General Manager’s Discussion:

The 2005/2006 fiscal year was a very good year for the Rend Lake Conservancy District.  Efficiency improvement efforts and cost reduction programs resulted in significant financial improvements for all operating departments and District funds.

During this same period many improvements were made at the district.  These improvements were made in virtually every area of the organization from financial control and management activities to worker training and safety efforts.  Many of these changes were implemented by the new management team to correct deficiencies noted by the State Management Audit.  This audit provided a very good roadmap for creating an effective organization in the 21st century.

In addition to the savings and improvements made within the organization, the District lowered taxes for the fiscal year to pass along savings to the citizen owners of the District.  The District’s goal is to continue along the path of continual tax relief and reduce taxes in each future year.

Favorable interest rate conditions during the fiscal year allowed the District to refinance all loans and reduce interest costs for the departments.  At the same time, an increased effort to invest all cash assets in high yielding investments has significantly improved the interest earned on the District’s capital reserve savings.

District management worked closely with employees to develop a new safety culture and a new employment contract.  The result has been fair treatment, improved morale, and improved safety performance.  All areas of the organization beat the OSHA safety rates for comparable industries.  Fair treatment and safe employees are top commitments for the District now and into the future.

The future will hold many new challenges for the District including high fuel prices, rising electrical costs, redevelopment of an aging utility infrastructure, and increased competition at our recreation complex.  The District has charted a course for continuous improvement and is confident that we can work with our employees and the communities to overcome these challenges in the future.

Intercity Water System Review:

The District completed another year of operations without the need for a rate increase despite annual inflation costs and higher energy prices.  Keeping costs low for our customers remains one of the District’s highest priorities

Financial savings efforts continued through the year to set aside money for expansion and upgrade of the water system. Over 3 million dollars were set aside during the year.  This aggressive savings plan will help the District make the needed improvements while continuing to minimize rates.

The District’s aggressive efficiency improvement and cost reduction efforts resulted in keeping expenditures $200,000 less than allowed by the annual budget.  During this same period, the District also delivered revenues that were almost $100,000 higher than that budgeted for the year.

The District achieved this financial success while also making significant improvements and plans for the water system. Major accomplishments for the year included:

• Completion of a water capacity study to determine the future drinking water capacity needed to serve the region.  This study culminated in a plan to increase capacity from 20 million gallons per day to 27 million gallons per day. 

• Completion of a preliminary engineering design for the plant expansion to identify potential costs and select the most cost effective alternative.  Major upgrades planned as part of the preliminary design include intake structure modifications, new raw water pumps, new chemical systems, new clarifier mechanisms, new filters, a new solids lagoon, a new 3 million gallon storage reservoir, new mechanical components, and a new system control and data acquisition system.  Total cost will be approximately 22 million dollars.

• Development and implementation of a new computerized maintenance scheduling and tracking system.

• Competed for and won a 2.5 million dollar grant with the U.S. Economic Development Agency for electrical system improvements and a new backup power system for the water treatment plant. 

• Completed the Route 37 South Water Project to bring water mains and service to rural citizens between Benton and West Frankfort.

• Completed the installation of a membrane cover over the plants finished water storage reservoir.

• Modified the treatment plant’s chlorine dioxide system to improve chemical utilization and provide emergency backup capability.

Recreation Complex Review: 

The Recreation Complex as a whole achieved significant success over the last year and is confident that this will translate into a positive future.  The successes and challenges of the departments are discussed below.

Golf Course

The Golf Course had a very successful turn around year and was returned to profitability.  Golf Course revenues were Over $958,000 while operating expenses were kept to less than $803,000. 

 The financial success at the course allowed the District to start making improvements for the future.  Facility improvements include

• The purchase of 100 new 2006 Club Car golf carts.

• Driving range improvements.

• Application of an asphalt sealer on the Golf Course parking lot.

Restaurant

Although financial improvements were achieved at the restaurant, the District could not make the restaurant profitable as a stand alone business.  The remote location and the intense competition in the Marion and Mt. Vernon areas continue to create significant financial challenges.

To overcome these challenges, the District decided to lease the facility operations.  A lease for the facility began in Jan 2006.  Lease payments to the Recreation Complex helped to offset a small portion of the $70,000 financial loss experienced by the restaurant for the fiscal year.

