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2017, 12-31 Financial Statements & Fed Single Audit
,,, s�a Office of the Washington State Auditor Pat McCarthy �sRlNG, Financial Statements and Federal Single Audit Report City of Spokane Valley For the period January 1, 2017 through December 31, 2017 Published September 20, 2018 0 ''10 Report No. 1022074 j! $lEI!I. 'A f�A�QF 1j. Office of the Washington State Auditor Pat McCarthy September 20, 2018 Mayor and City Council City of Spokane Valley Spokane Valley, Washington Report on Financial Statements and Federal Single Audit Please find attached our report on the City of Spokane Valley's financial statements and compliance with federal laws and regulations. We are issuing this report in order to provide information on the City's financial condition. Sincerely, Pat McCarthy State Auditor Olympia, WA Insurance Building, P.O. Box 40021 •Olympia,Washington 98504-0021 •(360)902-0370 • Pat.McCarthy@sao.wa.gov TABLE OF CONTENTS Schedule of Findings and Questioned Costs 4 Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 6 Independent Auditor's Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance in Accordance With the Uniform Guidance 8 Independent Auditor's Report on Financial Statements 11 Financial Section 14 About the State Auditor's Office 80 Washington State Auditor's Office Page 3 SCHEDULE OF FINDINGS AND QUESTIONED COSTS City of Spokane Valley January 1, 2017 through December 31, 2017 SECTION I — SUMMARY OF AUDITOR'S RESULTS The results of our audit of the City of Spokane Valley are summarized below in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Financial Statements We issued an unmodified opinion on the fair presentation of the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information in accordance with accounting principles generally accepted in the United States of America(GAAP). Internal Control over Financial Reporting: • Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over financial reporting that we consider to be significant deficiencies. • Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses. We noted no instances of noncompliance that were material to the financial statements of the City. Federal Awards Internal Control over Major Programs: • Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over major federal programs that we consider to be significant deficiencies. • Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses. Washington State Auditor's Office Page 4 We issued an unmodified opinion on the City's compliance with requirements applicable to its major federal program. We reported no findings that are required to be disclosed in accordance with 2 CFR 200.516(a). Identification of Major Federal Programs: The following program was selected as a major program in our audit of compliance in accordance with the Uniform Guidance. CFDA No. Program or Cluster Title 20.205 Highway Planning and Construction Cluster—Highway Planning and Construction The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by the Uniform Guidance,was $750,000. The City qualified as a low-risk auditee under the Uniform Guidance. SECTION II — FINANCIAL STATEMENT FINDINGS None reported. SECTION III — FEDERAL AWARD FINDINGS AND QUESTIONED COSTS None reported. Washington State Auditor's Office Page 5 INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS City of Spokane Valley January 1, 2017 through December 31, 2017 Mayor and City Council City of Spokane Valley Spokane Valley, Washington We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities,the business-type activities, each major fund and the aggregate remaining fund information of the City of Spokane Valley, as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated August 29, 2018. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit of the financial statements,we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees,in the normal course of performing their assigned functions,to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Washington State Auditor's Office Page 6 Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However,material weaknesses may exist that have not been identified. In addition, we noted certain matters that we have reported to the management of the City in a separate letter dated September 12, 2018. COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the City's financial statements are free from material misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. PURPOSE OF THIS REPORT The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. I Pat McCarthy State Auditor Olympia, WA August 29, 2018 Washington State Auditor's Office Page 7 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH THE UNIFORM GUIDANCE City of Spokane Valley January 1, 2017 through December 31, 2017 Mayor and City Council City of Spokane Valley Spokane Valley, Washington REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM We have audited the compliance of the City of Spokane Valley, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Compliance Supplement that could have a direct and material effect on each of the City's major federal programs for the year ended December 31,2017. The City's major federal programs are identified in the accompanying Schedule of Findings and Questioned Costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of the City's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements Washington State Auditor's Office Page 8 referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. Our audit does not provide a legal determination on the City's compliance. Opinion on Each Major Federal Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2017. REPORT ON INTERNAL CONTROL OVER COMPLIANCE Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program in order to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Washington State Auditor's Office Page 9 Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However,material weaknesses may exist that have not been identified. Purpose of this Report The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. Pat McCarthy State Auditor Olympia, WA August 29, 2018 Washington State Auditor's Office Page 10 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS City of Spokane Valley January 1, 2017 through December 31, 2017 Mayor and City Council City of Spokane Valley Spokane Valley, Washington REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Spokane Valley, as of and for the year ended December 31, 2017, and the related notes to the financial statements,which collectively comprise the City's basic financial statements as listed on page 14. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements,whether Washington State Auditor's Office Page 11 due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Spokane Valley, as of December 31, 2017, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and required supplementary information listed on page 14 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Washington State Auditor's Office Page 12 Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). This schedule is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion,the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated August 29,2018 on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control over financial reporting and compliance. 1 !, —` Pat McCarthy State Auditor Olympia, WA August 29, 2018 Washington State Auditor's Office Page 13 FINANCIAL SECTION City of Spokane Valley January 1, 2017 through December 31, 2017 REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis—2017 BASIC FINANCIAL STATEMENTS Statement of Net Position—2017 Statement of Activities—2017 Balance Sheet—Governmental Funds—2017 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position—2017 Statement of Revenues, Expenditures and Changes in Fund Balances—Governmental Funds—2017 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities—2017 Statement of Net Position—Proprietary Fund—2017 Statement of Revenues, Expenses, and Changes in Net Position—Proprietary Funds — 2017 Statement of Cash Flows—Proprietary Funds —2017 Notes to Financial Statements—2017 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures and Changes in Fund Balances —Budget to Actual— General Fund—2017 Schedule of Revenues, Expenditures and Changes in Fund Balances—Budget to Actual — Street Fund—2017 Schedule of Proportionate Share of Net Pension Liability—2017 Schedule of Employer Contributions—2017 Washington State Auditor's Office Page 14 SUPPLEMENTARY AND OTHER INFORMATION Schedule of Expenditures of Federal Awards —2017 Notes to the Schedule of Expenditures of Federal Awards —2017 Washington State Auditor's Office Page 15 CITY OF SPOKANE VALLEY MANAGEMENT'S DISCUSSION AND ANALYSIS For the Year Ended December 31, 2017 As management of the City of Spokane Valley, Washington, we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended December 31, 2017.All amounts in this discussion and analysis,unless otherwise indicated, are expressed in thousands of dollars. Also, this discussion contains comparative analysis based on information from the prior year. FINANCIAL HIGHLIGHTS The key financial highlights for 2017 are as follows: The City of Spokane Valley's financial position improved. At the end of the current fiscal year, assets exceeded liabilities by $169,013 thousand (net position). Of this amount, $52,711 thousand represents the primary government's unrestricted net position, which may be used and is available to meet the City's ongoing activities and obligations to the citizens and creditors. The City of Spokane Valley's total net position from Governmental and Business-type activities increased $13,853 thousand or 8.93% from the prior fiscal year,primarily explained by revenues continuing to outpace expenditures and the current year's increase in the City's Net Investment in capital assets. At the close of the current fiscal year, the City of Spokane Valley's governmental funds reported combined fund balances of $57,412 thousand, an increase of $862 thousand in comparison with the prior year. Approximately 68.21% of this amount or $39,336 thousand (unassigned fund balance) is available for spending at the City's discretion. Also, at the end of the current fiscal year,unrestricted fund balance (the total of the committed, assigned, and unassigned components of fund balance) for the general fund was $39,336 thousand, or approximately 116.36% of the total general fund expenditures, and the net change in actual fund balance increased by$4,607 thousand during the current fiscal year. Total Long-term liabilities for Governmental type activities decreased by $1,752 thousand to $19,150 thousand during the current fiscal year. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of a series of financial statements. These statements are organized so the reader can understand the City as a financial whole or as an entire operating entity. The statements also provide a detailed look at specific financial conditions. The following discussion and analysis are intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements are comprised of three components: 1) the government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Page 16 The following figure summarizes the major features of the financial statements. This overview section below also describes the structure and contents of each of the statements in more detail. Government-wide Fund Financial Statements Statement Governmental Proprietary Entire entity The day to day operating The day to day operating (except fiduciary funds) activities of the City activities of the City S cope for basic governmental for business-type services enterprises Accounting Accrual accounting and Modified accrual and Accrual accounting and basis and economic resources current financial resources economic resources focus measurement focus measurement focus focus All assets and liabilities, Current assets and liabilities All assets and liabilities, Type of asset both financial and that come due during the both financial and capital, and liability capital,short-term and year or soon thereafter;no short-term and long-term information long-term capital assets included All revenues and Revenues when cash is All revenues and expenses Type of deferred exp ens es during y ear, received during the y ear or during y ear,regardless of inflow and regardless of when cash soon thereafter;expenditures when cash is received or deferred outflow is received or paid when goods or services have paid information been received and the related liability is due and payable GOVERNMENT-WIDE FINANCIAL ANALYSIS The government-wide financial statements are designed to provide readers with a broad overview of the City of Spokane Valley's finances,in a manner similar to a private-sector business. Statement of Net Position and Statement of Activities The statement of net position presents financial information on all of the City's assets, liabilities, and deferred inflows/outflows of resources, with the differences between them reported as total net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City's net position changed during the current fiscal year.All changes in net position are reported as soon as the underlying event giving rise to the change occurs,regardless of the timing of related cash flows. Thus, revenues and expenses are reported for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). This statement distinguishes revenue generated by specific functions, from revenue provided by taxes and other sources not related to a specific function. Revenue generated by specific functions(charges for services,fines and forfeitures,grants and other contributions)is compared to the expenses for those functions to demonstrate how much each function either supports itself or relies on taxes and other general funding sources for support. The change in net position is important because it tells the reader whether, for the City as a whole,the financial position of the City has improved or diminished in capacity. However, in evaluating the overall position of the City, nonfinancial information such as changes in the City's tax base and the condition of the City's capital assets will also need to be evaluated. These government-wide financial statements can be found in the Basic section of this annual financial report. In the statement of net position and the statement of activities, the City of Spokane Valley is divided into two distinct functions or types of primary government: Page 17 • Governmental-type Activities —Most of the City's programs and services are reported here, including general government, public safety, physical environment, transportation, economic environment, community development, and culture &recreation. These services are funded and supported primarily by taxes and intergovernmental revenues,including federal and state grants,and other shared revenues. • Business-type Activities—These services are provided on a charge for goods or user fee services basis to recover all or a significant portion of the cost of services provided;including State Grants. The City's Stormwater Utility Management Fund and Aquifer Protection Area Fund activity is reported here. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives, and a fiscal accounting entity with a self-balancing set of accounts used to account for specific activities. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All the funds of the City can be divided into two categories: governmental fund types, and proprietary fund types. Fund financial statements provide detailed information about the City's major funds. Based on the restriction of the use of resources and money, the City has established many funds that account for the multitude of services provided to our residents. Governmental Funds — Governmental funds are used to account for essentially the same functions reported as governmental activities on the government-wide financial statements.However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in assessing the City's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the City's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains twenty-one individual governmental funds. Information on the City's four major governmental funds: General Fund, Street Fund, Street Capital Projects Fund and City Hall Construction Fund are presented separately in the governmental funds balance sheet and the governmental funds statement of revenues, expenditures, and changes in fund balances. Data from the other governmental funds are combined into a single,aggregated presentation.Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. These basic governmental fund financial statements can be found in the Basic section of this report. Proprietary Funds—The City of Spokane Valley maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. Enterprise funds are used to account for goods and services provided to the citizens on a user fee basis. The City provides information on its two enterprise funds, the Stormwater Utility Management Fund and the Aquifer Protection Area Fund, both major funds, under Proprietary Funds. Page 18 The City's two Internal Service Funds; Equipment Rental and Replacement and Risk Management accounts for the accumulated and allocated internal costs of fleet vehicles, computer equipment, and insurance claims. Also, both provide internally for the goods and services among the City's various departments and functions. Because both of these services predominantly benefit governmental-type functions rather than business-type functions in nature,they have been included within governmental- type activities in the government-wide financial statements. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided on the government-wide and fund financial statements. The notes are located immediately following the basic financial statements. Other Information In addition to the basic financial statements and accompanying notes,this report also presents combining and individual fund statements and schedules for other governmental and internal service funds.This information can be found in the supplemental section of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS Statement of net position-As noted earlier,net position over time,may serve as a useful indicator of the City of Spokane Valley's financial position.The City's total assets and deferred outflows exceeded total liabilities and deferred inflows by $169,013 thousand as of December 31, 2017. The following table summarizes and compares the City's net position for 2017 and 2016 (see Table 1, below): City of Spokane Valley's Net Position(amounts in thousands) Governmental Business-type Table 1 Activities Activities Total 2017 2016 2017 2016 2017 2016 Current and other assets $ 69,800 $ 68,938 $ 4,212 $ 3,285 $ 74,012 $ 72,223 Capital assets(net of depreciation) 115,055 104,822 6,344 6,356 121,399 111,178 Total assets 184,855 173,760 10,556 9,641 195,411 183,401 Total deferred outflows of resources 688 1,023 40 54 728 1,077 Long-term liabilities 19,150 20,902 300 343 19,450 21,245 Other liabilities 6,322 7,664 519 277 6,841 7,941 Total liabilities 25,472 28,566 819 620 26,291 29,186 Total deferred inflows of resources 788 125 46 7 834 132 Net position: Net investment in capital, assets 101,125 90,361 6,344 6,356 107,469 96,717 Restricted 8.833 13,238 - - 8,833 13,238 Unrestricted 49.325 42,493 3,386 2,712 52,711 45,205 Total net position $ 159,283 $ 146,092 $ 9,730 $ 9,068 $ 169,013 $ 155,160 In this case, as of December 31, 2017, the Primary Government's assets and deferred outflows exceeded liabilities and deferred inflows by $159,283 thousand in governmental activities and $9,730 thousand in business type activities. The largest portion of the City's net position, at 62.33%, is its investment in capital assets of $107,469 thousand. This represents land and land improvements, buildings and building improvements, improvements other than buildings, machinery and equipment, vehicles,and infrastructure,less any related outstanding debt that was used to acquire those assets. Page 19 The City of Spokane Valley uses these capital assets to provide a variety of services to its citizens. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. The majority of these capital assets were donated by Spokane County at the time of incorporation in 2003. The portion of the City of Spokane Valley's net position classified as restricted are resources that are subject to external restrictions on how they may be used.At$8,833 thousand and 5.23% of total net position this is the smallest share of the City's net position. The remaining balance of$52,711 thousand or 31.19% is unrestricted and may be used to meet the City's ongoing obligations to citizens and creditors. At the end of the current fiscal year,the City is able to report positive balances in all categories of net position, both for the government as a whole, as well as for its separate governmental and business- type activities.The same situation held true for the prior fiscal year. City of Spokane Valley's Net Position December 31, 2017 and 2016 • ca cte 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 ■2017 0 2016 The City of Spokane Valley's total net position has increased by $13,853 thousand or 8.93% from the prior year. This is primarily explained by revenues outpacing expenditures. More discussion will follow for the overall increase in net position in the sections for governmental-type and business-type activities. Governmental-type Activities — During the current fiscal year total net position for governmental activities increased by $13,191 thousand from the prior year for an ending balance of $159,283 thousand. The increase in the overall net position of governmental activities is the result of management taking various steps (e.g., increasing rates for certain revenue sources like charges for services, delaying certain nonrecurring expenses, and reducing expenses related to non-essential ongoing programs in the utilities & physical environment and community development functions) to achieve such positive effects on the governmental activities ending net position. The City's capital grants and operating grants and contribution revenues from Federal and State sources made up the fourth largest sources of revenue combined, $7,521 thousand or 12.45% of total governmental activities revenues. Page 20 The major recipients of intergovernmental program revenues were, Transportation, Utilities and Physical Environment, and General Government functions of the primary government. Property tax general revenues in the governmental funds account for $11,602 thousand of the $60,397 thousand total revenues (less transfers) for governmental-type activities, or 19.21% of total revenues, and the property tax general revenues increased by $172 thousand. Sales Tax general revenue accounted for approximately $23,941 thousand or 39.64% of total revenues in year 2017,the largest single source of revenue for the City of Spokane Valley. Excise and other taxes received were Real Estate Excise Taxes of $3,064 thousand, Liquor Board Excise Tax of $459 thousand, Telephone Utility Tax of $1,982 thousand, Marijuana Excise Taxes of$41 thousand, Leasehold Excise Taxes of$20 thousand, and Gambling Taxes of$368 thousand,Hotel/Motel Taxes of$1,019 thousand and Motor Fuel Excise Taxes of$2,052 thousand. The Transportation function accounted for $9,330 thousand of the $47,219 thousand in total expenses for governmental activities,or 19.76% of the total in expenses. The largest function was Public Safety, accounting for $21,583 thousand and representing 45.71% of total governmental expenses and a decrease of 6.86% in contracted Law Enforcement services compared to the prior year (see table 2, below). City of Spokane Valley's Changes in Net Position Tablet as of December 31,2017 and2016(amounts in thousands) Governmental Business-type Activities Activities Total Change Revenues 2017 2016 2017 2016 2017 2016 2017-2016 Program revenues Charges for services $ 7,813 $ 8,192 $ 1,895 $ 1,898 $ 9,708 $ 10,090 -3.8% Operating grants&contributions 702 1,254 784 450 1,486 1,704 -12.8% Capital grants&contributions 6,819 6,895 97 - 6,916 6,895 0.3% General revenues Taxes 44,548 42,237 - - 44,548 42,237 5.5% Interest&investment earnings 515 248 31 10 546 258 111.6% Total revenues 60,397 58,826 2,807 2,358 63,204 61,184 3.3% Expenses General government 5,155 6,129 - - 5,155 6,129 -15.9% Public safety 21,583 23,173 - - 21,583 23,173 -6.86% Utilities&physical environment 4,500 3,368 - - 4,500 3,368 33.6% Transportation 9,330 8,740 - - 9,330 8,740 6.8% Economic environment 1,095 1,122 - - 1,095 1,122 -2.4% Community development 1,355 2,039 - - 1,355 2,039 -33.5% Culture and recreation 3,692 3,841 - - 3,692 3,841 -3.9% Interest on long term debt 509 317 - - 509 317 60.6% Aquifer protection area - - 171 154 171 154 11.0% Stormwater management - - 1,960 1,960 1,960 1,960 0.0% Total expenses 47,219 48,729 2,131 2,114 49,350 50,843 -2.9% Increase(decrease)in net position before transfers 13,178 10,097 676 244 13,854 10,341 34.0% Transfers In(out) 13 13 (13) (13) - - 0.0% Increase(decrease)in net position 13,191 10,110 663 231 13,854 10,341 34.0% Net position-beginning 146,092 135,982 9,068 8,837 155,160 144,819 Change in Accounting Principle - - - - -Net position-ending S 159,283 $ 146,092 $ 9,731 $ 9,068 $ 169,014 5 155,160 Page 21 Program Revenues and Expenses - Governmental Activities 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 MI 1111 0 °aet� e� J�,rcSa�e � S°{' en SQ°t�a rotr trsrt°� o� e�� 2,'‘-'"dc‘ etas Q '��e tea roe tied a� Caen 4 pF ({`ryi+r i7' ,r�rtrey � F° Goer G r) o Program revenues v Expenses Transportation activity capital grants decrease in the current year by ($1,423) thousand primarily due to the Sullivan Bridge construction project grants, which were a major portion of activity in the prior year, being consumed. This resulted in a higher percentage of City funds being used for the large project as we moved nearer to completion. These contributions are used to fund the on-going general government capital outlays of $16,972 thousand, or 29.43% of the total for governmental funds expenditure activity(see the preceding graph). Business-type Activities — For the City of Spokane Valley's business-type activities, the results for the current fiscal year were positive in that the overall net position increased to reach an ending balance of$9,730 thousand. The increase in net position for business-type activities (stormwater and aquifer protection funds) was $662 thousand from the prior fiscal year. This is an increase in net position of 7.3% from the prior fiscal year. The increase in fund balance is indicative of revenues continuing to exceed expenditures. Overall,revenues for the business type activities were up compared to the previous year. In 2017 there were $97 thousand capital grants or contributions compared to zero in 2016. Additionally, operating grants and contributions increased by an additional $334 thousand. Charges for services remained fairly stable with a modest decrease of ($3) thousand from 2016. Expenditures did show increase of$17 thousand for 2017 total. In both business-type funds,the major program revenue sources were charges for services of $1,895 thousand and intergovernmental revenues of $784 thousand. The primary source of revenues is a Stormwater Management Fee imposed upon real property and the Aquifer Area Protection Fee mandated by the voting public. Page 22 FINANCIAL ANALYSIS OF THE CITY OF SPOKANE VALLEY'S FUNDS As noted earlier, the City of Spokane Valley uses fund accounting to ensure and demonstrate compliance with finance related requirements. Governmental Funds-The focus of the City's governmental funds is to provide information on near- term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unassigned fund balance may serve as a useful measure of the City's net resources available for spending at the end of the year and represent the portion of fund balance which has not been limited to use for a particular purpose by either an external party, the City of Spokane Valley itself, or from a group or individual that has delegated authority to assign these resources to be used for particular purposes by the City of Spokane Valley's Council. As of December 31, 2017, the City's total governmental funds reported a combined ending fund balance of $57,412 thousand, a net increase of $862 thousand in comparison with the prior year. Approximately 68.52% of this amount or $39,336 thousand is composed of unassigned fund balance, which is available for spending at the City's discretion. The City's remainder or residual fund balance is either nonspendable, restricted, committed, or assigned to indicate that it is 1)not spendable in form ($101 thousand), 2) restricted for particular purposes ($8,387 thousand), 3) committed for particular purposes($5 thousand)assigned for particular purposes($9,583 thousand)See table 4,below. The General Fund is the primary operating governmental fund of the City of Spokane Valley where most receipts and payments of ordinary city operations are processed.See table 3,below. General Fund Components of Fund Balance December 31,2017&2016(amounts in thousands) Table 3 Fiscal Year 2017 2016 Unassigned $ 39,336 $ 34,695 Assigned - - Restricted 38 80 Nonspendable 90 82 Total fund balances $ 39,464 $ 34,857 At the end of 2017,unassigned fund balance was $39,336 thousand,while total fund balance increased to $39,464 thousand. As a measure of the General Fund's liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total governmental funds expenditures. Unassigned fund balance in the general fund represents approximately 68.21% of the total governmental funds expenditures, while total general fund balance of$39,464 thousand represents approximately 68.43% of that same amount in total governmental funds expenditures See table 3 above. All Remaining Governmental Funds Components of Fund Balance December 31,2017&2016(amounts in thousands) Table 4 Fiscal Year 2017 2016 Unassigned - Assigned 9,584 8,381 Committed 5 237 Restricted 8,348 13,070 Nonsp endable 11 5 Total fund balances $ 17,948 $ 21,693 Page 23 Major Governmental Funds The General Fund— The fund balance of the City of Spokane Valley's general fund increased by $4,607 thousand, compared to last year, for the fiscal year ending December 31, 2017. In the Budget to Actual Schedule, revenues trended higher than expected in the 2017 budget by $2,556 thousand, while the total expenditures were $5,876 thousand (including transfers in/out) less than the amended budget. Ultimately, the General Fund in the Governmental funds statement reports an increase in excess of revenues over expenditures, positive variance with final budget over of $8,451 thousand compared to the last fiscal year of 2016 of$5,793 thousand. The Street Fund — had an ending actual fund balance of $1,067 thousand, a net change in fund balance of($251) thousand compared to the prior year. The primary source of revenues for the Street fund is the Telephone Utility taxes of $1,982 thousand and the Motor Vehicle Gas tax of $2,052 thousand in Intergovernmental revenues collected. The change from the prior year was a decrease of (4.2%) for Telephone Utility taxes and an increase of 1.31% for Motor Vehicle Gas tax. Expenditures (including transfers out) outpaced revenues, which contributed to the slight decrease in ending fund balance compared to last year. Street Capital Projects Fund—had an ending fund balance of$67 thousand.Actual expenditures were $3,182 thousand less than the final budgeted projections. Overall, the net change in fund balance was less than the final budgeted projections for 2017. City Hall Construction Fund— had an ending fund balance of$101 thousand. Actual expenditures were $34 thousand less than final budget projections. The net change in fund balance was $26 thousand more than budgeted for 2017. Proprietary Funds-The City's enterprise funds, Stormwater Management and Aquifer Protection Area provide the same type of information found in the government-wide financial statements,and are also major proprietary funds.Unrestricted net position of the Stormwater Management Fund at December 31,2017,was$1,973 thousand and for the Aquifer Area Protection fund was$1,413 thousand. GENERAL FUND BUDGETARY HIGHLIGHTS Original budget compared to final budget: By State law, Title 35A of the Revised Code of Washington (RCW)requires all cities to prepare and adopt a balanced budget prior to the beginning of the City's fiscal year;the annual operating budget for the City is effective the first day of January. The City Council amended the original budget revenue and expenditures twice during 2017 due to updates in budget estimates and timing differences in expenditures during the fiscal year. Final budget compared to actual results: The most significant differences between final estimated revenues and actual revenues were as follows: 2017 Budget to Actual Comparison (amounts in thousands) Revenue Final Estimated Actual Source Revenues Revenues Difference Taxes $ 34,396 $ 35,838 $ 1,442 Licenses and permits 2,236 2,972 736 Intergovernmental revenues 2,274 2,556 283 Charges for services 1,315 1,298 (17) Fines&forfeitures 528 428 (100) Investment Interest 73 326 253 Miscellaneous 707 666 (41) $ 41,528 $ 44,085 $ 2,556 Page 24 In the General Fund, the variance between actual expenditures and the final amended budget was a savings in expenditures of$5,876 thousand giving the City a positive variance in excess of revenues over expenditures of $8,432 thousand for 2017. Actual negative revenue variances in charges for services of$17 thousand, fines and forfeitures of$100 thousand, and miscellaneous of$41 thousand coupled with revenue increases in tax revenue of $1,442 thousand, licenses and permits of $736 thousand, intergovernmental revenues of $283 thousand, and investment interest of $253 thousand paired with a positive variance in revenues over expenditures contributed overall to an increase in fund balance of$4,607 thousand for the fiscal year of 2017. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets: The City of Spokane Valley's investment in capital assets for its governmental and business type activities as of December 31, 2017, amounts to $121,399 thousand (net of depreciation). This investment in capital assets includes land, buildings, improvements, infrastructure, machinery and equipment, and construction in progress. The total increase in the city's investments in capital assets for the current fiscal year was$10,221 thousand or 9.2% (see table 5,following). City of Spokane Valley's Capital Assets (net of depreciation,amounts in thousands) Governmental Business-type Total% Table 5: Activities Activities Total Change 2017 2016 2017 2016 2017 2016 2017-2017 Land $ 9,220 $ 8,323 $ - $ - $ 9,220 $ 8,323 10.8% Buildings&leasehold improvments 21,483 8,777 297 310 21,780 9,087 139.7% Improvements other than Buildings 5,987 6,814 - - 5,987 6,814 -12.1% Infrastructure 72,708 65,834 5,934 5,936 78,642 71,770 9.6% Machinery and Equipment 2,212 911 22 27 2,234 938 138.2% Construction in Progress 3,445 14,163 91 83 3,536 14,246 -75.2% Total $ 115,055 $ 104,822 $ 6,344 $ 6,356 $ 121,399 $ 111,178 9.2% Major capital asset events during the current fiscal year included the following: • A 10.8% increase in land totaling $897 thousand is the result of purchases to facilitate current or planned improvements to the City's road network. • Construction in Progress decreased by 75.2% or $10,710 thousand due to the completion of construction on the New City Hall building. • There was a total of increase of 138.2%or$1,296 thousand in Machinery and Equipment for fiscal year 2017 due to the purchase of various pieces of equipment. • Infrastructure increased 9.6% or$6,872 thousand for 2017 due mostly to the completion of several street construction and street preservation projects. • There was a total increase of 139.7% or $12,693 thousand in Buildings and leasehold improvements due to the completion of the New City Hall. • Overall change in capital assets for 2017 increased by 9.2%compared to the prior year of 2016. Additional information on the City's capital assets can be found in Note 5(Capital Assets) to the financial statements. Long-Term Liabilities -At December 31, 2017,the City had total Limited Tax General Obligation debt outstanding of$12,790 thousand. This amount is backed by the full faith and credit of the City of Spokane Valley with debt service funded by general government revenues and contributions from the Public Facilities District. The City's general obligation bonds decreased by $470 thousand or 3.5% during fiscal year 2017. (See table 6,below). Page 25 City of Spokane Valley's Outstanding Debt Table 6 (amounts in thousands) Governmental Business-type Total Percentage Activities Activities Total Change 2017 2016 2017 2016 2017 2016 2017-2016 General obligation bonds $ 12,790 $ 13,260 $ - $ - $ 12,790 $ 13,260 -3.5% Bond premium 1,140 1,201 - - 1,140 1,201 -5.1% Compensated absences 505 492 25 27 530 519 2.1% Net pension plan liabilities(GASB 68) 4,715 5,949 275 316 4,990 6,265 -20.4% Total $19,150 $20,902 $ 300 $ 343 $19,450 $21,245 -8.4% In addition to the general obligation bonded debt and premium, the City's long-term liabilities also include compensated absences (vacation accruals) and net pension liabilities. Additional information on the City's long-term debt can be found in Note 9(Long-Term Obligations and Leases) in the notes to the financial statements. Under Washington State statutes, general obligation indebtedness for general purposes is pursuant to a vote of the electorate and is limited to 2.5% of actual value of taxable property located within the City of Spokane Valley. Non-voted general purpose indebtedness is limited to 1.5% of assessed valuation and the combination of voted and non-voted general purpose indebtedness, cannot exceed 2.5% of assessed valuation. The 2016 assessed valuation of the City of Spokane Valley for the levy year of 2017, for purposes of determining the legal debt margin is $8,124,488 (in thousands). Remaining debt capacities for the City under general voted and non-voted purposes(2.5%)is limited to: $596,041 (in thousands). The City of Spokane Valley maintains an Aa2 rating from Moody's for its non-voted general obligation debt. Additional information regarding debt limitations and capacities can be found in Note 9(Legal Debt Margin)in the notes to the financial statements. ECONOMIC FACTORS The following economic factors currently affect the City of Spokane Valley and were considered in developing the 2017-2018 fiscal year budgets. The outlook for the City of Spokane Valley economy was projected based on statistics generated in Spokane County. There is estimated to be over 5,275 businesses located in Spokane Valley with estimated taxable retail sales of$2.5 billion for 2017. The City of Spokane Valley received $23,941 thousand, an increase of$1,359 thousand from the prior year,in general sales tax dollars for 2017. Overall, Spokane County gained about 6,700 jobs in 2017. The current year's increase in jobs left the county with an estimated average of 226,351 jobs for the year, which has surpassed the peak year of 2008 with 224,950 jobs. This builds on the 6,800 positions from 2016 and brings the County's area wide unemployment rate to down an additional 1% to 5.5%. Spokane County's fastest growing non- farm employment sector is construction, followed closely by production. These sectors are predicted to grow the most through 2020. Population growth has been steady within the City of Spokane Valley, increasing to 94,890 and growing 5.2% since 2010. The total number of single family residential building permits in the Spokane County area-wide region (including the City of Spokane and the City of Spokane Valley) increased to 1,283 in 2017, from 1,274 issued in 2016. Additionally, total 2017 nonresidential building permits issued by the City of Spokane Valley were 430 compared to 593 in 2016. Page 26 The Real Estate market continues its upswing from the most recent low of 2011. Spokane County home sales have increased to 8,137. With an average selling price of$228,732, single family home sale prices are at the highest over the past 15 years with 2007 being the previous high at$211,872. For The median price of a home in the Spokane metropolitan area was approximately $223,400 in 2017, which is roughly$23,100 lower than the U.S.median price of$246,500. The City of Spokane Valley's assessed value increased 4.9% to 8.1 billion in 2017. The City's property tax levy rate for 2017 was near$1.4335 per thousand of assessed value. The City of Spokane Valley contracts with Spokane County and several public service districts for many city services including street maintenance,public safety, library, and fire protection. This allows the City to hold the number of full-time employees to 89.25 Employee salaries