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2009, 11-30 for 2008 Financial Statements & Fed Single Audit Report Washington State Auditor's Office Financial Statements and Federal Single Audit Report City of Spokane Valley Spokane County Audit Period January 1, 2008 through December 31, 2008 Report No. 1002550 s°'1""4 \ WASHINGTON Issue Date BRIAN SONNTAG November 30, 2009 jQ¼V„50 •180,VGC STATE AUDITOR OR OF -. 4411^,90',..,;'.•:. Washington State Auditor Brian Sonntag November 30, 2009 Council City of Spokane Valley Spokane Valley, Washington Report on Financial Statements and Federal Single Audit Please find attached our report on the City of Spokane Valley's financial statements and compliance with federal laws and regulations. We are issuing this report in order to provide information on the City's financial condition. Sincerely, 4 rccio: BRIAN SONNTAG, CGFM STATE AUDITOR Insurance Building,P.O.Box 40021 •Olympia,Washington 98504-0021 •(360)902-0370•TDD Relay(800)833-6388 FAX(360)753-0646•http://www.sao.wa.gov Table of Contents City of Spokane Valley Spokane County January 1, 2008 through December 31, 2008 Federal Summary 1 Status of Prior Audit Findings 3 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards 4 Independent Auditor's Report on Compliance with Requirements Applicable to its Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133 6 Independent Auditor's Report on Financial Statements 8 Financial Section 10 Federal Summary City of Spokane Valley Spokane County January 1, 2008 through December 31, 2008 The results of our audit of the City of Spokane Valley are summarized below in accordance with U.S. Office of Management and Budget Circular A-133. FINANCIAL STATEMENTS An unqualified opinion was issued on the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information. Internal Control Over Financial Reporting: • Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over financial reporting that we consider to be significant deficiencies. • Material Weaknesses: We identified no significant deficiencies that we consider to be material weaknesses. We noted no instances of noncompliance that were material to the financial statements of the City. FEDERAL AWARDS Internal Control Over Major Programs: • Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over major federal programs that we consider to be significant deficiencies. • Material Weaknesses: We identified no significant deficiencies that we consider to be material weaknesses. We issued an unqualified opinion on the City's compliance with requirements applicable to its major federal program. We reported no findings that are required to be disclosed under OMB Circular A-133. Washington State Auditor's Office 1 Identification of Major Programs: The following was a major program during the period under audit: CFDA No. Program Title 20.205 Highway Planning and Construction Cluster— Highway Planning and Construction The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by OMB Circular A-133, was $300,000. The City did not qualify as a low-risk auditee under OMB Circular A-133. Washington State Auditor's Office 2 Status of Prior Audit Findings City of Spokane Valley Spokane County October 26, 2009 The status of findings contained in the prior years' audit reports of the City of Spokane Valley is provided below: 1. The City does not have adequate controls in place to ensure accurate financial reporting. Report No. 1001045, dated March 13, 2009 Background During 2007, the City changed its method of tracking capital assets from a manual spreadsheet system to the automated system. City management did not provide adequate oversight of the process used to transfer the capital asset information to the automated system and did not perform a reconciliation of the two systems for accuracy. Also, the City did not have an adequate system developed to assess completion of construction projects to ensure costs were recorded in the appropriate asset category. Further, City personnel did not have adequate experience with the financial reporting model in order to perform an adequate independent review of the financial statements to ensure they were prepared correctly. Status The condition reported during the 2007 audit has been resolved. Management established procedures to ensure capital assets were accurately recorded in the automated system and agreed to supporting records. Also, management adequately reviewed the financial statements, notes and supporting schedules. No material errors or significant deficiencies in internal controls were noted. Washington State Auditor's Office 3 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards City of Spokane Valley Spokane County January 1, 2008 through December 31, 2008 Council City of Spokane Valley Spokane Valley, 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 Spokane Valley, Spokane County, Washington, as of and for the year ended December 31, 2008, which collectively comprise the City's basic financial statements, and have issued our report thereon dated October 26, 2009. The prior year partial comparative information has been derived from the City's 2007 financial statements that we issued our report thereon dated March 31, 2009. 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. 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. 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. Washington State Auditor's Office 4 Our consideration of 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 internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 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, the Council, federal awarding agencies and pass-through entities. 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. 417 BRIAN SONNTAG, CGFM STATE AUDITOR October 26, 2009 Washington State Auditor's Office 5 Independent Auditor's Report on Compliance with Requirements Applicable to its Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133 City of Spokane Valley Spokane County January 1, 2008 through December 31, 2008 Council City of Spokane Valley Spokane Valley, Washington COMPLIANCE We have audited the compliance of the City of Spokane Valley, Spokane County, Washington, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to its major federal program for the year ended December 31, 2008. The City's major federal program is identified in the Federal Summary. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal program is the responsibility of the City's management. Our responsibility is to express an opinion on the City's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City's compliance with those requirements. In our opinion, the City complied, in all material respects, with the requirements referred to above that are applicable to its major federal program for the year ended December 31, 2008. INTERNAL CONTROL OVER COMPLIANCE The management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City's internal Washington State Auditor's Office 6 control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance. A control deficiency in an entity's internal control over compliance 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 noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to administer a federal program such that there is a more than remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in a more than remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity's internal control. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended for the information of management, the Council, federal awarding agencies and pass-through entities. 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 October 26, 2009 Washington State Auditor's Office 7 Independent Auditor's Report on Financial Statements City of Spokane Valley Spokane County January 1, 2008 through December 31, 2008 Council City of Spokane Valley Spokane Valley, 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 Spokane Valley, Spokane County, Washington, as of and for the year ended December 31, 2008, which collectively comprise the City's basic financial statements as listed on page 10. 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. The prior year partial comparative information has been derived from the City's 2007 financial statements and, in our report dated March 31, 2009, we expressed unqualified opinions on the respective financial statements of the governmental activities, business-type activities, each major fund and the aggregate remaining fund information. 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 Spokane Valley, as of December 31, 2008, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. The financial statements include partial prior year comparative information. Such information does not include all of the information required for a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the City's financial statements for the year ended December 31, 2007, from which such partial information was derived. Washington State Auditor's Office 8 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 11 through 22 and budgetary comparison information on page 60 are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of 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. Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. This schedule is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. BRIAN SONNTAG, CGFM STATE AUDITOR October 26, 2009 Washington State Auditor's Office 9 Financial Section City of Spokane Valley Spokane County January 1, 2008 through December 31, 2008 REQUIRED SUPPLEMENTAL INFORMATION Management's Discussion and Analysis —2008 BASIC FINANCIAL STATEMENTS Statement of Net Assets — 2008 Statement of Activities —2008 Balance Sheet— Governmental Funds —2008 Reconciliation of Total Governmental Fund Balances to Net Assets of Governmental Activities —2008 Statement of Revenues, Expenditures and Changes in Fund Balance — Governmental Funds —2008 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities —2008 Statement of Net Assets — Proprietary Funds —2008 Statement of Revenues, Expenses and Changes in Fund Net Assets — Proprietary Funds —2008 Statement of Cash Flows — Proprietary Funds —2008 Notes to Financial Statements —2008 REQUIRED SUPPLEMENTAL INFORMATION Schedule of Revenues, Expenditures and Changes in Fund Balances — Budget to Actual — General Fund —2008 SUPPLEMENTAL INFORMATION Schedule of Expenditures of Federal Awards and Notes —2008 Washington State Auditor's Office 10 CITY OF SPOKANE VALLEY MANAGEMENT'S DISCUSSION AND ANALYSIS For the Year Ended December 31, 2008 As management of the City of Spokane Valley, Washington, we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended December 31, 2008. All amounts in this discussion and analysis, unless otherwise indicated, are expressed in thousands of dollars. Also, this discussion contains comparative analysis based on information from the prior year. FINANCIAL HIGHLIGHTS The key financial highlights for 2008 are as follows: At the end of the current year, the City's governmental activities reported a combined ending net asset balance of$100,947 thousand. A total of 51.9% or 52,370 thousand of total net assets is invested in capital assets, such as streets, land, and buildings. Of the remaining net assets, $48,577 thousand is available to meet the government's ongoing activities and obligations. At the end of the current year, ending fund balance in the Statement of Revenues, Expenditures and Changes in Fund Balance for the General Fund was $21,692 thousand, which represents a $7,945 thousand net change in fund balance or 57.8 % increase from the prior year; and ending fund balance is 77.3% of total General Fund expenditures. The increase in ending fund balance is primarily explained by a reduction in transfers (out) for creating reserves, and street maintenance operations during the year. Total City debt decreased by $127 thousand to $8,964 thousand during the current fiscal year primarily due to scheduled debt principal payments. Total Governmental fund balances at year end were $45,589 thousand. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of a series of financial statements. These statements are organized so the reader can understand the City as a fmancial whole or as an entire operating entity. The statements also provide a detailed look at specific financial conditions. The following discussion and analysis are intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements are comprised of three components: the City-wide financial statements, fund financial statements, and notes to the financial statements. This report also contains other supplementary information in addition to the basic fmancial statements themselves. Washington State Auditor's Office 11 The following figure summarizes the major features of the financial statements. This overview section below also describes the structure and contents of each of the statements in more detail. Government-wide Fund Financial Statements Statement Governmental Proprietary Entire entity The day-to day operating The day-to day operating (except fiduciary funds) activities of the City activities of the City Scope for basic governmental for business-type services enterprises Accounting Accrual accounting and Modified accrual and Accrual accounting and basis and economic resources current financial resources economic resources focus measurement focus measurement focus focus All assets and liabilities, Current assets and liabilities All assets and liabilities, Type of asset both financial and that come due during the both financial and capital, and liability capital, short-term and year or soon thereafter; short-term and long-term information long-term capital assets and long-term liabilities All revenues and Revenues when cash is All revenues and expenses Type of inflow expenses during year, received during the year or during year,regardless of and outflow regardless of when cash soon thereafter; expenditures when cash is received or information is received or paid when goods or services have paid been received and the related liability is due and payable GOVERNMENT-WIDE FINANCIAL ANALYSIS The government-wide financial statements are designed to provide readers with a broad overview of the City's finances,in a manner similar to a private-sector business. Statement of Net Assets and Statement of Activities The statement of net assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. This statement is similar to the balance sheet from the business private sector. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City's net assets changed during the current year. This statement distinguishes revenue generated by specific functions, from revenue provided by taxes and other sources not related to a specific function. Revenue generated by specific functions (charges for services, fines and forfeitures,grants and other contributions)is compared to the expenses for those functions to demonstrate how much each function either supports itself or relies on taxes and other general funding sources for support. These statements are prepared using the accrual basis of accounting similar to the accounting method used by private sector companies. This basis of accounting takes into consideration all of the current year's revenues and expenses,regardless of when the cash is received or paid. The change in net assets is important because it tells the reader whether, for the City as a whole, the financial position of the City has improved or diminished in capacity. However, in evaluating the overall position of the City,nonfinancial information such as changes in the City's tax base and the condition of the City's capital assets will also need to be evaluated. Washington State Auditor's Office 12 In the statement of net assets and the statement of activities, the City is divided into two kinds of activities: • Governmental Activities—Most of the City's programs and services are reported here, including general government, public safety, physical environment, transportation, economic environment, and culture & recreation. These services are funded primarily by taxes and intergovernmental revenues, including federal and state grants and other shared revenues. • Business-Type Activities—These services are provided on a charge for goods or services basis to recover all or most of the cost of the services provided. The City's Stormwater Utility Management Fund activity is reported here. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objects, and a fiscal accounting entity with a self-balancing set of accounts used to account for specific activities. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All the funds of the City can be divided into two categories: governmental fund types, and proprietary fund types. Fund financial statements provide detailed information about the City's major funds. Based on the restriction of the use of resources and money, the City has established many funds that account for the multitude of services provided to our residents. Governmental Funds — Governmental funds are used to account for essentially the same functions reported as governmental activities on the government-wide financial statements. Most of the City's basic services are reported in these funds that focus on how money flows into and out of the funds and the year end balances available for spending. These funds are reported on the modified accrual basis of accounting that measures cash and all other financial assets that can be readily converted to cash. The governmental fund statements provide a detailed short-term view of the City's general government operations and the basic services being provided, along with the financial resources available. Because the focus of governmental funds is narrower than that of the government-wide fmancial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities on the government-wide financial statements. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains nineteen individual governmental funds. Information on the City's five major governmental funds; General Fund, Capital Projects Fund, Street Capital Projects Fund, Capital Grants Fund, and Barker Bridge Reconstruction Fund are presented separately in the governmental fund balance sheet and the governmental funds statement of revenues, expenditures, and changes in fund balances. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. Proprietary Funds—The City has two types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide statements with the fund statements providing more detail than reported in the government-wide statements. Enterprise funds are used to account for goods and services provided to the citizens. The City provides information on its enterprise fund, the Stormwater Utility Management fund also a major fund under Proprietary Funds. The City's Internal Service Funds; Equipment Rental and Replacement and Risk Management accounts for the accumulated and allocated internal costs of fleet vehicles, computer equipment, and Washington State Auditor's Office 13 insurance claims. Also, both provide internally for the goods and services among the City's various departments. These Internal Service funds assets and liabilities are predominantly governmental in nature and have been included in the column under governmental-type activities on the government-wide financial statement of net assets. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided on the government-side and fund financial statements. The notes are located immediately following the basic financial statements. Other Information In addition to the basic financial statements and accompanying notes,this report also presents combining and individual fund statements and schedules for other governmental and internal service funds. GOVERNMENT-WIDE FINANCIAL ANALYSIS Statement of net assets-The statement of net assets can serve as a useful indicator of the City's financial position. The City of Spokane Valley's financial position improved slightly during the year ended December 31, 2008, as total net assets increased by $10,369 thousand. Net assets at December 31, 2008 totaled $104,018. The following table summarizes and compares the City's net assets for 2008 and 2007 (Table 1): City of Spokane Valley's Net Assets (amounts in 000) Governmental Business-type Total% Activities Activities Total Change 2008 2007 2008 2007 2008 2007 2008-2007 Current and other assets $ 62,085 $ 50,166 $ 2,607 $ 2,189 $ 64,692 $ 52,355 23.6% Capital assets(net of depreciation) 61,093 54,122 690 685 61,783 54,807 12.7% Total assets 123,178 104,288 3,297 2,874 126,475 107,162 18.0% Long-term debt outstanding 8,964 9,091 - - 8,964 9,091 -1.4% Other liabilities 13,267 4,269 226 152 13,493 4,421 205.2% Total liabilities 22,231 13,360 226 152 22,457 13,512 66.2% Net assets Invested in capital assets, net of related debt 52,370 45,201 690 685 53,060 45,886 15.6% Restricted 13,966 16,230 - - 13,966 16,230 -13.9% Unrestricted 34,611 29,497 2,381 2,036 36,992 31,533 17.3% Total net assets $ 100,947 $ 90,928 $ 3,071 $ 2,721 $ 104,018 $ 93,649 11.1% As noted earlier, the City's net assets, when reviewed over time, may serve as a useful indicator of the City's financial position. In this case, the Primary Governments assets exceeded liabilities by $104,018 thousand($100,947 thousand in governmental activities and$3,071 in business activities)as of December 31, 2008. By far, the largest portion of the City's net assets $53,060 thousand, 51%, reflects its investment in capital assets ( e.g., land and improvements, buildings and building improvements, improvements other than buildings, machinery and equipment, vehicles, and infrastructure) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources since the capital assets themselves can not be used to liquidate these liabilities. The majority of these assets were donated by Spokane County at the time of incorporation. Washington State Auditor's Office 14 A portion of City of Spokane Valley's Primary Government's net assets, $13,966 thousand or 13.4% represents resources that are subject to restrictions on how they can be used. The remaining balance of unrestricted assets, $36,992 thousand 35.6% may be used to meet the city's ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City is able to report positive balances in all three categories of net assets, both for government as a whole, as well as for its separate governmental and business-type activities. The same situation held true for the prior fiscal year. Changes in net assets-The changes in net assets table illustrates the increases or decreases in net assets of the City resulting from its operating activities. The City of Spokane Valley's total net assets increased approximately $10,369 thousand in 2008. Table 2 shows revenues, expenses, and related changes in net assets in tabular form for both governmental and business type activities. Changes in City of Spokane Valleys Net Assets Table 2 as of December 31,2008 and 2007(amounts in 000) Governmental Business-type Percentage Activities Activities Total Change Revenues 2008 2007 2008 2007 2008 2007 2008-2007 Program revenues Charges for services $ 7,047 $ 5,413 $ 1,687 $ 1,658 $ 8,734 $ 7,071 23.5% Operating grants&contributions 683 - - - 683 - 0.0% Capital grants&contributions 12,157 3,522 25 27 12,182 3,549 243.3% General revenues Taxes 27,935 29,162 - - 27,935 29,162 -4.2% Other 6,692 8,208 52 80 6,744 8,288 -18.6% Total revenues 54,514 46,305 1,764 1,765 56,278 48,070 17.1% Expenses General government 3,696 4,876 - - 3,696 4,876 -24.2% Public safety 17,664 16,263 - - 17,664 16,263 8.6% Utilities&physical environment 549 1,573 - - 549 1,573 -65.1% Transportation 16,205 16,788 - - 16,205 16,788 -3.5% Economic environment 688 2,259 - - 688 2,259 -69.5% Community development 2,971 - - - 2,971 - 0.0% Culture and recreation 2,551 2,415 - - 2,551 2,415 5.6% Interest on long term debt 406 411 - - 406 411 -1.2% Stormwater management - - 1,179 970 1,179 970 21.5% Total expenses 44,730 44,585 1,179 970 45,909 45,555 0.8% Changes in net assets before transfers 9,784 1,720 585 795 10,369 2,515 312.3% Transfers In(out) 235 15 (235) (15) - - 0.0% Increase(decrease) net assets 10,019 1,735 350 780 10,369 2,515 312.3% Net assets-1/1/2008 90,928 89,188 2,721 1,941 93,649 91,129 Prior period adjustment - 5 - - - 5 Net assets-12/31/2008 $ 100,947 $ 90,928 $ 3,071 $ 2,721 $ 104,018 $ 93,649 Governmental Activities-Charges for services program revenues (see table 2 precedent page) increased overall by $1,634 thousand, or 30.2 % for the current year. This was one of the second largest sources of program revenue for the City, accounting for $7,047 thousand or 12.9 % of total governmental revenues. These charges are for fees for building, community development, and construction permits, fees associated with the collection of fines and forfeitures related to public safety activity, and licenses and permits. In total, governmental activities contributed$10,019 thousand of the total change in net assets of $10,369 thousand. Washington State Auditor's Office 15 The City's capital grants and contribution revenues from Federal and State sources made up the largest source of program revenue, $12,157 thousand or 22.3 % of total governmental revenues. The major recipients of intergovernmental program revenues were the Transportation, and Culture and Recreation functions of the primary government. Property tax revenues in the governmental funds account for $9,880 thousand of the $54,514 thousand total revenues for governmental activities, or 18.1 % of total revenues, and the general fund property tax revenues increased by$356 thousand, for a positive change of 3.7%. Sales Tax accounted for approximately $18,055 thousand or 33.1 % of total revenues in year 2008, the largest single source of program revenue for the City of Spokane Valley. Other taxes received were real estate excise taxes of$1,986 thousand,Liquor Board Excise tax of$429 thousand, Leasehold excise taxes of$9 thousand, Gambling taxes of$830 thousand, Hotel/Motel taxes of$461 and Motor Fuel taxes of $1,973 thousand. The Transportation function accounted for $16,205 thousand of the $44,730 thousand total expenses for governmental activities, or 36.2 % of total expenses. The largest function was Public Safety, accounting for $17,664 thousand and representing 39.5 % of total governmental expenses and an increase of 8.6% compared to the prior year. For governmental activities, the following table 3 indicates the total cost of services and the net cost of services. The statement of activities reflects the cost of program services with the program revenues from charges for services, grants, and other contributions offsetting those services. The net cost of these revenue services identifies the cost of those services supported by tax revenues and unrestricted intergovernmental revenues. Net Cost of City of Spokane Valley's Governmental Activities Table 3 as of December 31,2008 and 2007(amounts in 000) Total Cost Percentage Net Cost Percentage of Services Change of Service Change Primary government 2008 2007 2008-2007 2008 2007 2008-2007 General government $ 3,696 4,876 -24.2% $ (1,027) $ (3,727) -72.4% Public safety 17,664 16,263 8.6% (15,817) (15,633) 1.2% Utilities-physical environment 549 1,573 -65.1% (431) (1,573) -72.6% Transportation 16,205 16,788 -3.5% (5,032) (13,615) -63.0% Economic environment 688 2,259 -69.5% (688) 272 -352.9% Community development 2,971 - 100.0% (950) - -100.0% Culture and recreation 2,551 2,415 5.6% (494) (963) -48.7% Other 406 411 -1.2% (406) (411) -1.2% Total $ 44,730 $ 44,585 0.3% $ (24,843) $ (35,650) -30.3% The primary governments total net cost of services decreased by $10,807 thousand or (-30.3%) change, compared to the prior year. These governmental expenses are funded from property taxes, sales taxes, and intergovernmental revenues. Also, charges for services and operating grants, and capital grant program revenues of $19,887 thousand (provided 44.5 % of the total net costs of services) are used to fund the general government expenses of the City. (See Table 3 precedent page) Washington State Auditor's Office 16 Figure 1: Program Revenues and Expenses - Governmental Activities 35,000,000 - - 30,000,000 - 25,000,000 - 20,000,000 - •Program revenues 15 000 000 ■Program expenses 10,000,000 5,000,000 - 0 r ti ke6 e�ti ,off e'C‘k. e� p"C‘AOC �o 42'). e�, a'c•5Q e�;`t ,e ecs eta` •Boa` .fita ,� � Gel RN" 4G o°t�`� G`�`��t G Transportation activity capital grants increased in the current year by$7,531 thousand;these contributions are used to fund the on-going general government capital expenditures of$17,991 thousand, or 35.1 % of the total for governmental expenditure activity(see figure 1 above). Business-Type Activities The net assets for business-type activities increased by $350 thousand during 2008; accounting for a decrease of$430 thousand compared to last years change in Net Assets of$780 thousand. For the current year, business-type major program revenue source was charges for service of: $1,687 thousand and capital grants and contributions of$25 thousand. (See figure 2). Figure 2: (amounts in 000) Program Revenues and Expenses - Business-type Activities $2,000 - O O ® Program revenues _ GI Program expenses Stormwater management Washington State Auditor's Office 17 Figure 3: Revenues by Source-Business Type Activities Interest and investment Miscellaneous earnings 1.6% 3.4% al Charges for services 95% The accumulated ending net assets of the Business-Type Activities in the Stormwater Management Fund, equal $3,071 thousand, an increase in net assets of $350 thousand. The primary source of revenue is a Stormwater management fee imposed upon real property(see figure 3 above). FINANCIAL ANALYSIS OF THE CITY OF SPOKANE VALLEY'S FUNDS As noted earlier,the City of Spokane Valley uses fund accounting to ensure and demonstrate compliance with finance related requirements. Governmental Funds The focus of the City'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's financing requirements. In particular, unreserved fund balance may serve as a useful measure of the City's net resources available for spending at the end of the year. As of December 31, 2008, the City's governmental funds reported a combined ending fund balance of $45,589 thousand, a net increase of$3,572 thousand in comparison with the prior year. Approximately 69.4%of this total or$31,624 thousand is unreserved fund balance,which is available for spending at the City's discretion. The remainder of the fund balance is reserved and is not available for new spending because it has already been committed for a variety of restricted purposes. The General Fund is the primary operating fund of the City of Spokane Valley where all receipts