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1. Psychology 2e
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Table of Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . 1
Chapter 1: Introduction to Psychology . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . 7
1.1 What Is Psychology? . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 8
1.2 History of Psychology . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 9

7. 1.3 Contemporary Psychology . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 19
1.4 Careers in Psychology . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 27
Chapter 2: Psychological Research . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 37
2.1 Why Is Research Important? . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 38
2.2 Approaches to Research . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 44
2.3 Analyzing Findings . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 52
2.4 Ethics . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 63
Chapter 3: Biopsychology . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 75
3.1 Human Genetics . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 76
3.2 Cells of the Nervous System . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 83
3.3 Parts of the Nervous System . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 89
3.4 The Brain and Spinal Cord . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 92
3.5 The Endocrine System . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 104
Chapter 4: States of Consciousness . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 115
4.1 What Is Consciousness? . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 116
4.2 Sleep and Why We Sleep . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 122
4.3 Stages of Sleep . . . . . . . . . . . . . . . . . . . . . .

8. . . . . . . . . . . . . . . . . 124
4.4 Sleep Problems and Disorders . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 129
4.5 Substance Use and Abuse . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 134
4.6 Other States of Consciousness . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 143
Chapter 5: Sensation and Perception . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 155
5.1 Sensation versus Perception . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 156
5.2 Waves and Wavelengths . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 160
5.3 Vision . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 163
5.4 Hearing . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 171
5.5 The Other Senses . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 175
5.6 Gestalt Principles of Perception . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 179
Chapter 6: Learning . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 191
6.1 What Is Learning? . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 192
6.2 Classical Conditioning . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 193
6.3 Operant Conditioning . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 203
6.4 Observational Learning (Modeling) . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 214
Chapter 7: Thinking and Intelligence . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 225

9. 7.1 What Is Cognition? . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 226
7.2 Language . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 230
7.3 Problem Solving . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 234
7.4 What Are Intelligence and Creativity? . . . . . . . . . . .
. . . . . . . . . . . . . . . 241
7.5 Measures of Intelligence . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 245
7.6 The Source of Intelligence . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 252
Chapter 8: Memory . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 263
8.1 How Memory Functions . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 264
8.2 Parts of the Brain Involved with Memory . . . . . . . . .
. . . . . . . . . . . . . . . . 272
8.3 Problems with Memory . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 276
8.4 Ways to Enhance Memory . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 286
Chapter 9: Lifespan Development . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 295
9.1 What Is Lifespan Development? . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 296
9.2 Lifespan Theories . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 300
9.3 Stages of Development . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 310
9.4 Death and Dying . . . . . . . . . . . . . . . . . . . . .

10. . . . . . . . . . . . . . . . . 331
Chapter 10: Emotion and Motivation . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 341
10.1 Motivation . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 342
10.2 Hunger and Eating . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 348
10.3 Sexual Behavior . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 354
10.4 Emotion . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 362
Chapter 11: Personality . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 379
11.1 What Is Personality? . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 380
11.2 Freud and the Psychodynamic Perspective . . . . . . . .
. . . . . . . . . . . . . . . 383
11.3 Neo-Freudians: Adler, Erikson, Jung, and Horney . . . .
. . . . . . . . . . . . . . . 389
11.4 Learning Approaches . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 395
11.5 Humanistic Approaches . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 399
11.6 Biological Approaches . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 400
11.7 Trait Theorists . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 401
11.8 Cultural Understandings of Personality . . . . . . . . . .
. . . . . . . . . . . . . . . 406
11.9 Personality Assessment . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 408
Chapter 12: Social Psychology . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 421

11. 12.1 What Is Social Psychology? . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 422
12.2 Self-presentation . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 428
12.3 Attitudes and Persuasion . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 432
12.4 Conformity, Compliance, and Obedience . . . . . . . . .
. . . . . . . . . . . . . . . 438
12.5 Prejudice and Discrimination . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 446
12.6 Aggression . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 452
12.7 Prosocial Behavior . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 455
Chapter 13: Industrial-Organizational Psychology . . . . . . .
. . . . . . . . . . . . . . . . . . 471
13.1 What Is Industrial and Organizational Psychology? . . . .
. . . . . . . . . . . . . . . 472
13.2 Industrial Psychology: Selecting and Evaluating
Employees . . . . . . . . . . . . . . 481
13.3 Organizational Psychology: The Social Dimension of Work
. . . . . . . . . . . . . . 493
13.4 Human Factors Psychology and Workplace Design . . . .
. . . . . . . . . . . . . . 503
Chapter 14: Stress, Lifestyle, and Health . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 511
14.1 What Is Stress? . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 512
14.2 Stressors . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 522
14.3 Stress and Illness . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 528
14.4 Regulation of Stress . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 541

