ 7.303,538 $ 944,693 $ 129,103 $ 423,833 1,060,843 14, 336,167 56,689 150,627 105,422 $ 1,502,684 13,426,000 913,641 461,562 781,966 231,585 $ 47,089 1,060,844 317,000 56,627 105,422 $ 30.574,754 $ 1,586,982 Compensated absences, the total pension liability (LEOSSA), and net pension liability (LGERS) for governmental activities have typically been liquidated in the General Fund. 59 Town of Hillsborough, North Carolina Notes to Financial Statements h. 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, 2020, $1,946,000 of special assessment debt remained outstanding. (9) Operating leases The Town leases certain vehicles and office equipment under non -cancelable operating leases expiring at various times through 2022. Future minimum lease payments approximate the following: Year Ending June 30, 2021 71,284 2022 141,306 Rent expense under operating leases for the year ended June 30, 2020 was $72,484. C. Interfund balances and activity Transfers to/from other funds Transfers to/from other governmental funds at June 30, 2020 consist of the following: To the General Fund from the Town Barn Improvement Capital Project Fund $ 55,368 To the General Fund from the Downtown Improvements Capital Project Fund 36,487 From the General Fund to the Riverwalk CMAQ Capital Projects Fund for grant matching funds (50,343) From the General Fund to the General Capital Projects Fund for future connectivity projects (80,000) From the General Fund to the Public Safety Facility Capital Project Fund (312,000) $ (350,488) Transfers to (from) the governmental fund to the proprietary funds at June 30, 2020 consist of the following: From the Town Barn Improvements Capital Project Fund From the Water and Sewer Fund D. Net investment in capital assets Capital assets Less: related debt Installment purchases Revolving loans payable Special revenue bonds payable Construction retainage payable Add: unexpended debt proceeds $ (10,822) 208,674 $ 197,852 Governmental Business -Type $ 23,573,145 $ 62,459,019 (3,793,400) (423,833) (14,336,167) (13,426,000) (14,923) 3,891,390 Net investment in capital assets $ 19,779,745 $ 38.149,486 60 Town of Hillsborough, North Carolina Notes to Financial Statements 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 $ 8,657,702 Less: Stabilization by state statute 1,081,435 Streets - Powell Bill 200,490 Appropriated fund balance in subsequent fiscal year's budget 749,550 Working capital/fund balance policy 6,626,227 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. Encumbrances General Fund 4. Jointly Governed Organization $ 37,965 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 $2,872 to the Council during the fiscal year ended June 30,2020. 5. Contingencies During 2020, an outbreak of a novel strain of coronavirus ("COVID-19") emerged globally. As a result of the spread of COVID-19, economic uncertainties have arisen that could negatively impact the Board's revenue and operations for an indeterminable period of time. Other financial impacts could occur that are unknown at this time. 6. Subsequent Events The Town of Hillsborough has evaluated all subsequent events for potential recognition and disclosure through November 18, 2020, the date these financial statements will be available. 61 Town of Hillsborough, North Carolina Notes to Financial Statements Required Supplementary Financial Data This section contains additional information required by generally accepted accounting principles. • Schedule of Changes in Total Pension Liability for the Law Enforcement Officers' Special Separation Allowance. • Schedule of Total Pension Liability as a Percentage of Covered Payroll for the Law Enforcement Officers' Special Separation Allowance. • Schedules of Changes in the Total OPEB Liability and Related Ratios. • Schedule of Proportionate Share of Net Pension Liability (Asset) for Local Government Employees' Retirement System • Schedule of Contributions to Local Government Employees' Retirement System 62 Town of Hillsborough, North Carolina Law Enforcement Officers' Special Separation Allowance Required Supplementary Information Schedules of Changes in Total Pension Liability Last Four Fiscal Years Exhibit A 2020 2019 2018 2017 Beginning balance $ 727,333 $ 641,574 $ 566,336 $ 556,718 Service cost 46,881 49,048 37,358 36,956 Interest on the total pension liability 26,226 19,749 21,303 19,286 Changes of benefit terms - - Differences between expected and actual experience in the measurement of the total pension liability (28,494) 80,147 (520) - Changes of assumptions or other inputs 25,289 (29,947) 45,993 (13,621) Benefit payments (13,652) (33,238) (28,896) (33,003) Other changes - - Ending balance of the total pension liability $ 783,583 $ 727,333 $ 641,574 $ 566,336 Notes to the Schedules: The amounts presented for each fiscal year were determined as of the prior fiscal year ended December 31. 63 Town of Hillsborough, North Carolina Law Enforcement Officers' Special Separation Allowance Required Supplementary Information Schedules of Total Pension Liability as a Percentage of Covered Payroll Last Four Fiscal Years Exhibit B 2020 2019 2018 2017 Total pension liability $ 783,583 $ 727,333 $ 641,574 $ 566,336 Covered payroll Total pension liability as a percentage of covered payroll 1,831,895 1,830,296 1,670,805 1,650,937 42.77% 39.74% 38.40% 34.30% Notes to the Schedules: The Town of Hillsborough has no assets accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement 73 to pay related benefits. 64 Town of Hillsborough, North Carolina Schedule of Changes in the Total OPEB Liability and Related Ratios Required Supplementary Information June 30, 2020 Last three fiscal years Exhibit C Total OPEB Liability 2020 2019 2018 Service cost $ 55,105 $ 56,731 $ 60,886 Interest 60,865 56,550 48,567 Changes of benefit terms - Differences between expected and actual experience (461,361) 8,747 (2,066) Changes of assumptions or other inputs 27,076 (45,522) (78,864) Benefit payments (140,756) (60,738) (46,470) Net change in total OPEB liability (459,071) 15,768 (17,947) Total OPEB liability, beginning 1,634,361 1,618,593 1,636,540 Total OPEB liability, ending $ 1,175,290 $ 1,634,361 $ 1,618,593 Covered -employee payroll 5,736,330 $ 5,180,570 $ 5,180,570 Total OPEB liability as a percentage of covered - employee payroll 20.49% 31.55% 31.24% Notes to the Schedule: *Changes of assumption and other inputs reflect the effects of changes in the discount rate of each period. The following are the discount rates used in each period. Fiscal Year Rate 2020 3.50% 2019 3.89% 2018 3.56% 65 Town of Hillsborough, North Carolina Schedules of Proportionate Share of Net Pension Liability (Asset) Local Government Employees' Retirement System Required Supplementary Information Last Seven Fiscal Years* Exhibit D-1 Hillsborough's proportion of the net pension liability (asset) (%) Hillsborough's proportion of the net pension liability (asset) ($) Hillsborough's covered payroll 2020 2019 2018 2017 2016 0.0906% 0.0931% 0.0919% 0.0924% 0.0838% $ 2,472,850 $ 2,209,362 $ 1,404,436 $ 1,961,038 $ 376,224 5,936,460 5,695,125 5,750,308 5,235,777 4,861,624 Hillsborough's proportionate share of the net pension liability (asset) as a percentage of its covered payroll 41.66% 38.79% 24.42% 37.45% 7.74% Plan fiduciary net position as a percentage of the total pension liability 90.68% 94.18% 91.47% 98.09% 99.07% Hillsborough's proportion of the net pension liability (asset) (%) 2015 2014 0.0809% 0.0797% Hillsborough's proportion of the net pension liability (asset) ($) $ (477,164) $ 960,691 Hillsborough's covered payroll 4,672,868 4,428,097 Hillsborough's proportionate share of the net pension liability (asset) as a percentage of its covered payroll -10.21% 21.70% Plan fiduciary net position as a percentage of the total pension liability 102.64% 94.35% * The amounts presented for each fiscal year were determined as of the prior fiscal year ending June 30. 66 Town of Hillsborough, North Carolina Schedules of Contributions Local Government Employees' Retirement System Required Supplementary Information Last Seven Fiscal Years Exhibit D-2 2020 2019 2018 2017 2016 Contractually required contribution $ 587,827 $ 478,756 $ 440,572 $ 429,432 $ 356,396 Contributions in relation to the contractually required contribution Contribution deficiency (excess) Hillsborough's covered payroll Contributions as a percentage of covered payroll 587,827 478,756 440,572 429,432 356,396 $ $ $ $ $ $ 6,389,923 $ 5,936,460 $ 5,695,125 $ 5,750,308 $ 5,235,777 9.20% 8.06% 7.74% 7.47% 6.81% 2015 2014 Contractually required contribution $ 357,402 $ 333,343 Contributions in relation to the contractually required contribution 357,402 333,343 Contribution deficiency (excess) $ - $ - Hillsborough's covered payroll $ 4,861,624 $ 4,672,868 Contributions as a percentage of covered payroll 7.35% 7.13% 67 Supplementary Information 68 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund Year Ended June 30, 2020 with Comparative Actual Amounts for Year Ended June 3o, 2019 Schedule 1 (5 pages) 2020 2019 Variance Positive Budget Actual (Negative) Actual Revenues General revenues: Ad valorem taxes: Current $ 7,127,579 $ 7,402,989 $ 275,410 $ 6,472,975 Prior - - 86 Penalties and interest 18,890 19,874 984 18,796 7,146,469 7,422,863 276,394 6,491,857 Other taxes and licenses: Local option sales tax 1,476,003 1,719,865 243,862 1,708,025 Gross receipts on short-term rental property 12,290 11,517 (773) 13,593 Privilege licenses 682 878 196 875 Motor vehicle license fees 644 674 30 892 Solid waste disposal 4,310 5,663 1,353 5,472 1,493,929 1,738,597 244,668 1,728,857 Unrestricted intergovernmental revenues: Franchise tax 319,831 585,296 265,465 632,575 Beer and wine tax 32,184 32,185 1 31,819 Food and beverage tax 350,000 399,918 49,918 397,640 Occupancy tax 53,600 62,107 8,507 73,225 Alliance Contingency Reimb. - 1,532 1,532 - 755,615 1,081,038 325,423 1,135,259 Restricted intergovernmental revenues: Powell Bill 202,395 202,395 199,965 Federal grants 8,221 32,487 24,266 21,710 State grants - - - Covid Relief Funding 79,973 79,973 - - Other 2,055 2,357 302 3,165 292,644 317,212 24,568 224,840 Investment earnings 170,000 170,325 325 248,824 Other general revenues 236,021 87,365 (148,656) 50,176 Total general revenues 10,094,678 10,817,400 722,722 9,879,813 69 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund Year Ended June 3o, 2020 with Comparative Actual Amounts for Year Ended June 3o, 2019 Schedule 1 (5 pages) 2020 2019 Variance Positive Budget Actual (Negative) Actual Functionally related revenues: Use and rental fees: Zoning permits $ 212,815 $ 215,487 $ 2,672 $ 95,363 Cable franchise 40,000 52,742 12,742 41,926 Time Warner Cable PEG fees - 27,353 27,353 20,270 Fire inspection fees 13,955 15,310 1,355 12,852 Affordable Housing 387,227 34,000 (353,227) 29,000 Total functionally related revenues Total revenues 653,997 344,892 (309,105) 199,411 10,748,675 11,162,292 413,617 10,079,224 Expenditures General government: Governing body: Personnel services 48,549 48,205 Other services and charges 240,211 180,976 Reimbursement from enterprise funds (118,289) (151, 040) Capital outlay - - 178,951 170,471 8,480 78,141 Ruffin-Roulhac: Other services and charges 53,551 95,627 Capital outlay - Debt Service Payments 200,171 200,171 Reimbursement from enterprise funds (158,148) (110,388) 180,145 95,574 84,571 185,410 Administration: Personnel services 1,041,880 854,957 Other services and charges 456,965 471,122 Reimbursement from enterprise funds (691,268) (756,289) 890,513 807,577 82,936 569,790 Finance: Personnel services 420,707 472,654 Other services and charges 82,064 81,797 Debt service payments - Reimbursement from enterprise funds (236,069) (314,641) 319,090 266,702 52,388 239,810 70 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund Year Ended June 3o, 2020 with Comparative Actual Amounts for Year Ended June 3o, 2019 Schedule 1 (5 pages) 2020 2019 Variance Positive Budget Actual (Negative) Actual Planning: Personnel services $ 386,393 $ 378,387 Other services and charges 141,094 44,410 823,546 527,487 296,059 422,797 Motor pool: Personnel services 290,759 276,961 Other services and charges 122,417 149,084 Debt service payments 82,311 84,091 Reimbursement from enterprise funds (141,277) (232, 819) Total general government 413,244 354,210 59,034 277,317 2,805,489 2,222,021 583,468 1,773,265 Public safety: Police department: Personnel services 2,828,278 2,616,169 Other services and charges 309,797 332,202 Capital outlay 56,956 67,651 Debt service payments 127,206 145,395 3,488,163 3,322,237 165,926 3,161,417 Fire inspections/code enforcement: Personnel services 151,411 130,636 Other services and charges 20,389 10,965 Debt service payments 100,402 226,455 337,693 272,202 65,491 368,056 Safety: Personnel services 164,626 105,904 Other services and charges 502,636 432,080 Capital outlay - Reimbursement from enterprise funds (150,399) (476,329) Fire protection Other services and charges 638,823 516,863 121,960 61,655 1,122,806 1,081,207 1,128,238 1,122,806 5,432 1,081,207 Total public safety 5,592,917 5,234,108 358,809 4,672,335 71 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund Year Ended June 3o, 2020 with Comparative Actual Amounts for Year Ended June 3o, 2019 Schedule 1 (5 pages) 2020 2019 Variance Positive Budget Actual (Negative) Actual Transportation: Street department/Powell Bill: Personnel services $ 307,219 $ 277,642 Other services and charges 147,052 161,914 Capital outlay 230,040 476,541 Debt service payments 41,018 41,018 Total transportation 974,755 725,329 249,426 957,115 974,755 725,329 249,426 957,115 Environmental protection: Sanitation department: Personnel services 276,391 197,024 Other services and charges 145,965 139,684 Capital outlay 32,758 Debt service payments 76,323 120,391 Cemetery: Other services and charges Total environmental protection 557,246 531,437 25,809 457,099 7,015 8,512 13,994 7,015 6,979 8,512 571,240 538,452 32,788 465,611 Economic and physical development: Tourism: Personnel Services 38,550 33,911 Other services and charges 434,944 452,229 Total economic and physical development Community activities and projects: Contributions Other services and charges Debt service payments 550,870 473,494 77,376 486,140 550,870 473,494 77,376 486,140 250,962 158,906 98,791 100,899 Total community activities and projects 405,699 349,753 55,946 259,805 72 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund Year Ended June 30, 2020 with Comparative Actual Amounts for Year Ended June 30, 2019 Schedule 1 (5 pages) 2020 2019 Variance Positive Budget Actual (Negative) Actual Parks and recreation: Personnel services $ 161,376 $ 148,258 Other services and charges 375,936 342,887 Debt service payments 241,141 246,363 Reimbursement from enterprise funds (25,800) (25,800) Capital Outlay 23,897 Total parks and recreation Contingency: Other services and charges Total expenditures 830,753 752,653 78,100 735,605 11,731,723 10,295,810 1,435,913 9,349,876 Revenues over (under) expenditures (983,048) 866,482 1,849,530 729,348 Other financing sources (uses): Transfer to other funds: General Capital Projects Fund (80,000) (80,000) (20,000) Downtown Improvements Capital Project Fund - (76,814) Public Safety Facility Capital Project Fund (312,000) (312,000) - Riverwalk - CMAQ Fund (50,343) (50,343) - (43,420) Public Works Project Fund - (79,182) Transfer from other funds: 80 Capital Project Fund 55,368 55,368 Downtown Improvements Capital Project Fund 36,487 36,487 Installment purchase obligations issued Sale of capital assets - - - Total other financing sources (uses) (386,975) (350,488) 36,487 (219,416) Appropriated fund balance 1,370,023 (1,370,023) Net change in fund balance 515,994 $ 515,994 509,932 Fund balance, beginning 7,955,027 7,445,095 Fund balance, ending $ 8,471,021 $ 7,955,027 73 Town of Hillsborough, North Carolina Combining Balance Sheet Nonmajor Governmental Funds June 30, 2020 Schedule 2 (2 pages) ASSETS Cash and investments Accounts receivable Prepaid items Due from other governments Restricted assets: Cash and investments Total assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES Liabilities: Accounts payable and accrued liabilities Due to other funds Total liabilities DEFERRED INFLOWS OF RESOURCES Unavailable revenue Total deferred inflows of resources Fund balances: Nonspendable: Prepaid Items Restricted for: Stabilization by state statute Capital projects Committed for: Capital projects Unassigned Total fund balances (deficit) Consolidated Downtown Riverwalk General Improvements CMAQ Capital Capital Capital Projects Projects Project Fund Fund Fund $ - $ 165,441 301,829 - - $ 301,829 $ - $ 165,441 2,656 160,038 2,656 160,038 122,253 - 192,253 176,920 - (186,850) 299,173 - 5,403 Total liabilities, deferred inflows of resources, and fund balances $ 301,829 $ - $ 165,441 74 Schedule 2 (2 pages) Town Barn Public Works Public Safety Improvements Rail Station Building Building Total Capital Capital Capital Capital Nonmajor Project Project Project Project Governmental Fund Fund Fund Fund Funds $ 19,290 $ 128,200 $ 131,009 $ 278,499 - - - - 165,441 301,829 $ 19,290 $ 128,200 $ 131,009 $ 745,769 - - 12,049 14,705 160,038 - - - 12,049 174,743 1,656 - 75,353 391,515 - - - 176,920 17,634 128,200 43,607 189,441 - - - (186, 850) 19,290 128,200 118,960 571,026 $ $ 19,290 $ 128,200 $ 131,009 $ 745,769 75 Town of Hillsborough, North Carolina Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Nonmajor Governmental Funds Year Ended June 30, 2020 Schedule 3 (2 pages) Revenues Restricted intergovernmental revenues: Federal grants State grants Contributions from property owners Investment earnings Consolidated Downtown Riverwalk General Improvements CMAQ Capital Capital Capital Projects Project Project Fund Fund Fund 11,147 1,207 Total revenues 12,354 Expenditures Current: General government Economic and physical development Parks and recreation Total expenditures 97,102 235,794 $ 786,705 235,794 786,705 7,378 97,102 - 7,378 Revenues over (under) expenditures (84,748) 235,794 779,327 Other financing sources Transfer from General Fund Transfer to General Fund Transfer to Water & Sewer Fund 80,000 50,343 (36,487) - Total other financing sources 80,000 (36,487) 50,343 Net change in fund balances (4,748) 199,307 829,670 Fund balances (deficit), beginning 303,921 (199,307) (824,267) Fund balances (deficit), ending $ 299,173 $ - $ 5,403 76 Schedule 3 (2 pages) Town Barn Public Works Public Safety Improvements Rail Station Building Building Total Capital Capital Capital Capital Nonmajor Project Project Project Project Governmental Fund Fund Fund Fund Funds $ 31 $ - $ $ - $ 786,705 - - - 235,794 - 11,147 - - 1,238 31 - - 1,034,884 - - - 193,040 290,142 - 16,395 - 16,395 - - - 7,378 - 16,395 - 193,040 313,915 31 (16,395) - (193,040) 720,969 - - 312,000 442,343 (55,368) - (91,855) (10,822) - - - (10,822) (66,190) (66,159) 66,159 312,000 339,666 (16,395) - 118,960 1,060,635 35,685 128,200 - (489,609) $ - $ 19,290 $ 128,200 $ 118,960 $ 571,026 77 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Town Barn Improvements Capital Project Fund Year Ended June 30, 2020 Schedule 4 Revenues Investment earnings Actual Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) $ 9,233 $ 9,827 $ 31 $ 9,858 $ 625 Total revenues 9,233 9,827 31 9,858 625 Expenditures Design 144,510 144,182 144,182 Construction 1,596,709 1,596,709 1,596,709 Miscellaneous capital items 334,307 334,307 334,307 Total expenditures Revenues under expenditures 2,075,526 2,075,198 328 2,075,198 328 (2,066,293) (2,065,371) 31 (2,065,340) Other financing sources (uses) Installment purchase obligations issued 1,997,329 1,997,329 Transfer from General Fund 134,201 134,201 Transfer to General Fund (65,237) - Transfer to Water & Sewer Fund Total other financing sources (uses) (55,368) (10,822) 1,997,329 134,201 (55,368) (10,822) 953 9,869 (10,822) 2,066,293 2,131,530 (66,190) 2,065,340 (953) Net change in fund balance $ $ 66,159 (66,159) $ - $ Fund balance, beginning 66,159 Fund balance, ending $ 78 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Capital Projects Fund Nonmajor Capital Project Fund Year Ended June 30, 2020 Schedule 5 Revenues Contributions from property owners Investment earnings Actual Variance Project Prior Current Closed Out Total Positive Authorization Years Year Projects To Date (Negative) $ 3,205,855 $ 11,147 $ (3,205,856) $ 11,146 $ 11,146 Total revenues - 3,205,855 11,147 (3,205,856) 11,146 11,146 Expenditures Connectivity projects 40,000 5,956 5,956 34,044 Fiber loop 150,000 - - - 150,000 Construction 80,000 3,205,856 91,146 (3,205,856) 91,146 (11,146) Total expenditures Revenues under