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  • 1. Washington State Auditor’s Office Financial Statements Audit Report City of Des Moines King County Audit Period January 1, 2006 through December 31, 2006 Report No. 74152 Issue Date March 17, 2008
  • 2. Washington State Auditor Brian Sonntag March 17, 2008 Council City of Des Moines Des Moines, Washington Report on Financial Statements Please find attached our report on the City of Des Moines’ financial statements. We are issuing this report in order to provide information on the City’s financial condition. In addition to this work, we look at other areas of our audit client’s operations for compliance with state laws and regulations. The results of that audit will be included in a separately issued accountability report. Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 (866) 902-3900 TDD Relay (800) 833-6388 FAX (360) 753-0646 http://www.sao.wa.gov
  • 3. Table of Contents City of Des Moines King County January 1, 2006 through December 31, 2006 Schedule of Audit Findings and Responses ................................................................................................. 1 Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards ........................................ 5 Independent Auditor’s Report on Financial Statements ............................................................................... 7 Financial Section........................................................................................................................................... 9
  • 4. Schedule of Audit Findings and Responses City of Des Moines King County January 1, 2006 through December 31, 2006 1. The City lacks adequate internal controls over the preparation of its financial statements. Background City management, the state Legislature, state and federal agencies and bondholders rely on the information included in financial statements and reports to make decisions. It is the responsibility of City management to design and follow internal controls that provide reasonable assurance regarding the reliability of financial reporting. Controls must ensure that financial data is reliably authorized, processed and reported. Our audit identified a significant deficiency in controls that adversely affects the City’s ability to produce reliable financial statements. Government Auditing Standards, prescribed by the Comptroller General of the United States, require the auditor to communicate significant deficiencies, as defined below in the Applicable Laws and Regulations section, as a finding. Description of Condition We identified the following deficiencies in internal controls over financial reporting that, when taken together, represent a significant deficiency: • The City does not have policies and procedures in place to ensure its annual report is prepared and filed by the required deadline. This concern has been identified in previous audits. • Annual reports were compiled by one individual without adequate management oversight. Upon completion of the City’s annual report, no independent review was performed by City management to detect material errors prior to submitting final financial statements for audit. We were unable to identify compensating controls for the weaknesses described above. Cause of Condition The City has not placed adequate emphasis on producing timely financial statements. In addition, the City’s review process was not adequate to detect errors in the financial statements and schedules. Effect of Condition The annual financial report for 2006 was not submitted to the State Auditor's Office by the required deadline of 150 days after the close of the fiscal year (May 31, 2007), as prescribed by state law . The City’s financial statements were not completed until November 2007. ____________________________________________________________________________________________________________ Washington State Auditor's Office 1
  • 5. Not having timely and accurate financial reports limits the access to financial information used by City officials, the public, state and federal agencies and other interested parties. In addition, not having a complete set of financial statements can delay or hinder the audit process and increase audit costs. The City’s financial information contained errors that were not detected by City management. During our review of the City’s financial statements, we found the following errors in the original electronic financial statements we received for audit. These errors were subsequently corrected by the City. • The Municipal Capital Improvement Fund on the Statement of Revenues, Expenditures and Changes in Fund Balances was not visible due to a hidden column in the Excel spreadsheet provided to the auditor. Had the auditor not identified this issue, it would have resulted in a major fund being unreported on the previously mentioned statement in the final published financial report. Additionally, the following immaterial misstatement was noted: • Other Receivables of $17,758 were not reported in the General Fund because the financial statement spreadsheet did not properly link to the City’s financial data from its software system. We also identified several other immaterial misstatements that were corrected on the final financial statements. The deficiencies in internal controls make it reasonably possible that serious misstatements could continue to occur and not be prevented or detected by the City in future years. Despite these internal control issues and noted errors, the City ultimately provided financial statements upon which we are issuing an unqualified opinion. Recommendation We recommend City perform the following: • Establish and follow internal control procedures that include a review of the financial statements after final preparation to ensure the accurate preparation of the financial statements and related schedules. • Provide training to City personnel to ensure they have an adequate understanding of the financial reporting requirements. • Establish policies and procedures in order to comply with state reporting requirements by preparing and filing annual reports by the required deadline. City’s Response The City agrees that the financial statements are not prepared timely to be filed within the deadline of 150 days after the close of the fiscal year as prescribed by state law. A schedule for preparation of the financial statements is undertaken each year, but inadequate qualified finance staffing levels due to revenue constraints and other priorities have contributed to the delay in the preparation of the financial statements each year. The City plans to make preparation of the 2007 financial statements and timely submittal a priority for the year 2008. A work schedule has been prepared for the preparation of the 2007 financial statements with target dates for completion. ____________________________________________________________________________________________________________ Washington State Auditor's Office 2
  • 6. The financial statements were prepared by the Finance Director, a Certified Public Accountant, with over 17 years of experience preparing government financial statements. The City acknowledges that the Finance Director as preparer did not have adequate time to review the financial statements prior to distributing to the State Auditors. While no material errors were detected, the City agrees that the functions of preparer and reviewer be performed by more than one individual. The City has evaluated the cost vs. benefit of establishing internal controls over the preparation of financial statements in accordance with GAAP, and determined that it is in the best interests of the City to delegate responsibility of preparation of the financial statements to the Finance Operations Manager, with oversight and review of the draft financial statements by the Finance Director. The Finance Operations Manager has previously attended courses on advanced governmental accounting sponsored by the Government Finance Officers Association and has an adequate understanding of the financial reporting requirements. The City’s financial statements are Excel worksheets linking to financial data downloaded from the City’s financial system software. The Finance Director reclassified other receivables separately from customer receivables and, as a result, the link to the financial data was not updated for other receivables and caused it to be omitted on the General Fund’s Balance Sheet. The City will plan accordingly to meet the requirements of state law in completing and filing the financial statements within 150 days of the close of the fiscal year, and to implement a review process of the financial statements to ensure accurate financial statements are prepared. Auditor’s Remarks We thank City officials for the assistance we received during the audit. Applicable Laws and Regulations RCW 43.09.200 states: The state auditor shall formulate, prescribe, and install a system of accounting and reporting for all local governments, which shall be uniform for every public institution, and every public office, and every public account of the same class. The system shall exhibit true accounts and detailed statements of funds collected, received, and expended for account of the public for any purpose whatever, and by all public officers, employees, and other persons. The accounts shall show the receipt, use, and disposition of all public funds properly, and the income, if any, derived therefrom; all sources of public income, and the amounts due and received from each source; all receipts, vouchers, and other documents kept, or required to be kept, necessary to isolate and prove the validity of every transaction; all statements and reports made or required to be made, for the internal administration of the office to which they pertain; and all reports published or required to be published, for the information of the people regarding any and all details of the financial administration of public affairs. RCW 43.09.230 states: The state auditor shall require from every local government financial reports covering the full period of each fiscal year, in accordance with the forms and methods prescribed by the state auditor, which shall be uniform for all accounts of the same class. Such reports shall be prepared, certified, and filed with the state auditor within one hundred fifty days after the close of each fiscal year. ____________________________________________________________________________________________________________ Washington State Auditor's Office 3
  • 7. The reports shall contain accurate statements, in summarized form, of all collections made, or receipts received, by the officers from all sources; all accounts due the public treasury, but not collected; and all expenditures for every purpose, and by what authority authorized; and also: (1) A statement of all costs of ownership and operation, and of all income, of each and every public service industry owned and operated by a local government; (2) a statement of the entire public debt of every local government, to which power has been delegated by the state to create a public debt, showing the purpose for which each item of the debt was created, and the provisions made for the payment thereof; (3) a classified statement of all receipts and expenditures by any public institution; and (4) a statement of all expenditures for labor relations consultants, with the identification of each consultant, compensation, and the terms and conditions of each agreement or arrangement; together with such other information as may be required by the state auditor. The reports shall be certified as to their correctness by the state auditor, the state auditor's deputies, or other person legally authorized to make such certification. Their substance shall be published in an annual volume of comparative statistics at the expense of the state as a public document. Budget Accounting and Reporting System (BARS) Manual – Part 3, Accounting, Chapter 1, Accounting Principles and General Procedures, Section B, Internal Control, states in part: Internal control is a management process for keeping an entity on course in achieving its business objectives, as adopted by the governing body. This management control system should ensure that resources are guarded against waste, loss and misuse; that reliable data is obtained, maintained, and fairly disclosed in financial statement and other reports; and resource use is consistent with laws, regulations and policies. Each entity is responsible for establishing and maintaining an effective system of internal control throughout their government. Government Auditing Standards, January 2007 Revision – Section 5.11, states in part: For all financial audits, auditors should report the following deficiencies in internal control: a. Significant deficiency: a deficiency in internal control, or combination of deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is a more than remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected. b. Material weakness: a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected . . . . ____________________________________________________________________________________________________________ Washington State Auditor's Office 4
  • 8. Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards City of Des Moines King County January 1, 2006 through December 31, 2006 Council City of Des Moines Des Moines, Washington We have audited the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Des Moines, King County, Washington, as of and for the year ended December 31, 2006, which collectively comprise the City‘s basic financial statements, and have issued our report thereon dated January 18, 2008. During the year ended December 31, 2006, the City implemented Governmental Accounting Standards Board Statement 46, Net Assets Restricted by Enabling Legislation. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit, we considered the City’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified certain deficiencies involving the internal control over financial reporting that we consider to be significant deficiencies. A control deficiency 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 misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the City's ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City's financial statements that is more than inconsequential will not be prevented or detected by the City's internal control over financial reporting. We consider the deficiencies described in the accompanying Schedule of Audit Findings and Responses to be significant deficiencies in internal control over financial reporting, and are reported as Finding 1. ____________________________________________________________________________________________________________ Washington State Auditor's Office 5
  • 9. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the City's internal control. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in the internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, we believe that none of the significant deficiencies described above is a material weakness. COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the City’s financial statements are free of material misstatement, we performed tests of the City’s compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. 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. This report is intended for the information and use of management and the Council. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR January 18, 2008 ____________________________________________________________________________________________________________ Washington State Auditor's Office 6
  • 10. Independent Auditor’s Report on Financial Statements City of Des Moines King County January 1, 2006 through December 31, 2006 Council City of Des Moines Des Moines, Washington We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Des Moines, King County, Washington, as of and for the year ended December 31, 2006, which collectively comprise the City’s basic financial statements as listed on page 9. These financial statements are the responsibility of the City’s management. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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, each major fund and the aggregate remaining fund information of the City of Des Moines, as of December 31, 2006, and the respective changes in financial position and, where applicable, cash flows thereof, and the respective budgetary comparison for the General, Street and Arterial Street funds, for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 1, during the year ended December 31, 2006, the City implemented Governmental Accounting Standards Board Statement 46, Net Assets Restricted by Enabling Legislation. In accordance with Government Auditing Standards, we have also issued our report on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The management’s discussion and analysis on pages 10 through 19 is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of ____________________________________________________________________________________________________________ Washington State Auditor's Office 7
  • 11. management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. BRIAN SONNTAG, CGFM STATE AUDITOR January 18, 2008 ____________________________________________________________________________________________________________ Washington State Auditor's Office 8
  • 12. Financial Section City of Des Moines King County January 1, 2006 through December 31, 2006 REQUIRED SUPPLEMENTAL INFORMATION Management’s Discussion and Analysis – 2006 BASIC FINANCIAL STATEMENTS Statement of Net Assets – 2006 Statement of Activities – 2006 Balance Sheet – 2006 Reconciliation to the Balance Sheet to the Statement of Net Assets – Governmental Funds – 2006 Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds – 2006 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities – 2006 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget (GAAP Basis) and Actual – General Fund – 2006 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget (GAAP Basis) and Actual – Street Fund – 2006 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget (GAAP Basis) and Actual – Arterial Street Fund – 2006 Statement of Net Assets – Proprietary Funds – 2006 Statement of Revenues, Expenses and Changes in Net Assets – Proprietary Funds – 2006 Statement of Cash Flows – Proprietary Funds – 2006 Notes to the Financial Statements – 2006 ____________________________________________________________________________________________________________ Washington State Auditor's Office 9
  • 13. CITY OF DES MOINES, WASHINGTON Management’s Discussion and Analysis CITY OF DES MOINES MANAGEMENT’S DISCUSSION AND ANALYSIS For the Year Ended December 31, 2006 The management discussion and analysis section of this report provides a narrative overall review of the City of Des Moines’s (the “City”) financial performance for the fiscal year ended December 31, 2006. The intent of this discussion and analysis is to assist the reader in focusing on significant financial issues and trends impacting the current financial activities of the City and should be read in conjunction with the independent auditor’s report, basic financial statements, and notes to the financial statements. FINANCIAL HIGHLIGHTS • Net assets, the amount by which total assets exceed total liabilities, equal $155.0 million. Of this amount, $143.3 million, or 92.5%, is invested in capital assets such as land, infrastructure, buildings, equipment, and other improvements. The remaining net assets of $11.7 million are available for debt service, capital projects, repair and replacement reserves, and to meet the government’s ongoing activities and obligations. • The government’s net assets increased by $1.7 million in 2006. Government activities provided $1.05 million or 61% with the remainder being provided by the business-type activities. • As of the close of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $8,337,645. Approximately 99.9% of this total amount, or $8,331,733, is available for spending at the government’s discretion. • At the end of the current fiscal year, unreserved fund balance for the general fund was $916,021, or 6.5% of total general fund expenditures. • The City’s total debt decreased by $1,185,654. Debt principal retirements during 2006 totaled $ 1,332,121. A contract for the leasing of citywide copiers was implemented March 2006 and recognized as a capital lease totaling $50,118. The remainder of the long-term debt activity primarily relates to compensated absences. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City of Des Moines’s basic financial statements. The basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. The first two statements, Statement of Net Assets and Statement of Activities, comprise the government- wide financial statements. These statements provide both long-term and short-term information about the City’s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the city government, reporting the City’s operations in more detail than the government-wide statements. These statements are presented with a focus on major funds. All other nonmajor funds are presented in total in one column. The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. ____________________________________________________________________________________________________________ Washington State Auditor's Office 10
  • 14. CITY OF DES MOINES, WASHINGTON Management’s Discussion and Analysis Figure A-1 provides a summary of the major features of the City’s financial statements, including the portion of the City government they cover and the types of information they contain. The remainder of this overview section of management’s discussion and analysis explains the structure and contents of each of the statements. Figure A-1 Major Features of the City of Des Moines's Governm ent-w ide and Fund Financial Statem ents Fund Statem ents Governm ent-Wide Statem ents Governm ental Funds Proprietary Funds Scope Entire City government The activities of the City that Activities the City operates are not proprietary, such as similar to private police, public w orks, and businesses: Marina and the parks Surface Water Management Utility Required financial ●Statement of net assets ●Balance sheet ●Statement of net assets Statements ●Statement of activities ●Statement of revenues, ●Statement of revenues, expenditures, and expenses, and changes changes in fund balances in net assets ●Statement of cash flow s Accounting basis and Accrual accounting and Modified accrual accounting Accrual accounting and measurement focus economic resources focus and current financial economic resources focus resources focus Type of asset/liability All assets and liabilities, Only assets expected to be All assets and liabilities, information both financial and capital, used up and liabilities that both financial and capital, and short-term and long- come due during the year or and short-term and long- term soon thereafter; no capital term assets included Type of inflow /outflow All revenues and expenses Revenues for w hich cash is All revenues and expenses information during year, regardless of received during or soon during year, regardless of w hen cash is received or after the end of the year; w hen cash is received or paid expenditures w hen goods paid or services have been received and payment is due during the year or soon thereafter Government-wide Financial Statements The government-wide financial statements report information about the City as a whole using accounting methods similar to those used by private-sector companies. The government-wide financial statements only include activities of the City of Des Moines, Washington. The City has no component units or entities over which it exercises influence over operations or financial control or accountability. The statement of net assets includes all of the City funds’ assets and liabilities. The difference between assets and liabilities is reported as net assets. All of the current year’s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government-wide statements report the City’s net assets and how they have changed. Overtime, increases or decreases in net assets provide a measure of the financial position of the City. The change in net assets provides an indication of whether the City’s financial health is improving or deteriorating. ____________________________________________________________________________________________________________ Washington State Auditor's Office 11
