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2007 Financial Statements and Fed Single Audit Report Washington State Auditor's Office Financial Statements and Federal Single Audit Report City of Spokane Valley Spokane County Audit Period January 1, 2007 through December 31, 2007 Report No. 1001045 01' r•S , WASHINGTON Issue Date i to • BRIAN SONNTAG March 31, 2009 '� , ,'-` STATE AUDITOR lt`lx Ur,fT �A rwy Washington State Auditor Brian Sonntag March 31, 2009 Council City of Spokane Valley Spokane Valley, Washington Report on Financial Statements and Federal Single Audit Please find attached our report on the City of Spokane Valley's financial statements and compliance with federal laws and regulations. We are issuing this report in order to provide information on the City's financial condition. In addition to this work, we look at other areas of our audit client's operations for compliance with state laws and regulations. The results of that audit will be included in a separately issued accountability report. Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR Insurance Building,P.O.Box 40021 •Olympia,Washington 98504-0021 •(360)902-0370•TDD Relay(800)833-6388 FAX(360)753-0646•http://www.sao.wa.gov Table of Contents City of Spokane Valley Spokane County January 1, 2007 through December 31, 2007 Federal Summary 1 Schedule of Audit Findings and Responses 2 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards 6 Independent Auditor's Report on Compliance with Requirements Applicable to its Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133 8 Independent Auditor's Report on Financial Statements 10 Financial Section 12 Federal Summary City of Spokane Valley Spokane County January 1, 2007 through December 31, 2007 The results of our audit of the City of Spokane Valley are summarized below in accordance with U.S. Office of Management and Budget Circular A-133. FINANCIAL STATEMENTS An unqualified opinion was issued on the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information. Internal Control Over Financial Reporting: • Significant Deficiencies: We identified deficiencies in the design or operation of internal control over financial reporting that we consider to be significant deficiencies. • Material Weaknesses: We identified significant deficiencies that we consider to be material weaknesses. We noted no instances of noncompliance that were material to the financial statements of the City. FEDERAL AWARDS Internal Control Over Major Programs: • Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over major federal programs that we consider to be significant deficiencies. • Material Weaknesses: We identified no significant deficiencies that we consider to be material weaknesses. We issued an unqualified opinion on the City's compliance with requirements applicable to its major federal program. We reported no findings that are required to be disclosed under OMB Circular A-133. 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 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 1 Schedule of Audit Findings and Responses City of Spokane Valley Spokane County January 1, 2007 through December 31, 2007 1. The City does not have adequate controls in place to ensure accurate financial reporting. Background City management, the state Legislature, state and federal agencies and bondholders rely on the information included in financial statements and reports to make decisions. It is the responsibility of City management to design and follow internal controls that provide reasonable assurance regarding the reliability of financial reporting. Controls must ensure that financial data is reliably authorized, processed and reported. Our audit identified material weaknesses in controls that adversely affect the City's ability to produce reliable financial statements. Government Auditing Standards, prescribed by the Comptroller General of the United States, require the auditor to communicate material weaknesses, as defined below in the Applicable Laws and Regulations section, as a finding. Description of the Condition We identified the following deficiencies in internal controls over financial reporting that, when taken together, represent a material weakness: Capital Assets Prior to 2007, the City used a manual spreadsheet system to track capital assets. When the assets were recorded in the automated system in 2007, many amounts were recorded as both construction in progress and completed assets placed in service. In addition, the City has not developed an adequate system to assess completion of construction projects to ensure costs are recorded in the appropriate asset category. Financial Statement Preparation In 2006, the City's financial statements were compiled by a certified public accounting firm. In 2007, the new Accounting Manager was responsible for preparing the financial statements, notes, management's discussion and analysis, required supplementary information and supporting schedules. An independent review of the financial statements was performed; however this review was not adequate to ensure the financial statements were prepared correctly. Cause of Condition Capital Assets City management did not provide adequate oversight of the process used to transfer the capital asset information to the automated system. The City did not perform a reconciliation of the two systems to ensure accuracy. It also has no formalized process to determine when public works projects and infrastructure additions and improvements are complete. Washington State Auditor's Office 2 Financial Statement Preparation City personnel responsible for reviewing the financial statements did not have adequate experience with the generally accepted accounting principles required by the financial reporting model to perform an adequate review. Effect of Condition The City's accounting records and financial reports contained errors that were not detected by City management. During our review of the City's financial statements, we found the following material and significant errors in the original financial statements received for audit. Other less significant errors were also identified. All material and significant errors were subsequently corrected by the City. Statement of Net Assets • Capital assets for governmental activities were overstated by a total of$14,585,517. The most significant error was the overstatement of construction in progress by $21,207,841. In addition, the City understated total depreciable assets by$6,614,282. • Invested in capital assets, net of related debt was overstated by$23,506,228 • The unrestricted net assets balance was understated by$11,082,226. • Taxes receivable was understated by$2,155,725 Statement of Activities • Program revenues and taxes were not properly calculated. Excise taxes were understated by $2,549,159 and capital grants and contributions were overstated by $1,152,258. • Total expenditures were understated by $12,927,262. The most significant error was the understatement of transportation costs by$11,038,997. Fund Statements • The General Fund Balance Sheet understated taxes receivable and deferred revenue by $1,961,080. • Material classification errors were reported in the Street Capital Projects, Civic Buildings Capital Projects, and Other Governmental Funds opinion units. Most related to improper account coding. Management Discussion and Analysis and Notes to the Financial Statements • Numerous items and disclosures did not agree to the supporting documentation or were not consistent with information reported in the financial statements. The deficiencies in internal controls noted above make it reasonably possible that serious misstatements could occur and not be prevented or detected and corrected by the City in the future. Recommendation We recommend City management institute appropriate internal controls and provide adequate oversight of the asset management system to ensure it produces accurate reliable information. We further recommend City personnel responsible for the review of the financial statements obtain the appropriate training in the financial reporting model to perform an effective review. City's Response Since incorporation in 2003, the city's capital asset system was maintained manually(2003), then converted to an automated system (about 2004), then moved back to the manual system (2006) and then converted to the automated system again in 2007. Washington State Auditor's Office 3 The City inherited many street and parks projects from the county which were in various stages of completion. Some were completed and had various depreciation schedules for the different components of each project, others were at the preliminary engineering phase and others were underway but months/years from completion. As new projects got underway, Spokane County, the Washington Department of Transportation, the Federal Government, Spokane Transit Authority, consulting engineers, City personnel and others participated in the work effort to advance these projects. A particularly complicated arrangement also existed where state participants could draw down federal funds on behalf of the City without dollars flowing through the city. These transactions had been captured by the city and "booked"to reflect the full cost of these improvements. During this same 5 years, the city had four different accounting managers, six different accountants, and three different accounts payable individuals. The City recognizes that additional work is necessary and will devote resources to improvements in this area. Auditor's Remarks We recognize the City's efforts to correct the reported conditions and we look forward to reviewing the improvements during our next audit. Applicable Laws and Regulations RCW 43.09.200 states: The state auditor shall formulate, prescribe, and install a system of accounting and reporting for all local governments, which shall be uniform for every public institution, and every public office, and every public account of the same class. The system shall exhibit true accounts and detailed statements of funds collected, received, and expended for account of the public for any purpose whatever, and by all public officers, employees, and other persons. The accounts shall show the receipt, use, and disposition of all public funds properly, and the income, if any, derived therefrom; all sources of public income, and the amounts due and received from each source; all receipts, vouchers, and other documents kept, or required to be kept, necessary to isolate and prove the validity of every transaction; all statements and reports made or required to be made, for the internal administration of the office to which they pertain; and all reports published or required to be published, for the information of the people regarding any and all details of the financial administration of public affairs. Budgeting Accounting and Reporting System Manual- Part 3, Accounting, Chapter 1. Accounting Principles and General Procedures, Section C. Internal Control, states in part: Management is responsible for the entity's performance, compliance and financial reporting. Therefore, the adequacy of internal controls to provide reasonable assurance regarding the achievement of such objectives is also the responsibility of management. Washington State Auditor's Office 4 Government Auditing Standards, July 2007 Revision - Section 5.11, states in part: For all financial audits, auditors should report the following deficiencies in internal control: a. Significant deficiency: a deficiency in internal control, or combination of deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is a more than remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected. b. Material weakness: a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. Washington State Auditor's Office 5 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards City of Spokane Valley Spokane County January 1, 2007 through December 31, 2007 Council City of Spokane Valley Spokane Valley, Washington We have audited the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Spokane Valley, Spokane County, Washington, as of and for the year ended December 31, 2007, which collectively comprise the City's basic financial statements, and have issued our report thereon dated March 13, 2009. The prior year partial comparative information has been derived from the City's 2006 financial statements that we issued our report thereon dated March 3, 2008. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit, we considered the City's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified certain deficiencies involving the internal control over financial reporting that we consider to be significant deficiencies. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the City's ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City's financial statements that is more than inconsequential will not be prevented or detected by the City's internal control over financial reporting. We consider the deficiency described in the accompanying Schedule of Audit Findings and Responses to be a significant deficiency in internal control over financial reporting, and is reported as Finding 1. Washington State Auditor's Office 6 A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the City's internal control. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in the internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, of the significant deficiencies described above, we consider Finding 1 to be material weaknesses. COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. The City's response to the finding identified in our audit is described in the accompanying Schedule of Audit Findings and Responses. We did not audit the City's response and, accordingly, we express no opinion on it. This report is intended for the information and use of management, the Council, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR March 13, 2009 Washington State Auditor's Office 7 Independent Auditor's Report on Compliance with Requirements Applicable to its Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133 City of Spokane Valley Spokane County January 1, 2007 through December 31, 2007 Council City of Spokane Valley Spokane Valley, Washington COMPLIANCE We have audited the compliance of the City of Spokane Valley, Spokane County, Washington, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to its major federal program for the year ended December 31, 2007. The City's major federal program is identified in the Federal Summary. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal program is the responsibility of the City's management. Our responsibility is to express an opinion on the City's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City's compliance with those requirements. In our opinion, the City complied, in all material respects, with the requirements referred to above that are applicable to its major federal program for the year ended December 31, 2007. INTERNAL CONTROL OVER COMPLIANCE The management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City's internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance. Washington State Auditor's Office 8 A control deficiency in an entity's internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to administer a federal program such that there is a more than remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in a more than remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity's internal control. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended for the information of management, the Council, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR March 13, 2009 Washington State Auditor's Office 9 Independent Auditor's Report on Financial Statements City of Spokane Valley Spokane County January 1, 2007 through December 31, 2007 Council City of Spokane Valley Spokane Valley, Washington We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Spokane Valley, Spokane County, Washington, as of and for the year ended December 31, 2007, which collectively comprise the City's basic financial statements as listed on page 12. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. The prior year partial comparative information has been derived from the City's 2006 financial statements and, in our report dated March 3, 2008, we expressed unqualified opinions on the respective financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Spokane Valley, as of December 31, 2007, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. The financial statements include partial prior year comparative information. Such information does not include all of the information required for a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the City's financial statements for the year ended December 31, 2006, from which such partial information was derived. In accordance with Government Auditing Standards, we have also issued our report on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Washington State Auditor's Office 10 The management's discussion and analysis on pages 13 through 25 and budgetary comparison information on pages 64 through 66 are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was performed for the purpose of forming an opinion on the financial statements that collectively comprise the City's basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. This schedule is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. BRIAN SONNTAG, CGFM STATE AUDITOR March 13, 2009 Washington State Auditor's Office 11 Financial Section City of Spokane Valley Spokane County January 1, 2007 through December 31, 2007 REQUIRED SUPPLEMENTAL INFORMATION Management's Discussion and Analysis—2007 BASIC FINANCIAL STATEMENTS Statement of Net Assets—2007 Statement of Activities—2007 Balance Sheet—Governmental Funds—2007 Reconciliation of Total Governmental Fund Balances to Net Assets of Governmental Activities — 2007 Statement of Revenues, Expenditures and Changes in Fund Balance—Governmental Funds 2007 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities —2007 Statement of Net Assets— Proprietary Funds —2007 Statement of Revenues, Expenses and Changes in Fund Net Assets — Proprietary Funds—2007 Statement of Cash Flows — Proprietary Funds—2007 Notes to Financial Statements—2007 REQUIRED SUPPLEMENTAL INFORMATION Schedule of Revenues, Expenditures and Changes in Fund Balances — Budget and Actual— General Fund —2007 Schedule of Revenues, Expenditures and Changes in Fund Balances— Budget and Actual— Street Fund —2007 Schedule of Revenues, Expenditures and Changes in Fund Balances— Budget and Actual— Service Level Stabilization Fund —2007 SUPPLEMENTAL INFORMATION Schedule of Expenditures of Federal Awards and Notes —2007 Washington State Auditor's Office 12 CITY OF SPOKANE VALLEY MANAGEMENT'S DISCUSSION AND ANALYSIS For the Year Ended December 31, 2007 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, 2007. 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 restated financial highlights for 2007 are as follows: At the end of the current year, the City's governmental activities reported a combined ending net asset balance of$90,928 thousand. A total of 49.7% or 45,201 thousand of total net assets is invested in capital assets, such as streets, land, and buildings. Of the remaining net assets, $45,727 thousand is available to meet the government's ongoing activities and obligations. At the end of the current year, unreserved fund balance in the Statement of Revenues, Expenditures and Changes in Fund Balance for the General Fund was $13,747 thousand, which represents a$5,040 thousand or 57.9% increase from the prior year,and 52.8% of total General Fund expenditures. The increase in unreserved fund balance is primarily explained by significant unanticipated revenues received and lower expenditures near year end. Total City debt decreased by $1,411 thousand to $9,091 thousand during the current fiscal year primarily due to scheduled debt principal payments and extinguishing capital debt from the prior year. Governmental fund balances at year end were$42,017 thousand. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of a series of financial statements. These statements are organized so the reader can understand the City as a financial whole or as an entire operating entity. The statements also provide a detailed look at specific financial conditions. The following discussion and analysis are intended to serve as an introduction to the City's basic financial statements. Washington State Auditor's Office 13 The City's basic financial statements are comprised of three components: the City-wide financial statements, fund financial statements, and notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. The following figure summarizes the major features of the fmancial statements. This overview section below also describes the structure and contents of each of the statements in more detail. Government-wide Fund Financial Statements Statement Governmental Proprietary Entire entity The day-to day operating The day-to day operating (except fiduciary funds) activities of the City activities of the City Scope for basic governmental for business-type services enterprises Accounting Accrual accounting and Modified accrual and Accrual accounting and basis and economic resources current financial resources economic resources focus measurement focus measurement focus focus All assets and liabilities, Current assets and liabilities All assets and liabilities, Type of asset both financial and that come due during the both financial and capital, and liability capital,short-term and year or soon thereafter; short-term and long-term information long-term capital assets and long-term liabilities All revenues and Revenues when cash is All revenues and expenses Type of inflow expenses during year, received during the year or during year,regardless of and outflow regardless of when cash soon thereafter;expenditures when cash is received or information is received or paid when goods or services have paid been received and the related liability is due and payable GOVERNMENT-WIDE FINANCIAL ANALYSIS The government-wide financial statements are designed to provide readers with a broad overview of the City's finances,in a manner similar to a private-sector business. Statement of Net Assets and Statement of Activities The statement of net assets presents information on all of the City's assets and liabilities,with the difference between the two reported as net assets. This statement is similar to the balance sheet from the business private sector. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City's net assets changed during the current year. This statement distinguishes revenue generated by specific functions, from revenue provided by taxes and other sources not related to a specific function. Revenue generated by specific functions (charges for services, fines and forfeitures, grants and other contributions) is compared to the expenses for those functions to demonstrate how much each function either supports itself or relies on taxes and other general funding sources for support. These statements are prepared using the accrual basis of accounting similar to the accounting method used by private sector companies. This basis of accounting takes into consideration all of the current year's revenues and expenses,regardless of when the cash is received or paid. Washington State Auditor's Office 14 The change in net assets is important because it tells the reader whether, for the City as a whole, the financial position of the City has improved or diminished in capacity. However,in evaluating the overall position of the City, nonfinancial information such as changes in the City's tax base and the condition of the City's capital assets will also need to be evaluated. In the statement of net assets and the statement of activities,the City is divided into two kinds of activities: • Governmental Activities—Most of the City's programs and services are reported here, including general government, public safety, physical environment, transportation, economic environment, and culture & recreation. These services are funded primarily by taxes and intergovernmental revenues,including federal and state grants and other shared revenues. Business-Type Activities- These services are provided on a charge for goods or services basis to recover all or most of the cost of the services provided. The City's Stormwater Utility Management Fund activity is reported here. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objects, and a fiscal accounting entity with a self- balancing set of accounts used to account for specific activities. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. All the funds of the City can be divided into two categories: governmental fund types, and proprietary fund types. Fund financial statements provide detailed information about the City's major funds. Based on the restriction of the use of resources and money,the City has established many funds that account for the multitude of services provided to our residents. Governmental Funds — Governmental funds are used to account for essentially the same functions reported as governmental activities on the government-wide financial statements. Most of the City's basic services are reported in these funds that focus on how money flows into and out of the funds and the year end balances available for spending.These funds are reported on the modified accrual basis of accounting that measures cash and all other financial assets that can be readily converted to cash. The governmental fund statements provide a detailed short-term view of the City's general government operations and the basic services being provided,along with the financial resources available. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities on the government-wide financial statements. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains a multitude (twenty) of individual governmental funds. Information on the City's seven major governmental funds; General Fund, Street Fund, Service Level Stabilization Reserve Fund,Capital Projects Fund, Special Capital Projects Fund, Street Capital Projects Fund, and Civic Buildings Capital Projects Fund are presented separately in the governmental fund balance sheet and the governmental funds statement of revenues, expenditures, and changes in fund balances. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. Washington State Auditor's Office 15 Proprietary Funds-The City has two types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide statements with the fund statements providing more detail then reported in the government-wide statements. Enterprise funds are used to account for goods and services provided to the citizens. The City provides infoiniation on its enterprise fund, the Stormwater Utility Management fund (a major fund). The City's Internal Service Funds; Equipment Rental and Replacement and Risk Management accounts for the accumulated and allocated internal costs of fleet vehicles,computer equipment, and insurance claims.Also, both provide internally for the goods and services among the City's various departments. These Internal Service funds assets and liabilities are predominantly governmental in nature and have been included in the column under governmental-type activities on the government-wide financial statement of net assets. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided on the government-side and fund financial statements. The notes are located immediately following the basic financial statements. Other Information In addition to the basic fmancial statements and accompanying notes, this report also presents combining and individual fund statements and schedules for other governmental and internal service funds. GOVERNMENT-WIDE FINANCIAL ANALYSIS Statement of net assets-The statement of net assets can serve as a useful indicator of the City's financial position. The City of Spokane Valley's financial position improved slightly during the year ended December 31, 2007, as total net assets increased by $2,515 thousand. Net assets at December 31, 2007 totaled$93,649. The following table summarizes and compares the City's net assets for 2007 and 2006(Table 1): City of Spokane Valley's Net Assets (amounts in 000) Governmental Business-type Total% Activities Activities Total Change 2007 2006 2007 2006 2007 2006 2007-2006 Current and other assets $ 50,166 $ 38,629 $ 2,189 $ 1,756 $ 52,355 $ 40,385 29.6% Capital assets(net of depreciation) 54,122 64,201 685 328 54,807 64,529 -15.1% Total assets 104,288 102,830 2,874 2,084 107,162 104,914 2.1% Long-term debt outstanding 9,091 10,502 - - 9,091 10,502 -13.4% Other liabilities 4,269 3,140 152 143 4,421 3,283 34.7% Total liabilities 13,360 13,642 152 143 13,512 13,785 -2.0% Net assets Invested in capital assets, net of related debt 45,201 53,865 685 327 45,886 54,192 -15.3% Restricted 16,230 13,358 - - 16,230 13,358 21.5% Unrestricted 29,497 21,965 2,036 1,614 31,533 23,579 33.7% Total net assets $ 90,928 $ 89,188 $ 2,721 $ 1,941 $ 93,649 $ 91,129 2.8% As noted earlier, the City's net assets,when reviewed over time, may serve as a useful indicator of the City's financial position. In this case,the Primary Governments assets exceeded liabilities by $93,649 thousand ($90,928 thousand in governmental activities and $2,721 in business activities) as of December 31, 2007. By far, the largest portion of the City's net assets $45,886 thousand, 49 %,reflects its investment in capital assets (e.g., land and improvements, buildings and building improvements, improvements other than buildings, machinery and Washington State Auditor's Office 16 equipment, vehicles, and infrastructure) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources since the capital assets themselves can not be used to liquidate these liabilities. The majority of these assets were donated by Spokane County at the time of incorporation. A portion of City of Spokane Valley's Primary Government's net assets, $16,230 thousand or 17.3% represents resources that are subject to restrictions on how they can be used. The remaining balance of unrestricted assets, $31,533 thousand 33,7%may be used to meet the city's ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City is able to report positive balances in all three categories of net assets,both for government as a whole, as well as for its separate governmental. and business-type activities. The same situation held true for the prior fiscal year. Changes in net assets--The changes in net assets table illustrates the increases or decreases in net assets of the City resulting from its operating activities. The City of Spokane Valley's total net assets increased approximately$2,515 thousand in 2007. Table 2 shows revenues, expenses, and related changes in net assets in tabular form for both governmental and business type activities. Changes in City of Spokane Valley's Net Assets as of December 31,2007 and 2006(amounts in 000) Governmental Business-type Percentage Activities Activities Total Change Revenues 2007 2006 2007 2006 2007 2006 2007-2006 Program revenues Charges for services $ 5,413 $ 4,360 $ 1,658 $1,558 $ 7,071 $ 5,918 19.5% Operating grants&contributions - - - - - - 0.0% Capital grants&contributions 3,522 8,039 27 - 3,549 8,039 -55.9% General revenues Property taxes 9,524 8,727 - - 9,524 8,727 9.1% Sales taxes 19,638 18,842 - - 19,638 18,842 4.2% Other 8,208 5,365 80 58 8,288 5,423 52.8% Total revenues 46,305 45,333 1,765 1,616 48,070 46,949 2.4% Expenses General government 4,876 4,903 - - 4,876 4,903 -0.6% Public safety 16,263 15,742 - - 16,263 15,742 3.3% Physical environment 1,573 1,485 - - 1,573 1,485 5.9% Transportation 16,788 13,260 - - 16,788 13,260 26,6% Economic environment 2,259 1,867 - - 2,259 1,867 21.0% Culture and recreation 2,415 1,884 - - 2,415 1,884 28.2% Interest on long term debt 411 409 - - 411 409 0.5% Stormwatermanagement - - 970 1,102 970 1,102 -12.0% Total expenses 44,585 39,550 970 1,102 45,555 40,652 12.1% Excess before special items and transfers 1,720 5,783 795 514 2,515 6,297 -60.1% Gain on sale of assets - - - - - - 0.0% Transfers In(out) 15 30 (15) (30) - - 0.0% Increase(decrease) net assets 1,735 5,813 780 484 2,515 6,297 -60.1% Net assets-1/1/2007 89,188 83,375 1,941 1,457 91,129 84,832 Prior period adjustment 5 - - - 5 - Net assets-12/31/2007 $ 90,928 $ 89,188 $ 2,721 $1,941 $ 93,649 $ 91,129 Washington State Auditor's Office 17 Governmental Activities- Charges for services program revenues increased overall by $1,053 thousand, or 24.1 % for the current year. This was one of the two largest sources of program revenue for the City, accounting for$5,413 thousand or 11.7 % of total governmental revenues. These charges are for fees for building, community development, and construction permits, fees associated with the collection of property taxes, fines and forfeitures related to public safety activity,and licenses and permits.In total,governmental activities contributed$1,735 thousand of the total change in net assets of$2,515 thousand. The City's grant revenues from Federal and State sources made up $3,522 thousand or 7.6 % of total governmental revenues. The major recipients of intergovernmental program revenues were the Public Works,Planning and Community Development and Culture and Recreation. Property tax revenues in the governmental