12. 14.5 The Pursuit of Happiness . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 548
Chapter 15: Psychological Disorders . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 563
15.1 What Are Psychological Disorders? . . . . . . . . . . .
. . . . . . . . . . . . . . . . 564
15.2 Diagnosing and Classifying Psychological Disorders . . .
. . . . . . . . . . . . . . . 568
15.3 Perspectives on Psychological Disorders . . . . . . . . .
. . . . . . . . . . . . . . . 571
15.4 Anxiety Disorders . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 575
15.5 Obsessive-Compulsive and Related Disorders . . . . . .
. . . . . . . . . . . . . . . 581
15.6 Posttraumatic Stress Disorder . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 585
15.7 Mood Disorders . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 588
15.8 Schizophrenia . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 598
15.9 Dissociative Disorders . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 603
15.10 Disorders in Childhood . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 604
15.11 Personality Disorders . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 611
Chapter 16: Therapy and Treatment . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 629
16.1 Mental Health Treatment: Past and Present . . . . . . . .
. . . . . . . . . . . . . . 630
16.2 Types of Treatment . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 636
This OpenStax book is available for free at

13. http://cnx.org/content/col31502/1.4
16.3 Treatment Modalities . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 648
16.4 Substance-Related and Addictive Disorders: A Special
Case . . . . . . . . . . . . . 652
16.5 The Sociocultural Model and Therapy Utilization . . . . .
. . . . . . . . . . . . . . . 655
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . 759
This OpenStax book is available for free at
http://cnx.org/content/col31502/1.4
Preface
Welcome to Psychology 2e, an OpenStax resource. This
textbook was written to increase student access to
high-quality learning materials, maintaining highest standards
of academic rigor at little to no cost.
ABOUT OPENSTAX
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In Psychology 2e, most art contains attribution to its title,

15. creator or rights holder, host platform, and license
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To maximize readability and content flow, some art does not
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Preface 1
ABOUT PSYCHOLOGY 2E

16. Psychology 2e is designed to meet scope and sequence
requirements for the single-semester introduction to
psychology course. The book offers a comprehensive treatment
of core concepts, grounded in both classic
studies and current and emerging research. The text also
includes coverage of the DSM-5 in examinations
of psychological disorders. Psychology 2e incorporates
discussions that reflect the diversity within the
discipline, as well as the diversity of cultures and communities
across the globe.
Coverage and scope
The first edition of Psychology has been used by thousands of
faculty and hundreds of thousands of
students since its publication in 2015. OpenStax mined our
adopters’ extensive and helpful feedback to
identify the most significant revision needs while maintaining
the organization that many instructors had
incorporated into their courses. Specific surveys, pre-revision
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environments, all aided in planning the
revision.
The result is a book that thoroughly treats psychology’s
foundational concepts while adding current and
meaningful coverage in specific areas. Psychology 2e retains its
manageable scope and contains ample
features to draw learners into the discipline.
Structurally, the textbook remains similar to the first edition,
with no chapter reorganization and very
targeted changes at the section level.
Chapter 1: Introduction to Psychology

17. Chapter 2: Psychological Research
Chapter 3: Biopsychology
Chapter 4: States of Consciousness
Chapter 5: Sensation and Perception
Chapter 6: Learning
Chapter 7: Thinking and Intelligence
Chapter 8: Memory
Chapter 9: Lifespan Development
Chapter 10: Motivation and Emotion
Chapter 11: Personality
Chapter 12: Social Psychology
Chapter 13: Industrial-Organizational Psychology
Chapter 14: Stress, Lifestyle, and Health
Chapter 15: Psychological Disorders
Chapter 16: Therapy and Treatment
CHANGES TO THE SECOND EDITION
OpenStax only undertakes second editions when significant
modifications to the text are necessary. In the
case of Psychology 2e, user feedback indicated that we needed

