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2013, 09-27 Financial Statements Fedl Single Audit for 2012 Washington State Auditor's Office Financial Statements and Federal Single Audit Report City of Spokane Valley Spokane County Audit Period January 1, 2012 through December 31, 2012 Report No. 1010554 Issue Date it' WASHINGTON September 27, 2013 ' , * G; _ TROY KELLEY frQV 17,, ,' istfiNG'c° STATE AUDITOR ti C.,\AI :- V y y. 1rrr, ' 44T 11 C;�' Washington State Auditor Troy Kelley September 27, 2013 Mayor and City 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, /("1-y / / / TROY KELLEY STATE AUDITOR Insurance Building, P.O. Box 40021 •Olympia,Washington 98504-0021 •(360)902-0370 •TDD Relay(800)833-6388 Table of Contents City of Spokane Valley Spokane County January 1, 2012 through December 31, 2012 Federal Summary 1 Schedule of Prior Federal Audit Findings 3 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 5 Independent Auditor's Report on Compliance For Each Major Federal Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 7 Independent Auditor's Report on Financial Statements 10 Financial Section 13 Federal Summary City of Spokane Valley Spokane County January 1, 2012 through December 31, 2012 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 unmodified 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 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 deficiencies that we consider to be material weaknesses. We issued an unmodified 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 section 510(a) of 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 Schedule of Prior Federal Audit Findings City of Spokane Valley Spokane County January 1, 2012 through December 31, 2012 This schedule presents the status of federal findings reported in prior audit periods. The status listed below is the representation of the City of Spokane Valley. The State Auditor's Office has reviewed the status as presented by the City. Audit Period: Report Reference Finding Reference CFDA Number: January 1, 2011 No: 1008391 No: 1 81.128 through December 31, 2011 Federal Program Name and Granting Pass-Through Agency Name: Agency: NA American Reinvestment and Recovery Act Energy Efficiency and Conservation Block Grant, U.S. Department of Energy Finding Caption: The City does not have adequate internal controls to ensure compliance with federal suspension and debarment requirements. Background: The fiscal year 2011 audit found the City was required to verify that all vendors receiving $25,000 or more in federal funds had not been suspended or debarred from doing business with the federal government. This requirement must be met prior to entering into a contract with the vendor. The City paid one vendor $49,000 and another $36,000, and did not verify the vendors were not suspended or debarred. Status of Corrective Action: (check one) © Fully ❑ Partially ❑ No Corrective Action ❑ Finding is considered no Corrected Corrected Taken longer valid Corrective Action Taken: First, the City has completed a draft comprehensive purchasing manual, in which the City has included in the general guidelines a requirement/reminder to meet the suspension/debarment obligations when drafting and entering into an agreement in which federal funds will be used, or may be used. For example on a consultant agreement, such as for engineering services, whereby the consultant may provide services on several different projects, the suspension and debarment certification will be performed. The specific language included is as follows: Section Nine: Use Of Federal Funds When using federal funds, the City shall comply with all mandatory federal requirements including meeting requirements under suspension and debarment regulations and policies. This applies to all federally-funded projects including public work, purchase orders, architectural and engineering services, and other consultants. See 2 C.F.R. §§180.220-.225 for more information regarding federal suspension and debarment regulations and policies. Washington State Auditor's Office 3 Second, in the draft amendments to Administrative Policy and Procedure 300.205 (also part of the purchasing manual), we have drafted in a requirement for staff to check on suspension/debarment status. The specific language is as follows: When using federal funds, the City shall comply with all mandatory federal requirements including meeting the requirements under suspension and debarment regulations and policies. This applies to all federally-funded work, regardless of the method of bidding, contracting or use. Third, our form contracts for construction and consultant services have each had a new section added to address this. The specific language is as follows: 8. Certification Regarding Debarment, Suspension, and Other Responsibility Matters— Primary Covered Transactions. A. By executing this Agreement, the Consultant certifies to the best of its knowledge and belief, that it and its principals: 1. Are not presently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from covered transactions by any federal department or agency; 2. Have not within a three-year period preceding this proposal been convicted of or had a civil judgment rendered against them for commission or fraud or a criminal offense in connection with obtaining, attempting to obtain, or performing a public (federal, state, or local) transaction or contract under a public transaction; violation of federal or state antitrust statues or commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, or receiving stolen property; 3. Are not presently indicted for or otherwise criminally or civilly charged by a governmental entity (federal, state, or local) with commission of any of the offenses enumerated in paragraph (A)(2) of this certification; and 4. Have not within a 3-year period preceding this application/proposal had one or more public transactions (federal, state, or local) terminated for cause or default. B. Where the prospective primary participant is unable to certify to any of the statements in this certification, such prospective participant shall attach an explanation to this Agreement. Fourth, the City has added a check-off box on the contract routing sheet (Blue Sheet) that the initiating department has complied with the suspension/debarment requirements. Lastly, we have conducted informal training with individual staff members who may be involved in letting contracts where this may be an issue so they are aware of the requirements, the importance of why they need to be complied with, and how to comply. In conclusion, we have attempted to address this comprehensively, and believe that we have in a manner that will significantly reduce the opportunity for this to occur again. Washington State Auditor's Office 4 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards City of Spokane Valley Spokane County January 1, 2012 through December 31, 2012 Mayor and City Council City of Spokane Valley Spokane Valley, Washington We have audited, 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, 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, 2012, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated September 17, 2013. The prior year comparative information has been derived from the City's 2011 basic financial statements, on which we issued our report dated September 14, 2012. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit of the financial statements, we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances 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. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. A deficiency in internal control 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 and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Washington State Auditor's Office 5 Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the City's financial statements are free from 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. PURPOSE OF THIS REPORT The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. 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. TROY KELLEY STATE AUDITOR September 17, 2013 Washington State Auditor's Office 6 Independent Auditor's Report on Compliance For Each Major Federal Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 City of Spokane Valley Spokane County January 1, 2012 through December 31, 2012 Mayor and City Council City of Spokane Valley Spokane Valley, Washington REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM 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 could have a direct and material effect on each of its major federal programs for the year ended December 31, 2012. The City's major federal programs are identified in the accompanying Federal Summary. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of the City's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to 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 on compliance for each major federal program. Our audit does not provide a legal determination on the City's compliance. Washington State Auditor's Office 7 Opinion on Each Major Federal Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2012. REPORT ON INTERNAL CONTROL OVER COMPLIANCE Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program in order to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, 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 deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. PURPOSE OF THIS REPORT The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. However, this report is a matter of public record and its distribution is not limited. It Washington State Auditor's Office 8 also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. TROY KELLEY STATE AUDITOR September 17, 2013 Washington State Auditor's Office 9 Independent Auditor's Report on Financial Statements City of Spokane Valley Spokane County January 1, 2012 through December 31, 2012 Mayor and City Council City of Spokane Valley Spokane Valley, Washington REPORT ON THE FINANCIAL STATEMENTS 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, 2012, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed on page 13. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Washington State Auditor's Office 10 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinion 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, 2012, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Matters of Emphasis Report on Summarized Comparative Information The prior year partial comparative information has been derived from the City's 2011 financial statements and, in our report dated September 14, 2012, we expressed unmodified opinions on the respective financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund 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, 2011, from which such partial information was derived. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 14 through 24, budgetary comparison information on pages 64 through 65 and information on postemployment benefits other than pensions on page 66 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted 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 is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in Washington State Auditor's Office 11 the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated September 17, 2013 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control over financial reporting and compliance. -�r TROY KELLEY STATE AUDITOR September 17, 2013 Washington State Auditor's Office 12 Financial Section City of Spokane Valley Spokane County January 1, 2012 through December 31, 2012 REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis - 2012 BASIC FINANCIAL STATEMENTS Statement of Net Position — 2012 Statement of Activities — 2012 Balance Sheet — Governmental Funds —2012 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position — 2012 Statement of Revenues, Expenditures and Changes in Fund Balances— Governmental Funds —2012 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities — 2012 Statement of Net Position — Proprietary Funds —2012 Statement of Revenues, Expenses, and Changes in Net Position — Proprietary Funds — 2012 Statement of Cash Flows — Proprietary Funds —2012 Notes to Financial Statements —2012 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures and Changes in Fund Balances — Budget to Actual — General Fund —2012 Schedule of Revenues, Expenditures and Changes in Fund Balances — Budget to Actual — Street Fund —2012 Other Postemployment Benefits (OPEB) — Schedule of Funding Progress (Six Year Trend) — GASB Statements Nos. 43 and 45—Association of Washington Cities Employee Benefits Trust (AWCEBT) — 2012 SUPPLEMENTARY AND OTHER INFORMATION Schedule of Expenditures of Federal Awards — 2012 Notes to the Schedule of Expenditures of Federal Awards — 2012 Washington State Auditor's Office 13 CITY OF SPOKANE VALLEY MANAGEMENT'S DISCUSSION AND ANALYSIS For the Year Ended December 31, 2012 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, 2012.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 2012 are as follows: The City of Spokane Valley's financial position improved. At the end of the current fiscal year, assets exceeded liabilities by $128,696 thousand (net position). Of this amount, $46,239 thousand represents the primary government's unrestricted net position, which may be used and is available to meet the City's ongoing activities and obligations to the citizens and creditors. The City of Spokane Valley's total net position from Governmental and Business-type activities increased $5,508 thousand or 4.47 % from the prior fiscal year, primarily explained by revenues continuing to outpace expenditures and the current year's increase in the City's Net Investment in capital assets. At the close of the current fiscal year, the City of Spokane Valley's governmental funds reported combined fund balances of $44,762 thousand, a decrease of $(2,541) thousand in comparison with the prior year. Approximately 77.0% of this amount or $34,389 thousand (unassigned fund balance)is available for spending at the City's discretion. Also, at the end of the current fiscal year,unrestricted fund balance (the total of the committed, assigned, and unassigned components of fund balance) for the general fund was $34,389 thousand, or approximately 106.5% of the total general fund expenditures, and the net change in actual fund balance increased by$682 thousand during the current fiscal year. Total City debt decreased by $207 thousand to $8,126 thousand during the current fiscal year; primarily due to annual scheduled debt principal payments. 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 financial whole or as an entire operating entity. The statements also provide a detailed look at specific fmancial 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: 1) the government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Washington State Auditor's Office 14 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;no short-term and long-term information long-term capital assets included 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 of Spokane Valley's finances,in a manner similar to a private-sector business. Statement of Net Position and Statement of Activities The statement of net position presents financial information on all of the City's assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position 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 position changed during the current fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs,regardless of the timing of related cash flows. Thus, revenues and expenses are reported for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). 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. The change in net position 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 15 In the statement of net position and the statement of activities, The City of Spokane Valley is divided into two distinct functions or types of primary government: • Governmental-type 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 and supported 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 user fee services basis to recover all or a significant portion of the cost of the services provided. The City's Stormwater Utility Management Fund and Aquifer Protection Area 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 objectives, 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 fmance-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.However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in assessing the City's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the City's near-term financing decisions. 