and payments of ordinary city operations are processed. Sales taxes are the major revenue source. At the end of 2008,unreserved fund balance was $21,673 thousand. As a measure of the General Fund's liquidity,it may be useful to compare unreserved fund balance to total governmental-wide activity expenses of $44,730 thousand (see total cost of services 2008 table #3). General Fund unreserved fund balance represents 48.5%of total governmental-wide activity expenses. Washington State Auditor's Office 18 Major Governmental Funds The General Fund—net change in fund balance increased by $7,945 thousand for the fiscal year ending December 31, 2008. A key factor in this increase was general expenditures were under budgeted expenditure amounts. Actual revenues were ($124) less than budget due primarily to reduced sales tax revenues.Actual expenditures were ($4,232)thousand less than Final budget. The Capital Projects Fund—has a fund balance of$2,553 thousand, a decrease of($1,894)thousand for the year. The primary source of revenue for capital projects fund is real estate excise taxes(REET),which is used for Capital Projects. Increases in capital project expenditures reduced the ending fund balance at year end. The Street Capital Projects Fund— has an ending fund balance of$73 thousand. Project construction costs were approximately$5,725 thousand for the year as several street projects were constructed in 2008. Actual revenue was ($410) thousand less than final budgeted projections. These projects were mostly funded with grants and transfers from other City Funds. The Capital Grants Fund—net change in fund balance increased by $17 thousand. Capital outlay costs were approximately $6,780 thousand. Funding was in a large part due to transfers from other City funds. Actual expenditures were ($4,567)thousand less than the final budget, due to several projects that did not proceed in 2008. The Barker Bridge Fund— Capital outlay costs were approximately $2,002 thousand. Funding was in a large part due to transfers from other City funds and from a federal grant. Actual expenditures were ($3,860)thousand less than the final budget.The City anticipates this project will be completed in 2009. Proprietary Funds The City's enterprise fund, Stormwater Management provides the same type of information found in the government-wide financial statements, and is also a major proprietary fund.Unrestricted net assets of the Stormwater Management Fund at December 31, 2008, were $2,381 thousand. Unrestricted net assets increased by$345 thousand for the year. BUDGETARY HIGHLIGHTS By State law, Title 35A of the Revised Code of Washington (RCW) requires all cities to prepare and adopt a balanced budget prior to the beginning of the City's fiscal year; the annual operating budget for the City is effective the first day of January. The City Council amended the original budget revenue and expenditures during 2008. These amendments have recognized additional unrestricted fund balances carried over from the prior year of 2007 and grant proceeds. Expenditure appropriations increased for major street projects and extraordinary winter weather operations. In the General Fund, the variance between actual expenses and the final amended budget was a savings in expenditures of$4,232 thousand, and a deficiency in total revenues of ($124) for 2008. However, an unfavorable variance in Taxes of ($1,334)thousand resulted in the overall shortage of total revenues. The majority of the positive increases in actual compared to final budget occurred from increases in miscellaneous revenues of$401 thousand, licenses and permits of $248 thousand, intergovernmental revenues of $266 thousand, and fines & forfeitures of$221 thousand.. Washington State Auditor's Office 19 CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets: The City of Spokane Valley's investment in capital assets for its governmental and business type activities as of December 31, 2008, amounts to $61,783 thousand (net of depreciation). This investment in capital assets includes land, buildings, improvements, machinery and equipment, and construction in progress (see Table 4,following). The total increase in the city's investments in capital assets for the current fiscal year was $6,976 thousand or 12.7%; including depreciation, additions, and reductions (12.8 percent increase for governmental activities and a 0.7 percent increase for business type activities). Table 4: City of Spokane Valley's Capital Assets (net of depreciation, amounts in 000) Governmental Business-type Total % Activities Activities Change 2008 2007 2008 2007 2008 2007 2008-2007 Land $ 3,961 $ 3,737 $ - $ - $ 3,961 $ 3,737 6.0% Buildings 10,679 10,989 - - 10,679 10,989 -2.8% Improvements other than Buildings 1,772 869 - - 1,772 869 103.9% Infrastructure 31,494 32,558 286 298 31,780 32,856 -3.3% Machinery and Equipment 762 400 28 11 790 411 92.2% Construction in Progress 12,425 5,569 376 376 12,801 5,945 115.3% Total $ 61,093 $ 54,122 $ 690 $ 685 $ 61,783 $ 54,807 12.7% Major capital asset events during the current fiscal year included the following: • Construction in Progress increased 115.3% overall due to several major street and infrastructure projects beginning in 2008. • Land increased 6% or $224 thousand for 2008 due to acquisitions for the Pines Mansfield construction project. • Current fiscal year expenditures for on going improvements to the Street Capital Project infrastructure were $5,725 thousand and Capital Grants Fund construction in progress of $6,780 thousand for several street projects starting in 2008. • Capital additions by the Parks Capital Project Fund for ongoing improvement projects including decks, land acquisitions,and pools for general public use totaled$981 thousand. Additional information on the City's capital assets can be found in Note 6 (Capital Assets) to the financial statements. Long-Term Obligations — At December 31, 2008, the City had total general obligation debt outstanding of$8,570 thousand. This amount is backed by the full faith and credit of the City of Spokane Valley (general obligation bonds) with debt service funded by general government revenues and contributions from the Public Facilities District. The City's long-term debt decreased by ($198) thousand or 2.2 percent during fiscal year 2008. (see table 5). Washington State Auditor's Office 20 Table: 5 City of Spokane Valley's Outstanding Obligations (amounts in 000) Governmental Total Percentage Activities Change 2008 2007 2008-2007 General obligation bonds $ 8,570 $ 8,760 -2.2% Bond premium $ 153 $ 161 -5.0% Total $ 8,723 $ 8,921 -2.2% In addition to the bonded debt, the City's long-term obligations include compensated absences (vacation accruals) and the premium on General obligation bonds. Additional information on the City's long-term debt can be found on Note 11 (General Long-Term Obligations)in the notes to the financial statements. Under Washington State statutes, general obligation indebtedness for general purposes is pursuant to a vote of the electorate and is limited to 2.5% of actual value of taxable property located within the City of Spokane Valley.Non-voted general purpose indebtedness is limited to 1.5% of assessed valuation and the combination of voted and non-voted general purpose indebtedness, cannot exceed 2.5% of assessed valuation. The assessed valuation of the City of Spokane Valley for the year 2008, for purposes of determining the legal debt margin is; $6,636,383,614. Remaining debt capacities for the City under general voted and non-voted purposes(2.5%)is limited to: $157,098,751. The City of Spokane Valley maintains an A3 rating from Mood's for its non-voted general obligation debt.Additional information regarding debt limitations and capacities can be found in note 11 in the notes to the financial statements. ECONOMIC FACTORS The outlook for the City of Spokane Valley economy was projected based on statistics generated in Spokane County. The character of the City, including current and projected business registrations, indicate economic activity will likely slow over the coming year. There are an estimated 4,000 businesses located in Spokane Valley with estimated retail sales of$1.6 billion. The City of Spokane Valley received $18,055 thousand, a decrease of$1,584 thousand from the prior year,in sales tax dollars for 2008. Spokane County added just 1,100 jobs in 2008 as the troubled national economy slowed job growth in the Spokane area. The area's unemployment rate increased slightly to 5.6 percent. Spokane County's three biggest non-farm employment sectors are wholesale and retail trade, government and education and health services. Population growth has been steady with the city increasing to over 88,900. Single family home construction permits in the county, the City of Spokane and the City of Spokane Valley have slowed to 994 (down from 1,759). The average sales price for residential property is now, $206,303 down from $211,872 in 2007 The slowing of the real estate market will hold assessed values down which in turn will make significant increases in property tax revenue unlikely. A cooling of the Washington State Auditor's Office 21 economy will curtail retail sales and the associated sales tax revenue. Real estate excise tax receipts (used for capital improvements)are expected to moderate as the number of real estate sales declines. The City of Spokane Valley has ample reserves and funds to handle an economic slowdown without significantly impacting or reducing services. The Pacific Northwest is unlikely to experience as deep an economic decline as the rest of the country. The City of Spokane Valley's assessed value climbed 11% to 6.6 billion in 2008. An increase of 6% is expected during 2009. The City's property tax rate for 2008 was near $1.51 per thousand of assessed value. The City of Spokane Valley contracts with Spokane County and several public service districts for many city services including street maintenance, public safety, library, and fire protection. This allows the City to keep the number of full-time employees to 72. Employee salaries and related benefits are the leading cost for city operations. In 2008, a comparison of the 32 largest cities was conducted within the State of Washington, and the City of Spokane Valley had the fewest number of employees based on those 32 Washington cities with a population of 50,000 and over. No significant general fund tax increases were implemented in 2008, nor are any anticipated for the 2009 general fund budget. A telephone utility tax of 6% was implemented during 2009 in the City's Street Fund. Expenditures for 2009 were budgeted at levels to maintain and provide services at the 2008 level. REQUEST FOR INFORMATION This financial report is designed to provide a general overview of the City of Spokane Valley's finances for those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to: City of Spokane Valley Finance Department 11707 E. Sprague Ave. Suite 106 Spokane Valley, Washington 99206. Washington State Auditor's Office 22 City of Spokane Valley, Washington Statement of Net Assets December 31, 2008 Primary Government Governmental Business-type Activities Activities Total ASSETS Cash and cash equivalents $ 39,120,985 $ 2,505,820 $ 41,626,805 Taxes receivable 3,854,667 50,430 3,905,097 Taxes delinquent-receivable 99,099 18,801 117,900 Accounts receivable,(net) 10,107,819 29,995 10,137,814 Interest receivable 47,341 2,237 49,578 Grants receivable - - - Internal balances 8,821,000 - 8,821,000 Prepaids 34,300 - 34,300 Capital Assets: Land 3,961,376 - 3,961,376 Depreciable assets,(net) 44,706,947 313,982 45,020,929 Construction in progress 12,425,216 376,119 12,801,335 Total Assets $ 123,178,751 $ 3,297,383 $126,476,134 LIABILITIES Accounts payable $ 3,684,776 $ 82,973 $ 3,767,749 Interest payable 33,005 - 33,005 Internal balances 8,821,000 - 8,821,000 Deposits and other payables 75,513 35,100 110,613 Other accrued liabilities 653,053 47,608 700,661 Deferred revenue - 60,446 60,446 Long-term liabilities: Due within one year 282,916 - 282,916 Due in more than one year 8,681,318 - 8,681,318 Total Liabilities 22,231,581 226,127 22,457,708 NET ASSETS Invested in capital assets,net of related debt 52,370,145 690,101 53,060,246 Restricted for: Center Place operating 346,794 - 346,794 Capital projects 13,599,441 - 13,599,441 Replacement of vehicles&workstations 19,426 19,426 Unrestricted: Governmental type activities 34,611,364 - 34,611,364 Business type activities - 2,381,156 2,381,156 Total Net Assets: 100,947,169 3,071,257 104,018,426 Total Liabilities and Net Assets $ 123,178,751 $ 3,297,383 $126,476,134 The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 23 ` R.CO al M M \O 00 f` M S N ' O v•-)S S 00 N H O O1 M Vl Vl 00 M M O S M O1 N M 00 O O 00 M CT •1 O1 •1 O R TO1 O 00 O M M N M M CO v•--, ca, O N N M M Co- ,-1 O al CO al 00 00 v•--, N• ,O v, 7- ,-1 A. C O 00 7- O ■O Ol 7- 7- 00 �..i ,.....• M 00 O N O ‘.0 M ‘.0 O r, � 0- R ca,- 00 N• M r, O- M R ,-, 0 M ca,"' l O CC• .,i se 69 a+ or 0 y or vl vl N N S N N- M r y l l l� 00 l a n oo N • H _ �y 4 A-, M M M V1 M N N V V M S O y, 1 5 u N ri or C t se 69 ^ N �_ CO ^ .--1 00 S M ,C N 00 M vl CT a+ S S 00 Cl O 'C Cr, 0- R M M O S 7- 7- 7- O \O y� a+ S M 00 O O 00 M S N v•-) O n u, N t---., O n N ,--1 /-1 y y �O �O O �--, 00 O M �O M M O • 7- M 0- N 00 00 CZ. N ,--1 M M 00 v, Ol O 7- R 00 v, N ‘.O O M ‘.O N R O 00 7- O o ca, 7- 7- 00 00 00 O N O N 00 O Cr, T �..i ,.....• T 00 Cl M ,-, O• R M- of O o se yg z O OHO O R F-, ": M M ,O vl vl N a• N) A.'' z o C o C,) U t co L " � 5.4 t/ N S. or a)< E cty - 00N 0- N 00 00 0 - w o Ct y y � o 0 � 0 0 d C N °, U E • Ws+ v, Cr, ,—, O S M cC '� obi _ d W y M M CO M M N N 0 y W O ++ L y vl CT N H ,--, ,--1 O Cr, Ol O +' or y O ,to to d bA 00 N 7-1 N ca, O 0- 00 00 M O O iii CSC 5 w yr y CO r, CO �O O ,O ,O N Y' .z bA a+ C U or or 0 O U O O S M M CO N CO CO O y 0A - LL N Ol Cr, M Ni Ol N f` f` O y ,.a ,.a al O O O M .