and related benefits are the leading cost for much of the city's operations. In a 2015 study, a comparison of 31 cities with a populations of 100,000 or less was conducted within the State of Washington and the City of Spokane Valley had the fewest number of employees based on Washington cities with a population greater than 50,000 and over. No significant general fund tax increases were implemented in 2017. Beginning April 1, 2017 the local sales tax rate increased by 0.1%. This had the effect of increasing the total sales tax rate to 8.8%. The telephone utility tax of 6% continues to be collected during 2017 in the City's Street Fund. During the fiscal year of 2017,unassigned fund balance in the general fund was $39,336 thousand. As noted in the City of Spokane Valley's 2018 budget document, the total recurring 2018 general fund expenditure budget is $40,891 thousand as compared to $40,054 thousand in 2017.This means that the general fund recurring expenditure budget only increased by 2.09% as compared to 2017. The 2018 budget presumes service levels that are consistent with those provided in 2017 with neither significant enhancements nor reductions in any area of operations. REQUEST FOR INFORMATION This financial report is designed to provide a general overview of the City of Spokane Valley's finances for those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to: City of Spokane Valley Finance Department Chelsie Taylor,Finance Director 10210 E Sprague Ave. Spokane Valley,Washington 99206. Page 27 City of Spokane Valley,Washington Statement of Net Position December 31, 2017 Primary Government Governmental Business-type ASSETS Activities Activities Total Cash and cash equivalents $ 56,859,485 $ 3,862,725 $ 60,722,210 Taxes receivable 5,915,734 54,028 5,969,762 Taxes delinquent-receivable 146,635 - 146,635 Accounts receivable,(net) 2,659,426 - 2,659,426 Interest receivable 55,858 3,804 59,662 Grants receivable 1,912,415 290,077 2,202,492 Due from other funds 1,804,937 - 1,804,937 Prepaids 445,701 1,200 446,901 Capital Assets: Land 9,219,847 - 9,219,847 Depreciable assets,(net) 102,390,025 6,253,159 108,643,184 Construction in progress 3,444,882 91,063 3,535,945 Total Assets $ 184,854,945 $ 10,556,056 $ 195,411,001 DEFERRED OUTFLOWS OF RESOURCES Pension plans contributions 687,918 39,984 727,902 Total deferred outflows of resources 687,918 39,984 727,902 LIABILITIES Accounts payable $ 3,039,300 $ 75,344 $ 3,114,644 Interest payable 38,117 - 38,117 Due to other funds 1,804,937 - 1,804,937 Deposits and other payables 887,546 80,696 968,242 Other accrued liabilities 552,548 35,517 588,065 Unearned revenues - 327,792 327,792 Long-term liabilities: Due within one year 594,106 621 594,727 Due in more than one year 13,840,706 24,236 13,864,942 Net pension plan liabilities 4,715,034 275,227 4,990,261 Total Liabilities 25,472,294 819,433 26,291,727 DEFERRED INFLOWS OF RESOURCES Df between expected&actual pension plan earnings 787,725 45,888 833,613 Total deferred inflows of resources 787,725 45,888 833,613 NET POSITION Net Investment in capital assets 101,125,167 6,344,222 107,469,389 Restricted for: Capital projects,REET,roads&streets,solid waste 6,600,340 - 6,600,340 Parks&recreation programs 100,218 - 100,218 Hotel/motel tourism facilities 1,228,595 - 1,228,595 Hotel/motel tourism promotion 221,867 - 221,867 Comcast PEG,communications 54,837 - 54,837 City hall construction 101,076 - 101,076 Trails&paths 46,324 - 46,324 HRA AWC 33,785 - 33,785 Prepaid expenses 445,701 - 445,701 Unrestricted 49,324,934 3,386,497 52,711,431 Total Net Position: 159,282,844 9,730,719 169,013,563 The notes to the financial statements are an integral part of this financial statement. Page 28 City of Spokane Valley,Washington Statement of Activities For the Year Ended December 31,2017 Net(Expense)Revenue and Program Revenues Changes in Net Position Operating Capital Charges for Grants& Grants& Governmental Business-Type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Primary government: Governmental activities: General government $ 5,154,789 $ 3,063,787 $ 456,221 $ (27,205) $ (1,661,986) $ - $ (1,661,986) Public safety 21,582,876 1,158,803 - - (20,424,073) - (20,424,073) Utilities and physical environment 4,500,037 295,617 176,758 180,116 (3,847,546) - (3,847,546) Transportation 9,330,326 369,591 10,982 4,999,807 (3,949,946) - (3,949,946) Economic environment 1,095,367 - - - (1,095,367) - (1,095,367) Community development 1,354,999 2,219,811 - - 864,812 - 864,812 Culture and recreation 3,692,565 705,118 57,592 1,666,873 (1,262,982) - (1,262,982) Interest on long-term debt 508,717 - - - (508,717) - (508,717) Total governmental activities 47,219,676 7,812,727 701,553 6,819,591 (31,885,805) - (31,885,805) Business-type activities: Aquifer protection area 170,856 - 452,110 58,722 - 339,976 339,976 Stormwater management 1,960,208 1,895,033 331,822 38,385 - 305,032 305,032 Total business-type activities 2,131,064 1,895,033 783,932 97,107 - 645,008 645,008 Total primary government $ 49,350,740 $ 9,707,760 $ 1,485,485 $ 6,916,698 (31,885,805) 645,008 (31,240,797) General revenues: Taxes: Property taxes 11,601,904 - 11,601,904 Sales and use taxes 23,941,374 - 23,941,374 Excise taxes 5,636,498 - 5,636,498 Other taxes 3,369,179 - 3,369,179 Interest and investment earnings 514,605 30,801 545,406 Transfers 13,400 (13,400) - Total general revenues and transfers 45,076,960 17,401 45,094,361 Change in net position 13,191,155 662,409 13,853,564 Net position--beginning of year 146,091,689 9,068,310 155,159,999 Net position--ending $ 159,282,844 $ 9,730,719 $169,013,563 The notes to the financial statements are an integral part of this financial statement. Page 29 City of Spokane Valley, Washington Comprehensive Annual Financial Report-Fiscal Year 2017 Balance Sheet Governmental Funds December 31, 2017 General Street Street Capital Assets Fund Fund Projects Fund Cash and cash equivalents $ 37,493,502 $ 1,345,767 $ 507 Taxes receivable 5,144,067 472,689 - Accounts receivable,(net) 2,268,140 21,084 353,110 Interest receivable 35,383 792 - Due from other funds - - - Grants receivable 5,709 1,335 1,466,309 Prepaids 89,728 10,937 - Total Assets $ 45,036,529 $ 1,852,604 $ 1,819,926 Liabilities Liabilities: Accounts payable $ 2,100,019 $ 479,644 $ 218,602 Accrued wages and benefits payable 445,637 78,702 19,715 Go bonds payable-current - - - Interest payable - - - Due to other funds - - 40,625 Deposits and other payables 229,665 - - Retainage payable 47,199 59,848 - Unearned revenues 2,749,787 167,116 1,474,292 Total Liabilities 5,572,307 785,310 1,753,234 Fund Balances: Nonspendable: Prepaid expenses $ 89,728 $ 10,937 $ - Restricted for: Comcast PEG contributions - - - Health Reimbursement Account 29,651 4,134 - Parks&recreation programs 3,074 - - Law enforcement JAG&ARRA grants - - - Railroad grade separation projects - - - Windstorm recovery 2015 5,709 1,335 - Hotel/motel tourism facilities - - - Hotel/motel tourism promotion - - - Motor vehicle fuel tax roads&streets - 1,050,888 - New City Hall Bldg-2016 - - - Street capital improvements - - 66,692 Trails&paths - - - Capital projects REET 1&2 roads&streets - - - Committed to: Winter weather operations - - - Assigned to: Civic bldg capital replacement - - - Civic facilities capital replacement - - - Parks&recreation capital improvements - - - Street capital improvements p&m - - - Railroad grade separation projects - - - Solid waste services - - - Unassigned 39,336,060 - - Total Fund Balances 39,464,222 1,067,294 66,692 Total Liabilities and Fund Balances $ 45,036,529 $ 1,852,604 $ 1,819,926 Page 30 The notes to the financial statements are an integral part of this statement. City of Spokane Valley, Washington Comprehensive Annual Financial Report-Fiscal Year 2017 Balance Sheet Governmental Funds December 31, 2017 City Hall Other Total Construction Governmental Governmental Assets Fund Funds Funds Cash and cash equivalents $ 615,584 $ 16,128,865 $ 55,584,225 Taxes receivable - 445,613 6,062,369 Accounts receivable,(net) - 17,092 2,659,426 Interest receivable 597 17,730 54,502 Due from other funds - 1,804,937 1,804,937 Grants receivable - 439,062 1,912,415 Prepaids - - 100,665 Total Assets $ 616,181 $ 18,853,299 $ 68,178,539 Liabilities Liabilities: Accounts payable $ 12,381 $ 231,992 $ 3,042,638 Accrued wages and benefits payable - 8,494 552,548 Go bonds payable-current - - - Interest payable - - - Due to other funds - 1,490,310 1,530,935 Deposits and other payables - - 229,665 Retainage payable 502,724 37,667 647,438 Unearned revenues - 372,534 4,763,729 Total Liabilities 515,105 2,140,997 10,766,953 Fund Balances: Nonspendable: Prepaid expenses $ - $ - $ 100,665 Restricted for: Comcast PEG contributions - 54,837 54,837 Health Reimbursement Account - - 33,785 Parks&recreation programs - 86,934 90,008 Law enforcement JAG&ARRA grants - - - Railroad grade separation projects - 88,995 88,995 Windstorm recovery 2015 - 3,166 10,210 Hotel/motel tourism facilities - 1,228,595 1,228,595 Hotel/motel tourism promotion - 221,867 221,867 Motor vehicle fuel tax roads&streets - - 1,050,888 New City Hall Bldg-2016 101,076 - 101,076 Street capital improvements - 259,967 326,659 Trails&paths - 46,324 46,324 Capital projects REET 1&2 roads&streets - 5,133,798 5,133,798 Committed to: Winter weather operations - 4,551 4,551 Assigned to: Civic bldg capital replacement - 843,688 843,688 Capital reserve improvements(city wide) - 4,427,286 4,427,286 Parks&recreation capital improvements - 39,268 39,268 Street capital improvements p&m - 3,102,536 3,102,536 Railroad grade separation projects - 979,808 979,808 Solid waste services - 190,682 190,682 Unassigned - - 39,336,060 Total Fund Balances 101,076 16,712,302 57,411,586 Total Liabilities and Fund Balances $ 616,181 $ 18,853,299 $ 68,178,539 Page 31 The notes to the financial statements are an integral part of this statement. City of Spokane Valley, Washington Reconciliation of the Balance sheet of Governmental Funds To the Statement of Net Position December 31, 2017 Total governmental fund balances: 57,411,586 Amounts reported for governmental activities in the statement of net position are derent because: Capital assets used in governmental activities are not financial resources. This amount reflects the initial investment in capital assets and are not reported in the funds. 115,054,754 Certain earned tax revenues will be collected after year end and will not be available until after year end to pay for current expenditures;and therefore reported as unearned revenues in the funds. These revenues consist of: Sales and use taxes 2,357,136 Motor fuel taxes 162,360 Real estate excise taxes 56,500 Hotel/Motel taxes 47,441 Total 2,623,437 Other long-term assets are not available to pay for current period expenditures and therefore are reported as unearned in the funds: Property taxes 319,531 Intergovernmental 1,747,629 Charges for services 73,133 Total 2,140,293 Internal service funds are used by management to charge the cost of certain activities,such as equipment rental and self insurance,to the individual funds.The assets and liabilities of the internal service fund are included in governmental activities in the statement of net position. 1,340,544 Long-term liabilities,including capital leases payable,accrued interest payable, deferred inflows and outflows,and GASB68 net pension liabilities(NPL)are not due and payable in the current period and therefore are not reported in the funds: Bonds payable (12,790,000) Interest payable (38,117) Net pension liabilities (4,715,034) Deferred inflows of resources (787,725) Deferred outflows of resources 687,918 Premium on bond issuance (1,139,587) Compensated Absences (505,225) Total (19,287,770) Total Net position of Governmental Activities as shown on the Statement of Net Position: 159,282,844 The notes to the financial statements are an integral part of this financial statement. Page 32 City of Spokane Valley, Washington Comprehensive Annual Financial Report- Fiscal Year 2017 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2017 General Street Street Capital Fund Fund Projects Fund Revenues Taxes $ 35,838,314 $ 1,982,391 $ - Licenses and permits 2,971,586 - - Intergovernmental 2,556,393 2,132,509 3,562,133 Charges for services 1,298,258 136,112 - Fines and forfeitures 427,624 - - Investment interest 326,401 7,843 - Miscellaneous 666,089 134,486 62,243 Total Revenues 44,084,665 4,393,341 3,624,376 Expenditures Current: General government 4,865,817 - - Public safety 21,465,496 - - Utilities and physical environment 1,942,031 283,514 1,169,638 Transportation - 4,204,293 - Economic environment 773,252 - - Community development 1,354,999 - - Culture and recreation 2,743,228 - - Debt Service: Principal retirement - - - Interest expense 600 - - Bond issuance costs - - - Capital Outlay: Capital expenditures 658,141 49,702 72,160 Construction in progress - - 4,905,769 Total Expenditures 33,803,564 4,537,509 6,147,567 Excess of Revenues Over(Under) 10,281,101 (144,168) (2,523,191) Expenditures Other Financing Sources(Uses) Transfers In 684,803 - 2,514,317 Transfers(out) (6,359,079) (107,042) - Bonds issued,par value - - - Bonds issued,premium - - - Total Other Financing Sources (Uses) (5,674,276) (107,042) 2,514,317 Net Change in Fund Balances(deficit) 4,606,825 (251,210) (8,874) Fund Balances Beginning of Year 34,857,397 1,318,504 75,566 Fund Balances End of Year $ 39,464,222 $ 1,067,294 $ 66,692 The notes to the financial statements are an integral part of this statement. Page 33 City of Spokane Valley, Washington Comprehensive Annual Financial Report- Fiscal Year 2017 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2017 City Hall Other Total Construction Governmental Governmental Fund Funds Funds Revenues Taxes $ - $ 4,024,062 $ 41,844,767 Licenses and permits - 76,471 3,048,057 Intergovernmental - 2,285,246 10,536,281 Charges for services - 172,550 1,606,920 Fines and forfeitures - - 427,624 Investment interest 18,894 150,709 503,847 Miscellaneous - - 862,818 Total Revenues 18,894 6,709,038 58,830,314 Expenditures Current: General government 24,890 - 4,890,707 Public safety - - 21,465,496 Utilities and physical environment - 81,289 3,476,472 Transportation - 500,000 4,704,293 Economic environment - 351,674 1,124,926 Community development - - 1,354,999 Culture and recreation - - 2,743,228 Debt Service: Principal retirement - 470,000 470,000 Interest expense - 470,000 470,600 Bond issuance costs - - - Capital Outlay: Capital expenditures 6,040,989 438,824 7,259,816 i Construction in progress - 4,806,255 9,712,024 Total Expenditures 6,065,879 7,118,042 57,672,561 Excess of Revenues Over(Under) (6,046,985) (409,004) 1,157,753 Expenditures Other Financing Sources(Uses) Transfers In - 8,641,224 11,840,344 Transfers(out) - (5,670,423) (12,136,544) Bonds issued,par value - - - Bonds issued,premium - - - Total Other Financing Sources (Uses) - 2,970,801 (296,200) Net Change in Fund Balances(deficit) (6,046,985) 2,561,797 861,553 Fund Balances Beginning of Year 6,148,061 14,150,505 56,550,033 Fund Balances End of Year $ 101,076 $ 16,712,302 $ 57,411,586 The notes to the financial statements are an integral part of this statement. Page 34 City of Spokane Valley, Washington Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended December 31, 2017 Net change in fund balances-total governmental funds: 861,553 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures.However,in the statement of activities,the cost of those assets is allocated over their estimated useful lives as depreciation expense.This is the amount by which capital outlays and contributions exceeded depreciation in the current period: Depreciation (6,623,649) Capital outlay 16,856,952 10,233,303 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds: Sales and use taxes 104,174 Property taxes (11,153) Excise taxes 68,205 Other taxes 2,492 Miscellaneous (124,279) Capital-operating grants and contributions 1,370,492 1,409,931 The issuance of long-term debt(e.g.,bonds,leases)provides current financial resources to governmental funds,while the repayment of the principal of long-term debt consumes current financial resources of governmental funds.Neither transaction however,has any effect on net position.Also,governmental funds report the effect of issuance costs,premiums,discounts,and similar transactions when debt is first issued or refunded,whereas these amounts are deferred and amortized in the statement of activities.This amount is the net effect of these differences in the application of long-term debt and related items: 470,000 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds: Compensated absences 12,979 Pension expense(GASB 68 adjustments) 183,626 Amortization expense on LTGO Bonds (61,475) Interest expense accrual (38,117) 97,013 Internal service funds are used by management to charge the costs of fleet and risk management individual funds.The net revenue(expense)of certain activities of internal service funds is reported with governmental activities: 119,355 Total Change in Net Position of Governmental Activities as shown on the Statement of Activities: 13,191,155 Page 35 The notes to the financial statements are an integral part of this statement. City of Spokane Valley, Washington Comprehensive Annual Financial Report-Fiscal Year 2017 Statement of Net Position -Proprietary Funds December 31, 2017 Business-type Activities Enterprise Funds Governmental StormWater Aquifer Total Activities Management Protection Proprietary Internal Assets Fund Area Fund Funds Service Funds Current Assets: Cash and cash equivalents $ 2,451,040 $ 1,411,685 $ 3,862,725 $ 1,275,260 Taxes delinquent-receivable 54,028 - 54,028 - Accounts receivable,(net) - - - - Interest receivable 2,416 1,388 3,804 1,355 Grants receivable 290,077 - 290,077 - Prepaids 1,200 - 1,200 345,036 Total Current Assets 2,798,761 1,413,073 4,211,834 1,621,651 Capital Assets: Buildings&structures 382,881 - 382,881 - Machinery and equipment 219,613 - 219,613 547,212 Infrastructure 4,084,443 3,456,612 7,541,055 - Construction in progress 91,063 - 91,063 - Less accumulated depreciation (1,344,559) (545,831) (1,890,390) (97,245) Total capital assets (net of accumulated depreciation) 3,433,441 2,910,781 6,344,222 449,967 Total Assets 5 6,232,202 $ 4,323,854 $ 10,556,056 $ 2,071,618 Deferred Outflows of Resources Deferred amounts related to pensions 39,984 - 39,984 - Total Deferred Outflows of Resources $ 39,984 $ - $ 39,984 $ - Liabilities Current Liabilities: Accounts payable $ 75,344 $ - $ 75,344 $ 7,105 Accrued payroll and benefits payable 35,517 - 35,517 - Due to other funds - - - 274,002 Deposits and other payables 32,100 - 32,100 - Retainage payables 48,596 - 48,596 - Unearned revenue 327,792 - 327,792 - Total Current Liabilities 519,349 - 519,349 281,107 Long-term Liabilities: Compensated absences 24,857 - 24,857 - Net pension plan liabilities 275,227 - 275,227 - Total Long-term Liabilities 300,084 - 300,084 - Total Liabilities 819,433 - 819,433 281,107 Deferred Inflows of Resources Deferred amounts related to pensions 45,888 - 45,888 - Total Deferred Inflows of Resources 45,888 - 45,888 - Net Position Investments in capital assets 3,433,441 2,910,781 6,344,222 449,967 Restricted - - - - Unrestricted 1,973,424 1,413,073 3,386,497 1,340,544 Total Net Position $ 5,406,865 $ 4,323,854 $ 9,730,719 $ 1,790,511 The notes to the financial statements are an integral part of this statement. Page 36 City of Spokane Valley, Washington Comprehensive Annual Financial Report-Fiscal Year 2017 Statement of Revenues, Expenses, and Changes in Net Position Proprietary Funds For the Year Ended December 31, 2017 Business-type Activities Enterprise Funds Governmental StormWater Aquifer Total Activities Management Protection Proprietary Internal Operating Revenues Fund Area Fund Funds Service Funds Charges for services $ 1,895,033 $ - $ 1,895,033 $ 146,429 Intergovernmental revenues 331,822 452,110 783,932 - Total Operating Revenues 2,226,855 452,110 2,678,965 146,429 Operating Expenses Personal services 495,785 - 495,785 29,067 Professional services 285,108 - 285,108 311,467 Materials and supplies 18,423 - 18,423 6,898 Other services and expenses 929,128 - 929,128 - Depreciation and amortization 231,764 170,856 402,620 44,249 Total Operating Expenses 1,960,208 170,856 2,131,064 391,681 Operating Income(loss) 266,647 281,254 547,901 (245,252) Non-Operating Revenues(Expenses) Intergovernmental revenues - - - - Interest and investment income 20,564 10,237 30,801 10,758 Miscellaneous revenues - - - - Other services&expenses - - - - Total Non-Operating Revenues (Expenses) 20,564 10,237 30,801 10,758 Income(loss)before Capital Contributions and Transfers 287,211 291,491 578,702 (234,494) Contributions and Transfers Capital contributions 38,385 58,722 97,107 - Transfers in - - - 386,600 Transfers(out) (13,400) - (13,400) (77,000) Change in Net Position 312,196 350,213 662,409 75,106 Net Position-Beginning of Year,January 1 5,094,669 3,973,641 9,068,310 1,715,405 Net Position-End of Year,December 31 $ 5,406,865 $ 4,323,854 $ 9,730,719 $ 1,790,511 The notes to the financial statements are an integral part of this statement. Page 37 City of Spokane Valley, Washington Comprehensive Annual Financial Report-Fiscal Year 2017 Statement of Cash Flows -Proprietary Funds For the Year Ended December 31, 2017 Business-type Activities Enterprise Funds Governmental StormWater Aquifer Total Activities Management Protection Proprietary Internal Service Cash Flows from Operating Activities Fund Area Fund Funds Funds Cash received from customers $ 1,895,114 $ - $ 1,895,114 $ - Cash paid to employees (487,326) (83) (487,409) (29,067) Cash payments to suppliers for goods and services (1,202,828) - (1,202,828) (658,365) Other cash receipts 431,104 452,110 883,214 - Receipts from interfund activity - - - 146,429 Other cash payments (77,367) (1,904) (79,271) - Net cash(used for)provided by operating activities 558,697 450,123 1,008,820 (541,003) Cash Flows from Noncapital Financing Activities Non-Capital grant/project receipts - - - - Customer supplies/project expense reimbursements - - - - Operating subsidies&transfers in(out)other funds (13,400) - (13,400) 583,603 Net cash(used for)noncapital financing activities (13,400) - (13,400) 583,603 Cash Flows from Capital and Related Financing Activities Acquisition,construction&(transfers)of capital assets (331,953) (58,721) (390,674) (149,451) Intergovernmental revenues/materials&supplies(net) 38,385 58,721 97,106 - Net cash provided by(used for)capital and related financing activities (293,568) - (293,568) (149,451) Cash Flows from Investing Activities Interest received 19,105 9,261 28,366 9,981 Net cash provided by investing activities 19,105 9,261 28,366 9,981 Net increase(decrease)in Cash and Cash Equivalents 270,834 459,384 730,218 (96,870) Cash and Cash Equivalents-January 1,2017 2,180,206 952,301 3,132,507 1,372,130 Cash and Cash Equivalents-December 31,2017 $ 2,451,040 $ 1,411,685 $ 3,862,725 $ 1,275,260 Reconciliation of Operating Income(Loss)to Net Cash Provided(Used)by Operating Activities Operating Income(loss) S 266,647 5 281,254 5 547,901 $ (245,252) Adjustments to reconcile operating income to net cash provided (used)by operating activities: Depreciation 231,764 170,856 402,620 44,249 (Increase)Decrease in Assets: (Increase)Decrease:Customer Receivables(net) 82 - 82 - (Increase)Decrease:in Operating Grants Receivables 85,998 - 85,998 - (Increase)Decrease:in prepaid expenses (1,126) - (1,126) (345,036) (Increase)Decrease in deferred outflows related to pensions 14,410 - 14,410 - Increase(Decrease)in Liabilities: Increase(Decrease):Accounts payable to suppliers 29,830 - 29,830 5,036 Increase(Decrease):Payroll and benefits payable 10,004 (83) 9,921 - Increase(Decrease):Other Accounts Payables 2,075 (1,904) 171 - Increase(Decrease):Unearned Operating Revenue (79,442) (79,442) - Increase(Decrease):Compensated Absences (1,545) - (1,545) - Total adjustments 292,050 168,869 460,919 (295,751) Net Cash Provided by(Used for)by Operating Activities $ 558,697 $ 450,123 5 1,008,820 $ (541,003) The notes to the financial statements are an integral part of this statement. Page 38 City of Spokane Valley Notes to Financial Statements NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A.Description of government-wide financial statements The government-wide financial statements(i.e.,the statement of net position and the statement of activities)report information on all of the non-fiduciary activities of the primary government. Governmental-type activities, which normally are supported by taxes,intergovernmental revenues,and other non-exchange transactions, are reported separately from Business-Type Activities, which rely to a significant extent on fees and charges generated by external customers for support. B.Reporting entity The City of Spokane Valley,Washington(the City)was incorporated on March 31,2003. The City operates under a Council–Manager Form of government. The City's major operations,as authorized under the laws of the State of Washington applicable to a non-charter city code,include planning and zoning,public safety,public works, and recreation and culture. The accounting and reporting policies of the City relate to the accompanying financial statements of the City of Spokane Valley,Washington which have been prepared in conformity with generally accepted accounting principles(GAAP) as applied to state and local governmental entities. GAAP for local governments include those principles prescribed by the Governmental Accounting Standards Board(GASB)which is the accepted standard-setting body for establishing governmental accounting and financial reporting principles,the Financial Accounting Standards Board(FASB),when applicable,and the American Institute of Certified Public Accountants(AICPA)pronouncements that have been made applicable by GASB Statements or Interpretations.As required by GAAP,the City's financial statements present the City of Spokane Valley–the primary government. C.Basis of presentation - government-wide and fund financial statements While separate government-wide (reporting the City as a whole) and fund financial statements(reporting the City's major funds) are presented to report the City's financial position and the results of operations,they are both interrelated. The governmental-type activities column incorporates data from the governmental funds and internal service funds,while business-type activities categorize data from the government's enterprise funds. As a general rule,the effect of interfund activity has been removed from the government-wide financial statements. Exceptions to this general rule are payments in lieu of taxes where amounts are reasonably equivalent in value to the interfund services provided and other charges between the City's Stormwater functions and various other functions and activities within the government. Elimination of these charges would distort the direct costs and program revenues reported in these various functions concerned.As discussed earlier, Governmental activities,which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities,which rely to a significant extent on fees and charges created by those external customers. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Our policy is not to allocate indirect costs to a specific function or segment. Program revenues include 1)charges to customers or applicants who purchase,use,or directly benefit from goods, services,or privileges provided by a given function or segment and 2)grants and contributions that are restricted to meeting the operational or capital requirements or a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for governmental funds and proprietary funds. The City has no fiduciary funds.Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.All remaining governmental and enterprise funds are combined, aggregated, and reported as non-major funds. Page 39 City of Spokane Valley Notes to Financial Statements NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued: D.Measurement focus,basis of accounting, and financial statement presentation The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting.Measurement focus indicates the type of resources being measured, such as current financial resources or economic resources.The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting,as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred,regardless of the timing of related cash flows.Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period.For this purpose,the City considers revenues to be available if they are collected within 30 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred,as under accrual accounting.However,debt service expenditures, as well as expenditures related to compensated absences and claims and judgments,are recorded only when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long-term debt and acquisitions under capital leases are reported as other financing sources. Property taxes,franchise fees,licenses,and interest associated within the current period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessment receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been satisfied, and the amount is received during the period or within the availability period for this revenue source,usually within 60 days of the fiscal year end.All other revenue items are considered to be measurable and available only when cash is received by the City (modified basis of accounting). The city reports the following major governmental funds: The General Fund: is the City's primary operating fund. It accounts for all financial resources of the City's general government,except those required to be accounted for in another fund. The Street Fund: This Special revenue fund is responsible for the street operating and maintenance service levels of all Spokane Valley city streets and bridges. It utilizes the receipts received from the motor vehicle fuel tax(MVFT) distributed to the City in accordance with the State Revised Codes of Washington(RCW) 82.36.020 and receipts from the City Telephone Tax implemented in 2009. Most of the service levels to the city streets during 2017 are the same or greater than provided for compared to 2016. Street Capital Projects Fund: accounts for the accumulation of resources used to finance the six-year transportation improvement plan. Revenues include transfers from the Capital and Special Capital Projects Fund,as well as Federal, State,and local grants. City Hall Construction Fund: accounts for the accumulation of resources used to finance the construction of the new City Hall Building. Revenues include LTGO Bond issue proceeds. Page 40 City of Spokane Valley Notes to Financial Statements NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued: The city reports the following major proprietary funds: The Stormwater Management Fund: accounts for the receipt and expenditure of the stormwater management fee. The expenses are used for stormwater control,construction,and management. The Aquifer Protection Area Fund: accounts for aquifer protection area fees collected by Spokane County and remitted to the City.The expenses are used for projects that protect the aquifer. Additionally,the government reports the following non-major fund types: Special revenue funds: account for revenue sources that are restricted for specific purposes such as Hotel/Motel tax revenues and expenditures,Winter Weather Reserve, and revenues and expenditures for the Trails&Paths Fund,PEG and Solid Waste Funds. Debt service fund: accounts for the resources accumulated and payments made for principal and interest on general government debt,except those to be accounted for in another fund. Capital project funds: account for the acquisition or development of capital facilities for governmental activities. The major sources of revenues are from proceeds of general obligation bonds,grants from other agencies,and contributions from other funds. Internal service funds: account for vehicle replacement and risk management services provided to other departments on a cost reimbursement basis. Amounts reported as program revenues include 1)charges to customers,2)operating grants and contributions, and 3) capital grants and contributions,including special assessments. Internally dedicated resources are reported as general revenues rather than program revenues. General revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations.The principal operating revenues of the Stormwater Management Fund and Aquifer Protection Area Fund are stormwater management fees,aquifer protection area fees from Spokane County,and government grants. Operating expenses for enterprise funds and internal service funds include the cost of sales and services,administrative expenses,and depreciation on capital assets.All revenues and expenses not meeting these definitions are reported as non-operating revenues and expenses. E.Budgetary information 1. Budgetary basis of accounting Annual appropriated budgets are adopted for all funds on a basis consistent with generally accepted accounting principles. The governmental funds are budgeted on the modified accrual basis of accounting,whereas the basis of accounting for proprietary funds is full accrual. Legal budgetary control (i.e.,the level at which expenditures may not legally exceed appropriations)is established at the fund level. Subsidiary revenue and expenditure ledgers are used to compare the budgeted amounts with actual revenues and expenditures. As a management control device,the subsidiary ledgers are used to monitor expenditures for individual functions and activities by object class. Page 41 City of Spokane Valley Notes to Financial Statements NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued: 2. Procedures for adopting the original budget The City's budget procedures are mandated by the Revised Code of Washington 35A.33. The following are key procedural steps in the City's budget development process. Note that the process and dates are for the 2017 budget process and may be changed for future processes: • In April,the official"budget call"required by State law is made to all department directors or fund managers. Budget development instructions and other materials are provided to the depaitnients at this time. • In May,departments submit revenue and expenditure estimates to the Finance depaitnient. The City Council and City management staff discuss City goals and priorities and reaffirms overall City priorities,vision,and mission at a mid-year retreat. Additional policy guidance is provided throughout the year. • In June,the City conducts the budget workshop with Council. • In July,the Finance department submits the preliminary budget to the City Manager. • In August,the City Manager submits estimates on the current year's revenue and expenditures for the upcoming year to the council.During August,preliminary budget documents are prepared,printed and filed with the City Clerk. This proposed budget is presented to the City Clerk, and copies are made available to the public. The Council sets the dates of the preliminary and final budget hearings. • Before December 31St,the City Council,by a majority vote, adopts the budget by ordinance,establishing the budget appropriation for the year. • The approved budget is published and distributed during the first quarter of the following year. Copies are made available to the public. • Monthly budget monitoring reports are produced by the Finance Department to report on actual performance compared to budget estimates and to identify any remedial actions that may be needed. 3. Amending the budget The budget, as adopted, constitutes the legal authority for expenditures. The City's budget is adopted at the fund level,so that expenditures may not legally exceed appropriations at that level of detail. The City Manager is authorized to transfer budgeted amounts within a fund;however,any revisions that alter the total expenditures of a fund,or that effect the number of authorized employee positions, salary ranges,or other conditions of employment must be approved by the City Council. When the City Council determines that it is in the best interest of the City to increase or decrease the appropriation for a particular fund,it may do so by ordinance approved by one more than the majority after holding a public hearing. The City's budget was amended twice during fiscal year 2017. The financial statements contain the original and final budget information. The original budget is the first complete appropriated budget. The final budget is the original budget adjusted by all reserves,transfers, allocations,supplemental appropriations,and other legally authorized changes. Annual appropriations for all funds lapse at the end of the fiscal period even if they have related encumbrances. Unexpended resources must be re-appropriated and become part of the subsequent period's budget pursuant to Washington States regulations. F.Assets,liabilities, unearned revenues, deferred outflows/inflows of resources, and net position/fund balance 1. Cash and cash equivalents The City considers all highly liquid assets including demand deposits,petty cash,money market accounts,certificates of deposit(CD's),investments in the Washington State Treasurer's Local Government Investment Pool (LGIP), and short- term investments with a maturity of three months or less from the date of acquisition, as cash and cash equivalents. These amounts are classified on the balance sheet or in the statement of net position within cash and cash equivalents in the various funds. The interest on these investments is prorated to the applicable funds and the City's policy has been to hold its investments until maturity in an attempt to reduce market fluctuation risk. Investments of the City can be drawn down on demand. Page 42 City of Spokane Valley Notes to Financial Statements NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued: 2.Investments As authorized by Washington state law,the City is allowed to invest in obligations of: the U.S.Treasury,commercial paper,certificates of deposits,money market funds,mutual funds,and the Washington State Treasurer's Local Government Investment Pool(LGIP). Investments for the City of Spokane Valley are reported at amortized cost at December 31,2017.The fair value of the LGIP portfolio is calculated by a master custodian or by an independent pricing service under contract with the State Treasurer's Office.The reported amortized value of the City's pool position in the State of Washington's LGIP is the same as the fair value of the pool shares(refer to note 3). 3.Receivables Taxes receivable consist of property taxes and related interest and penalties. Accrued interest receivable consists of amounts earned on investments,notes, and contracts. Grants receivable consist of amounts due from other governments for work performed on reimbursement-type grants. Customer accounts receivable/payable consist of amounts owed from/to private individuals or organizations for goods and services,including amounts owed. Receivables have been reported net of estimated uncollectible accounts. Because property taxes and special assessments are considered liens on property,no estimated uncollectible amounts are established. Grants receivable are considered fully collectible and no estimated uncollectible amounts are established. 4.Amounts due to and from other funds,interfund loans and advances receivable During the course of operations,the City of Spokane Valley has activity between funds for various purposes.Any residual balances outstanding at year end are reported as due from/to other funds.While these balances are reported in the fund financial statements,certain eliminations are made in the preparation of the government-wide financial statements. Balances between funds included in governmental-type activities(i.e.,the governmental and internal service funds) are eliminated so that only the net amount is included as internal balances in the governmental-type activities column. Similarly,balances between the funds included in business-type activities(i.e.,the proprietary funds) are eliminated so that only the net amount is included as internal balances in the business-type activities column(refer to note 8). Further,certain activity occurs during the year involving transfers of resources between funds. In the fund financial statements these amounts are reported at gross amounts of transfers in/out.While reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Transfers between the funds included in governmental-type activities are eliminated so that only the net amount is included as transfers in the governmental-type activities column. Similarly,balances between the funds included in business-type activities are eliminated so that only the net amount is included as transfers in the business-type activities column(refer to note 8). 5.Prepaid items The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when it was purchased. 