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 twenty individual governmental funds. Information on the City's four major governmental funds; General Fund, Street Fund, Street Capital Projects Fund, and Street Capital Improvement 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. Proprietary Funds—The City of Spokane Valley maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. Enterprise funds are used to account for goods and services provided to the citizens on a user fee basis. The City provides information on its two enterprise funds, the Stormwater Utility Management Fund and the Aquifer Protection Area Fund, both major funds, under Proprietary Funds. Washington State Auditor's Office 16 The City's two Internal Service Funds; Equipment Rental and Replacement and Risk Management accounts for the accumulated and allocated internal costs of fleet vehicles, computer equipment, and insurance claims. Also, both provide internally for the goods and services among the City's various departments and functions. Because both of these services predominantly benefit governmental-type functions rather than business-type functions in nature,they have been included within governmental- type activities in the government-wide financial statements. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided on the government-wide and fund financial statements. The notes are located immediately following the basic financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS Statement of net position-As noted earlier,net position over time,may serve as a useful indicator of the City of Spokane Valley's financial position. The City's total assets exceeded total liabilities by $128,696 thousand as of December 31, 2012. The following table summarizes and compares the City's net position for 2012 and 2011 (see Table 1, below): City of Spokane Valley's Net Position(amounts in thousands) Govermnental Business-type Table 1 Activities Activities Total 2012 2011 2012 2011 2012 2011 Current and other assets $ 55,885 $ 58,989 $ 3,577 $ 3,145 $ 59,462 $ 62,134 Capital assets(net of depreciation) 82,292 76,487 2,875 1,501 85,167 77,988 Total assets 138,177 135,476 6,452 4,646 144,629 140,122 Long-term liabilities 8,126 8,333 - - 8,126 8,333 Other liabilities 6,820 8,256 989 345 7,809 8,601 Total liabilities 14,946 16,589 989 345 15,935 16,934 Net position: Net investment in capital, assets 74,478 68,426 2,875 1,501 77,353 69,927 Restricted 5,103 5,654 - 4 5,103 5,658 Unrestricted 43,650 44,807 2,589 2,796 46,239 47,603 Total net position $ 123,231 $ 118,887 $ 5,464 $ 4,301 $ 128,695 $ 123,188 In this case, the Primary Governments assets exceeded liabilities by $128,696 thousand ($123,232 thousand in governmental activities and $5,464 in business activities) as of December 31, 2012. By far, the largest portion of the City's net position $77,353 thousand or 60.1%, 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 outstanding debt that was used to acquire those assets. The City of Spokane Valley uses these capital assets to provide a variety of services to its citizens. 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 cannot be used to liquidate these liabilities. The majority of these capital assets were donated by Spokane County at the time of incorporation in 2003. An additional portion of the City of Spokane Valley's net position of 3.9% represents restricted resources that are subject to external restrictions on how they may be used. The remaining balance of $46,239 thousand or 36.0% is unrestricted and may be used to meet the city's ongoing obligations to citizens and creditors. Washington State Auditor's Office 17 At the end of the current fiscal year,the City is able to report positive balances in all categories of net position, 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. City of Spokane Valley's Net Position December 31, 2012 and 2011 y� e,\(` `yea 5 step 20,000,000 40,000,000 60,000,000 80,000,000 12012 2011 As highlighted earlier,the City of Spokane Valley's total net position increased by $5,508 thousand or 4.47% from the prior year. This is primarily explained by revenues outpacing expenditures. More discussion will follow for the overall increase in net position in the sections for governmental-type and business-type activities. Governmental-type Activities — During the current fiscal year total net position for governmental activities increased by $4,345 thousand from the prior year for an ending balance of $123,232 thousand. The increase in the overall net position of governmental activities is the result of management taking various steps (e.g., increasing rates for certain revenue sources like charges for services, delaying certain nonrecurring expenses, and reducing expenses related to non-essential ongoing programs in the general government and community development functions) to achieve such positive effects on the governmental activities ending net position. The City's capital grants and operating grants and contribution revenues from Federal and State sources made up the fourth largest sources of program revenue combined, $6,298 thousand or 13.0% of total governmental activities revenues. The major recipients of intergovernmental program revenues were the Transportation, Utilities and Physical Environment, General Government, and Culture and Recreation functions of the primary government. Property tax general revenues in the governmental funds account for $10,802 thousand of the $48,436 thousand total revenues (less transfers) for governmental-type activities, or 22.3% of total revenues, and the general fund property tax revenues increased by$125 thousand. Sales Tax general revenue accounted for approximately$17,522 thousand or 36.2% of total revenues in year 2012, the largest single source of revenue for the City of Spokane Valley. Other taxes received were Real Estate Excise Taxes of $1,186 thousand, Liquor Board Excise Tax of $226 thousand, Utility Phone Tax of$2,735 thousand, Leasehold Excise Taxes of$12 thousand, Gambling Taxes of$618 thousand,Hotel/Motel Taxes of$490 thousand and Motor Fuel Taxes of$1,847 thousand. Washington State Auditor's Office 18 The Transportation function accounted for $8,574 thousand of the $44,382 thousand in total expenses for governmental activities,or 19.3% of the total in expenses. The largest function was Public Safety, accounting for $21,722 thousand and representing 48.9% of total governmental expenses and a decrease of 3.9% in contracted Law Enforcement services compared to the prior year (see table 2, below). City of Spokane Valleys Changes in Net Position Table 2 as of December 31,2012 and 2011 (amounts in thousands) Governmental Business-type % Activities Activities Total Change Revenues 2012 2011 2012 2011 2012 2011 2012-2011 Program revenues Charges for services $ 6,581 $ 5,992 $ 1,834 $ 1,833 $ 8,415 $ 7,825 7.5% Operating grants&contributions 1,260 1,196 622 65 1,882 1,261 49.2% Capital grants&contributions 5,038 3,611 50 726 5,088 4,337 17.3% General revenues Taxes 35,442 34,788 - - 35,442 34,788 1.9% Other 116 116 3 3 119 119 0.0% Total revenues 48,437 45,703 2,509 2,627 50,946 48,330 5.4% Expenses General government 4,622 4,427 - - 4,622 4,427 4.4% Public safety 21,722 22,614 - - 21,722 22,614 -3.9% Utilities&physical environment 2,940 3,187 - - 2,940 3,187 -7.8% Transportation 8,574 6,851 - - 8,574 6,851 25.1% Economic environment 797 663 - - 797 663 20.2% Community development 1,894 1,772 - - 1,894 1,772 6.9% Culture and recreation 3,458 3,050 - - 3,458 3,050 13.4% Interest on long term debt 376 384 - - 376 384 -2.1% Stormwater management - - 1,218 1,472 1,218 1,472 -17.3% Total expenses 44,383 42,948 1,218 1,472 45,601 44,420 2.7% Increase(decrease)in net position before transfers 4,054 2,755 1,291 1,155 5,345 3,911 36.7% Transfers In(out) 128 161 (128) (161) - - 0.0% Increase(decrease)in net position 4,182 2,916 1,163 994 5,345 3,911 36.7% Net position-beginning 118,887 115,764 4,301 3,307 123,188 119,071 Prior period adjustment 163 207 - - 163 207 Net position-ending $ 123,232 $ 118,887 $ 5,464 $ 4,301 $ 128,696 $ 123,189 Washington State Auditor's Office 19 Program Revenues and Expenses - Governmental Activities 25,000,000 - 20,000,000 15,000,000 10,000,000 5,000,000 I J 0 kmmai V I �_ i HI• °Je��er� ��\\GSase�� rJ��o�`�� 5�°��a\°r �J�.cdc" � eJe\o•c dte°Sea\� •Program revenues Expenses Transportation activity capital grants increased in the current year by $2,923 thousand; these contributions are used to fund the on-going general government capital outlays of$11,121 thousand, or 22.2%of the total for governmental funds expenditure activity(see the preceding graph). Business-type Activities—For the City of Spokane Valley's business-type activities,the results for the current fiscal year were positive in that the overall net position increased to reach an ending balance of$5,464 thousand. The increase in net position for business-type activities(stormwater and aquifer protection funds)was$1,163 or 27.1%from the prior fiscal year. The growth,in a large part, is attributable to a 14.1%increase to net position from the newly mandated voter approved fee and fund to protect the City's water aquifer.As a result,additional revenues collected by Spokane County from fees assessed to the citizens and remitted to the City of Spokane Valley,resulted in an increase of unrestricted intergovernmental revenues resources of$94 thousand for the current fiscal year. In both business-type funds,the major program revenue source was charges for services of$1,835 thousand and intergovernmental revenues of$672 thousand. The primary source of revenues is a Stormwater management fee imposed upon real property and the Aquifer area protection fee mandated by the voting public. 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,unassigned fund balance may serve as a useful measure of the City's net resources available for spending at the end of the year and represent the portion of fund balance which has not been limited to use for a particular purpose by either an external Washington State Auditor's Office 20 party,the City of Spokane Valley itself,or from a group or individual that has delegated authority to assign these resources to be used for particular purposes by the City of Spokane Valley's Council. As of December 31, 2012, the City's total governmental funds reported a combined ending fund balance of$44,762 thousand, a net decrease of($2,541) thousand in comparison with the prior year. Approximately 77.0% of this amount or $34,389 thousand is composed of unassigned fund balance, which is available for spending at the City's discretion. The City's remainder or residual fund balance is either nonspendable, restricted, committed, or assigned to indicate that it is 1)not spendable in form ($24 thousand), 2) restricted for particular purposes ($5,080 thousand), 3) committed for particular purposes($503 thousand),or 4)assigned for particular purposes($4,765 thousand). The General Fund is the primary operating governmental fund of the City of Spokane Valley where most receipts and payments of ordinary city operations are processed.See table 3,below. General Fund Components of Fund Balance December 31, 2012 &2011 Table 3 Fiscal Year 2012 2011 Unassigned $ 34,389,494 $ 33,727,210 Assigned - 50,266 Restricted 180,040 121,833 Nonspendable 24,015 12,423 Total fund balances $ 34,593,549 $ 33,911,732 Sales and property taxes are the major revenue sources. At the end of 2012, unassigned fund balance was $34,389 thousand, while total fund balance increased to $34,593 thousand. As a measure of the General Fund's liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total governmental funds expenditures. Unassigned fund balance in the general fund represents approximately 68.6% of the total governmental funds expenditures,while total general fund balance of $34,593 thousand represents approximately 69.0% of that same amount in total governmental funds expenditures See table 3. All Remaining Governmental Funds Components of Fund Balance December 31, 2012&2011 Table 4 Fiscal Year 2012 2011 Assigned $ 4,765,177 $ 7,369,411 Committed 502,888 502,005 Restricted 4,900,002 5,519,604 Nonspendable - - Total fund balances $ 10,168,067 $ 13,391,020 Major Governmental Funds The General Fund— The fund balance of the City of Spokane Valley's general fund increased by $682 thousand, compared to last year, for the fiscal year ending December 31, 2012. In the Budget to Actual Schedule, revenues trended slightly higher than expected in the 2012 budget by $1,011 thousand, while the total expenditures were $1,922 thousand less than the amended budget. Ultimately,the General Fund in the Governmental funds statement reports an excess of revenues over expenditures by approximately $3,366 thousand compared to the last fiscal year of 2011 of $2,051 thousand.The increase is partly due to higher than expected sales tax collections for the current year. Washington State Auditor's Office 21 The Street Fund— had an ending fund balance of$2,228 thousand, a decrease of($261) thousand compared to the prior year. The primary source of revenues for the Street fund is the Telephone Utility taxes of$2,735 thousand, and the Motor Vehicle Gas tax of$1,847 thousand,both slightly lower than the prior year (approximately -5.2% and -0.6% respectively). Expenditures (including transfers out) outpaced revenues, which contributed to the slight decrease in ending fund balance compared to last year. The Street Capital Projects Fund— has an ending fund balance of $178 thousand. Construction in Progress (CIP) project costs were approximately $6,171, thousand for the year as several street projects were constructed in 2012. Actual revenue and expenditures were both less than fmal budgeted projections. The Street Capital Improvement Fund 2011 — Construction in Progress (CIP) costs were approximately $1,882 thousand. Actual expenditures were ($1,247) thousand less than the fmal budget.Actual revenue and expenditures were both less than final budgeted projections. Proprietary Funds-The City's enterprise funds, Stormwater Management and Aquifer Protection Area provide the same type of information found in the government-wide financial statements,and are also major proprietary funds.Unrestricted net position of the Stormwater Management Fund at December 31, 2012 was$2,697 thousand and for the Aquifer Area Protection fund was($108) thousand. GENERAL FUND BUDGETARY HIGHLIGHTS Original budget compared to final budget: 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 twice during 2012. Both amendments increased appropriations for major street projects and parks capital projects. Final budget compared to actual results: The most significant differences between final estimated revenues and actual revenues were as follows: Revenue Final Estimated Actual Source revenues revenues difference Taxes $ 27,638,900 $ 28,867,500 $ 1,228,600 Intergovernmental revenues 1,913,300 2,233,750 320,450 Charges for services 812,870 866,479 53,609 Fines and forfeitures 723,030 563,893 (159,137) Investment interest 145,000 97,111 (47,889) Miscellaneous 1,467,370 1,107,751 (359,619) In the General Fund, the variance between actual expenses and the final amended budget was a savings in expenditures of$1,922 thousand(adjusted for the prior period correction); giving the City a favorable variance in total revenues of$1,011 thousand for 2012. Unfavorable revenue variances in miscellaneous revenues of($360) thousand and ($159) thousand in fines and forfeitures coupled with favorable revenue increases in actual Tax revenue of$1,229 thousand and intergovernmental revenues of $320 thousand, contributed to the actual positive net change in fund balance of $518 thousand (adjusted for prior period correction) for the fiscal year of 2012. Fines and forfeitures decreased by $25 thousand,or 4.20% compared prior year. Washington State Auditor's Office 22 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, 2012, amounts to $85,167 thousand (net of depreciation). This investment in capital assets includes land, buildings, improvements, machinery and equipment, and construction in progress. The total increase in the city's investments in capital assets for the current fiscal year was $7,179 thousand or 9.2% (see table 5,following). Table 5: City of Spokane Valley's Capital Assets (net of depreciation, amounts in 000) Governmental Business-type Total % Activities Activities Total Change 2012 2011 2012 2011 2012 2011 2012-2011 Land $ 6,956 $ 4,400 $ - $ - $ 6,956 $ 4,400 58.1% Buildings 10,058 10,385 354 367 10,412 10,752 -3.2% Improvements other than Buildings 6,292 6,591 - - 6,292 6,591 -4.5% Infrastructure 54,678 52,241 1,224 1,000 55,902 53,241 5.0% Machinery and Equipment 480 662 79 114 559 776 -28.0% Construction in Progress 3,828 2,208 1,218 20 5,046 2,228 126.5% Total $ 82,292 $ 76,487 $ 2,875 $ 1,501 $ 85,167 $ 77,988 9.2% Major capital asset events during the current fiscal year included the following: • Construction in Progress increased immensely by 126.5% or$2,818 thousand, overall due to several major street and infrastructure projects being started in 2012 along with the new CIP project starting in the Aquifer Protection Area Fund, a business type activity. • There was a total of$2,556 thousand or an increase of 58.1% in Land for fiscal year 2012 due mostly to the acquisition of property located adjacent to Balfour Park for$2,530,777. • Infrastructure increased 5.0% or $2,662 thousand for 2012 due to the completion of several street and infrastructure projects started in prior years. • Current fiscal year infrastructure expenditures increased, net of depreciation 5.0% or $2,662 thousand for 2012 due to the City implementing the pavement preservation plan. • Overall change in capital assets for 2012 increased by 9.2%compared to the prior year of 2011. 