--I Ol - 00 - �--, © cl Ol O 't" ¢+ N "- N '" O m m O y Ol ,C O 00 f v O M S S ,-- N s-, C 9C 7 U CC CC Q p p v N 0 Cr, v l a S. >C P. VD W O 1 y a 0 or or YE M S "C N N 7- ,_, ,_, or cO W R 0 H H 69 69 04 or Y or s--, .ti Sy y cu 0 0 ■.; N -, N O N O N bA �"• h Y 0 ti O Y �""� Y CD P4 n y s O 1UP� H1 W c_.) c_.) � � Washington State Auditor's Office 24 City of Spokane Valley, Washington Balance Sheet Governmental Funds December 31, 2008 Street Sub-Total General Capital Projects Capital Projects Capital Grants Governmental Fund Fund Fund Fund Funds Assets Cash and cash equivalents $ 17,478,796 $ 2,367,126 $ 445 $ 180 $ 19,846,547 Taxes receivable 3,522,045 48,043 - - 3,570,088 Accounts receivable,(net) 583,133 - 1,944,694 5,552,417 8,080,244 Interest receivable 24,789 2,220 - - 27,009 Due from other funds 3,400,000 1,021,000 - - 4,421,000 Due from other governments - - - - - Grants receivable - - - - - Prepaids 34,300 - - - 34,300 Internal balances - - - - - Total Assets $ 25,043,062 $ 3,438,389 $ 1,945,140 $ 5,552,597 $ 35,979,188 Liabilities and Fund Balances Liabilities: Accounts payable $ 777,555 $ - $ 1,145,800 $ 72,702 $ 1,996,057 Accrued wages and benefits payable 382,462 - 4,708 10,877 398,047 Due to other funds - 885,000 674,000 5,397,000 6,956,000 Other accrued liabilities 1,025 - - - 1,025 Deposits payable 75,513 - - - 75,513 Retainage payable - - 47,176 61,968 109,144 Deferred revenues 2,114,211 - - 10,000 2,124,211 Total Liabilities 3,350,766 885,000 1,871,684 5,552,547 11,659,997 Fund Balances: Reserved for: Center Place operating - - - - - Capital projects - 2,553,389 73,456 - 2,626,845 Replacement vehicles&workstations 19,426 19,426 Unreserved: General Fund 21,672,870 - - - 21,672,870 Special Revenue Funds - - - - - Capital Projects Funds - - - 50 50 Total Fund Balances 21,692,296 2,553,389 73,456 50 24,319,191 Total Liabilities and Fund Balances $ 25,043,062 $ 3,438,389 $ 1,945,140 $ 5,552,597 $ 35,979,188 The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 25 City of Spokane Valley, Washington Balance Sheet Governmental Funds December 31, 2008 Barker Bridge Other Total Reconstruction Governmental Governmental Fund Funds Funds Assets Cash and cash equivalents $ 11,104 $ 18,346,670 $ 38,204,321 Taxes receivable - 383,678 3,953,766 Accounts receivable,(net) 1,976,021 51,554 10,107,819 Interest receivable - 19,457 46,466 Due from other funds - 4,400,000 8,821,000 Due from other governments - - - Grants receivable - - - Prepaids - - 34,300 Internal balances - - - Total Assets $ 1,987,124 $ 23,201,359 $ 61,167,672 Liabilities and Fund Balances Liabilities: Accounts payable $ 169,888 $ 1,518,831 3,684,776 Accrued wages and benefits payable 4,248 23,654 425,949 Due to other funds 1,750,000 115,000 8,821,000 Other accrued liabilities - - 1,025 Deposits payable - - 75,513 Retainage payable - 116,935 226,079 Deferred revenues 62,988 156,998 2,344,197 Total Liabilities 1,987,124 1,931,419 15,578,540 Fund Balances: Reserved for: Center Place operating - 346,794 346,794 Capital projects - 10,972,596 13,599,441 Replacement vehicles&workstations - - 19,426 Unreserved: General Fund - - 21,672,870 Special Revenue Funds - 6,581,890 6,581,890 Capital Projects Funds - 3,368,660 3,368,710 Total Fund Balances - 21,269,940 45,589,131 Total Liabilities and Fund Balances $ 1,987,124 $ 23,201,359 $ 61,167,672 The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 26 City of Spokane Valley, Washington Reconciliation of Total Governmental Fund Balances to Net Assets of Governmental Activities December 31, 2008 Total governmental fund balances: $45,589,131 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources. This amount reflects the initial investment in capital assets and are not reported in the funds. 61,093,540 Certain earned tax revenues will be collected after year end and will not be available until after year end to pay for current expenditures; and therefore reported as deferred revenues in the funds. These revenues consist of: Sales and use taxes 1,696,813 Motor fuel taxes 133,304 Hotel/Motel taxes 23,280 Total 1,853,398 Other long-term assets are not available to pay for current- period expenditures and therefore are deferred in the funds: Property taxes 317,569 Intergovernmental 62,988 Charges for services 100,243 Miscellaneous 10,000 Total 490,800 Interest on long-term debt is not accrued in governmental funds, but rather is recognized as an expenditure when due. (33,005) Internal service funds are used by management to charge the cost of certain activities, such as equipment rental and self insurance, to the individual funds. The assets and liabilities of the internal service fund are included in governmental activities in the statement of net assets. 917,539 Long-term liabilities, including capital leases payable and accrued interest payable, are not due and payable in the current period and therefore are not reported in the funds: Bonds payable (8,570,000) Premium on bond issuance (153,395) Compensated Absences (240,839) Total (8,964,234) Total Net Assets of Governmental Activities as shown on the Statement of Net Assets: $100,947,169 The notes to the financial statements are an integral part of this financial statement. Washington State Auditor's Office 27 City of Spokane Valley, Washington Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2008 Street Sub-Total General Capital Projects Capital Projects Capital Grants Governmental Fund Fund Fund Fund Major Funds Revenues Taxes $ 29,423,180 $ 1,001,137 $ - $ - $ 30,424,317 Licenses and permits 2,508,810 - - - 2,508,810 Intergovernmental 1,251,415 - 2,224,276 6,120,881 9,596,572 Charges for services 759,752 - - - 759,752 Fines and forfeitures 771,448 - - - 771,448 Investment interest 361,845 101,533 - - 463,378 Miscellaneous 1,542,299 - 815,635 1,300 2,359,234 Total Revenues 36,618,748 1,102,670 3,039,911 6,122,181 46,883,511 Expenditures Current: General government 3,467,064 - - - 3,467,064 Public safety 17,605,571 - - - 17,605,571 Utilities and physical environment 1,178,474 - - - 1,178,474 Transportation 49,458 - 17 - 49,475 Economic environment 145,639 - - - 145,639 Community development 2,971,123 - - - 2,971,123 Culture and recreation 2,056,243 - - - 2,056,243 Debt Service: Principal retirement - - - - - Interest expense - - - - - Capital Outlay: Capital expenditures 594,610 - 225,290 548 820,448 Construction in progress - - 5,500,281 6,779,319 12,279,600 Total Expenditures 28,068,182 - 5,725,588 6,779,867 40,573,637 Excess of Revenues Over(Under) 8,550,566 1,102,670 (2,685,677) (657,686) 6,309,874 Expenditures Other Financing Sources(Uses) Transfers In 158,850 - 2,879,393 675,101 3,713,344 Transfers(out) (764,317) (2,996,878) - - (3,761,195) Total Other Financing Sources(Uses) (605,467) (2,996,878) 2,879,393 675,101 (47,851) Net Change in Fund Balances 7,945,099 (1,894,208) 193,716 17,415 6,262,023 Fund Balances Beginning of Year(deficit) 13,747,197 4,447,597 (120,260) (17,365) 18,057,169 Fund Balances End of Year $ 21,692,296 $ 2,553,389 $ 73,456 $ 50 $ 24,319,191 The notes to the financial statements are an integral part of this statement. continued Washington State Auditor's Office Y �Y 28 City of Spokane Valley, Washington Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2008 Barker Bridge Other Total Reconstruction Governmental Governmental Fund Funds Funds Revenues Taxes $ - $ 1,453,739 $ 31,878,056 Licenses and permits - - 2,508,810 Intergovernmental 1,988,235 2,421,100 14,005,907 Charges for services - 8,106 767,858 Fines and forfeitures - - 771,448 Investment interest - 516,373 979,751 Miscellaneous - 1,476,053 3,835,287 Total Revenues 1,988,235 5,875,371 54,747,116 Expenditures Current: General government - - 3,467,064 Public safety - - 17,605,571 Utilities and physical environment - - 1,178,474 Transportation - 4,531,431 4,580,906 Economic environment - 525,022 670,661 Community development - - 2,971,123 Culture and recreation - 103,517 2,159,760 Debt Service: - Principal retirement - 191,250 191,250 Interest expense - 406,398 406,398 Capital Outlay: - Capital expenditures - 2,888,644 3,709,092 Construction in progress 2,002,334 - 14,281,934 Total Expenditures 2,002,334 8,646,262 51,222,233 Excess of Revenues Over(Under) (14,099) (2,770,891) 3,524,883 Expenditures Other Financing Sources(Uses) Transfers In 14,099 2,432,455 6,159,898 Transfers(out) - (2,351,954) (6,113,149) Total Other Financing Sources(Uses) 14,099 80,501 46,749 Net Change in Fund Balances - (2,690,390) 3,571,632 Fund Balances Beginning of Year - 23,960,330 42,017,499 Fund Balances End of Year $ - $ 21,269,940 5 45,589,131 The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 29 City of Spokane Valley, Washington 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, 2008 Net change in fund balances -total governmental funds: $3,571,632 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 those assets is allocated over their estimated useful lives as depreciation expense.This is the amount by which capital outlays and contributions exceeded depreciation and capital asset disposals in the current period. 6,971,263 Depreciation (11,414,894) Capital outlay 17,991,026 Capital contributions 420,026 Capital asset disposals (24,895) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds: (685,873) Sales and use taxes (264,266) Property taxes 43,424 Other taxes (38,061) Charges for services 4,351 Capital grants and contributions (431,321) Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net assets. Repayment of non-current debt is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets.This is the amount by which repayments exceeded proceeds. 190,000 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds: Compensated absences (70,601) Bond premium expense 7,316 Bond principle payment accrual 1,250 Bond unamortized premium accrual (342) Interest expense - (62,377) Internal service funds are used by management to charge the costs of certain activities,such as equipment rental and self insurance to the individual funds.The net revenue(expense)of the internal service funds is reported with governmental activities. 34,260 Total Change in Net Assets of Governmental Activities $10,018,905 as shown on the Statement of Activities: The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 30 City of Spokane Valley, Washington Statement of Net Assets -Proprietary Funds December 31, 2008 and 2007 Business-activity Governmental Enterprise Fund Type activities Stormwater Management Internal Service Funds Assets 2008 2007 2008 2007 Current Assets: Cash and cash equivalents $ 2,505,820 $ 2,097,847 $ 916,664 $ 895,107 Taxes delinquent-receivable 69,231 54,781 - - Accounts receivable,(net) 29,995 4,071 - - Interest receivable 2,237 6,972 875 2,662 Due from other funds - 25,000 - - Due from other governments - - - - Total Current Assets 2,607,283 2,188,671 917,539 897,769 Capital Assets: Machinery and equipment 38,201 13,511 - - Infrastructure 323,199 323,199 - - Construction in progress 376,119 376,119 - - Less accumulated depreciation (47,418) (27,695) - - Total capital assets(net of accumulated depreciation) 690,101 685,134 - - Total Assets $ 3,297,383 $ 2,873,805 $ 917,539 $ 897,769 Liabilities Current Liabilities: Accounts payable $ 82,973 $ 55,830 $ - $ 14,490 Accrued payroll and benefits payable 15,136 9,662 - - Due to other funds - - - - Deposits and other payables 35,100 - - - Retainage payables 32,472 32,100 - - Deferred revenue 60,446 54,781 - - Total Current Liabilities 226,127 152,373 - 14,490 Total Liabilities 226,127 152,373 - 14,490 Net Assets Invested in capital assets,net of related debt 690,101 685,134 - - Unrestricted 2,381,156 2,036,298 917,539 883,279 Total Net Assets 3,071,257 2,721,432 917,539 883,279 Total Liabilities and Net Assets $ 3,297,383 $ 2,873,805 $ 917,539 $ 897,769 The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 31 City of Spokane Valley, Washington Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds For the Year Ended December 31, 2008 and 2007 Business-activity Governmental Enterprise Fund Type activities Stormwater Management Internal Service Funds Operating Revenues 2008 2007 2008 2007 Charges for services $ 1,686,936 $ 1,657,924 $ - $ - Miscellaneous revenues - 135 9,817 - Total Operating Revenues 1,686,936 1,658,059 9,817 - Operating Expenses Personal services 243,989 204,193 - - Professional services 68,765 32,939 - - Materials and supplies 28,998 11,950 - - Other services and expenses 817,714 702,880 187,048 186,342 Depreciation and amortization 19,724 18,521 - - Total Operating Expenses 1,179,189 970,483 187,048 186,342 Operating Income 507,747 687,576 (177,231) (186,342) Non-Operating Revenues(Expenses) Intergovernmental revenues 25,495 26,980 - - Interest and investment income 51,820 80,568 23,491 3,422 Materials and supplies (489) - - - Total Non-Operating Revenues(Expenses) 76,826 107,548 23,491 3,422 Income(loss)before Contributions and Transfers 584,573 795,124 (153,740) (182,920) Contributions and Transfers Transfers In - - 188,000 176,903 Transfers(out) (234,748) (15,000) - (257,564) Change in Net Assets 349,825 780,124 34,260 (263,581) Net Assets Beginning of Year 2,721,432 1,941,308 883,279 1,146,860 Net Assets End of Year $ 3,071,257 $ 2,721,432 $ 917,539 $ 883,279 The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 32 City of Spokane Valley, Washington Statement of Cash Flows -Proprietary Funds For the Year Ended December 31, 2008 (with comparative totals for 2007) Business Activity Governmental Type Activities Stormwater Management Enterprise Fund Internal Service Funds Cash Flows from Operating Activities 2008 2007 2008 2007 Cash received from customers $ 1,646,562 $1,643,897 $ - $ - Cash paid to employees (234,655) (205,392) - - Other cash receipts 70,872 9,397 11,604 - Receipts from internal activity-interfund services provided - 66,565 - 39,612 Cash payments to suppliers for goods and services (892,683) (723,934) (201,538) (173,127) Net cash(used)provided by operating activities 590,096 790,533 (189,934) (133,515) Cash Flows from Noncapital Financing Activities Operating subsidies &transfers in (out)other funds (234,748) (15,000) 188,000 (80,661) Net cash(used)by noncapital financing activities (234,748) (15,000) 188,000 (80,661) Cash Flows from Capital and Related Financing Activities Proceeds from sale of capital assets - - - - Acquistion, construction and (transfers)of capital assets (24,690) (376,119) - 257,563 Intergovernmental revenues 25,495 26,980 - - Operating transfers net - - - - Purchases of capital assets - - - - Net cash provided(used)by capital and related financing activities 805 (349,139) - 257,563 Cash Flows from Investing Activities Interest received 51,820 80,568 23,491 3,422 Net cash provided by investing activities 51,820 80,568 23,491 3,422 Net increase in Cash and Cash Equivalents 407,973 506,962 21,557 46,809 Cash and Cash Equivalents-January 1 2,097,847 1,590,885 895,107 848,298 Cash and Cash Equivalents-December 31 $ 2,505,820 $2,097,847 $ 916,664 $ 895,107 Reconciliation of Operating Income(Loss)to Net Cash Provided (Used) by Operating Activities Operating Income (loss) $ 507,747 $ 687,576 $ (177,231) $ (186,342) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 19,724 18,521 - - Loss on disposal of asset - - - - (Increase)Decrease in Assets: Receivables(net) (40,374) (14,027) - - Due from other funds 25,000 88,816 - 45,427 Due from other governments - 7,049 - - Interest receivable 4,735 (6,972) 1,787 (2,662) Increase (Decrease)in Liabilities: Accounts payable 26,652 23,835 (14,490) 13,422 Accrued payroll and benefits payable 5,475 (1,199) - - Due to other funds - (22,328) - - Due to other governments - - - (3,153) Deposits and other payables 35,472 - - (207) Deferred revenues 5,665 9,262 - - Total adjustments 82,349 102,957 (12,703) 52,827 Net Cash Provided(used) by Operating Activities $ 590,096 $ 790,533 $ (189,934) $ (133,515) The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 33 City of Spokane Valley Notes to Financial Statements NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The City of Spokane Valley,Washington(the City)was incorporated on March 31,2003. The City operates under a Council–Manager Form of government. The City's major operations, as authorized under the laws of the State of Washington applicable to a non-charter city code,include planning and zoning,public safety,public works, and recreation and culture. The accounting and reporting policies of the City relate to the accompanying financial statements of the City of Spokane Valley,Washington which have been prepared in conformity with generally accepted accounting principles(GAAP) as applied to state and local governmental entities.GAAP for local governments include those principles prescribed by the Governmental Accounting Standards Board (GASB)which is the accepted standard-setting body for establishing