expenditures 270,000 3,205,856 (270,000) 97,102 (3,205,856) 97,102 172,898 (1) (85,955) - (85,956) 184,044 Other financing sources (uses): Transfer from General Fund 277,070 197,071 72,930 270,001 (7,069) Transfer to General Fund (7,070) (7,070) 7,070 7,070 Total other financing sources 270,000 190,001 80,000 270,001 1 Net change in fund balance Fund balance, beginning Fund balance, ending $ $ 190,000 (5,955) $ Amounts reported for Revenue, Expenditures and Changes in Fund Balance are different for the Budgeted/Actual Statement due to consolidation of the General Capital Reserve Fund Interest on investments Transfers out - Capital Reserve Fund Fund balance, beginning (Capital Reserve Fund) 190,000 184,045 1,207 113,921 Fund balance, ending (Consolidated General Capital Projects Fund) $ 299,173 $ 184,045 $ 184,045 79 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Capital Reserve Fund Nonmajor Capital Project Fund Year Ended June 30, 2020 Schedule 6 Actual Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) Revenues Capital contributions $ 1,105,000 $ 1,105,000 $ $ 1,105,000 $ Affordable Housing Revenue 91,000 - (91,000) Collins Ridge- Restricted 295,440 - (295,440) Interest on investments 15,065 20,975 1,207 22,182 7,117 Total revenues 1,506,505 1,125,975 1,207 1,127,182 (379,323) Expenditures Affordable Housing Expenditures 91,000 - (91,000) Collins Ridge Public Safety 235,440 - (235,440) Collins Ridge Garbage Truck 60,000 (60,000) Waterstone Police 108,010 (108,010) Total expenditures 494,450 - (494,450) Revenues over expenditures 1,012,055 1,125,975 Other financing uses Transfer to General Fund (609,024) (609,023) Transfer to Water Sewer Capital Reserve Fund (403,031) (403,031) Total other financing uses Net change in fund balance (1,012,055) (1,012,054) 1,207 1,127,182 (609,023) (403,031) 115,127 1 (1,012,054) 1 $ $ 113,921 1,207 $ 115,128 $ 115,128 Fund balance, beginning 113,921 Fund balance, ending $ 115,128 80 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Downtown Improvements Capital Project Fund Nonmajor Capital Project Fund Year Ended June 30, 2020 Schedule 7 Project Authorization Revenues Restricted intergovernmental revenues State grants $ 365,000 Federal grants 366,000 Total revenues Expenditures Design Construction Administration 731,000 3,173 900,285 111,093 Total expenditures 1,014,551 Revenues under expenditures Actual Prior Years $ 365,000 120,946 Current Year Total To Date Variance Positive (Negative) $ 235,794 $ 600,794 $ 235,794 120,946 (245,054) 485,946 235,794 3,173 860,431 105,200 968,804 (283,551) (482,858) 235,794 Other financing sources Transfer from General Fund 283,551 283,551 Transfer to General Fund - (36,487) Total other financing sources/(uses) 283,551 Net change in fund balance 721,740 3,173 860,431 105,200 968,804 (247,064) 283,551 (36,487) 283,551 (36,487) 247,064 $ - $ (199,307) (9,260) 39,854 5,893 45,747 36,487 (36,487) (36,487) 199,307 $ - $ Fund deficit, beginning (199,307) Fund balance, ending $ 81 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Riverwalk CMAQ Capital Project Fund Nonmajor Capital Project Fund Year Ended June 3o, 2020 Schedule 8 Revenues Restricted intergovernmental revenues: Federal grants Total revenues Actual Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) $ 1,006,850 $ 144,867 $ 786,705 $ 931,572 $ (75,278) 1,006,850 144,867 786,705 931,572 (75,278) Expenditures Design 131,778 131,778 - 131,778 - Construction 1,021,240 939,990 4,702 944,692 76,548 Administration 105,545 98,736 2,676 101,412 4,133 Total expenditures Revenues under expenditures Other financing sources Transfer from General Fund 1,258, 563 1,170, 504 7,378 1,177,882 80,681 (251,713) (1,025,637) 779,327 (246,310) 5,403 251,713 201,370 50,343 251,713 Net change in fund balance $ $ (824,267) 829,670 $ 5,403 $ 5,403 Fund balance, beginning (824,267) Fund balance, ending $ 5,403 82 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Rail Station Capital Project Fund Nonmajor Capital Project Fund Year Ended June 3o, 2020 Schedule 9 Revenues Restricted intergovernmental revenues: State grants Transit taxes (Article 43) Total revenues Actual Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) $ 870,000 $ 116,000 $ - $ $ (870,000) (116,000) 986,000 - - - (986,000) Expenditures Design 891,000 13,865 13,865 877,135 Legal 27,500 9,450 16,395 25,845 1,655 Miscellaneous 126,500 - 126,500 Total expenditures 1,045,000 Revenues under expenditures Other financing sources Transfer from General Fund Net change in fund balance 23,315 16,395 39,710 1,005,290 (59,000) (23,315) (16,395) (39,710) 19,290 59,000 59,000 - 59,000 $ $ 35,685 (16,395) $ 19,290 $ 19,290 Fund balance, beginning 35,685 Fund balance, ending $ 19,290 83 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Public Works Building Capital Project Fund Nonmajor Capital Project Fund Year Ended June 30, 2020 Schedule 10 Actual Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) Expenditures Design $ 75,000 $ 25,982 $ Construction 79,182 Total expenditures Revenues under expenditures $ 25,982 $ 49,018 - 79,182 154,182 25,982 - 25,982 128,200 (154,182) (25,982) Other financing sources Transfer from General Fund 154,182 (25,982) 128,200 154,182 - 154,182 154,182 154,182 154,182 Net change in fund balance $ $ 128,200 - $ 128,200 $ 128,200 Fund balance, beginning 128,200 Fund balance, ending $ 128,200 84 Schedule 11 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual Public Safety Building Capital Project Fund Nonmajor Capital Project Fund Year Ended June 30, 2020 Actual Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) Expenditures Construction $ 222,855 $ $ 180,991 $ 180,991 $ 41,864 Miscellaneous 84,145 12,049 12,049 72,096 Contingency 5,000 - - 5,000 Total expenditures 312,000 193,040 193,040 118,960 Revenues under expenditures (312,000) (193,040) (193,040) 118,960 Other financing sources Transfer from General Fund Restricted Revenue Transfer from General Fund 135,440 176,560 135,440 135,440 176,560 176,560 Total other financing sources/(uses) 312,000 312,000 312,000 Net change in fund balance Fund deficit, beginning $ $ 118,960 $ 118,960 $ 118,960 Fund balance, ending $ 118,960 85 Town of Hillsborough, North Carolina Schedule of Revenues Budget and Actual (Non-GAAP) Water and Sewer Fund Enterprise Fund Year Ended June 30, 2020 with Comparative Actual Amounts for Year Ended June 30, 2019 Schedule 12 2020 2019 Variance Positive Budget Actual (Negative) Actual Revenues Operating revenues: Water charges $ 4,780,000 $ 4,980,554 $ 200,554 $ 4,610,474 Sewer charges 4,760,000 4,974,432 214,432 4,773,747 System development fees 456,628 456,628 Other receipts 203,455 310,880 107,425 2,506,530 10,200,083 10,722,494 522,411 11, 890, 751 Nonoperating revenues: Interest on investments 10,000 35,144 25,144 29,325 10,000 35,144 25,144 29,325 Total revenues $ 10,210,083 $ 10,757,638 $ 547,555 $ 11,920,076 86 Town of Hillsborough, North Carolina Schedule of Expenditures Budget and Actual (Non-GAAP) Water and Sewer Fund Enterprise Fund Year Ended June 30, 2020 with Comparative Actual Amounts for Year Ended June 3o, 2019 Schedule 13 (3 pages) 2020 2019 Variance Positive Budget Actual (Negative) Actual Expenditures Engineering: Personnel services $ 363,968 $ 298,807 Other services and charges 1,547,134 2,142,364 Capital outlay - 6,725 Total engineering $ 2,323,562 1,911,102 $ 412,460 2,447,896 Billing and collection: Personnel services 305,356 258,624 Other services and charges 282,098 516,029 Repairs and maintenance - Capital outlay 28,892 Debt service payments 39,125 39,125 Total billing and collection 703,507 626,579 76,928 842,670 Water plant: Personnel services 636,084 606,122 Other services and charges 366,440 298,150 Repairs and maintenance 58,209 67,650 Capital outlay 41,413 - Debt service payments 104,378 106,715 Total water plant 1,395,048 1,206,524 188,524 1,078,637 Water distribution: Personnel services 495,595 471,883 Other services and charges 223,125 243,742 Repairs and maintenance 32,617 49,064 Capital outlay 11,647 83,465 Debt service payments 115,604 94,036 Total water distribution 1,202,890 878,588 324,302 942,190 Wastewater collection: Personnel services 485,206 462,248 Other services and charges 280,395 295,777 Repairs and maintenance 147,293 39,661 Capital outlay 198,983 94,490 Debt service payments 71,966 73,558 Total wastewater collection 1,437,143 1,183,843 253,300 965,734 87 Town of Hillsborough, North Carolina Schedule of Expenditures Budget and Actual (Non-GAAP) Water and Sewer Fund Enterprise Fund Year Ended June 30, 2020 with Comparative Actual Amounts for Year Ended June 3o, 2019 Schedule 13 (3 pages) 2020 2019 Variance Positive Budget Actual (Negative) Actual Wastewater plant: Personnel services 494,701 476,767 Other services and charges 245,657 313,611 Repairs and maintenance 159,923 207,344 Capital outlay 86,200 18,766 Debt service payments 1,218,427 1,240,289 Total wastewater plant 2,417,521 2,204,908 212,613 2,256,777 Reservoir: Other services and charges 21,412 21,622 Repairs and maintenance 6,440 10,000 Debt service payments 449,908 384,150 Total reservoir 606,239 477,760 128,479 415,772 Total expenditures Revenues over (under) expenditures 10,085,910 8,489,304 1,596,606 8,949,676 124,173 2,268,334 2,144,161 2,970,400 Other financing sources (uses) Transfer to Water and Sewer Capital Reserve Fund - (2,176,594) Transfer to Water and Sewer Capital Projects Fund (119,695) (119,695) (810,000) Transfer to Water System Development Reserve Fund (263,129) (263,129) Transfer to Sewer System Development Reserve Fund (193,499) (193,499) Transfer from Water and Sewer Capital Projects Fund 349,643 349,643 - Transfer from Water and Sewer Capital Reserve Fund 97,492 97,492 466,470 Transfer from North Campus Project 10,822 10,822 Insurance proceeds - - 37,279 Contingency (226,458) 226,458 Total other financing sources (uses) (344,824) (118,366) 226,458 (2,482,845) Excess of revenues and other financing sources (uses) over (under) expenditures and other uses (220,651) 2,149,968 2,370,619 487,555 Appropriated fund balance 220,651 - (220,651) 88 Town of Hillsborough, North Carolina Schedule of Expenditures Budget and Actual (Non-GAAP) Water and Sewer Fund Enterprise Fund Year Ended June 3o, 2020 with Comparative Actual Amounts for Year Ended June 3o, 2019 Schedule 13 (3 pages) 2020 2019 Variance