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, 2012, the City had total Limited Tax General Obligation debt outstanding of$7,690 thousand. This amount is backed by the full faith and credit of the City of Spokane Valley with debt service funded by general government revenues and contributions from the Public Facilities District. The City's long-term obligations decreased by ($247) thousand or(3.1) % during fiscal year 2012. (See table 6, below). City of Spokane Valleys Outstanding Obligations Table 6 (amounts in 000) Governmental Total Percentage Activities Change 2012 2011 2012-2011 General obligation bonds $ 7,690 $ 7,930 -3.0% Bond premium $ 124 $ 131 -5.3% Total $ 7,814 $ 8,061 -3.1% 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 in Note 11 (General Long-Term Obligations) in the notes to the financial statements. Washington State Auditor's Office 23 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 2011 assessed valuation of the City of Spokane Valley for the levy year of 2012, for purposes of determining the legal debt margin is; $7,087,523,395. Remaining debt capacities for the City under general voted and non-voted purposes(2.5%)is limited to: $169,186,723. The City of Spokane Valley maintains an A3 rating from Moody's for its non-voted general obligation debt. Additional information regarding debt limitations and capacities can be found in Note 11 (Legal Debt Margin) in the notes to the financial statements. ECONOMIC FACTORS The following economic factors currently affect the City of Spokane Valley and were considered in developing the 2012-2013 fiscal year budgets. The outlook for the City of Spokane Valley economy was projected based on statistics generated in Spokane County. There is estimated over 4,000 businesses located in Spokane Valley with estimated taxable retail sales of$1.74 billion for 2012. This represents a 13% increase since 2004 and a (11%) decrease since 2007. The City of Spokane Valley received $17,522 thousand, an increase of $545 thousand from the prior year,in sales tax dollars for 2012. Overall, Spokane County lost close to 2,100 jobs in 2012, giving up nearly all of the 4,800 jobs it had regained in 2010. The current year's decline in jobs left the county with an estimated average of 210,050 jobs, which is down more than 8,400 jobs from the peak in 2008. Despite the sizable loss of jobs in 2012, the Spokane County-wide unemployment rate fell to 8.6%, down (.7%) from the year before (2011). Spokane County's fastest growing non-farm employment sector is professional and business services, with this sector predicted to also grow the most through 2020. Population growth has been steady within the City of Spokane Valley, increasing to 90,550 and growing over 9% since incorporation in 2003. The total number of residential building permits, Spokane County-wide (including the City of Spokane and the City of Spokane Valley) decreased to 908 (down from 1,785 permits issued in 2011). Additionally, total permits issued per 1,000 residents (1.9) were lower County-wide compared to both the State of Washington and the National average. Housing prices and sales are expected to moderate and hold steady throughout the fiscal year,offering limited relief to strained mortgage tax revenues and assessed values. The median price of a home in Spokane County(inclusive the City of Spokane and the City of Spokane Valley)was $175,300 in the third quarter of 2012. Since the 3rd quarter of 2007, when the median price of a home in the area peaked at $207,400, median prices of homes have decreased by an average of(15%). The continued sluggish pace of the real estate market will hold real property assessment values down which in turn will make significant increases in property tax revenue unlikely for 2013. The Spokane County Board of Equalization initially certified the 2012 real property assessments, on July 11, 2012, upon which 2013 taxes will be collected. Countywide, real property has dropped from last year's levy value of: $34,840,060,189 to $33,639,503,285, a decrease of(3.4%). The City of Spokane Valley's assessed value decreased to a modest(0.7%)to 7.0 billion in 2012. The City's property tax levy rate for 2012 was near$1.526 per thousand of assessed value. Washington State Auditor's Office 24 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 hold the number of full-time employees to 87.25. Employee salaries and related benefits are the leading cost for much of the city's operations. In 2012, a comparison of 29 cities with a population of 100,000 or less was conducted within the State of Washington and the City of Spokane Valley had the fewest number of employees based on Washington cities with a population greater than 50,000 and over. No significant general fund tax increases were implemented in 2012, nor are any anticipated for the 2012 general fund budget. A telephone utility tax of 6%was collected during 2012 in the City's Street Fund. General Fund Expenditures for 2012 were budgeted by capping recurring expenses to a maximum 1% increase over 2011. During the fiscal year of 2012,unassigned fund balance in the general fund was $34,389,494. The City of Spokane Valley's total recurring 2013 general fund expenditure amended budget is $35,224,674 as compared to $34,660,400 in 2012. It is important to note that included in the 2013 general fund budget is $855,857 for pavement preservation, which had not been budgeted in prior years. This means that before pavement preservation is factored in, the general fund recurring expenditure budget actually decreased by 1.22% as compared to 2012. The 2013 budget presumes service levels that are consistent with those provided in 2012 with neither significant enhancements nor reductions in any area of operations. 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 Mark Calhoun, Finance Director 11707 E. Sprague Ave. Suite 106 Spokane Valley, Washington 99206. Washington State Auditor's Office 25 City of Spokane Valley, Washington Statement of Net Position December 31, 2012 Primary Government Governmental Business-type Activities Activities Total ASSETS Cash and cash equivalents $ 47,640,506 $ 2,624,439 $ 50,264,945 Taxes receivable 4,572,244 48,792 4,621,036 Taxes delinquent-receivable 151,363 27,743 179,106 Accounts receivable,(net) 503,691 - 503,691 Interest receivable 7,267 194 7,461 Grants receivable 897,649 676,213 1,573,862 Internal balances 2,088,000 200,000 2,288,000 Prepaids 24,015 - 24,015 Capital Assets: Land 6,955,690 - 6,955,690 Depreciable assets,(net) 71,507,918 1,657,597 73,165,515 Construction in progress 3,828,222 1,217,629 5,045,851 Total Assets $ 138,176,565 $ 6,452,607 $ 144,629,172 LIABILITIES Accounts payable $ 1,416,229 $ 41,660 $ 1,457,889 Interest payable 29,252 - 29,252 Internal balances(liability) 2,088,000 200,000 2,288,000 Deposits and other payables 2,864,766 70,495 2,935,261 Other accrued liabilities 420,902 28,287 449,189 Deferred revenues - 648,264 648,264 Long-term liabilities: Due within one year 302,292 - 302,292 Due in more than one year 7,823,204 - 7,823,204 Total Liabilities 14,944,645 988,706 15,933,351 NET POSITION Net Investment in capital assets 74,477,697 2,875,226 77,352,923 Restricted for: Capital projects,REET,roads&streets 4,629,290 - 4,629,290 Parks&recreation programs - - - Hotel/motel tourism promotion 206,772 - 206,772 Comcast PEG,communications 130,011 - 130,011 Law enforcement grants 50,028 - 50,028 Trails&paths 63,941 - 63,941 Leases&subscriptions 24,015 - 24,015 Unrestricted: Governmental type activities 43,650,166 - 43,650,166 Business type activities - 2,588,675 2,588,675 Total Net Position: 123,231,920 5,463,901 128,695,821 Total Liabilities and Net Position $ 138,176,565 $ 6,452,607 $ 144,629,172 The notes to the financial statements are an integral part of this financial statement Washington State Auditor's Office 26 City of Spokane Valley, Washington Statement of Activities For the Year Ended December 31,2012 Net(Expense)Revenue and Program Revenues Changes in Net Position Operating Charges for Grants and Capital Grants Governmental Business-Type Functions/Programs Expenses Services Contributions &Contributions Activities Activities Total Primary government: Governmental activities: General government $ 4,621,830 $ 2,946,372 $ 435,533 $ 91,014 $ (1,148,911) $ - $ (1,148,911) Public safety 21,722,460 1,650,593 58,041 - (20,013,826) - (20,013,826) Utilities and physical environment 2,939,534 84,080 573,214 1,211,810 (1,070,430) - (1,070,430) Transportation 8,573,798 47,316 69,122 3,109,540 (5,347,820) - (5,347,820) Economic environment 796,828 - - - (796,828) - (796,828) Community development 1,894,058 1,253,918 122,997 - (517,143) - (517,143) Culture and recreation 3,457,763 598,221 1,000 625,922 (2,232,620) - (2,232,620) Interest on long-term debt 375,777 - - - (375,777) - (375,777) Total governmental activities 44,382,048 6,580,500 1,259,907 5,038,286 (31,503,355) - (31,503,355) Business-type activities: Aquifer protection area - 2 607,225 - - 607,227 607,227 Stormwater management 1,218,148 1,834,797 14,838 50,000 - 681,487 681,487 Total business-type activities 1,218,148 1,834,799 622,063 50,000 - 1,288,714 1,288,714 Total primary government $45,600,196 $ 8,415,299 $ 1,881,970 $ 5,088,286 (31,503,355) 1,288,714 (30,214,641) General revenues: Taxes: Property taxes 10,801,886 - 10,801,886 Sales and use taxes 17,521,694 - 17,521,694 Excise taxes 3,271,319 - 3,271,319 Other taxes 3,846,610 - 3,846,610 Interest and investment earnings 115,520 2,601 118,121 Transfers 128,014 (128,014) - Total general revenues and transfers 35,685,043 (125,413) 35,559,630 Change in net position 4,181,689 1,163,301 5,344,989 Net position--beginning of year 118,886,908 4,300,600 123,187,508 Prior period adjustment(see note 15) 163,322 - 163,322 Net position--ending $ 123,231,920 $ 5,463,901 $ 128,695,820 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 Balance Sheet Governmental Funds December 31, 2012 Street Street Capital Sub-Total General Street Capital Projects Improvement Governmental Assets Fund Fund Fund Fund 2011 Funds Cash and cash equivalents $ 36,310,251 $ 2,076,491 $ 45,321 $ 2,045,813 $ 40,477,876 Taxes receivable 4,074,318 514,124 - - 4,588,442 Accounts receivable,(net) 451,447 42,340 9,904 - 503,691 Interest receivable 6,124 275 - - 6,399 Due from other funds 166,000 - - - 166,000 Due from other governments - - - - - Grants receivable 50,028 43,038 804,583 - 897,649 Prepaids 24,015 - - - 24,015 Total Assets $ 41,082,184 $ 2,676,268 $ 859,808 $ 2,045,813 $ 46,664,072 Liabilities and Fund Balances Liabilities: Accounts payable 562,382 181,216 352,169 176,453 1,272,220 Accrued wages and benefits payable 359,409 44,741 11,288 5,465 420,903 Interest payable - - - - - Due to other funds 955,000 - - 837,000 1,792,000 Deposits and other payables 2,303,543 - - - 2,303,543 Retainagepayable 31,316 75,260 318,432 78,162 503,170 Deferred revenues 2,276,984 146,614 - - 2,423,598 Total Liabilities 6,488,634 447,831 681,889 1,097,080 8,715,434 Fund Balances: Nonspendable: Operating leases&subscriptions $ 24,015 $ - $ - $ - $ 24,015 Restricted for: Comcast PEG contributions 130,012 - - - 130,012 Hotel/motel tourism promotion - - - - - Law enforcement JAG&ARRA grants 50,028 - - - 50,028 Motor vehicle fuel tax roads&streets - 2,228,437 - 2,228,437 Street capital construction&grants - - 177,918 - 177,918 Trails&paths - - - - - Capital projects REET 1&2 roads&streets - - - - - Mirabeau point LTGO'03 - - - - - Committed to: Winter weather operations - - - - - Assigned to: Capital acquisitions - - - - - Civic bldg capital replacement - - - - - Civic facilities capital replacement - - - - - Parks&recreation capital improvements - - - - - Street capital improvements p&m - - - 948,733 948,733 Unassigned 34,389,494 - - - 34,389,494 Total Fund Balances 34,593,550 2,228,437 177,918 948,733 37,948,637 Total Liabilities and Fund Balances $41,082,184 $ 2,676,268 $ 859,808 $ 2,045,813 $ 46,664,072 The notes to the financial statements are an integral part of this statement. continued Washington State Auditor's Office 28 City of Spokane Valley, Washington Balance Sheet Governmental Funds December 31, 2012 Other Total Governmental Governmental Assets Funds Funds Cash and cash equivalents $ 6,024,814 $ 46,502,690 Taxes receivable 135,165 4,723,607 Accounts receivable,(net) - 503,691 Interest receivable 753 7,152 Due from other funds 1,922,000 2,088,000 Due from other governments - - Grants receivable - 897,649 Prepaids - 24,015 Total Assets $ 8,082,732 $ 54,746,803 Liabilities and Fund Balances Liabilities: Accounts payable 142,467 1,414,687 Accrued wages and benefits payable - 420,903 Interest payable (1,250) (1,250) Due to other funds 296,000 2,088,000 Deposits and other payables - 2,303,543 Retainage payable 58,053 561,223 Deferred revenues 774,483 3,198,081 Total Liabilities 1,269,753 9,985,187 Fund Balances: Nonspendable: Operating leases&subscriptions $ - $ 24,015 Restricted for: Comcast PEG contributions - 130,012 Hotel/motel tourism promotion 206,772 206,772 Law enforcement JAG&ARRA grants - 50,028 Motor vehicle fuel tax roads&streets - 2,228,437 Street capital construction&grants - 177,918 Trails&paths 63,941 63,941 Capital projects REET 1&2 roads&streets 2,222,934 2,222,934 Mirabeau point LTGO'03 - - Committed to: Winter weather operations 502,888 502,888 Assigned to: Capital acquisitions - - Civic bldg capital replacement 1,110,074 1,110,074 Civic facilities capital replacement 2,403,947 2,403,947 Parks&recreation capital improvements 302,423 302,423 Street capital improvements p&m - 948,733 Unassigned - 34,389,494 Total Fund Balances 6,812,979 44,761,616 Total Liabilities and Fund Balances $ 8,082,732 $ 54,746,803 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 Balance Sheet of Governmental Funds To the Statement of Net Position December 31, 2012 Total governmental fund balances: $44,761,616 Amounts reported for governmental activities in the statement of net position 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. 82,291,830 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 1,879,049 Motor fuel taxes 146,145 Hotel/Motel taxes 24,185 REET taxes 6,251 Total 2,055,630 Other long-term assets are not available to pay for current- period expenditures and therefore are deferred in the funds: Property taxes 363,807 Intergovernmental 13,185 Charges for services 20,682 Miscellaneous 744,778 Total 1,142,452 Interest on long-term debt is not accrued in governmental funds, but rather is recognized as an expenditure when due. (30,502) 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 position. 