  • 15. CITY OF DES MOINES, WASHINGTON Management’s Discussion and Analysis Governmental activities include most of the City’s basic services such as public safety, engineering, public works, and building regulation (physical environment and transportation), community land use planning (economic environment), human services (mental and physical health), culture and recreation, and general administration. These activities are primarily supported by taxes, intergovernmental revenues, building permits, and plan review fees. Business-type activities are financed primarily from user fees and charges. The Marina and Surface Water Management Utility are included under this category. Fund Financial Statements Traditional users of governmental financial statements will find the Fund Financial Statements presentation familiar. However, the focus for these presentations is on major funds, rather than fund types. A fund is an accounting device for grouping related accounts used to maintain control over resources that are segregated for specific activities or objectives. Some funds are required by State law and by bond covenants. The City Council establishes other funds to control and manage money for particular purposes. All of the funds of the City can be divided into two categories: governmental funds and proprietary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements provide a short-term view focusing on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s ability to finance the City’s programs in the near future. Because the focus of the governmental funds is short-term versus long-term, we have provided additional information that explains the differences between the government-wide financial statements and the fund financial statements. This additional information is provided in a reconciliation format on both the governmental balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances. The City of Des Moines’s maintains seventeen individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund, Street Fund, Arterial Street Fund, and Municipal Capital Improvements Fund. The General Fund, Arterial Street Fund, and Municipal Capital Improvements Fund are major funds based on the criteria established by GASB Statement No. 34. The Street Fund does not meet the criteria for a major fund but is shown separately at the discretion of the City. All remaining nonmajor governmental funds’ data are combined into a single, aggregated presentation. The City of Des Moines adopts an annual appropriated budget for its major funds: General Fund, Street Fund, Arterial Street Fund, and Municipal Capital Improvements Fund. Budget comparison statements have been provided for these funds to demonstrate budgetary compliance. Proprietary Funds. The City of Des Moines maintains two different types of proprietary funds. Enterprise funds are use to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its Marina and Surface Water Management Utility. Internal service funds represent an accounting device used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for its equipment rental operations and equipment replacement, computer operations and equipment and software replacement, self-insurance programs, and unemployment ____________________________________________________________________________________________________________ Washington State Auditor's Office 12
  • 16. CITY OF DES MOINES, WASHINGTON Management’s Discussion and Analysis compensation reserves. Because internal service funds predominantly benefit governmental rather than business-type activities, they have been included within governmental activities in the government-wide financial statements. Proprietary fund financial statements provide the same type of information as the government-wide financial statements, but in greater detail. The internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. 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. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net Assets. As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. For the City of Des Moines, total assets exceeded liabilities by $155,023,521 at December 31, 2006. Table A-1 displays the City’s net assets for the current fiscal year. Table A-1 City of Des Moines's Net Assets Governmental Business-type Activities Activities Total 2006 2005 2006 2005 2006 2005 Current and other assets $ 13,273,706 $ 12,542,337 $ 5,604,510 $ 6,224,499 $ 18,878,216 $ 18,766,836 Capital assets 129,587,749 129,908,978 18,953,366 18,234,414 148,541,115 148,143,392 Total assets 142,861,455 142,451,315 24,557,876 24,458,913 167,419,331 166,910,228 Long-term debt outstanding 4,874,751 5,596,123 4,320,968 4,785,250 9,195,719 10,381,373 Other liabilities 2,500,245 2,423,136 699,846 716,254 3,200,091 3,139,390 Total liabilities 7,374,996 8,019,259 5,020,814 5,501,504 12,395,810 13,520,763 Net assets Invested in capital assets, net of related debt 126,900,100 126,391,399 16,419,218 15,343,349 143,319,318 141,734,748 Restricted 1,429,888 1,390,679 2,406,683 2,896,926 3,836,571 4,287,605 Unrestricted 7,156,471 6,649,978 711,161 717,134 7,867,632 7,367,112 Total net assets $ 135,486,459 $ 134,432,056 $ 19,537,062 $ 18,957,409 $ 155,023,521 $ 153,389,465 The largest portion of the City’s net assets (92.5 percent) reflects its investment in capital assets (e.g., land, infrastructure, buildings, machinery and equipment) less any related outstanding debt to acquire those assets. A portion of the City’s net assets (2.5 percent) represents resources that are subject to constitutional or external restrictions on how they may be used. The remaining balance of unrestricted net assets may be used to meet the City’s ongoing obligations to citizens and creditors. ____________________________________________________________________________________________________________ Washington State Auditor's Office 13
  • 17. CITY OF DES MOINES, WASHINGTON Management’s Discussion and Analysis Changes in Net Assets. Governmental activities increased the City of Des Moines’s net assets by $1,054,403, thereby accounting for 61 percent of the total growth in the net assets of the City. Key elements of this increase are provided in Table A-2. Table A-2 City of Des Moines's Changes in Net Assets Governmental Business-type Activities Activities Total 2006 2005 2006 2005 2006 2005 Revenues: Program revenues: Charges for services $ 3,458,727 $ 3,849,816 $ 4,912,367 $ 4,793,641 8,371,094 $ 8,643,457 Operating grants and contributions 1,352,744 1,154,170 3,698 2,375 1,356,442 1,156,545 Capital grants and contributions 711,690 2,896,506 457,269 156,329 1,168,959 3,052,835 General revenues: Property taxes 3,392,392 3,246,773 - - 3,392,392 3,246,773 Retail sales and use taxes 2,586,570 2,389,364 - - 2,586,570 2,389,364 Business taxes 3,878,935 3,693,593 - - 3,878,935 3,693,593 Other taxes 1,490,638 1,706,870 - - 1,490,638 1,706,870 State entitlements 451,778 471,818 - - 451,778 471,818 Unrestricted investment earnings 465,823 176,561 246,875 166,802 712,698 343,363 Equity in income of joint venture 13,753 (2,959) - - 13,753 (2,959) Gain on sale of capital assets 16,633 26,703 - - 16,633 26,703 Loss on disposal of capital assets - - - - - - Miscellaneous 76,473 56,294 (61,190) (73,454) 15,283 (17,160) Total Revenues 17,896,156 19,665,509 5,559,019 5,045,693 23,455,175 24,711,202 Program expenses: General government 2,000,133 1,730,293 - - 2,000,133 1,730,293 Public safety 7,605,119 7,163,230 - - 7,605,119 7,163,230 Physical environment 1,119,453 886,697 - - 1,119,453 886,697 Transportation 3,129,456 3,192,606 - - 3,129,456 3,192,606 Economic environment 589,277 714,046 - - 589,277 714,046 Mental and physical health 329,693 319,887 - - 329,693 319,887 Culture and recreation 2,196,579 2,142,255 - - 2,196,579 2,142,255 Interest on long-term debt 146,713 181,006 - - 146,713 181,006 Marina - - 3,389,736 3,146,065 3,389,736 3,146,065 Surface Water Utility - - 1,226,098 1,218,386 1,226,098 1,218,386 Total Expenses 17,116,423 16,330,020 4,615,834 4,364,451 21,732,257 20,694,471 Increase (decrease) in net assets before special items and transfers 779,733 3,335,489 943,185 681,242 1,722,918 4,016,731 Special item: insurance recoveries 703 20,000 - 12,532 703 32,532 Transfers 273,967 25,283 (273,967) (25,283) - - Increase (decrease) in net assets $ 1,054,403 $ 3,380,772 $ 669,218 $ 668,491 $ 1,723,621 $ 4,049,263 Property and other taxes total $11,348,535 and represent 48.4 percent of the total revenues of the City. The other major revenue sources are charges for services and operating and capital grants and contributions. Combined, these revenue sources total $10,896,495, or 46.5 percent of the City’s total revenues. Figure A-2 provides the percentage distribution of revenue sources for the City. ____________________________________________________________________________________________________________ Washington State Auditor's Office 14
  • 18. CITY OF DES MOINES, WASHINGTON Management’s Discussion and Analysis The City’s expenses cover a range of services, with about 35 percent related to public safety. Figure A-3 provides the percentage allocation of functional expenses for the City. Figure A-2 Figure A-3 Capital Sources of Revenue Int erest on LT Functional Expenses General Grants Debt Government Other Property 5% 2% 9% 3% Taxes Operating 14% Culture & Economic Grants Recreat ion Environment 6% 25% 3% Sales Taxes 11% M ental & Charges for Physical Health Transportat'n Services 1% 14% 36% Other Taxes 23% Physical State Environment Public Safety Entitlements 11% 35% 2% Governmental activities. As stated, governmental activities account for 61 percent of the total growth in net assets for the City. Key elements of this increase are as follows. • Growth in property taxes, retail sales and use taxes, and business taxes. • Building permit and plan review fees related to new development. • Unrestricted investment interest earnings. Business-type activities. Business-type activities increased the City of Des Moines’s net assets by $669,218, accounting for 39 percent of the total growth in the City’s net assets. Key elements of this increase are as follows: • Net operating income of $503,094 less non-operating expense of $17,178 account for $485,916 of the increase. • Transfers out of $273,967 related to the Marine View Drive Bridge Culvert Replacement project. • Capital contributions of $457,269 account for the remainder of the net change. ____________________________________________________________________________________________________________ Washington State Auditor's Office 15
  • 19. CITY OF DES MOINES, WASHINGTON Management’s Discussion and Analysis Figure A-4 provides the elements comprising the sources of revenues in comparison to the functional expenses for the business-type activities of the City. Figure A-4 Business-type Activities Program Revenues and Expenses $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- Revenues Expenses Revenues Expenses Marina Surface Water Utility REVENUES EXPENSES Charges for Services Personal Services Other Income Supplies & Expenses Depreciation Other Expenses Transfers FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, the City of Des Moines uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds. As discussed earlier, the focus of the City of Des Moines’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Des Moines’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City of Des Moines’s governmental funds reported combined ending fund balances of $8,337,645. Approximately 99.9 percent of this total amount ($8,331,733) constitutes unreserved fund balance, which is available for spending at the government’s discretion. The remaining .1 percent ($5,912) of fund balance is reserved to indicate that it is not available for new spending because it has already been committed to Imprest Funds and Prepaid Items. The General Fund is the primary operating fund of the City of Des Moines. At the end of the fiscal year, total fund balance for the General Fund equaled $921,933. Unreserved fund balance, the amount considered available to spend, totaled $916,021. Of the General Fund balance, $18,836 has been designated for maintenance of the Sierra permitting system. The remaining amount $897,185 is designated for continuing appropriations. The City is required to maintain an unreserved fund balance of seven percent of the General Fund’s operating expenditures, net of capital expenditures and equipment replacement assessments. At the end of the fiscal year, the unreserved fund balance of $916,021 equaled 6.7 percent of the general fund’s operating expenditures. The fund balance of the City of Des Moines’s General Fund decreased by $95,943 during the current fiscal year. ____________________________________________________________________________________________________________ Washington State Auditor's Office 16
  • 20. CITY OF DES MOINES, WASHINGTON Management’s Discussion and Analysis Proprietary Funds. The City of Des Moines’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. BUDGETARY HIGHLIGHTS FOR GENERAL AND MAJOR FUNDS Differences between the General Fund original budget and the final amended budget total $488,466. Following are the main components of the increase: • $87,296 supplemental appropriation for 2005 primary and general elections and 2006 special election costs; • $74,375 supplemental appropriation for legal fees settlement; • $73,100 supplemental appropriation for federal government lobbying services; • $39,958 supplemental appropriation for public safety records management system; • $34,000 supplemental appropriation for emergency management consultant; • $30,000 supplemental appropriation for limited-term construction manager for the 16th Avenue South transportation project; • $58,595 supplemental appropriation for various grant funded programs: Shoreline Master Plan ($23,966), Recycling events ($18,629), Washington State Traffic Commission for police staff overtime incurred participating in traffic enforcement programs ($12,000), and police vests ($4,000). Funding sources for the increase, excluding the grant revenues and the limited-term construction manager, primarily are from fund balance. The limited-term construction manager is funded by a transfer to the General Fund from the Arterial Street Fund. A transfer of $50,000 to the General Fund was also made from the Marina Fund and represents the balance of 2005 administrative fees. The Street Fund’s supplemental appropriations include $3,741 for legal fees settlement and $2,756 for fuel cost increases. Differences between the Arterial Street Fund original budget and the final amended budget total $817,763 and relate to continuing appropriations for capital projects. Funding sources are grants, and transfers from the Transportation Impact Fee Fund and Local Improvement District Fund. The Municipal Capital Improvements Fund supplemental appropriations of $505,440 relate to continuing appropriations for capital projects funded primarily by grants. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets. The City of Des Moines’s investment in capital assets for its governmental and business-type activities as of December 31, 2006 totals $148,541,115 (net of accumulated depreciation). This investment in capital assets includes land, buildings and structures, machinery and equipment, park facilities, sidewalks, roads, highways, and bridges as shown in Table A-3. During the fiscal year, major capital asset additions included: • Des Moines Creek Basin projects totaling $769,123. • Traffic signal installation and improvements totaling $340,353. • Marine View Drive Bridge Culvert Replacement Project stream and trail improvements paid for with funds from the Des Moines Creek Basin Interlocal agreement and Surface Water Management revenues totaling $321,173. • th th 16 Avenue South to 260 pedestrian and mobility improvements totaling $312,501. ____________________________________________________________________________________________________________ Washington State Auditor's Office 17
  • 21. CITY OF DES MOINES, WASHINGTON Management’s Discussion and Analysis • Vehicle and equipment acquisitions totaling $302,237. • Slide repairs totaling $286,212 for Marine View Drive, Des Moines Memorial Drive, and Saltwater State Park Bridge. • Steven J. Underwood Memorial Park Phase 1-C restrooms totaling $156,497. • Des Moines Beach Park Auditorium rehabilitation project totaling $90,197. • Activity Center street frontage improvements totaling $74,732. • Woodmont Culvert replacement project totaling $61,561. • Capital lease for copiers totaling $50,118. The Marina continues with its major renovations addressed in the Marina Master Plan. Additions for 2006 total $246,665 all funded by proceeds from the 2002 general obligation bond issue. Other improvements include updates to the Marina Master Plan ($40,418) and outlays for a security camera system ($29,476) using fund balance as a source of revenue. More detailed information about the City’s capital assets is presented in Note 6 to the financial statements. Table A-3 City of Des Moines's Capital Assets (net of depreciation) Governmental Business-type Activities Activities Total 2006 2005 2006 2005 2006 2005 Land $ 100,508,719 $ 100,491,334 $ 3,757,984 $ 3,755,837 $ 104,266,703 $ 104,247,171 Buildings & structures 6,867,735 7,077,703 1,782,456 1,866,245 8,650,191 8,943,948 Capital lease 36,181 - 5,584 - 41,765 - Other improvements 3,372,015 3,675,436 11,208,669 10,629,114 14,580,684 14,304,550 Machinery & equipment 1,301,297 1,462,505 37,557 22,659 1,338,854 1,485,164 Leasehold improvements - - 59,835 65,066 59,835 65,066 Infrastructure 15,609,284 16,095,760 - - 15,609,284 16,095,760 Construction in progress 1,842,396 1,019,063 2,008,124 1,779,323 3,850,520 2,798,386 Intangible assets 50,122 87,177 93,157 116,170 143,279 203,347 Total $ 129,587,749 $ 129,908,978 $ 18,953,366 $ 18,234,414 $ 148,541,115 $ 148,143,392 Long-term debt. At the end of the current fiscal year, the City of Des Moines had total bonded debt outstanding of $6,080,000 which is backed by the full faith and credit of the government. Of this amount, $4,210,000 is also backed by revenues of the Marina. The remainder of the City’s debt represents Public Works Trust Fund Loans and Capital Lease. Table A-4 provides a breakdown of the City’s outstanding debt. Table A-4 City of Des Moines's Outstanding Debt Governmental Business-type Activities Activities Total Total 2006 2005 2006 2005 2006 2005 General obligation bonds $ 1,870,000 $ 2,590,000 $ 4,210,000 $ 4,670,000 $ 6,080,000 $ 7,260,000 Public Works Trust Fund Loans 2,183,705 2,328,190 - - 2,183,705 2,328,190 Capital Lease 36,802 - 5,680 - 42,482 - Total $ 4,090,507 $ 4,918,190 $ 4,215,680 $ 4,670,000 $ 8,306,187 $ 9,588,190 The City’s received its latest bond rating of A3 in November 2002. The rating was assigned to its 2002 Limited Tax General Obligation and Refunding Bonds. The rating and stable outlook reflected the improved financial position of the City since voter approval of I-695 eliminated the motor vehicle excise tax revenues, a major funding source for the City. More detailed information about the City’s long-term liabilities is presented in Note 11 to the financial statements. ____________________________________________________________________________________________________________ Washington State Auditor's Office 18
  • 22. CITY OF DES MOINES, WASHINGTON Management’s Discussion and Analysis ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The region’s economy continues to experience growth with low unemployment and increased housing values. Preparation of the 2007 budget process will take into consideration these factors. Voter approval of a six-year levy lid lift ballot measure in May 2006 will provide additional property taxes of approximately $1,356,700 in 2007 to be utilized to restore police department staffing. The 2007 budget process continues to face a structural imbalance with its General and Street Funds. Strategies include operating budget reductions and use of one-time revenues to balance the budget. Significant one-time revenues from building and development activities are expected in the next few years. Also, the Marina and Surface Water Management Utility will implement their annual rate increases on moorage and surface water management fees. REQUESTS FOR INFORMATION This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City’s finances and to demonstrate the City’s accountability for the money it receives. If you have questions about this report or need additional financial information, contact Paula A. th Henderson, Finance Director, 21630 11 Ave. S., Suite A, Des Moines, Washington, 98198. ____________________________________________________________________________________________________________ Washington State Auditor's Office 19
  • 23. CITY OF DES MOINES, WASHINGTON Page 1 of 1 GOVERNMENT-WIDE FINANCIAL STATEMENTS STATEMENT OF NET ASSETS December 31, 2006 GOVERNMENTAL BUSINESS-TYPE DESCRIPTION ACTIVITIES ACTIVITIES TOTAL ASSETS Cash and cash equivalents $ 11,130,422 $ 1,959,389 $ 13,089,811 Cash with fiscal agent 5,000 - 5,000 Investments - - - Receivables: Taxes 1,239,700 - 1,239,700 Customer accounts 521,818 223,995 745,813 Other 100,718 44,238 144,956 Due from other governments 195,248 725,091 920,339 Internal balances - - - Inventories 15,676 17,197 32,873 Prepaid items 1,312 5,118 6,430 Restricted assets: Cash and cash equivalents - 2,544,364 2,544,364 Investments - - - Investment in Joint Venture 35,293 - 35,293 Capital assets: Land 100,508,719 3,757,984 104,266,703 Depreciable capital assets, net 27,236,634 13,187,258 40,423,892 Construction in progress 1,842,396 2,008,124 3,850,520 Deferred charges 28,519 85,118 113,637 TOTAL ASSETS $ 142,861,455 $ 24,557,876 $ 167,419,331 LIABILITIES Accounts payable $ 669,200 $ 278,894 $ 948,094 Matured interest payable 5,000 - 5,000 Due to other governments 135,898 - 135,898 Accrued interest payable 13,509 14,850 28,359 Other current liabilities 1,510,721 63,172 1,573,893 Liabilities payable from restricted assets: General obligation bonds principal - 480,000 480,000 Deposits - 147,622 147,622 Deferred revenues 165,917 195,308 361,225 Long-term liabilities: Due within one year 833,986 1,274 835,260 Due in more than one year 4,040,765 3,839,694 7,880,459 TOTAL LIABILITIES 7,374,996 5,020,814 12,395,810 NET ASSETS Invested In capital assets, net of related debt 126,900,100 16,419,218 143,319,318 Restricted for: Capital projects 1,372,301 1,622,060 2,994,361 Debt service 57,587 463,349 520,936 Repair and replacement - 321,274 321,274 Unrestricted 7,156,471 711,161 7,867,632 TOTAL NET ASSETS $ 135,486,459 $ 19,537,062 $ 155,023,521 The accompanying notes are an integral part of this statement. ____________________________________________________________________________________________________________ Washington State Auditor's Office 20
  • 24. CITY OF DES MOINES, WASHINGTON GOVERNMENT-WIDE FINANCIAL STATEMENTS STATEMENT OF ACTIVITIES For the Year Ended December 31, 2006 PROGRAM REVENUES NET (EXPENSES) REVENUE AND CHANGES IN NET ASSETS OPERATING CAPITAL GRANTS CHARGES FOR GRANTS AND AND GOVERNMENTAL BUSINESS-TYPE FUNCTIONS/PROGRAMS EXPENSES SERVICES CONTRIBUTIONS CONTRIBUTIONS ACTIVITIES ACTIVITIES TOTAL Governmental activities: General government $ 2,000,133 $ 741,841 $ 206 $ 27,223 $ (1,230,863) $ - $ (1,230,863) Public safety 7,605,119 278,867 291,868 - (7,034,384) - (7,034,384) Physical environment 1,119,453 369,211 61,099 - (689,143) - (689,143) Transportation 3,129,456 213,081 876,363 532,136 (1,507,876) - (1,507,876) Economic environment 589,277 1,090,026 - - 500,749 - 500,749 Mental and physical health 329,693 89,405 47,275 - (193,013) - (193,013) Culture and recreation 2,196,579 676,296 75,933 152,331 (1,292,019) - (1,292,019) Interest on long-term debt 146,713 - - - (146,713) - (146,713) Total governmental activities 17,116,423 3,458,727 1,352,744 711,690 (11,593,262) - (11,593,262) Business-type activities: Marina 3,389,736 3,503,722 200 19,542 - 133,728 133,728 Surface Water Utility 1,226,098 1,408,645 3,498 437,727 - 623,772 623,772 Total business-type activities 4,615,834 4,912,367 3,698 457,269 - 757,500 757,500 21 Total government $ 21,732,257 $ 8,371,094 $ 1,356,442 $ 1,168,959 $ (11,593,262) $ 757,500 $ (10,835,762) General revenues: Property taxes $ 3,392,392 $ - $ 3,392,392 Retail sales and use taxes 2,586,570 - 2,586,570 Business taxes 3,878,935 - 3,878,935 Washington State Auditor's Office Other taxes 1,490,638 - 1,490,638 State entitlements 451,778 - 451,778 Unrestricted investment earnings 465,823 246,875 712,698 Equity in income of joint venture 13,753 13,753 Gain on sale of capital assets 16,633 - 16,633 Miscellaneous 76,473 (61,190) 15,283 Special item: Insurance Recoveries 703 - 703 Transfers 273,967 (273,967) - Total general revenues and transfers 12,647,665 (88,282) 12,559,383 Change in net assets 1,054,403 669,218 1,723,621 Net assets beginning of the year 134,432,056 18,957,409 153,389,465 Prior year adjustments (89,565) (89,565) Net assets beginning of the year restated 134,432,056 18,867,844 153,299,900 Net assets end of the year $ 135,486,459 $ 19,537,062 $ 155,023,521 ____________________________________________________________________________________________________________ The accompanying notes are an integral part of this statement.