Positive Budget Actual (Negative) Actual Excess of revenues and other uses over expenditures and other uses $ - $ 2,149,968 $ 2,149,968 $ 487,555 Reconciliation of budgetary basis (modified accrual) to full accrual basis Excess of revenues and other sources over expenditures and other uses $ 2,149,968 Reconciling items: Interest income from Water and Sewer Capital Projects Fund 40,317 Interest income from Water and Sewer Capital Reserve Fund 37,481 Interest income from WFER Carrstore Rd Capital Project Fund 6,120 Payment of principal on notes, bonds and installment purchases 1,189,949 Increase in deferred outflows of resources - pensions (73,707) Decrease in net pension liability (78,628) Decrease in deferred inflows of resources - pensions (4,538) Increase in deferred outflows of resources - OPEB 7,996 Decrease in total OPEB liability 136,992 Increase in deferred inflows of resources - OPEB (118,234) Capital outlay 338,241 Depreciation (1,695,988) Loss on disposal of capital assets (83,384) Insurance Proceeds Interest expense accrual adjustment (15,314) Vacation pay accrual adjustment (4,838) Amortization of premium on bonds payable 56,690 Contributed capital 539,500 Transfer to General Fund (208,674) Transfer to Water and Sewer Capital Projects 576,323 Transfer from Water and Sewer Capital Projects (447,135) Change in net position $ 2,349,137 89 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (Non-GAAP) Water and Sewer Capital Projects Fund Enterprise Fund Year Ended June 3o, 2020 Schedule 14 Actual Variance Project Prior Current Closed Out Total Positive Authorization Years Year Projects to Date (Negative) Revenues Interest on investments $ 210,731 $ 172,888 $ 40,317 $ $ 213,205 $ 2,474 Other receipts - 12,160 (12,160) - - - Total revenues 210,731 185,048 28,157 213,205 2,474 Expenditures Capital improvements: EDD water line extension 250,000 27,437 - 27,437 222,563 Churton St Main Replacement 430,000 - 430,000 Orange Gr/Churton sewer proj 40,000 295 26,300 26,595 13,405 16" Water connection under 1-40 100,000 27,367 19,783 47,150 52,850 Booster pump station 182,388 11,666 19,910 31,576 150,812 Waterstone water tank - - - Water meter replacement - Automatic meter reading project - - - Effluent aeration - - Churton Street Sewer 500,000 58,583 219,911 - 278,494 221,506 River pump station 33,800 6,760 - 6,760 27,040 Wastewater system rehab 85,895 - 25,385 25,385 60,510 Other improvements - - - - - 1,622,083 97,911 345,486 - 443,397 1,178,686 West Fork Eno Reservoir: Design 1,811,063 1,792,764 (121,412) 1,671,352 139,711 Construction 9,577,874 7,642,595 1,341,994 - 8,984,589 593,285 Land acquisition 42,304 42,304 - 42,304 - 11,431,241 9,477,663 1,220,582 - 10,698,245 732,996 Total expenditures 13,053,324 Revenues over (under) expenditures (12,842,593) (9,390,526) (1,537,911) - (10,928,437) 1,914,156 9,575,574 1,566,068 11,141,642 1,911,682 Other financing sources (uses) Proceeds from installment purchases 10,155,000 10,155,000 - 10,155,000 Premium on bonds issuance 1,025,846 1,025,846 - 1,025,846 Transfer from Water and Sewer Capital Reserve Fund - Transfer from Water and Sewer Fund 3,870,200 4,140,021 (135,873) 3,870,200 Transfer to Water and Sewer Fund (2,208,453) (2,262,758) (79,643) (2,208,453) Total other financing sources (uses) 12,842,593 Excess of revenues and other sources over expenditures and other financing uses 13,058,109 (215,516) 12,842,593 - $ 3,667,583 $ (1,753,427) $ - $ 1,914,156 $ 1,914,156 90 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (Non-GAAP) Water and Sewer Capital Reserve Fund Enterprise Fund Year Ended June 3o, 2020 Schedule 15 Actual Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) Revenues Interest on investments $ 300,868 $ 350,659 $ 37,481 $ 388,140 $ 87,272 Expenditures Capital improvements- water 794,415 794,415 Capital improvements- sewer 1,949,845 - 1,949,845 Capital improvements- water tower 3,761 - 3,761 Revenues over (under) expenditures 2,748,021 - - 2,748,021 (2,447,153) 350,659 37,481 388,140 2,835,293 Other financing sources (uses) Transfers from Water and Sewer Fund 12,261,329 12,261,329 - 12,261,329 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 (7,863,219) (7,765,727) (97,492) (7,863,219) Transfers to Water and Sewer Capital Projects Fund (1,299,553) (1,299,553) (1,299,553) Transfers to Water System Development Reserve Fund (1,106,017) (1,106,017) (1,106,017) Transfers to Sewer System Development Reserve Fund (1,014,608) - (1,014,608) (1,014,608) Total other financing sources (uses) 2,447,153 4,665,270 (2,218,117) 2,447,153 Excess of revenues and other sources over (under) expenditures $ $ 5,015,929 $ (2,180,636) $ 2,835,293 $ 2,835,293 91 Schedule 16 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (Non-GAAP) Water System Development Reserve Fund Enterprise Fund Year Ended June 3o, 2020 Actual Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) Revenues Interest on investments $ - $ $ $ $ Expenditures Capital improvements- water - Revenues over (under) expenditures Other financing sources (uses) Transfers from Water and Sewer Capital Project Fund Transfers from Water and Sewer Fund Transfers to Utility Capital Project Fund for: Edd Wtr Line 16" Wtr Conn US 70 Design US 70 Phase 1 Total other financing sources (uses) Excess of revenues and other sources over (under) expenditures 1,106,017 263,129 (259,404) (465, 000) (345,000) (299,742) $ 1,106,017 1,106,017 263,129 263,129 1,369,146 259,404 465,000 345,000 299,742 1,369,146 1,369,146 $ $ 1,369,146 $ 1,369,146 $ 1,369,146 92 Schedule 17 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (Non-GAAP) Sewer System Development Reserve Fund Enterprise Fund Year Ended June 3o, 2020 Actual Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) Revenues Interest on investments $ $ $ $ - $ Expenditures Capital improvements- water Revenues over (under) expenditures Other financing sources (uses) Transfers from Water and Sewer Capital Project Fund Transfers from Water and Sewer Fund Transfers to Utility Capital Project Fund for: River Pum Coll Sys Total other financing sources (uses) Excess of revenues and other sources over (under) expenditures 1,014,608 1,014,608 1,014,608 193,499 193,499 193,499 (200,000) (1,008,107) 1,208,107 200,000 1,008,107 1,208,107 1,208,107 $ $ 1,208,107 $ 1,208,107 $ 1,208,107 93 Schedule i8 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (Non-GAAP) WFER Carrstore Mill Creek Road Capital Project Fund Enterprise Fund Year Ended June 30, 2020 Actual Variance Project Prior Current Total Positive Authorization Years Year To Date (Negative) Revenues Interest on investments $ 6,796 $ $ 6,120 $ 6,120 $ (676) Expenditures Design 150,000 - 120,690 120,690 29,310 Land Aquisition 5,500 - 5,202 5,202 298 Construction Administration 310,000 49,292 49,292 260,708 Construction 2,440,791 - 2,440,791 Miscellaneous 371,505 106,425 106,425 265,080 3,277,796 - 281,609 281,609 2,996,187 Revenues over (under) expenditures (3,271,000) (275,489) (275,489) 2,995,511 Other financing sources (uses) Proceeds from installment purchases 3,271,000 - 3,271,000 3,271,000 Total other financing sources (uses) 3,271,000 3,271,000 3,271,000 Excess of revenues and other sources over (under) expenditures $ - $ $ 2,995,511 $ 2,995,511 $ 2,995,511 94 Town of Hillsborough, North Carolina Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual (Non-GAAP) Stormwater Fund Enterprise Fund Year Ended June 30, 2020 Schedule 19 Variance Favorable Budget Actual (Unfavorable) Revenues Operating revenues: Stormwater charges $ 652,000 $ 666,355 $ 14,355 Other operating revenues 17,757 4,522 (13,235) Total revenues 669,757 670,877 1,120 Expenditures Operating expenditures: Personnel services 265,927 Other services and charges 167,175 Repairs and maintenance 24,593 Capital outlay 33,813 Total expenditures 669,757 Revenues over expenditures $ 491,508 178,249 179,369 $ 179,369 Reconciliation of modified accrual basis to full accrual basis: Capital outlay 33,813 Depreciation expense (56,645) Gain on disposal of fixed assets 0 Increase in accrued vacation pay (75) Increase in net pension liability (7,826) Increase in total OPEB liability 13,634 Increase in deferred outflows of resources - pensions (7,336) Increase in deferred outflows of resources - OPEB 789 Decrease in deferred inflows of resources - pensions (452) Increase in deferred inflows of resources - OPEB (11,766) Transfer from General Fund Change in net position $ 143,505 95 Town of Hillsborough, North Carolina Schedule of Changes in Assets and Liabilities Special Assessment Debt Agency Fund Fiduciary Fund Year Ended June 30, 2020 Schedule 20 ASSETS Beginning Ending Balance Additions Deductions Balance $ - 601,503 $ 601,503 $ - LIABILITIES $ $ 601,503 601,503 $ 96 Additional Financial Data This section contains additional information on property taxes. • Schedule of Ad Valorem Taxes Receivable • Analysis of Current Tax Levy 97 Town of Hillsborough, North Carolina Schedule of Ad Valorem Taxes Receivable June 30, 2020 Schedule 21 Fiscal Year Uncollected Balance July 1, 2019 Additions Uncollected Collections Balance and Credits June 30, 2020 2019-2020 $ - $ 7,435,586 $ 7,374,271 $ 61,315 2018-2019 53,058 17,940 35,118 2017-2018 37,072 7,627 29,445 2016-2017 18,189 - 3,293 14,896 2015-2016 14,785 5,301 9,484 2014-2015 11,344 3,445 7,899 2013-2014 14,129 3,109 11,020 2012-2013 14,056 1,974 12,082 2011-2012 8,263 - 574 7,689 2010-2011 10,497 2,092 8,405 2009-2010 6,017 - 6,017 $ 187,410 $ 7,435,586 $ 7,425,643 Less allowance for uncollectible accounts: General Fund 197,353 (43,668) $ 153,685 Reconciliation of collections and credits with revenues: Ad valorem taxes - General Fund $ 7,422,863 Amount written off for tax year 2009-2010 6,017 Penalties and interest (19,874) Adjustments and refunds* 16,637 $ 7,425,643 98 Town of Hillsborough, North Carolina Analysis of Current Tax Levy Year Ended June 30, 2020 Schedule 22 Original levy: Property taxed at current year's rate Motor vehicle license fees, tax and tag Total property valuation Town -Wide Property Valuation** Rate Total Levy Property Excluding Registered Registered Total Motor Motor Levy* Vehicles Vehicles $ 1,087,435,545 0.6200 $ 6,740,252 $ 6,740,252 $ 79,373,505 $ 1,166,809,050 695,334 - 695,334 7,435,586 6,740,252 695,334 Releases and abatements Net levy 7,435,586 6,740,252 695,334 Uncollected taxes at June 30, 2020 61,315 61,315 Current year's taxes collected $ 7,374,271 $ 6,678,937 $ 695,334 Current levy collection percentage 99.18% 99.09% 100.00% * Total adjusted levy includes discoveries and abatements. ** Property tax valuation prior to the discoveries and abatements. 