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Washington State Financial Audit - 01/25/2005
Washington State Auditor's Office Report on Financial Statements Audit City o Spokane Valley Spokane County Audit Period January 9, 2003 through December 31, 2003 Report No. 67 816 Issue Late January 21, 005 Washington T State Auditor Brian Soon to State Auditiar'!; Office The Slag ,Auditor's Office indepentfe Afyr sores the dtyzens N Wasli n by poxnolinwj accountability, Fit pvt y and garrfnments aW with ins, we strive to ffLurre the proper use of r kc resiu Cus. In a rdan wi(h the Americans wi0i Disabilili" t., this document MI b made available In alternale fmnal` - Please ca-11 1360) 902-0370 for more inforniation- C H ~ Suntl zel llijil inn PO put 1002 i Olympia. Washipigion 985n4-002l Washington State Auditor Brian Solnntag (360) 90-2-0370 FAX (360) 753-M46 t'DD Relay t-80i1 13-6393 January 21, 2005 Mayor and City Council City of Spokane Valley Spokane, Washington Report on Financial Statements Please find attached our report an the City of Spokane Valley's financial statements. 4Ve are issuing this report now in order to provide information on the City's financial condltlan. In addition to this work, we look at other areas of our audit clients' operations for compliance with state laws and regulations, The results of that review will be Included In our regular audit report, which will be issued separately. Sincerely. '49. BRIAN SONNTACs,CGFM STATE AUDITOR Washm9lon Stwe Auditors Office I Fable of Contents City of Spokane Valley Spokane County January 9, 2003 through December 31, 2003 Independent Auditors Report an Compliance and Internal ContraI over Financial Reporting In Accordance wilh Government Auditing Standards.,.,.,...,.:::, ........1 Independent Auditors Report on Financial Statements 3 Basic Financial Statements and Schedules.. . ...o,..............:::..,, , ....-----5 1lvaslairrgrgr~ S~ai~ Jluditar'S [?f~t~e Independent Auditor's Report on Compliance and Internal Control over Financial Reporting in Accordance with Government Auditing Standards City of Spokane Valley Spokane County January 1, 2003 through December 31, 2003 Mayor and Lily Council City of Spokane Valley Spokane, WAshington We have audited the basic financial statements of the City of Spokane Valley, Spokane County, Washington, as of and for Uie year ended December 31, 2003, and have issgQd our report themon dated December 3, 2004. We conducted our audit in accordance with governrriental auditing standards generally accepWd in the United States of America, issued by the Comptroller Gi rneral of the United States. COMPLIANCE As part of obtaining reasonabie assurance about whether the City's financial statements are free of material misstatements, we performed tests of the City's compliance with certain previsions of laws, regulations contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts- However, the objective of our audit of the financial statements was not to provide an opinion on overall compliance with these provisions. Acccurdingly, we do not express such an opinion. The results of our tests disclosed no instances of material noncomptiance that are required to be reported herein under Govemmerof Auditing Sfandc 3rds. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit, we considemd the City's Infernal control over financial reporting in order to determine our auditing pratedunes for the purpose of expressing our opinion on the financial statements and not to provide assurance on the Internal control over financial reporting. Our consideration of the Internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the rlsk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving internal control over financial reporting and its operation that we consider to be material weaknesses. 4W5h1rigton State Auditor's Crfioe 1 ~TFtI~ repprt rs intencfed.inr #ie ~n`orrnation~af~managnmer~t and tha ll~ayor arid'C~ty, C~u~~il Mnwever, this report' is a ma te~;,¢f pub~l -.record;' aid «i is 'drstnbut~en' is.;riat` Urn c IE a~sa senr to d€s errs~na e T Infatmaio.to,theubfcas a reporting`tool'ko hQlp 6#izen6=ssss gavemr:tii# operations; BRIAN •50NNTAG;CUM STATEAUDITQR D~cernh'er.,~.• 2004' ' Y1186hii1~t4n,St~m'lludit~~.Of~¢~ - - 2 Independent Auditor's Report on Financial Statements City of Spokane Valley Spokane County January 1, 2003 through December 31, 2003 Mayor and City Council City of Spoltane Valley Spokane, Washington We have audited the accompanying financial statements of the governmental actAles, the business-type activ€lies, each major fund, and trig aggregate remaining fund inflormafion of the City of Spokane Valley, Spokane County, Washington, as of and for the year Bride-t December 31, 2003, as listed on page 5_ These financial statements are the responsibility of the City's management, Our responsibility is to express an opinion on these financial statements based on our audit_ We conducted our financial audit in accordance with governmental auditing standards generally accepted in the United States of America, 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 misstatements An audit Jncludes 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 ma:nagemenl, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the Financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund informailon of Uie City of Spokane Valley, as of l3ecernber 31, 2003, and [lie respective changes in financial position and cash flaws, where applicable, thereof, for the year then ended, in conformity with accounting principles generally amepted In the United States of America. In accordance with Governunent Auditing Standards in the United States of America, we will issue our report can our consideration of the City's internal control over financial reporting and our tests of its compJlanoe with certain provisions of laws, regulations, contracts and grants. That report Is an integral part of an audit performed in accordance with Govemmenf Audting Sfandards and should be read in conjunction with this report in considering the results of our audit The management's discussion and analysis information on pages 6 through 16 Is not a required part of the basic financial statements but is supplementary infom-auto, required by the Govemmental Accounting Standards Board We have applied certain limited procedures, which consisted principally of Inquires of Washington Side Audilo,°s Ofka 3 mat~agertteht raf'dtng~lhe.;meEhotls inio_rrrFa_fi4nHaweuer„we d3d~n~taudik Y s,R~ar~ ~"sar~nn~ac,c~~nn; STATE °AUOITOR Decemb er._31004 oi, rt lrerrkenv- qn resa tkaiion of the q fired' suppl nt ry: khe'fnf~`m~a~vr~;and exp~.s:no;vpEnian ori~il""' - - - -tiAfa~hl,igta+r~St:al~`1~~idiC~ar'e~.OCCire Basic Financial Statements and Schedules City of Spokane Malley Spokane County January 1, 2003 through December 31, 2003 REQUIRED SUPPLEMENTAL INFORMATION Managemept's Discussion and Analysts-2003 BASIC FINANCIAL STATEMENTS Statement of Net Assets - 2003 Statement of Artlvilies - 2003 Balance Sheet - Governmental Funds - 2009 Recancillatlan of Total Governmental Fund Balances to NPt Assets of Govemmental Acliviti" - 2003 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds - 2003 Reconciltatlan of the Statement of Revenues, Exp nditums and Changes-fn Fund Balances Governmental Funds to the Statement of Activities - 2003 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - General Fund-- 2003 Statement of Revenues. Expenditures and Changes in Fund Balances Budget and Actual - Street Fund - 2043 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - Mlrabeau Faint Project 2003 Statement of Revenues. Expenditures and Changes in Fund Balances-Budget and Actual - Street Bond Capital Projects -2003 Statement of Nat Assets - Proprietary Funds 2003 Statement of Revenues, Expenses and Changes In Fund Net Assets - Proprietary Funds - 2403 Statement of Cash Flows - Proprie#+ Funds"-2403 Notes to the Financial Statementi - 2003 Wa5hfn-ton State Audaor's Cffjw 5 MANAGEMENT'S DISCUSSION AND ANALYSIS This section of the City of Spokane Valley's annual financial report provides a narrative overview of the City's financial activities for the fiscal year ended December 31, 2003 and financial position as of December 31, 2003. This Information should be read in conjunction with the preceding letter of transmittal and the financial statements and notes to the financial statements that follow, Previous year comparable data is not available as this is the first year of incorporation for the City. Comparable data will be provided in the 2004 annual financial report- FINANCIAL HIGHLIGHTS Net assets, the amount by which total assets exceed total liabilities, equal $70.9 million. A total of 90.1%, or $63.9 million, of total net assets is invested in capital assets, such as streets, land, and buildings, and $1.3 million is restricted for capital projects. Of the remaining net assets, $5.7 million is available to meet the government's ongoing activities and obligations. The government's net assets increased by $72.0 million In 2003. The transfer of Spokane County fixed assets and infrastructure provided $70.6 million or 589A with the remainder being provided by governmental activities, $586 thousand, and business-type activities, $794 thousand. s Governmental fund balances at year end were $13.6 million. Of this amount, a total of $10.7 million, or 78%, of the governmental fund is unreserved and available to fund ongoing activities- The remaining $2.9 is earmarked for interfund loan repayments, Q Unreserved fund balance in the general fund was a negative $2.4 million. This negative fund balance resulted from initial starltip costs of incorporation and Is funded through Interfund loans from the stmt fund. 4 Total City debt incased to $9.4 million during the currant fiscal year. The City issued this amount of new debt to fund the construction of a recreation facility and for street capital projects. OVERVIEW OF THE FINANCIAL STATEMENTS The City's basic financial statements are presented in three parts: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This section of the management's discussion and analysts is intended to Introduce and explain the basic financial statements. Govemment-wide financial statements The gov+amment-wide financial statements are designed to give the reader a picture of the financial condition and activities of the City as a whole, This broad overviews is similar to the financial reporting of the private-sector businesses. The government-wide financial statements have separate columns for governmental activities and business-type activities. Governmental activities of the City include general government (inance, WANIL11100n SG31ij Audiler.0Mira 6 execWve, human resources), public safety (police), physical environment, econom€c environment, transportation, mental and physical health, and culture and recreation. The City's business-type activities consist of the wastewater and storrnwater utilities. The statement of net assets presents Information on all of the City's asset and liabilities, with the differance, reported as net assets. This statement is similar to the balance she-at of a private sector business. Over time. increases or decreases in net assets may serve as useful indicator of improvement or deterioration in the City's overall financial position. The statement of acdivitir~s prints information showing how the government's net assets changed during the most recent fiscal year. This statement distinguishes revenue generated by specific functions from revenue provided by taxes and other sources not related to a spec o function. The revenue generated by the specific fun&Jons (changes for services, grants, and contributions) is compared to the expenses for those functions to show how much each function either supports itself or reties on taxes and other general funding sources for support, All activity on the this statement is reported on the accrual basis of accounting, requiring that revenues are reported when they are earned and expenses are reported when they are Incurred, regardless of when cash is received or disbursed- Items such as unoollected taxes, unpaid vendor invoices for goods or services received during the year, and earned but unused vacation leave are Included in the statement of activities as revenue and expenses even though no cash has changed hands. The government-wide financial statements can be found immediately following this Management Discussion and Analysis (MD&A). Fund financial statements The annual financial report includes fund financial statements in addition to the government-wide financial statements. While the government-vAde statements present the City's finances based on the type of