1,136,389 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 (7,690,000) Premium on bond issuance (124,134) Compensated Absences (311,362) Total (8,125,496) Total Net position of Governmental Activities as shown on the Statement of Net Position: $123,231,920 The notes to the financial statements are an integral part of this financial statement. Washington State Auditor's Office 30 City of Spokane Valley, Washington Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2012 Street Street Capital Sub-Total General Street Capital Projects Improvement Governmental Fund Fund Fund Fund 2011 Major Funds Revenues Taxes $ 28,867,500 $ 2,735,484 $ - $ - $ 31,602,984 Licenses and permits 2,099,092 - - - 2,099,092 Intergovernmental 2,233,750 2,050,175 3,852,255 - 8,136,180 Charges for services 866,479 150 1,650 300 868,579 Fines and forfeitures 563,893 - - - 563,893 Investment interest 97,111 4,056 - - 101,167 Miscellaneous 1,107,751 34,265 760,768 - 1,902,784 Total Revenues 35,835,576 4,824,129 4,614,673 300 45,274,679 Expenditures Cun-ent: General government 4,203,373 - - - 4,203,373 Public safety 21,664,077 - - - 21,664,077 Utilities and physical environment 1,829,179 153,917 1,129 - 1,984,225 Transportation - 4,346,692 993,729 - 5,340,421 Economic environment 246,862 - - - 246,862 Community development 1,894,058 - - - 1,894,058 Culture and recreation 2,536,019 - - - 2,536,019 Debt Service: Principal retirement - - - - - Interest expense 444 - - - 444 Capital Outlay: Capital expenditures 95,465 18,000 - - 113,465 Construction in progress - 69,378 6,171,321 1,882,424 8,123,123 Total Expenditures 32,469,477 4,587,987 7,166,179 1,882,424 46,106,067 Excess of Revenues Over(Under) 3,366,099 236,142 (2,551,506) (1,882,124) (831,388) Expenditures Other Financing Sources(Uses) Transfers In 84,600 7,614 2,655,778 2,045,203 4,793,195 Transfers(out) (2,932,203) (505,053) - (299,027) (3,736,283) Total Other Financing Sources(Uses) (2,847,603) (497,439) 2,655,778 1,746,176 1,056,912 Net Change in Fund Balances(deficit) 518,496 (261,297) 104,272 (135,948) 225,523 Fund Balances Beginning of Year 33,911,732 2,489,734 73,646 1,084,681 37,559,793 Prior period adjustment 163,322 - - - 163,322 Fund Balances End of Year $ 34,593,550 $ 2,228,437 $ 177,918 $ 948,733 $ 37,948,638 The notes to the financial statements are an integral part of this statement, continued Washington State Auditor's Office 31 City of Spokane Valley, Washington Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2012 Other Total Governmental Governmental Funds Funds Revenues Taxes $ 1,675,710 $ 33,278,694 Licenses and permits - 2,099,092 Intergovernmental 623,645 8,759,825 Charges for services - 868,579 Fines and forfeitures - 563,893 Investment interest 12,847 114,013 Miscellaneous 28,279 1,931,063 Total Revenues 2,340,481 47,615,158 Expenditures Current: General government - 4,203,373 Public safety - 21,664,077 Utilities and physical environment - 1,984,225 Transportation 9,164 5,349,585 Economic environment 511,756 758,618 Community development - 1,894,058 Culture and recreation - 2,536,019 Debt Service: - Principal retirement 241,250 241,250 Interest expense 376,373 376,817 Capital Outlay: - Capital expenditures 2,879,552 2,993,017 Construction in progress 4,470 8,127,593 Total Expenditures 4,022,565 50,128,632 Excess of Revenues Over(Under) (1,682,084) (2,513,474) Expenditures Other Financing Sources(Uses) Transfers In 520,355 5,313,550 Transfers(out) (1,768,253) (5,504,536) Total Other Financing Sources(Uses) (1,247,898) (190,986) Net Change in Fund Balances(deficit) (2,929,982) (2,704,460) Fund Balances Beginning of Year 9,742,961 47,302,754 Prior period adjustment - 163,322 Fund Balances End of Year $ 6,812,979 $ 44,761,616 The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 32 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, 2012 Net change in fund balances -total governmental funds: ($2,704,460) 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. 5,804,589 Depreciation (5,316,021) Capital outlay 11,120,610 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds: 699,715 Property taxes 2,749 Sales and use taxes 83,962 Excise taxes (7,210) Other taxes 2,743 Charges for services (8,451) Capital grants and contributions 625,922 Bond proceeds provide current financial resources to governmental funds,but issuing debt increases long-term liabilities in the statement of net position. Repayment of non-current debt is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position.This is the amount by which repayments exceeded proceeds. 241,250 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 (39,976) Bond principle accrual (1,250) Bond premium expense 7,316 Interest expense 1,040 (32,870) 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. 173,465 Total Change in Net Position of Governmental Activities as shown on the Statement of Activities: $4,181,689 The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 33 City of Spokane Valley, Washington Statement of Net Position -Proprietary Funds December 31, 2012 and 2011 Business-type Activities Enterprise Funds Aquifer Protection Governmental Stormwater Management Area Fund Activities Internal Total Proprietary Service Funds Assets 2012 2011 2012 2011 Funds 2012 2012 Current Assets: Cash and cash equivalents $ 2,622,642 $ 2,582,151 $ 1,797 $ 417,326 $ 2,624,439 $ 1,137,816 Taxes delinquent-receivable 76,535 74,178 - - 76,535 - Accounts receivable,(net) - - - - - - Interest receivable 194 134 - - 194 116 Due from other funds 200,000 - - - 200,000 - Grants receivable 9,591 71,446 666,622 - 676,213 - Prepaids - 63 - - - - Total Current Assets 2,908,962 2,727,971 668,419 417,326 3,577,381 1,137,932 Capital Assets: Buildings&structures 375,791 375,791 - - 375,791 - Machinery and equipment 183,649 183,649 - - 183,649 - Infrastructure 1,464,409 1,130,207 - - 1,464,409 - Construction in progress 84,418 20,533 1,133,211 - 1,217,629 - Less accumulated depreciation (366,252) (209,566) - - (366,252) - Total capital assets 1,742,015 1,500,614 1,133,211 - 2,875,226 - (net of accumulated depreciation) Total Assets $ 4,650,977 $ 4,228,585 $1,801,630 $ 417,326 $ 6,452,607 $ 1,137,932 Liabilities Current Liabilities: Accounts payable $ 35,869 $ 159,032 $ 5,791 $ - $ 41,660 $ 1,542 Accrued payroll and benefits payable 27,332 21,989 955 - 28,287 - Due to other funds - - 200,000 - 200,000 - Deposits and other payables 33,600 35,600 - - 33,600 - Retainage payables 36,895 62,552 - - 36,895 - Deferred revenues 77,933 66,139 570,331 - 648,264 - Total Current Liabilities 211,629 345,311 777,077 - 988,706 1,542 Total Liabilities 211,629 345,311 777,077 - 988,706 1,542 Net Position Net investments in capital assets 1,742,015 1,500,614 1,133,211 - 2,875,226 - Restricted - 3,600 - - - - Unrestricted 2,697,333 2,379,060 (108,658) 417,326 2,588,675 1,136,389 Total Net Position 4,439,348 3,883,274 1,024,553 417,326 5,463,901 1,136,389 Total Liabilities and Net Position $ 4,650,977 $ 4,228,585 $1,801,630 $ 417,326 $ 6,452,607 S 1,137,932 The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 34 City of Spokane Valley, Washington Statement of Revenues, Expenses, and Changes in Net Position Proprietary Funds For the Year Ended December 31, 2012 and 2011 Business-type Activities Enterprise Funds Aquifer Protection Governmental Stormwater Management Area Fund Activities Internal Total Proprietary Service Funds Operating Revenues 2012 2011 2012 2011 Funds 2012 2012 Charges for services $ 1,834,740 $ 1,832,952 $ - $ - $ 1,834,740 $ - Miscellaneous revenues - - 2 - 2 119,344 Total Operating Revenues 1,834,740 1,832,952 2 - 1,834,742 119,344 Operating Expenses Personal services 375,653 420,833 - - 375,653 - Professional services 146,734 147,974 - - 146,734 265,525 Materials and supplies 19,569 10,881 - - 19,569 862 Other services and expenses 519,506 801,121 - - 519,506 - Depreciation and amortization 156,686 91,210 - - 156,686 - Total Operating Expenses 1,218,148 1,472,019 - - 1,218,148 266,387 Operating Income(loss) 616,592 360,933 2 - 616,594 (147,043) Non-Operating Revenues(Expenses) Intergovernmental revenues 64,838 373,861 607,225 417,326 672,063 - Interest and investment income 2,601 2,833 - - 2,601 1,507 Miscellaneous revenues 57 - - - 57 - Total Non-Operating Revenues (Expenses) 67,496 376,694 607,225 417,326 674,721 1,507 Income(loss)before Capital Contributions and Transfers 684,088 737,627 607,227 417,326 1,291,315 (145,536) Contributions and Transfers Transfers In - - - - - 319,000 Transfers(out) (128,014) (160,999) - - (128,014) - Change in Net Position 556,074 576,628 607,227 417,326 1,163,301 173,464 Net Position-Beginning of Year 3,883,274 3,306,646 417,326 - 4,300,600 962,925 Net Position-End of Year $ 4,439,348 $ 3,883,274 $ 1,024,553 $417,326 $ 5,463,901 $ 1,136,389 The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 35 City of Spokane Valley, Washington Statement of Cash Flows-Proprietary Funds For the Year Ended December 31, 2012(with comparative totals for 2011) Business-type Activities Enterprise Funds Aquifer Protection Total Governmental Stormwater Management Area Fund Proprietary Activities Internal Cash Flows from Operating Activities 2012 2011 2012 2011 Funds 2012 Service Funds 2012 Cash received from customers $ 1,832,383 $ 1,777,106 $ (666,622) $ - $ 1,165,761 $ - Cash paid to employees (368,480) (413,218) 955 - (367,525) (10,340) Other cash payments to suppliers (61,203) (26,223) 770,332 - 709,129 (255,415) Other cash receipts (138,145) - 2 - (138,143) - Receipts from interfund activity - - - - - 119,344 Cash payments to suppliers for goods and services (765,397) (769,765) 5,791 - (759,606) Net cash(used for)provided by operating activities 499,158 567,900 110,458 - 609,616 (146,411) Cash Flows from Noncapital Financing Activities Non-Capital grant receipts 64,838 65,400 96,290 417,326 161,128 - Customer supplies reimbursements 57 - - - 57 - Operating subsidies&transfers in(out)other funds (128,014) (237,783) - - (128,014) 319,000 Net cash(used for)noncapital financing activities (63,119) (172,383) 96,290 417,326 33,171 319,000 Cash Flows from Capital and Related Financing Activities Acquisition,construction&(transfers)of capital assets (398,087) (574,023) (1,133,211) - (1,531,298) - Purchases of capital assets - - - - - - Intergovernmental revenues/materials&supplies(net) - 308,461 510,934 - 510,934 Net cash provided by(used for)capital and related financing activities (398,087) (265,562) (622,277) - (1,020,364) - Cash Flows from Investing Activities Interest received 2,540 3,704 - - 2,540 1,472 Net cash provided by investing activities 2,540 3,704 - - 2,540 1,472 Net increase(decrease)in Cash and Cash Equivalents 40,491 133,659 (415,529) 417,326 (375,038) 174,061 Cash and Cash Equivalents-January 1,2012 2,582,151 2,448,492 417,326 - 2,999,477 963,755 Cash and Cash Equivalents-December 31,2012 $ 2,622,642 $ 2,582,151 $ 1,797 $417,326 $ 2,624,439 $ 1,137,816 Reconciliation of Operating Income(Loss)to Net Cash Provided(Used)by Operating Activities Operating Income(loss) $ 616,592 $ 360,933 $ 2 $ - $ 616,594 $ (147,043) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 156,686 91,210 - - 156,686 - (Increase)Decrease in Assets: (Increase):Receivables(net) (2,357) (55,845) (666,622) - (668,979) - (Increase):Other Operating Receivables (138,145) - - - (138,145) - (Increase)Decrease:Inventory 63 (63) - - 63 - Increase(Decrease)in Liabilities: Increase(Decrease):Accounts payable to suppliers (123,163) 168,094 5,791 - (117,372) 632 Increase:Accrued payroll and benefits payable 5,344 4,656 955 - 6,299 - Increase(Decrease):Other Accounts Payables (15,863) - 770,332 754,469 (Decrease):Deposits and other payables - (1,500) - - - - Increase:Deferred revenues - 415 - - - - Total adjustments (117,435) 206,967 110,456 - (6,979) 632 Net Cash Provided by(Used for)by Operating Activities $ 499,158 $ 567,900 $ 110,458 $ - $ 609,616 $ (146,411) The notes to the financial statements are an integral part of this statement Washington State Auditor's Office 36 City of Spokane Valley Notes to Financial Statements NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A.Description of government-wide financial statements The government-wide financial statements(i.e.,the statement of net position and the statement of activities)report information on all of the nonfiduciary activities of the primary government.All fiduciary activities are reported only in the fund financial statements, and the City of Spokane Valley has no fiduciary funds. Governmental-type activities, which normally are supported by taxes,intergovernmental revenues,and other nonexchange transactions, are reported separately from Business-Type Activities, which rely to a significant extent on fees and charges generated by external customers for support. B.Reporting entity 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. 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. C.Basis of presentation -government-wide financial statements While separate government-wide (reporting the City as a whole) and fund financial statements (reporting the City's major funds) are presented to report the City's financial position and the results of operations,they are both interrelated. The governmental-type activities column incorporates data from the governmental funds and internal service funds,while business-type activities categorize data from the government's enterprise funds. As a general rule,the effect of interfund activity has been removed from the government-wide financial statements. Exceptions to this general rule are payments in lieu of taxes where the amounts are reasonably equivalent in value to the interfund services provided and other charges between the government's stormwater functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned.As discussed earlier,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. D.Basis of presentation -fund financial statements The fund financial statements provide information about the City's funds,including its fiduciary funds and blended component units. The City has no fiduciary funds or blended component units. Separate statements for each fund category—governmental and proprietary—are presented. The emphasis of fund financial statements is on major governmental and enterprise funds,each reported in separate columns.All remaining governmental and enterprise Washington State Auditor's Office 37 City of Spokane Valley Notes to Financial Statements funds are combined,aggregated, and reported as nonmajor funds.Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. The city reports the following major governmental funds: The General Fund: is the City's primary operating fund. It accounts for all fmancial resources of the City's general government,except those required to be accounted for in another fund. The Street Fund: This Special revenue fund is responsible for the street operating and maintenance service levels of all Spokane Valley city streets and bridges. It utilizes the receipts received from the motor vehicle fuel tax(MVFT)distributed to the City in accordance with the State Revised Codes of Washington(RCW 82.36.020) and receipts from the City Telephone Tax implemented in 2009. Most of the service levels to the city streets during 2012 are the same or greater than provided for compared to 2011. The Street Capital Projects Fund: accounts for monies used to finance the six year transportation improvement plan. Revenues include transfers from the Arterial Street Fund, Capital Projects Fund, and Special Capital Projects Fund,as well as Federal, State and local grants and private source contributions. Street Capital Improvement Fund 2011: accounts for pavement preservation projects. Revenues include transfers from the General Fund, Street Fund, Civic Facilities Replacement Fund, Capital Projects Fund, and Special Capital Projects Fund, as well as Federal, State and local grants. 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. The Aquifer Protection Area Fund: accounts for aquifer protection area fees collected by Spokane County and remitted to the City. The expenditures are used for projects that protect the aquifer. Additionally,the government reports the following non-major fund types: Special revenue funds: accounts for arterial street construction,hotel/motel tax revenues and expenditures, Winter Weather Reserve,CenterPlace Operating Reserve, Service Stabilization Reserve,and revenues and expenditures for the Paths and Trails Fund. Debt service fund: accounts 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: accounts 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: accounts for computer hardware/software,equipment,vehicle replacement, and risk management services provided to other departments on a cost reimbursement basis. During the course of operations the City of Spokane Valley has activity between funds for various purposes.Any residual balances outstanding at year end are reported as due from/to other funds.While these balances are reported in the fund financial statements,certain eliminations are made in the preparation of the government-wide financial statements. Washington State Auditor's Office 38 City of Spokane Valley Notes to Financial Statements Balances between funds included in governmental-type activities(i.e.,the governmental and internal service funds) are eliminated so that only the net amount is included as internal balances in the governmental-type activities column. Similarly,balances between the funds included in business-type activities(i.e.,the proprietary funds)are eliminated so that only the net amount is included as internal balances in the business-type activities column(refer to note 9). Further,certain activity occurs during the year involving transfers of resources between funds. In the fund financial statements these amounts are reported at gross amounts of transfers in/out.While reported in fund financial statements, certain eliminations are made in the preparation of the government-wide fmancial statements. Transfers between the funds included in governmental-type activities are eliminated so that only the net amount is included as transfers in the governmental-type activities column. Similarly,balances between the funds included in business-type activities are eliminated so that only the net amount is included as transfers in the business-type activities column(refer to note 9). E.Measurement focus,basis of accounting, and financial statement presentation The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting.Measurement focus indicates the type of resources being measured such as,current financial resources or economic resources.The basis of accounting indicates the timing of transactions or events for recognition in the fmancial statements. 