funds account for $9,524 thousand of the $46,305 thousand total revenues for governmental activities, or 20.5 % of total revenues, and the general fund property tax revenues increased by$797 thousand or for a positive change of 9.1%. Sales Tax accounted for approximately $19,638 thousand or 42.4 % of total revenues in year 2007, the largest single source of program revenue for the City of Spokane Valley. Other taxes received were real estate excise taxes of $2,540 thousand, Gambling taxes of$793 thousand, Hotel/Motel and Motor Fuel taxes of$2,566 thousand, and collection of other Excise taxes of $413 thousand. The Public Safety function accounted for $16,263 thousand of the $44,585 thousand total expenses for governmental activities, or 36.5 % of total expenses. The largest function was Transportation, accounting for$16,788 thousand and representing 37.6 % of total governmental expenses and an increase of 26.6%compared to the prior year. For governmental activities, the following table indicates the total cost of services and the net cost of services. The statement of activities reflects the cost of program services and the charges for services, sales tax, grants, and other contributions offsetting those services. The net cost of services identifies the cost of those services supported by tax revenues and unrestricted intergovernmental revenues. Table 3: Net Cost of City of Spokane Valley's Governmental Activities as of December 31,2007 and 2006(amounts in 000) Total Cost Percentage Net Cost Percentage of Services Change of Service Change 2007 2006 2007-2006 2007 2006 2007-2006 General government $ 4,876 4,903 -0.6% $ 3,727 $ 3,956 -5.8% Public safety 16,263 15,742 3.3% 15,633 15,159 3.1% Physical environment 1,573 1,485 5.9% 1,573 1,485 5.9% Transportation 16,788 13,260 26.6% 13,615 5,220 160.8% Economic environment 2,259 1,867 21.0% (272) (386) -29,5% Culture and recreation 2,415 1,884 28.2% 963 1,308 -26.4% Other 411 409 0.5% 411 409 0.5% Total $ 44,585 $ 39,550 12.7% $ 35,650 $ 27,151 31.3% Washington State Auditor's Office 18 The general governments total net cost of services increased by $8,499 thousand or 31.3% change, compared to the prior year. These governmental expenses are funded from property taxes, sales taxes, and intergovernmental revenues. Also, charges for services and operating grants program revenues of$8,935 thousand(20%of the total costs of services)are used to fund the general government expenses of the City. (See Table 3 precedent page) Figure 1: Program Revenues and Expenses-Government Activities Program Revenues and Expenses - Governmental Activities 35,000,000 30,000,000 = 25,000,000 20,000,000 ' ®Program revenues 15,000,000 •Program expenses 10,000,000 5,000,000 o /'" r r� G The Transportation capital grants decreased in the current year by $4,865 thousand; these contributions are used to fund the on-going general government capital expenditures of$2,862 thousand,or 8.2%of the total for governmental expenditure activity(see figure 1 and 1A). Figure 1A: Revenues by Source-Government Activities Interest& investment Charges for earnings services Excise 4% 13i taxes -----, 1% Property Capita!grants -- and contributions taxe ,, $/ 22% L igiiivp- Sales&Other taxes 52% Washington State Auditor's Office 19 Business-Type Activities The net assets for business-type activities increased by $780 thousand during 2007; accounting for an increase of$296 thousand compared to last year of the overall change in Net Assets. For the current year, business-type major program revenue source was charges for service of: $1,658 thousand. (See figure 2). Figure 2: Program Revenues and Expenses-Business Type Activities(amounts in 000) Program Revenues and Expenses -Business-type Activities IS $2,oao c G n r .r ,r . 2 ® Program `` ,,, ` revenues r 43".PR 'A ® Program 0 r . a expenses s ' g Stormwater management Figure 3: Revenues by Source-Business Type Activities interest and investment Miscellaneous earnings 1% 5% Charges for services 94% The accumulated net assets of the Business-Type Activities — Stormwater Management Fund have a Net Asset balance of$2,721 thousand, an increase of$780 thousand. The primary source of revenue is a Stonnwater management fee imposed upon real property(see figure 3 above). Washington State Auditor's Office 20 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 legal requirements. Governmental Funds The focus of the City's governmental funds is to provide information on near-term inflows, outflows,and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of the City's net resources available for spending at the end of the year. As of December 31, 2007, the City's governmental funds reported a combined ending fund balance of$42,017 thousand, a net increase of$10,517 thousand in comparison with the prior year. Approximately 61.4 % of this total or$25,787 thousand is unreserved fund balance,which is available for spending at the City's discretion. The remainder of the fund balance is reserved; approximately 38.6 percent ($16,230 thousand), to indicate that it is not available for new spending because it has already been committed for a variety of restricted purposes. The General Fund is the primary operating fund of the City of Spokane Valley with all receipts and payments of ordinary city operations are processed, unless those processes require another fund to account for those operations. Sales taxes are the major revenue source. At the end of 2007, unreserved fund balance was $13,747 thousand. As a measure of the General Fund's liquidity,it may be useful to compare both unreserved fund balance and total fund balance to total governmental-wide activity expenses($44,585 thousand; see total cost of services 2007 table#3), General Fund unreserved fund balance represents 30.8% of total governmental-wide activity expenses. Major Governmental Funds The General Fund—net change in fund balance increased by$5,041 thousand for the fiscal year ending December 31, 2007. A key factor in this increase was general expenditures were under budgeted expenditure amounts and revenues exceeded projections by $1,193 thousand primarily from increased sales tax revenues. Actual expenditures were ($8,599) thousand less than Final budget primarily in the area of general government function of($7,936)thousand. The Street Fund—has a fund balance of$3,719 thousand, a decrease of($975)thousand for the year. The primary source of revenue for the Street fund is motor fuel taxes. Road maintenance cost and other project expenditures decreased by ($47)thousand when comparing final to actual budget. The Service Level Stabilization Fund— has a fund balance of$5,243 thousand. The primary source of funding for the Service Level Stabilization fund is transfers from the General Fund which was approximately $361 thousand for 2007. Actual expenditures were ($5,200)thousand less than final budget. The Capital Projects Fund — has a fund balance of $4,447 thousand, an increase of $959 thousand for the year.The primary source of revenue for capital projects fund is real estate excise tax, which actual revenues of$301 thousand were over and expenditures of($1,422)were under final budget projections. Washington State Auditor's Office 21 The Special Capital Projects Fund— has a fund balance of $5,136 thousand, an increase of $1,422 thousand for the year.The primary source of revenue for this fund is the real estate excise tax, which actual revenues of$289 thousand were over and expenditures of($2,443) thousand were under the final budget projections. The Street Capital Projects Fund— has an ending negative fund balance of($120) thousand. Construction costs were approximately$1,030 thousand for the year and actual expenditures were ($6,772)thousand under final budget.Actual budgeted grant revenue was($3,349)thousand less than final budgeted projections. These projects were mostly funded with grants funds and transfers from other City Funds. The Civic Buildings Capital Projects Fund—has a fund balance of$5,782 thousand, an increase of $3,139 thousand compared to the prior year. Debt service costs were approximately $873 thousand. Funding was in a large part due to transfers from other City funds and actual budgeted expenditures were($2,019)thousand less than the final budget. Enterprise Funds The City's enterprise fund, Stormwater Management provides the same type of information found in the government-wide financial statements, but in more detail and is also a major fund. Unrestricted net assets of the Stormwater Management Fund at December 31,2007,were$2,036 thousand. Unrestricted net assets increased by $423 thousand for the year. Operating expenses were$416 thousand under final amended budget. BUDGETARY HIGHLIGHTS By State law, Title 35A of the Revised Code of Washington(RCW)requires all cities to prepare and adopt a balanced budget prior to the beginning of the City's fiscal year; the annual operating budget for the City is effective the first day of January. The City Council amended the original budget revenue and expenditures during 2007. These amendments have recognized additional unrestricted fund balances carried over from the prior year of 2006,service charges from building and planning fees, grant proceeds, and additional sales tax receipts. Expenditure appropriations increased for major street projects, parks capital improvements, civic building capital projects, extraordinary winter weather operations, and continuation of reserves for the service level stabilization fund. For the General Fund,the change from the actual to the final amended budget was a decrease in expenditures of$8,599 thousand, actual expenditures were 26,048 thousand; and an increase in revenues of$1,193 for 2007,actual revenues collected were$37,038 thousand. The majority of the positive increases in actual compared to final budget occurred from increases in sales and property taxes of$802 thousand, charges for services of$229 thousand, and higher than anticipated miscellaneous revenues of$334 thousand, 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 31,2007,amounts to$54,807 thousand (net of depreciation). This investment in capital assets includes land, buildings, improvements, machinery and equipment, and construction in progress (see Table 4,following). The total decrease in the city's investments in capital assets for the current fiscal year was (15.1%); including depreciation, additions, and deductions (15.7 percent decrease for governmental activities and a 109.5 percent increase for business type activities). Washington State Auditor's Office 22 Table 4: City of Spokane Valley's Capital Assets (net of depreciation, amounts in 000) Governmental Business-type Total% Activities Activities Change 2007 2006 2007 2006 2007 2006 2007-2006 Land $ 3,737 $ 2,979 $ - $ - $ 3,737 $ 2,979 25.4% Buildings 10,989 11,494 - 10,989 11,494 -4.4% Improvements other than Buildings 869 836 - - 869 836 3.9% Infrastructure 32,558 36,782 298 314 32,856 37,096 -11.4% Machinery and Equipment 400 466 11 13 411 479 -14.2% Construction in Progress 5,569 11,643 376 - 5,945 11,643 -48.9% Total $ 54,122 $ 64,200 $ 685 $ 327 $ 54,807 $ 64,527 -15.1% Major capital asset events during the current fiscal year included the following: • Construction in Progress decreased (48.9%) overall due to several major street and infrastructure projects completing and transferred to infrastructure. • Current fiscal year expenditures for on going improvements to the Street Capital Project infrastructure were$1,030 thousand and Capital Grants Fund construction in progress of$451 thousand for various street projects. • Costs incurred by the Parks Capital Project Fund for ongoing improvement projects including decks, land acquisitions,and park shelters for general public use totaled$861.thousand. • The Enterprise Fund Stormwater Managements most significant item expensed was$376 thousand for improvements of stormwater drainage for the Beverly Hills and Myers Sewer projects. 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, 2007, the City had total general obligation debt outstanding of$8,760 thousand. This amount is backed by the full faith and credit of the City of Spokane Valley (general obligation bonds) with debt service funded by general government revenues and contributions from the Public Facilities District. The City's long-term debt decreased by$1,411 thousand or 13.4 percent during fiscal year 2007,explained in a large part by the retirement of the note payable in 2007(see table 5). Table: 5 City of Spokane Valley's Outstanding Obligations (amounts in 000) Governmental Total Percentage Activities Change 2007 2006 2007-2006 General obligation bonds $ 8,760 $ 8,945 -2.1% Bond premium GO bonds $ 161 $ 168 -4.2% Note payable - 1,223 -100.0% Total $ 8,921 $ 10,336 -13.7% In addition to the bonded debt, the City's long-term obligations include compensated absences (vacation accruals)and the premium on General obligation bonds.Additional information on the City's long-term debt can be found on Note 11 (General Long-Term Obligations) in the notes to the financial statements. 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, which cannot exceed 2.5%of assessed valuation. The assessed valuation of the City of Spokane Valley for the year 2007, for purposes of determining the legal debt margin is; $5,882,946,173. Remaining debt capacities for the City under general voted and non-voted purposes(2.5%)is limited to: $138,143,416. The City of Spokane Valley maintains an A3 rating from Mood's for its non-voted general obligation debt. Additional information regarding debt limitations and capacities can be found in note 11 in the notes to the financial statements. ECONOMIC FACTORS The City of Spokane Valley is continuing along the substantial growth path that has been in place over the last couple of years and since the City incorporated in March 31,2003. The outlook for the regional economy was weighed in relation to its expected impact on the City of Spokane Valley was considered. The character of the City, including the current and future business activity were reviewed; and based on current projections and trends economic activity will likely slow over the coming year, but will still continue to expand, especially in the commercial/retail sector. There is an estimated 4,000 businesses in Spokane Valley with estimated retail sales of $1.66 billion and the City of Spokane Valley received $19,638 thousand, an increase of 4.2% from the prior year,in sales tax dollars for 2007. Population growth has been significant;the city has increased to over 87,000,an increase of 2.3% over the prior year. Also, in this fiscal year the employment market has taken advantage of the skilled labor force, as several new businesses have moved into the area. The unemployment rate has reached almost full-employment level with the unemployment rate at a low rate of 4.8% compared to the 5.0% rate at the same time last year. This increased the Labor work force to 9,280 in new jobs compared to 7,100 just a year ago. Housing starts have returned to a more normal pace and the average sales price for residential property is now, $197,384 (2006 Spokane area data) which is 14.3% higher than this point the prior year. Single family dwelling permits in the Spokane area declined to 1,760 and the number of single family dwelling sales dropped to 6,935. The slowing of the real estate market will hold assessed values down which in turn will make significant increases in property tax unlikely. A cooling of the economy will curtail retail sales and the associated sales tax revenue. The real estate excise tax is expected to moderate as the number of real estate sales declines and some slowing of new construction is expected for 2008 which will keep revenues from increasing in new building permits. City wide real estate excise tax generated $2,540 thousand in receipts for city capital projects during 2007. Also, investment earnings improved dramatically over the last year as the federal rates continued to improve,which increased the city's investment earnings by 50.6%compared to the prior year. The City of Spokane Valley has ample reserves and funds to handle an economic slowdown without significantly impacting or reducing services. The Pacific Northwest is unlikely to experience as deep an economic freeze as the rest of the country. Washington State Auditor's Office 24 The City of Spokane Valley's assessed value climbed 16.3% to 5.9 billion in 2007. An increase of 13% is expected during 2008. The property tax rate for 2008 is expected to be near$1.50 per thousand of assessed value. The City of Spokane Valley contracts with Spokane County and several public service districts for many city services including street