PUBLIC BRIEFING ON THE COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) - - PDF document

PUBLIC BRIEFING ON THE COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) FOR FISCAL YEAR 2016 Before the Committee of the Whole Council of the District of Columbia The Honorable Phil Mendelson, Chairman February 2, 2017, 9:30 a.m. Council Chambers, Room 500 Testimony of Jeffrey S. DeWitt Chief Financial Officer Government of the District of Columbia

Introduction Good morning, Chairman Mendelson and Members of the Committee of the

• Whole. I am Jeffrey S. DeWitt, Chief Financial Officer of the District of
• Columbia. I am pleased to appear before you today to report and discuss the Fiscal

Year 2016 Comprehensive Annual Financial Report (CAFR). Seated with me is Bill Slack, the District’s Controller, who will assist in answering questions. I am very pleased to report that the District’s finanacial position is the strongest in the city’s history. The positive results reflected in the FY 2016 CAFR are due to

• ur continued financial discipline and sound financial management practices.

Before I begin, I would like to recognize the hard work of agency program and financial staff who contributed to the successful management and accounting of the District’s financial resources in the past year and the completion of this

• document. I particularly would like to recognize the employees of the Office of

Financial Operations and Systems (OFOS) and the Associate Chief Financial Officers and their staffs for their outstanding performance during FY 2016. I also want to thank the City Administrator and the Inspector General for working with the Office of the Chief Financial Officer to address potential audit findings. Through our continued collaboration and focus on agency accountability, we, for

the second year in a row, were able to produce and issue the CAFR with no material weaknesses or significant deficiencies (no Yellow Book). The Mayor, District Council, agencies, and all segments of this government should be proud of the District’s FY 2016 results, the details of which are highlighted in today’s presentation.

Government of the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt, Chief Financial Officer

FY 2016 District of Columbia Comprehensive Annual Financial Report

Government of the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt, Chief Financial Officer

• Clean Audit Opinion (20th Consecutive)
• No Material Weaknesses or Significant Deficiencies

(No YELLOW BOOK for the 2nd Consecutive Year)

• Ratings for General Obligation Bonds and Income

Tax Secured Revenue Bonds remain strong

• Federally and locally mandated reserves (working

capital/liquidity) increased by $180.3 million to $1.17 Billion (56 days of operating expenses) FY 2016 CAFR Highlights

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Government of the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt, Chief Financial Officer

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Extraordinary revenues from business and sales taxes, capital gains, real property transactions, traffic fines, estate tax, and federal Medicaid reimbursements available to:

• Refill the contingency reserve (without using budget)
• Fund $105.1 million increase in required debt

reserves

• Fund 2017 budget priorities and settlements
• Increase cash reserves to eliminate short-term

borrowing and allow optimal timing for bond issuances

FY 2016 CAFR Highlights (Cont.)

Government of the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt, Chief Financial Officer

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• Expenditures from Local Source funds were $40.5

million (0.5%) below budget; O-type funds were $65.2 million (12.4%) below budget

• Pension and Retiree Health Care Trust remain well-

funded FY 2016 CAFR Highlights (Cont.)

Charges for Services Fines & Forfeits, $1.1B 8% *Other $1.9B 14% Federal Grants & Payments $1.6B 12% Medicaid $2.0B 16% Capital Grants and Contributions $0.2B 2% Property taxes $2.5B 19% Sales and Use Taxes $1.5B 11% Income and Franchise Taxes $2.4B 18%

*Note: Other includes operating grants and contributions, gross receipts taxes, other taxes, miscellaneous income and subsidy from the primary government

Total = $13.1 Billion

Where the Money Comes From- Primary Government & Component Units

Does not include Federal, Private, Housing Production Trust, General Capital Improvements, Lottery, Unemployment Compensation, and Non-major Governmental Funds

FY 2016 Actual GF Revenues = $8.2 Billion

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Where the Money Comes From – Sources of General Fund Revenues for FY 2016

(Excluding Intra-District Funds)

Property Taxes $2.4B 29.4% Sales and Use Tax $1.4B 17.0% Income and Franchise Tax $2.5B 29.9% Other $2.0B 23.7%

*Numbers may not add due to rounding.

FY 2016 Actual GF Expenditures = $7.9 Billion

Does not include Federal and Private Expenditures, Housing Production Trust, General Capital Improvements, Lottery, Unemployment Compensation, and Non-major Governmental Funds

Governmental Direction and Support $0.8B 9.6% Economic Development and Regulation $0.5B 5.9% Public Safety and Justice $1.2B 15.5% Public Education System $1.9B 24.3% Human Support Services $1.8B 23.4% Public Works $0.7B 8.8% Financing and Other $1.0B 12.5%

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Where the Money Goes – General Fund Expenditures, by Appropriation Title for FY 2016

(Excluding Intra-District Funds and Enterprise and Other Funds)

FY 2016 Underspending

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Details of FY 2016 Spending Below General Fund Budget

(Dollars in Millions)

FY 2015 General Fund Sources (Includes Local Funds, Dedicated Taxes, and O-Type)

Appropriation Title General Fund Variance % of Revised Budget

Local Source Governmental Direction and Support 7.6 1.0% Economic Development and Regulation 3.7 1.2% Public Safety and Justice 3.6 0.3% Public Education System 5.3 0.3% Human Support Services 15.1 0.8% Public Works 1.1 0.2% Finance and Other Uses 4.0 0.4% SUBTOTAL 40.5 0.5% O-Type Special Purpose Revenue 65.2 12.4%

TOTAL – General Fund Sources Underspending $105.8 1.3%

*Numbers may not add due to rounding.