Seasons Lodge and Condominiums

The Seasons Lodge and Condominiums also had a very successful year and improved profitability as compared to the previous year.  Revenues for the year were over $818,000, while operating expenses were kept below $691,000.

The financial success at the facility allowed management to start focusing on the replacement needs of the facility to help maintain the facility’s high customer satisfaction level. The primary focus was the installation of new wallpaper for hallways and rooms.  Additional wallpaper improvements will be made in future years to further improve the facility.

Rend Lake Shooting Complex

The Rend Lake Shooting Complex experienced a drastic turnaround from previous years and achieved profitability for the first time.  Revenues for the year were over $281,000 while expenses were kept below $279,000.

Although the site has made much progress, challenges remain due to the State of Illinois use of millions of dollars of tax money to build and operate a world class shooting complex in Sparta.  Since this site is expected to take away the most profitable shooting events from the Rend Lake facility, no capital money will be spent on the facility until future uncertainty is resolved.

Sewage Department Review:

The sewer department showed improvements but continues to present a financial challenge for the District.  A rate increase was approved for sewer customers for the first time in many years.  The rate increase helped increase revenues to approximately $303,000. Operating expenses during this period were approximately $215,000.  Although the facility achieved positive net operating receipts, loan commitments and maintenance needs will require additional financial resources in the future.

Significant accomplishments for the sewer system during this period include:

• Installation of new floating aerators at the plant.

• Design activities to replace the Big Muddy Prison lift station.

• Design activities for the construction of a new sewer collection and pumping system in Whittington.

Financial Statements:

The District’s condensed financial analysis and statements are attached for public review.  The complete document for the “Audited Financial Statements for the Year Ended April 30, 2006” are available for review at the District’s administrative offices at 11231 Marcum Branch Road, Benton, IL, 62812.

Rend Lake Conservancy District

Condensed Financial Analysis and Statements

For Year Ended April 30, 2006

MANAGEMENT’S DISCUSSION AND ANALYSIS

The Rend Lake Conservancy District’s (District) discussion and analysis is designed to identify the significant financial issues within the District, provide a summary of the District’s financial activity, discuss variances in the District’s financial position, and discuss individual fund issues and/or concerns.

This narrative overview and analysis of the financial activities of the District is for the fiscal year ended April 30, 2006. We encourage readers to consider this information in conjunction with the District’s financial statements, which follow.

The District implemented new reporting standards consistent with Governmental Accounting Standards Board Statement #34 in the fiscal year ending April 30, 2004.  Significant changes in both content and structure were evident that year; therefore, much of the information in these statements is comparable to the last two years but not readily comparable to years prior to April 30, 2004. 

USING THIS REPORT

In view of the fact that this is a new presentation compared to years ending April 30, 2003 and prior, the following chart is provided for your review:

The new financial statement’s focus is on both the District as a whole government-wide and on the major individual funds.  Both perspectives (government-wide and major fund) allow the reader to address relevant questions and enhance the District’s accountability.

OVERVIEW OF FINANCIAL STATEMENTS

This discussion and analysis is intended to serve as an introduction to the District’s basic financial statements. The District’s basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

Government-wide Financial Statements

The government-wide financial statements are designed to provide readers with a broad overview of the District’s finances. They are comprised of the Statement of Net Assets and Statement of Activities and Changes in Net Assets. 

The Statement of Net Assets presents information on all of the District’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the District is improving or deteriorating. This statement combines and consolidates governmental fund’s current financial resources with capital assets and long-term obligations.

The Statement of Activities and Changes in Net Assets presents information showing how the District’s net assets changed during the fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. Thus revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g. uncollected taxes and earned but unused vacation leave).

Both of the above financial statements have separate sections for two different types of programs or activities. These two types of activities are:

Governmental Activities - The activities in this section are mostly supported by taxes and charges for services. The governmental activities of the District include General Administration.

Enterprise (Business-Type) Activities – These functions normally are intended to recover all or a significant portion of their costs through user fees and charges to external users of goods and services. These business-type activities of the District include water, recreation and sewer.

Fund Financial Statements

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 District, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the District can be divided into two categories: governmental funds and proprietary funds.