activity, general government versus business- type, the fund financial statements are presented by fund type such as the general fund, special revenue funds, and proprietary funds. A fund is a fiscal and accounting entity with a self-balancing set of accounts used to account for specific activities or meet certain objectives. Funds are often set up in accordance with special regulations, restrictions or limitations. The City of Spokane Valley, like other state and local governments, use fund accounting to ensure and show compliance with finance-related legal requirements. The City's funds are divided into two categories, governmental and proprietary. Governmental fur;'a[s are used to account for essentially the same functions as are reported as governmental activities in the government-wire financial statements. The basis of accounting is different between the governmental fund statements and the government-wide financial statements. The governmental fund statements focus on near term revenueslriinancial resources and expenditures while the government-wide fmancfal statements include both near term and long term revenues/Financial resources and expenses. The information in the governmental fund statements Gan be used to evaluate the City's near term financing requirements and immediate fiscal health. Comparing the governmental fund statements vAth the government-wide statements can help the reader better understand the long term impact of the City's current year financing decisions. Ta assist in this comparison, reconciliations between the governmental fund statements and the government-wide financial statements are Washinglon S#atr Auifitar; *Nloa 7 W_ - included with the governmental fund balance street and the governmental fund statement of revenues, expenditures, and charges in fund balances. The City of Spokane Malley maintains nine individual governmental funds. The City's four major governmental funds, the general fund, street fund, Mirabeau Paint project fund and street bond capital projscts fund are presented separately in the governmental fund balance sheet and the governmental fund statement of revenues., expenditures and changes in fund balances. The remaining governmental funds are combined into a single column labeled other governmental funds. Individual fund data for each of the other governmental funds can be found in the combining statements later on in this report: The City maintains budgetary control over its operating funds through the adoption of an annual budget. Budgets are adopted at the fund level and according to state laws A budgetary comparison statement is presented for the major funds as a basic financial statement. Other budgetary comparison schedules are included following the other governmental funds' combining statements in this report Proprietary funds are used by governments to account for their business-type activities. Business-type activities provide specific goods or services to a group of customers that are paid for by fees charged to those customers. There is a direct relationship between the fees paid and services received. The City of Spokane Valley has two types of proprietary funds, enterprise funds and internal service funds. Enterprise funds are used to account for goads and services provided to citizens. Internal service funds are used to account for goods and services provided internally to various City departments. Enterprise funds of the City 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 is reported in the govemment-wide statements. The enterprise fund statements provide information for the City's wastewater and stormwater utilities. Internal service funds are an accounting device used to accumulate and allocate casts internally among the City's various functions. The City uses internal service funds to account for its fleet of vehicles, computer equipment, and insurance claims. Internal service fond assets and liabilities are predominantly governmental and have been included in the governmental activities column of the government-wide statement of net assets- Motes to the financial statements The notes to the financial statements provide additional information that is important to a full understanding of the data in the government-~wide and fund financial statements. The notes are located immediately following the basic tinancW statements. Other Information The combining statements for other governmental funds and internal service funds are presented immediately following the required supplementary information. VV nhtnnton State Audit2ft Cft- 6 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 net assets at December 31, 2003 total $70,871,330. Following is a condensed version of tt government-wide statement of not assets. Since this is the first year of incorporation no previous year comparable data is available. Comparable data wM be provided in the 2004 annual report. City of Spokane Valley's Net Assets Current and other assets Capital assets, net of accumulated deprec:fation Total assets Govemmentai Business Type Actin' 'es Ltivitiee Tn aI $ 16,244,103 $ 1,249,913 $ 17,454,016 -64,239,734 - 134.239,734 80,443,837 1,249,913 81,693,750 Long-term liablfitles 9,554,321 - 9 554 321 Other ffabifilles Total liabilities Ba2139 455,830 , , 1258_0L9 - 10,366,590 455,830 10,82-2,420 Net Assets: Invested in capital assets, net of related debt 63,878,148 - 63 878 148 Restricted 1,322,142 - , , 1,322 142 Unrestdcled Total net assets 4.675 ,957 794.093 , 5 87.E _1,f~g0 ! 74~QI~, 74.0.93. S-M 7%3 o The largest component of the City's net assets, 75,4°x6 or $63.8 million, is its investment in capital assets net any related outstanding debt issued to acquire those assets. These capital assets such as streets. bridges, parks, and equipment, are used to provide services to the citizens. Consequently, these assets are not available to sell and convert to cash for future spending. The majority of these assets were donated by Spokane County at the time of incorporation. Approximately 1.9% or $1.3 million of the total net assets of the City are earmarked for construction projects such as street and infrastructure construction. These assets for construction come from dedicated taxes. Other functions of the City may access the remaining net assets of $4.9 mill€on to meet ongoing obligations to citizens and creditors. Examples of other City obligations which these net assets may be used for are pubric safety, employee salaries, park maintenance, and ongoing street maintenance (street sweeping, lane striping, resurfacing). At the end of the fiscal year, the Uy of Spokane Valley reported positive balances in all three categories of net assets, for the government as a whole, as well as for the separate governmental and business-type activites. ~d'a6hrn{~fo~, sr~:~ ~vdier, o s Changes in net assets The changes in net assets table illustrates the increases or decreases in net assets of the City resuiling from its operating activities. The City of Spokane Valley's net assets increased approximately $72 million in 2003. Since this the first year of City incorporation no previous year comparable data is available. Comparable data will be provided in the 2004 annual financial report- Following is a condensed version of the City's changes in net assets. The fable shows the revenues, expenses, and related changes in net assets in tabular form for the governmental activities separate from the business-type activities. City of Spokane Valley's Changes in Net Assets Revenues: Program Revenges: charges for services Operating grants & conl»butfons Capital grants & contribulions General Revenues: Property takes Sales taxes Excise taxes Other taxes lnvastment interest Total revenues Expenses: General government Public salty Physical env(ronment Transportation Economic environment Mental and physical health Culture and recreation interest on long-term debt Sewer Stormwater management Total expenses Increase in net assails before transfers Transfers Increase in net assets Net assets - beginning Governmental Business-Type Arfivities AciiXitias T S1,676,886 $ 559,510 S2,236.396 19,807 - 19,807 70,687,614 - 70,687,614 6,995,965 - 6,995,985 9,981,719 9,981,719 3,537,370 - 3,537.370 1,269,878 - 1,269,879 X68, I09 54,576 94,223,707 659.618 94,763,325 2,989,605 - 2,989,605 7,394,944 - 7,394,944 821,886 - 821,886 9,054,667 - 9,054,867 752,172 - 752,172 8,858 - 8,858 932,713 - 932,713 35,923 35,923 - 720,393 720,393 4,142 4,142 21,990,768 724,535 22,715,303 72,232,939 (164,917) 72,068,022 9~ 5_ 9 Qg0) _959,000 71,273,939 70-4,083 72,068,022 f1 98 602 - _ 9,~-6 692) Net assets-ending A-19;0ZL247 x,083 U9,1-1- , Govemmentat activities contributed $71.3 million of the total change In net assets of $72 million- Key elements of the increase are as folly: » Donation of infrastructure and parks from Spokane County accounted for $70.7 million of the increase in governmental activities net assets, Addidonaliy, the City Washfn jtan SWn E Aur Awjs Office 10 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 net assets increased approximately $72 million in 2003. Since this the first year of City incorparation no previous year comparable data is available. Comparable data will be provided in the 2004 annual financial report, !Following is a condensed version of the City's changes in net assets. The table shows the revenues, expenses, and related changes in net assets in tabular form for the governmental activities separate from the business-type activities. City of Spokane Valley's Changes in Net Assets Governmental Euslne~,,s-Type Art7lvitiWi Activities io_ f SA Revenues: Program Revenues: Charges for services $ 1,676,886 $ 559,510 $ 2,236,395 Operating grants & coriMbutions 19,807 - 19,607 Capitai grants 8 contributions 70,667,614 - 70,6-37,614 General Revenues; Properly taxes 6 995,965 - 6,995,965 Sales taxes 9,981,719 - 9,981,719 Excise taxes 3,537,370 - 3,537,370 Other taxes 1,269,878 - 1,269,678 investment interest 54.488 IQ_6 54,576 Total revenues 94,223,707 559,618 94,783,325 Expenses= General government 2,989,605 - 2,989,605 Public safety 7,394,544 - 7,394,944 Physical environment 821,686 - 821,BBS Transportation 9.063,975 - 9,06-3,975 Economic environment 752,172 - 752,172 Mental and physical health 8,858 - 8,858 Culture and recreation 959,328 - 959,328 Sewer - 720,393 720.393 Stormwaber management - 4,142 4,142 Total expenses 21,990,768 724,535 22,715,303 Increase In net assets before transfers 72,232,939 (164,917) 72,068,022 Transfers 9 959,0:00 - Increase in net assets 71,273,939 794,083 72,008,02.2 Net assets -beginning 1.19§_61,21 - X1.196&921 Net assets-ending x,247_ 9 794_j293 UQ Q71.33A, Govemmenfad activities contributed $71.3 million of the total change in net assets of $72 million. Key elements of the increase are as follows: Donation of infrastructure and parks from Spokane County accounted for $70.7 million of the Increase in governmental activities net assets. Additionally, the City Wan_hfrgigm Slalo Auditzes Office 11 received $19,807 in grants for developing a growth management plan. Grants and donations are recorded as program revenues in the statement of activ€fies. Sales taxes accounted for appro)eimatety $10 million in revenues in year 2003. The City recaived $7 million in diverted County Road Taxes that a new city receives in its first year of incorporation. Other taxes received were real estate excise taxes ($1.5 million), motor vehicle fuel taxes ($1.4 million), and hotetlmotel room taxes 221 thousand). a This being the first year of incorporation the City aggressively monitored contract service costs and staffing levels. The net result was a first year unresMcted reserve of $4.9 million for governmental activities. Business-type activides of the City's sewer and wastewater Oiities increased the City of Spokane Vatiey's net assets by $794 thousand, accounting for 11% of the total growth in the government's net assets. Key elements of this increase are as follows! The Stomywater Management fund accounted for an increase of $555 thousand of the Increase. The primary revenue source is a storrnwater management fee imposed upon real property. There were no s'tormwater related expenses. The Sewer fund utility accounted for an Increase of $239 thousand. The revenues for the fund came entirely from transfers from other funds- Expenses are for street asphalt overlays done during new sewer construction. FINANCIAL ANALYSIS OF THE CITY'S FUNDS As discussed earlier, the City of Spokane Valley uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Govemrnental funds The purpose of the City's governmental funds is to report on near terra revenuestfinancial resources and expenditures. This information helps deteifnine the City's financial requirements