governmental accounting and financial reporting principles,the Financial Accounting Standards Board(FASB),when applicable, and the American Institute of Certified Public Accountants(AICPA)pronouncements that have been made applicable by GASB Statements or Interpretations. A. Reporting entity As required by GAAP the City's financial statements present the City of Spokane Valley–the primary government. There are no component units(either blended or discretely presented)included in these statements. B. Government-wide and fund financial statements The City's basic financial statements include both government-wide (reporting the City as a whole) and fund financial statements(reporting the City's major funds)to report its financial position and the results of operations. Both the government-wide and fund fmancial statements categorize primary activities as either government or business-type. The government-wide financial statements(i.e.,the statement of net assets and the statement of activities) report information on all of the non-fiduciary activities of the primary 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 to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segments are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1)charges to customers or applicants who purchase,use,or directly benefit from goods, services,or privileges provided by a given function or segment and 2)grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported as general revenues. Separate financial statements are provided for governmental funds,proprietary funds, and fiduciary funds. The City has no fiduciary funds. Major individual funds are reported as separate columns while the remaining funds are combined for presentation purposes in the governmental funds statements and the proprietary funds statements. Washington State Auditor's Office 34 City of Spokane Valley Notes to Financial Statements C. Measurement focus,basis of accounting, and financial statement presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting,as are proprietary funds. Under this approach,revenues are recorded when earned and expenses are recorded when a liability is incurred,regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. The City recognizes Grant revenue and similar items in the year in which expenses were incurred and as soon as all the eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectable within the current period or soon thereafter to pay liabilities of the current period. For this purpose,the government considers revenues to be available if they are collected within 30 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred,as under accrual accounting. However,debt service expenditures,as well as expenditures related to compensated absences,claims,and judgments are recorded only when the payment is due. Property taxes,franchise fees,licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the government. The city reports the following major governmental funds: The General Fund: is the City's primary operating fund. It accounts for all financial resources of the City's general government,except those required to be accounted for in another fund. The Capital Projects Fund: serves as a matching fund for the various construction projects.This fund accounts for the collection and expenditure of the real estate excise tax(REET)levied on all sales of real estate property(1st quarter of 1%). The real estate excise tax is spent on specific capital improvements identified in the City's capital improvements plan. The Street Capital Projects Fund: accounts for monies used to finance the six year transportation improvement plan. Revenues are transfers from the Arterial Street Fund, Capital Projects Fund,and Special Capital Projects Fund. The Capital Grants Fund: is used for capital improvement projects primarily funded by the issuance of grant revenue proceeds from other governmental agencies,like the Washington State Transportation Improvement Board(TIB), Spokane Transit Authority(STA), Spokane Regional Transportation Council(SRTC),Bridge Replacement Advisory Committee (BRAC),U.S. Department of Transportation's Surface Transportation Programs(STP), and Community Development Block Grants(CDBG).Additional resources are provided in the form of transfers from the Capital Projects, Special Capital Projects,and Special revenue funds. Washington State Auditor's Office 35 City of Spokane Valley Notes to Financial Statements The Barker Bridge Reconstruction Fund: accounts for capital improvement projects expenditures associated with the Barker Bridge Replacement Project.This project is primarily funded by BRAC (Bridge Replacement Advisory Committee)grant resources and is estimated to cost approximately $11,000,000 over several years. The city reports the following major proprietary fund: The Stormwater Management Fund: accounts for the receipt and expenditure of the stormwater management fee. The expenditures are used for stormwater control,construction,and management. Additionally,the government reports the following non-major fund types: Special revenue funds: account for arterial street construction and maintenance,hotel/motel tax revenues and expenditures,CenterPlace operating reserve,Winter Weather Reserve,and revenues and expenditures for the Paths and Trails Fund. Debt service funds: account for the resources accumulated and payments made for principal and interest on general government debt except those to be accounted for in another fund. Capital project funds: account for the acquisition or development of capital facilities for governmental activities. Their major sources of revenues are from proceeds of general obligation bonds,grants from other agencies, and contributions from other funds. Internal service funds: account for computer hardware/software,equipment,vehicle replacement, and risk management services provided to other departments on a cost reimbursement basis. Private sector standards of accounting and financial reporting issued prior to December 1, 1989,generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the GASB. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. As a general rule interfund activity has been eliminated from the government-wide financial statements. Exceptions are payments in lieu of taxes,external type transactions within internal service funds (revenues and expenses for interest or services to other governmental organizations), and other charges for stormwater services. Elimination of these charges would distort the direct cost and program revenues reported for these functions. Amounts reported as program revenues include 1)charges to customers or applicants for goods, services, or privileges provided,2)operating grants and contributions, and 3)capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than program revenues. Likewise,general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principle operating revenues of the stormwater enterprise fund is a stormwater assessment fee. Operating expenses of enterprise funds Washington State Auditor's Office 36 City of Spokane Valley Notes to Financial Statements and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. When both restricted and unrestricted resources are available for use,it is the City's policy to use restricted resources first, and then unrestricted resources as they are needed. D. Assets,liabilities, and fund equity 1.Deposits and investments The City considers all highly liquid assets including demand deposits,petty cash,money market accounts, certificates of deposit(CD's),investments in the Washington State Treasurer's Local Government Investment Pool(LGIP), and short-term investments with a maturity of three months or less from the date of acquisition as cash and cash equivalents.These amounts are classified on the balance sheet or in the statement of net assets within cash and cash equivalents in the various funds. The interest on these investments is prorated to the applicable funds and the City's policy has been to hold its investments until maturity in an attempt to reduce market fluctuation risk. Investments of the City can be drawn down on demand. As authorized by Washington state law,the City is allowed to invest in obligations of: the U.S.Treasury, commercial paper,certificates of deposits,money market funds,mutual funds,and the Washington State Treasurer's Local Government Investment Pool (LGIP). Investments for the City of Spokane Valley are reported at fair value at December 31,2008.The Washington State Treasurer's Local Government Investment Pool(LGIP) operates in accordance with the Security Exchange Commission's(SEC)Rule 2a-7 of the Investment Company Act of 1940 and other appropriate state laws and regulations. The fair value of the LGIP portfolio is calculated by a master custodian or by an independent pricing service under contract with the State Treasurer's Office.The reported fair value of the City's pool position in the State of Washington's LGIP is the same as the fair value of the pool shares(refer to note 4). 2.Receivables and payables Taxes receivable consists of property taxes and related interest and penalties. Accrued interest receivable consists of amounts earned on investments,notes,and contracts. Accrued interest payable consists of amounts owed on notes,loans,and contracts. Customer accounts receivable/payable consist of amounts owed from/to private individuals or organizations for goods and services including amounts owed. If the transactions are with another governmental unit,it is accounted for within"due from/to other governments." Receivables have been reported net of estimated uncollectible accounts. Because property taxes and special assessments are considered liens on property,no estimated uncollectible amounts are established. Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to either"due to/from other funds"(i.e.,the current portion of interfund loans)or"interfund loans receivable/payable" (i.e.,the non-current portion of interfund loans). All other Washington State Auditor's Office 37 City of Spokane Valley Notes to Financial Statements outstanding balances between the governmental activities and business-type activities are reported in the government-wide fmancial statements as"internal balances(refer to note 9)." Advances,between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term liabilities are reported in applicable governmental activities,business-type activities,or proprietary fund type statement of net assets. Wages and benefits payable represent wages earned at the end of the current fiscal year but not paid until the next fiscal year. 3.Inventories and prepaid items Reported inventories in the governmental and proprietary funds consist of expendable supplies held for consumption. The cost of inventories has been recorded as expenditure at the time individual inventory items were purchased(purchase method). Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund statements. 4. Capital assets and depreciation Capital assets include: property,plant,equipment, and infrastructure assets(e.g.roads,bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type columns in the government-wide fmancial statements. The City defines capital assets as assets with an initial,individual cost of more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Other donated assets are recorded at estimated fair market value at the date of donation. 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(refer to note 6). Property,plant, and equipment of the primary government are depreciated using the straight line method over the estimated service life as follows: Buildings and improvements 10 -60 years Infrastructure 5 -40 years Light/Heavy duty transportation equipment 5 - 10 years Other equipment 2 -20 years Office and computer equipment 3 - 5 years Washington State Auditor's Office 38 City of Spokane Valley Notes to Financial Statements 5.Long-term obligations Liabilities for long-term debt are recorded in the government-wide statement of net assets and in the governmental funds balance sheet. The liabilities include bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs are reported as deferred charges. Long-term obligations outstanding at year end are outlined in Note 11. For governmental funds financial statements,bond issuance costs are expended at the time of issuance. Bond premiums and discounts are deferred and amortized over the life of the bonds. Bond proceeds are reported as other financing sources net of the applicable premium or discount. Issuance costs,even if withheld from the actual net proceeds received, are reported as debt service expenditures. The nature of debt in the governmental activity is specific to a program and,therefore;debt service costs are not an allocated expense. 6.Deferred revenues The deferred revenues account is used to offset receivables established in the governmental fund financial statements for certain revenues that are measurable but not considered available to finance payment of current obligations,and,therefore,not susceptible to accrual on the modified accrual basis. When the receivable amounts are collected in future periods,this liability account is reduced and corresponding revenue is recorded.Deferred revenues represented in this manner on the accompanying financial statements are: uncollected property taxes levied,uncollected road taxes levied,sales and use taxes,motor fuel taxes,and hotel/motel taxes. 7. Compensated absences Compensated absences are absences for which employees will be paid, such as vacation and sick leave. Vacation pay,which may be accumulated up to 360 hours,is payable upon resignation,retirement,or death. All vacation pay is accrued when incurred in the government-wide,proprietary and fund financial statements. An additional amount has been accrued for the city's share of Medicare taxes related to the vacation accrual. A liability for these amounts is reported in the government fund statements only if they have matured, for example,as a result of employee resignations and retirements 8.Fund balance designations and reservations In the fund financial statements,governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. E. Revenues, expenditures, and expenses 1.Program revenues Program revenues include charges for services to customers for goods or services provided,operating grants and contributions,and non-operating grants and contributions within the Government-wide statement of activities. Charges for services include business licenses,construction permits, and recreation program fees. Washington State Auditor's Office 39 City of Spokane Valley Notes to Financial Statements 2. General revenues Property taxes,retail taxes,business taxes,excise taxes, and associated penalties and interest, and interest and investment earnings are classified as general revenues within the Government-wide statement of activities. 3.Interfund transfers Permanent reallocations of resources between funds of the reporting entity are classified as interfund transfers.For the purposes of the Government-wide Statement of Activities,all interfund transfers between individual governmental funds have been eliminated. 