The fund financial statements provide detail information about each of the District’s most significant funds, called Major Funds. The concept of Major Funds, and the determination of which are Major funds, was established by GASB Statement 34 and replaces the concept of combining like funds and presenting them in total. Instead, each Major Fund is presented individually.

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.

Required Supplementary Information

In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information providing a budgetary comparison statement for the general fund.

Normal Impacts

There are four basic transactions that will affect the Statement of Net Assets summary presentation.

Net Results of Activities – this can impact all classifications on the Statement of Net Assets, current assets and liabilities, long-term assets and liabilities and net assets.  For the year ended April 30, 2006, the change in net assets was $66,184 for the governmental activities and $2,910,816 for the business-type activities.

Spending Borrowed Proceeds  or Current Assets on New Capital Assets – Spending borrowed proceeds will increase capital assets and liabilities and will have no impact on net assets.  Spending current assets (cash and investments) will increase capital assets and decrease current assets.  In addition, it will increase net assets invested in capital assets, net of related debt and decrease unrestricted net assets.  Capital assets were purchased this fiscal year utilizing current assets without borrowing funds.

Reduction of Capital Assets through Depreciation – depreciation will reduce capital assets and invested in capital assets, net of debt.  Depreciation expense for the year ended April 30, 2006 was $1,486,574.

Principal Payment on Debt Secured by Capital Assets- which will (a) reduce current assets and liabilities and (b) reduce unrestricted net assets and increase invested in capital assets, net of debt.  Principal paid on notes payable during the fiscal year ending April 30, 2006 were $209,117

Statement of Activities

The following schedule condensed Statement of Activities for the year ended April 30, 2006 displays the revenues and expenses for the current fiscal year.

Overall Financial Position

Results of Operations: 

A Net Asset increase of $2,977,000 improved the financial position of the District.  Cash, cash equivalents and Investments increased by $3,818,980.  A new Cash Management System, increasing interest rates and the positive cash flow resulted in an investment income increase from $83,366 in the prior year to $385,187 in this year.  Operating revenue for the District decreased from the prior year by $208,611 but operating expenses were reduced over the previous year by $761,634 and nonoperating revenue income increased by $330,683 resulting in an $883,706 increase in Change in Net Assets over the prior year.

Property Taxes:

The District Property Tax Revenues was $561,152 or less than 5% of the Districts Revenue.  A property with a fair market value of $100,000 will be taxed approximately $3 a month by the District.  The Board reduced the Tax Levy for 2005 paid in 2006 by $42,000 or approximately 7%.  The Board reduced the Levy again for 2006 paid in 2007 by another $27,100 or 5%.

THE DISTRICT’S FUNDS

Governmental Fund

The District has only one governmental fund.  It is the Administrative Fund for the District.  The District, in an effort to implement past audit recommendations, continues to centralize the management function increasing cost in this fund.  The revenue for the Fund comes from Property Taxes ($335,867), Personal Property Replacement Tax ($59,393), Interest and Miscellaneous Income ($11,237) and Administration Fees from the other Funds ($477,600). 

Net Assets increased during the year by $66,184 which provided the Fund with sufficient cash flow until tax revenue is received in September of 2006.

Actual revenues were 107% of budgeted.  Actual expenditures were 100% of budgeted.  As taxes are reduced the other funds of the District will be required to increase their administration fee in order to continue to balance the budget in future years.

Proprietary Funds

InterCity Water

InterCity Water is comprised of a water plant and water distribution system.  During the year 32 wholesale customers purchased 4.45 billion gallons, 14 large retail customers purchased 98 million gallons and 1,050 retail customers purchased 77 million gallons.  A small increase in gallons sold accounted for an increase in sales of $172,184.  Total water sales revenues were $7,594,605.  Rates, unchanged since July 22, 2002, remain an excellent value for wholesale customers who pay as little as $1.50 and no more than $1.80 per thousand gallons according to the number of gallons purchased in a month.