in the near future. In particular, unreserved fund balance is a good indicator of the City's resources available for spending at the and of the year. At the end of the current year the City's combined ending governmental fund balance was $13.5 million. Of the total ending fund balance, $2.9 million is reserved for interfund loans. Of the remaining fund balance, $10.5 million is eamiarked for capital construction projects, $2.6 million resides with special revenue funds, and the General fund has a deficit fund balance of $2.4 million. Major governmental funds The general fund is the primary operating fund of the City through which all receipts and payments of ord€nary City operations are processed, unless they are required to be accounted for in another fund. Taxes are the major revenue source however the city does not receive property tau in its first year of Incorporation. At the end of 2003 the fund balance of the general fund was a deficit $2.4 million. w4®si~lfl td~ Sbtte AuditaY50[Hue YL The general fund deficit balance Increased by $1.0 million from the beginning deficit balance of $1.4 million. Revenues were less than projected for sales taxes and fines and forfeitures. The beginning deficit fund balance resulted from incorporation start-up costs, The street fund has a fund balance of $5 million, an increase of $5.1 mllllon over the beginning deficit balance of $87 thousand. Approximately $2.9 million of the fund balance is reserved for an interfund loan to the General fund. Diverted county road faxes at;:caunted for the majority of revenges in the street fund. In the first year of incorporation a new city is not required to assume responsibility for street maintenance until 60 days from the date of incorporation. As a result, maintenance costs were approximately $1.5 million. A transfer of $959 thousand was made to various funds for street construction projects. Tha street fund made the general fund an operating loan for $2.9 million. The Mirabeau Point capital project fund has an ending fund balance of $6.9 million. The fund aunts for bond proceeds issued for the construction of the CenterPlace recreation center. Construction costs were $100 thousand and bond issuance costs of $85 thousand. The street bond capital projects fund has an ending fund glance of $2.4 million. The fund accounts for bond proceeds issued for the street construction projects- Construction projects are budgeted for the 2004 budget year. Bond issuance costs amounted to $24 thousand. Proprietary funds The City of Spokane Valley% proprietary fund statements provide the same type of information found in the government-wide financial statements, but in more detail. Factors concerning the finances of the Ci y's proprietary funds have been already been addressed in the discussion of the City's business-typo activities. GENERAL FUND BUDGETARY HIGHLIGHTS Being the first year of incorporation the General Fund budget was based upon estimates from the various sources including the Washington State Boundary Review Board for Spokane County and Spokane County. In total, actual revenues were $1.6 million less than budget or about an 11% difference. The total actual expenditures were approximately $1.4 million less than budgeted or 9% below budget. The City Council amended the expenditure budget during 2003_ The amendments resulted in an increase of $612 thousand, less than a 4% change between the original and final budgets. The primary change In the expenditure budget was due to increased expenditures for start-up costs related to incorporation. On the revenue side of the budget, the primary difference between the final budget and the actual amounts relates to tax revenues and fines and forfeits. Sales tax revenges were $1.2 million or 13% less than budget< Original estimates for sales tax revenues were done in 2001. Projections for succeeding years were based upon a projected growth rate of 2% per year. Actual sales tax growth rates for the last 3 years have been flat. Washf"tov State Aucftrs Once - - - - - 13 Fines and forfeits were $ thousand lass than budget or 51% less than budget. The primary difference relates to traffic infractjons. Citations issued after the date of incorporation take from 6 to 10 weeks to work their way through the court system. As a result the projected amount of fines & forfalts was not realized until five months after Incorporation- On the expenditure side of the budget, the largest variations between the final budget and the actual amounts were the under expenditure of the public safety function by approximately $717 thousand and capital expenditures by $22D thousand, Generally, city staff reduced spending by 10 to 15 percent in all areas In anticipation of lower the budgeted revenues. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets As seen earlier, in the summarized table of the Govemment-Wide Statement of Net Assets, the City's investment In capital assets for the fiscal year ended December 31, 2003 was $,64.2 million= net of accumviated depredation. This investment in capital assets includes land, buildings, improvements. machinery and equipment, construction in progress, and infrastructure. Add itionat information can be found in Note 5 of this report Major additions to capital assets during the fiscal year includad the follavring: Spokane County donated $707 million dollars in capital assets upon incorporation of the City. Of this amount, $67.8 million was infrastructure assets such as roadways, signals, and bridges, The balance of $2.8 million was various park properties- Equipment purchases related to the start-up of new city totaled $735 thousand. The equipment included vehicles, computers, telephone system and leasehold improvements for city hall. ■ Construction in progress on for the Centerplaco Recreation Center totaled $399 thousand dollars. The following table provides a listing of the capital assets (net of accumulated depreciation) at December 31, 2003. Land Buildings Other improvements Infrastructure Machinery and equipment Construction in progress Total Govemmentat Activitles _ $ 1.548,655 315,627 1,421,098 60,271,897 1563, 330 39$.826 Wash ngtniti St9te Author v C]ffhM 14 Lang-Tenn Debt At the end of the current fiscal year, the City of Spokane Valley has total bonded debt outstanding of $9,430,000. This amount is back by the full faith and credit of the City (general obligation bonds) with debt service fully funded by general government revenues. Under State of Washington statutes general obligation indebtedness for general purposes pursuant to a vote of the electorate is limited to 2%% of actual value of taxable prop" located within the City. Non-voted general purpose indebtedness is Limited to 1.5% of assessed valuation and the combination of voted and nor-voted general purpose indebtedness cannot exceed 2,5% of assessed valuation. The assessed valuation of the City for the year 2004 for purposes of determining the legal debt margin is $4,409,259,651. Remaining debt capacities for the City for general voted and non-voted purposes (2 is limited to $100,745,098. The City of Spokane Valley maintains a A3 rating from Moody's for its non-voted general obligation debt. Additional information regarding the debt limitations and capacities can be found in Note 11 and in the Statistical Section of this report- ECONOMIC FACTORS AND NEXT YEARS' BUDGETS AND RATES Several factors that affect the economic: climate in the City of Spokane Valley were considered when preparing the City's 2004 budget The outlook for the regional economy was weighed in relation to its expend impact on the City of Spokane Valley. The character of the City, including its current and future business activity and its attraction as a place to five, was evaluated. Based on the budget analysis, the City°s future is promising amid some short-term challenges. As the nation emerges from a moderate recession with a waak tabor market job growth in Spokane County is expected to increase by just 1 percent, which amounts to about 2,000 jobs. That is roughly the same amount of growth as in 2003. At the end of 2003 the unemployment rate in Spokane County was 6.8 percent. Coming off a record sales year for residential real estate, 2004 is expected to be another strong year for sales. Mortgage rates are slowly rising which will effect residential sales somewhat but some regional advantages may offset any effect from the rise in interest rates. As the national economy rebounded in 2003, the region experienced a resurgence in taxable retail sales. For the first three quarters of 2003, Spokane County's total taxable retail sales grew by 3.4 percent, compared with the same period in 2002 Many experts bel€eve retail spending in 2004 will depend in large degree on wage and job growth. One area of concern is the Sprague Avenue retail corridor. Loss of retail businesses on Sprague has resulted in 440,000 and 450,040 square feet of vacant office. The City retrains committed on encouraging economic development with family wage paying jobs. WVashington 51 a le Auditw% Office 05 The City contracts with Spokane County for a majority of city service delivery including public safety, park malntenance, and street maintenance. These contracts were expected to increase moderately In 2004. These factors were considered when adopting the City's budget for 201x4. The city adopted the maximum property tax levy as allowed by law, $2.10 per thousand dollars of assessed valuation for its own purposes. Budgetahlyr no general fund tax Increases were made in the 2044. Expenditures were budgeted at levels to maintain service delivery at 2403 levels. REQUESTS FOR FIMNICAL INFORMATION This financial report is designed to provide a general overview of the City of Spokane Valley's finances and to demonstrate the City's accountability. if you have questions about this report or need would Ilke to request additional Information, contact the City's Finance Department, 11707 E- Sprague Ave, Suite 106, Spokane Valley, Washington 9920& wiafil I Iun State Auditafis Office 16 Statement of Net Assets December 31, 2003 Assets: Current assets: Cash, cash equivalents and pooled investments Receivables (net): Taxes Accounts Internal balances Total current assats Capital assets (net of accumulated depreciation): Land Building and system Improvements other than buildings Machinery & equipment Infrastructure Construction in progress Total capital assets Total assets Liabitities: Current tiabilities: Accounts payable Taxes payable Accrued liabilities Bands & deposits payable Other current liabilities Total current liabilities Noncurrent liabilities: Due within one year Due in more than one year Total noncurrent liabilities Total liabilities Net assets: Invested in capital assets not of felated debt Restricted for. Capital Projects Unrestricted Total net assets Prima.y Govemment Governmental Business Type Activities Activities Total $ 13,174,350 $ 535,685 S 13,710,035 3,567,290 121,463 (Q59,000) 16,204,103 1,548,655 315,627 1,021.099 683.330 60.271.n7 398,626 64,239.734 80.443.937 557,725 388 161,949 86,700 5,516 812,269 149,845 9,404.476 9,554,321 10,366,590 1,249, 913 423,730 32,100 455,830 455.830 $3,878,148 1, 322,142 4,876,957 $ 70.OT7,24T 794,083 794,OB3 The notes to the Financial statements are are integral part of this statement. 