4.Expenses/expenditures Expenses in the Government-wide statement of activities are reported by function as a governmental activity(general government, security of persons and property,physical environment,transportation, economic environment,culture and recreation,or interest on long-term debt),or business-type activity (wastewater,or stormwater). Certain indirect costs are included in program expenses by function. In the fund financial statements,expenditures of governmental funds are classified current by function,debt service principle and interest payments,or purchases of capital items. Proprietary expenditures are classified as operating or non-operating. 5. Operating and non-operating revenues and expenses Operating revenues and expenses for proprietary funds are those that result from providing services and producing and delivering goods and/or services in connection to the proprietary fund's principal ongoing operations. It also includes all revenue and expenses not related to capital and related financing,non- capital financing,or investing activities. All revenue and expenses not meeting this definition are non- operating revenues and expenses. NOTE 2—STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY: A. Scope of budget Annual appropriated budgets are adopted for all funds on a basis consistent with generally accepted accounting principals. Legal budgetary control is established at the fund level. Subsidiary revenue and expenditure ledgers are used to compare the budgeted amounts with actual revenues and expenditures. As a management control device,the subsidiary ledgers are used to monitor expenditures for individual functions and activities by object class. B. Procedures for adopting the original budget The City's budget procedures are mandated by the Revised Code of Washington 35A.33. The following are key procedural steps in the City's budget development process. Note that the process and dates are for the 2008 budget process and may be changed for future processes: Washington State Auditor's Office 40 City of Spokane Valley Notes to Financial Statements • In April,the official"budget call"required by State law is made to all department directors or fund managers. Budget development instructions and other materials are provided to the departments at this time. • In June departments submit revenue and expenditure estimates to the Finance department. The City Council and City management staff discusses City goals and priorities and reaffirm overall City priorities,vision,and mission at a mid-year retreat. Additional policy guidance is provided throughout the year. • In July the Finance department submits the preliminary budget to the City Manager. • In August the City Manager submits estimates on the current year's revenue and expenditures for the upcoming year to the council. • During August,preliminary budget documents were prepared,printed and filed with City Clerk. This proposed budget is presented to the City Clerk and copies are made available to the public. The Council set the dates of the preliminary and final budget hearings. • Before December 31St the City Council,by a majority vote,will adopt the budget by ordinance, establishing the budget appropriation for the year. • The approved budget is published and distributed during the first quarter of the following year. Copies are made available to the public. • Monthly budget monitoring reports are published by the Finance Department to report on actual performance compared to budget estimates and to identify any remedial actions that may be needed. C. Amending the budget The budget,as adopted,constitutes the legal authority for expenditures. The City's budget is adopted at the fund level, so that expenditures may not legally exceed appropriations at that level of detail. The City Manager is authorized to transfer budgeted amounts within a fund; however,any revisions that alter the total expenditures of a fund,or that effect the number of authorized employee positions, salary ranges,or other conditions of employment must be approved by the City Council. When the City Council determines that it is in the best interest of the City to increase or decrease the appropriation for a particular fund,it may do so by ordinance approved by one more than the majority after holding a public hearing. The City's budget was amended two times during the fiscal year 2008. The financial statements contain the original and final budget information. The original budget is the first complete appropriated budget. The final budget is the original budget adjusted by all reserves,transfers, allocations, supplemental appropriations, and other legally authorized changes. All appropriations lapse at year end. Unexpended resources must be re-appropriated in the subsequent period. D. Compliance For the year ending December 31,2008,no material violations of finance related legal or contractual provisions occurred and none of the funds exceeded legal appropriations for the fiscal year. Washington State Auditor's Office 41 City of Spokane Valley Notes to Financial Statements E. Deficit fund equity At December 31,2008,there are no deficit fund equity balances to disclose. NOTE 3—RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS: The governmental fund statements include reconciliations between the fund statements and the government-wide statements. Differences that make reconciliations necessary include the two differing measurement focuses and basis of accounting, accrual and modified accrual between the statements. A. Explanation of certain differences between the governmental fund balance sheet and the government-wide statement of net assets The governmental fund balance includes reconciliations between fund balance—total governmental funds and net assets—governmental activities as reported in the government—wide statement of net assets. One element of that reconciliation explains that"long-term liabilities, including capital leases payable, are not due and payable in the current period and therefore are not reported in the funds." The details of the ($8,964,234)difference are as follows: Long term liabilities-current balances as of 12/31/08 Bonds payable $ (8,570,000) Premium on bond issuance (153,395) Total $ (8,723,395) Compensated absences (240,839) Net adjustment to reduce fund balance- total governmental funds to arrive at net assets-governmental activities $ (8,964,234) Another element of that reconciliation explains the "Internal service funds" are used by management to charge the cost of certain activities, such as health insurance costs to the individual funds. The assets and liabilities of the internal service fund are included in governmental activities in the statement of net assets. The details of the $917,539 difference are as follows. Net assets of the internal service fund $ 917,539 Less: Internal payables - Net adjustment to increase fund balance - total governmental funds to arrive at net assets - governmental activities $ 917,539 Washington State Auditor's Office 42 City of Spokane Valley Notes to Financial Statements Also, another element of the reconciliation explains that capital assets used in governmental activities are not current financial resources and the balance reflects the initial investment in capital assets therefore, "governmental funds do not report capital assets."The details of the $61,093,540 difference are as follows: Beginning balance 1/1/08-Capital Assets, net of accumulated depreciation $ 54,122,275 Additions of Capital Assets, net of accumulated depreciation 8,083,406 Reductions of Capital Assets, net of accumulated depreciation (1,112,143) Net adjustment to increase fund balance - total governmental funds to arrive at net assets -governmental activities $ 61,093,539 B. Explanation of certain differences between the governmental fund statement of revenues, expenditures, and changes in fund balances and the government-wide statement of activities The governmental fund statement of revenues,expenditures, and changes in fund balances includes reconciliation between net changes in fund balances total governmental funds and changes in net assets of governmental activities as reported in the government-wide statement of activities. Governmental funds report capital outlays as expenditures. However,in the statement of activities,the cost of those assets is allocated over their estimated useful lives as depreciation expense. The details of this$6,971,263 difference are as follows: Capital outlay $ 17,991,026 Depreciation expense (11,414,894) Capital contributions (WSDOT) 420,026 Capital asset disposal (Senior Center) (24,895) Net adjustment to decrease net changes in fund balances- total governmental funds to arrive at changes in net assets of governmental activities $ 6,971,263 Bond payable repayments in the amount of$190,000 exceeded proceeds. Revenues in the statement of activities that do not provide current financial resources to governmental funds are not reported as revenues in the funds $(685,873). Another element of the reconciliation states that"some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds". The details of this$(62,377)difference are as follows: Washington State Auditor's Office 43 City of Spokane Valley Notes to Financial Statements Compensated absences $ (70,601) Bond premimum expense 7,316 Bond principle payment accrual 1,250 Bond unamortized premium accrual (342) Net adjustment to decrease net changes in fund balances - total governmental funds to arrive at changes in net assets of govenmental activities $ (62,377) Another element of the reconciliation states the "internal service funds are used by management to charge the cost of certain activities, such as self insurance and equipment rental and replacement, to individual funds."The details of this$34,260 difference are as follows: Revenues: Interest and investment income, miscellaneous revenues $ 33,308 Total Revenues 33,308 Less expenses and net transfers: 952 Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ 34,260 NOTE 4—DEPOSITS AND INVESTMENTS: A.Deposits and investments As of December 31,2008,the City of Spokane Valley had the following investments: Weighted Investment Type Average (amounts are in thousands) Fair Value Maturity(YRS) Commercial paper $ 1,783 0.36 State Treasurer's investment pool(LGIP) 37,441 0.48 Total fair value of investments: $ 39,224 - Portfolio weighted average maturity 0.47 Interest rate risk. In accordance with its investment policy,the City of Spokane Valley manages its exposure to declines in fair values by limiting the weighted average maturity(WAM)of its investment portfolio to less than six months. Credit risk: As required by state law, all investments of the City's funds are obligations of the U.S. Government,U.S. agency issues,obligations of the State of Washington,general obligation of Washington State municipalities the State Treasurer's Local Government Investment Pool(LGIP Revised Washington State Auditor's Office 44 City of Spokane Valley Notes to Financial Statements Code of Washington RCW 43.250),and certificates of deposit(CDs)with Washington State banks and savings and loan institutions.Also, State law limits these investments to the highest ratings issued by nationally recognized statistical rating organizations(NRSROs). It is the City of Spokane Valley's policy to limit its investments in these investment types to the highest ratings issued by NRSROs.As of December 31,2008,the City of Spokane Valley's investment in the State Treasurer's investment pool was rated AA+by Standard&Poor's.The City of Spokane Valley's investments in commercial paper was rated Al by Standard&Poor's. Concentration of credit risk: The City of Spokane Valley's investment policy does not allow for an investment in any one issuer that is in excess of the Federal Depository Insurance (FDIC)coverage and the Washington Public Deposit Protection Commission(PDPC)of the City's total investments. Custodial credit risk-deposits: In the case of deposits,this is the risk that in the event of a bank failure, the City's deposits may not be returned or recovered.The City of Spokane Valley maintains a deposit policy for custodial credit risk by limiting deposits and certificates of deposits to be covered by(FDIC)or through collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commission(PDPC).The PDPC is a statutory authority established under Chapter 39.58 of the Revised Code of Washington and provides an additional level of security for The City of Spokane Valley's deposits.As of December 31,2008,the City of Spokane Valley's total bank balance of$2,402,061 was insured and covered by the FDIC and the Washington State PDPC pool. These bank deposits were in a State authorized public depository and were within the State limit of the depositaries(bank's)net worth per RCW 39.58.010 and RCW 39.58.135. Custodial credit risk-investments: Investments in the State's LGIP are shown on the entity-wide Statement of Net Assets at fair market value and comparable to a Rule 2a-7 money market fund regulated by The Securities and Exchange Commission (SEC, 17CFR.270.2a-7). The City's investments can be categorized to give an indication of risk assumed at year-end. Category 1 includes investments that are insured,registered,or held by the City or its agent in the City's name. Category 2 includes uninsured and unregistered investments,which are held by the counterparty's trust department or agent in the City's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty's trust department or agent,but not in the City's name. The City had no Category 1,2,or 3 type investments in their investment portfolio as of December 31,2008. NOTE 5—PROPERTY TAXES: The County Treasurer acts as an agent to collect property taxes levied in the county for all taxing authorities. The County Assessor is responsible for determining what the individual property taxes are, based upon the monies requested by the taxing districts and the assessed valuation within these districts. Taxes are levied annually on January 1st on property values listed as of the prior May 31St. Assessed values are established by the County Assessor at 100%of fair market value. A revaluation of all property is required every four years. Taxes are due in two equal installments on April 30th and October 31St. Tax liens are automatic at the point the taxes are levied. Property taxes levied for the current year are recorded as a receivable when levied,offset by deferred revenue. During the year,property tax revenues are recognized when cash is collected. At year-end, property tax revenues are recognized for collections to be distributed by the County Treasurer in January. Washington State Auditor's Office 45 City of Spokane Valley Notes to Financial Statements No allowance for uncollectible taxes is established because delinquent taxes are considered fully collectible.For 2008,the City levied$9,901,473 based on the 2007 assessed value of$6,636,383,614. The tax rate for general City operations is limited by State law(RCW 84.52.043)to $3.60 per$1,000 of assessed valuation,deducting from there the levy of$1.50 by the Spokane County Fire Districts#1 and #8, and$.50 for Library Districts which leaves the City with the authority to levy$1.60 for its own purposes. This amount may be reduced for any of the following reasons: (1) The Washington State Constitution limits the total regular property taxes to one percent of assessed valuation or$10 per$1,000 of value. If the taxes of all districts exceed this amount,each is proportionately reduced until the total is at or below the one-percent limit. (2) Initiative 