99 Statistical Section 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 say about the Town's overall financial health. Page Financial Trends Information 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 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 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 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 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. 103 115 127 134 139 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. 100 Financial Trends Information 101 Town of Hillsborough, North Carolina Net Position by Component Last Ten Fiscal Years (accrual basis of accounting) 2011 2012 2013 2014 Governmental activities: Net investment in capital assets $ 5,338,508 $ 5,870,981 $ 6,723,808 $ 10,924,631 Restricted 2,121, 546 1,570,832 1,831,742 1,700,808 Unrestricted 3,766,961 3,984,264 4,390,314 4,433,988 Total governmental activities net position $ 11,227,015 $ 11,426,077 $ 12,945,864 $ 17,059,427 Business -type activities Net investment in capital assets $ 24,316,110 $ 26,632,441 $ 26,017,050 $ 27,110,293 Restricted 1,721,067 1,974,677 2,590,989 2,591,211 Unrestricted 3,518,417 2,674,119 4,084,460 6,546,829 Total business -type activities net position $ 29,555,594 $ 31,281,237 $ 32,692,499 $ 36,248,333 Primary government Net investment in capital assets $ 29,654,618 $ 32,503,422 $ 32,740,858 $ 38,034,924 Restricted 3,842,613 3,545,509 4,422,731 4,292,019 Unrestricted 7,285,378 6,658,383 8,474,774 10,980,817 Total primary government net position $ 40,782,609 $ 42,707,314 $ 45,638,363 $ 53,307,760 102 Table 1 2015 2016 2017 2018 2019 2020 $ 11,870,401 $ 14,242,464 $ 15,186,419 $ 18,580,077 $ 20,511,801 $ 19,779,745 1,558,393 1,753,856 2,518,696 3,089,866 3,757,005 1,851,081 4,797,140 4,030,053 2,977,656 1,466,288 1,312,978 4,589,320 $ 18,225,934 $ 20,026,373 $ 20,682,771 $ 23,136,231 $ 25,581,784 $ 26,220,146 $ 30,507,881 $ 32,483,743 $ 34,669,712 $ 36,693,299 $ 38,536,890 $ 38,149,486 2,591,600 2,596,324 2,605,482 2,631,171 2,677,877 5,857,366 6,190,061 8,522,788 9,096,374 8,308,697 11,444,287 11,144,844 $ 39,289,542 $ 43,602,855 $ 46,371,568 $ 47,633,167 $ 52,659,054 $ 55,151,696 $ 42,378,282 $ 46,726,207 $ 49,856,131 $ 55,273,376 $ 59,048,691 $ 57,929,231 4,149,993 4,350,180 5,124,178 5,721,037 6,434,882 7,708,447 10,987,201 12,552,841 12,074,030 9,774,985 12,757,265 15,734,164 $ 57,515,476 $ 63,629,228 $ 67,054,339 $ 70,769,398 $ 78,240,838 $ 81,371,842 103 Town of Hillsborough, North Carolina Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting) Expenses Governmental activities: General government Public safety Transportation Environmental protection Economic and physical development Community activities and projects Parks and recreation Unallocated interest expense Total governmental activities expenses Business -type activities: Water and sewer Stormwater Total business -type activities expenses Total primary government expenses Program Revenues Governmental activities: Charges for services: General government Public safety Transportation Economic and physical development Parks and recreation Operating grants and contributions Capital grants and contributions 2011 $ 1,353,757 3,379,456 486,940 595,447 256,092 49,505 36,844 108,598 6,266,639 5,758,760 5,758,760 2012 $ 1,402,445 2,597,911 1,510,493 546,612 2013 $ 1,301,963 3,395,465 497,540 580,312 243,163 485,977 40,996 64,878 51,500 36,267 104,518 105,022 6,497,638 6,467,424 6,151,253 6,279,271 6,151,253 6,279,271 2014 $ 1,524,025 3,619,529 500,491 833,623 367,389 119,251 55,849 126,250 7,146,407 6,271,311 6,271,311 $ 12,025,399 $ 12,648,891 $ 12,746,695 $ 13,417,718 $ 149,790 $ 10,273 2,170 183,874 1,191,157 Total governmental activities program revenues 1,537,264 160,990 $ 15,593 2,970 228,457 203,301 611,311 326,565 $ 126,909 11,426 13,893 3,190 175,347 334,525 4,140 316,576 3,741,958 851,053 4,203,476 104 Table 2 (4 pages) 2015 $ 1,416,316 3,929,568 130,485 963,296 387,801 220,890 74,137 101,260 7,223,753 7,383,564 7,383,564 2016 $ 2,010,349 3,982,055 615,849 708,367 402,800 93,236 97,891 121,783 8,032,330 7,574,032 7,574,032 2017 $ 1,860,970 4,289,900 666,523 590,798 466,791 57,673 398,802 95,571 8,427,028 8,120,546 302,983 8,423,529 2018 1,865,408 4,666,798 684,226 478,122 498,150 42,038 429,664 114,957 8,779,363 8,949,652 458,118 9,407,770 2019 2020 1,865,007 4,705,989 718,593 468,057 488,592 34,311 493,868 140,004 2,391,829 5,559,342 1,024,817 558,337 557,378 166,373 511,512 121,076 8,914,421 10,890,664 9,355,337 566,231 8,807,373 527,372 9,921,568 9,334,745 $ 14,607,317 $ 15,606,362 $ 16,850,557 $ 18,187,133 $ 18,835,989 $ 20,225,409 $ 182,109 12,068 187,682 5,155 10,610 253,460 $ 122,233 13,645 184,863 41,000 4,720 28,052 1,393,799 $ 214,056 13,555 185,922 $ 208,837 19,938 245 5,000 360,440 5,130 5,940 26,690 197,119 570,035 1,634,422 158,451 296,255 16,016 17,667 730 29,000 6,537 2,890 221,637 267,790 3,379,916 236,211 651,084 1,788,312 1,020,388 2,426,941 3,812,287 820,813 105 Town of Hillsborough, North Carolina Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting) Business -type activities: Charges for services: Water and sewer Stormwater Capital grants and contributions Total business -type activities program revenues Total primary government program revenues Net (Expense) Revenue Governmental activities Business -type activities Total primary government net expense General Revenues and Other Changes in Net Position Governmental activities: Taxes Unrestricted inter-governemental revenues Investment earnings, unrestricted Miscellaneous Transfers Total governmental activities Business -type activities: Investment earnings Miscellaneous Transfers Total business -type activities 2011 2012 2013 2014 $ 6,755,260 $ 7,366,996 $ 7,686,356 $ 9,025,607 658,828 7,414,088 100,000 7,466,996 1,028,171 7,686,356 10,053,778 $ 8,951,352 $ 8,078,307 $ 8,537,409 $ 14,257,254 $ (4,729,375) $ (5,886,327) $ (5,616,371) $ (2,942,931) 1,655,328 1,315,743 1,407,085 3,782,467 $ (3,074,047) $ (4,570,584) $ (4,209,286) $ 839,536 $ 5,808,387 $ 5,816,041 $ 6,371,494 $ 6,603,311 635,907 10,838 24,141 6,479,273 14,568 14,568 Total primary government $ 6,493,841 Change in Net Position Governmental activities Business -type activities $ 1,749,898 1,669,896 651,381 4,748 16,250 734,401 3,874 26,389 6,488,420 7,136,158 6,869 6,869 4,177 4,177 809,190 2,209 39,899 7,454,609 2,601 2,601 6,495,289 $ 7,140,335 $ 7,457,210 $ 199,062 1,725,643 $ 1,519,787 $ 4,511,678 1,411,262 3,785,068 Total primary government $ 3,419,794 $ 1,924,705 $ 2,931,049 $ 8,296,746 106 Table 2 (4 pages) 2015 2016 2017 2018 2019 $ 8,939,712 $ 10,713,397 $ 9,214,401 $ 10,249,270 11,890,751 - - 632,738 638,441 659,071 1,484,316 1,161,830 1,325,206 363,598 32,361 10,424,028 11,875,227 11,172,345 11,251,309 12,582,183 2020 10,265,866 670,877 996,128 11,932,871 $ 11,075,112 $ 13,663,539 $ 12,192,733 $ 13,678,250 $ 16,394,470 $ 12,753,684 $ (6,572,669) $ (6,244,018) $ (7,406,640) $ (6,352,422) (5,102,134) 3,040,464 4,301,195 2,748,816 1,843,539 2,660,615 (10,069,851) 2,598,126 $ (3,532,205) $ (1,942,823) $ (4,657,824) $ (4,508,883) $ (2,441,519) $ (7,471,725) $ 6,698,408 $ 6,949,754 $ 7,426,516 $ 8,187,327 $ 8,238,074 998,629 1,177 40,962 7,739,176 745 745 1,034,811 16,771 43,121 8,044,457 12,118 12,118 1,010,393 37,562 58,811 8,533,282 19,897 19,897 1,080,184 120,273 88,047 9,475,831 44,935 (246,949) 1,135,259 261,029 (12,933) (2,073,742) 7,547,687 243,186 48,344 2,073,742 (202,014) 2,365,272 $ 9,152,324 1,055,076 171,563 131,951 197,852 10,708,766 119,062 (26,694) (197,852) (105,484) $ 7,739,921 $ 8,056,575 $ 8,553,179 $ 9,273,817 $ 9,912,959 $ 10,603,282 $ 1,166, 507 3,041,209 $ 1,800,439 $ 1,126,642 4,313,313 2,768,713 $ 3,123,409 $ 2,445,553 1,641,525 5,025,887 $ 638,915 2,492,642 $ 4,207,716 $ 6,113,752 $ 3,895,355 $ 4,764,934 $ 7,471,440 $ 3,131,557 107 Town of Hillsborough, North Carolina Fund Balances Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) 2011 2012 2013 2014 General fund: Reserved $ - $ $ $ Unreserved - - - - Nonspendable 477 68,649 4,253 72,156 Restricted 1,047,758 955,064 1,115,688 1,110,734 Committed - Assigned 215,354 88,094 330,206 782,995 Unassigned 3,478,868 3,803,076 4,151,725 4,151,581 4,742,457 4,914,883 5,601,872 6,117,466 All other governmental funds: Reserved - - Unreserved - - - - Nonspendable - 52 Restricted 1,073,788 227,052 716,054 844,464 Committed 204,943 856,356 - 106,105 Assigned 131,490 7,070 Unassigned (324,964) (112,038) (20,444) 953,767 971,370 827,152 957,639 Total fund balance $ 5,696,224 $ 5,886,253 $ 6,429,024 $ 7,075,105 108 Table 3 2015 2016 2017 2018 2019 2020 68,242 1,049,112 1,294,457 3,805,372 6,217,183 509,281 272,548 781,829 175,392 1,385,320 672,896 3,698,078 219,730 1,452,915 787,525 4,049,462 5,931,686 6,509,632 368,536 171,698 1,065,781 159,314 1,848 2,367,086 3,451,333 1,282,646 985,729 724,066 749,550 4,090,432 3,779,628 6,438,825 7,445,095 7,955,027 8,471,021 722,780 305,672 385,520 228,293 (808,382) (242,109) 540,234 416,713 (1,023,574) 568,435 189,441 (186,850) 866,191 (489,609) 571,026 $ 6,999,012 $ 6,471,920 $ 6,926,345 $ 8,311,286 $ 7,465,418 $ 9,042,047 109 Town of Hillsborough, North Carolina Changes in Fund Balance Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Revenues Ad valorem taxes Other taxes and licenses Unrestricted intergovernmental Restricted intergovernmental Investment earnings Contribution from property owners Capital contributions Use and rental Other general revenues Total revenues Expenditures Current: General government Public safety Transportation Environmental protection Economic and physical development Community activities and projects Parks and recreation Debt service: Principal retirement Interest and fiscal charges Total expenditures Excess of revenues over (under) expenditures Other financing sources (uses) Transfers in Transfers out Insurance recovery Debt service - principal on refunding Sale of capital assets Proceeds from installment notes Total other financing sources Net change in fund balances Capital outlay included in functional