maintenance, public safety, library, and fire protection. This allows the City to keep the number of full-time employees to 72. Employee salaries and related benefits are the leading cost for city operations. In 2007, a comparison of the 32 largest cities was conducted within the State of Washington, and the City of Spokane Valley had the fewest number of employees based on those 32 Washington cities with a population of 50,000 and over. These factors have been considered in preparation of the City of Spokane Valley's 2008 budget. No significant general fund tax increases were made in 2007,nor are any anticipated for the 2008 budget. Expenditures for 2008 were budgeted at levels to maintain and provide services at the 2007 level. REQUEST FOR INFORMATION This financial report is designed to provide a general overview of the City of Spokane Valley's finances for those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to: City of Spokane Valley Finance Department 11707 E. Sprague Ave. Suite 106 Spokane Valley,Washington 99206. Washington State Auditor's Office 25 City of Spokane Valley, Washington Statement of Net Assets December 31, 2007 Primary Government Governmental Business-type Activities Activities Total ASSETS Cash and cash equivalents $ 42,737,425 $ 2,097,847 $ 44,835,272 Taxes receivable 4,249,232 - 4,249,232 Taxes delinquent-receivable 274,144 54,781 328,925 Accounts receivable,(net) 715,925 4,071 719,996 Interest receivable 160,360 6,972 167,332 Grants receivable 1,086,970 - 1,086,970 Internal balances 942,159 25,000 967,159 Capital.Assets: Land 3,737,387 - 3,737,387 Depreciable assets,(net) 44,816,022 309,015 45,125,037 Construction in progress 5,568,866 376,119 5,944,985 Total Assets $ 104,288,490 $ 2,873,805 $ 107,162,295 LIABILITIES Accounts payable $ 2,879,875 $ 55,830 $ 2,935,705 Interest payable 33,906 - 33,906 Internal balances 967,159 - 967,159 Deposits and other payables 87,676 32,100 119,776 Other accrued liabilities 300,661 9,662 310,323 Deferred revenue - 54,781 54,781 Long-teiin liabilities: Due within one year 205,716 - 205,716 Due in more than one year 8,885,233 - 8,885,233 Total Liabilities 13,360,226 152,373 13,512,599 NET ASSETS Invested in capital assets,net of related debt 45,201,564 685,134 45,886,698 Restricted for: Center Place operating 338,566 - 338,566 Capital projects 15,891,114 - 15,891,114 Unrestricted: Governmental type activities 29,497,020 - 29,497,020 Business type activities - 2,036,298 2,036,298 Total Net Assets: 90,928,264 2,721,432 93,649,696 The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 26 City of Spokane Valley,Washington Statement of Activities For the Year Ended December 31,2007 Net(Expense)Revenue and Program Revenues Changes in Net Assets 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 $ 4,875,759 $ 799,121 $ - $ 349,063 $ (3,727,575) $ - $ (3,727,575) Public safety 16,263,299 630,743 - - (15,632,556) - (15,632,556) Physical environment 1,573,317 - - (1,573,317) - (1,573,317) Transportation 16,788,167 - - 3,173,080 (13,615,087) - (13,615,087) Economic environment 2,258,789 2,530,555 - - 271,766 - 271,766 Culture and recreation 2,415,499 1,452,905 - - (962,594) - (962,594) Interest on Iong-term debt 410,688 - - - (410,688) - (410,688) Total governmental activities 44,585,518 5,413,324 - 3,522,143 (35,650,051) - (35,650,051) Business-type activities: Stormwater management 970,483 1,657,924 - 26,980 - 714,421 714,421 Total business-type activities 970,483 1,657,924 - 26,980 - 714,421 714,421 Total primary government $45,556,001 $ 7,071,248 $ - $ 3,549,123 (35,650,051) 714,421 (34,935,630) General revenues: Taxes: Property taxes 9,524,638 - 9,524,638 Sales and use taxes 19,637,794 - 19,637,794 Excise taxes 2,953,197 - 2,953,197 Other taxes 3,359,137 - 3,359,137 Interest and investment earnings 1,895,620 80,703 1,976,323 Transfers 15,000 (15,000) - Total general revenues and transfers 37,385,386 65,703 37,451,089 Change in net assets 1,735,335 780,124 2,515,459 Net assets--beginning 89,188,086 1,941,308 91,129,394 Prior period adjustment(see note 16) 4,843 - 4,843 Net assets—ending $ 90,928,264 $ 2,721,432 $ 93,649,696 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, 2007 Service Level General Street Stablization Capital Projects Fund Fund Reserve Fund Fund Assets Cash and cash equivalents $ 13,122,976 $ 4,162,237 $ 5,225,088 $ 4,516,029 Taxes receivable 3,949,888 333,596 - 89,784 Accounts receivable,(net) 479,430 41 - - Interest receivable 61,625 13,459 17,812 14,784 Due from other funds 607,959 4,800 - - Grants receivable - - - - Internal balances - - - - Total Assets $ 18,221,878 $ 4,514,133 $ 5,242,900 $ 4,620,597 Liabilities and Fund Balances Liabilities: Accounts payable $ 1,802,344 $ 427,137 $ - $ - Accrued wages and benefits payable 277,015 12,539 - - Due to other funds 4,800 190,000 - 173,000 Other accrued liabilities (28,268) - - - Deposits payable 87,676 - - - Retainage payable - - - Deferred revenues 2,331,116 165,698 - - Total Liabilities 4,474,683 795,374 - 173,000 Fund Balances: Reserved for: Center Place operating - - - - Capital projects - - - 4,447,597 Unreserved: General Fund 13,747,195 - - - Special Revenue Funds - 5,242,900 - Capital Projects Funds 3,718,759 - - Total Fund Balances 13,747,195 3,718,759 5,242,900 4,447,597 Total Liabilities and Fund Balances $ 18,221,878 $ 4,614,133 $ 5,242;900 -$ 4,520,597 The notes to the financial statements are an integral part of this statement. — Washington State Auditor's Office 28 Balance Sheet Governmental Funds December 31, 2007 Special. Street Civic Buildings Other Total Capital Projects Capital Projects Capital Projects Governmental Governmental Fund Fund Fund Funds Funds Assets Cash and cash equivalents $ 4,929,891 $ 16,056 $ 5,762,895 $ 4,107,146 $ 41,842,318 Taxes receivable 89,784 - - 60,324 4,523,376 Accounts receivable,(net) - 175,952 - 60,502 715,925 Interest receivable 16,785 - 19,583 13,650 157,698 Due from other funds 100,000 54,000 - 175,400 942,159 Grants receivable - 397,748 - 689,222 1,086,970 Internal balances - - - - - Total Assets $ 5,136,460 $ 643,756 $ 5,782,478 $ 5,106,244 $ 49,268,446 Liabilities and Fund Balances Liabilities: Accounts payable $ - $ 268,370 $ - $ 367,534 $ 2,865,385 Accrued wages and benefits payable - 1,337 - - 290,891 Due to other funds - - - 599,359 967,159 Other accrued liabilities - - 20,673 (7,595) Deposits payable - - - - 87,676 Retainage payable - - - 17,365 17,365 Deferred revenues 494,309 - 38,947 3,030,070 Total Liabilities - 764,016 - 1,043,878 7,250,951 Fund-Balances: Reserved for: Center Place operating - - - 338,566 338,566 Capital projects(deficit) 5,136,460 (120,260) 5,782,478 644,839 15,891,114 Unreserved: General Fund - - - - 13,747,195 Special Revenue Funds - - 1,353,779 6,596,679 Capital Projects Funds - - - 1,725,182 5,443,941 Total Fund Balances(deficit), 5,136,460 (120,260) 5,782,478 4,062,366 42,017,495 Total Liabilities and Fund Balances $ 5,136,460 $ 643,756 $ 5,782,478 $ 5,106,244 $ 49,268,446 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 Total Governmental Fund Balances to Net Assets of Governmental Activities December 31,2007 Total governmental fund balances: $42,017,495 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources.This amount reflects the initial investment in capital assets and are not reported in the funds. 54,122,275 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 1,961,080 Motor fuel taxes 165,698 Hotel/Motel taxes 28,947 Total 2,155,725 Other long-term assets are not available to pay for current- period expenditures and therefore are deferred in the funds: Property taxes 274,145 Intergovernmental 494,309 Charges for services 95,891 Miscellaneous 10,000 Total 874,345 Interest on long-term debt is not accrued in governmental funds, but rather is recognized as an expenditure when due. (33,906) Internal service funds are used by management to charge the cost of certain activities, such as equipment rental and self insurance, to the individual funds.The assets and liabilities of the internal service fund are included in governmental activities in the statement of net assets. 883,279 Long-term liabilities, including capital leases payable and accrued interest payable, are not due and payable in the current period and therefore are not reported in the funds: Bonds payable (8,760,000) Premium on bond issuance (160,711) Compensated Absences (170,238) Total (9,090,949) Total Net Assets of Governmental Activities as shown on the Statement of Net Assets: $90,928,264 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, 2007 Service Level General Street Stablization Capital Projects Fund Fund Reserve Fund Fund Revenues Taxes $ 30,444,247 $ 2,280 $ - $ 1,300,965 Licenses and permits 2,515,588 - - - Intergovernmental 906,126 2,125,779 - - Charges for services 786,731 8,332 - - Fines and forfeitures 580,871 - - - Investment interest 525,182 236,643 261,878 213,937 Miscellaneous 1,279,304 6,352 - - Total Revenues 37,038,049 2,379,386 261,878 1,514,902 Expenditures Current: General government 4,409,039 - - - Public safety 16,246,491 - - - Physical environment 1,528,125 - - - Transportation 38,953 4,169,946 - - Economic environment 1,757,693 - - - Culture and recreation 1,966,247 - - - Debt Service: Principal retirement - - - - Interest expense - - - - Capital Outlay: Capital expenditures 101,316 25,649 - - Construction in progress - - - - Total Expenditures 26,047,864 4,195,595 - - Excess of Revenues Over(Under) 10,990,185 (1,816,209) 261,878 1,514,902 Expenditures Other Financing Sources(Uses) Transfers In 74,300 900,000 361,000 - Transfers(out) (6,023,903) (59,300) - (555,756) Total Other Financing Sources(Uses) (5,949,603) 840,700 361,000 (555,756) Net Change in Fund Balances 5,040,582 (975,509) 622,878 959,146 Fund Balances Beginning of Year 8,706,613 4,694,268 4,620,022 3,488,451 Fund Balances End of Year $ 13;747,195 $ 3,718,759 $ 5,242,900 $ 4,447,597 The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 31 City of Spokane Valley, Washington Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2007 Special Street Civic Buildings Other Total Capital Projects Capital Projects Capital Projects Governmental Governmental Fund Fund Fund Funds Funds Revenues Taxes $ 1,288,715 $ - $ - $ 461,578 $ 33,497,785 Licenses and permits - - - - 2,515,588 Intergovernmental - 578,483 - 1,224,558 4,834,946 Charges for services - - - - 795,063 Fines and forfeitures - - - - 580,871 Investment interest 226,705 - 234,106 193,747 1,892,198 Miscellaneous - 40,459 - 168,991 1,495,106 Total Revenues 1,515,420 618,942 234,106 2,048,874 45,611,557 Expenditures Current: General government - - 4,409,039 Public safety - - - - 16,246,491 Physical environment - - - 1,528,125 Transportation - - - - 4,208,899 Economic environment - 483,506 2,241,199 Culture and recreation - - - - 1,966,247 Debt Service: Principal retirement - - 873,477 185,000 1,058,477 Interest expense - - - 411,035 411,035 Capital Outlay: Capital expenditures - 561,888 679,263 1,368,116 Construction in progress - 468,188 - 1,025,897 1,494,085 Total Expenditures - 1,030,076 873,477 2,784,701 34,931,713 Excess of Revenues Over(Under) 1,515,420 (411,134) (639,371) (735,827) 10,679,844 Expenditures Other Financing Sources(Uses) Transfers In - 462,511 3,779,000 1,223,509 6,800,320 Transfers(out) (93,245) - - (230,019) (6,962,223) Total Other Financing Sources(Uses) (93,245) 462,511 3,779,000 993,490 (161,903) Net Change in Fund Balances 1,422,175 51,377 3,139,629 257,663 10,517,941 Fund Balances Beginning of Year(deficit) 3,714,285 (171,637) 2,642,849 3,804,703 31,499,554 Fund Balances End of Year(deficit) $ 5,136,460. $ (120,260) $ 5,782,478 $ 4,062,366 $ 42,017,495 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, 2007 Net change in fund balances -total governmental funds: $10,517,941 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 depreciation exceeded capital outlays in the current period, (10,268,055) Depreciation (13,387,820) Capital outlay 2,862,201 Transfer of internal Service capital assets to governmental funds 257,564 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds: 690,874 Sales and use taxes (34,846) Excise taxes (49,328) Other taxes (46,511) Charges for services 26,696 Capital contributions 794,863 Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net assets. Repayment of non-current debt is an expenditure in the governmental funds,but the repayment reduces long-term liabilities in the statement of net assets.This is the amount by which repayments exceeded proceeds. 1,058,477 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 (8,400) Bond premimum expense 7,316 Bond principle payment accrual 416 Interest expense 347 (321) 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. (263,581) Total Change in Net Assets of Governmental Activities $1,735,335 as shown on the Statement of Activities: The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office 33 City of Spokane Valley, Washington Statement of Net Assets -proprietary Funds December 31, 2007 and 2006 Business-activity Governmental Enterprise Fund Type activities Stormwater Management Internal Service Funds Assets 2007 2006 2007 2006 Current Assets: Cash and cash equivalents $ 2,097,847 $ 1,590,886 $ 895,107 $ 848,298 Taxes delinquent-receivable 54,781 44,825 - - Accounts receivable,(net) 4,071 - - - Interest receivable 6,972 - 2,662 - Due from other funds 25,000 113,816 - 45,427 Due from other governments - 7,049 - - Total Current Assets 2,188,671 1,756,576 897,769 893,725 Capital Assets: Machinery and equipment 13,511 13,51.1 - 786,004 Infrastructure 323,199 323,199 - - Construction in progress 376,119 - - - Less accumulated depreciation (27,695) (9,175) - (528,441) Total capital assets(net of accumulated depreciation) 685,134 327,535 - 257,563 Total Assets S 2,873,805 $ 2,084,111 $ 897,769 "$ 1,151,288 Liabilities Current Liabilities: Accounts payable $ 55,830 $ 31,995 $ 14,490 $ 1,068 Accrued payroll and benefits payable 9,662 10,861 - - Due to other funds - 22,328 - - Due to other governments - - 3,153 Deposits and other payables 32,100 32,100 - 207 Deferred revenue 54,781 45,519 - - Total Current Liabilities 152,373 142,803 14,490 4,428 Total Liabilities 152,373 142,803 14,490 4,428 Net Assets Invested in capital assets,net of related debt 685,134 327,535 - 257,563 Unrestricted 2,036,298 1,613,773 883,279 889,297 Total Net Assets 2,721,432 1,941,308 883,279 1,146,860 Total Liabilities and Net Assets $ 2;873,803 -$ 2,084,111 $ 897,769 $ 1,151,288 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 Fund Net Assets Proprietary Funds For the Year Ended December 31, 2007 and 2006 Business-activity Governmental Enterprise Fund Type activities Stormwater Management Internal Service Funds Operating Revenues 2007 2006 2007 2006 Charges for services $ 1,657,924 $ 1,557,916 $ - $ 161,522 Miscellaneous revenues 135 561 - - Total Operating Revenues 1,658,059 1,558,477 161,522 Operating Expenses Personal services 204,193 184,716 - - Professional services 32,939 750,980 - Materials and supplies 11,950 12,878 - - Other services and expenses 702,880 144,597 186,342 169,033 Depreciation and amortization 18,521 9,175 - 174,384 Total Operating Expenses 970,483 1,102,346 186,342 343,417 Operating Income 687,576 456,131 (186,342) (181,895) Non-Operating Revenues(Expenses) Intergovernmental revenues 26,980 - Interest and investment income 80,568 57,460 3,422 37,069 Total Non-Operating Revenues(Expenses) 107,548 57,460 3,422 37,069 Income(loss)before Contributions and Transfers 795,124 513,591 (182,920) (144,826) Contributions and Transfers Transfers In - 123,045 176,903 133,132 Transfers(out) (15,000) (152,438) (257,564) - Change in Net Assets 780,124 484,198 (263,581) (11,694) Net Assets Beginning of Year 1,941,308 1,457,110 1,146,860 1,158,554 Net Assets End of Year $ 2,721,432 $ 1,941,308 $ 883,279 $ 1,146,860 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, 2007(with comparative totals for 2006) Business Activity Governmental Type Activities Stormwater Management Enterprise Fund Internal Service Funds Cash Flows from Operating Activities 2007 2006 2007 2006 Cash received from customers $ 1,643,897 $ 1,576,522 $ - $ 22,442 Cash paid to employees (205,392) - - - Other cash receipts 9,397 - - - Receipts from internal activity-interfund services provided 66,565 - 39,612 161,523 Cash payments to suppliers for goods and services (723,934) (1,069,555) (173,127) (169,898) Net cash(used)provided by operating activities 790,533 506,967 (133,515) 14,067 Cash Flows from Noncapital Financing Activities Operating subsidies&transfers in(out)other funds (15,000) - (80,661) - Net cash(used)by noncapital financing activities (15,000) - (80,661) - Cash Flows from Capital and