55,228 659,000 1,249,913 3,622,518 121,463 17,454.016 1,548,655 315,827 1,021,099 683,330 60,271,997 398,826 64,239.734 81,693,750 981,455 368 161,940 118,800 5.516 1,268,099 149,845 9,404.476 9, 554, 321 10,822,420 63, 878,148 1,322,142 5,671,040 $ 70,671,330 Washmgtun State Auditor& Office 17 Statemorlt of Act(vlUes For the Year Ended December 31, 2003 ~I ~I a ~m k Pro m Ravanuue Not (FAponmanj RavY nuo and C han ■ In NPt Amnara Opamung Capital _ Primary ftvemomant Charges for Gratis and Grants and Governmental Bucinoaa-typo Ern IonarProAmma nvnses Services Contr butigns Cont budanar Activitias Total Primary Govnrnmant: Government a0bVitles: General govemment 2,9$9,805 207 (2,989.398) - (2,988,398) Publlc safety 7,394,844 1317,859 _ (0.777,065) - (O.T",065) Pbysfruii env;mnment 821,686 28,495 - - (793,368) (793,388) Tran5p.orla11an 9.054,667 20.294 - 67,745,447 58,751,M4 - 56,751,063 Economic environment 752,172 887,81311 19,907 155,521 - 1-55,521 MenWl and physical health 8,858 - - - (a,956) - (8,856) Culture and recrerftn 932,713 122.152 - 2,002,167 2,OB1,609 - 2,091,605 role met on long-term debt 35,923 - - - (35 923) _---f3b,923) Total.gove mmontai actl0i95 21,990,794 1,876,866 10,807, _70,887,1314 SD,393,639 - 50,393,539 Buslrsess-lype =Wltles, SSwar 720,393 - - - - (720,393) (720,393) Starmwetar Management 4,142 559,510 - - - 555,368 555,368 Toga businas"Wo Adiviliez 724,535 559,510 - - - 165,025) {495,tl25) Tetel primary goverrlmanl $6 22,715,303 2,238,399 19,807 70,687,914 59,393,5311 X25) 50,228,514 Genaral Revenues'. Taxes Property muss 8,fl95,9B5 - 13,995,965 Soles and use tax 6,981,719 - 8,981,719 Exdso texos 3,537,370 - 3,537,370 QtheT taxes 1,2+39,87$ - 1,269,878 Investmehlearnlrrgs 54,469 108 54,576 Translem (959,000) ^ 259,00D - Total general ruvenues and trensrers 20,C*0,40 0 9S9,1DB 21,639,509 Change In rMl assets 71,273,939 794,083 72,068,022 Not osseis at (5aglrlnln,2 of year (1,196,692) - 01,7136,692) Net asaetsat end CIFyear S 70,477,247 7€4,093 ~ 70,971,33D The notani to the fl non dal statemonts are are integral part of thkii statement. Balance Sheet Governmental Funds December 31, 2003 Assets: Ce,h, cash equivalr nis and pooled Invewnents Raaaivables (net) Taxes Accounts Due from alhar funr3s Intaffund loan rerz4ivable Total assets UabliHies and fund valances; i_labli ss: A=unts payable TaxBe payable Due to 001 er funda Inta*nd loan Payable sands & dopm[L~6payable O,sr accrued liabilities O#her current Habirities 11321 rred wvenuea "fatal Uablfities Fund 8alenceS: Reserved for_ Nonaurrer t reoeivablos Unraefve,d, n: pond 1n- General Fund Special Revenua Capital Prvj~aQs Total fund balances Total IlWli les $ fund balances Ofw Tala1 Gvnarinl Street h11r bezu Street Bond Gwan mental Gnvemrnart3l Fund Fund Po1nt. Pro ezt CA t 31 Prolecis Fund= Funds 6 15,482 5 2,130,419 S 6,882,317 $ 2,445,056 S 1,832,685 $ 13,105,961 1,511,656 458,216 - - 170.447 2,159,616 121,46 - - - - 125.463 729 828,21!1 - - 79,000 907,945 8953 DIM - 2 ~ 9Q 040 7.64 8,301,851 S ea S 24450ts8 S T,B91` S 19, 211,835 2PB,052 5.492 368 - 830,961 859,022 2.890,00+0 86.700 - 64,975 4,644 _ 2.167 3,349 - 362,799 4.067.020 11255,886 9,482 - 2,990,040 _ - 112,090 555,469 388 78,000 11.5FB,983 - - 2,890,G0D 65,70€1 " - 69,619 5,515 i - 357.799 191.090 5,539,474 ' - 2,890.lSUU (2,437,396) (2,437,396) 2,160.995 - - 508,365 2,669,350 _ 6,878,85 _2445,056 1,191.677 513,560 (2,437,3 105 O 0,985 676,5 2 5,4x8 1.700,042 13,E35,514 3 1,849,630 5 F3,3t76,851 5 8,882,317 445 0S8 $ 1 .891,132 $ 19,174,988 The nines to the frnantiiEl V.ataments are An in gral part of this staWment_ Wash"10n Stag Auditors Dffim f9 Reconciliation of Total Governmental Fund Balances to Not Assets of Governmental Activities For the Year E=nded December 31, 2003 Tatal government fund balances Amounts reported for govemmental activities in the statement of net assets are different tec~ause- Capital assetS used In governmental activities are not financial resources and therefore are not reported in the funds. These assets consist of. Land 1,548,655 Construction in progress 398,826 Buildings a98.729 lmprovemerils other than buildings 2,161,262 Machinery and equipment - General Government 85,229 Infrastructure 202, 552,59 4 Less: Accumulated Depreciation (144,048,538) Revenues are recorded when earned and expenses are recorded when a Ilability Is Incurred, regardless of tirning of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are reoognlred as ravenue as soon as all the eligibility requirements imposed by the provider have been meL These revenues are therefam not reported in the funds. These revenges consist of Sales and use tax 1,252,303 E=xcise tax 138,800 Other taxes 16,994 Investment eamings 9,574 Long-tarrn liWilities, Including bonds payable are not due and payable fn the current period and therefore are not reported in the funds. These long-term liabilities consist op Bonds payable (9,584,321) Accrued interest (35,923) Compensated absences (56.398) Deferred revenue 362,799 S 13,635,514 63, 626,758 1,417,671 (8,283,843) Intemat service funds are used by management to charge the costs of certain activities, such as equipment rental, self-insurance, information technology and facility services to individual funds. The assets and liablllties of the Internal service funds are included in governmental activities in the statement of net assets. 1381,149 Net assets of governmental activities $ 70,077,247 The notes to the financial statements are an Integral part of this statement, W I n9ton Ste Aud-ftes Of iw- 20 Statement of Revenues, Expendlturea, and Changes to Fund Balancers Goverrimantal Funds For the Year Ended Dumber 31. 2003 1alfrer TOW Genarul Street Mirabeau Sheet Band t avemmental GovemmanU Fund Fund Paint Froied OapHal Pro amt Fundn Funds - Revanua6: Taxao S 9,258.661 $ 6.633,165 - $ - S 1,594,933 S 17,486,759 Lo,-nsas and pezmAs 1,089,165 - - - - 1.088,165 InterUmmmmenlat revenues 706,443 963,581 - - 451,941 2.124,955 CharBas far serviws 477,342 - - - - 477,342 Fines MW fwr--infra 533,495 - - - - 533,496 MiSCsellaR?aus 23,079 31.222 14.140 403 666 73,110 Toffi1 revenues 12,t]87L$5 7,630 SfsB 14.140 _ 4,01!3 2,047,540 21,763,837 Expendit ms; Cununk Gsne►al gu+rmment 2,838.996 - 31.180 6,619 2,874,E97 Public sef©ty 7,394,857 - - - - 7,394,657 Physiml envimnrnent 617,532 - - - - 917,532 Transportation - 1,484,775 - - 17,109 1,511,694 Ewnmicen0onment 72'1,116 e - - 35,425 757,541 Mental OW phocal health a,e5e - - - - 8,858 CuMure and mcmWfon 879,047 - - - - 679,047 Debt SEM--O= Principal - - - - - - Interest 34,891 - - - - 34,891 Band 1--&rrance cas48 - - 84,:528 24.491 - 109,019 CaplialOullay ^475.225 41,610, 103,863 2N,904 923,662 Totalexpenclitures 13,165,524 1534365 2113,571 31.010 347,498 15,314.939 Excess (dsrficianc4 of rovenue over (under) expendAure s 1-- ~.r 6 ~SB3 f 205,43 (27.0071 1,7im,tk42 6,481.849 Other f=ncing sources (mesp TranOem fn - - - - 312;103 312,143 Tmrrcfr~rs out (95+9,000) - - (312,1133) It 271.1D,3) Lerrg-torrn debt Issued - 7,000,01) 2.430.000 - 8.434.000 Premium on long-term debt - - 131,947 59A639 - 191,465 Discaunt on long-tern debt - - (49,591) (17,573 (87,ifi4) Total other finanting sources (uses - (959,M) 7,082:v% 2,472,065 Nutchanga in fund balance (1,082,338) 5,137,683 6,870A25 2,445,058 1,746.D42 15,077.170 Fund balapm - beglnning Fund balance -ending _C1,355,058 y (36,698) S (2,437,396} S S,0ZA98S S 6,876,U5 S 2.445,058 S 1100.6142 S 13.635,514 The notes to the Finandnl staterrmenW are an nlegml pag of this Utatpmant. Wasningtnn State Auditor's Otg5w 21 Reconciliation of the Statement of Revenues. Expenditures, and Changes In Fund Balances Governmental Funds to the Statement of Activities For tha Year Ended December 31, 2003 Net change In fund blances -total governmertal funds $ 15,077,170 Amounts reported for governmental activities in the st2turnant of activites are different because: Governmental funds report rapitai outlays as expenditures. However, in the statement of activities the cast of these assets Is 21loated aver their userui Ilve. and reported as depreciation expense- This is the amount by which capital outlays exoaeded depredation in the current period. (a,Cs55,fiQ4) This is comprised of Capita! Outlays 923,667 Corrent year depreciation (7,579,266) Revenues In tl'r8 statement of actMt[es that do not provide current financial r ,ours are not reported as revenues In the funds_ 72.468,084 This is comprised of Donated assets 70,587,614 Deferred taxes 352.799 Sales and use tax 1,252,303 Exdse tax 138,800 Other taxes 18,894 Investment earnings 9,574 Bond proceeds provide current financial resourms to governmental funds, but issuing debt increases long-term tlablfities In the statement of nH assets_ Repayment of long-tern debt is an a(penTNre in the govennmental funds, yet, the repayment reduces long-term I IabTtias In the statement of net assets. This is the amount by which repayments exceeded proceeds. (9.554,321) This is comprised of Prods from issuance of limited obligation bonds (9,554,321) Some expenses reported in the statement of adivitiss do not require the use of current fin anc al res-ourues and therefore are not reported as expenditures in the governmental funds. (87,321) This Is camp qsed of: Accrued Interest expense (35.923) Accrued compensating absence expense (56,398) Internal service funds are used by management to charge the cost of certain activities, such as equipment rental, self-insurarice. information technology and facility services to tha individual funds. The net revenue (expense) of these internal service funds is reported with govemmentaf activities. 30.931 Change in netaasets of gavernrnental activities S 71,273,939 The notes to the finandal statements are an integral part of this statement. Washinglern Sizue Au[1,40t'5 Ofrire 22 r. General Fund Statement of Revenues. Expenditures, and Changes In Fund Balances Budget and Actual For the Year Ended December 31, 2003 Revenues: Taxes Licenses and permits I ntergovem mental revenues C"e-s for services Fines and forfeitures Miscellaneous Total revenues Expenditures: Current General government Public safety Physfcal environment Economic environment Mental and physical health Culture and recreation Debt Service: Principal Interest capital outlay Total e"- ditures Excess (deficiency) of avenue over (under) expenditures Not change in fund balance Fund balance - beginning Fund balance - ending Budgeted Arnounts _ Actual Amounts original _ Final a BY ets Basis $ 10,472,500 1,102,000 528,000 419,000 1,099,000 21,00 13 B41 500 $ 10,472,500 1,102, 000 528,000 419,000 1.099,000 21,000 13641.500 $ 9,258,661 1,088,165 70G,443 477.342 533,496 23079 12,1}87,1 SB 2,674,204 8.075, 894 845,233 757,702 10,400 933,172 50,000 23,000 523 295 13,892,900 251,403 (251,400) 1,355,0,58 S 1 606 458 2,980.704 8,111,894 872.795 802,644 10,400 951.672 50.000 23,000 701,295 14,504,400 802 90 (86.2,900) 1,355,058 L .Q..217.958 The notes to the Financral ststemenls are an integral part of this Statement- 2,836.998 7,394,857 817.532 722,116 a,e r8 879,047 34,691 476,225 13.169,524 (1.082,33-5) (1,082.338) ~~1,355.OS8} Z 437.396 Variance wM Final Budget Positive ~Ne atiVe} $ (1.213,839) (13, 835) 178,443 68,342 (565,504) ,079 -A , 5~54,314j 143,706 717,037 55,263 80,524 1,542 72,625 50,000 (11,891) 2-26070 1,334,876 219,438 (219,438) $ (219,438) Waahin~[On Staty Aud11&5 05ce 23 Street Fund Statement of Revenges, Expenditures, and Changes In Fund Balances Budget and Actual For the Year Ended December 31, 2003 Revenues: Taxes Intergovernmental revenues Miscellaneous Total revenues Expenditures: C u rrenU Transportation capital outlay Total expenditures Excess (deficiency) of revenue over (under) expenditures Variance vAth Budgeted Amounts Actual Amounts Final Budget Positive Original Find Budge" Basis N atir~a $ 6,757,063 S 6.757.063 6,633,165 $ {i23,99B} 883,900 883,900 966,581 , 82,681 - _ _ 31,222 31, 222 7,640,963 7.640,963 7,830,988 (9 m) , 2,790.075 2,698.200 1,484,775 1,213,425 54,000 54,0Q0 49.610 4,390 2.644.075 2,752,200 1,534,385 1L217,815 _4,7961888 4,888,183 5,.096,583 1.207 Other financing sources (uses): Transferor In 400,000 (400,000) Transfers out 1.000.000) (1,000,000) 959,000 41,000 Total other financing sources (uses) (600,0001 1.000 000 X959,000} _59.000) Net change In fund balance 4,196,888 3,888,763 Fund balance - beginning (86,598 86 598 Fund balance - ending $ 4.110t290 $ 3.802.165 The notes to the financial statements are an integral part of this statement. 