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. The 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 collectible within the current period or soon thereafter to pay liabilities of the current period. For this purpose,the City 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. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long-term debt and acquisitions under capital leases are reported as other financing sources. Property taxes, franchise fees,licenses, and interest associated with the current fiscal period are all considered to be susceptible to the accrual basis of accounting 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 the accrual basis as revenue is applicable for the current period. Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been satisfied, and the amount is received during the period or within the availability period for this revenue source usually within 60 days of the fiscal year end.All other revenue items are considered to be measurable and available only when cash is received by the City (modified basis of accounting). Proprietary funds are all reported using the economic resources measurement focus and the accrual basis of accounting. Washington State Auditor's Office 39 City of Spokane Valley Notes to Financial Statements F: Budgetary information 1. Budgetary basis of accounting Annual appropriated budgets are adopted for all funds on a basis consistent with generally accepted accounting principles.The governmental funds are budgeted on the modified accrual basis of accounting whereas the basis of accounting for proprietary funds is full accrual. Legal budgetary control (i.e.,the level at which expenditures may not legally exceed appropriations)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. 2. 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 2013 budget process and may be changed for future processes: • 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 discuss City goals and priorities and reaffirms 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 sets 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 produced by the Finance Department to report on actual performance compared to budget estimates and to identify any remedial actions that may be needed. 3. 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 twice during fiscal year 2012. 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. Annual appropriations for all funds lapse at the end of the fiscal period even if they have related encumbrances. Unexpended resources must be re-appropriated and become part of the subsequent period's budget pursuant to Washington States regulations. 4. Excess of expenditures over appropriations For the year ending December 31,2012,no material violations of finance related legal or contractual provisions occurred.The Mirabeau Point Project Fund,the Capital Grants Fund, and the Barker Road Bridge Reconstruction Washington State Auditor's Office 40 City of Spokane Valley Notes to Financial Statements Fund exceeded legal appropriations for the fiscal year. These are all capital project funds that were closed during the fiscal year due to the projects being complete. The Mirabeau Point Project Fund exceeded its legal appropriation by$29 or 0.06%.The overage resulted from earning more interest income than expected. The Capital Grants Fund exceeded its legal appropriation by$10,509 or 100.00%.The overage resulted from receiving excess grant income from the close-out of grant programs. The Barker Road Bridge Reconstruction Fund exceeded its legal appropriations by$9,601 or 100.00%. The overage resulted from receiving an unexpected developer contribution. 5. Deficit Net Position The Aquifer Protection Area Fund,a proprietary fund,has a deficit Unrestricted Net position balance of($108,658) at December 31,2012. The deficit was the result of the City expending money on a grant financed project that was not reimbursed until after yearend. The City has subsequently recovered the monies expended through a reimbursement request. G.Assets,liabilities, deferred revenues, and net position/fund balance 1. Cash and cash equivalents 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 position 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. 2.Investments 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 31,2012.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). 3.Receivables Taxes receivable consists of property taxes and related interest and penalties. Accrued interest receivable consists of amounts earned on investments,notes,and contracts. Customer accounts receivable/payable consist of amounts owed from/to private individuals or organizations for goods and services including amounts owed. 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. 4.Inventories and prepaid items Reported inventories in the governmental and proprietary funds consist of expendable supplies held for consumption and are valued at cost using first-in/first-out(FIFO)method. The cost of such inventories is recorded as expenditure/expenses at the time individual inventory items when consumed rather than when purchased. 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.The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when it was purchased. Washington State Auditor's Office 41 City of Spokane Valley Notes to Financial Statements 5. Capital assets 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 financial statements. The City defines capital assets,including infrastructure assets as assets with an initial and 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 that are constructed. Interest incurred during the construction phase of capital assets of proprietary/business-type activities is included as part of the capitalized value of the assets constructed and the amount of interest capitalized depends on the specific circumstances (refer to note 6). Land and construction in progress (CIP)are not depreciated.The other property,plant,equipment, and infrastructure of the primary government are depreciated using the straight line method over the following estimated service life: 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 6.Deferred revenues The deferred revenues account is used to offset receivables established in the governmental fund financial statement 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,hotel/motel taxes, and reimbursement-type grants received outside the period of availability. During the fiscal year ending December 31,2011,the City implemented GASB Statement No.63. GASB Statement No.63 establishes the financial reporting standard and related disclosures for:Deferred outflows and inflows of resources and Net Position.The City of Spokane Valley currently has no sources that qualify for reporting as a deferred outflow/inflow of resources for fiscal year 2012 under this standard. 7.Net position flow assumption (GASB Statement No.63) Sometimes the City of Spokane Valley will fund outlays for a particular purpose from both restricted(e.g.,grant proceeds or street construction and maintenance) and unrestricted resources. In order to calculate these amounts to report as restricted--net position and unrestricted--net position in the government-wide and proprietary fund financial statements,a flow assumption must be made about the order in which these resources are considered to be applied and used.The City considers restricted—net position to have been depleted before unrestricted--net position is applied. 8.Fund balance flow assumptions Sometimes the City of Spokane Valley will fund outlays for a particular purpose from both restricted and unrestricted resources(the total committed, assigned and unassigned fund balance). In order to calculate the amounts to report as restricted,committed, assigned,and unassigned fund balance in the City's governmental fund financial statements, a flow assumption must be made about the order in which these resources are considered to be Washington State Auditor's Office 42 City of Spokane Valley Notes to Financial Statements applied and used.When both restricted and unrestricted fund balances are available for use; the City depletes restricted fund balance first before using any of the components of unrestricted fund balance. Similarly,within unrestricted fund balance can be used for the same purpose,committed fund balance amounts are reduced first, followed by assigned fund balance, and then unassigned fund balance amounts are used when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be applied. 9.Fund balance policies Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of these financial resources for specific purposes.The City of Spokane Valley itself can establish limitations on the use of its financial resources through either a commitment(committed fund balance)or an assignment(assigned fund balance). Nonspendable fund balance includes items that cannot be spent. This includes activity that is not in a spendable form (inventories,prepaid amounts,long-term portion of loans/notes receivable,or property held for resale unless the proceeds are restricted,committed or assigned)and activity that is legally or contractually required to remain intact,such as a principal balance in a permanent fund. Restricted fund balances have constraints placed upon the use of the resources either by an external party or imposed by law through a constitutional provision or enabling legislation. Committed fund balance classification includes amounts that can be used only for specific purposes pursuant to constraints imposed by a formal action of the City Council,the City's highest level of decision-making authority. The City council is the highest level of decision-making authority for the City that can,by adoption of an ordinance prior to the end of the fiscal year,commit fund balance. Once adopted,the limitation imposed by the ordinance remains in place until similar action is taken (adoption of another ordinance)to remove or revise the limitation. Assigned fund balance includes amounts that are constrained by the City's intent to be used for a specific purpose, but are neither restricted nor committed. The City Council can by resolution authorize the Finance Director to assign fund balance.Unlike commitments, assignments generally only exist temporarily.No formal or additional action is required by the City Council to remove an assignment.For governmental funds,other than the General Fund,this is the residual amount within the fund that is not restricted or committed. Unassigned fund balance is the residual amount of the General Fund not included in the four categories described above. Also, any deficit fund balances within the other governmental fund types are reported as unassigned. As discussed earlier,the City does not have a fund balance spending prioritization policy. Therefore,restricted resources are used first when expenditures are incurred for purposes for which either restricted or unrestricted (committed, assigned,and unassigned) amounts are available. Similarly,within unrestricted fund balance, committed amounts are reduced first followed by assigned, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used. H.Revenues and expenditures/expenses 1.Program revenues 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)that are restricted to meeting the operational or capital requirements of a particular function or segment.All taxes,including those dedicated for specific purposes, and other internally dedicated resources are reported as general revenues (i.e.,Property taxes,sales&use taxes,excise taxes, and other related taxes within the Government-wide Statement of Activities)rather than program revenues. Washington State Auditor's Office 43 City of Spokane Valley Notes to Financial Statements 2.Property taxes Property taxes attach as an enforceable lien on real property and are levied annually on January 1St.The tax levy is divided into two equal installments: the first installment(due and payable by April 30th) is based on the assessed value of the prior year's(2011)taxes;the second installment(due and payable by October 31St)reflects the balance remaining to the current year's actual 2012 levy. The installments are considered past due 30 days after the respective payable dates,at which time the applicable property is subject to lien,penalties, and interest is assessed (refer to note 5). 3. 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 and the Social Security substitute plan related to vacation accruals. 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. 4.Proprietary funds operating and nonoperating revenues and expenses Proprietary funds distinguish operating revenues and expenses from nonoperating items. 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.The principal operating revenues of the Stormwater and Aquifer Protection Area funds are a stormwater assessment fee and an aquifer protection area fee,respectively. Operating expenses for these funds include personal and professional services, and depreciation on capital assets.All revenue and expenses not meeting this definition are non-operating revenues and expenses. NOTE 2—RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS: A. Explanation of certain differences between the governmental fund balance sheet and the government- wide statement of net position 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. The governmental fund balance includes reconciliations between fund balance—total governmental funds and net position—governmental activities as reported in the government—wide statement of net position. One element of that reconciliation explains that"long-term liabilities,including bonds payable and accrued interest,are not due and payable in the current period and therefore are not reported in the funds."The details of the $(8,125,496)difference are as follows: Bonds payable $ (7,690,000) Premium on bond issuance (124,134) Compensated absences (311,362) Net adjustment to reduce fund balance-total governmental funds to arrive at net position-governmental activities $ (8,125,496) Washington State Auditor's Office 44 City of Spokane Valley Notes to Financial Statements 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 position."The details of the $1,136,389 difference are as follows. Net assets of the internal service fund $ 1,137,931 Less: Internal payables (1,542) Net adjustment to increase fund balance-total governmental funds $ 1,136,389 to arrive at net position governmental activities Also, another element of the reconciliation explains that capital assets used in governmental activities are not financial resources and the balance reflects the initial investment in capital assets therefore,"governmental funds do not report capital assets."The details of the $82,291,830 difference are as follows: Land $ 6,955,690 Construction in Progress 3,828,222 Total non-depreciable capital assets 10,783,912 Depreciable capital assets $ 300,005,858 Less: Accumulated depreciation-depreciable assets (228,497,940) Total depreciable capital assets,net of accumulated depreciation 71,507,918 Net adjustment to increase fund balance-total governmental funds to arrive at net position-governmental activities $ 82,291,830 Certain earned tax revenues were collected and other long-term assets will not be available until after the year end to pay for current expenditures; and therefore represent an acquisition of net position that applies to future period(s) and will not be recognized as an inflow of resources (revenue)until that time and accordingly,these items will be reported as deferred revenues in the governmental fund balance