  • 25. CITY OF DES MOINES, WASHINGTON Page 1 of 2 FUND FINANCIAL STATEMENTS BALANCE SHEET December 31, 2006 MUNICIPAL NONMAJOR GENERAL STREET ARTERIAL CAPITAL GOVERNMENTAL DESCRIPTION FUND FUND STREET IMPRV FUNDS ASSETS Cash and cash equivalents $ 1,246,991 $ 596,192 $ 4,091,062 $ 1,864,483 $ 1,341,547 Cash with fiscal agent - - - - 5,000 Investments - Receivables: Taxes 1,092,868 2,433 - 105,609 29,603 Customer accounts 434,755 - - 4,391 82,672 Other 17,758 9,684 66,213 - 20 Due from other funds - - - - - Due from other governments 37,012 - 21,633 68,024 41,280 Prepaid items 1,312 - - - TOTAL ASSETS $ 2,830,696 $ 608,309 $ 4,178,908 $ 2,042,507 $ 1,500,122 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 406,721 $ 49,435 $ 23,686 $ 90,210 $ 5,203 Matured interest payable - - - - 5,000 Due to other funds - - - - - Due to other governments 6,817 - - - - Customer deposits 425,543 - - - - Other current liabilities 421,783 14,146 573,153 7,285 70 Deferred revenues 647,899 631 - - 145,315 Total liabilities 1,908,763 64,212 596,839 97,495 155,588 Fund balances: Reserved for: Imprest funds $ 4,600 $ - $ - $ - $ - Prepaid items 1,312 - - - - Unreserved, designated for: Maintenance agreement 18,836 - - - - Continuing appropriations 897,185 52,736 - - - Capital projects funds - - 1,372,301 - - Unreserved, undesignated reported in: General fund - - - - - Special revenue funds - 491,361 2,209,768 - 1,286,947 Debt service funds - - - - 57,587 Capital projects funds - - - 1,945,012 - Total fund balances 921,933 544,097 3,582,069 1,945,012 1,344,534 TOTAL LIABILITIES AND FUND BALANCES $ 2,830,696 $ 608,309 $ 4,178,908 $ 2,042,507 $ 1,500,122 The accompanying notes are an integral part of this statement. ____________________________________________________________________________________________________________ Washington State Auditor's Office 22
  • 26. Page 2 of 2 CITY OF DES MOINES, WASHINGTON FUND FINANCIAL STATEMENTS RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS GOVERNMENTAL FUNDS December 31, 2006 TOTAL GOVERNMENTAL FUNDS Fund balances - total governmental funds $ 8,337,645 $ 9,140,275 5,000 Amounts reported for governmental activities in the statement of - net assets are different because: 1,230,513 Capital assets used in governmental activities are not financial 521,818 resources and therefore are not reported in the governmental funds. 93,675 - Land $ 100,508,719 167,949 Depreciable capital assets, net 26,262,866 1,312 Construction in progress 1,842,396 $ 11,160,542 128,613,981 Other assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds. $ 575,255 5,000 Other accounts receivable 12,037 - Due from other governments 18,299 6,817 Unamortized bond issuance costs 28,519 425,543 Investment in joint venture 35,293 1,016,437 94,148 793,845 Current liabilities includes amounts not payable in the current 2,822,897 period and therefore are not reported in the governmental funds. Accounts payable and other accrued liabilities (120,392) Accrued interest payable (13,509) $ 4,600 Due to other governments (129,081) 1,312 (262,982) Deferred revenue in governmental funds is susceptible to full 18,836 accrual and therefore are not reported in the governmental funds. 949,921 1,372,301 Deferred revenue - current period 155,089 Deferred revenue - prior period 472,839 - 3,988,076 Long-term liabilities, including bonds, notes, and loans payable are 57,587 not due and payable in the current period and therefore are not reported 1,945,012 in fund balance in the governmental funds. 8,337,645 $ 11,160,542 Governmental bonds, notes, and loans payable (4,088,469) Compensated absences (765,619) (4,854,088) Internal service funds are used by management to charge the costs of certain activities to individual funds. The assets and liabilities of internal service funds are included in governmental activities in the statement of net assets. 2,929,827 Net assets of governmental activities $ 135,486,459 The accompanying notes are an integral part of this statement. ____________________________________________________________________________________________________________ Washington State Auditor's Office 23
  • 27. CITY OF DES MOINES, WASHINGTON Page 1 of 2 FUND FINANCIAL STATEMENTS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the Year Ended December 31, 2006 MUNICIPAL NONMAJOR TOTAL GENERAL STREET ARTERIAL CAPITAL GOVERNMENTAL GOVERNMENTAL DESCRIPTION FUND FUND STREET IMPRV FUNDS FUNDS REVENUES Taxes $ 8,928,217 $ 413,145 $ - $ 1,335,948 $ 650,777 $ 11,328,087 Licenses and permits 1,130,588 - - - 1,130,588 Intergovernmental 823,477 673,093 556,154 152,331 60,000 2,265,055 Charges for services 2,639,324 - - 5,162 234,252 2,878,738 Fines and forfeits 278,786 - - - 278,786 Investment income 80,424 20,580 177,156 77,390 76,814 432,364 Miscellaneous 172,220 1,992 250 602 149,669 324,733 TOTAL REVENUES 14,053,036 1,108,810 733,560 1,571,433 1,171,512 18,638,351 EXPENDITURES Current: General government 2,708,278 - - - - 2,708,278 Public safety 7,195,384 - - - 33,455 7,228,839 Physical environment 1,107,650 - - 15,231 1,122,881 Transportation 445,871 801,718 662,084 - 1,909,673 Economic environment 525,019 - - - 23,014 548,033 Mental and physical health 328,266 - - - 328,266 Culture and recreation 1,735,102 - - - 95,687 1,830,789 Debt service: Principal - - - 871,100 871,100 Interest and fiscal charges - - - 141,934 141,934 Capital outlay 93,057 - 1,041,933 370,776 41,333 1,547,099 TOTAL EXPENDITURES 14,138,627 801,718 1,704,017 370,776 1,221,754 18,236,892 Excess (deficiency) of revenues over (under) expenditures (85,591) 307,092 (970,457) 1,200,657 (50,242) 401,459 OTHER FINANCING SOURCES (USES) Capital related debt issued 43,417 - - - 43,417 Transfers in 7,500 - 845,203 - 468,293 1,320,996 Transfers out (61,269) (61,395) (156,488) (760,015) (310,058) (1,349,225) Insurance recoveries - - - - - Sale of capital assets - - - - - - TOTAL OTHER FINANCING SOURCES (USES) (10,352) (61,395) 688,715 (760,015) 158,235 15,188 Net change in fund balances (95,943) 245,697 (281,742) 440,642 107,993 416,647 Fund balances beginning of year 1,017,876 298,400 3,863,811 1,504,370 1,236,541 7,920,998 FUND BALANCES END OF YEAR $ 921,933 $ 544,097 $ 3,582,069 $ 1,945,012 $ 1,344,534 $ 8,337,645 The accompanying notes are an integral part of this statement. ____________________________________________________________________________________________________________ Washington State Auditor's Office 24
  • 28. Page 2 of 2 CITY OF DES MOINES, WASHINGTON FUND FINANCIAL STATEMENTS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the Year Ended December 31, 2006 Net change in fund balance - total governmental funds $ 416,647 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 capital assets is allocated over their estimated useful lives as depreciation expense. Capital outlay $ 1,547,099 Capital outlay contributed from business-type activities 273,967 Capital outlay contributed to business-type activities - Depreciation expense (2,014,033) Excess of capital outlay over depreciation expense (192,967) The City has an equity interest in a joint venture. This investment is not a current financial resource and therefore is not reported in the funds. 13,753 The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. Long-term debt issued (43,417) Debt principal retirement 871,100 Amortization of issuance costs (7,659) Amortization of bond premium and discount (1,094) 818,930 Internal service funds are used by management to charge the costs of certain activities to individual funds. The net revenue (expense) of the internal service funds is reported with governmental activities. 182,530 Revenues reported in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds. (45,935) Expenses reported in the statement of activities that do not require the use of current financial resources are not reported as expenditures in the governmental funds. (138,555) Change in net assets of governmental activities $ 1,054,403 The accompanying notes are an integral part of this statement. ____________________________________________________________________________________________________________ Washington State Auditor's Office 25
  • 29. CITY OF DES MOINES, WASHINGTON Page 1 of 1 FUND FINANCIAL STATEMENTS GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET (GAAP BASIS) AND ACTUAL For the Year Ended December 31, 2006 BUDGETED AMOUNTS Variance with Final Budget - ACTUAL Positive DESCRIPTION ORIGINAL FINAL AMOUNTS (Negative) REVENUES Taxes $ 9,020,970 $ 9,020,970 $ 8,928,217 $ (92,753) Licenses and permits 1,296,000 1,296,000 1,130,588 (165,412) Intergovernmental 766,331 835,946 823,477 (12,469) Charges for services 2,782,174 2,864,649 2,639,324 (225,325) Fines and forfeits 250,000 250,000 278,786 28,786 Investment income 58,000 58,000 80,424 22,424 Miscellaneous 141,630 143,130 172,220 29,090 TOTAL REVENUES 14,315,105 14,468,695 14,053,036 (415,659) EXPENDITURES Current: General government 2,501,178 2,685,477 2,708,278 (22,801) Public safety 7,113,614 7,224,822 7,195,384 29,438 Physical environment 1,163,175 1,193,558 1,107,650 85,908 Transportation 375,193 409,551 445,871 (36,320) Economic environment 541,734 612,361 525,019 87,342 Mental and physical health 321,928 325,238 328,266 (3,028) Culture and recreation 1,656,171 1,667,265 1,735,102 (67,837) Capital outlay 6,000 45,958 93,057 (47,099) TOTAL EXPENDITURES 13,678,993 14,164,230 14,138,627 25,603 Excess (deficiency) of revenues over (under) expenditures 636,112 304,465 (85,591) (390,056) OTHER FINANCING SOURCES (USES) Capital related debt issued - - 43,417 43,417 Transfers in 7,500 7,500 7,500 - Transfers out (550,000) (553,229) (61,269) 491,960 Sale of capital assets - - - - TOTAL OTHER FINANCING SOURCES (USES) (542,500) (545,729) (10,352) 535,377 Net change in fund balances 93,612 (241,264) (95,943) 145,321 Fund balances beginning of year 1,048,587 1,068,816 1,017,876 (50,940) FUND BALANCES END OF YEAR $ 1,142,199 $ 827,552 $ 921,933 $ 94,381 The accompanying notes are an integral part of this statement. ____________________________________________________________________________________________________________ Washington State Auditor's Office 26
  • 30. CITY OF DES MOINES, WASHINGTON Page 1 of 1 FUND FINANCIAL STATEMENTS STREET FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET (GAAP BASIS) AND ACTUAL For the Year Ended December 31, 2006 BUDGETED AMOUNTS Variance with Final Budget - ACTUAL Positive DESCRIPTION ORIGINAL FINAL AMOUNTS (Negative) REVENUES Taxes $ 415,000 $ 415,000 $ 413,145 $ (1,855) Intergovernmental 686,062 686,062 673,093 (12,969) Investment income 15,000 15,000 20,580 5,580 Miscellaneous 1,000 1,000 1,992 992 TOTAL REVENUES 1,117,062 1,117,062 1,108,810 (8,252) EXPENDITURES Current: Transportation 870,408 876,905 801,718 75,187 TOTAL EXPENDITURES 870,408 876,905 801,718 75,187 Excess (deficiency) of revenues over (under) expenditures 246,654 240,157 307,092 66,935 OTHER FINANCING SOURCES (USES) Sale of capital assets - - - - TOTAL OTHER FINANCING SOURCES (USES) (61,395) (61,395) (61,395) - Net change in fund balances 185,259 178,762 245,697 66,935 Fund balances beginning of year 331,801 298,967 298,400 (567) FUND BALANCES END OF YEAR $ 517,060 $ 477,729 $ 544,097 $ 66,368 The accompanying notes are an integral part of this statement. ____________________________________________________________________________________________________________ Washington State Auditor's Office 27
  • 31. CITY OF DES MOINES, WASHINGTON Page 1 of 1 FUND FINANCIAL STATEMENTS ARTERIAL STREET FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET (GAAP BASIS) AND ACTUAL For the Year Ended December 31, 2006 BUDGETED AMOUNTS Variance with Final Budget - ACTUAL Positive DESCRIPTION ORIGINAL FINAL AMOUNTS (Negative) REVENUES Intergovernmental $ 1,475,397 $ 2,150,251 $ 556,154 $ (1,594,097) Charges for services - - - - Investment income 108,000 108,000 177,156 69,156 Miscellaneous - - 250 250 TOTAL REVENUES 1,583,397 2,258,251 733,560 (1,524,691) EXPENDITURES Current: Transportation 825,000 825,000 662,084 162,916 Capital outlay 2,066,844 2,884,607 1,041,933 1,842,674 TOTAL EXPENDITURES 2,891,844 3,709,607 1,704,017 2,005,590 Excess (deficiency) of revenues over (under) expenditures (1,308,447) (1,451,356) (970,457) 480,899 OTHER FINANCING SOURCES (USES) Capital related debt issued - - - - Transfers in 715,293 911,411 845,203 (66,208) Transfers out (1,470,119) (1,584,819) (156,488) 1,428,331 TOTAL OTHER FINANCING SOURCES (USES) (754,826) (673,408) 688,715 1,362,123 Net change in fund balances (2,063,273) (2,124,764) (281,742) 1,843,022 Fund balances beginning of year 3,708,496 3,863,811 3,863,811 - FUND BALANCES END OF YEAR $ 1,645,223 $ 1,739,047 $ 3,582,069 $ 1,843,022 The accompanying notes are an integral part of this statement. ____________________________________________________________________________________________________________ Washington State Auditor's Office 28
  • 32. CITY OF DES MOINES, WASHINGTON Page 1 of 1 FUND FINANCIAL STATEMENTS PROPRIETARY FUNDS STATEMENT OF NET ASSETS December 31, 2006 BUSINESS-TYPE ACTIVITIES GOVERNMENTAL ENTERPRISE FUNDS ACTIVITIES SURFACE WATER INTERNAL SERVICE DESCRIPTION MARINA UTILITY TOTAL FUNDS ASSETS Current assets: Cash and cash equivalents $ 1,436,249 $ 523,140 $ 1,959,389 $ 1,990,147 Receivables: Customer accounts, net of uncollectible amounts 176,140 47,855 223,995 - Other - 44,238 44,238 4,193 Due from other governments 34,436 690,655 725,091 9,000 Inventories 17,197 - 17,197 15,676 Prepaid items 5,118 - 5,118 - Total current assets 1,669,140 1,305,888 2,975,028 2,019,016 Noncurrent assets: Restricted assets: Cash and cash equivalents 2,544,364 - 2,544,364 - Capital assets: Land 3,226,925 531,059 3,757,984 - Buildings and structure 4,800,307 - 4,800,307 - Other improvements 6,592,321 13,597,248 20,189,569 - Capital leases 4,129 2,572 6,701 Leasehold improvements 149,669 149,669 - Machinery and equipment 90,041 16,063 106,104 2,481,805 Construction in progress 652,863 1,355,261 2,008,124 - Intangible assets 230,124 - 230,124 - Less accumulated depreciation and amortization (6,649,600) (5,645,616) (12,295,216) (1,508,037) Total capital assets, net 9,096,779 9,856,587 18,953,366 973,768 Deferred charges 85,118 - 85,118 - Total noncurrent assets 11,726,261 9,856,587 21,582,848 973,768 TOTAL ASSETS $ 13,395,401 $ 11,162,475 $ 24,557,876 $ 2,992,784 LIABILITIES Current liabilities: Accounts payable $ 161,387 $ 117,507 $ 278,894 $ 32,131 Accrued interest payable 14,850 - 14,850 - Compensated absences 4,174 5,030 9,204 756 Capital lease obligation 785 489 1,274 Other current liabilities 31,378 22,590 53,968 9,407 Total current liabilities 212,574 145,616 358,190 42,294 Noncurrent liabilities: Liabilities payable from restricted assets: General obligation bonds principal 480,000 - 480,000 - Deposits 147,622 - 147,622 - Total liabilities payable from restricted assets 627,622 - 627,622 - General obligation bonds payable, net of unamortized premiums and discounts 3,727,302 - 3,727,302 - Compensated absences 56,359 51,627 107,986 20,663 Deferred revenues 195,308 - 195,308 - Long-term capital lease obligation 2,715 1,691 4,406 Total noncurrent liabilities 4,609,306 53,318 4,662,624 20,663 TOTAL LIABILITIES 4,821,880 198,934 5,020,814 62,957 NET ASSETS Invested in capital assets, net of related debt 6,564,811 9,854,407 16,419,218 973,768 Restricted for: Capital projects 925,033 697,027 1,622,060 - Debt service 463,349 - 463,349 - Repair and replacement 321,274 - 321,274 - Unrestricted 299,054 412,107 711,161 1,956,059 Total net assets 8,573,521 10,963,541 19,537,062 2,929,827 TOTAL LIABILITIES AND NET ASSETS $ 13,395,401 $ 11,162,475 $ 24,557,876 $ 2,992,784 The accompanying notes are an integral part of this statement. ____________________________________________________________________________________________________________ Washington State Auditor's Office 29
  • 33. CITY OF DES MOINES, WASHINGTON Page 1 of 1 FUND FINANCIAL STATEMENTS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS PROPRIETARY FUNDS For the year Ended December 31, 2006 BUSINESS-TYPE ACTIVITIES GOVERNMENTAL ENTERPRISE FUNDS ACTIVITIES SURFACE WATER INTERNAL SERVICE DESCRIPTION MARINA UTILITY TOTAL FUNDS OPERATING REVENUES Charges for services $ 3,488,666 $ 1,408,638 $ 4,897,304 $ 1,652,208 Other operating revenues 15,056 7 15,063 34,419 TOTAL OPERATING REVENUES 3,503,722 1,408,645 4,912,367 1,686,627 OPERATING EXPENSES Personal services 754,941 523,718 1,278,659 261,010 Contractual services 86,705 72,138 158,843 197,779 Utilities 71,216 25,388 96,604 2,511 Insurance 854 - 854 404,676 Repairs and maintenance 18,957 32,180 51,137 99,721 Other supplies and expenses 1,158,206 82,720 1,240,926 303,674 Interfund services 725,600 217,897 943,497 103,355 Depreciation and amortization 366,780 271,973 638,753 264,445 TOTAL OPERATING EXPENSES 3,183,259 1,226,014 4,409,273 1,637,171 OPERATING INCOME (LOSS) 320,463 182,631 503,094 49,456 NON-OPERATING REVENUE (EXPENSE) Investment income 200,075 46,800 246,875 87,509 Interest and fiscal charges (184,828) (84) (184,912) - Amortization of deferred charges (21,650) - (21,650) - Gain (loss) on sale of capital assets - - - 16,633 Other non-operating revenues (expenses) 200 (57,691) (57,491) 703 TOTAL NON-OPERATING REVENUES (EXPENSES) (6,203) (10,975) (17,178) 104,845 INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS 314,260 171,656 485,916 154,301 Capital contributions 19,542 437,727 457,269 - Transfers in - - - 34,273 Transfers out - (273,967) (273,967) (6,044) Change in net assets 333,802 335,416 669,218 182,530 Total net assets - beginning 8,329,284 10,628,125 18,957,409 2,747,297 Prior year adjustments (89,565) - (89,565) - Total net assets - beginning restated 8,239,719 10,628,125 18,867,844 2,747,297 TOTAL NET ASSETS - ENDING $ 8,573,521 $ 10,963,541 $ 19,537,062 $ 2,929,827 The accompanying notes are an integral part of this statement. ____________________________________________________________________________________________________________ Washington State Auditor's Office 30