expenditures above Debt service as a percentage of noncapital expenditures 2011 $ 4,610,003 1,163,501 635,907 1,234,870 10,838 200,000 160,063 67,071 8,082,253 2012 $ 4,716,460 1,124,696 651,381 453,755 4,748 100,000 176,583 69,669 7,297,292 2013 $ 5,135,469 1,229,425 734,401 308,007 3,874 337,991 34,079 7,783,246 2014 $ 5,429,114 1,199,185 809,190 768,716 2,209 1,445,207 140,802 48,337 9,842,760 1,232,665 1,235,107 1,122,514 2,799,302 3,347,597 3,164,361 3,134,327 3,455,438 1,718,386 1,693,664 1,011,557 851,502 583,919 476,415 471,880 806,262 256,092 243,163 485,977 367,389 54,946 325,666 64,878 119,251 791,184 239,105 430,831 1,675,156 303,074 283,126 407,246 474,458 107,928 98,896 111,265 118,711 8,395,791 7,759,503 7,240,475 10,667,469 (313,538) (462,211) 542,771 717,582 (717,582) 107,000 107,000 440,409 (843,440) 16,250 1,039,021 652,240 $ (206,538) $ 190,029 $ 2,280,672 $ 1,501,851 6.72% 6.10% 369,627 (369,627) (824,709) 169,054 (169,054) (1,256,353) 2,727,143 1,470,790 $ 542,771 $ 646,081 $ 997,107 $ 2,246,332 8.30% 7.04% 110 Table 4 2015 $ 5,437,266 1,263,425 998,629 642,732 1,177 1,325,271 194,177 56,727 9,919,404 2016 $ 5,669,002 1,280,114 1,034,811 262,144 16,771 381,406 176,878 118,323 8,939,449 2017 $ 6,064,137 1,381,990 1,010,393 374,938 37,562 18,955 2018 $ 6,701,848 1,502,359 1,080,184 726,194 120,273 22,434 232,611 583,186 79,734 53,804 9,200,320 2019 2020 $ 6,491,857 1,728,857 1,135,259 271,509 261,029 12,582 199,411 50,176 10,790,282 10,150,680 2,779,807 2,207,284 1,627,479 3,026,060 2,042,811 3,845,174 4,317,978 4,084,416 4,811,024 4,300,485 1,194,204 878,233 865,285 1,014,932 916,097 1,008,615 564,148 454,355 516,910 345,220 388,611 397,828 676,147 1,104,113 596,145 836,258 821,677 57,673 42,038 158,906 423,813 147,350 428,452 478,585 1,472,101 632,155 1,037,623 790,345 1,296,056 1,033,807 101,228 120,355 100,353 105,063 130,976 11,209,865 10,492,476 9,084,505 12,394,781 10,996,548 (1,290,461) (1,553,027) 115,815 (1,604,499) 160,482 (160,482) 1,214,368 1,214,368 465,037 (465,037) 1,025,935 1,025,935 394,991 (394,991) 344,808 (344,808) 21,610 43,670 317,000 2,945,770 338,610 2,989,440 $ (76,093) $ (527,092) $ (845,868) 219,416 (219,416) $ 7,422,863 1,738,597 1,081,038 1,339,711 171,563 11,147 344,892 87,365 12,197,176 2,229,681 5,006,500 684,311 462,129 489,889 250,962 518,890 846,287 121,076 10,609,725 1,587,451 442,343 (453,165) (10,822) 454,425 $ 1,384,941 $ (845,868) $ 1,576,629 $ 2,619,910 $ 1,962,820 $ 8.54% 13.58% 893,524 $ 3,336,241 $ 2,202,180 $ 1,079,609 10.87% 15.47% 13.24% 10.15% 111 Revenue Capacity Information 112 Town of Hillsborough, North Carolina Program Revenues by Function/Program Last Ten Fiscal Years (accrual basis of accounting) 2011 2012 2013 2014 Function/program Governmental activities: General government $ 382,843 $ 354,227 $ 361,590 $ 1,388,937 Public Safety 10,273 15,593 11,426 13,893 Transportation 848,978 228,521 185,847 312,282 Environmental protection - - - 2,059,224 Economic and physical development - - - Community activities and projects - - - Parks and recreation 295,170 12,970 292,190 429,140 Subtotal governmental activities 1,537,264 611,311 851,053 4,203,476 Business -type activities: Water and sewer 7,414,088 7,466,996 7,686,356 10,053,778 Stormwater - - - Subtotal business -type activities 7,414,088 7,466,996 7,686,356 10,053,778 Total primary government $ 8,951,352 $ 8,078,307 $ 8,537,409 $ 14,257,254 113 Table 5 2015 2016 2017 2018 2019 2020 $ 192,719 $ 1,430,962 $ 230,872 $ 258,394 $ 2,767,963 $ 307,150 12,068 13,645 13,555 125,557 21,804 38,167 187,682 264,863 396,200 414,083 200,695 202,395 653 4,680 9,874 - - 41,000 340,134 855,135 29,000 34,000 257,962 33,162 29,753 773,772 792,825 239,101 651,084 1,788,312 1,020,388 2,426,941 3,812,287 820,813 10,424,028 11,875,227 10,539,607 10,612,868 11,890,751 11,261,994 - 632,738 638,441 691,432 670,877 10,424,028 11,875,227 11,172,345 11,251,309 12,582,183 11,932,871 $ 11,075,112 $ 13,663,539 $ 12,192,733 $ 13,678,250 $ 16,394,470 $ 12,753,684 114 Town of Hillsborough, North Carolina Tax Revenues by Source Governmental Funds a Last Ten Fiscal Years (modified accrual basis of accounting) Table 6 Fiscal Year Ad Valorem 2011 4,610,003 2012 4,716,460 2013 5,135,469 2014 5,429,114 2015 5,437,266 2016 5,669,002 2017 6,064,137 2018 6,701,848 2019 6,491,857 2020 7,422,863 Change b 2011-2020 61.02% 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. b Ad Valorem tax revenue increased by 61.02 percent in the past ten years. This is primarily due to property values being re-evaluated every eight years. During the last ten years, there was one re-evaluation period in 2017. The revaluation periods along with increasing property values and steady growth has caused a significant increase in Ad Valorem Revenue from 2011 to 2020. 115 Town of Hillsborough, North Carolina Assessed Value and Actual Value of Taxable Property Last Ten Fiscal Years Table 7 Assessed Total Value as a Public- Total Direct Percent of Fiscal Real Personal Service Assessed Tax Actual Year Property * Property Companies Value Rate Value 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% 2015 676,291,406 98,629,989 12,462,428 787,383,823 0.6800 100.00% 2016 676,946,203 130,843,708 14,137,738 821,927,649 0.6800 100.00% 2017 733,447,012 132,527,541 14,138,094 880,112,647 0.6800 100.00% 2018 862,808,952 174,898,060 14,779,117 1,052,486,129 0.6200 100.00% 2019 868,656,886 212,280,396 7,918,389 1,088,855,671 0.6200 100.00% 2020 945,829,125 204,682,406 16,297,519 1,166,809,050 0.6200 100.00% Source: Annual County Report of Valuation and Property Tax Levies. * Real property values exclude tax-exempt property. 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. 116 Town of Hillsborough, North Carolina Direct and Overlapping Property Tax Rates Last Ten Fiscal Years (rate per $100 of assessed value) Table 8 Municipality Rates Overlapping Rates a Fiscal Basic Total Fire Year Rate Direct District b County 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 2015 0.680 0.680 - 0.8780 2016 0.680 0.680 - 0.8780 2017 0.680 0.680 - 0.8780 2018 0.620 0.620 - 0.8380 2019 0.620 0.620 0.8504 2020 0.620 0.620 0.8679 Source: Orange County 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. b The Fire District Tax applies to properties outside of the city limits. 117 Town of Hillsbo rough, North Ca rolina Pr operty Tax Revenue and C olle ctions Last Ten Fiscal Y ears T abl e 9 Fiscal Collected within the Year Taxes Le vi ed Fiscal Year of the Le vy Collections T otal C ollecti ons to Date Ended for the Percentage in Subsequent Percentage June 30, Fiscal Year Amount of Le vy Years Amount of Le vy 2011 4,690,863 4,557,501 97.16% 124,957 4,682,458 99.82% 2012 4,755,200 4,641,541 97 .61% 105,970 4,747,511 99.84% 2013 5,225,057 5,085,225 98 .82% 127,750 5,212,975 99.77% 2014 5,418,579 5,315,921 98.11% 91,638 5,407,559 99 .80% 2015 5,413,151 5,343,909 98 .72% 61,343 5,405,252 99 .85% 2016 5,646,239 5,583,929 98 .90% 52,826 5,636,755 99 .83% 2017 6,044,907 5,995,089 99.18% 34,922 6,030,011 99 .75% 2018 6,676,687 6,618,458 99 .13% 28,784 6,647,242 99 .56 % 2019 6,952,134 6,899,076 99 .24% 17,941 6,917,017 99.49% 2020 7,435,586 7,374,271 99.18% 7,374,271 99.18% Sou rces: Orange Co un ty Board of Equalization and Assessment, and Orange County Department of Finance . 118 Town of Hillsbo rough, North Carolina Principal Prope rty Taxpay ers Curr ent Year and Nine Yea rs Ago Tabl e 10 Taxpayer 2020 2011 Taxable Assessed Value Rank Percentage of Total City Taxable Ta xable Assessed Assessed Value Value Rank Percentage of Total City Taxable Assessed Value CATES CREEK APARTMENTS LLC $ 25,189,600 1 2.86 % LHNH PP APTS LLC (FORMERLY PATRIOTS $ 21,340,000 2 2.42% LENNAR CAROLINAS LLC $ 12,827,406 3 1.46% ALCURT HILLSBOROUGH LLC $ 11,269,600 4 1.28% DANIEL BOONE LANDCO LLC $ 10,537,700 5 1.20% 8,833,496 5 1 .18% WALMART REAL ESTATE BUSINESS TRUST $ 10,509,400 6 1 .19% 13,675,468 2 1.83% PHE INC $ 10,315,583 7 1 .17% 9,506,109 4 1.27% M DCO LLC $ 10,214,600 8 1.16 % DUKE ENERGY CAROLINAS LLC $ 8,560,507 9 0.97% SPORTS ENDEAVORS INC $ 8,325,260 10 0 .95 % 6,468,563 10 86.00% PATRIOTS POINTE LLC 16,048,910 1 2.14 % HD DEVELOPM ENT OF MARYLAND INC. 9,560,634 3 1.28 % SLF II NC WATERSTONE LLC 8,787,240 6 1 .17% HILLSBOROUGH COMM ONS 8,497,192 7 1.14% MEADOWLANDS DISTRIBUTION CO 7,219,316 8 1% BROOKSHIRE INC 6,754,661 9 1% Total $ 129,089,656 14 .67% $ 95,351,589 97.87% Source: Orange County Property Assessment Division 119 Town of Hillsborough, North Carolina Water Sold by Type of Customer and In and Out of Town Last Ten Fiscal Years Type of Customer 2011 2012 2013 2014 Gallons billed: In -town residential 103,459,804 102,937,205 102,755,771 111,836,111 Out-of-town residential 112,868,479 120,107,805 130,921,523 111,241,276 In -town commercial 74,881,598 73,507,962 76,624,165 78,590,500 Out-of-town commercial 18,219,706 18,296,584 18,153,125 17,908,575 Total gallons billed 309,429,587 314,849,556 328,454,584 319,576,462 Total water and sewer charges (revenue) $ 6,405,307 $ 6,928,835 $ 7,262,510 $ 7,499,183 Total average rate per 1,000 gallons $ 20.70 $ 22.01 $ 22.11 $ 23.47 Source: Town of Hillsborough, Water Billing Office. Revenue collected includes late payment penalties. Due to an issue during a software system conversion in FY 2016, some of the gallons billed data was lost and is therefore, lower than expected. 120 Table ii 2015 2016 2017 2018 2019 2020 98, 914,635 100, 064, 880 131,412,141 131, 845, 575 134, 946,195 145,561,166 124, 805, 789 100,445, 055 120,756, 780 111,132, 741 111, 898, 328 111,802,887 81,985,440 75,012,631 85,946,109 79,996,750 83,253,819 80,454,700 29,452,224 18,028,437 20,781,379 19,695,072 21,276,361 13,651,726 335,158,088 293,551,003 $ 7,859,823 $ 7,988,498 358,896,409 342,670,138 351,374,703 351,470,479 $ 8,294,061 $ 8,706,345 $ 8,706,345 $ 8,706,345 $ 23.45 $ 27.21 $ 23.11 $ 25.41 $ 24.78 $ 24.77 121 Town of Hillsborough, No rth Carolina Water and Sewe r Rates L ast Ten Fis cal Yea rs Tabl e 12 In -Town Water In -Town Sewer Out -of -Town Water Out -of -Town Sewer Rate per Rate per Rate per Rate per Rate per Rate per Rate per Rate per Fiscal 0-2500 1,000 0-2500 1,000 0-2500 1,000 0-2500 1,000 Year Gallons Gallons Gallons Gallons Gall ons Gall ons Gall ons Gallons 2011 21.75 7 .25 23 .88 7 .96 42 .42 14.14 46 .56 15.52 2012 23. 