18. to focus on a few key areas, which we have
done in the following ways.
Content revisions for clarity, accuracy, and currency
The revision plan varied by chapter based on need. Some
chapters were significantly updated for
conceptual coverage, research-informed data, and clearer
language. In other chapters, the revisions
2 Preface
This OpenStax book is available for free at
http://cnx.org/content/col31502/1.4
focused mostly on currency of examples and updates to
statistics.
Over 210 new research references have been added or updated
in order to improve the scholarly
underpinnings of the material and broaden the perspective for
students. Dozens of examples and feature
boxes have been changed or added to better explain concepts
and/or increase relevance for students.
Research replication and validity
To engage students in stronger critical analysis and inform them
about research reproducibility,
substantial coverage has been added to the research chapter and
strategically throughout the textbook
whenever key studies are discussed. This material is presented
in a balanced way and provides instructors
with ample opportunity to discuss the importance of replication

19. in a manner that best suits their course.
Diversity, representation, and inclusion
With the help of researchers and teachers who focus on
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revisions were made in this regard, and the
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Psychology 2e instructor resources.
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23. City of Kelsey
Comprehensive Annual Financial Report
for the year ended June 2005
Making sense of your dollars
City of Kelsey
Mission of Kelsey
Amenities of the big city without sacrificing the small town
charm
People of Kelsey

24. Mayor and Council
City Manager
Police
Fire
Administration
Development Services
Community Services
Transportation
City Values:
Public Trust - we are honest, accountable and trustworthy

25. Customer Service - we provide excellent effective and efficient
services to our citizen
Employees - we value and respect each other as we serve the
public
Continuous Improvement – just as the needs of our residents
change so
must the service we provide. We look for innovative and
imaginative
team problem solving to deliver superior customer service
City of Kelsey
Introductory Section
The transmittal letter contained in this section includes
information
on the City's economic condition and outlook, major
intiativies, and
financial information
City of Kelsey

26. City of Kelsey
June 2005
Honorable Mayor and Councilmembers, City Manager and
residence of Kelsey:
The comprehensive annual financial report of the City of
Kelsey, for the year ended June
20, 2005, is hereby submitted in accordance state statutes. Both
the City charter and state
statutes require that the City issue an annual report on its
financial position and activity.
This report is audited by an independent certified public
accountant. Responsibility for
both the accuracy of the data and the completeness and fairness
of the presentation,
including all disclosures rests with City’s management. To the
best of our knowledge,
the enclosed data is accurate in all material respects.
These financial statements have been prepared in accordance
with generally accepted
accounting principles (GAAP) for local governments as
prescribed by the Governmental
Standards Board (GASB).

27. The comprehensive annual report is presented in three sections:
introductory, financial and
statistical. The introductory section, which is unaudited,
includes this letter and an
organizational chart. The financial section includes general
purpose financial statements,
as well as the independent auditors’ letter, the combining fund
statements, schedules and
required supplementary information. The statistical section,
which is unaudited, includes
financial and demographic information.
The City is required to undergo an annual single audit in
conformity with the Single
Audit Act of 1996 and the U.S. Office of Management and
Budget Circular A-133,
Audits of States and Local Governments and Non-Profit
Organizations.
The preparation of this report could not have been accomplished
without the efficient and
dedicated services of the entire Administrative Services
Department. I also wish to thank
you and members of the City Council for their interest and
support in the planning and
conducting the financial affairs of the City.
Respectfully Submitted,

28. Director of Administrative Services
City of Kelsey
The Reporting Entity
The City of Kelsey was founded by M. Kelsey, who realized
that the sprawling fields, the
pristine lake and the rolling hills provided the perfect landscape
for farming and raising a
family. His vision was to preserve the natural resources of the
land and maintain a close-
knit community. Kelsey's roots are grounded in a history of
agriculture and self-
sufficiency.
Kelsey’s decennial growth rates have been below the statewide
average with the
exception of the period from 1900 to 1930 when Kelsey
experienced its fastest growth;
19.7% from 1900 to 1910, 22.7% from 1910 to 1920 and 12.4%
from 1920 to 1930.
During the 1960’s and 1970’s, Kelsey saw a loss of population.
The 1970 census showed
a 1.5% decrease from the 1960 population and the 1980 census
showed an additional loss

29. of 7.3%. This negative trend was reversed in the 1980’s and
the 1990 census showed an
increase of 1.7%; the city’s slowest population growth rate.
Over one hundred years,
Kelsey's population increased by 280,000 residents, going from
342,768 in 1900 to
625,233 residents in 2000. Kelsey is ranked 1st among
Northwest Valley incorporated
cities and towns.
The City of Kelsey provides a full range of services that include
public safety,
development and community services. Where effective and
efficient services are
provided by private companies, for example building
maitainance and trash collection has
historically been awarded to low cost bidder. Sevices provided
must be at the highest
quality, this year the resident satisation survey ranked privatally
provided services at 98%
over satisfaction.
Year in Review
The City of Kelsey is a modertly growing city. The quality of
life in Kelsey is enhanced
by the City’s development of cultural actitives and the
maintenance of our agricultural
roots. Kelsey faces growth issuess, but its residents and
municipal government are
committed to finding solutions for the future.