  • 34. CITY OF DES MOINES, WASHINGTON Page 1 of 1 FUND FINANCIAL STATEMENTS STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For the year Ended December 31, 2006 BUSINESS-TYPE ACTIVITIES GOVERNMENTAL ENTERPRISE FUNDS ACTIVITIES SURFACE WATER INTERNAL SERVICE DESCRIPTION MARINA UTILITY TOTAL FUNDS CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 3,504,038 $ 1,429,157 $ 4,933,195 $ 1,684,729 Payments to suppliers (1,331,480) (222,460) (1,553,940) (996,165) Payments to employees (758,042) (528,039) (1,286,081) (254,341) Internal activity - payments to other funds (725,600) (217,897) (943,497) (103,355) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 688,916 460,761 1,149,677 330,868 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Operating subsidies and transfers from (to) other funds - - - 28,229 Insurance recoveries - - 703 NET CASH PROVIDED (USED) FROM NONCAPITAL FINANCING ACTIVITIES - - - 28,932 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital contributions 62,661 435,579 498,240 - Proceeds from sales of capital assets - - - 16,680 Purchases of capital assets (402,413) (1,277,128) (1,679,541) (228,842) Reimbursements for capital assets related to other governments - 3,914,830 3,914,830 - Purchases of capital assets related to other governments - (3,714,741) (3,714,741) - Principal paid on capital debt (460,629) (392) (461,021) - Interest paid on capital debt (195,365) (84) (195,449) - NET CASH PROVIDED (USED) BY CAPITAL AND RELATED FINANCING ACTIVITIES (995,746) (641,936) (1,637,682) (212,162) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments 750,000 250,000 1,000,000 250,000 Interest 195,641 43,062 238,703 88,108 NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 945,641 293,062 1,238,703 338,108 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 638,811 111,887 750,698 485,746 BALANCES - BEGINNING OF THE YEAR 3,341,802 411,253 3,753,055 1,504,401 BALANCES - END OF THE YEAR $ 3,980,613 $ 523,140 $ 4,503,753 $ 1,990,147 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating income (loss) $ 320,463 $ 182,631 $ 503,094 $ 49,456 Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation/amortization expense 366,780 271,973 638,753 264,445 Change in assets and liabilities: Account receivable (193,204) 7,787 (185,417) 1,705 Due from other funds/governmental units (496) 12,725 12,229 (3,603) Inventories 6,281 - 6,281 345 Other prepayments 5,390 - 5,390 98 Accounts payable and other accrued expenses (7,399) (10,034) (17,433) 11,754 Due to other funds/governmental units 186 - 186 - Accrued payroll/employee leave benefits (3,101) (4,321) (7,422) 6,668 Customer deposits (1,292) - (1,292) - Deferred revenue 195,308 - 195,308 - NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 688,916 $ 460,761 $ 1,149,677 $ 330,868 NON CASH INVESTING, CAPITAL AND FINANCING ACTIVITIES Capital assets contributed by private sources $ - $ 2,148 $ 2,148 $ - Capital assets contributed to governmental activities - (273,967) (273,967) - Increase (Decrease) in fair value of investments 7,578 3,323 10,901 234 Acquisition of equipment under capital lease (4,129) (2,572) (6,701) - The accompanying notes are an integral part of this statement. ____________________________________________________________________________________________________________ Washington State Auditor's Office 31
  • 35. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements CITY OF DES MOINES NOTES TO THE FINANCIAL STATEMENTS For the Year Ended December 31, 2006 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Des Moines, King County, Washington was incorporated in June 1959 and operates under the Revised Code of Washington (RCW) as an Optional Municipal Non-charter City (Title 35A RCW). The City utilizes a Council-Manager form of government. Under this form of government, the voters elect at- large, a seven member City Council, and the Council elects one of its members to serve as Mayor. All seven City Council positions are elected for terms of four years allowing for Council member consistency and staggered elections. The City Manager is appointed by the City Council to act as the chief executive officer of the City and is responsible to the City Council for proper administration of all City affairs. The City of Des Moines is a general purpose government with its fiscal year ending December 31. The City of Des Moines is a general-purpose government and provides law enforcement, road improvement, park and recreation, judicial administration, health and social services, and general administration services. In addition, the City owns and operates a marina and a surface water management utility. Fire protection for the City of Des Moines is provided for by South King Fire and Rescue, an entity established on September 20, 2005 when voters approved the merger of King County Fire Protection District No. 26 and the Federal Way Fire Department. The financial statements of the City of Des Moines have been prepared in accordance with generally accepted accounting principles (GAAP) as applied to governmental units and are audited annually by the Washington State Auditor’s Office, Division of Audits. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The City’s significant accounting policies are described in this note. In 2003, the City adopted GASB Statement No. 34 Basic Financial Statements and Management Discussion and Analysis for State and Local Governments; Statement No. 37 Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments: Omnibus; Statement No. 38 Certain Financial Statement Note Disclosures; and Statement No. 41 Budgetary Comparison Schedules – Perspective Differences. Significant changes in Statement No. 34 include the following: • A Management Discussion and Analysis (MD&A) section providing an analysis of the City’s overall position and results of operations. • Financial statements prepared using accrual accounting for all of the City’s activities, including infrastructure (roads, bridges, etc.). • A change in the fund financial statements focusing on the major funds. In 2004, the City adopted GASB Statement No. 40 Deposit and Investment Risk Disclosures. Statement No. 40 addresses common deposit and investment risks related to credit risk, concentration of credit risk, interest rate risk, and foreign currency risk. In 2005, the City adopted GASB Statement No. 42 Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries. Statement No. 42 establishes the requirement to reduce the carrying value of a capital asset in the event of impairment other than through the application of depreciation, and provides guidance on accounting for insurance recoveries. ____________________________________________________________________________________________________________ Washington State Auditor's Office 32
  • 36. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements In 2006, the City adopted GASB Statement No. 46 Net Assets Restricted by Enabling Legislation. Statement No. 46 specifies the accounting and financial reporting requirements for disclosing the portion of total net assets restricted by enabling legislation. For governmental and business-type activities, the City applies all applicable GASB pronouncements and all FASB Statements and Interpretations, Accounting Principles Board (APB) Opinions and Accounting Research Bulletins (ARB) issued on or before November 30, 1989, unless they conflict with or contradict GASB pronouncements. A. The Reporting Entity The City’s annual financial report includes all funds, account groups, agencies and boards controlled by or dependent on the City. In conformance with Governmental Accounting Standards Board (GASB) Statement 14, “The Financial Reporting Entity”, the primary basis of determining whether outside agencies and organizations should be considered component units of the City is financial accountability. Financial accountability is defined as appointment of a voting majority of an agency’s or organization’s board, and either the City’s ability to impose will on the agency or organization, or the possibility that the agency or organization will provide a financial benefit to or impose a financial burden on the City. There were no component units meeting any of those criteria in 2006. See Note 8 – Joint Ventures for discussion of the Airport Communities Coalition of four cities that is reviewing the Sea-Tac Airport expansion, the Mount Rainier Pool Contributors Coalition of three cities and Highline School District No. 401 that provide funding for operation of the Mt. Rainier Pool, and the Mount Rainier Pool Owners’ Coalition consisting of the cities of Des Moines and Normandy Park that jointly own the Mt. Rainier Pool. A joint venture is a legal entity or organization which results from a contractual arrangement that is owned, operated, or governed by two or more participants as a separate entity subject to joint control, in which participants retain an ongoing financial interest or an ongoing financial responsibility. Also, see Note 14 – Risk Management for discussion of the Washington Cities Insurance Authority. B. Basis of Presentation The City’s basic financial statements consist of government-wide statements, including a statement of net assets and statement of activities, and fund financial statements that provide a more detailed level of financial information. Government-wide Financial Statements The statement of net assets and the statement of activities display information about the City as a whole. These statements include the financial activities of the government. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely primarily on fees and charges for support. The statement of net assets presents the financial condition of the governmental and business-type activities of the City at year end. The statement of activities presents a comparison between direct expenses and program activity of the City. Direct expenses are those that are specifically associated with a service, program or department and, therefore, clearly identifiable to a specific function. Program revenues include charges paid by the recipient of the goods or services offered by the program, grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or program, and interest earned on grants that is required to be used to support a particular function or program. Revenues which are not classified as program revenues are presented as general revenues of the City. The comparison of direct expenses with program revenues identifies the extent to which each business segment or governmental function is self-financing or draws from the general revenues of the City. ____________________________________________________________________________________________________________ Washington State Auditor's Office 33
  • 37. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements Fund Financial Statements During the year, the City segregates transactions related to certain City functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. Fund financial statements are designed to present financial information of the City at this more detailed level. The focus of governmental and enterprise fund financial statements is on major funds. Each major fund is presented in a separate column. Nonmajor funds are aggregated and presented in a single column. Internal service funds are combined and the totals are presented in a single column on the face of the proprietary fund financial statements. C. Fund Accounting The accounts of the City are organized on the basis of funds each of which is considered a separate accounting entity. Each fund is accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. The City’s resources are allocated to and accounted for in individual funds according to the purpose for which they are spent and how they are controlled. There are three categories of funds: governmental, proprietary, and fiduciary. Governmental Funds All governmental funds are accounted for on a “flow of current financial resources” measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. Their reported fund balance (net current assets) is considered a measure of “available spendable resources.” Governmental fund operating statements focus on measuring changes in financial position, rather than net income; they present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. The following are the City’s major governmental funds: 1) The General Fund is the general operating fund of the City. It accounts for all financial resources and transactions except those required to be accounted for in another fund. 2) The Street Fund is a general government service fund that accounts for the receipt and disbursement of State-levied “unrestricted” motor vehicle fuel taxes. All resources of this fund are utilized for the administration of street-oriented maintenance and repair. 3) The Arterial Street Fund is established in accordance with RCW 82.36.020 for the administration of the state-levied motor vehicle half-cent gasoline tax distributed to Des Moines. Effective September 2005, all motor vehicle fuel taxes are “unrestricted” with passage of SSB 5969. The Arterial Street Fund will continue to receive a portion of the former “restrictive” fuel taxes through a transfer from the Street Fund. The City provides a portion of its real estate excise taxes as well as general taxes through a transfer from its Municipal Capital Improvements Fund. 4) The Municipal Capital Improvements Fund is established for the purpose of accumulating resources used to finance local improvements, including those listed in RCW 35.43.040. The fund receipts all real estate excise taxes authorized under RCW 82.46.010(2) and RCW 82.46.035(2). The other governmental funds of the City account for grants and other resources whose use is restricted to a particular purpose. Proprietary Funds Proprietary Funds are accounted for on a “flow of economic resources” measurement focus. This means that all assets and liabilities (whether current or noncurrent) associated with their activity are included on their balance sheets. Proprietary fund operating statements present increases (revenues ____________________________________________________________________________________________________________ Washington State Auditor's Office 34
  • 38. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements and gains) and decreases (expenses and losses) in net total assets. Proprietary funds’ measurement focus is based upon determination of net income, financial position, and cash flows. 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 on-going operations. The principal operating revenues of the City’s enterprise and internal service funds are charges to customers, both internal and external, for sales and services. Operating expenses for the enterprise and internal service funds include the costs 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. As described below, there are two generic fund types in this category. The City’s Enterprise Funds account for services to the general public where all or most of the costs including depreciation are to be financed or recovered from users of such services. The City maintains separate funds for the Marina and the Surface Water Management Utility. These funds are each reported as major funds in the proprietary funds’ financial statements. The City has six Internal Service Funds. The Equipment Rental Operations and Replacement Funds are used to account for the costs of maintaining and replacing all City vehicles and auxiliary equipment. The Computer Equipment Operations and Replacement Funds are use to account for the costs of maintaining and replacing the city-wide information systems network & computer hardware and software. The Self-Insurance Fund is used to account for the costs of the City’s liability and property coverage. The Unemployment Compensation Fund is use to account for the costs of unemployment claims. Restricted assets shown in the government-wide financial statements and the proprietary funds balance sheet include general obligation bond proceeds reserved for future capital construction, monies reserved for payment of the bond debt, and deposits for customer accounts. When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed. Fiduciary Funds Fiduciary Funds account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governments, and other funds. During the fiscal year, the City did not maintain any trust or agency funds. D. Measurement Focus The government-wide financial statements are prepared using the economic resources measurement focus. All assets and liabilities associated with the operation of the City are included on the statement of net assets. All fund financial statements are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The statement of revenues, expenditures, and changes in fund balances reports on the sources (i.e., revenues and other financing sources) and uses (i.e., expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the government activities of the government-wide financial statements are prepared. Governmental fund financial statements, therefore, include a reconciliation with brief explanations to better identify the relationship between the government-wide statements and statements for governmental funds. Like the government-wide statements, all proprietary fund types are accounted for on a flow of economic resources measurement focus. All assets and all liabilities associated with the operation of ____________________________________________________________________________________________________________ Washington State Auditor's Office 35
  • 39. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements these funds are included on the statement of net assets. The statement of revenues, expenses, and changes in fund net assets presents increases (i.e., revenues) and decreases (i.e., expenses) in net total assets. The statement of cash flows provides information about how the City finances and meets the cash flow needs of its proprietary activities. Fiduciary funds are reported using the economic resources measurement focus. E. Basis of Accounting Basis of accounting refers to the recognition of revenues and expenditures or expenses in the accounts and reporting them in the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Proprietary and fiduciary funds use the accrual basis of accounting. Revenues – Exchange and Non-exchange Transactions Revenues resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. The modified accrual basis of accounting is followed in all governmental funds of the City. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual, i.e., both measurable and available. “Measurable” means the amount of the transaction can be determined and “available” means collectible within the current period or soon enough thereafter to pay current liabilities. For the City, available means expected to be received within sixty (60) days of year end. The primary accrued revenues that meet this criterion are property taxes, sales and use taxes, business and occupation taxes, franchise fees, utility taxes, and gambling taxes. Nonexchange transactions, in which the City receives value without directly giving equal value in return, include property taxes, sales and use taxes, business and occupation taxes, franchise fees, utility taxes, gambling taxes, grants, entitlements, and donations. These revenues are on an accrual basis in the government-wide financial statements. On the accrual basis, the revenue is recognized in the period in which the income is earned. Revenue from property taxes is recognized in the fiscal year for which the taxes are levied. (See Note 4 on receivables). Other Revenue Sources Revenue sources which are not considered to meet the measurable and available criteria for revenue recognition include licenses and permits, fines and forfeitures, and other miscellaneous revenues since they are not measurable until received. Under the modified accrual basis, expenditures are recorded when the fund liability is incurred, except for principal and interest on general long-term debt and vacation and sick pay which are recorded when paid. Inventory items are reported as expenditures when consumed. The effect of interfund activity has been eliminated from the government-wide financial statements so that expenses are not reported twice. Amounts reported on the government-wide statements as program revenues include, charges to customers or applicants for goods, operating grants and contributions, and capital grants and contributions. General revenues includes all taxes. The accrual basis of accounting is followed in all proprietary funds. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when incurred. All assets and liabilities are recorded in the fund. ____________________________________________________________________________________________________________ Washington State Auditor's Office 36