5,137, 583 _86.598) s 5,~`,9a5 849,820 $ E148,820 Wm-hington 5i0te At4 itoYS of cQ 24 Mlrabeau Point Project Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual For the Year Ended December 31, 2003 Revenues: Miscellaneous Total revenues Expenditures: Current: General government Debt Service: Bond issuance costs Capital outlay Total expenditures Excess (deficiency) of revenue over (under) expenditures Other financing sources (uses): L.ong-term debt issued Premium on long-terra debt Discount on long-terra debt Total other financing sources (uses) Net change in fund balance Fund balance - beginning Fund balance - ending Variance with Anal Budget Buffeted Amounts _ Actual Amounts €'ositwe _Qrlginal Final Budgetary Basis (Negative) - $ - $ 14,140 $ 14,140 - - 14,140 14,140 - - 31,180 (31,180) - 200,000 84,528 115,472 300,000 103,863 196,137 500,000 219,571 280,429 - (500,000) (205,431) 284,569 500,000 7,000,000 6,500,000 - 131,847 131,847 (49, 591) (49,591) 500,Om 7,082,256 6,582,256 - - 8,876,825 6,876,825 $ - $ 6,876,825 $ 6,876;825 The notes to ft firtancJal statements are an Integral part of this statement. Washington State Auditor's Office 25 Street Band Capital Projects Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual For the Year Ended December 31, 2003 Revenues: Miscellaneous TOW revenues Upenditures: Current General government Debt Service: Band issuance costs Capital outlay Total expenditures Excess (deficiency) of revenue aver (under) expenditures Other financing sources (uses): Lore}-term debt issued Premium on long-tern debt Disvount on long-tern debt Total other financing sources (uses) Netctxange in fund balance Fund balance - beginning Fund balance - ending Budgeted Amounts Oftnal Final $ - S Variance with Final Budget Actual Amounts Positive udgeLm Basis (Nenatfvel 3 4 003 S 4,003 003 4,003 6,5i9 (6,519) 24,499 (24,491) ?,4 0000 _ 21430.000 2,430.000 31,010 2,398,990 (2,430.000 27 00 2,402,993 2,430,040 2,430,000 - - 59,638 59,639 - {17.573) (17,573] 2,430,000 2 472 065 42,065 - 2,445,058 2,445,058 Q - 2,445,058 S 2,435,058 The notes to the frnanciai statements are an Integral part of this statement. Washington State Audttor% Office 26 Statement of Net Assets Proprietary Funds December 31, 2003 Assets: Current assets Cash, cash equivalents and pooled investments Assessments receivables (net) Due from other funds Total current assets Gusiness4 a Activities - Enterprise Funds Stormwater Sewer management Total Governmental Activities - Internal Service Funds $ 3,337 $ 532,348 $ 535,685 $ 68,389 - 55,228 55.228 - 659,000 - 6551000 2,767 662,337 587,576 1.249.913 71.156 Capital assets: Machinery & Equipment Less accumulated depreciation Total capital assets (net of accumulated depreciation) Total assets Llabilitles: Current Liabilities: Accounts payable Due to other funds Deposits and other payable$ Total liabilities Net Assets: invested in capital assets Unrestricted Total net assets 662,337 587,576 1,249,913 423,730 - 423,730 - 32,100 32,100 423,730 T 32,100 455.830 238,607 555.476 7~ 9 $ 238,607 555,476 5,083 The notes to the financial statements are an integmi part of this statement- 650,218 (37,Z49) 612.976 6$4 134 2,255 729 2,985 612,978 68,171 $ 681,149 V+fa~hmgtan 5159 Auditors Offiae 27 Statement of Revenues, Expenses, and Changes Its Fund Net Assets Proprietary Funds For the Year Ended December 31, 2003 Business-type ActivIdes - Enterprise Funds Operating Revenues: Charges for services Total operating revenues Operating Expenses: Administragon operatlons Depretiaticn Total Operating expenses Operating Income Stnrmwster Sewer Marla 2ment Total 5 - 3 559.510 $ 559,510 555,510 559,510 - 3,60# 720,393 538 720.393 4,142 20,333 555.369 Govemmental AcWties - lntemal Service - Funds S 97,001 97.001 3,604 - 720,931 28,533 - 37,240 724.535 66.073 165.025 30,928 Nonoperating revenues (expenses): Interest Income - 108 106 Total nonoperaling avenues (expenses) - 108 108 Income before antribLdons and transfers (720,393) 555,476 (164,917) Contributions and transfers: Transfers in Capital Contribuf3ons Change In net assets Net assets beginning of the year Net assets end of year 959,000 - 959,400 238,607 555,476 794,083 3 3 34,931 650,218 681,149 $ 236,607 $ 556,475 $ 794,083 691,149 The notes to the financial statements are an integral part of this statement. Washirsgtwi Slago Auditors Office 213 Statement of Cash Flaws Proprietary Funds December 31, 2003 Cash flows from operating activities: Business Activitles - Ente rise Funds Governmental Activities stourmater internal Service Sewer Ma the t Total Funds Cash recervei from c ustumars and users S - $ 536,362 $ 536,362 - Receipts from interfund services provided - - - 94,234 Payments to suppliers and for servk-a _ (296,6631 L4 14_2} 00 605 25,848 Net cash provided (used) by operating activities 663 532-240 235.577 69,385 Cash flows from noncspital financing activities: Transfers In (out) Net cash provided (used) by noncapital and related rmancing activities Gash flaws from investing activities: Interest recelved Net cash provided (used) by investing activities Net Increasa in cash & cash equivalents Cash & cash equivalents. March 31, 2!003 Cash & cash equivalents, Dumber 31, 2003 304 ODO - 300,000 300,00D ~ 303,000 409 _ 109 3 108 108 3 3.33T 532,348 535,685 88,389 S 3,337 SS532,U81 S 535,855 5 68,389 Reconciliation of operating income to net cash provided (used) by operating acllvitfes: Operating Income (loss) S (72D,393) S 555,369 $ {165,026} $ 30,929 AdJustmrnts to n'concite cparatin irimme to net cash provided (Used) by operating activilres: Depreciation 37,240 Changes in assets and liabilities: (Increase) decrease in accounts receivable - (55,2-28) (55,228) - (Increase) decrease in due from other funds - _ (2,767) (Increase) decrease in accounts payable 423,730 - 423,730 2 256 (Increase) decrease in due to other funds - - - , 729 (Increase) decrease in customer deposits - 32,100 32,100 - Total adjustments 423,730 (23,120) 400,502 37,459 Net cash provided (used) by operating acbvities $ (295,663) S 531240 S 235,577 S q 386_ Noncash Investing, capital, and financing activities: Contributions of capital assets from other funds - 00.218 The notes to the financial staternents are an integral part of this statement War,h, Von Star Aunt Qlfpw 29 NOTES TO THE FINANCIAL STATEMENTS December 31, 2003 NOTE 7 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES The City of Spokane Valley eras Incorporated on March 31, 2003: The City operates under a Counclt - Manager farm of government The City's major operations, as auftrized under the taws of the State of Washington applicable to a non-charter cods ctty, include planning & zoning, pubfic safety, public waft, and recreation & culture. The accounting and reporting policies of th9 City relate to the funds inducted In the accompanying Onanctal statements conform to generally accepted a=unting priInciples (GAAP) applicable to state and local governments, GAAP for local governments include arose principles prescribed by the GovemrnsnW Accounting Standards Board (GASS'), the Financial Accounting Standards Board (FASS), when appnt:abfe, and the Amekan Irmtituta of Certified Pubiiu Accountants (AICPA) pronouncements that have been made applicable by GASB StAernents or Interpretation, A. Reporting Entity As required by GAAP the City's financial statements print the City of Spokane Valley - the primary government: There are no component unils (either blended or discretely presented) Included In these scat ments, B. Government-Wide and Fund Financial Statements The City's basic financial statements Include both government-wide (reporting the City as a whole) and fund financial staternanls (reporting the City's major funds). Both the government-vide and fund financial statements calegorJzx, primary actividess as either government or business-type. The government-wide financial staatanients (i.e., the statement of net assets and the statement of changes in net assets,) report Information on aIJ of the rtonfiduciary acWl" 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 intergavernmental revenues, are reported separately from business-type activities, which rely to a significant extent en fees and charges for support. The statement of activities demonstrates the degree W whlr-h the d€r€ct expenses of a given (unctlon or segment are offset by program revenues- Direct expenses are those that are clearly ldenUf-rable witty a specific function or segment Program revenues Inciuda i) charges to customers or applicants who purchase. use, or directly benefit from goods, services, ar privileges provided by a given function or segment and 2) grants and contributions that are restricted to rneefing the operational or capital requirements of a particular function or segment- Takes and other items not property Included among program revenues are reported as general revenues- Separate financial statements are provided for governmental funds, proprietary funds, and fiduciaryy funds. The city has no fiduciary funds. Major individual funds are reported as separate columns while the remaining funds are combined for presantation purposes in the governmental funds statements and the proprdatary funds stMernents. C. Measurement Focus, Basis of Accounting, and Financlal Statement Presentation The government-wade financial statements are reported using the economic remurces measurt ment focus and the accrual basis of ace unting, as are proprietary funds. Under this approach, revenues are recorded when earned and expenses are recorded when a liability Is incurred, regardless of tl a timing of ►alated cash flows_ Property taxes are recognInd as revenues wmMiragwn State Audstar'u Ofiica 3U In the year for which they are levied. Grants and similar items are re=gnlzed as revenue as soon as all the eligibility requiraments impaled by the provider have been met. Gavernmentaal fund financial statements are reported using the cunl5 rt frnanrjal resources measurement locus and Pie modr7i©d accrual basis of accounting. Revenues are r nL ed as scan as they are both measurable and available. Revenues are considered to be available when they are collectable within the current period or won enough thereafter to pay liabilities of the currant period. For this purpose, the govemrant considers revenues to be zVelable if they are collected within 30 days of the and of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual aezounting, However. debt service expenditures, as well as expend€kuw rued to compensated absances and claims and judgments are recorded only whan the paymenl is due_ Property taxes, franchise taxes, licenses, and interest associated uvith the current fiscal period are all considered to be susceptible to acmatl and so have baen recognized as revenues of the current fiscal p°nod. 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 am considered to be measurable and available only when cash is rived 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 a=punted for In another fund- The Strea# Fund is responsible for the maintenance of all city streets and bridges. Also, construction activities for gaty streets are coordinated through this fund. The Mirabeau Point Project Fund accounts fear monies rived from bond proceeds to to used for the construction of a mutli-use community enter and acquisition of furnishings. The Sb-e t Bond Capital Projects Fund accounts for cronies received from bond p=eeds to be used for various capital street projects- The city reports the fo IDWIng major proprietary funds. The Sewer Fund is responsible for paying for the reconstruction of Uhe streets after cornplation of the sewiaring project. The Stomtiwat~tr Management Fund accounts for the receipt and expenditure of tha stormwater management fee The expendtures are used for stonrcwatar control construction and management. Additional, the government regorls the following fund types: Special revenue funds account for arterial street ronstructian and maintenanm, hcWmotel tax revenues and expenditures, and revenues & expenditures for paths and traits maintenance. Debt sere€c a funds account for the resoumes accumulated and payments made for principal and Interest on general gavernment debt except those to be amounted for In another fund. Capital project funds account for the acquisition oe development of capital facifilies for governmental actlvitles. Their major sources of revenues are from proceeds of general obligation bonds, grants from other agencies and conthbutionss from other funds. Internal service funds a=unt for data processing and risk management sarvices provided to other departments on a cost reimbursement basis- Wasrlington SUe Audito:',Qf-nae 31 Private-standards of amounting 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 BoaM_ Governments also have the optldn of following sufisequent private-sector guidance for their business-type activMas and enterprise funds, subjed to this same QmJtation. The City has elected not to follow subsequent privatL-sector guidance. As a general rule interfvnd activity has been eliminated from the government,01de financial statements. Exceptions are payments in lieu of taxes, external type transactions within lntemal service funds (revenues and expenses for interest or services to other governmental organizations) and other charges for wastewater or storrnwater services. Elimination of these charges would distort the direct cost and program avenues reported far these funchens_ Amounts reported as prograrn revenues include 1) charges to customers or appfi ants far goods, sarvioes, or privitages provided, 2) operating grants and con tOlons, and 3) coital grants and CiOn ibutions, including special assessments. Internatly dedicated resources-are reported as general revenues rather than program revenues. Likewise, general fevenues inciiide all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating mvenues and expeme genefally result from proVding 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 starmwater assessment fee. Dperaling expanses of enterprise funds and internal service funds include the cost of sales and services, administraVve expenses, and depreciation are capital asscts_ All revenues and expenses not meeting this definition are reported as nonopereting revenues and expenses- When both restrfcted and unrestricted res-ources are available for use, it is the City's policy to use riRstricted resources first, and then unrestricted resources as they are needed. D. Assets, Llahilides. & Fund Equity 1. Gash and Cash Equivalents The City considers all highly liquid assets including demand deposits, money market accounts, OD's, Investment in the State Treasurer's Investment Pool, and short-term Investments with a maturity of three months or less from the date of acquisition as cash and cash equWlents. These amounts are classified on the bMance 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. 