Related Financing Activities Proceeds from sale of capital assets - - - 45,428 Acquistion,construction and(transfers)of capital assets (376,119) - 257,563 - Intergovernmental revenues 26,980 - - - Operating transfers net - (29,393) - - Purchases of capital assets - (156,997) - - Net cash provided(used)by capital and related financing activities (349,139) (186,390) 257,563 45,428 Cash Flows from Investing Activities Interest received 80,568 58,021 3,422 37,069 Net cash provided by investing activities 80,568 58,021 3,422 37,069 Net increase in Cash and Cash Equivalents 506,962 378,598 46,809 96,564 Cash and Cash Equivalents-January 1 1,590,885 1,212,287 848,298 751,734 Cash and Cash Equivalents-December 31 $ 2,097,847 $1,590,885 $ 895,107 $ 848,298 Reconciliation of Operating Income(Loss)to Net Cash Provided(Used)by Operating Activities Operating Income(loss) $ 687,576 $ 455,570 $ (186,342) $ (181,895) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 18,521 9,175 - 174,384 Loss on disposal of asset - - - - (Increase)Decrease in Assets: Receivables(net) (14,027) 25,655 - - Due from other funds 88,816 - 45,427 22,442 Due from other governments 7,049 (7,049) - - Interest receivable (6,972) - (2,662) - Increase(Decrease)in Liabilities: Accounts payable 23,835 31,995 13,422 1,068 Accrued payroll and benefits payable (1,199) 2,956 - - Due to other funds (22,328) 22,328 - - Due to other governments - (15,668) (3,153) (2,139) Deposits and other payables - - (207) 207 Deferred revenues 9,262 (17,995) - - Total adjustments 102,957 51,397 52,827 195,962 Net Cash Provided(used)by Operating Activities $ 790,533 $ 506,967 $ (133,515) $ 14,067 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 I—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The City of Spokane Valley,Washington(the City)was incorporated on March 31,2003. The City operates under a Council–Manager Form of government. The City's major operations,as authorized under the laws of the State of Washington applicable to a non-charter city code,include planning and zoning,public safety,public works,and recreation and culture. On May 10,2005 an election was held that annexed library services to the Spokane County Library District. The district assumed responsibility for all city library services on January 1,2006. The accounting and reporting policies of the City relate to the accompanying financial statements of the City of Spokane Valley,Washington which have been prepared in conformity with generally accepted accounting principles(GAAP)as applied to state and local governmental entities.GAAP for local governments include those principles prescribed by the Governmental Accounting Standards Board(GASB)which is the accepted standard- setting body for establishing governmental accounting and financial reporting principles,the Financial Accounting Standards Board(FASB),when applicable,and the American Institute of Certified Public Accountants(AICPA) pronouncements that have been made applicable by GASB Statements or Interpretations. A. Reporting entity As required by GAAP the City's financial statements present the City of Spokane Valley–the primary government. There are no component units(either blended or discretely presented)included in these statements. B. Government-wide and fund financial statements The City's basic fmancial statements include both government-wide(reporting the City as a whole)and fund financial statements(reporting the City's major funds)to report its financial position and the results of operations. Both the government-wide and fund financial statements categorize primary activities as either government or business-type. The government-wide financial statements(i.e.,the statement of net assets and the statement of activities)report information on all of the non-fiduciary activities of the primary government. For the most part,the effect of interfund activity has been removed from these statements. Governmental activities,which normally are supported by taxes and intergovernmental revenues,are reported separately from business-type activities,which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segments are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1)charges to customers or applicants who purchase,use,or directly benefit from goods, services,or privileges provided by a given function or segment and 2)grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported as general revenues. Separate financial statements are provided for governmental funds,proprietary funds,and fiduciary funds. The City has no fiduciary funds. Major individual funds are reported as separate columns while the remaining funds are combined for presentation purposes in the governmental funds statements and the proprietary funds statements. Washington State Auditor's Office 37 City of Spokane Valley Notes to Financial Statements C. Measurement focus,basis of accounting,and financial statement presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting,as are proprietary funds. Under this approach,revenues are recorded when earned and. expenses are recorded when a liability is incurred,regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all the eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectable within the current period or soon thereafter to pay liabilities of the current period. For this purpose,the government considers revenues to be available if they are collected within 30 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred,as under accrual accounting. However,debt service expenditures,as well as expenditures related to compensated absences,claims,and judgments are recorded only when the payment is due. Property taxes,franchise fees,licenses,and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the government. The city reports the following major governmental funds: The General Fund is the City's primary operating fund. It accounts for all financial resources of the general government,except those required to be accounted for in another fund. The Street Fund is responsible for the maintenance of all city streets and bridges. The Service Level Stabilization Reserve Fund provides emergency revenue source to maintain service levels in the event of a downturn in the local economy. The Capital Projects Fund and the Special Capital Projects Fund are used as matching funds for construction projects. These funds account for the collection and expenditure of the real estate excise tax levied on all sales of real estate. Real estate excise tax must be spent on capital improvements identified in a capital improvements plan. The Street Capital Projects Fund accounts for monies used to finance the six year transportation improvement plan. Revenues are transfers from the Arterial Street Fund,Capital Projects Fund, Special Capital Projects Fund and Street Bond Fund. Washington State Auditor's Office 38 City of Spokane Valley Notes to Financial Statements The Civic Buildings Capital Projects Fund accounts for capital improvement projects funded by revenues that are allocated as reserve or specifically designated for the future expansion and construction of Civic Buildings for the City of Spokane Valley.Revenues are in the form of transfers from the General Fund. The city reports the following major proprietary fund: The Stormwater Management Fund accounts for the receipt and expenditure of the stormwater management fee. The expenditures are used for stormwater control construction and management. Additionally,the government reports the following fund types: Special revenue funds account for arterial street construction and maintenance,hotel/motel tax revenues and expenditures,CenterPlace operating reserve,Winter Weather Reserve,and revenues and expenditures for the Paths and Trails Fund. Debt service funds account for the resources accumulated and payments made for principal and interest on general government debt except those to be accounted for in another fund. Capital project funds account for the acquisition or development of capital facilities for governmental activities. Their major sources of revenues are from proceeds of general obligation bonds,grants from other agencies,and contributions from other funds. Internal service funds account for computer hardware/software,equipment,vehicle replacement,and risk management services provided to other departments on a cost reimbursement basis. Private sector standards of accounting and financial reporting issued prior to December 1, 1989,generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental.Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds,subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. As a general rule interfund activity has been eliminated from the government-wide financial statements. Exceptions are payments in lieu of taxes,external type transactions within internal service funds(revenues and expenses for interest or services to other governmental organizations),and other charges for stormwater services. Elimination of these charges would distort the direct cost and program revenues reported for these functions. Amounts reported as program revenues include 1)charges to customers or applicants for goods, services, or privileges provided,2)operating grants and contributions,and 3)capital grants and contributions, including special assessments.Internally dedicated resources are reported as general revenues rather than program revenues. Likewise,general revenues include all taxes. Washington State Auditor's Office 39 City of Spokane Valley Notes to Financial Statements Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principle operating revenues of the stormwater enterprise fund is a stormwater assessment fee. Operating expenses of enterprise funds and internal service funds include the cost of sales and services,administrative expenses,and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. When both restricted and unrestricted resources are available for use,it is the City's policy to use restricted resources first,and then unrestricted resources as they are needed. D. Assets,liabilities,and fund equity 1.Deposits and investments The City considers all highly liquid assets including demand deposits,petty cash,money market accounts,CD's, investments in the State Treasurer's Local Government Investment Pool(LGIP),and short-term investments with a maturity of three months or less from the date of acquisition as cash and cash equivalents.These amounts are classified on the balance sheet or in the statement of net assets within cash and cash equivalents in the various funds. The interest on these investments is prorated to the applicable funds and the City's policy has been to hold its investments until maturity in an attempt to reduce market fluctuation risk.Investments of the City can be drawn down on demand. As authorized by 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 State Treasurer's Local Government Investment Pool(LGIP). Investments for the City of Spokane Valley are reported at fair value at December 31,2007.The Washington State Local Government Investment Pool(LGIP)operates in accordance with the Security Exchange Commission's (SEC)Rule 2a-7 of the Investment Company Act of 1940 and other appropriate state laws and regulations. The fair value of the LGIP portfolio is calculated by a master custodian or by an independent pricing service under contract with the State Treasurer's Office.The reported fair value of the City's pool position in the State of Washington's LGIP is the same as the fair value of the pool shares(refer to note 4). 2.Receivables and payables Taxes receivable consists of property taxes and related interest and penalties. Accrued interest receivable consists of amounts earned on investments,notes,and contracts. Accrued interest payable consists of amounts owed on notes, loans,and contracts. Customer accounts receivable/payable consist of amounts owed from/to private individuals or organizations for goods and services including amounts owed. If the transactions are with another governmental unit,it is accounted for within"due from/to other governments." Receivables have been reported net of estimated uncollectible accounts. Because property taxes and special assessments are considered liens on property,no estimated uncollectible amounts are established. Washington State Auditor's Office 40 City of Spokane Valley Notes to Financial Statements Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to either"due to/from other funds"(i.e.,the current portion of interfund loans)or"interfund loans receivable/payable"(i.e.,the non-current portion of interfund loans). All other outstanding balances between the governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances(refer to note 9)." Advances,between funds,as reported in the fund financial statements,are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. In the government-wide financial statements,and proprietary fund types in the fund financial statements,long-term liabilities are reported in applicable governmental activities,business-type activities,or proprietary fund type statement of net assets. Wages and benefits payable represent wages earned at the end of the current fiscal year but not paid until the next fiscal year. 3.Inventories and prepaid items Reported inventories in the governmental and proprietary funds consist of expendable supplies held for consumption. The cost of inventories has been recorded as expenditure at the time individual inventory items were purchased(purchase method). Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund statements. 4.Capital assets and depreciation Capital assets include:property,plant,equipment,and infrastructure assets(e.g.roads,bridges, sidewalks,and similar items),are reported in the applicable governmental or business-type columns in the government-wide financial statements. The City defines capital assets as assets with an initial,individual cost of more than$5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical. cost if purchased or constructed. Other donated assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed.Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed(refer to note 6). Property,plant,and equipment of the primary government are depreciated using the straight line method over the estimated service life as follows: Washington State Auditor's Office 41 City of Spokane Valley Notes to Financial Statements 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 5.Long-term obligations Liabilities for long-term debt are recorded in the government-wide statement of net assets and in the governmental funds balance sheet. The liabilities include bond premiums and discounts,as well as issuance costs,are deferred and amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs are reported as deferred charges. Long-term obligations outstanding at year end are outlined in Note 11. For governmental funds financial statements,bond issuance costs are expended at the time of issuance. Bond premiums and discounts are deferred and amortized over the life of the bonds. Bond proceeds are reported as other financing sources net of the applicable premium or discount. Issuance costs,even if withheld from the actual net proceeds received, are reported as debt service expenditures. The nature of debt in the governmental activity is specific to a program and,therefore;debt service costs are not an allocated expense. 6.Deferred revenues The deferred revenues account is used to offset receivables established in the governmental fund financial statements for certain revenues that are measurable but not considered available to fmance payment of current obligations,and,therefore,not susceptible to accrual on the modified accrual basis. When the receivable amounts are collected in future periods,this liability account is reduced and corresponding revenue is recorded.Deferred revenues represented in this manner on the accompanying financial statements are:uncollected property taxes levied,uncollected road taxes levied,sales and use taxes,motor fuel taxes,and hotel/motel taxes. 