  • 40. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements F. Budgets and Budgetary Accounting The City of Des Moines budgets its funds in accordance with the Revised Code of Washington (RCW) Chapter 35A.33. In compliance with the code, annual appropriated budgets are adopted for the general, special revenue, debt service, and capital project funds. For governmental funds, there are no substantial differences between the budgetary basis and generally accepted accounting principles. Budgetary accounts are integrated in fund ledgers for all budgeted funds, but the financial statements include budgetary comparisons for annually budgeted governmental funds only. Budgets established for proprietary and trust funds are “management budgets” and are not legally required to be reported. However, for management purposes the City Council does budget the funding levels of proprietary funds in order to monitor the performance and expense levels of such funds. Annual appropriated budgets are adopted at the level of the fund and the budgets constitute the legal authority for expenditures at that level. Subsidiary revenue and expenditure records are used to compare the budgeted amounts with actual revenues and expenditures. As a management control device, the subsidiary ledgers monitor expenditures for individual functions and activities by object class. Annual appropriations for all funds lapse at year end. The City of Des Moines’s budget procedures are mandated by RCW 35A.33. The steps in the budget process are as follows: 1. By late July, notice is submitted to Departments to prepare for current level service budgets and a preliminary financial forecast. 2. By late August, the Finance Department prepares preliminary revenue estimates to define resources available to finance coming year expenditure programs, and updates salaries, benefits, and other centralized cost projections. 3. By second week of September, Departments submit their preliminary expenditure estimates. A proposed budget is prepared for the City Manager’s review. The City Manager conducts individual budget sessions with Departments to discuss their proposed expenditures. 4. Prior to November 1, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following January 1. 5. Work sessions and public hearings are conducted by the City Council from October to December to review the budget and to obtain taxpayer comments. 6. During the first two weeks of November, the City Clerk publishes a notice of filing of the preliminary budget and notices of public hearings to be held during preliminary budget deliberations. 7. Two public hearings on the proposed budget are also held during November and December. Final hearings on the budget must begin on or before the first Monday of December, and may continue until the 25th day prior to the beginning of the next fiscal year. 8. By December 31, the City Council formulates its adjustments to the proposed budget and adopts a final budget through the passage of an ordinance. 9. The final operating budget, as adopted, is published and distributed within the first three months of the following year. Copies of the adopted budget are made available to the public. The City Manager may authorize transfers within funds, however, the City Council must approve by ordinance any amendments that increase or decrease the total for the fund. The budget was amended two times during 2006. Budget amounts presented in the basic financial statements include both the original adopted amounts and the final amended budget as approved by the City Council. ____________________________________________________________________________________________________________ Washington State Auditor's Office 37
  • 41. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements Expenditure Categories General Government – includes executive, municipal court, finance, records services, personnel, legal, and facilities maintenance. Public Safety – includes all police activities, jail services, and fire protection fees to South King Fire and Rescue. Physical Environment – includes expenditures for building inspection activities, animal control, pollution control fees, and airport defense activities. Transportation – includes all engineering, street, and arterial street maintenance and construction. Economic Environment – includes the planning and development review activities. Mental and Physical Health – includes human services, senior services, and senior recreation programs. Culture and Recreation – includes the parks administration, parks recreation programs, parks maintenance activities, and operation and maintenance of the Mt. Rainier Pool. Interest on Long-term Debt. G. Encumbrances Encumbrance accounting is not employed by the City. There is, therefore no related reservations of fund balances. Outstanding commitments will be honored during the subsequent year, with appropriations increased through the budget amendment process, if required. H. Assets, Liabilities and Fund Equity Cash and Cash Equivalents All cash and cash equivalents, restricted and unrestricted, consists of cash balances in the City’s checking account, imprest funds, demand deposits with banks or other financial institutions, overnight investments with KeyBank sweep account, investments with the State Treasurers Local Government Investment Pool, and investments with original maturities of less than three months. Interest earned on pooled investments is allocated to funds based on the average monthly equity in the pooled balances. Investments Investments are held separately by each of the funds with interest earned directly for the benefit of each fund. Investments are reported on the financial statements at fair value, cost or amortized cost, depending on the type and maturity length of each investment as required by GASB Statement No. 31. Washington State statutes provide for the City to hold investments consisting of obligations of the federal government, repurchase agreements, prime banker’s acceptances, time certificates of deposit. Gains or losses due to market valuation changes are netted against interest earnings. Premiums and discounts on investment purchases are amortized on a straight-line basis over the life of the investment, or to the first call date if one exists and the purchase is at a premium. Additional deposit and investment information is presented in Note 3. Receivables Taxes receivable consist of measurable and available locally levied property taxes, sales taxes, business and occupation taxes, utility taxes, franchise fees, real estate excise taxes and related interest and penalties. No allowance for uncollectible property taxes is established because delinquent taxes are considered fully collectible due to foreclosure requirements in State Law. ____________________________________________________________________________________________________________ Washington State Auditor's Office 38
  • 42. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements Special assessments are recorded when levied. Special assessment receivables consist of deferred and delinquent assessments and related interest and penalties. Deferred assessments consist of unbilled special assessments that are liens against the property benefited. Customer accounts receivable consists of amounts owed from private individuals or organizations for goods and/or services provided by the end of the fiscal year. Uncollectible amounts are considered immaterial and the direct write-off method is primarily used. In 2006, an allowance for uncollectibles was established for Surface Water Management Fees. Due from other governments reflects measurable and available intergovernmental grants, entitlements, or state shared revenues, loans, and charges for services rendered by the City for another government unit. These amounts are reported as intergovernmental revenues in the year when the related expenditures are incurred. Interfund Transactions During the course of normal operations, the City has numerous transactions between City funds. Quasi-external transactions such as buying goods and services are recorded as revenues and expenditures. Repayments from funds responsible for particular expenditures or expenses to the funds that initially paid for them are not presented on the financial statements. Operating transfers between funds are included as “other financing sources or uses”. Interfund loans, when applicable, are recorded as receivables in the lending fund and payables in the borrowing fund. The City had no interfund loans in 2006. Inventories and Prepaid Items Governmental funds use the “purchase method” whereby inventory items are considered expenditures when purchased. Inventories in proprietary funds are valued at cost using the first- in/first-out (FIFO) method. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Restricted Assets These monies include other resources the use of which is restricted by legal or contractual requirements, and therefore essentially beyond the government’s control. These accounts contain resources for debt service (general obligation and revenue bonds) and construction in enterprise funds. These funds can only be used for the purposes specified in the ordinances and resolutions requiring restriction. Capital Assets and Depreciation The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. Capital assets acquired in governmental funds are accounted for as expenditures in the fund when the asset is purchased. These assets are reported in the governmental activities column of the government-wide statement of net assets but are not reported in the fund balance sheet. Capital assets utilized by the proprietary funds are reported both in the business-type activities column of the government-wide statement of net assets and in the respective proprietary fund financial statements. Capital assets include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items). Capital assets are defined by the City as assets with an initial, individual cost of $5,000 or greater and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at time of acquisition. ____________________________________________________________________________________________________________ Washington State Auditor's Office 39
  • 43. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. The total interest and fiscal charges expense for the business-type activities incurred by the City during the current fiscal year was $190,134. Of this amount, $5,222 was included as part of the cost of capital assets under construction in connection with the Marina construction projects. Depreciation is computed using the straight line method over estimated service lives, as follows: Assets Estimated Service Life Buildings and Structures 4 to 50 years Other improvements 10 to 50 years Vehicles 3 to 10 years Communication Systems 7 to 10 years Computer Infrastructure 6 Years Machinery and equipment 7 to 24 years Infrastructure 10 to 25 years Intangible assets 5 to 10 years Storm drainage systems 25 to 50 years See Note 6 for additional information. Deferred Charges Deferred charges represent the unamortized portion of bond issuance costs in the government-wide financial statements for governmental activities. The deferred charges in the proprietary funds represent the unamortized portion of bond issuance costs and deferred losses on two advance refunding issues for the Marina. Compensated Absences It is the City of Des Moines’s policy to permit employees to accumulate earned but unused vacation, compensatory time, and sick leave benefits. The City records a liability for all outstanding vacation pay. The payment is based on current wages at termination. Employees other than Teamsters with the required length of service may receive cash payouts for all accumulated vacation leave to a maximum of 300 hours. Teamsters’ members with the required length of service may receive cash payouts for all accumulated vacation leave to a maximum of 315 hours. Accrued vacation pay for governmental fund employees incurred within sixty days is recorded as a fund liability in the fund financial statements. A non-exempt employee may request compensatory time off in lieu of overtime payment. Compensatory time is accrued at a rate of one and one-half hours for each hour of overtime worked, to a maximum of forty hours. Compensatory time must be used within sixty days of the time it was earned and authorized, excluding the Police Guild. Compensatory time for the Police Guild can be carried over from year to year. The City records a liability for sick leave up to 25% of the employee’s sick leave balance or 200 hours, whichever is less for those employees other than the Teamsters with at least ten years of service with the City. ____________________________________________________________________________________________________________ Washington State Auditor's Office 40
  • 44. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements The entire compensated absence liability is reported on the government-wide financial statements. In the proprietary funds, the entire amount of compensated absences is reported as a fund liability. This reporting format is in compliance with GASB Statement No. 16. Short-term Debt As of December 31, 2006, the City of Des Moines had not incurred any short-term debt. Long-term Obligations In the government-wide financial statements, and 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, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the “bonds-outstanding” method, which approximates the “effective interest” method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums or discounts received on debt issuances are reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Deferred Revenues Deferred revenues consist of amounts collected before revenue recognition criteria are met, and receivables, which, under the modified accrual basis of accounting, are measurable but not yet available. When the receivable amounts are collected in future periods, this liability account is reduced and corresponding revenues is recorded. Fund Equity – Reserves and Designations The City recognizes in its reporting that assets are sometimes not “available spendable resources” or not at times legally available for appropriation, because they are contractually or legally restricted for some specific future use. When this is the case, as for example with imprest funds and prepaid items, fund equity is “reserved”. Designations are set aside portions of fund equity by management for future plans or administrative convenience. NOTE 2 – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Compliance There have been no material violations of finance-related legal or contractual provisions. Expenditures in the Hotel-Motel Tax Fund and Self-Insurance Fund exceeded legal appropriations by $3,014 and $60,780, respectively. ____________________________________________________________________________________________________________ Washington State Auditor's Office 41
  • 45. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements NOTE 3 – DEPOSITS AND INVESTMENTS As required by state law, all deposits and investments of the City’s funds are either obligations of the United States Government, the State Treasurer’s Local Government Investment Pool (LGIP), bankers’ acceptances, or deposits with Washington State banks or savings and loan institutions. The LGIP, which is a 2a7-like unrated pool, is a voluntary program administered by the State Treasurer’s Office. The fair value of the positions in the LGIP is the same as the value of the pool shares. Interest earned on pooled investments is credited to the participating funds in proportion to their respective cash balances in the pool. Note 1 describes the investment policies of the City. Deposits in approved banks are covered by the Federal Deposit Insurance Corporation up to a limit of $100,000 per account. The remaining deposits are insured by the Washington Public Deposit Protection Commission (WPDPC). The WPDPC is a multiple financial institution collateral pool. State statute permits additional amounts to be assessed on a pro rata share basis to members of the pool in the event the pool’s collateral should be insufficient to cover a loss. Cash and Deposits At December 31, 2006, the City had $15,639,175 in cash and cash equivalents which consisted of investments with KeyBank Sweep Account of $217,722, investments with the State Pool $14,615,895; the City’s checking account bank balance of $206,387; KeyBank Money Market Savings Account of $3,845; deposits held in escrow of $558,567; ICMA forfeitures of $26,559 held by that organization; cash held with fiscal agent of $5,000 and petty cash and change funds, and investigative fund totaling $5,200. No deposits were uninsured or uncollateralized. Investments The City has few investments and chooses to disclose its investments by specifically identifying each individually. As stated in Note 1, investments are held separately by each of the funds with interest earned directly for the benefit of each fund. Investments are reported at fair value based on quoted market prices. The City held no investments at December 31, 2006. Interest Rate Risk. As a means of limiting its exposure to fair value losses arising from rising interest rates, the City’s investment policy limits investment maturities to eighteen months or less unless matched to a specific cash flow. Credit Risk. State statutes and the City’s investment policy limit the types of securities authorized for investment by the City. The principal governing statutes are RCW 39.59 and RCW 39.60. Authorized investments include: 1) U.S. Treasury Securities. 2) U.S. Agency Securities (i.e., obligations of any government-sponsored corporation eligible for collateral purposes at the Federal Reserve). 3) Certificates of Deposit, Money Market Deposit Accounts and savings deposits with qualified depositories within statutory limits as promulgated by the WPDPC at the time of investment. 4) Bankers Acceptances (BA’s) purchased on the secondary market with a rating of A-1, P-1, it’s equivalent or better. 5) General Obligation Bonds of a state or local government which have at the time of the investment one of the three highest credit ratings of a nationally-recognized rating agency. 6) The Washington State Local Government Investment Pool (LGIP). ____________________________________________________________________________________________________________ Washington State Auditor's Office 42