sheet.The details of the $3,198,082 reconciled difference presented as follows: Deferred revenue-property tax $ 363,807 Deferred revenue-sales&use tax 2,055,630 Deferred revenue-deposits&liens 765,460 Deferred revenue-grant receipts 13,185 Net adjustment to increase fund balance-total governmental $ 3,198,082 funds to arrive at net position governmental activities Washington State Auditor's Office 45 City of Spokane Valley Notes to Financial Statements 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 this reconciliation between net changes in fund balances—total governmental funds and changes in net position of governmental activities as reported in the government-wide statement of activities. One element of that reconciliation explains that"governmental funds report capital outlays as expenditures.However,in the statement of activities,the cost of these assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation expenses in the current period."The details of this $5,804,589 difference are as follows: Capital outlay $ 11,120,610 Depreciation expense (5,316,021) Net adjustment to increase net changes in fund balances-total governmental funds to arrive at changes in net position of governmental activities $ 5,804,589 This is the amount by which Bond payable repayments in the amount of$241,250 exceeded bond proceeds. Another element of the reconciliation states that"some long-term revenues in the statement of activities that do not provide current financial resources to governmental funds are not reported as revenues in the funds." The details of this$699,715 difference are as follows: Deferred revenue-property taxes $ 2,749 Deferred revenue-sales&use taxes 83,962 Deferred revenue-excise taxes (7,210) Deferred revenue-other taxes 2,743 Deferred revenue-charges for services (8,451) Deferred revenue-capital grants&contributions 625,922 Net adjustment to increase net changes in fund balances-total governmental funds to arrive at changes in net position of governmental activities $ 699,715 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 $(32,870)difference are as follows: Compensated absences $ (39,976) Bond premimum expense 7,316 Bond unamortized premium accrual (1,250) Interest expense 1,040 Net adjustment to decrease net changes in fund balances-total governmental funds to arrive at changes in net position of govenmental activities $ (32,870) Washington State Auditor's Office 46 City of Spokane Valley Notes to Financial Statements 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$173,465 difference are as follows: Revenues: Interest and investment income,miscellaneous revenues $ 439,851 Total Revenues 439,851 (Less) expenses and net transfers: (266,386) Net adjustment to increase net changes in fund balances-total governmental funds to arrive at changes in net position of governmental activities $ 173,465 NOTE 3—STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY: At December 31,2012,there have been no material violations of finance-related legal or contractual provisions. NOTE 4—DEPOSITS AND INVESTMENTS: A.Deposits and investments As of December 31,2012,the City of Spokane Valley had the following investments: Weighted Investment Type Average (amounts are in thousands) Fair Value Maturity(YRS) Commercial paper $ 5,041 0.63 State Treasurer's investment pool(LGIP) 43,389 0.45 Total fair value of investments: $ 48,430 - 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 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 31,2012,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 Washington State Auditor's Office 47 City of Spokane Valley Notes to Financial Statements 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 31,2012,the City of Spokane Valley's total bank balance of$3,150,336 was insured and covered by the FDIC and the Washington State PDPC pool and therefore,was not exposed to any custodial credit risk-deposits. These banks 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 Position 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 31,2012. 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 assessed as of the prior year 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. No allowance for uncollectible taxes is established because delinquent taxes are considered fully collectible.For 2012,the City's regular levy was $10,818,717 based on the 2011 assessed value of$7,087,523,395. 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. Washington State Auditor's Office 48 City of Spokane Valley Notes to Financial Statements 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 Governmental-type Capital asset activity for the year ended December 31, 2012,is summarized as follows: Beginning Ending Balance Governmental-type activities Balance 1/1/2012 Additions Reductions 12/31/2012 Land(non depreciable) $ 4,399,952 $ 2,555,738 $ - $ 6,955,690 Construction in progress 2,208,469 2,021,699 (401,946) 3,828,222 Total non-depreciable assets 6,608,421 4,577,437 (401,946) 10,783,912 Buildings 12,876,766 - - 12,876,766 Leasehold improvements 130,021 - - 130,021 Improvements other than buildings 9,267,458 355,321 - 9,622,779 Infrastructure 268,208,376 6,743,058 (260,179) 274,691,255 Machinery and equipment 2,578,118 106,919 - 2,685,037 Total depreciable assets 293,060,739 7,205,298 (260,179) 300,005,858 Total capital assets $ 299,669,160 $ 11,782,735 $ (662,125) $ 310,789,770 Washington State Auditor's Office 49 City of Spokane Valley Notes to Financial Statements Beginning Ending Balance Balance Less accumulated depreciation for: 1/1/2012 Additions Reductions 12/31/2012 Buildings $ 2,492,270 $ 326,420 $ - $ 2,818,690 Leasehold improvements 129,873 148 - 130,021 Improvements other than buildings 2,676,397 654,083 - 3,330,480 Infrastructure 215,967,098 4,046,505 - 220,013,603 Machinery and equipment 1,916,281 288,865 - 2,205,146 Total accumulated depreciation $ 223,181,919 $ 5,316,021 $ - $ 228,497,940 Capital assets,net of accumulated depreciation $ 76,487,241 $ 6,466,714 $ (662,125) $ 82,291,830 Balance Balance Business-type activities; 1/01/2012 Increases Decreases 12/31/2012 Construction in progress $ 20,533 $ 1,197,096 $ - $ 1,217,629 Total non-depreciable assets 20,533 1,197,096 - 1,217,629 Buildings and structures 375,791 - - 375,791 Infrastructure 1,130,207 334,202 - 1,464,409 Machinery and equipment 183,649 - - 183,649 Total depreciable assets 1,689,647 334,202 - 2,023,849 Total capital assets $ 1,710,180 $ 1,531,298 $ - $ 3,241,478 (Less)accumulated depreciation for: Buildings and structures $ 9,395 $ 12,526 $ - $ 21,921 Infrastructure 129,860 110,132 - 239,992 Machinery and equipment 70,311 34,028 - 104,339 Total accumulated depreciation 209,566 156,686 - 366,252 Capital assets,net of accumulated depreciation $ 1,500,614 $ 1,374,612 $ - $ 2,875,226 Depreciation expense was charged to current functions of the primary government for 2012 as follows: Governmental Activities: General Government $ 139,113 Public Safety 55,683 Physical Environment 961,164 Transportation 3,212,414 Economic Environment 32,172 Culture and Recreation 915,475 Total governmental activities current year depreciation expense $ 5,316,021 Business-type activity: StormWater $ 156,686 Total business-type activities current year depreciation expense $ 156,686 Washington State Auditor's Office 50 City of Spokane Valley Notes to Financial Statements Construction commitments The City of Spokane Valley was involved in many construction projects as of December 31,2012. The projects include various street construction projects with a total of$13,192,471 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: $ 11,077,937 $ 2,114,534 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; or it may be downloaded from the DRS website at www.drs.wa.gov. The following disclosures are made pursuant to GASB Statement 27,Accounting for Pensions by State and Local Government Employers and No. 50,Pension Disclosures, an Amendment of GASB Statements No. 25 and No. 27. Public Employees' Retirement System (PERS)Plans 1,2, and 3 Plan Descriptions: The Legislature established PERS in 1947.Membership in the system includes: elected officials; state employees; employees of the Supreme,Appeals, and Superior courts (other than judges currently in the Judicial Retirement System); employees of legislative committees; community and technical colleges,college and university employees not participating in higher education retirement programs;judges of district and municipal courts; and employees of local governments. PERS retirement benefit provisions are established in Chapters 41.34 and 41.40 RCW and may be amended only by the State Legislature. 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 plan with a defined contribution component. PERS members who joined the system by September 30, 1977, are Plan 1 members. Those who joined on or after October 1, 1977, and by either,February 28,2002,for state and higher education employees,or August 31,2002, for local government employees, are Plan 2 members unless they exercised an option to transfer their membership to Plan 3. PERS members joining the system on or after March 1,2002,for state and higher education employees, or September 1,2002,for local government employees have the irrevocable option of choosing membership in either PERS Plan 2 or PERS Plan 3.The option must be exercised within 90 days of employment.An employee is reported in Plan 2 until a choice is made. Employees who fail to choose within 90 days default to PERS Plan 3. Notwithstanding,PERS Plan 2 and Plan 3 members may opt out of plan membership if terminally ill,with less than five years to live. PERS Plan 1 and Plan 2 defined benefit retirement benefits are financed from a combination of investment earnings and employer and employee contributions. Washington State Auditor's Office 51 City of Spokane Valley Notes to Financial Statements PERS Plan 1 members are vested after the completion of five years of eligible service. Plan 1 members are eligible for retirement after 30 years of service,or at the age of 60 with five years of service,or at the age of 55 with 25 years of service. The monthly benefit is two percent of the average final compensation(AFC)per year of service. (AFC is the monthly average of the 24 consecutive highest-paid service credit months.)The retirement benefit may not exceed 60 percent of AFC. The monthly benefit is subject to a minimum for PERS Plan 1 retirees who have 25 years of service and have been retired 20 years,or who have 20 years of service and have been retired 25 years. Plan 1 members retiring from inactive status prior to the age of 65 may receive actuarially reduced benefits. If a survivor option is chosen,the benefit is further reduced.A cost-of-living allowance (COLA)was granted at age 66 based upon years of service times the COLA amount. This benefit was eliminated by the Legislature,effective July 1,2011. Plan 1 members may elect to receive an optional COLA that provides an automatic annual adjustment based on the Consumer Price Index. The adjustment is capped at three percent annually. To offset the cost of this annual adjustment,the benefit is reduced. PERS Plan 1 provides duty and non-duty disability benefits.Duty disability retirement benefits for disablement prior to the age of 60 consist of a temporary life annuity payable to the age of 60. The allowance amount is$350 a month,or two-thirds of the monthly AFC,whichever is less. The benefit is reduced by any workers' compensation benefit and is payable as long as the member remains disabled or until the member attains the age of 60. A member with five years of covered employment is eligible for non-duty disability retirement. Prior to the age of 55,the allowance amount is two percent of the AFC for each year of service reduced by two percent for each year that the member's age is less than 55.The total benefit is limited to 60 percent of the AFC and is actuarially reduced to reflect the choice of a survivor option.A cost-of-living allowance was granted at age 66 based upon years of service times the COLA amount. This benefit was eliminated by the Legislature,effective July 1,2011. Plan 1 members may elect to receive an optional COLA that provides an automatic annual adjustment based on the Consumer Price Index. The adjustment is capped at 3 percent annually.To offset the cost of this annual adjustment, the benefit is reduced. PERS Plan 1 members can receive credit for military service.Members can also purchase up to 24 months of service credit lost because of an on-the-job injury. PERS Plan 2 members are vested after the completion of five years of eligible service.Plan 2 members are eligible for normal retirement at the age of 65 with five years of service.The monthly benefit is two percent of the AFC per year of service. (AFC is the monthly average of the 60 consecutive highest-paid service months.) PERS Plan 2 members who have at least 20 years of service credit and are 55 years of age or older are eligible for early retirement with a reduced benefit.The benefit is reduced by an early retirement factor(ERF)that varies according to age, for each year before age 65. PERS Plan 2 members who have 30 or more years of service credit and are at least 55 years old can retire under one of two provisions: • With a benefit that is reduced by 3 percent for each year before age 65. • With a benefit that has a smaller(or no)reduction(depending on age)that imposes stricter return-to-work rules. PERS Plan 2 retirement benefits are also actuarially reduced to reflect the choice,if made,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 three percent annually. Washington State Auditor's Office 52 City of Spokane Valley Notes to Financial Statements The surviving spouse or eligible child or children of a PERS Plan 2 member who dies after leaving eligible employment having earned ten years of service credit may request a refund of the member's accumulated contributions. PERS Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component and member contributions finance a defined contribution component. The defined benefit portion provides a monthly benefit that is one percent of the AFC per year of service. (AFC is the monthly average of the 60 consecutive highest-paid service months.) Effective June 7,2006,PERS Plan 3 members are vested in the defined benefit portion of their plan after ten years of service; or after five years of service,if twelve months of that service are 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 for normal retirement at age 65,or they may retire early with the following conditions and benefits: • If they have at least ten service credit years and are 55 years old,the benefit is reduced by an ERF that varies with age,for each year before age 65. • If they have 30 service credit years and are at least 55 years old,they have the choice of a benefit that is reduced by 3 percent for each year before age 65; or a benefit with a smaller(or no)reduction factor (depending on age)that imposes stricter return-to-work rules. PERS Plan 3 defined benefit retirement benefits are also actuarially reduced to reflect the choice,if made,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. PERS Plan 3 defined contribution retirement benefits are solely dependent upon contributions and the results of investment activities. 