6. Capital assets Capital assets include: property,plant,equipment,infrastructure assets(e.g.roads,bridges, sidewalks, and similar items), and are reported in the applicable governmental or business-type columns in the government-wide financial statements. The City defines capital assets,including infrastructure assets as assets with an initial and individual cost of more than $5,000,and an estimated useful life in excess of four years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated assets are recorded at estimated acquisition value at the date it was donated.The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset's life are not capitalized. Page 43 City of Spokane Valley Notes to Financial Statements NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued: Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of proprietary/business-type activities is included as part of the capitalized value of the assets constructed and the amount of interest capitalized depends on the specific circumstances(refer to note 5).There were no interest expenses incurred during 2017 that were included as part of the cost of capital assets under construction. Land and construction in progress(CIP)are not depreciated. The other property,plant,equipment, and infrastructure of the primary government are depreciated using the straight line method over the following estimated service lives: Buildings and improvements 10- 60 years Infrastructure 5 -40 years Light/Heavy duty transportation equipment 5 - 10 years Other equipment 2- 20 years Office and computer equipment 3 - 5 years 7.Deferred outflows/inflows of resources The City of Spokane Valley currently has three sources that qualify for reporting as a deferred outflow/inflow of resources for fiscal year 2017 under this standard. These sources consist of traffic mitigation fees,Washington State Office of Public Defense grant funds received in advance,and proportionate share in net pension obligations as per GASB 68.At December 31,2017,the City of Spokane Valley reported deferred outflows of$727,902 for pension plans and deferred inflows of$833,613 for the same plans for its proportionate share of the net pension liabilities. 8. Compensated absences Compensated absences are absences for which employees will be paid,such as vacation. Vacation pay,which may be accumulated up to 360 hours,is payable upon resignation,retirement,or death. All vacation pay is accrued when incurred in the government-wide,proprietary and fund financial statements. An additional amount has been accrued for the city's share of Medicare taxes and the Social Security substitute plan related to vacation accruals.A liability for these amounts is reported in the government fund statements only if they have matured; for example,the result of an employee resignation and/or retirement. 9. Other Accrued Liabilities These accounts consist primarily of accrued wages and employee benefits and deposits payable (refer to note 11). 10.Long-Term Debt Refer to note 9–Long-Term Obligations and Leases. 11.Unearned Revenues The unearned revenues account is used to offset receivables established in the governmental fund financial statement for certain revenues that are measurable but not considered available to finance payment of current obligations, and, therefore,are not susceptible to accrual on the modified accrual basis.When the receivable amounts are collected in future periods,this liability account is reduced and corresponding revenue is recorded.Unearned revenues represented in this manner on the accompanying financial statements are: uncollected property taxes levied,uncollected road taxes levied, sales and use taxes,motor fuel taxes,hotel/motel taxes,and reimbursement-type grants received outside the period of availability. 12.Net position flow assumption Sometimes the City of Spokane Valley will fund outlays for a particular purpose from both restricted(e.g.,grant proceeds or street construction and maintenance) and unrestricted resources. In order to calculate these amounts to report as restricted--net position and unrestricted--net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which these resources are considered to be applied and used.The City considers restricted–net position to have been depleted before unrestricted--net position is applied. Page 44 City of Spokane Valley Notes to Financial Statements NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued: 13.Fund balance flow assumptions Sometimes the City of Spokane Valley will fund outlays for a particular purpose from both restricted and unrestricted resources(the total committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted,committed, assigned, and unassigned fund balance in the City's governmental fund financial statements, a flow assumption must be made about the order in which these resources are considered to be applied and used.When both restricted and unrestricted fund balances are available for use,the City depletes restricted fund balance first before using any of the components of unrestricted fund balance. Similarly,before unrestricted fund balance can be used for the same purpose,committed fund balance amounts are reduced first, followed by assigned fund balance,and then unassigned fund balance amounts are used when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be applied. 14.Fund balance policies Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of these financial resources for specific purposes.The City of Spokane Valley itself can establish limitations on the use of its financial resources through either a commitment(committed fund balance)or an assignment(assigned fund balance). Nonspendable fund balance includes items that cannot be spent. This includes activity that is not in a spendable form (inventories,prepaid amounts,long-term portion of loans/notes receivable,or property held for resale unless the proceeds are restricted,committed or assigned)and activity that is legally or contractually required to remain intact, such as a principal balance in a permanent fund. Restricted fund balance has constraints placed upon the use of the resources either by an external party or imposed by law through a constitutional provision or enabling legislation. Committed fund balance classification includes amounts that can be used only for specific purposes pursuant to constraints imposed by a formal action of the City Council,the City's highest level of decision-making authority. The City council is the highest level of decision-making authority for the City that can,by adoption of an ordinance prior to the end of the fiscal year,commit a fund balance. Once adopted,the limitation imposed by the ordinance remains in place until similar action is taken (adoption of another ordinance)to remove or revise the limitation. Assigned fund balance includes amounts that are constrained by the City's intent to be used for a specific purpose,but are neither restricted nor committed. The City Council can by resolution authorize the Finance Director to assign fund balance.Unlike commitments,assignments generally only exist temporarily.No formal or additional action is required by the City Council to remove an assignment.For governmental funds,other than the General Fund,this is the residual amount within the fund that is not restricted or committed. Unassigned fund balance is the residual amount of the General Fund not included in the four categories described above. Also, any deficit fund balances within the other governmental fund types are reported as unassigned. As discussed earlier,the City does not have a fund balance spending prioritization policy. Therefore,restricted resources are used first when expenditures are incurred for purposes for which either restricted or unrestricted (committed, assigned, and unassigned)amounts are available. Similarly,within unrestricted fund balance,committed amounts are reduced first followed by assigned, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used. Minimum Fund Balance–The City has a policy of maintaining a minimum General Fund ending fund balance of at least fifty percent of recurring general fund expenditures,which represents approximately six months of General Fund operations. Page 45 City of Spokane Valley Notes to Financial Statements NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued: 15.Pensions For purposes of measuring the net pension liability,deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense,information about the fiduciary net position of all state sponsored pension plans and additions to/deductions from those plans' fiduciary net position have been determined on the same basis as they are reported by the Washington State Department of Retirement Systems.For this purpose,benefit payments(including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. NOTE 2–RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS: A. Explanation of certain differences between the governmental fund balance sheet and the government-wide statement of net position The governmental fund statements include reconciliations between the fund statements and the government-wide statements. Differences that make reconciliations necessary include the two differing measurement focuses and basis of accounting, accrual and modified accrual between the statements. The governmental fund balance includes reconciliations between fund balance–total governmental funds and net position –governmental activities as reported in the government–wide statement of net position. One element of that reconciliation explains that "long-term liabilities, including bonds payable, net pension liabilities, deferred outflows and inflows, and accrued interest, are not due and payable in the current period and therefore are not reported in the funds." The details of the($19,287,770)difference are as follows: Bonds payable $ (12,790,000) Interest payable (38,117) Net pension liabilities (4,715,034) Deferred inflows of resources (787,725) Deferred outflows of resources 687,918 Premium on bond issuance (1,139,587) Compensated absences (505,225) Net adjustment to reduce fund balance- total governmental funds to arrive at net position -governmental activities $(19,287,770) Another element of that reconciliation explains the"Internal service funds are used by management to charge the cost of certain activities, such as health insurance costs to the individual funds.The assets and liabilities of the internal service fund are included in governmental activities in the statement of net position."The details of the $1,340,544 difference are as follow: Net position of the internal service fund $ 1,790,511 Less:Governmental type Internal Service Capital Assets (449,967) Net adjustment to increase fund balance - total governmental funds to arrive at net position governmental activities $ 1,340,544 Page 46 City of Spokane Valley Notes to Financial Statements NOTE 2—RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS continued: Also, another element of the reconciliation explains that capital assets used in governmental activities are not financial resources and the balance reflects the initial investment in capital assets and therefore "governmental funds do not report capital assets."The details of the $115,054,754 difference are as follows: Land $ 9,219,847 Construction in Progress 3,1,111,882 Total non-depreciable capital assets 12,664,729 Depreciable capital assets $ 361,527,156 Less:Accumulated depreciation-depreciable assets (259,137,131) Total depreciable capital assets,net of accumulated depreciation 102,390,025 Net adjustment to increase fund balance- total governmental funds to arrive at net position -governmental activities $115,054,754 Certain earned tax revenues were collected and other long-term assets will not be available until after the year end to pay for current expenditures,and therefore represent an acquisition of net position that applies to future period(s) and will not be recognized as an inflow of resources (revenue)until that time, and accordingly these items will be reported as unearned revenues in the governmental fund balance sheet.The details of the $4,763,730 reconciled difference presented as follows: Unearned revenue-property tax $ 319,531 Unearned revenue-sales & use,motor fuel,hotel/motel,& REET taxes 2,623,437 Unearned revenue-Intergovernmental& Charges for services 1,820,762 Net adjustment to increase fund balance- total governmental funds to arrive at net position governmental activities $ 4,763,730 B. Explanation of certain differences between the governmental fund statement of revenues, expenditures,and changes in fund balances and the government-wide statement of activities The governmental fund statement of revenues,expenditures, and changes in fund balances includes this reconciliation between net changes in fund balances—total governmental funds and changes in net position of governmental activities as reported in the government-wide statement of activities. One element of that reconciliation explains that "governmental funds report capital outlays as expenditures.However,in the statement of activities,the cost of these assets is allocated over their estimated useful lives as depreciation expense.This is the amount by which capital outlays exceeded depreciation expenses in the current period."The details of this$10,233,303 difference are as follows: Capital outlay $ 16,856,952 Depreciation expense (6,623,649) Net adjustment to increase net changes in fund balances- total governmental funds to arrive at changes in net position of governmental activities $ 10,233,303 Page 47 City of Spokane Valley Notes to Financial Statements NOTE 2—RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS continued: Another element of the reconciliation states that"some long-term revenues in the statement of activities that do not provide current financial resources to governmental funds are not reported as revenues in the funds." The details of this $1,409,931 difference are as follows: Unearned revenue-property taxes $ (11,153) Unearned revenue-sales & use taxes 104,174 Unearned revenue-excise taxes 68,205 Unearned revenue-other taxes 2,492 Unearned revenue-charges for services (124,279) Unearned revenue-capital grants & contributions 1,370,492 Net adjustment to increase net changes in fund balances- total governmental funds to arrive at changes in net position of governmental activities $ 1,409,931 Another element of the reconciliation states that"some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds". The details of this$97,013 difference are as follows: Compensated absences $ 12,979 Pension expense (GASB 68) 183,626 Amortization expense on LTGO Bonds (61,475) Accrued interest on LTGO Bonds (38,117) Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net position of govenmental activities $ 97,013 Another element of the reconciliation states the"internal service funds are used by management to charge the cost of certain activities, such as self-insurance and equipment rental and replacement,to individual funds." The details of this $119,355 difference are as follows: Revenues: Interest and investment income & charges for services $ 157,187 Total Revenues 157,187 (Less) expenses not including depreciation and net transfers: (37,832) Net adjustment to increase net changes in fund balances - total governmental funds to $ 119,355 arrive at changes in net position of governmental activities Page 48 City of Spokane Valley Notes to Financial Statements NOTE 3—DEPOSITS AND INVESTMENTS: As of December 31,2017,the City of Spokane Valley had the following investments at amortized cost: Investment Type (amounts are in thousands) Maturities Commercial paper 0.65 $ 5,035 Local Government Investment Pool State of Washington 0.45 49,255 Total fair value of investments: Portfolio weighted average maturity 0.47 $ 54,290 Interest rate risk: In accordance with its investment policy, the City of Spokane Valley manages its exposure to declines in fair values by limiting the weighted average maturity (WAM) of its investment portfolio to less than six months. Credit risk: As required by state law, all investments of the City's funds are obligations of the U.S. Government, U.S. agency issues, obligations of the State of Washington, general obligation of Washington State municipalities the State Treasurer's Local Government Investment Pool (LGIP Revised Code of Washington RCW 43.250), and certificates of deposit (CDs) with Washington State banks and savings and loan institutions. Also, State law limits these investments to the highest ratings issued by nationally recognized statistical rating organizations (NRSROs). It is the City of Spokane Valley's policy to limit its investments in these investment types to the highest ratings issued by NRSROs. As of December 31,2017,the City of Spokane Valley's investment in the State Treasurer's investment pool was rated Aa3 by Moody's. The City of Spokane Valley's investments in commercial paper was rated Al by Standard&Poor's. Concentration of credit risk: The City of Spokane Valley's investment policy does not allow for an investment in any one issuer that is in excess of the Federal Depository Insurance (FDIC)coverage and the Washington Public Deposit Protection Commission(PDPC)of the City's total investments. Custodial credit risk-deposits: In the case of deposits,this is the risk that in the event of a bank failure,the City's deposits may not be returned or recovered.The City of Spokane Valley maintains a deposit policy for custodial credit risk by limiting deposits and certificates of deposits to be covered by(FDIC)or through collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commission(PDPC). The PDPC is a statutory authority established under Chapter 39.58 of the Revised Code of Washington and provides an additional level of security for The City of Spokane Valley's deposits.As of December 31,2017,the City of Spokane Valley's total bank balance of$7,003,621 was insured and covered by the FDIC and the Washington State PDPC,pool and therefore was not exposed to any custodial credit risk-deposits.These banks deposits were in a State authorized public depository and were within the State limit of the depositaries(bank's)net worth per RCW 39.58.010 and RCW 39.58.135. Custodial credit risk-investments: Investments in the State's LGIP are shown on the entity-wide Statement of Net Position at amortized cost and comparable to a Rule 2a-7 money market fund regulated by The Securities and Exchange Commission (SEC, 17CFR.270.2a-7). The City's investments can be categorized to give an indication of risk assumed at year-end. Category 1 includes investments that are insured,registered,or held by the City or its agent in the City's name. Category 2 includes uninsured and unregistered investments,which are held by the counterparty's trust department or agent in the City's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty's trust department or agent,but not in the City's name. The City had no Category 1,2,or 3 type investments in their investment portfolio as of December 31,2017. Page 49 City of Spokane Valley Notes to Financial Statements NOTE 3—DEPOSITS AND INVESTMENTS continued: The LGIP has an operations manual to describe operating policies and procedures for investing in the State pool. The minimum transaction size is$5,000 for deposits and withdrawals. A notification to LGIP should be made at least a day prior to a large deposit/withdrawal of Ten million or more. The State Treasurer will require reimbursement for the administration and recovery of costs associated with the operation of the LGIP. The administrative fee accrues daily from pool participants' earnings prior to the earnings being posted to their account. The administrative fee will be paid monthly. In the event that there are no earnings,the administrative fee will be deducted from principal. NOTE 4—PROPERTY TAXES: The County Treasurer acts as an agent to collect property taxes levied in the county for all taxing authorities. The County Assessor is responsible for determining what the individual property taxes are,based upon the monies requested by the taxing districts and the assessed valuation within these districts. Taxes are levied annually on January 1st on property values assessed as of the prior year May 31St. Assessed values are established by the County Assessor at 100% of fair market value. A revaluation of all property is required every four years. Taxes are due in two equal installments on April 30th and October 31st. Tax liens are automatic at the point the taxes