2. Investments - (Refer to Note 3) 3. Receivables and Payable-5 Taxes rr ivable, consists of property taxes and related interest and penalties. Accrued Interest receivable consists of amounts eamed on investments, notes, and contracts- Accrued Interest payable consists of amounts owed on notes, loans, and contracts. Customer ac ounts r ivablafpayable consist of amounts cvrad from to private individuals or organizations for goods and services Including amounts owed. If the transactions are with another govern mental unit, it is accounted fbrwith In `due fromlto other governments'. Receluables have been reported net of estimated uncollectibie accounts. Because property taxes and spacial assessments are considered liens on property, no est mated uncollea ible amounts are established. Activity between funds That are representative of Iending1borraw ing arrangements outstanding at the end of the fiscal year are referred to either 'due talfrom other funds" (Le., the current portion of 32 lnterfund loans) or 'lnt,erfund loans receivablelpayabla' (fem., the non-currant portion of Interfund loans). AN other outstanding balances batween the governmental activities antl business-type activities are reported In the government-wide ffnanctal statements as 'intemal balances'. (Refer to Note J.) Advances. between funds, as reported in the fund ffnanzial statemerits, are onset by a fund balance reaerve account In applicable governmental funds to Indicate that they are not available for appropriation and are not expendable available financial resourms. In the goverriment-wide financial statements, and propetai;y fund types In the fund financial statements, long-term llabiiities are reported in applicable governmental activities, business-type activvlfles, or proprietary fund type statement of not assets. 4. fnventories and prepaid items Reported Inventories in governmental funds consist of expendable supplies held for consumption. The cost thereat has been recorded as an 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- 5. Capital Assets and Deprecation (Refer to Nate 5). 6. Long-term Debt Liabilities for long-terra debt are tecard0d in the government-w1de statement of net aswts and to the proprietary funds balance sheet. The liabl-lities Include bond prarrilums and dlsmurtits, as well as Issuance costs, are defemad and amorfized over the Iife of the bonds. Bonds payable are reported net of the applicable bond premium or discount. Issuance casts are reported as deferred charges. Long-term debt outstanding at year end is aubined 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 an other financing source net of the appik able premium or discount Issuance costs, even If withheld from the actual not proceeds received, are reported as debt serum expenditures- The nature of dent fn the governmentat activity is specific to a pmgrarn and, therefore; debt service costs are not an allocated expense. 7. Deferred Revenues The defamed revenues account is used to offset reaeivablas established In the governmental fund financial statements for certain revenues that are measurabia but not considered available to finance payment of currant oVgatioris, and, therefore, not susceptible to accrual on the modified accrual basis. When the receivable amounts are collected fn future periods, this liability account is reduced and corresponding revenue is recorded. referred revenues represented in this manner on the accompanying financial statements are uncollected property takes levied and uncollected road taxes levied. 8. Compensated Absences Compensated absences are absences for which employees will be paid, such as vacation and sick fEave_ Vacation pay, which may be accumulated up to 360 hours, Is payable upon resignation, retirement, or death. All vacation P-3y Is accrued when incurred In the government-wide, pmpnelary and fiduciary fund Nirandal statements. An additional amount has been acmed for the city's share of deferred compensation and Medicare tuas related to tha vacation accrual. A liability for these Washingion Sta-D Auddnrd Office - - 33 amounts is reported in the government fund statements only if they have matumd, for example, as a result of employee re-sfgaadons and retirements. 9. Fund Balance Designations and Reservations In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appmpriaWn or are legally restricted by outside parties for us-- for a specft purpose. DeslgnatJons of fund balance represent tentatnra management plans 111~t are subject to change. The City has reserved $2,890.000 in the Street Fund for advances to other funds. E. Revenues, Expenditures, and Expenses 1. Program Revenues Program revenues Include charges for services to customers for goads or services provided, operating grants and contributians, and nonoperattng grants and contributions WtNn the Governrnerit-wisfe Statement of Activities. Charges for sorvicas Include business licenses, construction permits, and recation program fees. 2_ General Revenues Property taxes, retell taxes, business taxes, excise taxes, and associated penalties & interest, and interest & Investment earnings are classifled as general revenues within the Govemment-wide Statement of Acliviities. 3. tnterfund Transfers Permanent reallocations of resources between funds of the reporting entity are classified as interfund transfers. For the purposes of the Govemmant-wide Statement of Activities, all interfund transfers between Individual governmental funds have been eliminated. 4_ Expenses/Expenditures Expenses In the Government-Wde Statement of Activities are r-parted by function as a governmental activity [general government, security of pemons & property, physlcal environment, transportation, ~econom[c environment, culture & recreation, or interest on long-term debt) or business-type activity (wastewater, or stormwater). Certain indirect costs are included in program expanses 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 classlfiied as operating or rron-aperatiny. 5. Operating and Nonoperating 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 (he proprietary fund's principal ongoing operations. It also includes all revenue and expenses not related to capital and relaled financing, non-capital financing, or Investing activities. A[I revenue and expenses not meeting this definition are namVerating revenues and expenses. NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Scope of Bud"t Annual appropriated budgets are adopted for all funds an a basis consistent with generally accepted a=onting principals. Legal budgetary control is establishad at the fund tevei, Subsidiary avenue 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 manltor expenditures for Individual functions and activities by object class. = wushiogton State Aulturli QMCD 34 B_ Procedures for Adopting the Original Bridget The City's budget procedures are mandated by the Revised Code of Washington 35A,33_ The following ara key pnxedural steps In the City's budget development process. Note that the process and dales are for the 2005 budget process and may be changed for future processes: • In April, the official 'budget call' required by Mate law is made to all department directors or fund managers, Budget development Irslructions and other materiats are provided to the departments at this time. • In June departments submit revenue and expenditure estimates to the Finance department- 7he City Council and City management staff discuss Oly gaats 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 preftinary budget to the City Manager. • In August the City Manager submits estimates on 2404 revenues and preliminary 2405 revenues and expenditures to Council- • During September, prellminary budget documents were prepared, printed and filed with City Clerk. This proposed budget is presented to the City Clark and copies are made available to the public, The Council set the dates of the preliminary and final budget hearings. Before December 31" the City Council, by a majority vote, will adopt the budgat by ordinance, establishing the budget appropriation for the year. ° Tire approved budget is published and distributed during the frrnt quarter of the following year. Copies are made available to the public. ° Quartarly budget monitoring reports are publrshed by the Finance Department to report on actual performance compared to budget estimates and to identify any mmedial actions that may be needed- C. Arnending the Budget The budget, as adopted, constitutes the legal authority for expenditures. The City's budget is adopted at the fund level, so dtat 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 erect the number of authorzmd employae positions, salary ranges, or other conditions of employment must be approved by the City Councll. When the City Council determines that it is In the best Interest of the City to incresse or decrease the appropriation for a particular fund, It may do so by ordinance approved by one more Ihan the majority after holding a public hearing. The City's budgat was amended three times daring the fiscat year. The financial statements contain the original and {rnal budget information- The original budget is the first complete appropnaled budget. The final budget Is the original budget adjusted by all reserves, .transfers, allocations, supplemental appmpriatrons, and other legally authorized changes- All appropriations lapse at year end. Unexpended resources must be reappropriated in the subsequent period, D. Compliance There have been no material vlaiatiorls of finance-related legal or contractual provisions, and there have been no expenditures exceeding legal appropriations in any of the funds of the City. Wasilung[oro Stale Awlitgr s like 35 E Deficit Fund Balances As of December 31, 201)3 a deficit fund balance of $2,437,396 exists in the General Fund resutfng from Inltial start-up cosh of in=poration. It is expected this fund balance will be eliminated through a reduction of expenditures through ttFe year 21345 in order to increase fund balance. NOTE 3 DEPOSITS AND INVESTMENTS A. Deposits The City's deposits and certificates of deposit are entirety covered by the federal de mltory insurance (FDIC) or by collateral hLgd In a multiple financial Institution collateral pool administered by the Washington Public Deposit Protection Commission (PDPC). The POPC is a statutory authority established under Chapter 39.58 of the Revised Code of Washington. 9. Investments As required by state law, all investments of the CitYs funds are obligations of llle U.S. GovernrnenL U.S. agency issues, obligations of the State of Washington, general Obligation of Washington State munUpalltle:5 (the State Treasurer's Laval Government investment Pool (LGIP), or certificate of deposit with Washington State banks and savings and loan institutions. The Washington Local Government Inve.