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Government of the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt, Chief Financial Officer

FY 2016 Revenues

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Government of the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt, Chief Financial Officer

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• Higher business income tax receipts from record levels of profits

in 2015 ($131 million)

• Continued high levels of receipts from deed and recordation

taxes as real property market remains vibrant ($79 million)

• Strong capital gain income tax receipts due to soaring stock

market in 2015 ($51 million)

• Boost in sales tax receipts as new e-commerce entities enter the

sales tax base ($47 million)

• Higher traffic fines as automated traffic equipment (ATE) reaches

full implementation ($46 million)

• Federal Medicaid reimbursements and estate tax ($54 million)

Extraordinary Revenues

Government of the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt, Chief Financial Officer

FY 2016 Corporate Tax Receipts at Record Level

Above Long-Term Trend

($ in Millions) 50 100 150 200 250 300 350 400 450 $ millions

Corporation Franchise Tax FY 2000-2016

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Government of the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt, Chief Financial Officer

Deed Tax Receipts Down From a Year Ago but Above Long-Term Trend

($ in Millions) 100 200 300 400 500 600 $ millions

Deed Recordation and Transfer Tax Receipts: FY 2000-2016

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Government of the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt, Chief Financial Officer

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FY 2016 Capital Gains Tax Receipts Above Long-Term Trend

($ in Millions)

Long-term trend line 50 100 150 200 250 300 350 400 $ millions

Non-withholding Revenue Trend: FY 2000-2016

Government of the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt, Chief Financial Officer

Discussion of Reserve Requirements

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Comparison of Ending General Fund Balances

(Dollars in Thousands)

FY 2016 FY 2015 Difference Federally Mandated Reserves $387,065 $366,249 $20,816 Locally Mandated Reserves 778,109 618,619 159,490 Debt Service Reserves 526,392 421,304 105,088 Reserved for Future Budget 248,999 268,212 (19,213) Reserved for Settlements 12,028 60,779 (48,751) Reserved for Soccer Stadium 23,099 23,099 Set Aside for Additional WMATA 57,477 57,477 Reserved for Other Purposes 355,920 351,323 4,597 TOTAL $2,389,089 $2,167,062 $222,027

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FY 2016 Composition of General Fund Balance

(Dollars in Millions)

Total: $2.4 Billion

Already Committed Liquidity 56 Days

$387.1 16% $778.1 33% $526.4 22% $249.0 10% $12.0 1% $23.1 1% $57.5 2% $355.9 15%

Federal Local Debt Service Reserves Future Budget Settlements Soccer Stadium Additional WMATA Other Purposes

Government of the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt, Chief Financial Officer

Reserves % of Expenditure/ Budget Amount ($ in Millions) Status Emergency 2% $ 129.0 Full Contingency 4% 258.1 Full Fiscal Stabilization 2.34% 185.8 Full Cash Flow 8.33% 592.3 88% Total $1,165.2 56 days cash

Federally and Locally Mandated Reserves (Working Capital/ Liquidity)

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*Additional $95M required to meet 60 days cash

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$0 $200 $400 $600 $800 $1,000 $1,200

FY 2011 FY 2016 FY 2017 $338 $985 $1,165 $820 $250 $0

Cash Reserve Levels vs. Short-Term Borrowing

Federal and Local Cash Reserves Short-Term Borrowing

High cash reserves (liquidity) result in no short-term borrowing for cash flow purposes

(Dollars in Millions)

Government of the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt, Chief Financial Officer

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DCRB Trust Fund FY 2016 Net Position FY 2015 Net Position Percentage Variance Net Pension Asset* Police, Fire, and Teachers Pensions $6,776,580 $6,132,636 10.5% $36,880

Well-Funded Pensions and Other Post Employment Benefits

(Dollars in Thousands)

OPEB Trust Fund FY 2016 Net Position FY 2015 Net Position Percentage Variance Percentage Funded Other Post-Employment Benefits $1,197,441 $1,076,551 11.2% 120.1%

*GASB changes now require the reporting of Net Pension Assets/Liabilities; however, per the DCRB 10/1/2016 Actuarial Valuation Results the Market Value Funding Status is 103.8%. OPEB is required to follow this change in FY2017.

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Summary of the District’s Financial Position Trend in Net Position and Capital Assets 2006-2016

Increase in Net Position and Net Investment in Capital Assets are measures of strong financial health

Net Investment in Capital Assets Net Position

Government of the District of Columbia Office of the Chief Financial Officer Jeffrey S. DeWitt, Chief Financial Officer

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• Clean/Unqualified Audit Opinion
• No YELLOW BOOK Findings. No Material Weaknesses or Significant

Deficiencies

• General Obligation and Income Tax Bond Ratings remain strong
• Extraordinary revenues funded necessary settlements, future

budget priorities, debt reserves and increased cash levels to eliminate short-term borrowing in FY2017

• Federally and Locally Mandated Reserves increased to $1.17billion

(56 days of operating expenses)

• Pension and Retiree Health Care Trusts Well-Funded
• Net Position (total assets less total liabilities) and Capital Assets

(infrastructure less depreciation) increased

District Enhances Strong Financial Position

Summary FY 2016 CAFR