REND LAKE CONSERVANCY DISTRICT

MANAGEMENT’S DISCUSSION AND ANALYSIS

FISCAL YEAR ENDING APRIL 30, 2009

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, 2009. 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.

USING THIS REPORT

The following chart is provided for your review:

The 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 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 Inter-City Water, Recreation and Sewer Treatment.

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. All of the District’s funds are considered major funds.

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. In this fiscal year the change in net assets was $74,388 for the governmental activities and $1,964,941 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 and $4,110,155 of borrowed funds.

Reduction of Capital Assets through Depreciation – Depreciation will reduce capital assets and invested in capital assets, net of debt. Depreciation expense in this fiscal year was $1,760,016.

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 in this fiscal year was $248,175.

Statement of Activities

The following schedule condensed Statement of Activities for the fiscal year ended April 30, 2009 displays the revenues and expenses for the current fiscal year.

OVERALL FINANCIAL POSITION

Results of Operations

Net Asset increases of $2,039,330 in this fiscal year and $5,320,202 in the prior fiscal year continue to improve the financial position of the District. Those increases included grant income in both years. Without the grant income the increases would have been $1,843,860 this year and $2,942,303 last year. Cash, cash equivalents and investments decreased by $1,256,299 because capital projects are not being funded fully by loans. Investment income decreased from $732,751 last year to $404,035 this year because of dramatically lower interest rates and declining cash balances. Compared to the prior year operating revenue for the Enterprise Funds decreased by $2,701,368 ($518,939 excluding grant income), operating expenses increased by $262,050 and non-operating revenue decreased by $311,508 resulting in a decrease in Change in Net Assets in the Enterprise Funds of $3,274,925 compared to the prior year.

Property Taxes

The District’s property tax revenue in the fiscal year was $500,180, only 4.5% of the District’s total revenue. On the most recent levy the District tax for a property with a fair market value of $100,000 amounted to only $2.41 a month. The tax levy of 2004 payable in 2005 was $571,000. The Board of Trustees has reduced the levy two of the last three years. The levy in 2008 payable in 2009 is $490,000.

THE DISTRICT’S FUNDS

Governmental Fund

The District has only one governmental fund. It is the administrative fund for the District. The revenue for the fund comes from Property Taxes ($367,614), Personal Property Replacement Tax ($81,902), Interest and Miscellaneous Income ($8,990) and Administration Fees from the other funds ($487,200).

Net Assets increased during the fiscal year by $74,388. Actual revenues were 103% of budgeted. Actual expenditures were 95% of budgeted. An increase in net assets was achieved in the year even with the reduction in management fees.

Proprietary Funds

Inter-City Water

Inter-City Water is comprised of a water plant and water distribution system. During the year, 34 wholesale customers purchased 4,179,262,916 gallons at an average price of $1.59 per thousand gallons. Approximately 1,200 retail customers purchased 171,961,934 gallons at an average price of $3.29 per thousand gallons. Sales in the year were down from the prior year by 247 million gallons and $393,000. Rates, unchanged since July 22, 2002, remained an excellent value for municipal customers who paid as little as $1.50 and no more than $1.82 per thousand gallons according to the number of gallons purchased in a month and whether the customer is in or out of the taxing District.

Net Assets increased during the fiscal year by $1,966,980 compared to $4,771,238 in the prior fiscal year. Grant income accounted for $124,624 of the increase in this fiscal year and $2,001,866 of the increase in the last fiscal year. Net Asset increases of this size are not expected to continue having been reached in recent fiscal years because the existing plant and much of the equipment are nearing the end of their expected life cycle. The present plant and equipment have no debt service, much of the equipment has been fully depreciated and the plant is operating at the upper range of its capacity. The electrical upgrade was completed in the fiscal year, increasing depreciation for the year. The plant upgrade/expansion, now approximately 50 % complete, will continue to consume existing cash and investments, will require substantial borrowing and related debt service and will in subsequent years increase depreciation expense. The plant will also be operating at a lower level of capacity because a capacity increase is part of the upgrade. The addition of a new large customer, Marion, IL, will offset some of the additional cost with new revenue. Rate increases of less than 3% per year are in place for years beginning May 1^st of 2009, 2010, 2011 and 2012 to maintain the financial integrity of the Fund. Water sales are expected to increase only moderately except for the addition of Marion. Increasing peak capacity of the plant from 20 million gallons a day to 27 million gallons a day was originally expected to be sufficient for 20 to 40 years, but the addition of Marion as a customer will reduce the probable time before another expansion is needed.

A rate study done in the past year established that retail water customer rates were below the cost incurred to serve them. A rate and minimum increase of approximately 7% was implemented on May 1, 2008 to bring rates closer to cost. Additional increases will be implemented, on May 1^st of each of the next four years, of 2% to 2.5%.

Bids for the Marion project have now been awarded. The accepted bid on the twenty four inch water line from Johnston City to the Marion City limits was $2,171,907 and the accepted bid on the one million gallon water storage tank was $853,580. The upgrade to the Johnston City and West Frankfort pump stations has not yet been bid but is expected to cost $500,000. A federal EDA grant will cover $1,621,400 of the cost. Expenditures to date on the project total $283,871. Expenditures to date on the water plant expansion/upgrade total $12,040,409. Expenditures to date on the Christopher water tower painting project now total $144,526. These projects have been funded with cash and a draw down on the EPA loan of $4,110,155.

Recreation

The Recreation Fund is comprised of three departments including the Golf Course and the Lodge/Condo complex, which provide recreation opportunities and promote tourism in the area, and Recreation Central/Leasing, which provides income and recreation opportunities through the leasing of the restaurant, shooting complex, farm land, apartment land and oil royalties.

Net assets decreased by $18,544, after increases in the last two years of $27,439 and $145,657. It would have been the third year of increases except for the need to establish a reserve for bad debts of $38,000 to cover possible write downs of receivables.

Cash flow was a positive for the fourth year enabling the fund to continue improvements and catch up on maintenance. It is difficult to predict how the economic slow down will affect golf and lodging revenues. Lease income should remain constant as farm income increases while other rents and royalties decline.

Sewage Treatment System

Net assets increased by $16,505 with the help of $57,667 in grant income for the Whittington project. Absent the grant, not available for operating expenses, net assets would have decreased by $41,162. Rate increases have stabilized the fund, providing positive cash flow, but revenue is still not sufficient to cover depreciation. The Whittington project is now complete adding approximately 100 retail customers to the system. Currently the fund has seven commercial customers in the vicinity of Rend Lake. One customer represents 74% of total billing.

CAPITAL ASSETS AND DEBT ADMINISTRATION

As of year-end, the District had $54,241,981 invested in a variety of capital assets and $12,468,807 invested in projects uncompleted, 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 959,823

Golf Course 1,211,282

Lodge 907,883

Condos 1,769,157

Sewage Pump Station 126,416

Whittington Bonds 330,000

Golf Cart 77,061

ILEPA 4,110,155

Principal payments of $248,175 were made during the fiscal year. New loan proceeds received during the year were $4,110,155.

FINANCIAL CONTACT

The District’s financial statements are designed to present users (citizens, taxpayers, customers 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.