are levied. Property taxes levied for the current year are recorded as a receivable when levied and offset by unearned revenue. Property tax collected in advance of the fiscal year to which it applies is recorded as a deferred inflow and recognized as revenue of the applicable period. During the year,property tax revenues are recognized when cash is collected.At year end,property tax revenues are recognized for collections to be distributed by the County Treasurer in January. No allowance for uncollectible taxes is established because delinquent taxes are considered fully collectible.Prior year tax levies were recorded using the same principal,and delinquent taxes are evaluated annually.For 2017,the City's regular levy was $11,646,122 based on the 2016 assessed value of$8,124,487,663. The tax rate for general City operations is limited by State law(RCW 84.52.043)to $3.60 per$1,000 of assessed valuation,deducting from there the levy of$1.78 by the Spokane County Fire Districts#1 and#8,and $.45 for Library Districts,which leaves the City with the authority to levy$1.37 for its own purposes. This amount may be reduced for any of the following reasons: (1) The Washington State Constitution limits the total regular property taxes to one percent of assessed valuation or$10 per$1,000 of value. If the taxes of all districts exceed this amount,each is proportionately reduced until the total is at or below the one-percent limit. (2) Initiative 747 passed by the voters in November of 2001 limits the amount by which a taxing jurisdiction can increase the amount of its regular property tax levy to the lesser of the Implicit Price Deflator(IPD)or one percent,plus adjustments for new construction and annexations. Tax increases higher than one percent must be approved by the voters at an election held according to (RCW 84.55.050.) A simple majority vote is required. (3) The City may voluntarily levy taxes below the legal limit. Page 50 City of Spokane Valley Notes to Financial Statements NOTE 5—CAPITAL ASSETS AND DEPRECIATION: Donated capital assets received from Spokane County at the time of incorporation were recorded at cost and the accumulated depreciation at the time of transfer.The following schedule details capital assets donated and transferred during the year ended December 31,2003: Historical Accumulated Balance after Infrastructure: Cost Depreciation Depreciation Costs Roadways $ 187,732,531 $ 127,418,027 $ 60,314,504 Signs,signals,beacons 9,056,000 4,528,000 4,528,000 Crosswalks 130,084 13,008 117,076 Bridges 5,633,979 2,808,112 2,825,867 Total infrastructure 202,552,594 134,767,147 67,785,447 Parks: Land 1,548,655 - 1,548,655 Buildings 898,729 609,824 288,905 Improvements other than buildings 2,123,571 1,059,298 1,064,273 Machinery and equipment 3,337 3,003 334 Total parks 4,574,292 1,672,125 2,902,167 Total County assets donated $207,126,886 $ 136,439,272 $ 70,687,614 Governmental-type Capital asset activity for the year ended December 31, 2017,is summarized as follows: Beginning Ending Balance Governmental-type activities Balance 1/1/2017 Additions Reductions Dec. 31, 2017 Land(non-depreciable) $ 8,322,766 $ 897,081 $ - $ 9,219,847 Construction in progress (CIP) 14,163,091 2,426,147 (13,144,356) 3,11/1,882 Total non-depreciable assets 22,485,857 3,323,228 (13,144,356) 12,664,729 Buildings 12,883,856 12,493,370 - 25,377,226 Leasehold improvements 611,754 131,017 - 742,771 Improvements other than buildings 12,373,856 359,070 - 12,732,926 Infrastructure 305,363,427 12,510,888 (61,552) 317,812,763 Machinery and equipment 3,765,634 1,509,626 (264,339) 5,010,921 Total depreciable assets 334,998,527 27,003,971 (325,891) 361,676,607 Total capital assets $ 357,484,384 $ 30,327,199 $ (13,470,247) $ 374,341,336 Page 51 City of Spokane Valley Notes to Financial Statements NOTE 5—CAPITAL ASSETS AND DEPRECIATION continued: Beginning Ending Balance Balance Less accumulated depreciation for: 1/1/2017 Additions Reductions 12/31/2017 Buildings $ 4,107,248 $ 342,709 $ - $ 4,449,957 Leasehold improvements 141,109 45,089 - 186,198 Improvements other than buildings 6,030,309 715,882 - 6,746,191 Infrastructure 239,529,776 5,579,813 (4,443) 245,105,146 Machinery and equipment 2,854,491 208,938 (264,339) 2,799,090 Total accumulated depreciation $ 252,662,933 $ 6,892,431 $ (268,782) $ 259,286,582 Capital assets, net of accumulated depreciation $ 104,821,451 $ 23,434,768 $ (13,201,465) $ 115,054,754 Business-type Capital asset activity for the year ended December 31,2017,is summarized as follows: Balance Balance Business-type activities; 1/1/2017 Additions Reductions 12/31/2017 Construction in progress $ 83,158 $ 7,905 $ - $ 91,063 Total non-depreciable 83,158 7,905 - 91,063 Buildings and structures 382,881 - - 382,881 Infrastructure 7,158,286 382,769 - 7,541,055 Machinery and equipment 219,613 - - 219,613 Total depreciable 7,760,780 382,769 - 8,143,549 Total capital assets $ 7,843,938 $ 390,674 $ - $ 8,234,612 (Less) accumulated depreciation for: Buildings and structures $ 72,807 $ 12,787 $ - $ 85,594 Infrastructure 1,222,530 384,579 - 1,607,109 Machinery and equipment 192,433 5,254 - 197,687 Total accumulated depreciation 1,487,770 402,620 - 1,890,390 Capital assets, net of accumulated depreciation $ 6,356,168 $ (11,946) $ - $ 6,344,222 Page 52 City of Spokane Valley Notes to Financial Statements NOTE 5-CAPITAL ASSETS AND DEPRECIATION continued: Depreciation expense was charged to current functions of the primary government for 2017 as follows (includes Internal Service Funds Governmental type): Gove rme ntal Activities: General Government $ 129,217 Public Safety 112,294 Physical Utilities & Environmnt 1,023,835 Transportation 4,655,771 Economic Environment 9,459 Culture & Recreation 961,855 Total governmental activities current year depreciation expense $ 6,892,431 Business-type activity: StormWater $ 231,764 Aquifer Protection Area 170,856 Total business-type activities current year depreciation expense $ 402,620 Construction commitments The City of Spokane Valley was involved in many construction projects as of December 31,2017. The projects include various street and park construction projects as well as construction of a new City Hall building with a total of $20,024,769 of contracts in place. At year end the City's commitments with contractors are as follows: Remaining Construction Commitments Original Spent to Date Commitment at Commitment 12/31/17 Euclid Avenue Reconstruction Project $ 2,731,198 $ 2,423,889 $ 307,309 City Hall 10,948,854 10,875,245 73,609 Argonne Resurfacing:Broadway to Indiana 26,900 18,300 8,600 8th Avenue Sidewalk- Dicky to Thierman 7,300 7,125 175 Mission Ave -Flora to barker 183,445 165,254 18,191 Barker Road/BNSF Grade Separation 212,991 135,232 77,759 Bowdish Road 7th to 12th Ave Sidewalk 440,782 418,659 22,123 City-Wide Reflective Signal Backplates 1,741 - 1,741 City-Wide Signal Backplates 60,692 - 60,692 Mission Ave -McDonald to Evergreen 9,000 - 9,000 Pines Rd. underpass @ BNSF & Trent 150,887 102,547 48,340 Appleway Resurfacing,Park to Dishman 916,555 902,814 13,741 Appleway Trail,Pines to Evergreen 1,714,022 1,683,415 30,607 North Sullivan ITS Project 122,320 70,982 51,338 Saltese Road Preservation 871,551 841,473 30,078 Sprague Street Preservation- Sullivan to Corbin 73,760 48,445 25,315 Sullivan& Euclid PCC Intersection 1,'1'11,701 1,420,160 24,541 Sullivan& Wellesley Intersection Improvement 60,120 11,243 48,877 8th& Carnahan Intersection Improvements 47,950 36,193 11,757 Total Construction Commitments $ 20,024,769 $ 19,160,976 $ 863,793 Page 53 City of Spokane Valley Notes to Financial Statements NOTE 5—CAPITAL ASSETS AND DEPRECIATION continued: The various street,bridge, and parks construction projects are being funded by state and local grants, as well as,existing resources in various City Funds. The new City Hall is being funded by a combination of LTGO bond proceeds and existing city resources. NOTE 6—PENSION PLANS: The following table represents the aggregate pension amounts for all plans subject to the requirements of the GASB Statement 68,Accounting and Financial Reporting for Pensions for the year 2017: Aggregate Pension Amounts-All Plans Pension liabilities $ (4,990,261) Pension assets $ - Deferred outflows of resources $ 727,902 Deferred inflows of resources $ (833,613) Pension expense/expenditures $ 498,196 State Sponsored Pension Plans Substantially all City of Spokane Valley full-time and qualifying part-time employees participate in one of the following statewide retirement systems administered by the Washington State Department of Retirement Systems,under cost- sharing,multiple-employer public employee defined benefit and defined contribution retirement plans. The state Legislature establishes, and amends,laws pertaining to the creation and administration of all public retirement systems. The Department of Retirement Systems(DRS), a department within the primary government of the State of Washington, issues a publicly available comprehensive annual financial report(CAFR)that includes financial statements and required supplementary information for each plan. The DRS CAFR may be obtained by writing to: Department of Retirement Systems Communications Unit P.O. Box 48380 Olympia,WA 98540-8380 Alternatively,the DRS CAFR may be downloaded from the DRS website at www.drs.wa.mov Public Employees' Retirement System (PERS) PERS members include elected officials; state employees; employees of the Supreme, Appeals and Superior Courts; employees of the legislature; employees of district and municipal courts; employees of local governments; and higher education employees not participating in higher education retirement programs. PERS is comprised of three separate pension plans for membership purposes. PERS plans 1 and 2 are defined benefit plans,and PERS plan 3 is a defined benefit plan with a defined contribution component. PERS Plan 1 PERS Plan 1 provides retirement, disability and death benefits. Retirement benefits are determined as two percent of the member's average final compensation(AFC)times the member's years of service. The AFC is the average of the member's 24 highest consecutive service months. Members are eligible for retirement from active status at any age with at least 30 years of service,at age 55 with at least 25 years of service,or at age 60 with at least five years of service. Members retiring from active status prior to the age of 65 may receive actuarially reduced benefits. Retirement benefits are actuarially reduced to reflect the choice of a survivor benefit. Other benefits include duty and non-duty disability payments, an optional cost- of-living adjustment(COLA), and a one-time duty-related death benefit, if found eligible by the Department of Labor and Industries. PERS 1 members were vested after the completion of five years of eligible service. The plan was closed to new entrants on September 30, 1977. Page 54 City of Spokane Valley Notes to Financial Statements NOTE 6—PENSION PLANS continued: Contributions The PERS Plan 1 member contribution rate is established by State statute at 6 percent. The employer contribution rate is developed by the Office of the State Actuary and includes an administrative expense component that is currently set at 0.18 percent. Each biennium,the state Pension Funding Council adopts Plan 1 employer contribution rates. The PERS Plan 1 required contribution rates(expressed as a percentage of covered payroll) for 2017 were as follows: PERS Plan 1 Actual Contribution Rates: Employer Employee* January-June 2017: PERS Plan 1 6.23% 6.00% PERS Plan 1 UAAL 4.77% Administrative Fee 0.18% Total 11.18% 6.00% July-December 2017: PERS Plan 1 7.49% 6.00% PERS Plan 1 UAAL 5.03% Administrative Fee 0.18% Total 12.70% 6.00% *For employees particapating in JBM,the contribution rate was 12.26% The City of Spokane Valley actual contributions to the plan were$300,891 for the year ended December 31,2017.The City did not have any current employees participating in PERS Plan 1 during 2017. These contributions represent amounts allocated to PERS Plan 1 by DRS for the Unfunded Actuarial Accrued Liability (UAAL) to support payments for prior employees under this plan. PERS Plan 2/3 PERS Plan 2/3 provides retirement,disability,and death benefits. Retirement benefits are determined as two percent of the member's average final compensation(AFC)times the member's years of service for Plan 2 and 1 percent of AFC for Plan 3. The AFC is the average of the member's 60 highest-paid consecutive service months. There is no cap on years of service credit. Members are eligible for retirement with a full benefit at 65 with at least five years of service credit. Retirement before age 65 is considered an early retirement. PERS Plan 2/3 members who have at least 20 years of service credit and are 55 years of age or older, are eligible for early retirement with a benefit that is reduced by a factor that varies according to age for each year before age 65. PERS Plan 2/3 members who have 30 or more years of service credit and are at least 55 years old can retire under one of two provisions: • With a benefit that is reduced by three percent for each year before age 65; or • With a benefit that has a smaller(or no)reduction(depending on age)that imposes stricter return-to-work rules. PERS Plan 2/3 members hired on or after May 1,2013 have the option to retire early by accepting a reduction of five percent for each year of retirement before age 65. This option is available only to those who are age 55 or older and have at least 30 years of service credit. PERS Plan 2/3 retirement benefits are also actuarially reduced to reflect the choice of a survivor benefit. Other PERS Plan 2/3 benefits include duty and non-duty disability payments,a cost-of-living allowance (based on the CPI),capped at three percent annually and a one-time duty related death benefit,if found eligible by the Department of Labor and Industries. PERS 2 members are vested after completing five years of eligible service. Plan 3 members are vested in the defined benefit portion of their plan after ten years of service;or after five years of service if 12 months of that service are earned after age 44. Page 55 City of Spokane Valley Notes to Financial Statements NOTE 6—PENSION PLANS continued: PERS Plan 3 defined contribution benefits are totally dependent on employee contributions and investment earnings on those contributions. PERS Plan 3 members choose their contribution rate upon joining membership and have a chance to change rates upon changing employers. As established by statute, Plan 3 required defined contribution rates are set at a minimum of 5 percent and escalate to 15 percent with a choice of six options. Employers do not contribute to the defined contribution benefits. PERS Plan 3 members are immediately vested in the defined contribution portion of their plan. Contributions The PERS Plan 2/3 employer and employee contribution rates are developed by the Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. The Plan 2/3 employer rates include a component to address the PERS Plan 1 UAAL and an administrative expense that is currently set at 0.18 percent. Each biennium,the state Pension Funding Council adopts Plan 2 employer and employee contribution rates and Plan 3 contribution rates. The PERS Plan 2/3 required contribution rates(expressed as a percentage of covered payroll)for 2017 were as follows: PERS Plan 2/3 Actual Contribution Rates: Employer 2/3 Employee 2 * January-June 2017: PERS Plan 2/3 6.23% 6.12% PERS Plan 1 UAAL 4.77% Administrative Fee 0.18% Employee PERS Plan 3 varies Total 11.18% 6.12% July-December 2017: PERS Plan 2/3 7.49% 7.38% PERS Plan 1 UAAL 5.03% Administrative Fee 0.18% Employee PERS Plan 3 varies Total 12.70% 7.38% *For employees participating in JBM,the contribution rate was 15.30% for January—June 2017 and 18.45% for July - December 2017. The City of Spokane Valley actual contributions to the plan were$420,895 for the year ended December 31,2017. Actuarial Assumptions The total pension liability (TPL) for each of the DRS plans was determined using the most recent actuarial valuation completed in 2017 with a valuation date of June 30, 2016. The actuarial assumptions used in the valuation were based on the results of the Office of the State Actuary's (OSA) 2007-2012 Experience Study and the 2015 Economic Experience Study. Additional assumptions for subsequent events and law changes are current as of the 2016 actuarial valuation report. The TPL was calculated as of the valuation date and rolled forward to the measurement date of June 30, 2017. Plan liabilities were rolled forward from June 30, 2016, to June 30, 2017, reflecting each plan's normal cost (using the entry-age cost method), assumed interest and actual benefit payments. • Inflation: 3% total economic inflation; 3.75%salary inflation. • Salary increases: In addition to the base 3.75% salary inflation assumption, salaries are also expected to grow by promotions and longevity. o Page 56 • Investment rate of return: 7.5/o City of Spokane Valley Notes to Financial Statements NOTE 6—PENSION PLANS continued: Mortality rates were based on the RP-2000 report's Combined Healthy Table and Combined Disabled Table,published by the Society of Actuaries. The OSA applied offsets to the base table and recognized future improvements in mortality by projecting the mortality rates using 100 percent Scale BB. Mortality rates are applied on a generational basis; meaning, each member is assumed to receive additional mortality improvements in each future year throughout his or her lifetime. Change in Assumptions and Methods • For all plans except LEOFF Plan 1,how terminated and vested member benefits are valued was corrected. • How the basic minimum COLA in PERS Plan 1 is valued for legal order payees was improved. • For all plans,the average expected remaining service lives calculation was revised. Discount Rate The discount rate used to measure the total pension liability for all DRS plans was 7.5 percent. To determine that rate, an asset sufficiency test included an assumed 7.7 percent long-term discount rate to determine funding liabilities for calculating future contribution rate requirements. (All plans use 7.70 percent except LEOFF Plan 2, which has assumed 7.50 percent). Consistent with the long-term expected rate of return,a 7.5 percent future investment rate of return on invested asses was assumed for the test. Contribution from plan members and employers are assumed to continue being made at contractually required rates (including PERS 2/3, PSERS 2, SERS 2/3, and TRS 2/3 employers, whose rates include a component for the PERS 1, and TRS 1 plan liabilities). Based on these assumptions, the pension plans' fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore,the long-term expected rate of return of 7.5 percent was used to determine the total liability. Long-Term Expected Rate of Return The long-term expected rate of return on the DRS pension plan investments of 7.5 percent was determined using a building- block-method. The Washington State Investment Board (WSIB) used a best estimate of expected future rates of return (expected returns, net of pension plan investment expense, including inflation) to develop each major asset class. Those expected returns make up one component of WSIB's capital market assumptions. The WISB uses the capital market assumptions and their target asset allocation to simulate future investment returns at various future times. The long-term expected rate of return of 7.5 percent approximately equals the median of the simulated investment returns over a 50-year time horizon. Estimated Rates of Return by Asset Class Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation as of June 30, 2017, are summarized in the table below. The inflation component used to create the table is 2.2 percent and represents the WSIB's most recent long-term estimate of broad economic inflation. % Long-Term Asset Class Target Allocation Expected Real Rate of Return Arithme tic Fixed Income 20% 1.70% Tangible Assets 5% 4.90% Real Estate 15% 5.80% Global Equity 37% 6.30% Private Equity 23% 9.30% 100% Page 57 City of Spokane Valley Notes to Financial Statements NOTE 6—PENSION PLANS continued: Sensitivity of Net Pension Liability The table below presents the City of Spokane Valley proportionate share of the net pension liability calculated using the discount rate of 7.5 percent, as well as what the City of Spokane Valley proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (6.5 