Net Assets increased during the year by $2,983,414 compared to $2,518,451 for the previous year.  Net Asset increases of this size are not sustainable and have been reached in recent years because the existing plant and much of the equipment are nearing the end of their expected life cycle.  The present plant and equipment has no debt service, much of the equipment has been fully depreciated and the plant is operating at the upper range of its capacity.  The upgrade of the plant, now in the engineering stage, will consume all existing cash and investments, which currently generates investment income; will require substantial borrowing and related debt service; will increase depreciation expense because of new equipment and the plant upgrade; and the plant will operate at a lower level of capacity because a capacity increase is part of the upgrade.  Rate increases may be necessary to maintain net asset increases but are expected to be no more than the rate of inflation.  Water sales are expected to increase only moderately.  An increase in peak capacity from 20 million gallons a day to 26 million gallons a day is expected to be sufficient for the next 20 years.  

Retail water customers contribute only 4% of water sales but consume a substantially higher percentage of the maintenance, meter reading and accounting staff costs.  No definitive study has been done but it appears the cost to supply water to customers who use only the minimum is greater than the fees generated.  The next time rates are changed the minimum may need to be raised for retail customers more than the rate of inflation.

Management is currently requesting extensions of water contracts for wholesale customers to insure the District has sufficient commitments for water to support the planned expansion of capacity. The plant upgrade and expansion is expected to cost $25 to $30 million.  The electrical upgrade is expected to cost $4 million.  A federal grant will offset $2.5 million of the cost of the electrical upgrade.     

Recreation

The Recreation Fund is comprised of four departments including the Golf Course, the Lodge/Condo complex, the Shooting Complex and the undeveloped and leased property department including rent from the leased restaurant, farm rent, oil royalties and a land lease.

Net assets decreased by $6,310 which represented a dramatic turn around from a decrease of $464,656, $812,322 and $1,293,167 in the three prior years.  The improvement was attained with large decreases in expenditures while revenue decreases were moderate.

Cash flow was a positive $108,458 and the $90,000 operating loan made in the previous year was paid.  Loans on the Lodge, Condos and Golf Course were bid resulting in lower interest cost for the year.

Maintaining the Fund only with fees generated from operations will continue to be a challenge.  Some of the challenges include increasing fuel prices, a new shooting complex scheduled to open in Sparta with virtually unlimited resources and the need to maintain and upgrade facilities.  On the positive side farm rents now on cash rent instead of share cropping are up by $40,000 and are fixed for three years.  One hundred new golf carts have been purchased for arrival early in the next fiscal year and plans for a new cart barn are being developed.  The Restaurant was leased during the year creating rent income instead of operating losses.    

Sewage Treatment System

Net assets decreased by $66,288 mostly because of equipment failures at the principal pumping station.  Bids have been awarded to rebuild the pump station which will reduce maintenance cost but increase debt service.  Fees were raised twice during the year to bring revenue in line with expenses after many years without an increase.  Revenues increased by $52,430 or 22%.  One customer represented 81% of the billing. 

Currently fees are charged to eight commercial customers but approximately 100 retail users will be added to the system in the next year.  The new $1.1 million Whittington project will increase debt and related debt service.  Grants of $463,000 and $375,000 along with another promised grant of $150,000 will offset the cost of the project.  The additional 100 customers will increase maintenance, meter reading and accounting cost while providing modest revenue. 

Rate increases and equipment upgrades enabled the District to balance the budget for the next fiscal year even with the expansion of services.  Controlling cost and maintaining sufficient revenues for this the District’s smallest fund will be a challenge into the near future.  

CAPITAL ASSETS AND DEBT ADMINISTRATION

As of the year end, the District had $47,189,194 invested in a variety of capital assets, as reflected in the following schedule. 

In the fiscal year ending April 30, 2004 the District revised the manner in which it identifies capital assets.  The policy and threshold levels were altered to enable the District to conform to more appropriate accounting standards.

Debt Outstanding

As of year-end the District had outstanding notes as follows:

Sewage Treatment                      1,077,939

Golf Course                                  1,376,424

Lodge                                              1,007,786

Condos                                          1,862,726

Principal payments of $209,117 were made during the year.

FINANCIAL CONTACT

The District’s financial statements are designed to present users (citizens, taxpayers, customers, investors and creditors) with a general overview of the District’s finances and to demonstrate the District’s accountability.  If you have questions about this report or need additional information, please contact the District’s Comptroller, P.O. 907, Benton, Illinois  62812.