30. The continuing trend of new housing starts during this year
increased the size of our
community. This growth must be balanced with our agricultural
roots. City planning and
zoning is the key to long term City growth management.
In September of last year, our citizens approved $2,000,000 in
general obligation bonds.
These funds are for street sign renovation and repair and park
enhancements.
Economic Outlook
The economic outlook is good for Kelsey with strong and stable
fund balance reserves.
As a result of the continued retail and commercial
improvements, the City can diversify
and strengthen its revenue base without comprising our small
town values.
City of Kelsey
The State economy continues to experience a period of
relatively strong growth. This
current growth has increased the City’s allocation of state
shared funds for transportation.

31. Financial Information
In developing the City’s accounting system, focus is given to
internal accounting
controls. Internal controls are designed to provide reasonable,
but not absolute, assurance
reguarding the safegarding of assets. The concept reasonable
assurance recognizes that
cost of a control should not exceed the benefit. The cost/benefit
evaluation is a
judgement made by management.
Budget Controls
The City of Kelsey, as is all cities in this state, is mandated to
adopt an annual budget. The
City maintains budgetary controls to ensure expenditures do not
exceed appropriated
funds on a citywide financial basis.
Single Audit
As a recipient state assistance, the City is responsible for
ensuring that an adequate
internal control structure is in place to ensure complaince with
applicable laws. The
internal control structure is subject to periodic evaluation by
management. As part of the

32. City’s single audit, tests are made of the internal control
structure and its compliance.
Financial Structure
The City’s operating budget is organized into funds in
accordance with Generally
Accepted Accounting Principle (GAAP) with guidelines
established by the Governmental
Accounting Standards Board (GASB). The City of Kelsey
financial structure separates
resources into five funds. Funds are a self balancing set of
accounts can be viewed a
mini-checkbooks or subsidies with specific purpose.
Overview of Major Fund Types
General Governmental
General Fund (GF) – Used to account for the majority of
general government operating
activities (e.g. Police, Fire, Administration).
Debt Service Funds (DSF) - Used to account for financial
resources segregated to pay
principal or interest on long-term general liabilities; this fund
has much in common with
sinking funds set aside funds to retire debt.

33. City of Kelsey
Capital Projects Funds (CPF) - Used to account for financial
resources segregated to pay
for construction or acquisition of long-lived capital assets; used
to set aside resources to
fund construction, does not have assets.
Permanent Funds - (PF) Used to account for resources provided
by trust in which the
earnings but not the principal must be used for public purposes
(e.g. donation can only
use interest).
Special Revenue Funds (SRF) - Used when required by law or
by policy to account for
financial resources earmarked for a specified operating purpose
(e.g. toll on highway to
collect fund for highway repair and maintenance).
General Governmental Overview
The citywide operating budget for FY 2005-06 $37.5 million,
and represent a 6.4%
operating budget growth. Much of the operating budget growth
is due to an increase in
funds for Police and Community Services reflecting the City’s
continued commitment to
public safety, youth and social services programs.

34. General Fund appropriations grew by 6.7% in FY 2005-06. This
primarily reflects
funding for new employees to address workload increases in the
Police Department,
Development Services, Council priorities in Community
Services, and increases for
employee health care and retirement.
General Fund
Fund Structure Description
The General Fund is the general operating fund of the City and
is used to account for all
financial activity not reflected in another fund.
Major Services
The General Fund consists of the following major functions:
• Administrative Services-Accounting, Budget, Human
Resources, Facilities
• Police
• Fire
• Community Services
• Development Services