percent) or 1-percentage point higher(8.5 percent)than the current rate. 1% Decrease(6.5%) Current Discount 1% Increase Rate(7.5%) (8.5%) PERS 1 $ 3,130,556 $ 2,569,839 $ 2,084,139 PERS 2/3 $ 6,520,869 $ 2,420,422 $ (939,287) Pension Plan Fiduciary Net Position Detailed information about the State's pension plans' fiduciary net position is available in the separately issued DRS financial report. Pension Liabilities (Assets), Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30,2017,the City of Spokane Valley reported a total pension liability of$4,990,261 for its proportionate share of the net pension liabilities as follows: Liability(or Asset) PERS 1 $ 2,569,839 PERS 2/3 $ 2,420,422 At June 30,the City of Spokane Valley's proportionate share of the collective net pension liabilities was as follows: Proportionate Share Proportionate Change in 6/30/2016 Share 6/30/2017 Proportion PERS 1 0.053037% 0.054158% 0.001121% PERS 2/3 0.067862% 0.069662% 0.001800% Employer contribution transmittals received and processed by the DRS for the fiscal year ended June 30 are used as the basis for determining each employer's proportionate share of the collective pension amounts reported by the DRS in the Schedules of Employer and Nonemployer Allocations for all plans except LEOFF 1. The collective net pension liability(asset)was measured as of June 30,2017, and the actuarial valuation date on which the total pension liability(asset) is based was as of June 30,2016,with update procedures used to roll forward the total pension liability to the measurement date. Pension Expense For the year ended December 31,2017,the City of Spokane Valley recognized pension expense as follows: Pension Expense PERS 1 $ 189,710 PERS 2/3 $ 308,486 Page 58 City of Spokane Valley Notes to Financial Statements NOTE 6—PENSION PLANS continued: Deferred Outflows of Resources and Deferred Inflows of Resources At December 31,2017,the City of Spokane Valley reported deferred outflows of resources and deferred inflows of resources related to pensions from the following PERS plans: PERS 1 Deferred Outflows of Deferred Inflows Resources of Resources Differences between expected& actual experience $ - $ - Net difference between projected &actual investment earnings on pension plan investments $ - $ (95,899) Changes of assumptions $ - $ - Changes in proportion and differences between contributions &proportionate share of contributions $ - $ - Contributions subsequent to the measurement date $ 152,510 $ - Total $ 152,510 $ (95,899) Deferred Outflows of Deferred Inflows PERS 2/3 Resources of Resources Differences between expected& actual experience $ 245,246 $ (79,603) Net difference between projected &actual investment earnings on pension plan investments $ - $ (645,226) Changes of as sumptions $ 25,709 $ - Changes in proportion and differences between contributions &proportionate share of contributions $ 77,340 $ (12,885) Contributions subsequent to the measurement date $ 227,097 $ - Total $ 575,392 $ (737,714) Deferred outflows of resources related to pensions resulting from the City of Spokane Valley's contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2017. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Page 59 City of Spokane Valley Notes to Financial Statements NOTE 6—PENSION PLANS continued: Year ended PERS 1 Year ended PERS 2/3 December 31: December 31: 2018 $ (64,822) 2018 $ (244,509) 2019 $ 20,465 2019 $ 76,493 2020 $ (4,752) 2020 $ (46,749) 2021 $ (46,791) 2021 $ (248,996) 2022 $ - 2022 $ 32,322 Thereafter $ - Thereafter $ 42,019 NOTE 7—RISK MANAGEMENT: The City of Spokane Valley is a member of the Washington Cities Insurance Authority(WCIA).Utilizing Chapter 48.62 RCW(self-insurance regulation)and Chapter 39.34 RCW(Interlocal Cooperation Act),nine cities originally formed WCIA on January 1, 1981. WCIA was created for the purpose of providing a pooling mechanism for jointly purchasing insurance,jointly self-insuring, and/or jointly contracting for risk management services. WCIA has a total of 161 members. New members initially contract for a three-year term, and thereafter automatically renew on an annual basis. A one-year withdrawal notice is required before membership can be terminated. Termination does not relieve a former member from its unresolved loss history incurred during membership. Liability coverage is written on an occurrence basis,without deductibles. Coverage includes general,automobile,police, errors or omissions,stop gap,employment practices and employee benefits liability. Limits are $4 million per occurrence in the self-insured layer, and$21 million in limits above the self-insured layer is provided by reinsurance. Total limits are $25 million per occurrence subject to aggregates and sublimits. The Board of Directors determines the limits and terms of coverage annually. Insurance for property, automobile physical damage,fidelity,inland marine, and boiler and machinery coverage are purchased on a group basis.Various deductibles apply by type of coverage. Property coverage is self-funded from the members' deductible to $750,000,for all perils other than flood and earthquake,and insured above that to $300 million per occurrence subject to aggregates and sublimits.Automobile physical damage coverage is self-funded from the members' deductible to $250,000 and insured above that to $100 million per occurrence subject to aggregates and sublimits. In-house services include risk management consultation,loss control field services,and claims and litigation administration. WCIA contracts for certain claims investigations,consultants for personnel and land use issues,insurance brokerage, actuarial,and lobbyist services. WCIA is fully funded by its members,who make annual assessments on a prospectively rated basis, as determined by an outside,independent actuary. The assessment covers loss,loss adjustment,reinsurance and other administrative expenses. As outlined in the Interlocal,WCIA retains the right to additionally assess the membership for any funding shortfall. An investment committee,using investment brokers,produces additional revenue by investment of WCIA's assets in financial instruments which comply with all State guidelines. Page 60 City of Spokane Valley Notes to Financial Statements NOTE 7—RISK MANAGEMENT continued: A Board of Directors governs WCIA,which is comprised of one designated representative from each member. The Board elects an Executive Committee and appoints a Treasurer to provide general policy direction for the organization. The WCIA Executive Director reports to the Executive Committee and is responsible for conducting the day to day operations of WCIA. NOTE 8—INTERFUND BALANCES AND TRANSFERS: Interfund Balances Sometimes during the course of operations, and as a part of the City's regular programmatic activity,one fund will sell goods,have work performed or services provided to another fund in return for equal or almost equal value.As a result of such exchanges,an interfund services provided and used applies to any residual balances outstanding at year end and the City reports this type of activity as due from/to other fluids. Due to other fund and due from other fund balances at December 31,2017,were: Due from Due to other funds other funds General fund $ - $ - Street fund - - Street capital projects fund - 40,625 City hall construction fund - - Nonmajor governmental funds 1,804,937 1,490,310 Total governmental funds $ 1,804,937 $ 1,530,935 Stormwater management fund $ - $ - Aquifer protection area fund - - Internal service funds - 274,002 Total business type & internal service $ - $ 274,002 Total government- wide $ 1,804,937 $ 1,804,937 Interfund Transfers Interfund transfers are the flow and reassignment of resources between funds without the exchange of equal or almost equal value between the funds,typically referred to as a nonexchange transaction or nonreciprocal interfund activity. The City(1)transfers revenues from the fund that statutes or budget requires to collect them to the fund that the statute or budget requires to expend them from, (2)transfers restricted resources for the purpose of debt service from the funds collecting the receipts to the debt service fund for debt service payments, and(3) transfers unrestricted revenues collected in the general and street funds to finance various programs accounted for in other funds in accordance with budgetary authority. Page 61 City of Spokane Valley Notes to Financial Statements NOTE 8—INTERFUND BALANCES AND TRANSFERS continued: Interfund transfer activity for 2017 is as follows: Transfers-in Transfers-(out) General fund $ 684,803 $ 6,359,079 Street fund - 107,042 Tourism Facilities Hotel/Motel Tax fund 250,000 Hotel/Motel fund - 265,778 Solid Waste fund - 40,425 Winter Weather Reserve fund 258,000 - Debt service fund 556,201 Capital projects fund - 1,146,404 Special capital projects fund - 821,517 Street capital projects fund 2,514,317 - Parks capital projects fund 437,437 - Civic Buildings Capital Projects fund - 498,500 Pavement Preservation fund 2,341,500 Capital Reserve fund 3,003,929 2,897,799 Railroad Grade Separation Projects fund 1,794,157 - Stormwater management fund - 13,400 Equipment Rental&Replacement fund 36,600 77,000 Internal Service Funds(Gov't type) 350,000 - Total government-wide $ 12,226,944 $ 12,226,944 The City made the following one-time transfer during the year ending December 31, 2017. This one-time or infrequent transfers are included in the table above: • A$1,200,000 transfer from the General Fund to Railroad Grade Separation Project Fund for the design on the Pines Grade Separation project. NOTE 9—LONG-TERM OBLIGATIONS AND LEASES: Pension Obligations The City's net pension liability for the year ended December 31,2017,is$4,990,261. Refer to note 6 for additional information and activity related to the City's pension plans. General Obligation Bonds The City of Spokane Valley issued general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds have been issued for governmental-type activities.These General obligation bonds are direct obligations and pledge the full faith and credit of the government. General obligation bonds are either created by 315th majority vote of the people and,therefore,financed by a special tax levy; or created by ordinance, adopted by the City Council, and normally financed from general revenues(i.e.,councilmanic bonds). In 2003,the City issued $9,430,000 of councilmanic bonds to finance construction of the CenterPlace Community Center and for various street construction projects. The City expects to receive intergovernmental payments from the Spokane Public Facilities District pursuant to an inter-local agreement,dated July 2003,for$7 million of the bonds. Page 62 City of Spokane Valley Notes to Financial Statements NOTE 9—LONG-TERM OBLIGATIONS AND LEASES continued: In 2016 the City issued$7,275,000 of general obligation bonds to partially finance the construction of a new City Hall building. As a result of favorable interest rate at the time of bond issuance,the bonds were issued at a premium of $671,088. Refunded Bonds On August 27,2014,The City of Spokane Valley issued$7,035,000 of Limited Tax General Obligation 2014 Refunding Bonds to provide resources to purchase U.S. Government and State and Local Government Series securities that were placed in an irrevocable trust for the purpose of generating resources for all future debt service payments on the old $7,435,000 of refunded debt.As a result,the refunded bonds are now considered defeased,retired, and the liability has been removed subsequently from the City of Spokane Valley's governmental activities financial statements of net position. This refunding was undertaken to reduce total debt service payments over the life of the bonds and resulted in an economic gain of$1,283,730. General obligation and refunding bonds are currently outstanding as December 31,2017, as follows: Name ofIsssnonce Purpose Interest Rate Maturity Debt Outstanding LTGO'14 Refunding Bonds Governmental Activities 2.00% -4.00% 12/1/2033 $5,740,000 LTGO'16 Bonds Governmental Activities 2.00% -4.00% 12/1/2045 $7,050,000 The annual debt service requirements to maturity for general obligation and refunding bonds,are as follows: Governmental- Type Activities Total Principal Interest Requirements 2018 520,000 457,400 977,400 2019 555,000 443,350 998,350 2020 595,000 426,700 1,021,700 2021 635,000 408,850 1,043,850 2022 675,000 389,800 1,064,800 2023-2027 3,305,000 1,553,950 4,858,950 2028-2032 2,215,000 1,013,250 3,228,250 2033-2037 1,515,000 653,350 2,168,350 2038-2042 1,645,000 354,150 1,999,150 2043-2045 1,130,000 68,550 1,198,550 Totals $ 12,790,000 $ 5,769,350 $ 18,559,350 Long-term debt on the Statement of Net Position is presented net of any premium/discount incurred at the time of issuance. The 2014 LTGO'14 Refunding Bonds and 2016 LTGO'16 general obligation bonds were sold at a premium of $1,278,847 and were reported at the net amount of$1,341,656 including the underwriters discount expense. The premium will be amortized over the life of the bonds and the outstanding liability balance as of December 31,2017,is$1,139,587. Page 63 City of Spokane Valley Notes to Financial Statements NOTE 9—LONG-TERM OBLIGATIONS AND LEASES continued: Changes in Long-Term Liabilities During the year ended December 31,2017,the following changes occurred in long-term liabilities: Amounts Balance Balance Due within Governmental-Type Activities 1/1/2017 Additions Reductions 12/31/2017 One Year Bonds and notes payable: GO refunding LTGO'14 bonds $ 6,060,000 $ - $ (320,000) $ 5,740,000 $ 365,000 General obligation LTGO'16 bonds 7,200,000 - (150,000) 7,050,000 155,000 Premium on LTGO'14 refunding bonds 552,344 - (39,106) 513,238 39,106 Premium on LTGO'16 bonds 648,719 - (22,370) 626,349 22,369 Other liabilities: Net pension plan liabilities 5,948,746 - (1,233,712) 4,715,034 - Compensated absences 492,246 12,979 - 505,225 12,631 Gove rnme ntal activities long-term liabilities $20,902,055 $ 12,979 $(1,765,188) $19,149,846 $ 594,106 Amounts Balance Balance Due within Business-Type Activities 1/1/2017 Additions Reductions 12/31/2017 One Year Net pension plan liabilities 316,389 (41,162) 275,227 - Compensated absences 26,402 - (1,545) 24,857 621 Business-type activities long-term liabilities $ 342,791 $ - $ (42,707) $ 300,084 $ 621 Legal Debt Margin RCW 39.36.020 provides cities with three segments of debt capacity,each equal to two and one-half percent of the city's assessed valuation, for a total debt capacity of seven and one-half percent. The 2016 assessed valuation of the City for the Levy year of 2017,for purposes of determining the legal debt margin is $8,124,487,663. Under State of Washington statutes general obligation indebtedness pursuant to a vote of the electorate is limited to 2.5% of actual value of taxable property located within the City. Indebtedness without a vote of the people is limited to 1.5%of actual value subject to the limitation that total general purpose indebtedness may not exceed 2.5%of total valuation. There is a 2.5%limitation each for utility purposes and open space and park facilities purposes.The remaining voted and non-voted GO debt capacities for General purposes of the City at December 31,2017, are as follows: Amount General Purposes Voted and Non-voted Debt- 2.5% $ 189,816,967 Utility Voted Debt- 2.5% 203,112,192 Open Space and Park Facilities Voted Debt- 2.5% 203,112,192 Total Remaining Debt Capacity $596,041,351 Page 64 City of Spokane Valley Notes to Financial Statements NOTE 9—LONG-TERM OBLIGATIONS AND LEASES continued: Leases The City of Spokane Valley leases buildings and other equipment under noncancelable operating lease agreements. Operating leases do not give rise to property rights or lease debt obligations,and therefore the results of these agreements are not reflected in the General Long-term Obligations of government activities.Total costs for such leases were $118,564 for the fiscal year ending December 31,2017.The future minimum lease payments for these leases are presented as follows: Year Ending Dec. 31 Amount 2018 50,084 2019 43,107 2020 16,851 2021 4,261 2022 4,261 Total minimum future lease payments $ 118,564 The City's lease for the old city hall space terminated at the end of the 36th month,or March 2017.The City negotiated a lease extension through Sept. 30,2017 in the amount of$36,222 per month for the months of January through March 2017 and $54,334 per month for the months of April through September 2017. The City moved into a new City Hall building during September 2017. NOTE 10—CONTINGENCIES AND LITIGATION: In the normal course of governmental operations the City has claims filed against it for various losses related to tort actions for such things as wrongful acts,injuries,or damages for which a civil action can be brought, and other routine legal proceedings. At any given point in time,there is a recurring volume of tort and other claims for compensation and damages against the City,which could impact expenditures. The City's Risk Management fund provides for these claims, and insurance is available to pay a portion of damages for certain types of claims. The collective impact of these claims is not likely to have a material impact on the City's financial position. The City participates in a number of federal-and-state assisted programs. These grants are subject to audit by the granting agencies and or their representatives. Such audits could result in requests for reimbursement to grantor agencies for expenditures disallowed under the terms of the grants. City management does not believe that such disallowances,if any, will be material. The City was recently named as a defendant in a law suit by the parents of one or more minor children relating to a motor vehicle accident on East Cataldo near the intersection of Barker Road and I-90. Plaintiffs allege errors to the road design and/or signage. One minor was seriously injured,although none of the injuries were life-threatening,and he appears to have recovered. It is early in the litigation,and it is unclear what the claimed damages will be,or a projected timeframe for resolution of the issues. In September 2012,the City entered into an interlocal agreement with the Spokane County Library District(Library) for the purpose of acquiring an 8.4 acre parcel of land that would in the future be developed as a joint City park and library. In October 2012,the City then purchased the 8.4 acre parcel of land at a cost of approximately $2.5 million and the Library gave the City$744,047 for its proportional share of the 2.5 acres allocated to their estimated needs. At that time the City recorded the entire $2.5 million purchase as land owned by the City and the $744,047 received from the Library as deferred revenue with the understanding that when a joint site development plan was complete the City would recognize the $744,047 received from the Library as revenue,transfer title for this land to the Library,and remove $744,047 of land from its capital assets. Page 65 City of Spokane Valley Notes to Financial Statements NOTE 10-CONTINGENCIES AND LITIGATION continued: In January 2014,it was determined that the Library required an additional 0.32 acres of land,bringing their share of the original 8.4 acre purchase up to 2.82 acres. The Library paid the City an additional$95,238 for the proportional share of the .32 acres relative to the purchase price of the entire 8.4 acre purchase. This brought the Library's share of the land purchase up to a total of 2.82 acres at a cost of$839,285.At that point the City declared this 2.82 acres surplus to its needs,transferred title for this land to the Spokane County Library District,recognized $839,285 as revenue and removed the land from capital assets. The interlocal agreement also provided that if the Library had not within five years following the acquisition of the land(in October 2017), secured voter approval of a construction bond for the library building and ancillary improvements,that the land would be re-conveyed back to the City at the same price paid by the Library ($839,285).An amendment was made to the interlocal agreement in October 2017 which extended the agreement through October 2022 with the option to extend through October 2024.Through this amendment,the City also agreed to contribute $1.3 million,of which the $839,285 would be part,in frontage and/or joint site improvements on the Library site. NOTE 11-RECEIVABLE AND PAYABLE BALANCES: A)Receivables: Receivables at December 31,2017,were as