7.Compensated absences Compensated absences are absences for which employees will be paid,such as vacation and sick leave. Vacation pay,which may be accumulated up to 360 hours,is payable upon resignation,retirement,or death. All vacation pay is accrued when incurred in the government-wide,proprietary and fund financial statements. An additional amount has been accrued for the city's share of Medicare taxes related to the vacation accrual. A liability for these amounts is reported in the government fund statements only if they have matured,for example,as a result of employee resignations and retirements 8.Fund balance designations and reservations In the fund financial statements,governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. Washington State Auditor's Office 42 City of Spokane Valley Notes to Financial Statements E. Revenues,expenditures,and expenses 1.Program revenues Program revenues include charges for services to customers for goods or services provided,operating grants and contributions,and non-operating grants and contributions within the Government-wide statement of activities. Charges for services include business licenses,construction permits,and recreation program fees. 2.General revenues Property taxes,retail taxes,business taxes,excise taxes,and associated penalties and interest,and interest and investment earnings are classified as general revenues within the Government-wide statement of activities. 3.Interfund transfers Permanent reallocations of resources between funds of the reporting entity are classified as interfund transfers.For the purposes of the Government-wide Statement of Activities, all interfund transfers between individual governmental funds have been eliminated. 4.Expenses/expenditures Expenses in the Government-wide statement of activities are reported by function as a governmental activity (general government,security of persons and property,physical environment,transportation,economic environment,culture and recreation,or interest on long-term debt),or business-type activity(wastewater,or stormwater). Certain indirect costs are included in program expenses by function. In the fund financial statements, expenditures of governmental funds are classified current by function,debt service principle and interest payments, or purchases of capital items. Proprietary expenditures are classified as operating or non-operating. 5.Operating and non-operating revenues and expenses Operating revenues and expenses for proprietary funds are those that result from providing services and producing and delivering goods and/or services in connection to the proprietary fund's principal ongoing operations. It also includes all revenue and expenses not related to capital and related financing,non-capital financing,or investing activities. All revenue and expenses not meeting this definition are non-operating revenues and expenses. NOTE 2—STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY: A.Scope of budget Annual appropriated budgets are adopted for all funds on a basis consistent with generally accepted accounting principals. Legal budgetary control is established at the fund level. Subsidiary revenue and expenditure ledgers are used to compare the budgeted amounts with actual revenues and expenditures. As a management control device, the subsidiary ledgers are used to monitor expenditures for individual functions and activities by object class. B. Procedures for adopting the original budget The City's budget procedures are mandated by the Revised Code of Washington 35A.33. The following are key procedural steps in the City's budget development process. Note that the process and dates are for the 2007 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. Washington State Auditor's Office 43 City of Spokane Valley Notes to Financial Statements • In June departments submit revenue and expenditure estimates to the Finance department. The City Council and City management staff discusses City goals and priorities and reaffirm overall City priorities, vision, and mission at a mid-year retreat. Additional policy guidance is provided throughout the year. • In July the Finance department submits the preliminary budget to the City Manager. • In August the City Manager submits estimates on the current year's revenue and expenditures for the upcoming year to the council. • During September,preliminary budget documents were prepared,printed and filed with City Clerk. This proposed budget is presented to the City Clerk and copies are made available to the public. The Council set the dates of the preliminary and final budget hearings. • Before December 31st the City Council,by a majority vote,will adopt the budget by ordinance,establishing the budget appropriation for the year. • The approved budget is published and distributed during the first quarter of the following year, Copies are made available to the public. • Monthly budget monitoring reports are published by the Finance Department to report on actual performance compared to budget estimates and to identify any remedial actions that may be needed. C. Amending the budget The budget,as adopted,constitutes the legal authority for expenditures. The City's budget is adopted at the fund level,so that expenditures may not legally exceed appropriations at that level of detail, The City Manager is authorized to transfer budgeted amounts within a fund;however,any revisions that alter the total expenditures of a fund,or that effect the number of authorized employee positions,salary ranges,or other conditions of employment must be approved by the City Council. When the City Council determines that it is in the best interest of the City to increase or decrease the appropriation for a particular fund,it may do so by ordinance approved by one more than the majority after holding a public hearing. The City's budget was amended two times during the fiscal year. The financial statements contain the original and final budget information. The original budget is the first complete appropriated budget. The final budget is the original budget adjusted by all reserves,transfers,allocations,supplemental appropriations,and other legally authorized changes. All appropriations lapse at year end. Unexpended resources must be re-appropriated in the subsequent period. D. Compliance There have been no material violations of finance-related legal or contractual provisions,and there have been no expenditures exceeding legal appropriations in any of the funds. E. Deficit fund equity At December 31,2007,the Street Capital Projects Fund had a deficit fund balance of($120,260). Also,the Capital Grants fund had a deficit fund balance of($17,365).These deficits will be eliminated by the appropriation of future revenue from the general fund and other resources, Washington State Auditor's Office 44 City of Spokane Valley Notes to Financial Statements NOTE 3—RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS: The governmental fund statements include reconciliations between the fund statements and the government-wide statements.Differences that make reconciliations necessary include the two differing measurement focuses and basis of accounting,accrual and modified accrual between the statements. A. Explanation of certain differences between the governmental fund balance sheet and the government- wide statement of net assets The governmental fund balance includes reconciliations between fund balance—total governmental funds and net assets—governmental activities as reported in the government—wide statement of net assets. One element of that reconciliation explains that"long-term liabilities, including capital leases payable, are not due and payable in the current period and therefore are not reported in the funds."The details of the($9,090,949)difference are as follows: Long term liabilities-current balances as of 12/31/07 Bonds payable $ (8,760,000) Premium on bond issuance (160,711) Total $ (8,920,711) Compensated absences (170,238) Net adjustment to reduce fund balance- total governemental funds to arrive at net assets-governmental activities $ (9,090,949) Another element of that reconciliation explains the"Internal service funds"are used by management to charge the cost of certain activities,such as health insurance costs to the individual funds.The assets and liabilities of the internal service fund are included in governmental activities in the statement of net assets.The details of the $883,279 difference are as follows. Net assets of the internal service fund $ 897,769 Less: Internal payables (14,490) Net adjustment to increase fund balance - total governmental funds to arrive at net assets - governmental activities $ 883,279 Also,another element of the reconciliation explains that capital assets used in governmental activities are not current financial resources and the balance reflects the initial investment in capital assets therefore,"governmental funds do not report capital assets."The details of the$54,122,275 difference are as follows: Washington State Auditor's Office 45 City of Spokane Valley Notes to Financial Statements Beginning balance-Capital Assets, net of accumulated depreciation $ 64,200,656 Additions of Capital Assets, net of accumulated depreciation (2,167,689) Reductions of Capital Assets, net of accumulated depreciation (7,910,691) Net adjustment to increase fund balance - total governmental funds to arrive at net assets-governmental activities $ 54,122,275 Explanation of certain differences between the governmental fund statement of revenues,expenditures,and changes in fund balances and the government-wide statement of activities The governmental fund statement of revenues,expenditures,and changes in fund balances includes reconciliation between net changes in fund balances—total governmental funds and changes in net assets of governmental activities as reported in the government-wide statement of activities. Governmental funds report capital outlays as expenditures. However,in the statement of activities,the cost of those assets is allocated over their estimated useful lives as depreciation expense.The details of this($10,268,055)difference are as follows: Capital outlay $ 2,862,201 Depreciation expense (13,387,820) Internal service fund capital asset transfer to governmental fund 257,564 Net adjustment to decrease net changes in fund balances-total governmental funds to arrive at changes in net assets of governmental activities $ (10,268,055) Bonds and notes payable repayments in the amount of$1,058,477 exceeded proceeds. Revenues in the statement of activities that do not provide current financial resources to governmental funds are not reported as revenues in the funds$690,874. Another element of the reconciliation states that "some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds". The details of this$(321)difference are as follows: Compensated absences $ (8,400) Bond premimum expense 7,316 Bond principle payment accrual 416 Interest expense 347 Net adjustment to decrease net changes in fund balances- total governmental funds to arrive at changes in net assets of govenmental activities $ (321) 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($263,581)difference are as follows: Revenues: Interest and investment income $ 3,422 Total Revenues 3,422 Less expenses and net transfers: (267,003) Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ (263,581) NOTE 4—DEPOSITS AND INVESTMENTS: A.Deposits The City's deposits and certificates of deposit are entirely covered by the federal depository insurance(FDIC)or by 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. The City of Spokane Valley maintains a certificate of deposit,money market account,and various checking accounts with a local bank in Spokane Valley.The total amount on deposit with this bank was$2,822,756 at December 31,2007.These bank deposits were in a State authorized public depository and were within the State limit of the depositaries(bank's)net worth per Revised Code of Washington 39.58.010 and Revised Code of Washington 39.58.135. B.Investments 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),or certificate of deposit with Washington State banks and savings and loan institutions. Investments are shown on entity-wide Statement of Net Assets at fair market value or 2a7-like-pools at amortized cost. Investments are reported within cash and investments of governmental activities and within cash and cash equivalents of business-type activities. The City's investments are categorized to give an indication of risk assumed at year-end. The following summary shows the categories of risk. • 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 depat lucent or agent,but not in the City's name. Washington State Auditor's Office 47 City of Spokane Valley Notes to Financial Statements The City had no Category 1,2,or 3 type investments in their investment portfolio as of December 31,2007. C.Deposit and investment reconciliation Amounts reported in the fund statements are as follows: Fair Value Carrying Cash Amount Investments Equivalents State investment pool $ 42,013,090 $ - $ 42,013,090 Money market account 1,634,660 - 1,634,660 Certificates of deposit 1,026,183 - 1,026,183 Total investments not subject to credit risk $ 44,673,933 $ - $ 44,673,933 NOTE 5—PROPERTY TAXES: The County Treasurer acts as an agent to collect property taxes levied in the county for all taxing authorities. The County Assessor is responsible for determining what the individual property taxes are,based upon the monies requested by the taxing districts and the assessed valuation within these districts. Taxes are levied annually on January 1st on property values listed as of the prior May 31st. Assessed values are established by the County Assessor at 100%of fair market value. A revaluation of all property is required every four years. Taxes are due in two equal installments on April 30th and October 31st. Tax liens are automatic at the point the taxes are levied. Property taxes levied for the current year are recorded as a receivable when levied,offset by deferred revenue. During the year,property tax revenues are recognized when cash is collected. At year-end,property tax revenues are recognized for collections to be distributed by the County Treasurer in January. No allowance for uncollectible taxes is established because delinquent taxes are considered fully collectible.For 2007,the City levied$9,577,419 on an assessed valuation of$5,882,946,173. 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 during the year ended December 31,2003: A summary of changes in governmental capital assets follows: 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 P arks: 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 Capital asset activity for the year ended December 31,2007, is summarized as follows: Beginning Ending Balance Governmental-type activities Balance 1/1/2007 Additions Reductions Dec.31,2007 Land(non depreciable) $ 2,978,847 $ 758,540 $ - $ 3,737,387 Construction in progress 11,643,239 1,836,318 (7,910,691) 5,568,866 Total non-depreciable assets 14,622,086 2,594,858 (7,910,691) 9,306,253 Buildings 12,216,097 - - 12,216,097 Leasehold improvements 122,906 - - 122,906 Improvements other than buildings 2,123,571 109,450 - 2,233,021 Infrastructure 209,517,754 8,413,068 - 217,930,822 Machinery and equipment 1,158,793 102,755 - 1,261,548 Total depreciable assets 225,139,121 8,625,273 - 233,764,394 Total capital assets $ 239,761,207 $ 11,220,131 $ (7,910,691) $ 243,070,647 Washington State Auditor's Office 49 City of Spokane Valley Notes to Financial Statements Beginning Ending Balance Balance Less accumulated depreciation for: 1/1/2007 Additions Reductions 12/31/2007 Buildings $ 771,044 $ 477,283 $ - $ 1,248,327 Leasehold improvements 73,553 28,211 - 101,764 Improvements other than buildings 1,287,275 76,918 - 1,364,193 Infrastructure 172,736,158 12,636,733 - 185,372,891 Machinery and equipment 692,521 168,676 - 861,197 Total accumulated depreciation $ 175,560,551 $ 13,387,820 $ - $ 188,948,372 Capital assets,net of accumulated depreciation $ 64,200,656 $ (2,167,690) $ (7,910,691) $ 54,122,275 Balance Balance Business-type activities; 1/01/2007 Increases Decreases 12/31/2007 Construction in progress $ - $ 376,119 $ - $ 376,119 Total non-depreciable assets - 376,119 - 376,119 Infrastructure 323,199 - - 323,199 Machinery and equipment 13,511 - - 13,511 Total depreciable assets 336,710 - - 336,710 Total capital assets $ 336,710 $ 376,119 $ - $ 712,829 (Less)accumulated depreciation for: Infrastructure $ 9,048 $ 15,798 $ - $ 24,846 Machinery and equipment 126 2,722 - 2,848 Total accumulated depreciation 9,174 18,521 - 27,695 Capital assets,net of accumulated depreciation $ 327,536 $ 357,599 $ - $ 685,134 Washington State Auditor's Office 50 City of Spokane Valley Notes to Financial Statements Depreciation expense was charged to current functions of the primary government as follows: Governmental Activities: General Government $ 286,139 Public Safety 12,556 Physical environment 60,337 Transportation 12,572,870 Economic environment 3,611 Culture and Recreation 452,307 Total governmental activities current year depreciation expense $ 13,387,820 Business-type activity: StormWater $ 18,521 Total business-type activities current year depreciation expense $ 18,521 Construction commitments The City of Spokane Valley has active construction projects