04 7.68 25.98 8 .66 44.94 14 .98 50.67 16.89 2013 24.21 8.07 28.26 9 .42 47 .22 15 .74 55 .11 18 .37 2014 21. 79 8.07 30.11 11.15 42 .50 15.74 58 .70 21.74 2015 21. 79 8.07 30.75 10.25 47.22 15.74 59 .97 27 .68 2016 20.98 8. 07 31.54 12.13 40.92 15.74 61 .49 23.65 2017 20. 18 8. 07 30.33 12 .13 39.35 15.74 59.13 23 .65 2018 20.18 8.07 30.33 12 .13 39.35 15.74 59.13 23.65 2019 22.05 8. 82 32 .60 13.04 43.00 17.20 63.55 25.42 2020 23. 15 9. 26 34.23 13.69 45.15 18.06 66.73 26 .69 R ate changes are effective with July 1 water usage u nless otherwise stated . The construction of a reservoir in 1998 and renovations of an aging water and wastewater treatment plant have caused significa nt increases in water and sewer rates over the past ten years. Prior to 7/1/15, a flat charge was billed for 0 to 2,700 gallons. Any usage over 2,700 gallons was billed per 1,000 gallons rate. Beginning 7/1/15, a flat charge was billed for 0 to 2,600 gallons. Any usage over 2,600 gallons is billed per 1,000 gallons rate . Beginning 7/1/16, a flat charge is billed for 0 to 2,500 gallons. Any usage over 2,500 gallons is billed per 1,000 gallo ns rate . 122 Debt Capacity Information 123 Town of Hillsbo rough, No rth Ca rolina Ratios of Outst anding Debt by Typ e Last Ten Fiscal Ye ars Table 13 Governmental Activities Business -Type Acti vities General Total Fiscal Installment Obligation Special Re ve nu e Premium on Re vol ving Installment Primary Per Year Loans B onds Bonds Bonds Loan s Loans Governm ent Capita a 2011 2,736,142 2012 3,440,001 2013 3,084,791 2014 4,024,586 2015 4,606,799 2016 4,534,728 2017 4,025,201 2018 5,829,231 2019 4,632,280 2020 3,793,400 50,000 14,000 - 1,143,336 5,741,602 9,671,080 1,582 5,575,878 5,871,812 14,901,691 2,388 - 16,247,369 4,914,368 24,246,528 3,850 18,644,077 3,939,307 26,607,970 4,170 18,605,655 2,970,088 26,182,542 4,161 18,511,848 3,269,750 26,316,326 4,102 - 17,443,655 2,513,821 23,982,677 3,651 10,155,000 1,018,674 16,435,812 522,266 33,960,983 4,697 10,155,000 970,330 15,397,010 552,936 31,707,556 4,380 13,426,000 913,641 14,336,167 423,833 32,893,041 4,212 Note: Details regarding the Town's o utstandin g debt can be found in the notes to the fi nancial stateme nts. a See Table 17 for population data. These ratios are calculated using population for the prior calendar year. 124 Town of Hillsborough, North Carolina Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years Table 14 General Bonded Debt Outstanding General Fiscal Obligation Year Bonds Total Percentage of Actual Taxable Value a of Per Property Capita b 2011 50,000 50,000 0.00% 2012 14,000 14,000 0.00% 2013 - 0.00% 2014 - - 0.00% 2015 - 0.00% 2016 - - 0.00% 2017 - 0.00% 2018 - - 0.00% 2019 - - 0.00% 2020 0.00% Note: Details regarding the Town's outstanding debt can be found in the notes to the financial statements. a See Table 7 for property value data. b Population data can be found in Table 17. 8 2 125 Town of Hillsborough, North Carolina Direct and Overlapping Governmental Activities Debt June 30, 2020 Table 15 Governmental Unit Town's Orange Co. Estimated G.O. Bonds Estimated Share of Outstanding Percentage Overlapping Debt Applicable Debt Debt repaid with property taxes $ 131,000,000 6.110% $ 8,004,100 Town's overlapping debt 8,004,100 Town's direct debt 3,793,400 Total direct and overlapping debt $ 11,797,500 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. 126 Town of Hillsborough, North Carolina Legal Debt Margin Information Last Ten Fiscal Years 2011 2012 2013 2014 Debt limit $ 59,858,619 $ 60,714,122 $ 60,985,183 $ 62,861,200 Total net debt applicable to limit 2,736,142 3,440,001 3,084,791 4,024,586 Legal debt margin $ 57,122,477 $ 57,274,121 $ 57,900,392 $ 58,836,614 Total net debt applicable to the limit as a percentabe of debt limit 4.57% 5.67% 5.06% 6.40% Note: Under state finance law, the Town's outstanding general obligation debt should not exceed 8 percent of total assessed property value. 127 Table 16 Legal Debt Margin Calculation for Fiscal Year 2020 Assessed value $ 1,166,809,050 Debt limit (8% of assessed value) 93,344,724 Debt applicable to limit: Installment loans (3,793,400) Legal debt margin $ 89,551,324 2015 2016 2017 2018 2019 2020 $ 62,990,706 $ 65,754,212 $ 70,409,012 $ 84,198,890 $ 87,108,454 $ 93,344,724 4,606,799 4,534,728 4,025,201 5,829,231 4,632,280 3,793,400 $ 58,383,907 $ 61,219,484 $ 66,383,811 $ 78,369,659 $ 82,476,174 $ 89,551,324 7.31% 6.90% 5.72% 6.92% 5.32% 4.06% 128 Demographic and Economic Information 129 Town of Hillsbo rough, N orth Car olina De mographic and Economic Statistics Last Ten Fiscal Yea rs Table 17 Pers onal Per Income Capita (thousands Pers onal Median S chool Unemployment Year Populati on of dollars) Inc ome Age Enr ollment Rate 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 1,370 4.8% 2015 6,292 5,287,926 37,658 33.50 1,393 3 .9 % 2016 6,415 * 27,575 35.70 1,408 4.6% 2017 6,568 * 24,567 35 .90 1,325 3.7% 2018 7,231 * 30,830 35 .70 1,302 3 .0% 2019 7,239 * 25,780 36.60 1,319 3.3% 2020 7,809 * 34,697 38.60 1,219 5.9% No te: Personal income, per capita personal income, median age, and unemployment are not available at the town level and is reported at the county level . Unemployment is re ported for the month of June of each year. * In fo rmatio n not available pe r Orange County Economic Development Sources : Population and median age in fo rmation provided by the State Library of North Carolina. Personal i nc ome information provided by the Orange Cou nty Economic Development Office. Unemployment data provide d by the Employment Security Commission. School enrollment data provided by the Orange County Board of Education. No te: Po pulation, median age, and education level information are based on surveys conducted during the last quarter of the calendar y ear . Personal income information is a total for the year. Unemplo yment rate information is an adjusted yearly average. School e nrollment is based on the census at the start of the school year. 130 Town of Hillsborough, North Carolina Principal Employers Current Year and Nine Years Ago Table 18 Employer Orange County Government Orange County Schools UNC Hospital Summit Consulting -Engineering Sports Endeavors, Inc. dba Eurosport Wal-Mart Associates Inc Brookshire Inc Home Depot Weaver Street Market, Inc PHE OE Enterprises, Inc Warran-Hay Thalle Total 2020 2011 Percentage Percentage of Total of Total Town Town Employees Population Employees Population 1,272 19.83% 818 13.38% 1,167 18.19% 1,249 20.43% 600 9.35% 342 5.33% . . . . . . . .. . . . . . . ... 0.00% 550 9.00% 200 3.12% 300 4.91% 184 2.87% 129 2.11% 150 2.34% 95 1.55% 141 2.20% 365 322 5.27% 139 2.27% 101 1.65% 96 1.57% 3,149 43.40% 2,885 47.19% Source: Town Economic Development Division and Employment Security Commission. Note: Information regarding Town's total employment is not available. * Data not available 131 Town of Hillsborough, North Carolina Full -Time Equivalent City Government Employees by Function/Program Last Ten Fiscal Years Table 19 Function/Program 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 General government Administration 4 3 3 5 5 7 9 7.25 9.5 9.25 Finance 4 4 4 4 4 5 5 6 5.3 3.40 Information Services 1.00 Planning 3 3 3 4 4 5 5 5 5 4.00 Public space 1 2 2 2.00 Safety 1 1 1 1 1 1 1 1 1 1.00 Stormwater - 1 1 1 2 3 3 3.00 Police Officers 26 25 27 24 28 26 28 29.33 27.75 24.1 Civilians 2 - 1 1 2 Public works Streets 4 3 3 3 4 4 4 4 4 4 Sanitation 4 4 4 4 4 4 3 4 4 3 Motor pool 3 3 3 3 3 3 3 3 3 3 Utilities Engineering 4 4 4 4 4 4 4 3 3 4 Billing and collection 5 5 5 5 6 6 6 4.50 4.5 3.35 Water 6 6 6 6 6 6 6 8 8 7 Wastewater 8 8 8 7 6 6 8 6 6 5 Water distribution/ wastewater collection 8 11 11 11 11 12 10 13 13 12 Fire inspections 1 1 1 1 1 1 1.5 1.40 1.4 1.8 Total 83 81 83 83 88 91 95.5 101.48 101.45 92.90 Source: Town Finance Office. Positions reported at June 30th are positions filled. 132 Operating Information 133 Town of Hillsborough, North Carolina Operating Indicators by Function/Program Last Ten Fiscal Years Function/Program 2011 2012 2013 2014 Police Physical arrests 475 560 538 521 Calls for service 12,889 15,039 14,569 12,279 Traffic citations 1,182 1,134 1,651 1,212 Number of policeman positions 29 29 26 26.5 Fire Number of stations 1 1 1 1 Emergency responses (EMS and fire) 1,835 1,770 1,866 1,950 Fires extinguished 19 78 70 45 Number of paid firemen 24 25 24 24 Number of volunteers 12 14 19 15 Inspections 211 258 177 132 Refuse collection Refuse collected (tons per day) 5.95 - 6.34 5.90 Recyclables collected (tons per day) * * 0.02 Other public works Street resurfacing (miles) - 2.25 2.13 Potholes repaired 41 36 30 36 Parks and recreation Number of parks 6 6 6 6 Library Volumes in collection 86,526 97,536 93,421 93,886 Total volumes borrowed 287,938 351,216 397,379 396,164 Water New connections 815 767 736 799 Water main breaks 10 30 20 15 Average daily consumption (millions of gallons per day) 1.129 1.048 0.913 1.103 Peak daily consumption (millions of gallons) 1.653 1.576 1.653 1.685 Wastewater Average daily sewage treatment (millions of gallons) 0.757 0.765 0.902 1.133 Education Number of schools a 3 3 3 3 Number of teachers 111 113 113 112 Number of students 1,305 1,420 1,433 1,370 Number of classrooms b 65 65 65 65 Sources: Various city departments. a Alternative school added for students who have not been successful in the traditional school setting in FY06 b Core classes only reported in FY11, FY12 and FY13 Data used from previous year 134 Table 20 2015 2016 2017 2018 2019 2020 553 492 611 640 640 658 15,975 16,674 10,599 13,287 13,287 16,233 725 557 567 496 496 603 27 29 29 29 29 29 1 1 1 1 1 1 1,978 1,949 1,954 2,034 2,059 1,880 107 80 109 113 92 66 27 22 23 24 24 26 12 12 12 12 10 8 171 163 138 155 138 168 5.54 6 6 6.25 6.76 6.76 0.48 1 1 1.00 1.00 1.00 4.7 2 2 2.38 0.90 2 30 25 15 8.00 10.00 15.00 6 7 7 7 7 7 93,656 96,393 101,177 96,498 90,378 98,331 412,416 446,499 382,740 403,088 400,858 285,212 840 946 821 223 988 11 27 33 23 8 25 1.071 1.401 1.453 0.963 1.656 1,464 1.815 1.983 2.431 2.058 3.176 2,501 0.895 1.185 1.000 0.951 1.236 1.011 3 3 3 3 3 3 112 112 112 115 103 126 1,393 1,408 1,325 1,342 1,319 1,219 65 65 65 65 ` 65 ` 70 135 Town of Hillsborough, North Carolina Capital Asset Statistics by Function/Program Last Ten Fiscal Years Function/Program 2011 2012 2013 2014 Police Stations 2 2 2 2 Patrol units 28 27 26 27 Fire stations 1 1 1 1 Refuse collection Collection trucks > 6 7 7 8 Other public works Streets (miles) - paved 36.15 36.15 36.15 36.15 Streets (miles) - unpaved 0.73 0.73 0.73 0.91 Streetlights 633 633 633 678 Traffic signals (all state-owned) - - Parks and recreation Acreage b 72.62 74.10 74.10 74.10 Playgrounds 4 4 4 4 Water Water mains (miles) 147.0 148.0 148.0 150.0 Fire hydrants 614 663 621 619 Storage capacity (thousands of gallons) 3,000 3,000 3,000 3,000 Wastewater Sanitary sewers (miles) 86.4 89.0 93.0 93 Treatment capacity (millions of gallons) 3.0 - 3.0 3 Stormwater Catch basins and inlets Storm sewers (miles) a 73.0 73.0 73.0 75 Area (square miles) 5.740 5.740 5.760 5.80 Sources: Various city departments. Note: No capital asset indicators are available for the general government or library function. a Storm sewer data not available. b Includes two parks owned by the Town but are located outside of the city limits. 