-Ament fool operates In a manner consistent with the SEC's Rule 24-7 of the investment Company Act of 1940. The fair value: of the portfolio is calculated by the master custodian or by an independent pricing service under contract with the State Treasurer's Office The fair value of the City's position In the State of Washington Local Government Investment Pool is the same as the value of the pool shares Investments are shown on entiityy-Mde Statement of Net As-nets at fair market value or 2a74ike-pools at amortized cost. Investmmts are reported within Cash & investments of Governmental Actlvities and within Cash & Cash Equivalents of Business-type A,ctiv€4es The City's investments are categorized to give an intimation of risk assumed at year-end. The following summary shows the City's investments at year-end categorized by risk. • Category 1 indudes investments that are insured, registered or held by the City or its agent in the City`s name. d Category 2 Includes uninsured and unregistered investments, which are paid by the counterparty's trust department at agent In Ule City's name. • Category 3 includes uninsured and unregisbered investments for Welch the securitfas are held by the counterparty's truss department or agent, but not in the City's name. The City had no Category 1, 2. or 3 type Investments in their investment portfolio as of December 31, 2003. C. Deposit and InvostrrEent Reconciliation Amounts reported in the fund st3tarnents are a5 follows: EaIr Value Carrying Cash 6rinount Inves en u is Investments Not Subjettto credit Risk State- Investment Pool $ 9,832,294 - S 9,832,294 Money Market Account 3,570,392 3.570.392 Total Investments Not Subject to Credlt Risk *I3.4022 655 - 13-4122-686 Washington Sta!aAUditlies Wce 20 NOTE 4 - PROPERTY TAKES The County Treasurer acts as an agent to called property taxes fpvied In the county for ail taxing authari6es: The County Assessor is responsible for determining what the Individual property taxes are, based upon the monies requested by the taxing districts and the assoa-wed valuation w€thn These distrfcts. Taxes are levied annually on January 1 on property values listed as of the prior May 31. Assessed values are established by [lie County Assessor at 100 percent of fair market value. A revaluation of all property Is required every four year. Taxes are due In two equal installments on April 30 and October 31. Tax liens are arutornatic at the point the tares are levied. Property lakes levied for the current year are recorded as a receivBVia when levied, o et 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 ba distributed by the County Treasurer In Jenuary. No aflawance for uncollectible taxes is established b2cavse delinquent taxes are considered f=ully collectible The tax rate for general City operations is limited by State law (RCW 84.52.043) to 53.80 per $1,000 of assessed valuation, deducting from there the levy of $1.50 by file Spokane County Fire Districts 91, #8, and which leaves the City with the authority to levy $2.10 for its ovm 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 vaiuathn or $10, per $1,000 of value. If the taxes alt all districts excee each is proportionately reduced until the total is at or below the one-percent limit d this amount, (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 Impliclt Price Deflator (IPD) or one percent, plus adjustments far new construction and annexations. Tax Increases higher than one percent must be approved by the voters at an election held according to RCW 84.55.05M A simple majorrfty vote is required. (3) The City may voluntarily levy faxes below the legal limit, For 2004, the city levied $9.255,838 on an assessed valuation of $4,409,259.851. MOTE 5 - CAPrrAL ASSETS AND DEPRECIATION CaPltsl assets. which include property, plant, equipment, and InfastrucbIre assets (e.g. roads. bridges, sidewalks, an similar items), are reported in the applicable govern l or business-like columns In the government-wide fnannfal statements. The City def9nes capital assets as assets wJth an Initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at hlstoNcal cast or estmated historical cast if purchased or ccnstructad. Other donates assets are recorded at estimated fair market value at the date of donation. The casts Of normal maintenance and repairs that do not add to the value of the asset or materially extend sssets fares are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are construrwd. lnterest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of thn assets constructed, A summary of changes in governmental capital assets follows: Donated capital assets received frarn SPolcane County at the time of Incorporation were recorded at cost and the accumulated depreciation at the time of transfer. These assets are shown as repilal contributions on the statement of activities. The fallowing schedule details the assets transferred- WashingTon State Aud i1of5 Ofiire 37 Capital Assets Donated Fram Spokane County 1-1 -11ce al AccurnuUat-d DQpredaled OVA t t at n Ca `t infrastructure Roadways S 187.732.531 S 127,4113,027 $ 80.314,6104 Signs, signaN4 bc-v4ns 9,056,006 4.M.000 4,;x2B.000 Crosswalks 130.0&1 13.OCR 117,06 Bridges 5- -971 Z'eas.112 2.825.867 Totallnf=trutture 202,552,594 134,787.147 67.785.447 Parks Land i,W,655 - 1,548,65-5 Buidngs 898,729 609,824 288,905 1 mprovema#nts other buildings 2,123,571 1,06=9,288 1,W,273 Machinery and e~quipament 3,337 :LW 334 = Total parks assets 4.574.292 1.BT.17 2,902.167 Total County assets donated _ Q7 t2fi X96 4 g $ 7Q687.fi14 A summary of changes In governmental capital assets fallow: g~ginnir~ Ending B.elanrra Batartre Governmentat activities- d3131103_ 10rmai0s pecreases_ 12f31103 Capital its, not Dina depreciated, Land S - $ 1,648,8aS S - $ t,548,655 Corimnaclion In progress - 388.826 T398 $ 6 Total. caplial anets,-net being dffpreciated - 1,947,481 1,847,481 Capital tas<;, being depredated: 8ulldings - 936,420 - 93$,420 Improvementa othef buildings - 2,123,571 - 2,123,571 Infrastructura - NZ552.594 - 202,552,594 Machin" and equipment - 244,965 499.481 -M& W Total capW assets. being deprerJaiad 244,955 206,103,41 - 206,346,031 Less amumulwed depreclntTan for Buildings - 620,593 improvements other bulldings - 1,102,472 - 1,102,472 Intraslru lure 142,260.597 - 142,280,557 Machinery and equipment illo 52,116 Total a=.trnulated depreclaficn - 144.055,778 - 143,055,776 Total assets acing depr€ciaWd, nfft 2.44.995 -NU-2m 62.292,253 Governmental activitiefi capital assets, net $ 2-44 96,5 5-63 9 S; &A!L23~k734 Buslness4ype activitlbs: The cKy has no business-type capital assets. Depreciation Pmperty, plant, and equipment of the primary govemrnent is depreciated using the straight line tneihod over the estimated service liva as follaws:: Buildings and Improvements 10-60 years infrastructure 40 years I-ighttHeavy Transport0an Equipment 5-10 years Otfier Equipment 2-20 years Office Equipment 3-5 years Computer Equipment 3-5 years WaShfr►gb7n State Audster°s Office 36 € reciation expense was charged to functionslprograms of the primary govemment as follows: Gotiremmental Activities t9neral Gmernment Services $ 27 269 public safety , 2 509 Physical environment , 9 477 Transportation , 7,517 732 Economic enVironment , 4 325 Culture and recreation , O.194 Total depreciation - governmental actfvlt es S_7,616_EW MOTE 6 - PENSION PLANS Substantially all City of Spokane Valley full-rne and qualifying p91t-tim© employes participate in one of the following statewide retirement systems administered by 4rie Washington Stain Department of Retirement Syrsterns, under cost-sharing multiple employer public emplaye3 destn to benefit and defined Gantribution mUrement plans. The Department of Retirement Systems (DRS), a department with the primary government of the State of Washington, issues a publUy available comprehensive annual financlal 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 Sy.Mzms, Communications Unit, P.O_ Box 48380, Dtympia, WA 08504- 9390. The fallowing dlsclasures are made pursuant to GASB Sbtemen127, Accounting for Pensions by State and Local Governmant Employers. Public Employees' Rotirement System (PERS) Plans 1, 2, and 3 flan Descriplfori PERS Is a cast-sharing rni,ttiple-employer reftmeni system compnsed of three separate plans for membership purposes; Plans 1 and 2 are defined benefit plans and Plan 3 Is a combination defined berrefilldefined contribution plan. Membership in the system Includes; elected officials, state employees, employees of the Supreme, Appeals, and Superior court (other than judges In a judicial retirement system). employees of legislative cornmidees, 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 systern on or after September 1, 2002 for focal government employees have the option of choosing membership In elther PER$ Plan 2 or PERS Plan 3. The option must be exercised within 90 days of anmploymenL An employee is repotted in Plan 2 until a choicze is made. Empioye~s who fail to choose w€thln 90 days default to PERS Plan 3 PERS defined benefit ratrement benefits are financed tram 8 combination of Investlrmnt eamings and employer and employee contributions. Retirement benefit provisions are established in state statute and may be amendad by the Spate Legislature. Plan 1 retirement heneras are vested after an etnployea completes free year of eligible service. Pfan 1 members are eligible fur retirement at any age after 30 years of service, or at age 60 with five years cf service or at the age of 55 with 25 years of service. The annual pension Is 2 punt of the average final compensation per year of service, capped at 60 percent The average final compensation is based on the greatest compensation during any 24 eligible consewdve compensation months. If qualffied, after reaching the age of 66 a cost-of-living allowance is granted based on years of service and Is capped at 3 percent annually. Plan 2 retirement breneflls 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 percent of the average frnal compensation per year of service, The average final compensation is based on the greatest cornpensWdon during any eligible consecutive 60-months period. Plan 2 refirerrn?nts prior to the age of 65 recehre reduced benefits. If retirement is at age 55 or older with at least 30 yams of service, a 3 percent per year reduction LVos~ rsp~ro Mate Avditvfzi Office 39 applies; otherwise an actuarial reduction vWll apply, There is no rap an years of service credit; and a cost-of-riving allowance is granted Ondexed to the Seattle Consumer Prfce Index), rapped at 3 percent annually. Plan 3 has a dual benefit structure. Employer contributions fnanca a defined ibeneftl component, and member contributions finance a defined contributions component- The defined benefit portion provides a benefit calculated at 1 percent of the average Final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive 6t}-month period. Plan 3 members tome eligible for retirement if they have. at laaA ten years of service; or Five years Including twelve months tfsaY were earned after age 54; or five service credit years earned In PERS plan 2 prior to June 1, 2003. Plan 3 retirements prior to age 65 receive reduced benefits. If retirement is at age 55 or older wrlth at least 30 years of servio, a 3 parcsnt per year reduction applies; otherwise an actuarial reduction will apply- There Is no cap are years of sarvlce cnsdit; and Plan 3 provides the same cost-al-living allowance as Plan 2. The defined contribution portion can be distrfbuted fn arcordanee with an option selected by the member, either as a lump sure or pursuant to other options authorized by the Employee ReUrement Benefrt5 Board. There are 1,167 participating employem In PERS. Membemhip In PERS consisted of the following as of the latest acp.varial valliation date fr;r the plans of September 30, 2002: Retirees and Beneficiaries Receiving Benefits 63,756 Terminated Plan Members Entitled to Bart Not Yet Receiving Benefits 18,152 Acbva Flan Members Vested 99,994 Active Plan Members Nonvested 55,191 TOW 237,693 f unOirg-,tb'allcy Each biennium, the state Pen"sfon Funding Council adopts Plan 1 employer contribution rates. Plan 2 employer and employee contribution fates, and Plan 3 employer contribuDon rates. Employee contribution rates for Plan 1 are established by statute at 6 percent for stale agency and focal government unit employees, and 7,5 percent for state government elected officers:. The employer and employee contribution rates for Plan 2 and the employer contribution rate for Plan 3 are developed by the tf'ice of the State Actuary to fully fund Plan 2 and defined benel$t powon of Plant 3. All employers are required to contribute at the level established by the Legislature. PERS Plan 3 defined contribution is a nen nti-ibuting ptan for employers. Employees who participate In the defined contribution portion of PERS Plan 3 do not contribute to the defined benefit portion of PERS Plan 3. The Employee Retirement Beneft Board set Plan 3 employee contrlbutlon rates. Six rate options are: available ranging from 5 to 15 percent; two of the options have graduated rates dependant an the employee's age. The methods used to determine the contribution requirements are established under state statute in accordance with chapters 41.40 and 41.45 RCK P€RSPjan 1 EP RS Plan PERS Plan 3 Employer' 1.40% 1.40% Employee 6.00% 1.18% The amplayrar was include the employer admInistmlive eVense fee riurontly sit at 0.22%, Plan 3 defined benefit portion only, Variable form 5.0% minimum io 15,0`3+ maximum based on rote selected by PERS 3 member, Both the City of Spokane Valley and the employees made the required contributtons_ The City of Spokane Valley required cantn'butlons for the years ending December 31 were as follows. PAS Plan j ?5113$ Plan 2 PERS Plan 3 2003 Employer Contributions $275 S 10,557 S3.448 Wa;htrtMon Ststo auditails Off re 40 NOTE 7 - RISK NiMAGEMENT The City of Spokane Valley is escposed 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 by the Washington Cltles Insurance Authority (WCIA) for general liability and property