35. Revenue Structure
Major revenue sources for the fiscal years are: Local Sales
Taxes, Charges for Services,
Property Taxes, Charges for Services, and All Other.
City of Kelsey
Local Sales Taxes
Local sales tax revenues are estimated at $30.0 million in FY
2005-06, derived from a
1.1% City sales tax. Over half of the sales tax revenue comes
from retail sales, with the
remainder collected primarily from rental payments, utility and
telecommunication
payments, restaurant and bar sales and contracting sales. While
Kelsey's single largest
revenue source is highly responsive to changes in economic
activity, the diverse and robust
nature.
Property Tax
Kelsey’s property tax rate is $1.00 per $100 of assessed
valuation, consisting of a
primary tax rate of $0.80 per $100 of assessed valuation and a
secondary tax rate of
$0.20 per $100 of assessed valuation. Only the primary levy
goes to the General Fund.
While there is no restriction on its usage, the primary levy is

36. limited by state law to a 2%
annual increase plus any amount generated by new construction.
The primary levy is
estimated at $2.0 million for FY 2005-06.
Expenditure Structure
As the City of Kelsey is a service entity it is not surprising that
the largest expenditure is
personal services. For the FY 2005-06 Personal Services
account for 80% of the total
budget. The remainer of the 20% appropriated funds is for Fees
and Services (10%),
Materials and Supplies (5%), and Capital (5%).
Personnel expenditures increase by 4% primarily due to
increases in health care and
retirement contribution rate. Additional staff was added in
accordance with Councils’
Police and Community Services reflecting the City’s continued
commitment to public
safety, youth and social services programs.
Transportation Funds
Fund Structure Description
The Highway User Revenue Fund (HURF) and the Local
Transportation Assistance Fund
(LTAF) are Special Revenue funds that comprise the City’s

37. Transportation funds. They
have been established to account for the receipt and expenditure
of Kelsey’s allocation of
state-shared Highway User taxes and state Lottery funds.
Major Services
Studies and Design
Operations
Traffic Lights and Signal System
Street and Field Maintenance
Planning
City of Kelsey
Revenue Structure
Transportation revenues are derived primarily 95.0% from state-
shared Highway User
taxes. State Lottery proceeds account for 5.0% of FY 2005-06.
Highway User Tax
Highway User revenues come primarily (60%) from the fuel tax
(currently $0.05 per
gallon), with the remainder from motor carrier fees (20%),
vehicle license taxes (10%),
vehicle registration fees (5%), and other transportation-related

38. fees (5%). Estimates for
the total pool of HURF revenues to be shared by cities will be
$290.9 million in FY
2005-06, with Kelsey’s share at $3 million. Experience has
shown, however, that state
projections for HURF revenue have not proven reliable. In
short, HURF revenues are
subject to state policy changes, fuel sales, and population
growth, all factors beyond the
City’s control. Pursuant to state statute, HURF monies can be
used only for street and
highway purposes, including right-of-way acquisition,
construction, reconstruction,
maintenance in the public right-of-way, and payment of debt
service on highway and
street bonds. HURF funds may not be used for transit or law
enforcement programs.
Expenditure Structure
Transportation funds include all personnel in the Streets and
Traffic Operations and
Transporations Divisions. Major budgeted expenditures include:
Major budgeted
expenditures include: Personnel Services (42%), Utilities
(20%), Material and Supplies
(10%), Fees and Services (23%), and Capital (5%). Non-
personnel expenditures are due
to the installation of new energy efficient hollagen street signs.
Non-personnel
expenditures are due to the installation of new energy efficient
hollagen street signs.

39. Debt Service Fund
Fund Structure Description
A Debt Service fund is maintained to receive dedciated
revenues used to make principal
and interest payments on the City’s general obligaition debt.
Revenue Structure
Debt Service fund revenues are derived soley from a secondary
tax rate of $0.20 per $100
of assessed valuation. Debt Service revenues trends are a
function of changes in assessed
valuation and the City’s secondary property tax rate. While
changes in the assessed
valution represent the effect of marketplace and assessor
methodology, the secondary rate
is deterimined by City policy.
City of Kelsey
Expenditure Structure
Expenditures in this fund are confined to principal and interest
on voter approved bond
indebtness. To keep these costs in check, the Council adopted a
long-range debt
management plan, which is updated annually based on