747 passed by the voters in November of 2001 limits the amount by which a taxing jurisdiction can increase the amount of its regular property tax levy to the lesser of the Implicit Price Deflator(IPD)or one percent,plus adjustments for new construction and annexations. Tax increases higher than one percent must be approved by the voters at an election held according to (RCW 84.55.050.) A simple majority vote is required. (3) The City may voluntarily levy taxes below the legal limit. NOTE 6—CAPITAL ASSETS AND DEPRECIATION: Donated capital assets received from Spokane County at the time of incorporation were recorded at cost and the accumulated depreciation at the time of transfer. These assets are shown as capital contributions on the statement of activities. The following schedule details capital assets donated and transferred to the City of Spokane Valley during the year ended December 31,2003: Balance after Historical Accumulated Depreciation Cost Depreciation Cost Infrastructure: Roadways $ 187,732,531 $ 127,418,027 $ 60,314,504 Signs, signals,beacons 9,056,000 4,528,000 4,528,000 Crosswalks 130,084 13,008 117,076 Bridges 5,633,979 2,808,112 2,825,867 Total infrastructure 202,552,594 134,767,147 67,785,447 Parks: Land 1,548,655 - 1,548,655 Buildings 898,729 609,824 288,905 Improvements other buildings 2,123,571 1,059,298 1,064,273 Machinery and equipment 3,337 3,003 334 Total parks 4,574,292 1,672,125 2,902,167 Total County assets donated $207,126,886 $ 136,439,272 $ 70,687,614 Washington State Auditor's Office 46 City of Spokane Valley Notes to Financial Statements Capital asset activity for the year ended December 31, 2008,is summarized as follows: Beginning Ending Balance Governmental-type activities Balance 1/1/2008 Additions Reductions Dec.31,2008 Land(non depreciable) $ 3,737,387 $ 223,989 $ - $ 3,961,376 Construction in progress 5,568,866 7,968,493 (1,112,143) 12,425,216 Total non-depreciable assets 9,306,253 8,192,482 (1,112,143) 16,386,592 Buildings 12,216,097 - - 12,216,097 Leasehold improvements 122,906 7,115 - 130,021 Improvements other than buildings 2,233,021 980,647 - 3,213,668 Infrastructure 217,930,822 9,720,684 - 227,651,506 Machinery and equipment 1,261,548 597,372 - 1,858,920 Total depreciable assets 233,764,394 11,305,818 - 245,070,213 Total capital assets $ 243,070,647 $ 19,498,300 $ (1,112,143) $ 261,456,805 Beginning Ending Balance Balance Less accumulated depreciation for: 1/1/2008 Additions Reductions 12/31/2008 Buildings $ 1,248,327 $ 310,224 $ - $ 1,558,551 Leasehold improvements 101,764 7,353 - 109,117 Improvements other than buildings 1,364,193 77,218 - 1,441,411 Infrastructure 185,372,891 10,784,313 - 196,157,204 Machinery and equipment 861,197 235,786 - 1,096,983 Total accumulated depreciation $ 188,948,372 $ 11,414,894 $ - $ 200,363,266 Capital assets,net of accumulated depreciation $ 54,122,275 $ 8,083,406 $ (1,112,143) $ 61,093,539 Washington State Auditor's Office 47 City of Spokane Valley Notes to Financial Statements Balance Balance Business-type activities; 1/01/2008 Increases Decreases 12/31/2008 Construction in progress $ 376,119 $ - $ - $ 376,119 Total non-depreciable assets 376,119 - - 376,119 Infrastructure 323,199 - - 323,199 Machinery and equipment 13,511 24,690 - 38,201 Total depreciable assets 336,710 24,690 - 361,400 Total capital assets $ 712,829 $ 24,690 $ - $ 737,519 (Less) accumulated depreciation for: Infrastructure $ 24,846 $ 12,475 $ - $ 37,321 Machinery and equipment 2,848 7,249 - 10,097 Total accumulated depreciation 27,695 19,724 - 47,419 Capital assets, net of accumulated depreciation $ 685,134 $ 4,967 $ - $ 690,100 Depreciation expense was charged to current functions of the primary government for 2008 as follows: Governmental Activities: General Government $ 110,769 Public Safety 57,420 Physical environment 50,960 Transportation 10,799,168 Economic environment 32,082 Culture and Recreation 364,495 Total governmental activities current year depreciation expense $ 11,414,894 Business-type activity: StormWater $ 19,724 Total business-type activities current year depreciation expense $ 19,724 Washington State Auditor's Office 48 City of Spokane Valley Notes to Financial Statements Construction commitments The City of Spokane Valley was involved in many construction projects as of December 31,2008. The projects include various street construction projects with a total of$24,331,999 of contracts in place. At year end the City's commitments with contractors are as follows: Remaining Spent-to-Date Commitments Various street, bridge, and parks construction projects: $ 14,669,265 $ 9,662,734 The various street,bridge, and parks construction projects are being funded by state and local grants,as well as,existing resources in various City Funds. NOTE 7—PENSION PLANS: Substantially all City of Spokane Valley 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 with the primary government of the State of Washington,issues a publicly available comprehensive annual financial report(CAFR)than 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 27,Accounting for Pensions by State and Local Government Employer and No. 50, Pension Disclosures, an Amendment of GASB Statements No's 25 and 27. 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 defined benefit/defined contribution combination plan. Membership in the system includes; elected officials,state employees, employees of the Supreme,Appeals, and Superior Courts(other than judges 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. PERS participants who joined the system by September 30, 1977 are Plan 1 members. Those joined on or after 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 September 1,2002 for local government employees have the 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. Notwithstanding,PERS Plans 2 and 3 members may opt out of plan membership if terminally ill,with less than 5 years to live. PERS defined benefit retirement benefits are financed from a combination of investment earnings and employer and employee contributions. Retirement benefit provisions are established in state statute and may be amended by the State Legislature. Washington State Auditor's Office 49 City of Spokane Valley Notes to Financial Statements PERS Plan 1 retirement benefits are vested after an employee completes five year of eligible service. Plan 1 members are eligible for retirement at any age after 30 years of service,or at age 60 with five years of service or at the age of 55 with 25 years of service. The annual pension is 2%of the AFC (average final compensation)per year of service,capped at 60%. (The AFC is based on the greatest compensation during any 24 eligible consecutive compensation months.) Plan 1 members who retire from inactive status prior to age 65 may receive actuarially reduced benefits. The benefit is also actuarially reduced to reflect the choice of a survivor option.A cost-of living allowance (COLA)is granted at age 66 based upon years of service times the COLA amount,increased by 3% annually. Plan 1 members may also elect to receive an optional COLA amount that provides an automatic adjustment based on the Consumer Price Index(CPI). The adjustment is capped at 3% annually. To offset the cost of this annual adjustment,the benefit is reduced. PERS 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,with an allowance of 2%of the AFC(average fmal compensation)per year of service. (The AFC is based on the greatest compensation during any eligible consecutive 60-months 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 3%per year reduction applies; otherwise an actuarial reduction will apply. The benefit is also actuarially reduced to reflect the choice of a survivor option.There is no cap on years of service credit; and a cost-of-living allowance is granted(based on the Consumer Price Index),capped at 3%annually. PERS Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component, and member contributions finance a defined contributions component. The defined benefit portion provides a benefit calculated at 1%of the AFC (average final compensation)per year of service. (The AFC is based on the greatest compensation during any eligible consecutive 60-month period.) Effective June 7,2006,Plan 3 members are vested in the defined benefit portion of their plan after ten years of service; or five if twelve months that were earned after age 44; or after five service credit years earned in PERS Plan 2 prior to June 1,2003. Plan 3 members are immediately vested in the defined contribution portion of their plan. Vested Plan 3 members are eligible to retire with full benefits at age 65,or at age 55 with 10 years of service. Retirements prior to age 65 receive reduced benefits. If retirement is at age 55 or older with at least 30 years of service, a 3%per year reduction applies;otherwise an actuarial reduction will apply. The benefit is also actuarially reduced to reflect the choice of a survivor option. 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 1,190 participating employers in PERS. Membership in PERS consisted of the following as of the latest actuarial valuation date for the plans of June 30,2007,as reported by The Washington State Department of Retirement Systems (DRS): Retirees and beneficiaries receiving benefits 71,244 Terminated plan members entitled to but,not yet receiving benefits 26,583 Active plan members vested 105,447 Active plan members non-vested 52,575 Total 255,849 Washington State Auditor's Office 50 City of Spokane Valley Notes to Financial Statements 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 6.0%for state agencies and local government unit employees, and 7.5%for state government elected officials. 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 defined benefit portion of Plan 3. All employers are required to contribute at the level established by the Legislature.Under PERS Plan 3,employer contributions finance the defined benefit portion of the plan, and member contributions finance the defined contribution portion. 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 dependant 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 Revised Code of Washington. Required contribution rates(expressed as a% of current-year covered payroll),as of December 31,2008, were as follows: PERS Plan 1 PERS Plan 2 PERS Plan 3 Employer * 8.31%** 8.31%** 8.31%*** Employee 6.00%**** 5.45%**** ***** * The employer rates include the employer administrative expense fee currently set at 0.16%. ** The employer rate for state elected officials is 12.39%for Plan 1 and 8.31%for Plans 2 and 3. *** Plan 3 defined benefit portion only. **** The employee rate for state elected officials is 7.5%for Plan 1 and 5.45%for Plan 2. *****Variable from 5.0%minimum to 15.0%maximum based on rate selected by PERS 3 member. Both the City of Spokane Valley and the employees made the required contributions. The City of Spokane Valley required contributions for the years ending December 31,2008 were as follows. PERS Plan 1 PERS Plan 2 PERS Plan 3 2008 Employer contributions $ 13,956 $ 203,950 $ 75,875 2007 Employer contributions 11,380 142,325 46,987 2006 Employer contributions 3,238 63,233 24,919 2005 Employer contributions 1,765 1,765 1,765 Washington State Auditor's Office 51 City of Spokane Valley Notes to Financial Statements NOTE 8—RISK MANAGEMENT: The City of Spokane Valley is exposed to financial loss resulting from City-caused damage to property or persons,bodily injuries or illness of employees, and unemployment compensation. The City is insured and a member of the Washington Cities Insurance Authority(WCIA) for general liability and property damage coverage. The City uses the Washington State Department of Labor and Industries Insurance Services for coverage to pay for medical care for job-related injuries and illnesses,and wage replacement when the injury or illness is serious enough to miss work. The City is self-insured for unemployment compensation benefits. The Risk Management Fund is used to account for,and finance the liability and unemployment insurance costs. Departments of the City make payments through interfund assessments to the fund on estimates of the amounts needed to pay prior and current year claims. 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 has a total of 129 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 and omissions, stopgap, and employee benefits liability. Limits are $4 million per occurrence self insured layer, and$16 million per occurrence in the re- insured excess layer. The excess layer is insured by the purchase of reinsurance and insurance and is subject to aggregate limits. Total limits are $20 million per occurrence subject to aggregate sublimits in the excess layers. 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. Various deductibles apply by type of coverage. Property insurance and auto physical damage 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 insurance. In- house services include risk management consultation,loss control field services,claims and litigation administration and loss analyses. WCIA contracts for the 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 prospectively rated basis, as determined by an outside independent actuary. The assessments cover 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 State guidelines. These revenues directly offset portions of the membership's annual assessment. Washington State Auditor's Office 52 City of Spokane Valley Notes to Financial Statements A Board of Directors governs WCIA 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. The City is self-insured on a reimbursement basis for unemployment compensation. The City incurred no claims for unemployment compensation in 2008. NOTE 9—INTERFUND BALANCES AND TRANSFERS: Interfund Balances Due to other funds and due from other funds result from goods issued,work performed or services rendered to or for the benefit of another fund of the same government. The amount of interfund loans payable within one year is also included in due to and due from other funds. Due to other fund and due from other fund balances at December 31,2008 were: Due from Due to other funds other funds General fund $ 3,400,000 $ - Street fund 647,000 - Capital projects fund 1,021,000 885,000 Special capital projects fund 2,011,000 115,000 Street capital projects fund - 674,000 Capital grant fund - 5,397,000 Barker bridge fund - 1,750,000 Parks capital projects fund 1,742,000 - Total government -wide $ 8,821,000 $ 8,821,000 Interfund transfers are the flow of assets with a reciprocal return of assets,goods,or services in return. The City uses transfers to (1)move revenues from the fund that statutes or budget requires to collect them to the fund that statute or budget requires to expend them,(2)move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, and (3)use unrestricted revenues collected in the general and street funds to finance various programs accounted for in other funds in accordance with budgetary authorizations. Washington State Auditor's Office 53 City of Spokane Valley Notes to Financial Statements Interfund transfer activity for 2008 is as follows: Transfers - in Transfers - (out) General fund $ 158,850 $ 764,317 Street fund 430,000 59,300 Arterial street fund 50,102 316,821 Trails & paths fund - 12,187 Hotel/Motel fund - 84,550 Winter weather reserve fund - 430,000 Civic facilities replacement fund 