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 Director of the Department of Retirement Systems. PERS Plan 2 and Plan 3 provide disability benefits.There is no minimum amount of service credit required for eligibility.The Plan 2 monthly benefit amount is two percent of the AFC per year of service.For Plan 3,the monthly benefit amount is one percent of the AFC per year of service. These disability benefit amounts are actuarially reduced for each year that the member's age is less than 65,and 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 percent annually. PERS Plan 2 and Plan 3 members may have up to ten years of interruptive military service credit; five years at no cost and five years that may be purchased by paying the required contributions. Effective July 24,2005, a member who becomes totally incapacitated for continued employment while serving the uniformed services,or a surviving spouse or eligible children,may apply for interruptive military service credit.Additionally,PERS Plan 2 and Plan 3 members can also purchase up to 24 months of service credit lost because of an on-the-job injury. PERS members may also purchase up to five years of additional service credit once eligible for retirement.This credit can only be purchased at the time of retirement and can be used only to provide the member with a monthly annuity that is paid in addition to the member's retirement benefit. Washington State Auditor's Office 53 City of Spokane Valley Notes to Financial Statements Beneficiaries of a PERS Plan 2 or Plan 3 member with ten years of service who is killed in the course of employment receive retirement benefits without actuarial reduction,if the member was not at normal retirement age at death.This provision applies to any member killed in the course of employment,on or after June 10,2004,if found eligible by the Department of Labor and Industries. A one-time duty-related death benefit is provided to the estate (or duly designated nominee)of a PERS member who dies in the line of service as a result of injuries sustained in the course of employment,or if the death resulted from an occupational disease or infection that arose naturally and proximately out of said member's covered employment,if found eligible by the Department of Labor and Industries. There are 1,184 participating employers in PERS. Membership in PERS consisted of the following as of the latest actuarial valuation date for the plans of June 30,2011,as reported by The Washington State Department of Retirement Systems(DRS): Retirees and beneficiaries receiving benefits 79,363 Terminated plan members entitled to but,not yet receiving benefits 29,925 Active plan members vested 105,578 Active plan members non-vested 46,839 Total 261,705 Funding Policy: Each biennium,the state Pension Funding Council adopts PERS Plan 1 employer contribution rates,PERS Plan 2 employer and employee contribution rates, and PERS Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are established by statute at six percent for state agencies and local government unit employees,and at 7.5 percent 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 the 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 Plan 3 employee contribution rates range from 5 percent to 15 percent,based on member choice. Two of the options are graduated rates dependent on the employee's age. The methods used to determine the contribution requirements are established under state statute in accordance with Chapters 41.40 and 41.45 RCW. The required contribution rates expressed as a percentage of current-year covered payroll,as of December 31, 2012, are as follows: PERS Plan 1 PERS Plan 2 PERS Plan 3 Employer * 7.21%** 7.21%** 7.21%*** Employee 6.00%**** 4.64%**** ***** * The employer rates include the employer administrative expense fee currently set at 0.16%. ** The employer rate for state elected officials is 10.74%for Plan 1 and 7.21%for Plans 2 and 3. *** Plan 3 defined benefit portion only. **** The employee rate for state elected officials is 7.50%for Plan 1 and 4.64% for Plan 2. ***** Variable from 5.0%minimum to 15.0%maximum based on rate selected by PERS 3 member. Washington State Auditor's Office 54 City of Spokane Valley Notes to Financial Statements 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 31,2012,were as follows. PERS Plan 1 PERS Plan 2 PERS Plan 3 2012 Employer contributions $ 1,803 $ 251,140 $ 128,105 2011 Employer contributions 10,247 194,906 104,982 2010 Employer contributions 11,923 169,477 88,007 2009 Employer contributions 14,509 212,142 99,073 2008 Employer contributions 13,956 203,950 75,875 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 153 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,public officials' errors or omissions, stop gap, 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 sub-limits 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 $750,000, 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. Washington State Auditor's Office 55 City of Spokane Valley Notes to Financial Statements WCIA is fully funded by its members,who make annual assessments on a prospectively rated basis,as determined by an outside,independent actuary. The assessment covers loss,loss adjustment, and administrative expenses. As outlined in the interlocal,WCIA retains the right to additionally assess the membership for any funding shortfall. An investment committee,using investment brokers,produces additional revenue by investment of WCIA's assets in financial instruments which comply with all State guidelines. 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 WCIA. The City of Spokane Valley is self-insured on a reimbursement basis for unemployment compensation. The City incurred$10,340 in claims for unemployment compensation in 2012. NOTE 9—INTERFUND SERVICES ACTIVITY AND TRANSFERS: Interfund services activity Sometimes during the course of operations,and as a part of the City's regular programmatic activity,one fund will sell goods,have work performed or services provided to another fund in return for equal or almost equal value.As a result of such exchanges,an interfund services provided and used applies to any residual balances outstanding at year end and the City reports this type of activity as due from/to other funds.Due to other fund and due from other fund balances at December 31,2012,were: Due from; Due to table Due from Due to other funds other funds General fund $ 166,000 $ 955,000 Street capital improvement fund - 837,000 Nonmajor governmental funds 1,922,000 296,000 Total governmental funds 2,088,000 2,088,000 Stormwater mangement fund 200,000 - Aquifer protection area fund - 200,000 Total proprietary funds 200,000 200,000 Total government-wide $ 2,288,000 $ 2,288,000 All remaining interfund balances resulted from the time lag between year end and beginning fiscal year dates that(1)interfund goods and services are provided or reimbursable expenditures occur,(2)from actual fiscal year end transactions recorded in the accounting system,(3)to payments between funds are made,and(4)temporarily eliminate fiscal year end(negative credit balances)in the City's pooled cash positions. Interfund transfers are the flow and reassignment of resources between funds without the exchange of equal or almost equal value between the funds,typically referred to as a nonexchange transaction or nonreciprocal interfund activity. The City(1) transfers revenues from the fund that statutes or budget requires to collect them to the fund that the statute or budget requires to expend them, (2) transfers restricted resources for the purpose of debt service from the funds collecting the receipts to the debt service fund for debt service payments,and(3)transfers unrestricted revenues collected in the general and street funds to finance various programs accounted for in other funds in accordance with budgetary authority. Washington State Auditor's Office 56 City of Spokane Valley Notes to Financial Statements Interfund transfer activity for 2012 is as follows: Transfers- in Transfers- (out) General fund $ 84,600 $ 2,932,203 Street fund 7,614 505,053 Arterial street fund - 207,447 Hotel/Motel fund - 30,000 Civic facilities replacement fund 397,000 - Debt service fund 185,302 - Capital projects fund - 344,877 Special capital projects fund 6,477 1,039,313 Street capital projects fund 2,655,777 - Capital grants fund (174,673) 6,477 Barker bridge reconstruction fund - - Parks capital projects fund 106,250 - Civic buildings capital projects fund - 140,139 Street capital improvement fund 2,045,203 299,027 Stormwater management fund - 128,014 Internal service funds 319,000 - Total government-wide $ 5,632,550 $ 5,632,550 NOTE 10—SHORT-TERM DEBT: As of December 31,2012,the City incurred no short-term debt. NOTE 11—LONG-TERM OBLIGATIONS AND LEASES: General Obligation Bonds Liabilities for long-term obligations are recorded in the government-wide statement of net position. 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.These 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,fmanced 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. General obligation bonds currently outstanding as December 31,2012,are as follows: Debt Name of Issuance Purpose Interest Rate Outstanding 2003 LTGO Bonds Governmental Activities 2.00% -5.00% $7,690,000 Washington State Auditor's Office 57 City of Spokane Valley Notes to Financial Statements The annual debt service requirements to maturity for general obligation bonds are as follows: Governmental - Type Activities Total Principal Interest Requirements 2013 255,000 368,023 623,023 2014 270,000 357,822 627,822 2015 285,000 347,023 632,023 2016 300,000 335,622 635,622 2017 315,000 323,623 638,623 2018-2022 2,205,000 1,364,050 3,569,050 2023-2027 2,485,000 755,750 3,240,750 2028-2033 1,575,000 253,000 1,828,000 Totals $ 7,690,000 $ 4,104,913 $ 11,794,913 Long-term debt on the Statement of Net Position 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 31,2012,is $124,134. Changes in Long-Term Liabilities During the year ended December 31,2012,the following changes occurred in long-term liabilities: Amounts Balance Balance Due within Governmental-type activities 1/1/2012 Additions Reductions 12/31/2012 One Year Bonds and notes payable: General obligation bonds $ 7,930,000 $ - $ 240,000 $ 7,690,000 $ 255,000 Premium on LTGO bonds 131,449 7,315 124,134 7,316 Other liabilities: Compensated absences 271,386 39,976 - 311,362 39,976 Governmental activities long-term liabilities $ 8,332,835 $ 39,976 $ 247,315 $ 8,125,496 $ 302,292 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 2011 assessed valuation of the City for the Levy year of 2012,for purposes of determining the legal debt margin is $7,087,523,395. 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. Washington State Auditor's Office 58 City of Spokane Valley Notes to Financial Statements The remaining voted and non-voted GO debt capacities for General purposes of the City at December 31,2012, are as follows: Amount General Purposes Voted and Non-voted Debt-2.5%(1) $ 169,186,723 Utility Voted Debt-2.5% 177,188,085 Open Space and Park Facilities Voted Debt-2.5% 177,188,085 Total Remaining Debt Capacity $ 523,562,893 (1)Includes:$98,311,489 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 $523,458 for the fiscal year ending December 31,2012.The future minimum lease payments for these leases are presented as follows(table follows): Year ending Dec.31 Amount 2013 $ 445,377 2014 429,219 2015 425,631 2016 433,619 2017 106,121 Total minimum future lease payments $ 1,839,967 NOTE 12—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 granting agencies and 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 had,at some point in the past,contaminated the property the City was acquiring. The Department of Ecology(DOE) ordered an analysis of the environmental impact and potential options. The concrete company has thus far recommended to the DOE that it,at its sole expense, should be allowed to remove the contaminants on its adjacent property to allow for permanent remediation from the City site. Although no formal agreement has been signed by the parties to Washington State Auditor's Office 59 City of Spokane Valley Notes to Financial Statements accomplish this outcome,it is the likely result that will be ordered by the DOE. The City does not currently anticipate incurring any significant expense through the remainder of this process,which is anticipated to be concluded by the end of 2014. In September 2012 the City entered into an interlocal agreement with the Spokane County Library District for the purpose of acquiring an 8.4 acre parcel of land that will in the future be developed as a joint City park and library. In the agreement the Library agreed to purchase 2.5 acres of this parcel at a cost that is proportional to the amount of land they held relative to the purchase price. The agreement further provides that the City will hold title to the entire 8.4 acre parcel until a joint site development plan is completed and the specific land configuration can be determined for each party. In October 2012 the City then purchased the 8.4 acre parcel of land at a cost of approximately$2.5 million and the Library gave the City approximately$744,000 for its proportional share of the 2.5 acres. At that time the City recorded the entire $2.5 million purchase as land owned by the City and the $744,000 received from the Library as deferred revenue. At the point the joint site development plan is complete (which we anticipate will take place in the latter part of 2013),the City will recognize the $744,000 received from the Library as revenue,transfer title for this land to the Library, and remove $744,000 of land from its capital assets. The interlocal agreement also provides that if the Library has not within five years following the acquisition of the land(in October 2017), secured voter approval of a construction bond for the library building and ancillary improvements,that the land will be reconveyed back to the City at the same price paid by the Library($744,000). NOTE 13—RECEIVABLE AND PAYABLE BALANCES: A) Receivables: Receivables at December 31,2012,were as follows: Governmental Type Accounts Taxes Grants Due from Prepaids&other Total Activities receivable(net) receivable receivable other funds receivables receivables General fund $ 451,447 $ 4,074,318 $ 50,028 $ 166,000 $ 30,139 4,771,932 Street fund 42,340 514,124 43,038 - 275 599,777 Street capital projects fund 9,904 - 804,583 - - 814,487 Street capital improvement fund - - - - - - Other Governmental funds - 135,165 - 1,922,000 753 2,057,918 Total Governmental type activities $ 503,691 $ 4,723,607 $ 897,649 $ 2,088,000 $ 31,167 $ 8,244,114 Business Type Accounts Taxes Grants Due from Prepaids&other Total Activities receivable(net) receivable receivable other funds receivables receivables Stormwater management fund $ - $ 76,535 $ 9,591 $ 200,000 $ 194 $ 286,320 Aquifer protection area fund - - 666,622 - - 666,622 Total Business type activities $ - $ 76,535 $ 676,213 $ 200,000 $ 194 $ 952,942 Washington State Auditor's Office 60 City of Spokane Valley Notes to Financial Statements B) Payables: Payables at December 31,2012,were as follows: Governmental Type Accounts Accrued wages& Due to Deposits Other accrued Deferred Activities payables benefits payable other funds payable liabilities revenue Total General fund $ 562,382 $ 359,409 $ 955,000 $ 2,303,543 $ 31,316 $ 2,276,984 $ 6,488,634 Street fund 181,216 44,741 - - 75,260 146,614 447,831 Street capital projects fund 352,169 11,288 - - 318,432 - 681,889 Street capital improvement fund 176,453 5,465 837,000 - 78,162 - 1,097,080 Other Governmental funds 142,467 - 296,000 - 56,803 774,483 1,269,753 Reconciliation of balances in the fund financial statements to government-wide financial statements 1,542 - - - 8,155,996 (3,198,081) 4,959,457 Total Governmental type activities $ 1,416,229 $ 420,903 $ 2,088,000 $ 2,303,543 $ 8,715,969 $ - $ 14,944,644 Business Type Accounts Salaries& Due to Deposits Other accrued Deferred Activities payables benefits payable other funds payable liabilities inflows Total Stormwater management fund $ 35,869 $ 27,332 $ - $ 33,600 $ 36,895 $ 77,933 $ 211,629 Aquifer protectiona area fund 5,791 955 200,000 - - 570,331 777,077 Total Business type activities $ 41,660 $ 28,287 $ 200,000 $ 33,600 $ 36,895 $ 648,264 $ 988,706 NOTE 14-OTHER POSTEMPLOYMENT BENEFITS(OPEB): Association of Washington Cities Employee Benefit Trust("Trust") Trust Description: In addition to the Public Employees Pension Plans described in Note 7,the City of Spokane Valley is a participating Employer in the Association of Washington Cities Employee Benefit Trust(AWCEBT),a cost-sharing multiple employer welfare benefit plan administered by the Association of Washington Cities (AWC).The Trust provided medical benefits to certain eligible retired employees of Participating Employers and their eligible family members.Under Article VII of the Trust document,the Trustees have the authority and power to amend the amount and nature of the medical and other benefits provided by the Trust. The Trust issues a publicly available financial report that includes financial statements and required supplementary information for the Trust.That report, along with a copy of the Trust document,may be obtained by writing to: The Association of Washington Cities Employee Benefit Trust at 1076 Franklin Street SE, Olympia,WA 98501-1346 or by calling your request at 1-800-562-8981. Funding Policy: The plan is administered by a trust or equivalent arrangement in which employer contributions to the trust are irrevocable; these plan assets are for the sole purpose of providing OPEB to retirees and their beneficiaries in accordance with the guidelines of the plan, and plan assets are legally protected from creditors of the employers or plan administrator. In 2012,there were an estimated 262 employers enrolled in the AWC Employee Benefits Trust Plan.All the risks, rewards, and costs,including benefit costs, are shared and are not individually attributed to the employers.A single actuarial valuation conducted biennially,covers all plan participants,and the same contribution rate(s) apply to all enrolled employers.January 1,2008,was the first year of the AWC Employee Benefits Trusts OPEB implementation and corresponded with the first actuarial valuation of OPEB. The Trust provides that contribution requirements of Participating Employer and of participating employees, retirees and other beneficiaries,if any, are established and may be amended by the Board of Trustees of the Trust. Washington State Auditor's Office 61 City of Spokane Valley Notes to Financial Statements Retirees of the City receiving medical benefits from the Trust contribute the following monthly amounts:see following OPEB table. Monthly AWC HealthFirst 1000 Amounts Non-Medicare enrolled retiree coverage $ 789.14 Non-Medicare enrolled retiree&spouse coverage $ 795.57 Medicare enrolled retiree coverage $ 421.75 Medicare enrolled retiree&spouse coverage $ 433.48 Monthly AWC HealthFirst 2500 Amounts Non-Medicare enrolled retiree coverage $ 689.11 Non-Medicare enrolled retiree&spouse coverage $ 693.66 Medicare enrolled retiree coverage $ 369.29 Medicare enrolled retiree&spouse coverage $ 378.30 Participating employers are contractually required to contribute at a rate assessed each year by the Trust. The City of Spokane Valley's contributions to the Trust for the year ended December 31,2012,were $0, as the City has no participating retirees within the AWC Employee Benefits Trust. Funding Status and Funding Progress: The funded status of the AWC Employee Benefits Trust Plan as of January 1,2010,which was the date of the last actuarial valuation,was as follows(dollars in thousands): Actuarial accrued liability(AAL) $262,602 3 Actuarial value of plan assets - 2 Unfunded actuarial accrued liability(UAAL) $262,602 3 Funded ratio(actuarial value of plan assets/AAL) 0%2 Covered payroll(active plan members) N/A 1 UAAL as a percentage of covered payroll N/A 1 1)Covered Payroll information was not provided to the AWC Trust 2)The AWC Employeess Benefits Trust had substantial assets recorded as of December 31, 2009.Because those assets have not been placed into an irrevocable trust for the sole purpose of providing OPEB benefits, the AWC understands that they cannot be reported as "assets"under GASB 43 in determining actuarial values for the Trust. 