40. populations growth, tax base
growth, and current levels of operating expenses.
Cash Management
Temporary idle cash during the year was invested in the State
Treasurer’s Investment
Pool and overnight purchase agreements collateralized by the
U.S. Government
securities. The average yield on unrestricted investment was
6.3% of the year ended.
Risk Management
The City’s self insurance fund in at $10 million dollars and is
the responsibility of
Administrative Services. The City also participates in the State
risk management fund for
claims over $10 million. Worker Compensation claims are also
handled by the State.
Independent Audit
The City’s charter required an annul audit by independent
certified accountants. The
auditor’s report on the general purpose financial statements and
combining and individual
fund statements and schedules is included in the financial

41. section of this report.
City of Kelsey
Financial Section
The following section contains the City's independent auditors'
report, combined general purpose financial statements, and
financial
statements for individual funds.
City of Kelsey
Independent Auditor’s Report
We have audited the accompanying general purpose financial
statements and the combining and
individual fund and account group financial statements and
schedules of City of Kelsey (the
“Government”), as of June 30, 2005, for the year then ended,
listed in the foregoing table of
contents. These financial statements are the responsibility of the
management of the Government.
Our responsibility is to express an opinion on these financial
statements based on our audit.

42. We conducted our audit in accordance with generally accepted
auditing standards 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 general
purpose financial statements are
free of material misstatement. An audit includes examining, on
a test basis, evidence supporting
the amounts and disclosures in the general purpose financial
statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management
as well as evaluating the overall general purpose financial
statement presentation. We believe that
our audit and the reports of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the reports of other
auditors, the general purpose financial
statements referred to above present fairly, in all material
respects, the financial position of the
Government at June 30, 2005 and the results of its operations
and the cash flows in generally
accepted accounting principles. Also, in our opinion, the
combining and individual fund and
account group financial statements and schedules, present
fairly, in all material respects, the
financial position of each of the individual funds and account
groups of the Government at June
30, 2005, and the results of operations of such funds and the
cash flows of individual proprietary
and nonexpendable trust funds for the year then ended in
conformity with generally accepted

43. accounting principles.
Our audit was conducted for the purpose of forming an opinion
on the general purpose financial
statements and on the combining and individual fund and
account group financial statements and
schedules taken as a whole. The accompanying financial
information listed as supplemental
schedules in the foregoing table of contents presented for the
purpose of additional analysis and is
not a required part of the financial statements of the
Government. The supplemental schedules are
also the responsibility of the management of the Government.
Such additional information has
been subjected to the auditing procedures applied in our audit of
the general purpose, combining,
and individual fund and account group financial statements and
schedules and, in our opinion,
based upon our audit and the reports of other auditors, is fairly
stated in all material respects when
considered in relation to the financial statements of each of the
respective individual funds and
account groups taken as a whole.
In accordance with Government Auditing Standards, we have
also issued our report dated
October 31, 2005, on our consideration of the Government’s
internal control over financial
reporting and our tests of its compliance with certain provisions
of laws, regulations, contracts,
and grants.
The statistical data presented for the purpose of additional

44. analysis and is not a required part of
the general purpose financial statements of the Government.
Such additional information has not
been subjected to the auditing procedures applied in our audit of
the general purpose financial
statements and, accordingly, we express no opinion on it.
City of Kelsey
Combined Balance Sheet - All Funds Types and Account Groups
June 2005
with Comparative totals for June 30, 2004
General
General Governmental
Transit
Special Debt
Revenue Service
Capital
Projects
General
Fixed Assets

45. General
Long-Term
Debt
2005
Totals
2004
Assets
Pooled cash and investments
Receivables:
Taxes
$26,333,869
2,430,550
$847,833
47,143
$4,381,890
159,386
$6,686,942 $38,250,533

46. 2,637,080
$37,485,523
2,584,338
Accounts 865,018 865,018 847,718
Accrued interest 378,509 5,002 383,511 375,841
Due from other funds 244,938 244,938 240,039
Due from other governments 443,638 117,239 1,323,065
1,883,942 1,846,263
Inventories 100,127 100,127 98,125
Prepaid items 1,450
Restricted cash and investments 20,785 3,027,648 3,048,434
2,987,465
Property, plant, and equipment (net of depreciation)
50,495,035 50,495,035 49,485,134
Amount to be provided for retirement of general long-term debt
35,000,000 35,000,000 39,500
Total assets 30,817,435 1,017,217 7,568,924 8,010,007
50,495,035 35,000,000 132,908,618 130,250,445
Liabilities, Equity and Other Credits
Liabilities
Accounts payable 1,142,275 170,825 5,176 977,622
2,295,898 2,249,980
Deposits 2,437,362 2,437,362 2,388,614
Accrued expenditures 1,534,777 1,692 4,300,505 5,836,973
5,720,234
Claims and judgements 272,202 304 272,507 267,057