  • 46. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements Concentration of Credit Risk. With the exception of U.S. Treasuries, and the State Investment Pool, the City’s investment policy limits investing in a single security type or with a single financial institution to no more than 25 percent of the City’s total investment portfolio. Summary of All Cash, Deposits, and Investments Cash & Cash Equivalents Investments Total From Statement of Net Assets: Cash and cash equivalents $ 13,089,811 $ - $ 13,089,811 Investments - - Restricted assets: Cash and cash equivalents 2,544,364 2,544,364 Investments - - Total all cash, deposits, and investments from statement of net assets $ 15,634,175 $ - $ 15,634,175 NOTE 4 – RECEIVABLES AND PAYABLES Property Taxes Receivable The King County Treasurer acts as an agent to collect property taxes levied in the County for all taxing authorities. Taxes are levied annually on January 1 on all property listed as of the prior August 31 and billed on April 1 and October 1. Amounts collected by the County on the City’s behalf are remitted daily. Property taxes levied by the City and collected by the King County Treasurer (County) become a lien on the first day of the levy year and may be paid in two equal installments if the total amount exceeds thirty dollars. The first half of the real property taxes is due April 30 and the balance is due October 31. Delinquent taxes bear interest at the rate of 12% and are subject to additional penalties if not paid as scheduled. During the year, property tax revenue is recognized when cash is received. At year end, property tax revenues are recognized for collections to be distributed by the County in January and February. Property taxes not expected to be collected within 60 days after the current period are reported as deferred revenue. Under state law, cities may levy up to $3.60 per $1,000 of assessed valuation for general government services, of which $1.50 is allocated to the local fire district and $0.50 to library services. The City of Des Moines is served by South King Fire and Rescue and the King County Library System and therefore is limited to $1.60 per $1,000 of assessed valuation for general purposes. The payment of principal and interest on Limited Tax (non-voted) General Obligation Bonds issued by the City is made from the general levy. Accordingly, the issuance of Limited Tax General Obligation Bonds has the effect of reducing property taxes available for the general operations of city government. State law also provides that the City’s operating levy may not exceed 106% of the largest single levy of the previous three years. In addition, the state constitution provides that the total of all taxes upon real and personal property by the state and all taxing entities, including the City, shall not in any year exceed 1% ($10 per $1,000) of the true and fair monetary value of such property. The limitation may be exceeded upon the 60% approval of the City voters at an election in which the total vote exceeds 40% of the votes cast at the last general election. In 2006, the City levied $1.16446 per $1,000 of assessed valuation for general purposes on a total regular levy assessed value of $2,358,258,142. The City’s excess tax levy for Unlimited General Obligation Bonds was $0.2731 per $1,000 of assessed valuation, totaling $644,040. ____________________________________________________________________________________________________________ Washington State Auditor's Office 43
  • 47. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements Actual property taxes levied in 2006 were as follows: Item Property Taxes General Levy $2,759,620 Excess Levy 636,962 Total $3,396,582 Sales Taxes and Other Locally Levied Taxes During the year, sales tax, hotel-motel tax, business and occupation tax, franchise fee, utility tax, and gambling tax revenues are recognized when cash is received. Sales tax and hotel-motel tax revenues are collected by the State’s Department of Revenue and remitted monthly. Timing of receipts for sales tax and hotel-motel tax revenues follows a two month lag in reporting period. November and December 2006 revenues were remitted in January and February 2007, respectively. The City collects franchise fee, utility tax, and gambling tax revenues and they are remitted monthly following the month earned. The City implemented a business and occupation tax effective for 2005 with the adoption of Ordinance No. 1355 on December 2, 2004. A tax rate of two tenths of one cent ($.002) was established exempting businesses with annual gross receipts of $50,000 or less. Businesses earning $75,000 or more are required to file their tax returns and submit their remittances 30 days following the end of each quarter. All other active businesses file annual returns. Business and occupation taxes reported in 2006 totaled $605,444. On January 13, 2005, the City Council adopted Ordinance No. 1358 imposing a one percent (1%) hotel- motel tax per RCW 67.28.180. The hotel-motel tax is a special excise tax imposed upon the sale of or charge made for the furnishing of lodging by a hotel, rooming house, tourist court, motel, bed and breakfast, or trailer camp for less than 30 days. The hotel-motel tax revenue collections are earmarked for marketing services in promoting tourism to the City. Hotel-motel tax revenues reported in 2006 totaled $18,956. The King County Treasurer acts as an agent for the collection of the locally-imposed real estate excise taxes. Cities are authorized to levy one quarter percent and an additional one quarter percent if they are planning under the Growth Management Act. The City levies both the first ¼% and second (optional) real estate excise taxes. The tax is levied on all sales of real estate, measured by the full selling price including the amount of any liens, mortgages, and other debts given to secure the purchase. Amounts collected by the County on the City’s behalf are remitted monthly. During the year, real estate excise tax revenue is recognized when cash is received. At year end, unpaid taxes are recorded as a receivable. Real estate excise taxes not expected to be collected within 60 days after the current period are reported as deferred revenue. The following outlines taxes receivable for the year ended December 31, 2006. Taxes Item Receivable Property Taxes $ 141,290 Sales Taxes 352,449 Hotel-Motel Taxes 3,346 Business & Occupation Taxes 194,290 Franchise Fees 87,148 Utility Taxes 351,700 Gambling Taxes 3,868 Real Estate Excise Taxes 105,609 Total $1,239,700 ____________________________________________________________________________________________________________ Washington State Auditor's Office 44
  • 48. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements Customer Accounts and Other Receivables As of December 31, 2006, the City has included a receivable for court fines and forfeits under customer accounts for $428,762 related to 2006 and prior years. A deferred revenue for these court fines and forfeits has been established in the fund financial statements. These revenues represent the estimated collectible amount of the total court outstanding revenues of $3,344,476 at December 31, 2006. Due from Other Governments The City receives various grant awards from federal, state, and local governmental agencies. Most of the awards are reimbursable after expenditures are incurred; reimbursements not yet received at year end are reported as intergovernmental revenues and due from other governments. Grant revenues from cost reimbursement grants are considered earned and therefore available when the expenditure is incurred. Grants received before the revenue recognition criteria have been met are reported as Deferred Revenue. Due to Other Governments At December 31, 2006, the City recorded $135,898 as due to other governmental units. Included in this amount is $108,353 for interest earnings on unspent Public Works Trust Fund loan proceeds and $20,728 for unbilled signal maintenance due Washington Department of Transportation. The remainder represents amounts due the state for concealed weapons permits, and King County for fines collected that support crime victims and law library. Other Current Liabilities As of December 31, 2006, other current liabilities were as follows: Arterial Municipal Nonmajor Surface General Street Street Capital Governmental Water Item Fund Fund Fund Imprv Fund Funds Marina Utility Total Retainage $ - $ - $ 573,153 $ 7,285 $ - $ 2,353 $ - $ 582,791 Payroll 343,127 11,753 9,407 25,794 20,868 410,949 Taxes 915 - - - 1,348 1,722 3,985 Banking Fees 1,093 1,257 2,350 Compensated absences 56,531 2,393 756 4,174 5,030 68,884 Unclaimed property 3,561 70 626 - 4,257 Court trust bails 16,557 16,557 Customer Deposits 425,542 - - - 425,542 Customer Refunds 58,578 58,578 Total other current liabilities $ 847,326 $ 14,146 $ 573,153 $ 7,285 $ 68,811 $ 35,552 $ 27,620 $ 1,573,893 Deferred Revenues Deferred revenue for the year ended December 31, 2006 as reported on the government-wide statement of net assets is detailed below: Governmental Business-Type Item Activities Activities Total Business Licenses $ 33,375 $ - $ 33,375 Recreation Programs 37,649 37,649 Crime-free Housing Program 53,613 53,613 Mt. Rainier Pool Subsidy 41,280 41,280 Customer Moorage 195,308 195,308 Total $ 165,917 $ 195,308 $ 361,225 ____________________________________________________________________________________________________________ Washington State Auditor's Office 45
  • 49. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements NOTE 5 – INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS There were no outstanding interfund receivables and payables at December 31, 2006. The principal purposes for interfund transfers include interfund subsidies and transfers into debt service and capital project funds. Interfund transfers at December 31, 2006 were as follows: Fund Category Transfers In Transfers Out General Fund $ 7,500 $ 61,269 Street Fund 0 61,395 Arterial Street Fund 845,203 156,488 Municipal Capital Imprv Fund 0 760,015 Nonmajor Governmental Funds 468,293 310,058 Internal Service Funds 34,273 6,044 Totals $1,355,269 $1,355,269 The following describes the significant amounts transferred during 2006: General fund transfers out: • $25,000 operating subsidy for the Mt. Rainier Pool in the nonmajor governmental funds. • $18,228 automation fees for Building Division computer needs in the Computer Equipment Capital Fund. • $10,000 reserves for telephone system in the Computer Equipment Capital Fund. • $8,040 for copiers’ capital lease debt service in the nonmajor governmental funds. Street fund transfers out: • $61,395 gas taxes for transportation capital improvements in the Arterial Street Fund. Arterial Street fund transfers out: • $156,488 for debt service in the nonmajor governmental funds. Municipal Capital Improvement fund transfers out: • $481,250 to provide funding for transportation capital projects in the Arterial Street Fund. • $228,765 for debt service in the nonmajor governmental funds. • $50,000 capital contribution for the Mt. Rainier Pool in the nonmajor governmental funds. Nonmajor fund transfers out: • $186,940 transportation impact fees for transportation capital improvements in the Arterial Street Fund. • $115,618 for transportation related local improvement district payments to the Arterial Street Fund. • $7,500 for legislative travel in the General Fund. ____________________________________________________________________________________________________________ Washington State Auditor's Office 46
  • 50. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements NOTE 6 – CAPITAL ASSETS Capital asset activity for the year ended December 31, 2006, was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: Land $ 100,491,334 $ 17,385 $ - $ 100,508,719 Construction in progress 1,019,063 1,646,093 (822,760) 1,842,396 Total capital assets not being depreciated 101,510,397 1,663,478 (822,760) 102,351,115 Other capital assets: Buildings & structures 8,688,822 8,688,822 Capital leases - 43,417 43,417 Other improvements 5,505,890 9,838 5,515,728 Machinery and equipment 3,534,257 280,358 (196,900) 3,617,715 Infrastructure 24,161,496 788,991 24,950,487 Intangible assets 209,909 209,909 Total other capital assets at historical cost 42,100,374 1,122,604 (196,900) 43,026,078 Less accumulated depreciation: Buildings & structures (1,611,119) (209,969) (1,821,088) Capital leases - (7,236) (7,236) Other improvements (1,830,454) (313,258) (2,143,712) Machinery and equipment (2,071,752) (435,496) 190,829 (2,316,419) Infrastructure (8,065,736) (1,275,466) (9,341,202) Intangible assets (122,732) (37,055) (159,787) Total accumulated depreciation (13,701,793) (2,278,480) 190,829 (15,789,444) Other capital assets, net 28,398,581 (1,155,876) (6,071) 27,236,634 Governmental activities capital assets, net $ 129,908,978 $ 507,602 $ (828,831) $ 129,587,749 Beginning Ending Balance Increases Decreases Balance Business-type Activities: Capital assets not being depreciated: Land $ 3,755,837 $ 2,147 $ - $ 3,757,984 Construction in progress 1,779,323 5,203,741 (4,974,940) 2,008,124 Total capital assets not being depreciated 5,535,160 5,205,888 (4,974,940) 5,766,108 Other capital assets: Buildings & structures 4,764,817 35,491 4,800,308 Capital leases - 6,701 6,701 Other improvements 19,126,883 1,062,686 20,189,569 Leasehold improvements 149,669 149,669 Machinery and equipment 84,225 21,879 106,104 Intangible assets 230,124 230,124 Total other capital assets at historical cost 24,355,718 1,126,757 - 25,482,475 Less accumulated depreciation: Buildings & structures (2,898,572) (119,282) (3,017,854) Capital leases - (1,117) (1,117) Other improvements (8,497,769) (483,130) (8,980,899) Leasehold improvements (84,602) (5,232) (89,834) Machinery and equipment (61,566) (6,980) (68,546) Intangible assets (113,955) (23,012) (136,967) Total accumulated depreciation (11,656,464) (638,753) - (12,295,217) Other capital assets, net 12,699,254 488,004 - 13,187,258 Business-type activities capital assets, net $ 18,234,414 $ 5,693,892 $ (4,974,940) $ 18,953,366 ____________________________________________________________________________________________________________ Washington State Auditor's Office 47
  • 51. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements All reported capital assets of the City are depreciated. Improvements are depreciated over the remaining useful lives of the related capital assets. Useful lives for infrastructure were estimated based on the City’s historical records of necessary improvements and replacement. Depreciation expense for 2006 was charged to functions/programs as follows: Governmental Activities: General Government $ 106,932 Public Safety 210,944 Physical Environment 1,024 Transportation 1,311,838 Economic Environment 35,045 Culture and Recreation 348,250 In addition, depreciation on capital assets held by the City's internal service funds is charged to the various functions based on their usage of the assets. 264,445 Total governmental activities depreciation and amortization expense $ 2,278,478 Business-type Activities: Marina $ 366,780 Surface Water Utility 271,973 Total business-type activities depreciation and amortization expense $ 638,753 Marine View Drive Bridge Culvert Replacement The City of Des Moines Surface Water Management Utility manages the Marine View Drive Bridge culvert replacement project. The Marine View Drive Bridge is owned by the State of Washington. The City is a member of the Des Moines Creek Basin Committee established in 1996 by an interlocal agreement authorized by the Interlocal Cooperation Act (Chapter 39.34 RCW) to develop a basin plan for the Des Moines Creek. Other participating members include the City of SeaTac, King County, the Port of Seattle, and the Washington State Department of Transportation. The Marine View Drive Bridge culvert replacement project is one of three main Des Moines Creek Restoration projects that will be constructed, operated and maintained by the members of the Des Moines Creek Basin Committee. The two other main projects include the Regional Detention Facility, and the Stream Bypass Pipe. Construction costs for these projects total $23,602,231, with the City of Des Moines contributing $1,002,402, or 4.25%. The City of SeaTac is the Treasurer for the Committee and reimburses the City of Des Moines for all project costs, other than City incurred administrative costs and costs related to utility relocations that are reimbursed directly to the City from both private and public entities. The City of Des Moines records 18% of the Marine View Drive Bridge culvert replacement project costs for stream improvements, which represents 18% of the basin area within the city limits, and 100% of the intermodel trail and roadway improvements to construction in progress until completion. The remainder of the project costs net of reimbursements is shown as other non-operating expenses. ____________________________________________________________________________________________________________ Washington State Auditor's Office 48
  • 52. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements The Marine View Drive Bridge Culvert Replacement Project activity for 2006 is as follows: SURFACE WATER MANAGEMENT UTILITY MARINE VIEW DRIVE BRIDGE CULVERT REPLACEMENT PROJECT Other Des Moines Governments Total Reimbursements: City of SeaTac $ 374,718 $ 2,741,189 $ 3,115,907 Washington State Department of Transportation 475,000 475,000 Water District #54 112,879 112,879 Midway Sewer District 175,179 175,179 Private Utilities 46,256 46,256 Less City of Des Moines Contribution (25,000) (25,000) Total Reimbursements $ 374,718 $ 3,525,503 $ 3,900,221 Project Costs: Total Project Costs $ 374,718 $ 3,586,691 $ 3,961,409 Other Non-Operating Expenses $ 0 $ (61,188) $ (61,188) NOTE 7 – PREPAID ITEMS As of December 31, 2006, governmental and business-type activities recorded $1,312, and $5,118, respectively in vendor prepayments. Prepayments include $500 fee for a children theater performance during summer 2007, $812 for City Council members January 2007 meeting, and $5,118 for the Marina’s travel boat lift. NOTE 8 – JOINT VENTURES Mount Rainier Pool Contributors Coalition The coalition of the Mount Rainier Pool Contributors was established by an interlocal agreement in December 2002, authorized by the provisions and terms of the Interlocal Cooperation Act (Chapter 39.34 RCW). The coalition created by the cities of Des Moines, Normandy Park, SeaTac, and Highline School District No. 401, entered into agreements with each other and into a Pool Operation Agreement with King County, whereby King County agreed to continue operation, management, and maintenance of the pool and programs for the calendar year 2003 with the coalition contributing a portion of the operating funds. In 2004, the coalition assumed sole responsibility for the operation and maintenance of the pool through 2006. The 2006 actual contributions were as follows: 2006 2006 Operating Capital Total Des Moines $ 25,000 $ 50,000 $ 75,000 Highline School District 20,000 20,000 Normandy Park 15,000 15,000 SeaTac 25,000 25,000 Total $ 85,000 $ 50,000 $ 135,000 The City of Des Moines maintains a special revenue fund for the operations of the Mt. Rainier Pool which is included as a nonmajor governmental fund in the financial statements. ____________________________________________________________________________________________________________ Washington State Auditor's Office 49