3) The next actuarial analyses on funding status and progress is scheduled for,January 1,2012.However,it did not occur at that date. The schedule of funding progress is also presented as required supplementary information (RSI)following these Notes to the Financial Statements, and the schedule presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.The AWC Employees Benefits Trust had substantial assets recorded as of December 31,2009. Because those assets have not been placed into an irrevocable trust for the sole purpose of providing the above OPEB benefits, the AWC understands that they cannot be reflected as "actuarial assets"in the precedent table under GASB 43 in determining the remaining values for this Trust.2 Washington State Auditor's Office 62 City of Spokane Valley Notes to Financial Statements The AWC Employee Benefits Trust's annual OPEB costs, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal year 2012 will be determined with the next conducted biennial actuarial analyses scheduled for January 1, 2012,which did not occur on that date,the years of 2008 to 2010 were as follows(dollars in thousands): Percentage of Fiscal Annual OPEB Cost Net OPEB Year Ended OPEB Cost Contributed Obligation 12/31/2008 $ 29,579 5.88% $ 27,839 12/31/2009 29,872 7.86% 55,364 12/31/2010 27,892 4.42% 82,022 The Governmental Accounting Standards Board(GASB)reporting standards and Statements numbers 43 &45 mandates the precedent reporting requirements and disclosures for Postemployment Benefits Plan other than Pension Plans,or OPEB.The AWC has chosen to adopt and provide these reporting standards to the participating employers within the AWC Employee Benefits Trust.Also,it is important to note that only those jurisdictions that follow Generally Accepted Accounting Principles(GAAP)must comply and report under GASB Statements 43 and 45.All costs,liabilities,interest rates, and other factors have been determined on the basis of actuarial assumptions and methods which are individually reasonable,taking into account experience and reasonable expectations, and which combinations offer the best estimate of anticipated experience. NOTE 15—PRIOR PERIOD ADJUSTMENTS The City of Spokane Valley discovered some payroll related liabilities in the General Fund were overstated by $119,334 and the fund balance in the General Fund was understated in the Statement of Net Position for the year ended December 31,2011. Also,the City discovered that the accounts receivable balance in the General Fund was understated by$43,988 and the fund balance in the General Fund was understated in the Statement of Net Position for the year ended December 31,2011.The result of the adjustments to net position is as follows: Governmental Fund-Type Net position as reported December 31,2011 $ 118,886,908 Payroll liability corrections 119,334 Accounts receivable corrections 43,988 Total prior period adjustment 163,322 Washington State Auditor's Office 63 City of Spokane Valley, Washington Schedule of Revenues,Expenditures and Changes in Fund Balances Budget to Actual General Fund,Major Fund For the Year Ended December 31, 2012 Budgeted Amounts Variance with Approved Final Final Budget Original Budget Amended Budget Actual 1 Over(Under) Revenues Taxes $ 27,638,900 $ 27,638,900 $ 28,867,500 $ 1,228,600 Licenses and permits 2,123,630 2,123,630 2,099,092 (24,538) Intergovernmental revenues 1,913,300 1,913,300 2,233,750 320,450 Charges for services 812,870 812,870 866,479 53,609 Fines and forfeitures 723,030 723,030 563,893 (159,137) Investment interest 145,000 145,000 97,111 1 (47,889) Miscellaneous 1,467,470 1,467,470 1,107,751 (359,719) Total Revenues 34,824,200 34,824,200 35,835,576 1,011,376 Expenditures Current: General government 5,316,036 5,326,036 4,203,373 (1,122,663) Public safety 21,920,000 21,920,000 21,664,077 (255,923) Utilities and physical environment 2,146,573 2,154,973 1,829,179 (325,794) Transportation - - - - Economic environment 195,000 195,000 246,862 51,862 Community development 1,998,784 1,998,784 1,894,058 (104,726) Culture and recreation 2,618,006 2,626,506 2,536,019 (90,487) Debt service: Interest expense - - 444 444 Capital Outlay: Capital expenditures 72,000 144,393 95,465 (48,928) Construction in progress - - - - Total Expenditures 34,266,399 34,365,692 32,469,477 (1,896,215) Excess(Deficiency)of Revenues 557,801 458,508 3,366,099 2,907,591 Over(Under)Expenditures Other Financing Sources(Uses) Transfers in 84,600 84,600 84,600 - Transfers(out) (930,100) (2,957,703) (2,932,203) (25,500) Total Other Financing Sources(Uses) (845,500) (2,873,103) (2,847,603) (25,500) Net Change in Fund Balances(deficit) (287,699) (2,414,595) 518,496 1 2,933,091 Fund Balances Beginning of Year: 28,128,517 28,128,517 33,911,732 1 5,783,215 Prior period adjustment 163,322 163,322 Fund Balances End of Year: $ 27,840,818 $ 25,713,922 $ 34,593,550 1 $ 8,879,628 1 While applying the GASB-54 reporting standard,total fund balance end of the year increased by$5,792,318 and the net change in fund balances increased by$9,103 due to investment interest and$5,783,215 begin fund balances from these two combined Non- major Special Revenue Funds(120 and 121);as reported in the General Fund on the Statement of Rev,Expend.,and Changes in Fund Balances. Washington State Auditor's Office 64 City of Spokane Valley, Washington Schedule of Revenues, Expenditures and Changes in Fund Balances Budget toActual Street Fund, Major Fund For the Year Ended December 31, 2012 Budgeted Amounts Variance with Approved Final Final Budget Original Budget Amended Budget Actual Over(Under) Revenues Taxes $ 3,000,000 $ 3,000,000 $ 2,735,484 $ (264,516) Intergovernmental revenues 1,897,800 1,897,800 2,050,175 152,375 Charges for services - - 150 150 Investment interest 5,000 5,000 4,056 (944) Miscellaneous - - 34,265 34,265 Total Revenues 4,902,800 4,902,800 4,824,129 (78,670) Expenditures Current: Utilities and physical environment 481,500 481,500 153,917 (327,583) Transportation 4,270,163 4,370,163 4,346,692 (23,471) Debt Service: Principal retirement - - - - Capital Outlay: Capital expenditures 140,000 40,000 18,000 (22,000) Construction in progress 500,000 - 69,378 69,378 Total Expenditures 5,391,663 4,891,663 4,587,987 (303,676) Excess(Deficiency) of Revenues (488,863) 11,137 236,143 (225,006) Over(Under) Expenditures Other Financing Sources(Uses) Transfers in - - 7,614 7,614 Transfers(out) (39,600) (539,600) (505,053) (34,547) Total Other Financing Sources(Uses) (39,600) (539,600) (497,439) (42,161) Net Change in Fund Balances(deficit) (528,463) (528,463) (261,297) 267,167 Fund Balances Beginning of Year 2,489,734 2,489,734 2,489,734 - Fund Balances End of Year $ 1,961,271 $ 1,961,271 $ 2,228,437 $ 267,167 Washington State Auditor's Office 65 City of Spokane Valley, Washington OTHER POST EMPLOYMENT BENEFITS(OPEB) Schedule of Funding Progress(six year trend) 1 GASB Statements No's 43&45 Association of Washington Cities Employee Benefits Trust(AWCEBT) (dollars in thousands) Actuarial Unfunded Actuarial Valuation Actuarial Value Accrued Accrued Liabilities Funded Covered UAAL as a Date of Assets Liability (UAAL) Ratio Payroll %of Payroll 1/1/2008 $ - ' $ 281,454 $ 281,454 0% N/A 2 N/A 2 1/1/2010 $ - ' 262,602 262,602 0% N/A 2 N/A 2 1) January 1,2008 was the first year of OPEB implementation and corresponded with the first actuarial valuation of OPEB. Actuarial analyses will be conducted bienially with the next valuation scheduled for,as of 1/1/2012.However,the valuation did not occur on that date.In future years,funding progress will be reported annually. 2)Covered payroll information was not provided to the AWC Trust. 3)Association of Washington Cities Employee Benefits Trust(AWCEBT)had substantial assets as of December 31,2009. Because those assets have not been placed into an irrevocable trust for the sole purpose of providing OPEB benefits, it is AWC's understanding that they cannot be reflected as"actuarial assets"under GASB 43 in determining the values for this Trust. OPEB Actuarial Assumptions Valuation Date: January 1,2010 Actuarial cost method: Entry Age Normal Amortization method: 30 years,as of the first year of actuarial valuation:January 1,2008 Remaining amortization periods as of 12/31/2012: 27 Actuarial assumptions Discount rate 4.50%compounded annually Medical Inflation rate 7.70%in 2010,grading down to 4.70%in the years 2086 and beyond Admistrative expense Implicit in this method is that the premium valued includes AWC administrative expenses. Payroll Projection 4.50% Medical InflationTrend Rates Year Rate 2012 6.3% 2013-2016 5.8% 2017-2022 5.7% 2023-2027 5.6% 2028-2034 5.5% 2035-2040 5.4% Washington State Auditor's Office 66 MCAG NO. 2781 City of Spokane Valley Schedule 16 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended December 31, 2012 Federal Agency Federal Program CFDA Other Expenditures Foot Note Ref. Name/Pass-Through Name Number Award I.D. From Pass- From Direct Total Amount Agency Name Number Through Awards Awards Department of Housing and Community 14.218 14-Dec 10,119 10,119 1, 2 Urban Development Block Development/Spokane Grants/Entitlement County Housing and Grants Community Development Department of Justice/City Edward Byrne 16.738 2009-DJ-BX- 22,588 22,588 1, 2 of Spokane Memorial Justice 0482 Assistance Grant Program Department of Justice Edward Byrne 16.738 2011-DJ-BX- 3,213 3,213 1, 2 Memorial Justice 2299 Assistance Grant Program Total CFDA 16.738 22,588 3,213 25,801 Department of Justice/City ARRA-Recovery Act-16.804 2009-SB B9- 26,587 26,587 1, 2 of Spokane Edward Byrne 0693 Memorial Justice Assistance Grant (JAG)Program/ Grants To Units Of Local Government Department of Highway Planning 20.205 CM-4041(014) 95,105 95,105 1, 2 Transportation/Washington and Construction State Department of Transportation Department of Highway Planning 20.205 CM-0027(012) 169,975 169,975 1, 2 Transportation/Washington and Construction State Department of Transportation Department of Highway Planning 20.205 STPUL- 94 94 1, 2 Transportation/Washington and Construction 4132(001) State Department of Transportation Department of Highway Planning 20.205 STPUL- 7,543 7,543 1, 2 Transportation/Washington and Construction 4103(006) State Department of Transportation Department of Highway Planning 20.205 STPUL- 1,085 1,085 1, 2 Transportation/Washington and Construction 4039(003) State Department of Transportation Department of Highway Planning 20.205 STPE- 3,834 3,834 1, 2 Transportation/Washington and Construction EN10(016) State Department of Transportation Department of Highway Planning 20.205 CM-9932(040) 321,620 321,620 1, 2 Transportation/Washington and Construction State Department of Transportation Washington State Auditor's Office 67 Federal Agency Federal Program CFDA Other Expenditures Foot Note Ref. Name/Pass-Through Name Number Award I.D. From Pass- From Direct Total Amount Agency Name Number Through Awards Awards Department of Highway Planning 20.205 BRM- 759,512 759,512 1, 2 Transportation/Washington and Construction 4103(007) State Department of Transportation Department of Highway Planning 20.205 CM-1223(002) 19,030 19,030 1, 2 Transportation/Washington and Construction State Department of Transportation Department of Highway Planning 20.205 STPUS- 881 881 1, 2 Transportation/Washington and Construction 4033(001) State Department of Transportation Department of Highway Planning 20.205 CM-4103(008) 49,186 49,186 1, 2 Transportation/Washington and Construction State Department of Transportation Department of Highway Planning 20.205 STPUL- 4,616 4,616 1, 2 Transportation/Washington and Construction 9932(042) State Department of Transportation Department of Highway Planning 20.205 STPE- 1,203 1,203 1, 2 Transportation/Washington and Construction 4041(001) State Department of Transportation Department of Highway Planning 20.205 SRTC 06-9 4,393 4,393 1, 2 Transportation/Washington and Construction State Department of Transportation Department of Highway Planning 20.205 300-411-740 3,992 3,992 1, 2 Transportation/Spokane and Construction Regional Health District Total CFDA 20.205 1,442,069 0 1,442,069 Department of New Freedom 20.521 WA-57-X014 172,699 172,699 1, 2 Transportation/Spokane Program Transit Authority Department of Alcohol Impaired 20.601 N/A 5,876 5,876 1, 2 Transportation/Washington Driving State Traffic Safety Countermeasures Commission Incentive Grants I Department of Occupant Protection 20.602 N/A 1,783 1,783 1, 2 Transportation/Washington Incentive Grants State Traffic Safety Commission Department of Energy ARRA-Energy 81.128 DE- 145,059 145,059 1, 2 Efficiency and SC0002899 Conservation Block Grant Program (EECBG) Total Federal Awards Expended: 1,681,721 148,272 1,829,993 The notes to the Schedule of Expenditures of Federal Awards are an integral part of this schedule. Washington State Auditor's Office 68 CITY OF SPOKANE VALLEY,WASHINGTON NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended December 31,2012 NOTE 1 -BASIS OF ACCOUNTING The schedule of expenditures of federal awards is prepared on the same basis of accounting as the City's financial statements. The accrual basis of accounting is used for all funds except for the governmental funds which use the modified accrual basis of accounting. NOTE 2-PROGRAM COSTS The amounts shown as current expenditures represent only the federal portion of program costs. Actual program costs,including the City's portion,may be more than shown. Washington State Auditor's Office 69 Et.? tr ABOUT THE STATE AUDITORS OFFICE .H"�ic��° 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 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 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 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 Troy Kelley Chief of Staff Doug Cochran Director of State and Local Audit Chuck Pfeil, CPA Deputy Director of State and Local Audit Kelly Collins, CPA Deputy Director of State and Local Audit Jan M. Jutte, CPA, CGFM Deputy Director of State and Local Audit Sadie Armijo Deputy Director of Quality Assurance Barb Hinton Deputy Director of Communications Thomas Shapley Local Government Liaison Mike Murphy Public Records Officer Mary Leider Main number (360) 902-0370 Toll-free Citizen Hotline (866) 902-3900 Website www.sao.wa.gov Subscription Service www.sao.wa.gov/EN/News/Subscriptions