as of December 31,2007. The projects include various street construction projects with a total of$11,171,682 contracts in place. At year end the City's commitments with contractors are as follows: Remaining Spent-to-Date Commitments Various street construction projects $ 4,146,830 $ 7,024,852 The various street construction projects are being funded by state and local grants,as well as,existing resources in various City Funds. NOTE 7—PENSION PLANS: Substantially all City of Spokane Valley full-time and qualifying part-time employees participate in one of the following statewide retirement systems administered by the Washington State Department of Retirement Systems, under cost-sharing multiple-employer public employee defined benefit and defined contribution retirement plans. The Department of Retirement Systems(DRS),a department with the primary government of the State of Washington, issues a publicly available comprehensive annual financial report(CAFR)than includes financial statements and required supplementary information for each plan. The DRS CAFR may be obtained by writing to: Department of Retirement Systems,Communications Unit,P.O.Box 48380,Olympia,WA 98504-8380. The following disclosures are made pursuant to GASB Statement 27,Accounting for Pensions by State and Local Government Employers. Public Employees'Retirement System(PERS)Plans 1,2,and 3 Plan Description PERS is a cost-sharing multiple-employer retirement system comprised of three separate plans for membership purposes;Plans 1 and 2 are defined benefit plans and Plan 3 is a combination defined benefit/defined contribution Washington State Auditor's Office 51 City of Spokane Valley Notes to Financial Statements plan. Membership in the system includes;elected officials,state employees,employees of the Supreme,Appeals, and Superior Courts(other than judges in a judicial retirement system), employees of legislative committees, community and technical colleges,college and university employees(not in national higher education retirement programs),judges of district and municipal courts,and employees of local governments. PERS participants who joined the system by September 30, 1977 are Plan 1 members. Those joined on or after August 31,2002 for local government employees, are Plan 2 members unless they exercise an option to transfer their membership to Plan 3. PERS participants joining the system on or after September 1,2002 for local government employees have the option of choosing membership in either PERS Plan 2 or PERS Plan 3. The option must be exercised within 90 days of employment.An employee is reported in Plan 2 until a choice is made. Employees who fail to choose within 90 days default to PERS Plan 3. PERS defined benefit retirement benefits are financed from a combination of investment earnings and employer and employee contributions. Retirement benefit provisions are established in state statute and may be amended by the State Legislature. PERS Plan 1 retirement benefits are vested after an employee completes five year of eligible service. Plan 1 members are eligible for retirement at any age after 30 years of service, or at age 60 with five years of service or at the age of 55 with 25 years of service. The annual pension is 2%of the average final compensation per year of service,capped at 60%. The average final compensation is based on the greatest compensation during any 24 eligible consecutive compensation months. If qualified,after reaching the age of 66 a cost-of-living allowance is granted based on years of service and is capped at 3%annually,to offset the cost of this annual adjustment,the benefit is reduced. PERS Plan 2 retirement benefits are vested after an employee completes five years of eligible service. Plan 2 members may retire at the age of 65 with five years of service,or at the age of 55 with 20 years of service,with an allowance of 2%of the average final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive 60-months period. Plan 2 retirements prior to the age of 65 receive reduced benefits. If retirement is at age 55 or older with at least 30 years of service,a 3%per year reduction applies; otherwise an actuarial reduction will apply. There is no cap on years of service credit;and a cost-of-living allowance is granted(indexed to the Seattle Consumer Price Index),capped at 3%annually. PERS Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component,and member contributions finance a defined contributions component. The defined benefit portion provides a benefit calculated at 1%of the average final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive 60-month period. Effective June 7,2006,Plan 3 members are vested in the defined benefit portion of their plan after ten years of service;or five if twelve months that were earned after age 44;or after five service credit years earned in PERS Plan 2 prior to June 1,2003. Plan 3 members are immediately vested in the defined contribution portion of their plan. Vested Plan 3 members are eligible to retire with full benefits at age 65,or at age 55 with 10 years of service. Retirements prior to age 65 receive reduced benefits. If retirement is at age 55 or older with at least 30 years of service,a 3%per year reduction applies;otherwise an actuarial reduction will apply. The benefit is also actuarially reduced to reflect the choice of a survivor option. There is no cap on years of service credit;and Plan 3 provides the same cost-of-living allowance as Plan 2. The defined contribution portion can be distributed in accordance with an option selected by the member,either as a lump sum or pursuant to other options authorized by the Employee Retirement Benefits Board. Washington State Auditor's Office 52 City of Spokane Valley Notes to Financial Statements There are 1,188 participating employers in PERS. Membership in PERS consisted of the following as of the latest actuarial valuation date for the plans,as reported by The Washington State Department of Retirement Systems (DRS)as of September 30,2006: Retirees and beneficiaries receiving benefits 70,201 Terminated plan members entitled to but not yet receiving benefits 25,610 Active plan members vested 105,215 Active plan members non-vested 49,812 Total 250,838 Funding Policy Each biennium,the state Pension Funding Council adopts Plan 1 employer contribution rates,Plan 2 employer and employee contribution rates,and Plan 3 employer contribution rates. Employee contribution rates for Plan I are established by statute at 6.0%for state agencies and local government unit employees,and 7.5%for state government elected officers. The employer and employee contribution rates for Plan 2 and the employer contribution rate for Plan 3 are developed by the Office of the State Actuary to fully fund Plan 2 and defined benefit portion of Plan 3. All employers are required to contribute at the level established by the Legislature. PERS Plan 3 defined contribution is a non-contributing plan for employers. Employees who participate in the defined contribution portion of PERS Plan 3 do not contribute to the defined benefit portion of PERS Plan 3.The Employee Retirement Benefits Board set Plan 3 employee contribution rates. Six rate options are available ranging from 5 to 15 percent;two of the options have graduated rates dependant on the employee's age. The methods used to determine the contribution requirements are established under state statute in accordance with chapters 41.40 and 41.45 RCW. Required contribution rates(expressed as a%of current year covered payroll)at the close of DRS fiscal year 2007 were as follows: PERS Plan 1 PERS Plan 2 PERS Plan 3 Employer* 6.13% 6.13% 6.13%** Employee 6.00% 4.15% *** * The employer rates include the employer administrative expense fee currently set at 0.16%. ***Plan 3 defined benefit portion only. ***Variable form 5.0%minimum to 15.0%maximum based on rate selected by PERS 3 member, Both the City of Spokane Valley and the employees made the required contributions.The City of Spokane Valley required contributions for the years ending December 31,2007 were as follows. PERS Plan 1 PERS Plan 2 PERS Plan 3 2007 Employer Contributions $11,380 $142,325 $46,987 2006 Employer Contributions 3,238 63,233 24,919 2005 Employer Contributions 1,765 1,765 1,765 2004 Employer Contributions 1,284 18,910 7,315 2003 Employer Contributions 276 10,567 3,448 Washington State Auditor's Office 53 City of Spokane Valley Notes to Financial Statements NOTE 8—RISK MANAGEMENT: The City of Spokane Valley is exposed to financial loss resulting from City-caused damage to property or persons, bodily injuries or illness of employees,and unemployment compensation. The City is insured and a member of the Washington Cities Insurance Authority(WCIA)for general liability and property damage coverage.The City uses the Washington State Department of Labor and Industries Insurance Services for coverage to pay for medical care for job-related injuries and illnesses,and wage replacement when the injury or illness is serious enough to miss work. The City is self-insured for unemployment compensation benefits. The Risk Management Fund is used to account for,and finance the liability and unemployment insurance costs. Departments of the City make payments through interfund assessments to the fund on estimates of the amounts needed to pay prior and current year claims. Utilizing Chapter 48.62 RCW(self-insurance regulation)and Chapter 39.34 RCW(Interlocal Cooperation Act), nine cities originally formed WCIA on January 1, 1981.WCIA was created for the purpose of providing a pooling mechanism for jointly purchasing insurance,jointly self-insuring,and/or jointly contracting for risk management services. WCIA has a total of 126 members. New members initially contract for a three-year term,and thereafter automatically renew on an annual basis. A one-year withdrawal notice is required before membership can be terminated. Termination does not relieve a former member from its unresolved loss history incurred during membership. Liability coverage is written on an occurrence basis,without deductibles. Coverage includes general,automobile, police professional,public officials' errors and omissions,stopgap,and employee benefits liability. Limits are$3 million per occurrence self insured layer,and$12 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$15 million per occurrence subject to aggregate sublimity in the excess layers. The Board of Directors determines the limits and terms of coverage annually. Insurance coverage for property,automobile physical damage,fidelity,inland marine,and boiler and machinery are purchased on a group basis. Various deductibles apply by type of coverage.Property insurance and auto physical damage are self-funded from the members' deductible to$500,000,for all perils other than flood and earthquake and insured above that amount by the purchase of reinsurance. In-house services include risk management consultation,loss control field services,claims and litigation administration and loss analyses. WCIA contracts for the claims investigation consultants for personnel issues and land use problems,insurance brokerage and lobbyist services. WCIA is fully funded by its members,who make annual assessments on prospectively rated basis,as determined by an outside independent actuary. The assessments cover loss,loss adjustment,and administrative expenses.As outlined in the interlocal,WCIA retains the right to additionally assess the membership for any funding shortfall. An investment committee,using investment brokers produces additional revenue by investment of WCIA.'s assets in financial instruments which comply with State guidelines. These revenues directly offset portions of the membership's annual assessment. A Board of Directors governs WCIA which is comprised of one designated representative from each member. The Board elects an Executive Committee and appoints a Treasurer to provide general policy direction for the organization. The WCIA Executive Director reports to the Executive Committee and is responsible for conducting the day to day operations of the WCIA. Washington State Auditor's Office 54 City of Spokane Valley Notes to Financial Statements The City is self-insured on a reimbursement basis for unemployment compensation. The City incurred$4,352 in claims for unemployment compensation in 2007. NOTE 9—INTERFUND BALANCES AND TRANSFERS: Interfund Balances Due to other funds and due from other funds result from goods issued,work performed or services rendered to or for the benefit of another fund of the same government. The amount of interfund loans payable within one year is also included in due to and due from other funds. Due to other fund and due from other fund balances at December 31,2007 were: Due from Due to other funds other funds General fund $ 607,959 $ 4,800 Street fund 4,800 190,000 Arterial street fund 19,400 210,000 Capital projects fund - 173,000 Special capital projects fund 100,000 - Street capital projects fund . 54,000 - Capital grant fund 156,000 216,938 Barker bridge fund - 147,421 Parks capital projects fund - 25,000 Proprietary funds 25,000 - Total government-wide $ 967,159 $ 967,159 Interfund transfers are the flow of assets with a reciprocal return of assets,goods,or services in return.The City uses transfers to(1)move revenues from the fund that statutes or budget requires to collect them to the fund that statute or budget requires to expend them,(2)move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, and(3)use unrestricted revenues collected in the general and street funds to fmance various programs accounted for in other funds in accordance with budgetary authorizations. Washington State Auditor's Office 55 City of Spokane Valley Notes to Financial Statements Interfund transfer activity for 2007 is as follows: Transfers - in Transfers - (out) General fund $ 74,300 $ 6,023,903 Street fund 900,000 59,300 Arterial street fund - 230,019 Service level Stabilization fund 361,000 - Civic facilities replacement fund 397,000 - Debt service fund 186,490 - Capital projects fund - 555,756 Special capital projects fund - 93,245 Street capital projects fund 462,511 Capital grant fund 230,019 Parks capital projects fund 410,000 - Civic building fund 3,779,000 - Stormwater management fund - 15,000 Risk management fund 176,903 - Internal. service funds - 257,564 Total government-wide $ 6,977,223 $ 7,234,787 Interfund transfers in and out do not agree in the Governmental Statements of Revenues and Changes in Fund Balances by$257,564 because,it's a transfer of capital assets from the Internal Service Funds to General Government Fund.This transfer(in)has been included as a reconciling item on the Statement of Activities. NOTE 10—SHORT-TERM DEBT: As of December 31,2007,the City had no short-term debt. NOTE 11—LONG-TERM OBLIGATIONS AND LEASES: General Obligation Bonds The City issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities.General obligation bonds have been issued for governmental-type activities. General obligation bonds are direct obligations and pledge the full faith and credit of the government. General obligation bonds are either created by 315th majority vote of the people and,therefore,financed by a special tax levy; or created by ordinance,adopted by the City Council,and noinially 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 does expect to receive intergovernmental payments from the Spokane Public Facilities District pursuant to an inter-local agreement dated as of July 2003, which if and when received by the City will be available for debt service associated with the Center for up to$7 million of bonds. Washington State Auditor's Office 56 City of Spokane Valley Notes to Financial Statements General obligation bonds currently outstanding as December 31,2007 are as follows: Debt Name of Issuance Purpose Interest Rate Outstanding 2003 LTGO Bonds Governmental Activities 2.00%- 5.00% $8,760,000 The annual debt service requirements to maturity for general obligation bonds are as follows: Governmental - Type Activities Total Principal Interest Requirements 2008 $ 190,000 $ 406,872 $ 596,872 2009 205,000 401,173 606,173 2010 210,000 395,022 605,022 2011 225,000 386,622 611,622 2012 240,000 377,623 617,623 2013-2017 1,425,000 1,7125111 3,1 57;1 13 2018-2022 2,205,000 1,364,050 3,569,050 2023-2027 2,485,000 755,750 3,240,750 2028-2032 1,345,000 241,500 1,586,500 2033 230,000 11,500 241,500 Totals $ 8,760,000 $ 6,072,225 $ 14,832,225 Long-term debt on the Statement of Net Assets is presented net of any premium/discount incurred at the time of issuance. The 2003 LTGO Bonds were sold at a premium of$189,974 and were reported at the net amount of $9,619,974. The premium will be amortized over