397,000 - Debt service fund 185,127 - Capital projects fund - 2,996,878 Special capital projects fund - 1,449,096 Street capital projects fund 2,879,393 - Capital grant fund 675,101 - Barker bridge reconstruction fund 14,099 - Parks capital projects fund 1,370,225 - Stormwater management fund - 234,748 Internal service funds 188,000 - Total government- wide $ 6,347,897 $ 6,347,897 NOTE 10—SHORT-TERM DEBT:: As of December 31,2008,the City incurred no short-term debt. NOTE 11—LONG-TERM OBLIGATIONS AND LEASES: General Obligation Bonds The City issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds have been issued for governmental-type activities. General obligation bonds are direct obligations and pledge the full faith and credit of the government. General obligation bonds are either created by 315th majority vote of the people and,therefore, financed by a special tax levy;or created by ordinance, adopted by the City Council, and normally financed from general revenues(councilmanic bonds). General obligation bonds currently outstanding are as follows: In 2003,the City issued $9,430,000 in councilmanic bonds to finance the construction of the CenterPlace Community Center and for various street construction projects. The City expects to receive intergovernmental payments from the Spokane Public Facilities District pursuant to an inter-local agreement dated July 2003, for up to $7 million of bonds. Washington State Auditor's Office 54 City of Spokane Valley Notes to Financial Statements General obligation bonds currently outstanding as December 31, 2008 are as follows: Debt Name of Issuance Purpose Interest Rate Outstanding 2003 LTGO Bonds Governmental Activities 2.00% - 5.00% $8,570,000 The annual debt service requirements to maturity for general obligation bonds are as follows: Governmental - Type Activities 'Total Principal Interest Requirements 2009 205,000 401,173 606,173 2010 210,000 395,022 605,022 2011 225,000 386,622 611,622 2012 240,000 377,623 617,623 2013 255,000 368,022 623,022 2014-2018 1,530,000 1,674,640 3,204,640 2019-2023 2,425,000 1,256,500 3,681,500 2024-2028 2,245,000 631,500 2,876,500 2029-2033 1,235,000 174,250 1,409,250 Totals $ 8,570,000 $ 5,665,352 $ 14,235,352 Long-term debt on the Statement of Net Assets is presented net of any premium/discount incurred at the time of issuance. The 2003 LTGO Bonds were sold at a premium of$189,974 and were reported at the net amount of$9,619,974. The premium will be amortized over the life of the bonds and the outstanding liability balance as of December 31, 2008 is: $153,396. Changes in Long-Term Liabilities During the year ended December 31, 2008,the following changes occurred in long-term liabilities: Amounts Balance Balance Due within Governmental -type activities 1/1/2008 Additions Reductions 12/31/2008 One Year Bonds and notes payable: General obligation bonds $ 8,760,000 $ - $ 190,000 $ 8,570,000 $ 205,000 Premium on LTGO bonds 160,711 7,315 153,396 7,315 Other liabilities: Compensated absences 170,238 70,601 - 240,838 70,601 Governmental activities long-term liabilities $ 9,090,949 $ 70,601 $ 197,315 $ 8,964,234 $ 282,916 Washington State Auditor's Office 55 City of Spokane Valley Notes to Financial Statements Legal Debt Margin RCW 39.36.020 provides cities with three segments of debt capacity,each equal to two and one-half percent of the city's assessed valuation,for a total debt capacity of seven and one-half percent. The assessed valuation of the City for the year 2008 for purposes of determining the legal debt margin is $6,636,383,614. Under State of Washington statutes general obligation indebtedness pursuant to a vote of the electorate is limited to 2.5%of actual value of taxable property located within the City. Indebtedness without a vote of the people is limited to 1.5%of actual value subject to the limitation that total general purpose indebtedness may not exceed 2.5% of total valuation. There is a 2.5% limitation each for utility purposes and open space and park facilities purposes. The remaining voted and non-voted GO debt capacities for General purposes of the City at December 31, 2008 are as follows: Amount General Purposes Voted and Non-voted Debt-2.5% (1) $ 157,098,751 Utility Voted Debt-2.5% 165,909,590 Open Space and Park Facilities Voted Debt-2.5% 165,909,590 Total Remaining Debt Capacity $ 488,917,931 (1)Includes: $90,734,915 General purpose indebtedness without a vote. Leases Operating Leases—The City of Spokane Valley leases buildings and other equipment under noncancelable operating lease agreements. Operating leases do not give rise to property rights or lease debt obligations, and therefore the results of these agreements are not reflected in the General Long-term Obligations of government activities.Total costs for such leases were $416,164 for the fiscal year ending December 31,2008.The future minimum lease payments for these leases are presented as follows: Year ending Dec. 31 Amount 2009 $ 478,155 2010 143,660 2011 16,092 2012 3,133 Total minimum future lease payments $ 641,040 NOTE 12—SUBSEQUENT EVENTS: In January 2007,the City hired an architectural firm to begin renovation on the three City of Spokane Valley pools. Renovations were started in fall of 2007 and one of the three pools was completed late December 2008,the other two are expected to be completed late summer 2009. The estimated costs for construction of the project are $2.6 million,with Spokane County contributing$1.6 million. Washington State Auditor's Office 56 City of Spokane Valley Notes to Financial Statements A review of services provided under contract and costs paid to the Spokane County Sheriffs Office for law enforcement during fiscal year 2006 appears to indicate the City of Spokane Valley overpaid. Spokane County reviewed the same results and believes the City underpaid in 2006 and in subsequent years. The City reserved all rights during this review and paid an additional $1.3 million during 2009. Negotiations are underway to determine the accuracy of this information and to recover any prior overpayments or underpayments. Spokane County has been leasing space in the City of Spokane Valley police precinct building since June 1,2007.While a final decision has not been made, Spokane County began to reduce their occupancy of the lease space and the corresponding share of maintenance costs from 44%to 14% in spring of 2009. Rental income to the City of Spokane Valley is expected to be $34,280 and the county's share of maintenance cost at$17,284 for 2009. In early 2009 Spokane County advised the City of Spokane Valley that the contract for winter weather maintenance, snow plowing,deicing,and sanding,of City streets will terminate in October 2009. The City is preparing a short and long term plan for winter weather street maintenance.It appears the City of Spokane Valley will acquire five snow plows from the State of Washington, and a facility near city hall will be leased and partially renovated to house and maintain winter weather equipment. Estimated additional cost to the city to provide this service ranges between$200,000 and$600,000 annually. During fiscal year 2008, Spokane County agreed to award$300,000 annually in Community Development Block Grant Funds to the City of Spokane Valley beginning in 2009. The City of Spokane Valley has participated as a member of a consortium in Spokane County but,was required to compete for available funding. In lieu of separating from the consortium and automatically receiving a larger share of funding,the City of Spokane Valley agreed that$300,000 was a reasonable share of Community Development Block Grant Funds. The Barker Road Bridge project contract was officially awarded in the amount of$9,449,355 on June 2008,through a Federal funded grant program with the potential of$10 million in grant revenue proceeds over the next few years. NOTE 13—CONTINGENCIES AND LITIGATION: In the normal course of governmental operations the City has claims filed against it for various losses related to tort actions for such things as wrongful acts,injuries,or damages for which a civil action can be brought, and other routine legal proceedings. At any given point in time,there is a recurring volume of tort and other claims for compensation and damages against the City,which could impact expenditures. The City's Risk Management fund provides for these claims,and insurance is available to pay a portion of damages for certain types of claims. The collective impact of these claims is not likely to have a material impact on the City's financial position. The City participates in a number of federal-and-state assisted programs. These grants are subject to audit by the grantors or their representatives. Such audits could result in requests for reimbursement to grantor agencies for expenditures disallowed under the terms of the grants. City management does not believe that such disallowances,if any,will be material. During fiscal year 2003,the City of Spokane Valley acquired 31 acres of land from Spokane County to be used for a city park.After acquisition,it was determined that a concrete company on the adjacent parcel Washington State Auditor's Office 57 City of Spokane Valley Notes to Financial Statements had inadvertently contaminated the acquired property of the City because of confusion over property lines. The concrete company has agreed to assist the City of Spokane Valley in cleaning the contaminated City property.The concrete company is currently preparing a plan which will be subject to state review and approval for cleanup of this property.No formal agreement has been signed by the parties and an estimate of cleanup costs has not been prepared. NOTE 14—RESTRICTED NET ASSETS: The governmental-wide statement of net assets reports$13,965,661 of restricted net assets(City Council authorized),which includes: $346,794 for Center Place Operations, $13,599,441 for various Capital Projects,and$19,426 for Capital acquisitions replacing vehicles and workstations. NOTE 15—RECEIVABLE AND PAYABLE BALANCES: A)Receivables Receivables at December 31,2008 were as follows: Governmental Type Accounts Taxes Grants Due from Other Total Activities receivable(net) receivable receivable other funds receivables receivables General fund S 583,133 $ 3,522,045 $ - $ 3,400,000 $ 24,789 7,529,967 Capital projects fund - 48,043 - 1,021,000 2,220 1,071,263 Street capital projects fund 1,944,694 - - - - 1,944,694 Capital grants fund 5,552,417 - - - - 5,552,417 Barker bridge reconstruction fund 1,976,021 - - - - 1,976,021 Other Governmental funds 51,554 383,678 - 4,400,000 19,457 4,854,689 Total Governmental type activities $ 10,107,819 $ 3,953,766 $ - $ 8,821,000 $ 46,466 $ 22,929,051 Business Type Accounts Taxes Due from Other Total Activities receivable(net) receivable other funds receivables receivables Stormwater management fund S 29,995 $ 69,231 $ - $ 2,237 $ 101,463 Total Business type activities $ 29,995 $ 69,231 $ - $ 2,237 $ 101,463 Washington State Auditor's Office 58 City of Spokane Valley Notes to Financial Statements B) Payables Payables at December 31, 2008 were as follows: Governmental Type Accounts Salaries& Due to Deposits Other Activities payables beneifits payable other funds payables liabilities Total General fund $ 777,555 $ 382,462 $ - $ 75,513 $ 2,115,236 3,350,766 Capital projects fund - - 885,000 - - 885,000 Street capital projects fund 1,145,800 4,708 674,000 - 47,176 1,871,684 Capital grants fund 72,702 10,877 5,397,000 - 71,968 5,552,547 Barker bridge reconstruction fund 169,888 4,248 1,750,000 - 62,988 1,987,124 Other Governmental funds 1,518,831 23,654 115,000 - 273,933 1,931,418 Reconciliation of balances in the fund financial statements to government-wide financial statements - - - - 6,653,042 6,653,042 Total Governmental type activities $ 3,684,776 $ 425,949 $ 8,821,000 $ 75,513 $ 9,224,343 $ 22,231,581 Business Type Accounts Salaries& Deposits Other Activities payables beneifits payable payables liabilities Total Stormwater management fund $ 82,973 $ 47,608 $ 35,100 $ 60,446 $ 226,127 Total Business type activities $ 82,973 $ 47,608 $ 35,100 $ 60,446 $ 226,127 Washington State Auditor's Office 59 City of Spokane Valley, Washington Schedule of Revenues, Expenditures and Changes in Fund Balances General Fund-Budget to Actual For the Year Ended December 31, 2008 Budgeted Amounts Variance with Approved Final Final Budget Original Budget Amended Budget Actual Over(Under) Revenues Taxch $ 30,757,300 $ 30,757,300 $ 29,423,180 $ (1,334,120) Licenses and permits 2,261,050 2,261,050 2,508,810 247,760 Intergovernmental revenues 835,050 985,050 1,251,415 266,365 Charges for services 735,400 735,400 759,752 24,352 Fines and forfeitures 550,000 550,000 771,448 221,448 Investment interest 312,300 312,300 361,845 49,545 Miscellaneous 1,141,300 1,141,300 1,542,299 400,999 Total Revenues 36,592,400 36,742,400 36,618,748 (123,652) Expenditures Current: General government 5,468,690 5,468,690 3,467,064 (2,001,626) Public safety 18,972,157 18,972,157 17,605,571 (1,366,586) Utilities and physical environment 1,261,792 1,428,792 1,178,474 (250,318) Transportation 58,200 58,200 49,458 (8,742) Economic environment 161,000 161,000 145,639 (15,361) Community development 3,344,282 3,494,282 2,971,123 (523,159) Culture and recreation 2,341,336 2,341,336 2,056,243 (285,093) Capital Outlay: Capital expenditures 375,500 375,500 594,610 219,110 Construction in progress - - - - Total Expenditures 31,982,957 32,299,957 28,068,182 (4,231,775) Excess(Deficiency) of Revenues 4,609,443 4,442,443 8,550,566 4,108,123 Over(Under) Expenditures Other Financing Sources(Uses) Transfers in 165,000 165,000 158,850 (6,150) Transfers(out) (722,101) (722,101) (764,317) 42,216 Total Other Financing Sources(Uses) (557,101) (557,101) (605,467) 48,366 Net Change in Fund Balances 4,052,342 3,885,342 7,945,099 4,059,757 Fund Balances Beginning of Year: 13,747,197 13,747,197 13,747,197 - Fund Balances End of Year: S 17,799,539 $ 17,632,539 $ 21,692,296 $ 4,059,757 Washington State Auditor's Office 60 Co C CO ' (0 M O O (0 N- (O N- LO LO 0) CD M M # 0 O O O lf) 0) O O CO M M) O CO CO 0 _ N. 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ABOUT THE STATE AUDITOR'S OFFICE r` ���t'j 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 employees are located around the state to deliver our services effectively and efficiently. Our 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. In addition, we conduct performance audits of state agencies and local governments and fraud, whistleblower and citizen hotline investigations. The results of our work are widely distributed through a variety of reports, which are available on our Web site and through our free, electronic subscription service. 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 quality assurance program. State Auditor Brian Sonntag, CGFM Chief of Staff Ted Rutt Deputy Chief of Staff Doug Cochran Chief Policy Advisor Jerry Pugnetti Director of Audit Chuck Pfeil, CPA Director of Special Investigations Jim Brittain, CPA Director for Legal Affairs Jan Jutte, CPA, CGFM Director of Quality Assurance Ivan Dansereau Local Government Liaison Mike Murphy Communications Director Mindy Chambers Public Records Officer Mary Leider Main number (360) 902-0370 Toll-free Citizen Hotline (866) 902-3900 Web Site www.sao.wa.gov Subscription Service https://www.sao.wa.gov/EN/News/Subscriptions/ (SAO FACTS.DOC-Rev.06/09)