damage coverage. The City use the Washington State Department of labor and lrtdustries ries and Insurance Serviaas for coverage to pay fllns'ss ES ssnus enough ito miss walr*cuThe City 1ls sane ~ wage sur~ age replarerrrerlt when the injury For unemployment camoansation benerits_ bility nit The Risk Management fund is used to account for, and finance h llarfund an smntls to the insurance cods. All departments of the City make payments a current year claims. fund on estimates of the amounts needed to pay prior The Washington Cities Insurance Authority (WCIA) was originally farmed on January 1, 1981 utk'iLing Chapter 48.62 RCW (seiF-ins~run ~ F~~ng~mechanlsrn Chapter Jointly purcr+asl g i(nsturancsl Cooperation Act) for the purpose of pmv9 joirWy self-Insuring, andlor #ointly ccntr rig for risk management services. WCIA has a total of 10 members- Now members initially contract for a three-year temp, and thereafter atftarnat;cafly renew an an ip can nated annual baste. Aono-year withdrawal member from its untmived losshhistory incurred termidur g Termination dogs not relieve a former memberahip. Liability coverage is written on an occurrence basis, without deductibles. Coverage Includ general, automobie, police professional, public ai~clals' errors and ornisslons, stopgap, and employee berretits liability- Limits are $3 million par occurrence self insure~ layer, aand nd million illioonr per occurrerim in the re4nsured excess layer with no annual aggregate urllion of y the reinsurance for public officials errors limits am $14 m l ion excess layer The bBoard of Directors member and insurance. annually, determines the llmits and terms of coverage anr~y. Insurance coverage for properly, automobile physical damage, fidelity, Inland marine, and boiler and machinery are purchased on a group basis. Variaus deductibles may apply by type of coverage. Pfuperty insurance and auto hard flood and earthquake and Insured above that amount bye $250,000 the for all p~enls a purchaseo# reinsurance. fie im5 and In-house services irdude risk management consultation, ~ the clalrns it ues g ~n consultants lltigatiori administration and loss array for personnel issuas and land use problems. insurance brakeage and lobbyist services. basK as lass adAu strnenl, and V+1CiA is fully funded by its members, wbQ maid' ®lassesserns rite cove prospect determined by an outside Independent actuary, administrative expenses. As ouliliTied l 9lthe Interlocal, WCIA retains the right to additionally ash the membership fez any funding sho by i rtfall, An inveslrnent committee, using investment m wieState g~de ines~These revonu d redly WCIA's assets In financial instruments which comply offset portions of the membership's annual assessmerit_ A Board of Dire-clam governs WCIA which is comprised of one designated representative from each member. The Sward elects an Execuilve Committee and appoints a Treasurer toprovide general polity diraction for the organization. The WCIA Executive Dlrector reports the Executive Committee and Is responsible for conducting the day to day operations of the WCIA. The City Is self-insured on a reimbursement laws for unernployment compensation. The City did not have any claims for unempbyment compensation in 2403. Ylr +iiiccglan $ tC A It toes 01ii1e 41 NOTE 8 - INTERFUND BALANCES AND TRANSFERS tnrerf~nd_Balances Loans b0hveen funds are classified as ita)erfund loans raoetvable or payable on the fund financial statements. Within the city, one fund may bonnw from another when specArafly authorized by Council resolution. Due to other funds and duY From other funds mutt from goods issued, work performed or services rendered to or for the ben ft 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. As of December 31, 2003 the Street Fund had $oaned the Generat Fund $3,690,000 for cash flow purposes- Of this amount, $800,000 was to be pald in 2804 so was classified as due to and from other funds, Due to other fund and due from other fund balance at December 31, 2003 were: Due From Due To Other Funds Othar Fund2 General Fund S 723 $ 830,861 Street Fund 828216 659,022 Nonmajor govemmental funds 79,000 79,000 Nonmajor enterprise funds 658,000 - Internal servica_funds 2.787 729 Total government wide $1,569,712 $1,569,712 Intelfund transfers are the flow of assets with a reciprocal return of assets, goods, or services in return. The City usas transfers to (1) move revenues from tha fund that stature or budget re4utres to collect then to the fund ftt statute or budget requires to expend them, (2) move receipts restricted to debt servhm from the funds collecting the receipts to the debt service fund as debt service payments become due, and (3) use unrestrieted re anuas.colladed in the general anti stmt funds to finance various programs a=ounted for in other funds In ac wrdance with budgetary authorizations. Interfund transfer activity for the year is as Wows: Transfers Out Arterial Capital Special Street Street Projects Capllal Pro). Total - Fund Fund Eund Fund Transfers In. Street Capital ProjeM $ 312,103 S - $ 165,649 $ 36,554 $ 110,000 Sewer Fund 959.008 95o0 _ - - Total jj2L1j1q ~ 959, 000 LIES, 642 §L-35 54 1_ R. 8 All transfers were to fund routine budgeted capital projects. NOTE 9 - SHORT-TERM DEBT As of December 31, 2003, s Governmental Activities: Tax Anticipation Notes Intergavemmental Loan Total hart term debt transacHans consisted of the following: Beginning Ending falan OI[m5i fla-#ustlons Balance $ 500,000 $ - 5 500,000 $ - 5D.000 - 50,0Q0 - S--W. 009 $ 5-mo= 5 The short-terra debt was used for cash flow purposes during the pre-Incorporation phase. Ulu ingicn Slats AudGtart 01roW 42 NOTE 10- LONG-TERM DEBT AND LEASES General Qf}li alien Bancls The City issues general Obligation bonds to provide funds for the acquisition and construMon of major capital facitiltes. General obligation bonds have hear, issued far governmental-type acdvitles- Gone ral obligation fronds are direct obligations and pledge the full faith and credit of the government. General obligation bands are either created by 3l5 nx~adty vote at the people and, therefore, financed by a special tax I aVy; or created by ordinance adopted by the City Council, and normally financed from general revenues (oouncilmanic bonds)_ General obligation bonds currently outstanding are as follows; In 2003 the Clty issued $9,430,000 In =urmilmanic bonds to finance the construction of the CenterPlace Community Center and far variaus slrLmet construction projects. The City does expect to receive intergovernmental payments from the Spokane Public Facilities District pu'rsuent to an interlocal agreement dated as of July 2003, which if and when received by the Clly wHI be available for debt service associated with the Center for up to $7 mllllon of bonds, General obTgatl!on bonds currently outstanding areas follows: 2003 LTGO Bonds Governmental Activities Debt 2-,00°x'0 - 5.00r1o $ 9,43D,00t7 The annual debt service reclufremenis to maWrity for general Obligation bonds are as follows: Govemmelttal Activities 2004 145 Opp $ ~f3 9 8 Total ents 2405 5, 165,000 417,835 $ 580.92 582 835 2005 2047 175,000 414,535 185 000 , 589,535 2008 2009-2013 , 411.035 190,000 406,872 596,035 596,1172 2014-2018 1,135,000 1,928,463 1,530.000 1,674,640 3,053,453 3 204 040 2019-2023 2024-2028 2,425,000 1,256.500 2 245 000 , , 3,681,500 20292033 , , 631,500 1 235000 1 Z4.2-5p 2,875,500 14 0 $ 9,430,000 $7,751,-55 8 $ 17.131,55a Lang-term debt on the Statement of Net Assets i s presenteai net of the time of issuance , The 2003 LTGO Bonds were sold t any premcumldiscount incurred at reported at the net amount of $9,554, a a premium of $124,321 and were 321:. -he premium will bc- amorti d ze over the life of the bonds. Chan es In Lon -Term I ;awritips aurfng the year ended December 31, 2003® the following changes occurred in lorry-term Ifabflifles: Salarim Govemmental AcUvitles: r, 3t• ~ l "o e~lu tiore~ Balance am 3LJM~ Due Within nEg C General Obigation Bonds $ - Compensated Absences - 9,43D,QQ0 S ~ 9.430,0013 ~ 145 000 Governmental Actroty 56.3 8 ` z6_s9~ , - Long-7errn UAbltitlE!z - WalihPVWI State Auflrmrs OPe~ Ir Le -gal Debt Margin RCW 39 36.020 provides cities wfth three segments of debt capacity, each equal to two and ane-half percent of the city's assessed valuation, ror a total debt capacity of seven and ane-half percent. The assessed valuation of the City for th- year 2003 for purposes of delerrrlining the legal debt margin is $4,409,259,851. Under State of Washington statutes general obligation indebtedness pursuant t9 a vote of the electarate is tfmfted to 2V&% of actual value of taxable property located within the City. Indebtedness withoutu vote of the people is lrmited to 1 J2% of actual value subject to the limttation that total general purpose indebtedness may not exceed 21A% of totat valuation. There is a 2%% limltatlon each for utility purposes and open space and parr faalities purposes- The remaining debt capaci4es of the City are as follow-$, Amour General Purposes Voted and No"oted Debt- 2Y3% (1) ~ 100,745,09a L10ty Voted Debt - 21/3% 110,231.4966 Open Space and Park Facii<des Voted Debt-2V,%, 11A2.31?l4A Total Remalning Debt Capacity "212M M (1) Includes $56,652,500 debt capacity for non-voted debt, Leases G I ea_ ° The City had no capital leases as of December 31, 2043. Operating. LggwThe City enterers Into a four year aperating lease agreement with Northwest Christian Schools for the rental of office space. The fease commenced on February 1, 2003. Rental rater vary between $15.40 and $19.93 per square foot per annum. Lease payments for the year ended December 31, 2003 amounted to $204,959. Schedule gf .Minimum Future Dental PaVMipritS Ye_a Ended Dec. 31 ou 2004 $ 265,898 2005 289,799 2008 373,708 2007 Total minimum future rental pyments LM,343 NOTE 11 -SUBSEQUENT EVENTS On September 14, 2001 an election was held that annexed city fire protection to Fire Otstrfd 1 and Fire 13istrict B. Those districts will assume responsibility for all city fire proteetlon on January 1, 2005. NOTE 12. CONTINGENCIES AND LITIGATION In the normal course of governmental operations the City has claims filed a$alnst It for various losses related to tart actions for such Ihings as wrongful acts, Injuries, or damages for wfth a Civil action can be brought, and other rvutlne legal proceedings, At any given point In tlme, [here is a recum.ng 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 certaln types of claims. The collective impact of these claims is not likely to have a material Impact on file City's financial position. The City participates in a number of federal-and-state assisted programs. These grans are subject to audit by the grantors or their reprasentatives. Su& aWlls 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 dlsaliawances, if any, wilf be mat€ dal- Washhaqlan Slaw AUdiron's Office, 44 F T ABOUT T E -rATiE AUDITORS OFFICE The State Auditor's Office is established in the state's Cianst tution and Is part of time executive branch of state government, The State Audi tar Is elegy 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 9cwemment accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectNely 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 taws. The State Auditor's Office has 300 employees who am located around the state to deliver our semces effectively and efficiently. Approximately 65 percent c our staff are certified public accountants or hold otter certifications and advanced degrees. Our regular audits look at financial information and compliance with state, Federal and local laws on the part of all local govemments, Including: schools, and all state agencies, Including institutions of higher education. We aiso perlorrn fraud and whisdeblower investigations. In addibon, the LegWature can direct our Office to do performance audits of sate agencies, programs cr specific areas of interest. The results of our audits are widely distributed through a variety of repot, which are available on aerr web site. We continue to refine our reporting efforts to enure the results of our audits are useful and understandable. We tale our role as partners in accountability seriously. We provlde training and technical assistance to governments. and have an extensive program to coordinate audit efficiency and to ensure high- quality audits. Sete Auditor Chief of Staff` Deputy State Auditor/Director of Audit Deputy State Auditor/ Director of Administration /Legislature Liaison Deputy State Auditor/Director of Operations Local and State Government: Liaison Communications Program Manager Main number Web Site Addr Brian nntag, CGFM Ted Rutt Chuck Pfeil, CPA Linda Long, CPA, CGFM 31rn Brit aln, CPA Mike Murphy Mindy Chambers (3+60) 902-0370