47. Due to other governments 17,668 17,668 17,315
Deferred revenue 484,261 104,393 588,654 576,881
Matured bonds payable 2,218,333 2,218,333 2,173,967
Matured interest payable 795,787 795,787 779,871
Capital improvements note payable 23,344,585 23,344,585
22,877,693
Capital leases 7,354,910 7,354,910 7,207,812
Total liabilities 5,888,545 172,821 3,123,689 977,622 0
35,000,000 45,162,677 44,259,423
Equity and other Credits
Contributed Capital
Investment in general fixed assests 50,495,035 50,495,035
Fund balances:
Reserved for:
Encumbrances 364,216 36,711 6,517,452 6,918,379
6,780,011
Inventories 100,127 100,127 98,125
Notes receivable 190,000 190,000 186,200
Debt Service 4,445,235 4,445,235 4,356,331
Unreserved, designated 12,780,962 12,780,962 12,525,343
Unreserved, reported in:
General fund 11,493,585 11,493,585 11,263,713
Special revenue funds 807,684 807,684 791,531
Capital projects funds 514,933 514,933 504,634
Total fund balances 24,928,890 844,396 4,445,235 7,032,385
37,250,906 36,505,888
Total liabilities, equity and other credits $30,817,435 $
1,017,217 $ 7,568,924 $ 8,010,007 $50,495,035 $ 35,000,000
$132,908,618 $130,250,445

48. City of Kelsey
City of Kelsey
Statement of Revenues, Expenditures and Changes in Fund
Balances
Governmental Funds
June 30, 2005
Transit Special
Capital
Total
Governmental
Revenues: General
Taxes:
Revenue Debt Service Projects Funds
Sales taxes $31,625,959 $31,625,959
Property taxes 2,898,211 4,570,060 7,468,271
Franchise taxes 485,695 485,695
Intergovernmental:

49. Federal grants 235 235
Highway User Revenue Fund 2,900,000 2,900,000
Other
Investment income 448,324 10,000 458,324
Charges for services 2,568,047 2,568,047
Fines and forfeitures 1,943,711 1,943,711
Licenses and permits 377,172 377,172
M iscellaneous 762,136 762,136
Total revenues 41,109,489 2,900,000 4,580,060 48,589,549
Expenditures:
Current:
Police 15,873,596 15,873,596
Fire 5,207,602 5,207,602
Community services 5,855,528 5,855,528
Public Works 2,498,372 2,498,372
Mayor and council 135,939 135,939
City manager 1,486,075 1,486,075
Development services 6,428,871 6,428,871
Adminstrative Services 1,672,301 1,672,301
Debt service: 36,659,912 36,659,912
Principal retirement 0 1,147,173 2,500,000 3,647,173
Interest and fiscal fees 0 2,200,000 150,000 2,350,000
Capital outlay 3,500,000 3,500,000
Total Expenditures 36,659,912 5,845,545 2,650,000 3,500,000
48,655,457
Excess (deficiency) of revenues over expenditures
before other financing sources (uses) 4,449,577 (2,945,545)
1,930,060 (3,500,000) (65,908)

50. Other financing sources (uses):
Transfers in 120,165 200,000 1,305,000 1,625,165
Transfers out (2,021,495) (1,505,000) (3,526,495)
Issuance of debt 0 2,000,000 2,000,000
Premium on issuance of debt 0 195,000 195,000
Capital lease proceeds 211,178 211,178
Proceeds from sale of capital assets 2,830,956 2,830,956
Proceeds of refunding bonds 2,000,000 2,000,000
Payment to refunded bond escrow agent 10,000 10,000
Total other financing sources (uses) 1,140,803 (1,505,000)
2,210,000 3,500,000 5,345,803
Net change in fund balances 5,590,380 (4,450,545) 4,140,060
5,279,895
Fund balance at beginning of year 19,338,510 5,294,941
305,175 7,302,835 32,241,461
Fund balance at end of year $24,928,890 $844,396 $4,445,235
$7,302,835 $37,521,356
City of Kelsey
City of Kelsey
Combined Statement of Revenues, Exenditures and Changes in
Fund Balances
Budget and Acutal, General and Special Revenue
Budget Basis
June 30, 2005
General Fund Special Fund Totals
Actual