2012 figure included private hydrants - 2013 actual number of hydrants from GIS ^ Estimated > Includes brush and leaf trucks 2009 forward 136 Table 21 2015 2016 2017 2018 2019 2020 2 2 2 2 2 2 27 25 24 34 34 34 1 1 8 8 8 8 8 8 37.63 33.96 33.96 33.96 33.52 33.52 0.69 0.68 0.68 0.68 0.68 0.68 679 709 709 711 726 726 74.10 74.1 74.1 74.1 74.1 74.1 4 5 5 5 5 5 151.0 149.0 151.0 151.0 151.0 151.0 628 628 705 705 705 705 3,000 3,500 2,450 2,450 2,450 2,450 94.0 96.5 80.5 97 101.4 98.8 3.0 3.0 3.0 3.0 3.0 3.0 491 491 491 75.0 75.0 75.0 43.6 43.6 43.6 5.800 6 6 6 6.07 6.07 137 Other Disclosures 138 Town of Hillsborough, North Carolina Continuing disclosure information related to utility revenue bonds The Town presents the information in this section in accordance with its continuing disclosure obligations related to its Combined Utility Systems Revenue Bonds, Series 2018. The Water System General - Capacity and consumption. The Town's water distribution system currently consists of approximately 157 miles of water lines, five water storage tanks and four water distribution booster pump stations. The Town's average daily water consumption for calendar year 2019 was approximately 1.584 million gallons per day ("MGD"). In addition, the Town owns and operates one water treatment plant (the "Water Treatment Plant"). The Water Treatment Plant currently has a 3 MGD treatment capacity with the ability to expand up to 6 MGD. Water Rates. The Town provides water services to customers inside and outside the limits of the Town. Each utility account is charged (i) for usage of zero to 2,500 gallons, a fixed Block 1 Rate that is the same for all customers, regardless of meter size, and (ii) for usage over 2,500 gallons, a Block 2 Rate per 1,000 gallons used. It is expected that the Town's Board of Commissioners will consider proposed rate increases as part of the Town's normal budget -setting process in June 2021. Current monthly water rates are set forth below: All Customers (both non -irrigation and irrigation meters) In Town Water Block 1 In Town Water Block 2 Outside Town Water Block 1 Outside Town Water Block 2 $23.15 $9.26/1,000 gallons $45.15 $18.06/1,000 gallons The Town charges a one-time $3,864.00 water residential capital facilities fee for new development. With respect to non-residential users, the Town charges a 139 Town of Hillsborough, North Carolina water capital facilities fee based on water service tap size. The fees are set forth in the table below. See "System Development Fees" below. Size Fee 5/8" or 3/4" $ 3,864 1" 6,440 1 1/2" 12,880 2" 20,608 3" 41,216 4" 64,400 6" 128,800 8" 206,080 10" 540,960 Other Fees and Charges. The Town charges other fees for various purposes, including, but not limited to, deposits for customers, late payment fees, delinquent fees, and reconnection fees. Number of Active Customer Accounts. The following table shows the number of active water customer accounts as of June 30, 2020. Number of Number of Inside Outside Town Town Accounts Accounts 3,652 Total 2,747 6,399 As of June 30, 2020, the water system's customers were comprised of approximately 91% residential customers (including multi -family accounts) and 9% commercial customers. Major Water Customer Accounts. The following table provides information on the top ten customer accounts of the water system (by annual revenues from water charges) for the fiscal year ended June 30, 2020, the water consumption for each such customer account, the annual revenue generated by each such account and the percentage of the total annual revenues for the water system generated by each such account. 140 Town of Hillsborough, North Carolina Customer Account Percentage of Total Water Annual Water System Revenues Revenues UNC Central Utility Building $84,544 110% LHNH - Patriots Pointe 68,371 1.37 Partners, LLC Horizon Acquisitions 3 LLC 66,728 1.34 Cates Creek Apartments 65,766 1.32 UNC Hospital 64,361 1.29 Orange County 64,152 1.29 State of North Carolina 62,876 1.26 Orange County High School 50,652 1.02 Al Curt Hillsborough, LLC 47,431 0.95 Orange County Finance Dept. 38,669 0.78 Total $613,550 12.32% Note: Totals may not foot due to rounding. The Sanitary Sewer System General - Capacity and usage. The Town's sanitary sewer system provides wastewater collection, treatment and disposal. The Town operates one wastewater treatment plant (the "Wastewater Treatment Plant"), 101 miles of wastewater lines and 24 wastewater pump stations. The Wastewater Treatment Plant was originally built in 1977 as a 3.0 MGD treatment facility which discharges to the Eno River. The Wastewater Treatment Plant was upgraded in 2014, and its current treatment capacity of 3.0 MGD is sufficient to meet future needs of the Town. The current average daily treated discharge of the Wastewater Treatment Plant is 0.75 MGD. Sanitary Sewer Rates. The Town provides sanitary sewer services to residents inside and outside the limits of the Town. Each utility account is charged (i) for usage of zero to 2,500 gallons, a fixed Block 1 Rate that is the same for all customers regardless of meter size, and (ii) for usage over 2,500 gallons, a Block 2 Rate per one thousand gallons used, which is based on 100% of a customer's water consumption 141 Town of Hillsborough, North Carolina as set forth in the table below. It is expected that the Town's Board of Commissioners will consider rate increases as part of the Town's normal budget -setting process in June 2021. Current monthly sanitary sewer rates are set forth below: All Customers In Town Sewer Block 1 $34.23 In Town Sewer Block 2 $13.69/1,000 gallons Outside Town Sewer Block 1 $66.73 Outside Town Sewer Block 2 $26.69/1,000 gallons The Town charges a one-time $3,243 sewer residential unit capital facilities fee for new development. With respect to non-residential users, the Town charges a sanitary sewer capacity fee based on the water service tap size. The fees are set forth in the table below. See "System Development Fees" below. Size Fee 5/8" or 3/4" $3,243 1" 5,405 1 1/2" 10,810 2" 17,296 3" 34,592 4" 54,050 6" 108,100 8" 172,960 10" 454,020 Other Fees and Charges. The Town charges other fees for various purposes, including, but not limited to, deposits for customers, late payment fees, delinquent fees, and reconnection fees. Number of Active Customer Accounts. The following table shows the number of active sanitary sewer customer accounts as of June 30, 2020: 142 Town of Hillsborough, North Carolina Number of Inside Town Accounts 3,464 Number of Outside Town Accounts 1,244 Total 4,708 As of June 30, 2020, the sanitary sewer system's customer account mix was approximately 91% residential (including multi -family accounts) and 9% commercial and industrial. Major Sanitary Sewer Customer Accounts. The following table provides information on the top ten customer accounts of the sanitary sewer system (by annual revenues from sewer charges) for fiscal year 2020, and the percentage of total annual sanitary sewer revenues generated by each such customer account. Sewer usage is not metered. Water usage is applied to the sewer rates to calculate sewer charges. Customer Account LHNH - Patriots Pointe Partners, LLC Horizon Acquisitions 3, LLC Cates Creek Apartments UNC Hospital Orange County State of North Carolina Orange High School Al Curt Hillsborough, LLC Orange County Finance Dept. Weaver Street Market Total Note: Totals may not foot due to rounding. Annual Sanitary Sewer Revenues $101,080 98,614 97,228 95,152 94,063 92,956 74,856 70,123 57,168 51,714 $832,954 Percentage of Total Annual Sanitary Sewer Revenues 2.02% 1.97 1.95 1.90 1.88 1.86 1.50 1.40 1.14 1.04 16.66% 143 Compliance Section 144 Cherry Bekaert"° CPAs & Advisors Report of Independent Auditor on Internal Control over Financial Reporting and Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards To the Honorable Mayor and Town Council Town of Hillsborough Hillsborough, North Carolina We have audited, in accordance with the 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, the business -type activities, each major fund, and the aggregate remaining fund information of the Town of Hillsborough, North Carolina (the "Town"), as of and for the year ended June 30, 2020, and the related notes to the financial statements, which collectively comprise the Town's basic financial statements, and have issued our report thereon dated November 18, 2020. The financial statements of the Hillsborough Tourism Board and the Hillsborough Tourism and Development Authority were not audited in accordance with Government Auditing Standards. 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") as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion 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. 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 a 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. 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. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Town'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 financial statements. 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. 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 result of that testing, and not to provide an opinion on the effectiveness of the Town'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 Town's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. LLP Raleigh, North Carolina November 18, 2020