the life of the bonds and the outstanding liability balance as of December 31,2007 is: $160,711. Changes in Long-Term Liabilities During the year ended December 31,2007,the following changes occurred in long-term liabilities: Amounts Balance Balance Due within Governmental -type activities 1/1/2007 Additions Reductions 12/31/2007 One Year Bonds and notes payable: General obligation bonds $ 8,945,000 $ - $ 185,000 $8,760,000 $ 190,000 Premium on LTGO bonds 168,027 7,316 160,711 7,316 Note payable 1,222,540 1,222,540 - - Other liabilities: Compensated absences 161,838 26,601 18,201 170,238 8,400 Governmental activities long-term liabilities $ 10,497,405 $ 26,601 $ 1,433,057 $9,090,949 $ 205,716 Washington State Auditor's Office 57 City of Spokane Valley Notes to Financial Statements Legal Debt Margin RCW 39.36.020 provides cities with three segments of debt capacity,each equal to two and one-half percent of the city's assessed valuation,for a total debt capacity of seven and one-half percent. The assessed valuation of the City for the year 2007 for purposes of determining the legal debt margin is $5,882,946,173. Under State of Washington statutes general obligation indebtedness pursuant to a vote of the electorate is limited to 2.5%of actual value of taxable property located within the City. Indebtedness without a vote of the people is limited to 1.5%of actual value subject to the limitation that total general purpose indebtedness may not exceed 2.5%of total valuation. There is a 2.5%limitation each for utility purposes and open space and park facilities purposes. The remaining debt capacities of the City at December 31,2007 are as follows: Amount General Purposes Voted and Non-voted Debt—2.5%(1) $ 138,143,416 Utility Voted Debt—2.5% 147,073,654 Open Space and Park Facilities Voted Debt-2.5% 147,073,654 Total Remaining Debt Capacity $432,290,724 (1)Includes$79,313,955 debt capacity for non-voted debt. Note Payable—The City entered into a purchase agreement with Spokane County for purchase of the Spokane Valley Precinct Building.The note with a balance of$1,222,540 was paid in full as of December 31,2007. Leases Operating Leases—The City renewed its operating lease agreement with Northwest Christian Schools for the rental of office space on March 15,2005. The lease agreement is for a five(5)year term ending March 31,2010. Rental rates vary between$14.75 and$16.75 per square foot per annum. Lease payments for the fiscal year ending December 31,2007 amounted to$351,226. Schedule of Minimum Future Rental Payments Year Ended Dec.31 Amount 2008 $ 430,323 2009 450,187 2010 112,660 Total minimum future rental payments $993,170 Washington State Auditor's Office 58 City of Spokane Valley Notes to Financial Statements NOTE 12—SUBSEQUENT EVENTS: In January 2007,the City hired an architectural firm to begin renovation on the three City of Spokane Valley pools. Renovations were started in fall of 2007 and are expected to be completed spring 2009.The estimated costs for construction of the project range from$1.6 to$2.6 million with Spokane County contributing$1.6 million. A review of services provided under contract and costs paid to the Spokane County Sheriff's Office for law enforcement during fiscal year 2006,appear to indicate that the City of Spokane Valley may have been overbilled between$600,000 and$1,500,000.Negotiations are underway to determine the accuracy of this information and to recover any prior overpayments. Spokane County has been leasing space in the City of Spokane Valley police precinct building since June 1,2007. While no final decision has been made,it appears Spokane County may discontinue use of their lease space and the corresponding share of maintenance costs.Rental income to the City of Spokane Valley was$98,000 in 2008. The county's share of maintenance was$50,000 in 2008. During fiscal year 2008, Spokane County agreed to award$300,000 annually in Community Development Block Grant Funds to the City of Spokane Valley beginning in fiscal year 2009.The City of Spokane Valley has participated as a member of a consortium in Spokane County but,was required to compete for available funding.In lieu of separating from the consortium and automatically receiving a larger share of funding,the City of Spokane Valley agreed that$300,000 was a reasonable share of Community Development Block Grant Funds. Also,the New City HaIl design is underway and spending is estimated at$75,000 in 2008.Barker Road Bridge project was officially awarded$9,449,355 on June 2008,through a Federal funded grant program with the potential of$10 million in maximum grant revenue proceeds. NOTE 13—CONTINGENCIES AND LITIGATION: In the normal course of governmental operations the City has claims filed against it for various losses related to tort actions for such things as wrongful acts,injuries,or damages for which a civil action can be brought,and other routine legal proceedings. At any given point in time,there is a recurring volume of tort and other claims for compensation and damages against the City,which could impact expenditures. The City's Risk Management fund provides for these claims,and insurance is available to pay a portion of damages for certain types of claims. The collective impact of these claims is not likely to have a material impact on the City's financial position. The City participates in a number of federal-and-state assisted programs. These grants are subject to audit by the grantors or their representatives. Such audits could result in requests for reimbursement to grantor agencies for expenditures disallowed under the terms of the grants. City management does not believe that such disallowances, if any,will be material. During fiscal year 2003,the City of Spokane Valley acquired 31 acres of land from Spokane County to be used for a city park.After acquisition,it was determined that a concrete company on the adjacent parcel had inadvertently contaminated the acquired property of the City because of confusion over property lines.The concrete company has agreed to assist the City of Spokane Valley in cleaning the contaminated City property.The concrete company is currently preparing a plan which will be subject to state review and approval for cleanup of this property.No formal agreement has been signed by the parties and an estimate of cleanup costs has not been formally prepared. Washington State Auditor's Office 59 City of Spokane Valley Notes to Financial Statements NOTE 14-RESTRICTED NET ASSETS: The governmental-wide statement of net assets reports$16,229,680 of restricted net assets,which includes: $338,566 for Center Place Operations and$15,891,114 for various Capital Projects and is restricted by the City Council. NOTE 15-INTERFUND RECEIVABLE AND PAYABLE BALANCES: A)Receivables Receivables at December 31,2007 were as follows: Governmental Type Accounts Taxes Grants Due from Other Total Activities receivable(net) receivable receivable other funds receivables receivables General fund $ 479,430 $ 3,949,888 $ - $ 607,959 $ 61,625 5,098,902 Street fund 41 333,596 - 4,800 13,459 351,896 Service level stablization reserve - - - - 17,812 17,812 Capital projects fund - 89,784 - - 14,784 104,568 Special capital projects fund - 89,784 - 100,000 16,785 206,569 Street capital projects fund 175,952 - 397,748 54,000 - 627,700 Civic buildings capital projects fund - - - - 19,583 19,583 Other Governmental funds 60,502 60,324 689,222 175,400 13,650 999,098 Total Governmental type activities $ 715,925 $ 4,523,376 $ 1,086,970 $ 942,159 $ 157,698 7,426,128 Business Type Accounts Taxes Due from Other Total Activities receivable(net) receivable other funds receivables receivables Stormwater management fund $ 4,071 $ 54,781 $ 25,000 $ 6,972 $ 90,824 Total Business type activities $ 4,071 $ 54,781 $ 25,000 $ 6,972 $ 90,824 Washington State Auditor's Office 60 City of Spokane Valley Notes to Financial Statements B)Payables Payables at December 31,2007 were as follows: Governmental Type Accounts Salaries& Due to Deposits Other Activities payables beneifits payable other funds payables liabilities Total General fund $ 1,802,344 $ 277,015 $ 4,800 $ 87,676 $ 2,302,848 4,474,683 Street fund 427,137 12,539 190,000 - 165,698 795,374 Capital projects fund - - 173,000 - 173,000 Street capital projects fund 268,370 1,337 - - 494,309 764,016 Other Governmental funds 367,534 - 599,359 - 76,985 1,043,878 Reconciliation of balances in the fund financial statements to government-wide financial statements 14,490 - - - 6,094,785 6,109,275 Total Governmental type activities $ 2,879,875 $ 290,891 $ 967,159 $ 87,676 $ 9,134,625 $ 13,360,226 Business Type Accounts Salaries& Deposits Other Activities payables beneifits payable payables liabilities Total Stormwater management fiend $ 55,830 $ 9,662 $ 32,100 $ 54,781 $ 152,373 Total Business type activities $ 55,830 $ 9,662 $ 32,100 $ 54,781 $ 152,373 Washington State Auditor's Office 61 City of Spokane Valley Notes to Financial Statements NOTE 16—PRIOR PERIOD ADJUSTMENT: The City of Spokane Valley discovered a long-term liability for Premium on bond issuance was overstated by $4,843 in the Statement of Net Assets for the year ended December 31,2006.The result of the adjustment to net assets is as follows: Governmental Fund-Type Net assets as reported December 31,2006 $ 89,188,086 Correction of Premium on bond issuance 4,843 Total prior period adjustment 4,843 Washington State Auditor's Office 62 City of Spokane Valley, Washington Schedule of Revenues, Expenditures and Changes in Fund Balances General Fund-Budget to Actual For the Year Ended December 31, 2007 Budgeted Amounts Variance with Approved Final Final Budget Original Budget Amended Budget Actual Over(Under) Revenues Taxes $ 28,341,800 $ 29,641,800 $ 30,444,247 $ 802,447 Licenses and permits 1,186,170 2,382,955 2,515,588 132,633 Intergovernmental revenues 1,121,000 1,231,000 906,126 (324,874) Charges for services 1,168,000 557,463 756,731 229,268 Fines and forfeitures 1,250,000 512,052 580,871 68,819 Investment interest 250,000 574,200 525,182 (49,018) Miscellaneous 460,500 945,000 1,279,304 334,304 Total Revenues 33,777,470 35,844,470 37,038,049 1,193,579 Expenditures Current: General government 6,319,755 12,345,355 4,409,039 (7,936,316) Public safety 18,256,400 17,731,571 16,246,491 (1,485,080) Physical environment 902,887 990,887 1,528,125 537,238 Transportation 38,953 38,953 Economic environment 1,374,827 1,511,276 1,757,693 246,417 Culture and recreation 1,696,186 1,697,086 1,966,247 269,161 Capital Outlay: Capital expenditures 664,449 371,329 101,316 (270,013) Construction in progress - - - - Total Expenditures 29,214,504 34,647,504 26,047,864 (8,599,640) Excess(Deficiency)of Revenues 4,562,966 1,196,966 10,990,185 9,793,219 Over(Under)Expenditures Other Financing Sources(Uses) Transfers in 80,000 115,000 74,300 (40,700) Transfers(out) (2,335,000) (6,072,000) (6,023,903) (48,097) Total Other Financing Sources(Uses) (2,255,000) (5,957,000) (5,949,603) (7,397) Net Change in Fund Balances 2,307,966 (4,760,034) 5,040,582 9,800,616 Fund Balances Beginning of Year: 5,050,000 12,118,000 8,706,613 (3,411,387) Fund Balances End of Year: $ 7,357,966 $ 7,357,966 $ 13,747,195 $ 6,389,229 The notes to the financial statements are an Integral part of this schedule. Washington State Auditor's Office 63 City of Spokane Valley, Washington Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual Street Fund, Major Fund For the Year Ended December 31, 2007 Budgeted Amounts Variance with Approved Final Final Budget Original Budget Amended Budget Actual Over(Under) Revenues Taxes $ - $ - $ 2,280 $ 2,280 Intergovernmental revenues 2,000,000 2,000,000 2,125,779 125,779 Charges for services - - 8,332 8,332 Investment interest 100,000 100,000 236,643 136,643 Miscellaneous - - 6,352 6,352 Total Revenues 2,100,000 2,100,000 2,379,386 279,386 Expenditures Current: Transportation 4,004,755 4,242,755 4,169,946 (72,809) Capital Outlay: Capital expenditures - - 25,649 25,649 Construction in progress - - - - Total Expenditures 4,004,755 4,242,755 4,195,595 (47,160) Excess(Deficiency)of Revenues (1,904,755) (2,142,755) (1,816,209) 326,546 Over(Under)Expenditures Other Financing Sources(Uses) Transfers in 900,000 900,000 900,000 - Transfers(out) (83,617) (83,617) (59,300) (24,317) Total Other Financing Sources(Uses) 816,383 816,383 840,700 (24,317) Net Change in Fund Balances (1,088,372) (1,326,372) (975,509) 350,863 Fund Balances Beginning of Year 4,658,000 4,658,000 4,694,268 36,268 Fund Balances End of Year $ 3,569,628 $ 3,331,628 $ 3,718,759 $ 387,131 The notes to the financial statements are an integral part of this schedule. Washington State Auditor's Office 64 City of Spokane Valley, Washington Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual Service Level Stabilization Fund, Major Fund For the Year Ended December 31, 2007 Budgeted Amounts Variance with Approved Final Final Budget Original Budget Amended Budget Actual Over(Under) Revenues Taxes $ - $ - $ - $ - Intergovernmental revenues - - - - Charges for services - - - - Investment interest 200,000 200,000 261,878 61,878 Miscellaneous - - - - Total Revenues 200,000 200,000 261,878 61,878 Expenditures Current: Transportation 5,200,000 5,200,000 - (5,200,000) Capital Outlay: Capital expenditures - - - - Construction in progress - - - Total Expenditures 5,200,000 5,200,000 - (5,200,000) Excess(Deficiency)of Revenues (5,000,000) (5,000,000) 261,878 5,261,878 Over(Under)Expenditures Other Financing Sources(Uses) Transfers in - - 361,000 361,000 Transfers(out) - - - - Total Other Financing Sources (Uses) - - 361,000 361,000 Net Change in Fund Balances (5,000,000) (5,000,000) 622,878 5,622,878 Fund Balances Beginning of Year 5,000,000 5,000,000 4,620,022 (379,978) Fund Balances End of Year S - S - $ 5,242,900 $ 5,242,900 The notes to the financial statements are an integral part of this schedule. Washington State Auditor's Office 65 r I` ' 0) co N- N°- co L() CO N N G) of 0 ® (C (N C n d' 9 d- O •r CO U d ® a) Nr (C CO CO 0r (N V' E ID a) N FI r C9 l- N N- CO h C) v N in M y • vi L i EfiJ E13 6fT ffl c co $ V E C _ v= C 12. = s-d U 7, o V X ® e 0 W d U a3 a ® a) . o >. EF} £4 Ef} 64 0) - U G) C CO 03°) Q d CA L 6) CO ti W 0 0 N N - - U) W C.) V O do' N. 'Tr Co f) 4 CO r (C 0 O CO oco O V 0 CU o r Co co co d U C6 E L r .- N r CO )■ Cr) CB 'O CL c o -t°�— po U) Q er a tot _ E• o m E g o m o Uci C .c L m U o V a) L.-a.. 'co 0 CD O O d o O O a) t) .O N N O O O "O O ® O • Z N Q vim- >+ -o O 0) lit D L _ p Lc) co 2 I- <- O F- cn 0 c ao) 0o 00) (/) mu) co E c u) 2 O N O ai c 3 0 Q. cts as ocn � � � �i > o m • a � Q co '+-, 00000 CO O ® O 0_ N N 0 N N N N N U co LL d ca CO Z ® E tn. 0 5" 3 CV C U C o V x = W C O x a aN a ��pp C i� O -0 U • 0 co .a.a C , C i O "O ay L V se CO a9 ,� 3 SZ ,? U U a)a. 0 > O) C ii O A o co CD O O O (� co m Oj > ® -t) o CD C C f2 i E CS C X 0 0 N i u) 0 — 7 _ U • CD = O '� c c 1® t L a 0) o a CO CU 4-, C o c C c 0® � p C o U l ocrl 0) U C O . a) Q ° d E (n d - ~ U)O o E o 03 X as 0 t- E° -0 c 0 d a o c 0) ILI m W N U 7)d C) O CCU m d it.4 m 2 E '6 -0 O < 2 r S < u C F.- S E ® o. m d c 0 g d O $, N CL m CQ ® o. ® ® -6 .- Ca tli CO > U) N d CO o Z Z f- U 0 Washington State Auditor's Office 66 ``j1 OF-s r *01rmiti. ABOUT THE STATE AUDITOR'S OFFICE r` ���t'j cr The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. Our mission is to work in cooperation with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. The State Auditor's Office employees are located around the state to deliver our services effectively and efficiently. Our audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. In addition, we conduct performance audits of state agencies and local governments and fraud, whistleblower and citizen hotline investigations. The results of our work are widely distributed through a variety of reports, which are available on our Web site and through our free, electronic subscription service. We continue to refine our reporting efforts to ensure the results of our audits are useful and understandable. We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive quality assurance program. State Auditor Brian Sonntag, CGFM Chief of Staff Ted Rutt Deputy Chief of Staff Doug Cochran Chief Policy Advisor Jerry Pugnetti Director of Audit Chuck Pfeil, CPA Director of Special Investigations Jim Brittain, CPA Director for Legal Affairs Jan Jutte, CPA, CGFM Director of Quality Assurance Ivan Dansereau Local Government Liaison Mike Murphy Communications Director Mindy Chambers Public Records Officer Mary Leider Main number (360) 902-0370 Toll-free Citizen Hotline (866) 902-3900 Web Site www.sao.wa.uov Subscription Service https://www.sao.wa.gov/applications/subscriptionservices/ (SAO FACTS.DOC-Rev.02/09)