  • 53. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements Mount Rainier Pool Owners Coalition The Mount Rainier Pool Owners Coalition was established December 11, 2003, when an interlocal agreement was entered into by the cities of Des Moines and Normandy Park for joint ownership of the Mt. Rainier Pool. The agreement is sanctioned by the provisions and terms of the Interlocal Cooperation Act pursuant to RCW 39.34. The intended purpose of the coalition is to assure the continued operation of the pool effective January 1, 2004 through termination of the agreement on December 31, 2006. The agreement was initiated due to King County’s decision to discontinue the operation of the pool even with subsidy funding provided by the Mount Rainier Pool Contributors Coalition. A Pool Transfer Agreement between King County and the Mount Rainier Pool Owners Coalition was executed in December 2003 that conveyed by deed effective as of January 1, 2004, all of its ownership interest in the Mt. Rainier Pool, and assignment of its lease with the Highline School District. The value of the pool was determined to be equal to the approximate cost of operating the pool due to the limitations in marketability and legal restriction regarding conversion of the properties to another use. The agreement establishing the Mount Rainier Pool Contributors Coalition was renewed concurrently with the Mount Rainier Pool Owners Coalition agreement to continue the individual governments’ participation in support of the pool’s operations from January 1, 2004 through December 31, 2006. The Mount Rainier Pool Owners Coalition entered into an agreement with Aquatic Management Group, Inc. (AMG) concurrently with the Mount Rainer Pool Owners and Mount Rainier Pool Contributors Coalitions’ agreements for purposes of maintaining and operating the pool for a period of three years, beginning January 1, 2004 through December 31, 2006. The City of Des Moines’s annual contribution for the term of the agreements is $75,000. The above Interlocal agreements were amended September 2006 to continue operations of the Mt. Rainier Pool through 2009. NOTE 9 – PENSION PLANS AND OTHER POST EMPLOYMENT BENEFITS Washington State Department of Retirement Systems Substantially all of the City’s full-time and qualifying part-time employees participate in one of the following statewide retirement systems administered by the Washington State Department of Retirement Systems, under cost-sharing multiple-employer public employee defined benefit and defined contribution retirement plans. The Department of Retirement Systems (DRS), a department within the primary government of the State of Washington, issues a publicly available comprehensive annual financial report (CAFR) that includes financial statements and required supplementary information for each plan. The DRS CAFR may be obtained by writing to: Department of Retirement Systems Communications Unit P.O. Box 48380 Olympia, WA 98504-8380 The following disclosures are made pursuant to GASB Statement No. 27, Accounting for Pensions by State and Local Government Employers. Public Employees’ Retirement System (PERS) Plans 1, 2, and 3 Plan Description. PERS is a cost-sharing multiple-employer retirement system comprised of three separate plans for membership purposes: Plans 1 and 2 are defined benefit plans and Plan 3 is a combination defined benefit/defined contribution plan. Membership is mandatory for all City employees working 70 hours per month for five months out of the twelve month period. Membership in the system includes: elected officials; state employees; employees of the Supreme, Appeals, and Superior courts (other than judges currently in a judicial retirement system); employees of legislative committees; community and technical colleges, college and university employees (not in national higher education retirement programs); judges of district and municipal courts; and employees of local governments. The PERS system includes three plans. PERS participants who joined the system by September 30, 1977 ____________________________________________________________________________________________________________ Washington State Auditor's Office 50
  • 54. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements are Plan 1 members. Those who joined on or after October 1, 1977 and by either, February 28, 2002 for state and higher education employees, or August 31, 2002 for local government employees, are Plan 2 members unless they exercise an option to transfer their membership to Plan 3. PERS participants joining the system on or after March 1, 2002 for state and higher education employees, or September 1, 2002 for local government employees have the irrevocable option of choosing membership in either PERS Plan 2 or PERS Plan 3. The option must be exercised within 90 days of employment. An employee is reported in Plan 2 until a choice is made. Employees who fail to choose within 90 days default to PERS Plan 3. PERS defined benefit retirement benefits are financed from a combination of investment earnings and employer and employee contributions. PERS retirement benefit provisions are established in state statute and may be amended only by the State Legislature. Plan 1 retirement benefits are vested after an employee completes five years of eligible service. Plan 1 members are eligible for retirement at any age after 30 years of service, or at the age of 60 with five years of service, or at the age of 55 with 25 years of service. The annual pension is two percent of the average final compensation per year of service, capped at 60 percent. The average final compensation is based on the greatest compensation during any 24 eligible consecutive compensation months. If qualified, after reaching the age of 66 a cost-of-living allowance is granted based on years of service credit and is capped at three percent annually. Plan 2 retirement benefits are vested after an employee completes five years of eligible service. Plan 2 members may retire at the age of 65 with five years of service, or at the age of 55 with 20 years of service, with an allowance of two percent of the average final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive 60- month period. Plan 2 retirements prior to the age of 65 receive reduced benefits. If retirement is at age 55 or older with at least 30 years of service, a three percent per year reduction applies; otherwise an actuarial reduction will apply. There is no cap on years of service credit; and a cost-of-living allowance is granted indexed to the Seattle Consumer Price Index, capped at three percent annually. Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component, and member contributions finance a defined contribution component. The defined benefit portion provides a benefit calculated at one percent of the average final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive 60-month period. Plan 3 members become eligible for retirement if they have: at least ten years of service; or five years including twelve months that were earned after age 54; or five service credit years earned in PERS Plan 2 prior to June 1, 2003. Plan 3 retirements prior to the age of 65 receive reduced benefits. If retirement is at age 55 or older with at least 30 years of service, a three percent per year reduction applies; otherwise an actuarial reduction will apply. There is no cap on years of service credit, and Plan 3 provides the same cost-of-living allowance as Plan 2. The defined contribution portion can be distributed in accordance with an option selected by the member, either as a lump sum or pursuant to other options authorized by the Employee Retirement Benefits Board. There are 1,181 participating employers in PERS. Membership in PERS consisted of the following as of the latest actuarial valuation date for the plans of September 30, 2005: Retirees and Beneficiaries Receiving Benefits 68,609 Terminated Plan Members Entitled to But Not Yet Receiving Benefits 22,567 Active Plan Members Vested 104,574 Active Plan Members Non-vested 51,004 Total 246,754 Funding Policy. Each biennium, the state Pension Funding Council adopts Plan 1 employer contribution rates, Plan 2 employer and employee contribution rates, and Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are established by statute at six percent for state agencies and local government unit employees, and 7.5 percent for state government elected officers. The employer and employee contribution rates for Plan 2 and the employer contribution rate for Plan 3 are developed by the Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. All employers ____________________________________________________________________________________________________________ Washington State Auditor's Office 51
  • 55. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements are required to contribute at the level established by the Legislature. PERS Plan 3 defined contribution is a non-contributing plan for employers. Employees who participate in the defined contribution portion of PERS Plan 3 do not contribute to the defined benefit portion of PERS Plan 3. The Employee Retirement Benefits Board sets Plan 3 employee contribution rates. Six rate options are available ranging from 5 to 15 percent; two of the options are graduated rates dependent on the employee’s age. The methods used to determine the contribution requirements are established under state statute in accordance with chapters 41.40 and 41.45 RCW. The required contribution rates expressed as a percentage of current-year covered payroll, as of December 31, 2006, were as follows: PERS Plan 1 PERS Plan 2 PERS Plan 3 Employer* 3.69% 3.69% 3.69%** Employee 6.00% 3.50% *** * The employer rates include the employer administrative expense fee currently set at 0.18%. ** Plan 3 defined benefit portion only. *** Variable from 5.0% minimum to 15.0% maximum based on rate selected by the PERS 3 member. Both the City of Des Moines and the employees made the required contributions. The City’s required contributions for the years ending December 31 were as follows: PERS Plan 1 PERS Plan 2 PERS Plan 3 2006 $12,971 $133,791 $10,958 2005 7,742 78,901 6,804 2004 5,243 59,170 5,707 Law Enforcement Officers’ & Fire Fighters’ Retirement System (LEOFF) Plans 1 and 2 Plan Description. LEOFF is a cost-sharing multiple-employer retirement system comprised of two separate defined benefit plans. Membership in the system includes all full-time, fully compensated, local law enforcement officers and firefighters. LEOFF is comprised primarily of non-state employees, with the exception of the Department of Fish and Wildlife enforcement officers, who were first included prospectively effective July 27, 2003 being the exception. LEOFF participants who joined the system by September 30, 1977 are Plan 1 members. Those who joined on or after October 1, 1977 are Plan 2 members. Effective July 1, 2003, the LEOFF Plan 2 Retirement Board was established to provide governance of LEOFF Plan 2. The Board’s duties include adopting contribution rates and recommending policy changes to the Legislature for the LEOFF Plan 2 retirement plan. Effective January 1, 2003 fire fighter emergency medical technicians (EMTs) may transfer PERS Plan 1 or Plan 2 service credit to LEOFF Plan 2 if while employed for a city, town, county or district, the EMT’s job was relocated to a fire department from another city, town, county or district. LEOFF defined benefit retirement benefits are financed from a combination of investment earnings, employer and employee contributions, and a special funding situation in which the state pays the remainder through state legislative appropriations. LEOFF retirement benefit provisions are established in state statute and may be amended by the State Legislature. Plan 1 retirement benefits are vested after an employee completes five years of eligible service. Plan 1 members are eligible for retirement with five years of service at the age of 50. The benefit per year of service calculated as a percent of final average salary is as follows: Term of Service Percent of Final Average Salary 20 or more years 2.0% 10 but less than 20 years 1.5% 5 but less than 10 years 1.0% ____________________________________________________________________________________________________________ Washington State Auditor's Office 52
  • 56. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements The final average salary is the basic monthly salary received at the time of retirement, provided a member has held the same position or rank for 12 months preceding the date of retirement. Otherwise, it is the average of the highest consecutive 24 months’ salary within the last 10 years of service. If membership was established in LEOFF after February 18, 1974, the service retirement benefit is capped at 60 percent of final average salary. A cost-of-living allowance is granted indexed to the Seattle Consumer Price Index. Plan 2 retirement benefits are vested after an employee completes five years of eligible service. Plan 2 members may retire at the age of 50 with 20 years of service, or at the age of 53 with five years of service, with an allowance of two percent of the final average salary per year of service. The final average salary is based on the highest consecutive 60 months. Plan 2 retirements prior to the age of 53 are reduced three percent for each year that the benefit commences prior to age 53. There is no cap on years of service credit; and a cost-of-living allowance is granted indexed to the Seattle Consumer Price Index, capped at three percent annually. There are 376 participating employers in LEOFF. Membership in LEOFF consisted of the following as of the latest actuarial valuation date for the plans of September 30, 2005: Retirees and Beneficiaries Receiving Benefits 8,723 Terminated Plan Members Entitled to But Not Yet Receiving Benefits 577 Active Plan Members Vested 12,348 Active Plan Members Non-vested 3,523 Total 25,191 Funding Policy. Starting on July 1, 2000, Plan 1 employers and employees will contribute zero percent as long as the plan remains fully funded. Employer and employee contribution rates are developed by the Office of the State Actuary to fully fund the plan. Plan 2 employers and employees are required to pay at the level adopted by the Department of Retirement Systems in accordance with 41.45 RCW. All employers are required to contribute at the level required by state law. The Legislature, by means of a special funding arrangement, appropriated money from the state General Fund to supplement the current service liability and fund the prior service costs of Plan 2 in accordance with the requirements of the Pension Funding Council. However, this special funding situation is not mandated by the state constitution and this funding requirement could be returned to the employers by a change of statute. The methods used to determine the contribution rates are established under state statute in accordance with chapters 41.26 and 41.45 RCW. The required contribution rates expressed as a percentage of current-year covered payroll, as of December 31, 2006, were as follows: LEOFF Plan 1 LEOFF Plan 2 Employer* 0.18% 4.90%** Employee 0.00% 7.85% State n/a 3.13% *The employer rates include the employer administrative expense fee currently set at 0.18%. **The employer rate for ports and universities is 8.03%. Both the City of Des Moines and the employees made the required contributions. The City’s required contributions for the years ending December 31 were as follows: LEOFF Plan 1 LEOFF Plan 2 2006 $0 $140,296 2005 31 112,546 2004 162 96,568 ____________________________________________________________________________________________________________ Washington State Auditor's Office 53
  • 57. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements Other Post Employment Benefits In addition to the pension benefits described in Note 9, the City provides post employment benefits in accordance with State statute to all LEOFF 1 (law enforcement officers) retirees. Currently, there are six LEOFF 1 retirees who receive necessary medical and hospitalization coverage. Expenditures for post employment health care benefits are recognized as retirees report claims. The City does not have a funding policy at this time and no assets are designated for this purpose. During the year, expenditures of $57,933 were recognized for post employment health care. In 2006, the City purchased a long term care insurance policy for its LEOFF 1 retirees at an annual cost of $6,712. NOTE 10 – CAPITAL LEASES The City of Des Moines entered into a lease agreement for copiers in March 2006. This lease agreement qualifies as a capital lease for accounting purposes, and, therefore, has been recorded at the present value of the minimum lease payments as of the inception date. The copiers acquired through the capital lease are included as assets as follows: Governmental Business-type Activities Activities Total Capital Lease: Copiers $ 43,417 $ 6,701 $ 50,118 Less accumulated depreciation (7,236) (1,117) (8,353) Total $ 36,181 $ 5,584 $ 41,765 The future minimum lease obligations and the net present value of these minimum lease payments as of December 31, 2006, were as follows: Governmental Business-type Year Ending December 31 Activities Activities Total 2007 $ 9,648 $ 1,489 $ 11,137 2008 9,648 1,489 11,137 2009 9,648 1,489 11,137 2010 9,648 1,489 11,137 2011 1,608 248 1,856 Total minimum lease payments 40,200 6,204 46,404 Less: amount representing interest (3,398) (524) (3,922) Present value of minimum lease payments $ 36,802 $ 5,680 $ 42,482 NOTE 11 – LONG-TERM DEBT The City of Des Moines’s long-term debt consists of governmental activities long-term debt and business- type activities long-term debt. The City is in compliance with all Washington State Debt Limitation statutes and bond indenture agreements. The City’s long-term debt is accounted for in two areas: 1. Governmental Activities Long-term Debt – Debt in this classification is paid from property taxes, sales taxes, and real estate excise taxes, and is a general obligation of the City. The City has an A3 rating from Moody’s Investors Service for its 1997 and 1998 limited tax general obligation bonds, and an A2 rating for its 1995 unlimited tax general obligation bonds. Special Assessment Bonds are debt issued to finance capital improvements directly benefiting certain property owners and repayment is by an assessment against the benefiting property owners’ property. Public Works Trust Fund loans are low interest rate loans available from the Washington State Department of Community Development for qualifying projects. ____________________________________________________________________________________________________________ Washington State Auditor's Office 54