51. Variance with
Final Budget
Actual
Variance with
Final Budget
Actual
Budgeted Amounts Positive Budgeted Amounts Positive
Budgeted Amounts
Amounts (budgetary basis) (Negative) Amounts (budgetary
basis) (Negative) Amounts (budgetary basis)
Revenues
Taxes
$ 34,309,667
$ 35,009,864
700,197
$ 34,309,667
$ 35,009,864
Intergovernmental 235 235 - 2,875,000 2,900,000 25,000
2,875,235 2,900,235

52. Investment income 448,324 430,129 (18,195) 448,324
430,129
Charges for services 2,516,686 2,568,047 51,361
2,516,686 2,568,047
Fines and forfeitures 1,904,837 1,943,711 38,874
1,904,837 1,943,711
Licenses and permits 369,629 377,172 7,543 369,629
377,172
Miscellaneous 800,000 762,136 (37,864) 800,000
762,136
Total revenues 40,349,377 41,091,294 741,917 2,875,000
2,900,000 25,000 43,224,377 43,991,294
Expenditures
Police
15,714,860
14,845,267
(869,593)
15,714,860
14,845,267
Fire 5,155,526 5,010,608 (144,918) 5,155,526 5,010,608
Community services 5,796,972 6,043,324 246,352
5,796,972 6,043,324
Public Works 2,675,000 2,498,372 176,628 2,675,000
2,498,372

53. Mayor and council 134,580 141,658 7,078 134,580
141,658
City manager 1,236,913 1,214,913 (22,000) 1,236,913
1,214,913
Development services 6,439,012 6,333,886 (105,126)
6,439,012 6,333,886
Administrative Services 1,679,000 1,500,727 (178,273)
1,679,000 1,500,727
Total current expenditures 36,156,863 35,090,383 (1,066,480)
2,675,000 2,498,372 176,628 38,831,863 37,588,755
Debt Service
3,347,173
3,347,173
3,347,173
3,347,173
Excess (deficiency) of revenues over expenditures
before other financing sources (uses) 4,192,514 6,000,911
1,808,397 (3,147,173) (2,945,545) (201,628) 1,045,341
3,055,366

54. Other financing sources (uses)
Transfers from other funds 120,165 120,165 120,165
120,165
Transfers to other funds (2,021,495) (2,021,495)
(2,021,495) (2,021,495)
Proceeds from sale of capital assets - - (1,505,000)
(1,505,000) (1,505,000) (1,505,000)
Total other financing sources (uses) (1,901,330) (1,901,330) -
(1,505,000) (1,505,000) (3,406,330) (3,406,330)
Net change in fund balance 2,291,184 4,099,581 1,808,397
(4,652,173) (4,450,545) (201,628) (2,360,989) (350,964)
Fund balance at beginning of year 19,338,510 19,338,510 -
5,496,569 5,496,569 - 24,835,079 24,835,079
Fund balance at end of year $21,629,693 $23,438,091
$1,808,397 $844,396 $1,046,024 $201,628 $22,474,089
$24,484,115
City of Kelsey
Notes to the Financial Section
A. Basis of Presentation

55. The financial statements of the City of Kelsey have been
prepared in conformity with
U.S. generally accepted accounting principles (GAAP) as
applied to governmental units.
The Government Accounting Standards Board (GASB) is the
accepted standard setting
body for establishing governmental accounting and financial
reporting principles. The
GASB pronouncements are recognized as U.S. generally
accepted accounting principles
for state and local governments.
This financial report has been prepared in conformity with
GASB Statement No. 34,
Basic Financial Statements – and Management’s Discussion and
Analysis – for State and
Local Governments, issued in June 1999.
B. Financial Reporting Entity
City of Kelsey is non-profit governmental entity thus exempt
from federal and state
income tax. For financial reporting purposes, the City has
included all funds and account
groups. The City has also considered all potential component
units for which it is
financially accountable and other organizations for which the
nature and significance of
their relationship with the City are such that exclusion would
cause the City’s financial
statements to be misleading or incomplete, and has determined
there are none. The
Governmental Accounting Standards Board (GASB) has set

56. forth criteria to be
considered in determining financial accountability. These
criteria include appointing a
voting majority of an organization's governing body, and (1) the
ability of the primary
government to impose its will on that organization or (2) the
potential for the
organization to provide specific benefits to, or impose specific
financial burdens on the
primary government. The City has no component units that meet
the GASB …