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McHenry audit shows clean opinion; council presses staff on reserves and TIF cashflow
Summary
City auditor Kevin Smith presented a clean, unmodified opinion for the fiscal year ending April 30, 2025, and outlined a new GASB requirement to accrue compensated absences. Councilors questioned the use and timing of unassigned general fund balances and a short-term negative cash position in the city's TIF fund.
Kevin Smith of Assessian told the City Council on Monday that the city's fiscal-year financial statements earned a clean, unmodified audit opinion. “Clean, unmodified opinion on the report, which is the best opinion you can get,” Smith said.
Smith highlighted a new accounting standard for compensated absences that requires the city to accrue earned but unused sick time; he described the change as an acceleration of liabilities already owed rather than a new expense. “Now the new standard requires you to accrue time that's earned for such a sick time ... it's salaries that you guys are gonna pay out one way or another,” Smith said.
Smith reviewed the report's key figures: governmental funds rose by about $4.6 million to roughly $30 million; the general fund had an unrestricted balance of about $25.5 million (about 10'11 months of current-year expense); and the water and sewer enterprise fund showed roughly $13 million in unrestricted balance, about 18 months of current operations.
During questions, Finance Director Carolyn Lynch said the council maintains a fund balance reserve policy and that any amount above the policy threshold would be brought to council for possible transfer to capital projects during the budget cycle. “If and when it is above the required [reserve], we will bring that balance to the city council to transfer it over to be used for capital,” Lynch said.
Councilors also asked about an internal transaction recorded as a loan from the general fund to the TIF; Lynch said the cash outflow paid Riverwalk-area capital expenses and that the TIF cash balance should be replenished as tax increment revenues recover, estimating a return to positive cash in fiscal year 2025'26 or 2026'27 depending on activity. “It's used for all the capital projects that were completed within the Riverwalk, so Miller Point, Riverwalk, etcetera. And when the TIF balance builds back up, the cash balance will be replenished,” Lynch said.
Councilors pressed staff about several special service area (SSA) items shown in the notes, including a legacy project for Hunterville that will be written off and a Lakewood SSA that will conclude this tax year. Lynch said the general fund or another city fund will most likely absorb unpaid costs associated with a deferred Hunterville project.
What happens next: the audit report and notes remain part of the public record; councilors requested routine follow-up information during the budget process on potential transfers of excess reserves to capital projects and on the timing of TIF reimbursements.
Provenance: topicintro block_6 ("We have Kevin Smith from Assessian" 00:01:07); topfinish block_33 (Q&A and closing remarks 00:11:35).