  • 58. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements 2. Business-Type Activities Long-term debt – Operating revenues of the individual proprietary funds are used to retire this debt. The City’s bond rating from Moody’s Investors Service is A3 for the 1993 and 2002 limited tax general obligation bonds Special Assessment Bonds In accordance with GASB Statement No. 6, special assessment debt is reported in the government’s financial statements. The special assessment bonds are supported solely by the property owners and the Local Improvement District Guaranty Fund and are not a general obligation of the City. As of December 31, all outstanding special assessment bonds have been redeemed. The account is funded with transfers from closed special assessment districts and interest earnings. At December 31, 2006, the Local Improvement District Guaranty Fund’s available cash totaled $12,084. Per RCW 35.54.095, a transfer to the General Fund of an amount not less than ten percent of the net outstanding obligations guaranteed by the fund is permitted. No funds were transferred to the General Fund in 2006. Public Works Trust Fund Loan – Pacific Highway South Redevelopment Project The City was awarded a Public Works Trust Fund Loan from the State of Washington in the amount of $5,000,000 in April 2004. The loan includes an interest rate of one-half percent with a term of twenty years. During 2004, the City requested two draws totaling $2,250,000. A portion of the loan proceeds were utilized to pay off a limited tax general obligation note in the amount of $1,257,401 in July 2004. The City does not intend to take additional draws under the loan agreement. The following schedules summarize the long-term debt transactions of the City for the year ended December 31, 2006. Changes in Long-term Liabilities Balance 1/1/06 Added Retired Balance 12/31/06 General obligation bonds $ 7,258,104 $ - $ 1,182,840 $ 6,075,264 Public works trust fund loans 2,328,190 144,485 2,183,705 Capital lease - 50,118 7,636 42,482 Compensated absences 795,079 936,164 836,975 894,268 Totals $ 10,381,373 986,282 2,171,936 $ 9,195,719 Detail of Outstanding Long-term Debt Interest ……………………………….………….Outstanding…………………………………… Due Within Item Rates Maturity Authorized 1/1/06 Issued Redeemed 12/31/06 One Year Governmental Activities: General Obligation Bonds: 1995 Unlimited G.O. - police facility 4.90%-5.25% 12/1/07 $ 3,350,000 $ 1,065,000 $ - $ 565,000 $ 500,000 $ 500,000 1997 Limited G.O. - City Hall expansion 4.30%-5.25% 12/1/17 1,640,000 1,170,000 - 70,000 1,100,000 75,000 1998 Limited G.O. - park land 4.00%-4.80% 6/1/09 1,225,000 355,000 - 85,000 270,000 85,000 Unamortized discount on bonds - (3,131) - (1,093) (2,038) - Total general obligation bonds 6,215,000 2,586,869 - 718,907 1,867,962 660,000 General Obligation Notes and Loans: 1992 PWTF Loan - street improvements 1.00% 4/1/08 384,000 72,565 24,189 48,376 24,188 2003 PWTF Loan - Pac Hwy pre-construction 0.50% 7/1/08 10,000 5,625 1,875 3,750 3,125 2004 PWTF Loan-Pac Hwy construction 0.50% 4/1/04 5,000,000 2,250,000 118,421 2,131,579 118,421 2006 Capital Lease - Copiers 4.23% 3/1/06 43,417 - 43,417 6,615 36,802 8,252 Total general obligation notes and loans 5,437,417 2,328,190 43,417 151,100 2,220,507 153,986 Compensated Absences: 681,064 809,227 704,009 786,282 20,000 Governmental activities long-term liabilities $ 11,652,417 $ 5,596,123 $ 852,644 $ 1,574,016 $ 4,874,751 $ 833,986 ____________________________________________________________________________________________________________ Washington State Auditor's Office 55
  • 59. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements Detail of Outstanding Long-term Debt Interest ……………………………….………….Outstanding…………………………………… Due Within Item Rates Maturity Authorized 1/1/06 Issued Redeemed 12/31/06 One Year Business-type Activities: General Obligation Bonds: 1993 Limited G.O. - Marina 3.80%-5.40% 12/1/07 $ 990,000 $ 240,000 $ 115,000 $ 125,000 $ 125,000 2002 Limited G.O. - Marina 2.50%-4.70% 12/1/22 5,420,000 4,430,000 345,000 4,085,000 355,000 Unamortized premium on bonds 11,703 4,699 7,004 - Unamortized discount on bonds (10,468) (766) (9,702) - Total general obligation bonds 6,410,000 4,671,235 - 463,933 4,207,302 480,000 2006 Capital Leases - Copiers 4.23% 3/1/06 6,701 - 6,701 1,021 5,680 1,274 Compensated Absences: 114,015 126,937 132,966 107,986 - Business-type activities long-term liabilities $ 6,416,701 $ 4,785,250 $ 133,638 $ 597,920 $ 4,320,968 $ 481,274 Total governmental and business-type activities long-term liabilities $ 18,069,118 $ 10,381,373 $ 986,282 $ 2,171,936 $ 9,195,719 $ 1,315,260 Internal service funds predominantly serve the governmental funds. Accordingly, long-term liabilities for them are included as part of the above totals for governmental activities. At year end, internal service funds compensated absences are included in the above amounts. Federal Arbitrage Rebate The Federal Tax Reform Act of 1986 requires issuers of tax-exempt debt of over $5 million to make payments to the United States Treasury of investment interest received at yields that exceed the issuer’s tax-exempt borrowing rates. Payments of arbitrage rebate amounts due under these regulations must be made to the U.S. Treasury every five years. The City incurred no rebatable arbitrage as of December 31, 2006 for its 2002 tax-exempt general obligation bond issue which is subject to the Tax Reform Act. Debt Service to Maturity Following is a schedule showing the debt service requirements to maturity for the City’s long-term debt, excluding capital leases, compensated absences and unamortized bond premium and discount. …………………….Governmental Activities………………………… General Public Works Trust Obligation Debt Fund Loans Totals Year Principal Interest Principal Interest Principal Interest 2007 660,000 91,808 144,484 11,164 804,484 102,972 2008 170,000 58,563 1,709,482 10,317 1,879,482 68,880 2009 180,000 50,513 20,609 1,649 200,609 52,162 2010 100,000 44,248 20,609 1,546 120,609 45,794 2011 100,000 39,248 20,609 1,443 120,609 40,691 2012-2016 535,000 119,095 103,044 5,667 638,044 124,762 2017-2021 125,000 6,563 103,043 3,090 228,043 9,653 2022-2026 - - 61,825 618 61,825 618 Totals $ 1,870,000 $ 410,038 $ 2,183,705 $ 35,494 $ 4,053,705 $ 445,532 …………………….Business-type Activities………………………. General Obligation Debt Totals Year Principal Interest Principal Interest 2007 480,000 178,190 480,000 178,190 2008 365,000 159,903 365,000 159,903 2009 185,000 147,128 185,000 147,128 2010 190,000 140,190 190,000 140,190 2011 195,000 132,590 195,000 132,590 2012-2016 1,110,000 534,865 1,110,000 534,865 2017-2021 1,370,000 270,953 1,370,000 270,953 2022-2026 315,000 14,805 315,000 14,805 Totals $ 4,210,000 $ 1,578,624 $ 4,210,000 $ 1,578,624 ____________________________________________________________________________________________________________ Washington State Auditor's Office 56
  • 60. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements Marina Bond Reserve Requirements The Marina is required by Ordinance No. 1312 to maintain the least of (1) 1.25 times the average annual debt service of all outstanding bonds; (2) maximum annual debt service; or (3) 10% of the proceeds of all outstanding bonds for the 2002 limited tax general obligation and refunding bonds. As of December 31, 2006, the Marina’s debt service reserve requirement was $408,500. Bond Reserve 1.25 * Ave Annual Maximum 10% Proceeds Annual Item 12/31/06 Debt Service Debt Service Outstanding Bonds 2002 GO Bonds $ 408,500 $ 454,681 $ 526,440 $ 408,500 Debt Limit Capacities State law provides that debt cannot be incurred in excess of the following percentages of the value of the taxable property of the City: 1.5% without a vote of the people; 2.5% with a vote of the people; 5.0% with a vote of the people, provided the indebtedness in excess of 2.5% is for utilities; 7.5% with a vote of the people, provided the indebtedness in excess of 5.0% is for parks or open space development. At December 31, 2006, the debt limits for the City were as follows: Without a Vote With a Vote of the People Item 1.5% 2.5% 5.0% 7.5% Legal Limit $ 35,373,872 $ 58,956,454 $ 117,912,907 $ 176,869,361 Less: Limited tax debt outstanding (7,801,451) (7,801,451) (7,801,451) (7,801,451) Unlimited tax debt outstanding (500,000) (500,000) (500,000) Add: Cash available in debt service funds 15,496 16,991 32,487 32,487 Delinquent property taxes - 26,257 26,257 26,257 Remaining legal debt capacity $ 27,587,917 $ 50,698,251 $ 109,670,200 $ 168,626,654 NOTE 12 – RESERVATION AND DESIGNATIONS OF FUND EQUITY Following is an analysis of fund equity reservations and designations by type for each of the City’s fund groups. General Special Capital Item Fund Revenue Projects Total Reservations: Imprest funds $ 4,600 $ - $ - $ 4,600 Prepaid items 1,312 - - 1,312 Total reservations $ 5,912 $ - $ - $ 5,912 Designations: - Maintenance agreement $ 18,836 $ - $ - $ 18,836 Continuing appropriations 897,185 52,736 - 949,921 Capital improvements - - 1,372,301 1,372,301 Total Designations $ 916,021 $ 52,736 $ 1,372,301 $ 2,341,058 ____________________________________________________________________________________________________________ Washington State Auditor's Office 57
  • 61. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements The City is required to reserve seven percent of the cumulative total of the general and street operating funds for continuing appropriations. The seven percent consists of two percent operating reserve generally designated for unanticipated expenditures that have been incurred during the fiscal year, with the five percent operating reserve intended to account for unanticipated revenue shortfalls. As of December 31, 2006, the amount of $949,921 was available for continuing appropriations and represents 93.4 percent of the total required operating reserves. NOTE 13 – RESTRICTED ASSETS The City’s Marina Fund 2006 restricted assets are detailed below. Item Total Customer Deposits $ 147,622 Facility Repair, Improvement & Replacement 321,274 Current Bond Principal & Interest 54,849 Debt Service Reserves 408,500 Construction Account 1,612,119 Total Restricted Assets $ 2,544,364 NOTE 14 – CONTRACTUAL OBLIGATIONS, CONTINGENCIES AND LITIGATION As of December 31, 2006, there were a small number of claims for damages and lawsuits pending against the City. In the opinion of the City’s legal counsel, however, neither the potential liability for any single claim or lawsuit, nor the aggregate potential liability arising from all actions currently pending would materially affect the financial condition of the City. The City has active construction projects as of December 31, 2006. At year end, the City’s significant commitments with contractors are as follows: $ 5,782,956 16th Ave. So. Improvements 335,617 Marine View Drive Bridge Culvert Replacement 142,598 Steven J. Underwood Memorial Park Restrooms NOTE 15 – RISK MANAGEMENT Public Entity Risk Pool The City of Des Moines is a member of the Washington Cities Insurance Authority (WCIA). Utilizing Chapter 48.62 RCW (self-insurance regulation) and Chapter 39.34 RCW (Interlocal Cooperation Act), nine cities originally formed WCIA on January 1, 1981. WCIA was created for the purpose of providing a pooling mechanism for jointly purchasing insurance, jointly self-insuring, and/or jointly contracting for risk management services. WCIA currently has a total of 121 members. New members initially contract for a three-year term, and thereafter automatically renew on an annual basis. A one-year withdrawal notice is required before membership can be terminated. Termination does not relieve a former member from its unresolved loss history incurred during membership. Liability coverage is written on an occurrence basis without deductibles. Coverage includes general, automobile, police professional, public officials’ errors or omissions, stop-gap, and employee benefits liability. Limits are $3 million per occurrence self insured layer, and $12 million per occurrence in the re- insured excess layer with no annual aggregate except $10 million per member for public officials' errors ____________________________________________________________________________________________________________ Washington State Auditor's Office 58
  • 62. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements and omissions. The excess layer is insured by the purchase of reinsurance and insurance. Total limits are $15 million per occurrence. The Board of Directors determines the limits and terms of coverage annually. Insurance coverage for property, automobile physical damage, fidelity, inland marine, and boiler and machinery are purchased on a group basis. Insurance coverage for underground storage tanks are purchased under a separate policy. Various deductibles apply by type of coverage. Property insurance and auto physical damage coverage are self-funded from the members’ deductible to $500,000, for all perils other than flood and earthquake, and insured above that amount by the purchase of reinsurance. In-house services include risk management consultation, loss control field services, claims and litigation administration, and loss analyses. WCIA contracts for claims investigation consultants for personnel issues and land use problems, insurance brokerage, and lobbyist services. WCIA is fully funded by its members who make annual assessments on a prospectively rated basis, as determined by an outside, independent actuary. The assessment covers loss, loss adjustment, and administrative expenses. As outlined in the interlocal, WCIA retains the right to additionally assess the membership for any funding shortfall. An investment committee, using investment brokers, produces additional revenue by investment of WCIA’s assets in financial instruments which comply with all State guidelines. These revenues directly offset portions of the membership’s annual assessment. WCIA is governed by a Board of Directors, which is comprised of one designated representative from each member. The Board elects an Executive Committee and appoints a Treasurer to provide general policy direction for the organization. The WCIA Executive Director reports to the Executive Committee and is responsible for conducting the day to day operations of the WCIA. Self-Insurance Fund In addition to the insurance coverage afforded through the Washington Cities Insurance Authority, the City is exposed to risks of losses to property not covered by the insurance pool. To provide additional cash reserves to fund those losses not covered by the insurance pool the City established a Self- Insurance Fund. The main activities of the Self-Insurance Fund consist of (1) employee education (2) disbursing premium payments for insurance pool and commercial insurance coverage (3) disbursing of claims for property and vehicle damage and (4) pay deductibles, litigation defense costs and/or damage claims against the City for which coverage may be denied by insurance carriers. Funding revenues are primarily contributions from other funds based on each fund or department’s assumed risk. The City recognizes insurance claims expenses based upon claims reported. At December 31, 2006, there was $76,498 in cash reserves available to pay for future uninsured claims and to provide training in risk management to city personnel. For claims not covered by the insurance pool, a liability for a claim is established if information indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of loss is reasonably estimable. As of December 31, 2006, there were no outstanding obligations in the Self Insurance Fund. There were no significant reductions in insurance coverage from coverage in 2006 in any of the major categories of risk. Also, the amount of settlements has not exceeded insurance coverage for the past three years. In 2004, the City joined the Association of Washington Cities’ (AWC) Worker’s Compensation Retrospective Rating Program. The program provides cities with expertise and services to lower their claims experience resulting in potential refund of a portion of their Washington State Department of Labor and Industries (L&I) premiums. Membership criteria includes being a member of the AWC, be in good standing with L&I, adoption of the AWC membership agreement, once a year attendance at a regional ____________________________________________________________________________________________________________ Washington State Auditor's Office 59
  • 63. CITY OF DES MOINES, WASHINGTON Notes to the Financial Statements training workshop, and a return to work/light duty policy. Fees are 6.5% of the City’s prior year’s L&I premium. The 6.5% fee is refunded to the City the following year if the group receives a refund from L&I. The City’s 2006 Worker’s Compensation Retrospective payment was $10,880. The City received a refund in 2006 totaling $26,669 representing excess claims over premiums for the years 2004 and 2005. Unemployment Insurance Fund The second self-insurance fund that the City utilizes is the Unemployment Compensation Insurance Fund. The purpose of the fund is to accumulate money for the payment of claims for unemployment compensation. Unemployment claims are processed by the State of Washington and billed to the City on a quarterly basis. Through the budget process each department contributes 0.25% of its annual payroll to cover future claims. Ordinance No. 879 adopted in 1991 established the reserve requirement for the payment of unemployment claims. The optimum reserve calculation is based on a formula derived by multiplying the average number of employees’ times five percent times the annual maximum unemployment benefits per employee times three years plus the average annual payout for the last ten years. As of December 31, 2006, the optimum reserve is $350,290. Cash reserves at December 31, 2006 total $312,780 representing 89 percent of the optimum reserve. The amounts payable at December 31, 2006 represent unemployment claims for the fourth quarter. The City’s changes in estimated claims liabilities for 2006 and 2005 is provided below: Unemployment Self- Insurance Insurance Item 2006 2005 2006 2005 Claims liabilities at beginning of year $ - $ - $ 6,944 $ 4,671 Claims expenses: Current year and changes in estimates 189,175 43,512 6,665 31,170 Claims payments (189,175) (43,512) (12,949) (28,897) Claims liabilities at end of the year $ - $ - $ 660 $ 6,944 NOTE 16 – PRIOR PERIOD ADJUSTMENTS In 2006, the Marina customer accounts receivable has been adjusted to the actual balance at December 31, 2006. The Marina maintains its own accounts receivable system (The Marina Program) and periodic reconciliations to the City’s main financial system had not been conducted in prior years to uncover various transactions that resulting in the overstatement of the customer accounts receivable balance. A prior period adjustment of $89,565 was made in 2006 to correct the accumulative errors. ____________________________________________________________________________________________________________ Washington State Auditor's Office 60
  • 64. ABOUT THE STATE AUDITOR'S OFFICE The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. Our mission is to work in cooperation with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. The State Auditor's Office has 300 employees who are located around the state to deliver our services effectively and efficiently. Approximately 65 percent of our staff are certified public accountants or hold other certifications and advanced degrees. Our regular audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. We also perform fraud and whistleblower investigations. In addition, we have the authority to conduct performance audits of state agencies and local governments. The results of our audits are widely distributed through a variety of reports, which are available on our Web site. We continue to refine our reporting efforts to ensure the results of our audits are useful and understandable. We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive program to coordinate audit efficiency and to ensure high-quality audits. State Auditor Brian Sonntag, CGFM Chief of Staff Ted Rutt Chief Policy Advisor Jerry Pugnetti Director of Administration Doug Cochran Director of Audit Chuck Pfeil, CPA Director of Performance Audit Linda Long, CPA, CGFM Director of Special Investigations Jim Brittain, CPA Director for Legal Affairs Jan Jutte Local Government Liaison Mike Murphy Communications Director Mindy Chambers Public Records Officer Mary Leider Main number (360) 902-0370 Toll-free hotline for government efficiency (866) 902-3900 Web Site www.sao.wa.gov (SAO FACTS.DOC - Rev. 07/07)