follows: Governmental Type Accounts Taxes Grants Due from Prepaids&Other Deferred Total Activities receivable(net) receivable receivable other funds receivables outflows receivables General fund $ 2,303,523 $ 5,144,067 $ 5,709 $ - $ 89,728 $ - 7,543,027 Street fund 21,876 472,689 1,335 - 10,937 - 506,837 Street capital projects fund 353,110 - 1,466,309 - - - 1,819,419 City hall construction fund 597 - - - - - 597 Other governmental funds 34,822 445,613 439,062 1,804,937 - - 2,724,434 Reconciliation of balances in the fund financial statements to government-wide financial statements 1,356 - - - 345,036 687,918 1,034,310 Total Governmental type activities $ 2,715,284 $ 6,062,369 $ 1,912,415 $ 1,804,937 $ 445,701 $ 687,918 $ 13,628,624 Business Type Accounts Taxes Grants Due from Prepaids&Other Deferred Total Activities receivable(net) receivable receivable other funds receivables outflows receivables Stormwater management fund $ 2,416 $ 54,028 $ 290,077 $ - 1,200 39,984 $ 387,705 Aquifer protection area fund 1,388 - - - - - 1,388 Total Business type activities $ 3,804 $ 54,028 $ 290,077 $ - $ 1,200 $ 39,984 $ 389,093 Page 66 City of Spokane Valley Notes to Financial Statements NOTE 11-RECEIVABLE AND PAYABLE BALANCES continued: B)Payables: Payables at December 31,2017,were as follows: Governmental Type Accounts Salaries& Due to Deposits Other Unearned Deferred Total Activities payables benefits payable other funds payables liabilities Revenues inflows Payables General fund $ 2,100,019 $ 445,637 $ - $ 276,864 $ - $ 2,749,787 $ - $ 5,572,307 Street fund 479,644 78,702 - 59,848 - 167,116 - 785,310 Street capital projects fund 218,602 19,715 40,625 - 1,474,292 - 1,753,234 City hall construction fund 12,381 - - 502,724 - - - 515,105 Other governmental funds 231,992 8,494 1,490,310 37,667 - 372,534 - 2,140,997 Reconciliation of balances in the fund financial statements to government-wide financial statements (3,338) - 274,002 10,443 38,117 (4,763,730) 787,725 (3,656,781) Total Governmental type activities $3,039,300 $ 552,548 $ 1,804,937 $ 887,546 $ 38,117 $ 0 $ 787,725 $ 7,110,173 Business Type Accounts Salaries& Due to Deposits Other Unearned Deferred Activities payables benefits payable other funds payables liabilities Revenues inflows Total Stormwater management fund $ 75,344 $ 35,517 $ - $ 80,696 $ - $ 327,972 $ 45,888 $ 565,417 Aquifer protection area fund - - - - - - - - Total Business type activities $ 75,344 $ 35,517 $ - $ 80,696 $ - $ 327,972 $ 45,888 $ 565,417 C)Estimates related to Receivables: The City contracts with Spokane County for various services,including animal control,district court,emergency management,detention services,pretrial,prosecution,public defense, and law enforcement. Payments made on these contracts throughout the year are based upon costs incurred in the prior year and reconciled to actual costs incurred during the current year through a settle and adjust process. Because the reconciliation of the underlying supporting data between City and County staff is a time consuming process, an estimate is made at year end for the settle and adjust amounts expected for each service contract.The estimate is then recorded as either a liability or receivable,depending on whether the City estimates that additional funds will be owed to the County or that the City will receive a refund for overpayment, along with a corresponding increase or decrease in expenditure. Liability and receivable balances related to settle and adjust estimates as of December 31,2017,are as follows: (Liability) or (Liability) or Receivable New Amount Receivable Balance Estimate Settled in Balance Contract Year 1/1/17 Made 2017 12/31/17 2011 $ (17,589) $ - 17,589 - 2012 (6,669) - 6,669 - 2013 (213,940) - 213,940 - 2014 122,230 - (122,230) - 2015 770,161 - (821,266) (51,105) 2016 (607,103) 973,445 696,6111 1,062,986 2017 - 727,709 - 727,709 Page 67 City of Spokane Valley Notes to Financial Statements NOTE 11—RECEIVABLE AND PAYABLE BALANCES continued: During early 2017,the City was notified that the 2015 Sheriff contract was settled with a result of the County owing the City a refund for overpayment in the amount of$912,756 as compared to the original receivable of$487,301 that was estimated at the end of 2015. In order to properly reflect the new balance of the receivable,the City recorded an additional receivable balance and reduction in expenditure of$425,455 as of the end of 2015.The settlement will be received by the City throughout 2017 as reflected as a reduction in the amount owed on the Sheriff Law Enforcement contract invoices each month. For 2017,the City estimated that it would owe a net payable to the County on the contracted services for a total recorded payable of$727,709,which was adjusted against the 2017 contract expenditures. NOTE 12—OTHER POSTEMPLOYMENT BENEFITS(OPEB): Health &Welfare-Association of Washington Cities Employee Benefit Trust("Trust") The City of Spokane Valley is a member of the Association of Washington Cities Employee Benefit Trust Health Care Program(AWC Trust HCP). Chapter 48.62 RCW provides that two or more local government entities may,by Interlocal agreement under Chapter 39.34 RCW,form together or join a pool or organization for the joint purchasing of insurance, and/or joint self-insurance,to the same extent that they may individually purchase insurance,or self-insure. An agreement to form a pooling arrangement was made pursuant to the provisions of Chapter 39.34 RCW,the Interlocal Cooperation Act.The AWC Trust HCP was formed on January 1,2014 when participating cities,towns, and non-city entities of the AWC Employee Benefit Trust in the State of Washington joined together by signing an Interlocal Governmental Agreement to jointly self-insure certain health benefit plans and programs for participating employees, their covered dependents and other beneficiaries through a designated account within the Trust. As of December 31,2017,261 cities/towns/non-city entities participate in the AWC Trust HCP. The AWC Trust HCP allows members to establish a program of joint insurance and provides health and welfare services to all participating members. The AWC Trust HCP pools claims without regard to individual member experience. The pool is actuarially rated each year with the assumption of projected claims run-out for all current members. The AWC Trust HCP includes medical insurance through Group Health Cooperative/Group Health Options,Inc,Regence BlueShield and Asuris Northwest Health,dental insurance through Delta Dental of Washington, and vision insurance through Vision Service Plan. Eligible members are cities and towns within the state of Washington.Non-City Entities (public agency,public corporation,intergovernmental agency,or political subdivision within the state of Washington) are eligible to apply for coverage into the AWC Trust HCP, submitting application to the Board of Trustees for review as required in the Trust Agreement. Participating employers pay monthly premiums to the AWC Trust HCP. The AWC Trust HCP is responsible for payment of all covered claims. In 2016,the AWC Trust HCP purchases stop loss insurance for Regence/Asuris plans at an Individual Stop Loss(ISL)of$1.5 million through Life Map,and Group Health ISL at$750,000 through Sun Life.The aggregate policy is for 200%of expected medical claims. Participating employers contract to remain in the AWC HCP for a minimum of three years. Participating employers with over 250 employees must provide written notice of termination of all coverage a minimum of 12 months in advance of the termination date,and participating employers with under 250 employees must provide written notice of termination of all coverage a minimum of 6 months in advance of termination date. When all coverage is being terminated,termination will only occur on December 31. Participating employers terminating a group or line of coverage must notify the HCP a minimum of 60 days prior to termination.A participating employer's termination will not obligate that member to past debts,or further contributions to the HCP. Similarly,the terminating member forfeits all rights and interest to the HCP Account. Page 68 City of Spokane Valley Notes to Financial Statements NOTE 12—OTHER POSTEMPLOYMENT BENEFITS(OPEB) continued: The operations of the Health Care Program are managed by the Board of Trustees or its delegates.The Board of Trustees is comprised of four regionally elected officials from Trust member cities or towns,the Employee Benefit Advisory Committee Chair and Vice Chair,and two appointed individuals from the AWC Board of Directors,who are from Trust member cities or towns. The Trustees or its appointed delegates review and analyze Health Care Program related matters and make operational decisions regarding premium contributions,reserves,plan options and benefits in compliance with Chapter 48.62 RCW. The Board of Trustees has decision authority consistent with the Trust Agreement,Health Care Program policies, Chapter 48.62 RCW and Chapter 200-110-WAC. The accounting records of the Trust HCP are maintained in accordance with methods prescribed by the State Auditor's office under the authority of Chapter 43.09 RCW.The Trust HCP also follows applicable accounting standards established by the Governmental Accounting Standards Board("GASB").Year-end financial reporting is done on an accrual basis and submitted to the Office of the State Auditor as required by Chapter 200-110 WAC. The audit report for the AWC Trust HCP is available from the Washington State Auditor's office. Monthly Asuris HealthFirst 1000 Amounts Non-Medicare enrolled retiree coverage $ 734.37 Non-Medicare enrolled spouse coverage $ 740.78 First Child $ 207.67 Second Child $ 164.23 Monthly Asuris HealthFirst 2500 Amounts Non-Medicare enrolled retiree coverage $ 641.21 Non-Medicare enrolled spouse coverage $ 645.87 First Child $ 181.55 Second Child $ 143.71 Monthly Asuris Plan R-1500 Amounts Non-Medicare enrolled retiree coverage $ 1,304.75 Non-Medicare enrolled spouse coverage $ 1,310.03 First Child $ 371.44 Second Child $ 312.63 Page 69 City of Spokane Valley Notes to Financial Statements NOTE 12—OTHER POSTEMPLOYMENT BENEFITS(OPEB) continued: Monthly As uris Medicare Advantage Amounts Retiree w/Medicare A&B $ 395.23 Spouse w/Medicare A&B $ 395.23 Monthly Kaiser Permanente Retiree Amounts Non-Medicare enrolled retiree coverage $ 1,232.79 Non-Medicare enrolled spouse coverage $ 1,196.86 Medicare enrolled retiree coverage $ 453.53 Medicare enrolled spouse coverage $ 453.53 First dependent $ 358.63 Second & all other dependents $ 447.02 Monthly Delta Dental Retiree Amounts Retiree $ 61.54 Retiree +spouse $ 125.42 Retiree +child(ren) $ 124.57 Retiree +spouse +child(ren) $ 187.11 Participating employers are not contractually required to contribute to the Trust. The retirees who elect coverage through the Trust pay 100 percent of the premium.As such,the City of Spokane Valley did not have any contributions to the Trust for the year ended December 31,2017 Funding Status and Funding Progress: The funded status of the AWC Employee Benefits Trust Health Care Program as of January 1,2017,which was the date of the last actuarial valuation,was as follows (dollars in thousands): Actuarial accrued liability(AAL) $ 8,297 Actuarial value of plan assets - Unfunded actuarial accrued liability(UAAL) $ 8,297 Funded ratio(actuarial value of plan assets/AAL) 0% Covered payroll(active plan members) N/A 1 UAAL as a percentage of covered payroll N/A 1 1 Covered Payroll information was not provided to the AWC Trust. Page 70 City of Spokane Valley Notes to Financial Statements NOTE 12—OTHER POSTEMPLOYMENT BENEFITS(OPEB) continued: The schedule of funding progress is also presented as required supplementary information(RSI)following these Notes to the Financial Statements, and the schedule presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.The AWC Employees Benefits Trust had substantial assets recorded as of December 31,2016. Because those assets have not been placed into an irrevocable trust for the sole purpose of providing the above OPEB benefits,the AWC understands that they cannot be reflected as"actuarial assets"in the precedent table under GASB 43 in determining the remaining values for this Trust. The AWC Employee Benefits Trust's annual OPEB costs, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal year 2017 will be determined with the next conducted actuarial analyses scheduled for January 1,2018. The reported years of 2009 through 2017 were as follows(dollars in thousands): Fiscal Annual OPEB Cost Net OPFB Year Ended OPEB Cost Contributed Obligation 12/31/2009 $ 29,872 7.86% $ 55,364 12/31/2010 27,892 4.42% 82,022 12/31/2012 12,885 7.77% 130,474 12/31/2013 11,858 9.20% 141,241 12/31/2014 1,273 61.19% 34,407 12/31/2015 83 1 310.89% 1 5,911 12/31/2016 650 39.69% 6,264 12/31/2017 945 22.33% 8,297 1)Adjustments to Net OPEB Obligation reported The Governmental Accounting Standards Board(GASB)reporting standards and Statements numbers 43 &45 mandates the precedent reporting requirements and disclosures for Postemployment Benefits Plan other than Pension Plans,or OPEB. The AWC has chosen to adopt and provide these reporting standards to the participating employers within the AWC Employee Benefits Trust.Also,it is important to note that only those jurisdictions that follow Generally Accepted Accounting Principles(GAAP)must comply and report under GASB Statements 43 and 45.All costs,liabilities,interest rates, and other factors have been determined on the basis of actuarial assumptions and methods which are individually reasonable,taking into account experience and reasonable expectations, and which combinations offer the best estimate of anticipated experience. Page 71 City of Spokane Valley, Washington Comprehensive Annual Financial Report- Fiscal Year 2017 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget to Actual General Fund,Major Fund For the Year Ended December 31, 2017 Budgeted Amounts Variance with Approved Final Final Budget Original Budget Amended Budget Actual 1 Over(Under) Revenues Taxes $ 34,396,100 $ 34,396,100 $ 35,838,314 $ 1,442,214 Licenses and permits 2,235,800 2,235,800 2,971,586 735,786 Intergovernmental revenues 2,159,600 2,273,800 2,556,393 282,593 Charges for services 1,286,800 1,314,800 1,298,258 (16,542) Fines and forfeitures 528,300 528,300 427,624 (100,676) Investment interest 73,000 73,000 326,401 1 253,401 Miscellaneous 699,800 706,800 666,089 (40,711) Total Revenues 41,379,400 41,528,600 44,084,665 2,556,065 Expenditures Current: General government 5,503,105 5,511,405 4,865,817 (645,588) Public safety 25,103,372 25,103,372 21,465,496 (3,637,876) Utilities and physical environment 2,372,766 2,403,366 1,942,031 (461,335) Economic environment 843,632 852,832 773,252 (79,580) Community development 2,055,864 2,129,964 1,354,999 (774,965) Culture and recreation 2,867,783 2,971,383 2,743,228 (228,155) Debt service: Interest expense - - 600 600 Capital Outlay: Capital expenditures 600,000 707,000 658,141 (48,859) Construction in progress - - - - Total Expenditures 39,346,522 39,679,322 33,803,564 (5,875,758) Excess(Deficiency)of Revenues 2,032,878 1,849,278 10,281,101 8,431,823 Over(Under) Expenditures Other Financing Sources(Uses) Transfers in 614,025 699,025 684,803 (14,222) Transfers(out) (3,097,150) (6,392,359) (6,359,079) (33,280) Total Other Financing Sources(Uses) (2,483,125) (5,693,334) (5,674,276) (19,058) Net Change in Fund Balances(deficit) (450,247) (3,844,056) 4,606,825 1 8,450,881 Fund Balances Beginning of Year: 34,857,397 34,857,397 34,857,397 1 - Fund Balances End of Year: $ 34,407,150 $ 31,013,341 $ 39,464,222 1 $ 8,450,881 1 While applying the GASB-54 reporting standard,total fund balance end of the year increased by$4,606,825,the net change in fund balances of$4,590,250,increased by$16,575 due to investment interest,resulting in an increase of$4,606,825 to beginning fund balance from the two combined Non-major Special Revenue Funds;as reported in the General Fund on the Statement of Rev,Expend,and Changes in Fund Balances. Page 72 City of Spokane Valley, Washington Comprehensive Annual Financial Report - Fiscal Year 2017 Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual Street Fund, Major Fund For the Year Ended December 31, 2017 Budgeted Amounts Variance with Approved Final Final Budget Original Budget Amended Budget Actual Over(Under) Revenues Taxes $ 2,200,000 $ 2,000,000 $ 1,982,392 $ (17,608) Intergovernmental revenues 2,139,168 2,139,168 2,132,509 (6,659) Charges for services 50,000 50,000 136,112 86,112 Investment interest 4,000 4,000 7,843 3,843 Miscellaneous 10,000 10,000 134,485 124,485 Total Revenues 4,403,168 4,203,168 4,393,341 190,173 Expenditures Current: Utilities and physical environment 130,000 130,000 283,514 153,514 Transportation 4,329,202 4,337,202 4,204,293 (132,909) Debt Service: Principal retirement - - - - Capital Outlay: Capital expenditures 285,000 85,000 49,702 (35,298) Construction in progress - - - - Total Expenditures 4,744,202 4,552,202 4,537,509 (14,693) Excess(Deficiency) of Revenues (341,034) (349,034) (144,168) 204,866 Over(Under) Expenditures Other Financing Sources (Uses) Transfers in - - - - Transfers(out) (107,042) (107,042) (107,042) - Total Other Financing Sources (Uses) (107,042) (107,042) (107,042) - Net Change in Fund Balances (deficit) (448,076) (456,076) (251,210) 204,866 Fund Balances Beginning of Year 1,318,504 1,318,504 1,318,504 - Fund Balances End of Year(Deficit) $ 870,428 $ 862,428 $ 1,067,294 $ 204,866 Page 73 City of Spokane Valley, Washington Comprehensive Annual Financial Report - Fiscal Year 2017 City of Spokane Valley Schedule of Proportionate Share of Net Pension Liability PERS 1 For the Year Ended December 31, 2017 Fiscal Year Fiscal Year 2016 2017 Employer's proportion of the net pension liability(asset) 0.053037% 0.054158% Employer's proportionate share of the net pension liability $ 2,848,337 $ 2,569,839 Total $ 2,848,337 $ 2,569,839 Employer's covered employee payroll $ 6,628,805 $ 6,142,722 Employer's proportionate share of the net pension liability as a percentage of covered employee payroll 42.97% 41.84% Plan fiduciary net position as a percentage of the total pension liability 57.03% 61.24% Provided from note 2 of DRS Participating Employer Financial Information report(PER)for the%of each plan.' 1 Measurement date of June 30, 2017,for the State sponsored pension plans. Page 74 City of Spokane Valley, Washington Comprehensive Annual Financial Report - Fiscal Year 2017 City of Spokane Valley Schedule of Proportionate Share of Net Pension Liability PERS 2/3 For the Year Ended December 31, 2017 Fiscal Year Fiscal Year 2016 2017 Employer's proportion of the net pension liability(asset) 0.067862% 0.069662% Employer's proportionate share of the net pension liability $ 3,416,798 $ 2,420,422 Total $ 3,416,798 $ 2,420,422 Employer's covered employee payroll $ 6,628,805 $ 6,142,722 Employer's proportionate share of the net pension liability as a percentage of covered employee payroll 51.54% 39.40% Plan fiduciary net position as a percentage of the total pension liability 85.82% 90.97% Provided from note 2 of DRS Participating Employer Financial Information report(PEFI)for the%of each plan.' 1 Measurement date of June 30, 2017,for the State sponsored pension plans. Page 75 City of Spokane Valley, Washington Comprehensive Annual Financial Report - Fiscal Year 2017 City of Spokane Valley Schedule of Employer Contributions PERS 1 (two year trend) 1 For the Year Ended December 31, 2017 Fiscal Year Fiscal Year 2016 2017 Statutorily or contractually required contributions $ 305,736 $ 300,891 Contributions in relation to the statutorily or contractually required contributions $ (305,736) $ (300,891) Contribution deficiency(excess) $ - $ Employer's covered employee payroll $ 6,628,805 $ 6,142,722 Contributions as a percentage of covered employee payroll 4.61% 4.90% City of Spokane Valley does "not"currently have active PERS 1 pension plan paticipants. As such,PERS 1 contributions represent the Unfunded Actuarial Liability(UAAL)as calculated by The Department of Retirement Systems. Page 76 City of Spokane Valley, Washington Comprehensive Annual Financial Report - Fiscal Year 2017 City of Spokane Valley Schedule of Employer Contributions PERS 2/3 (two year trend) 1 For the Year Ended December 31, 2017 Fiscal Year Fiscal Year 2016 2017 Statutorily or contractually required contributions $ 399,315 $ 420,895 Contributions in relation to the statutorily or contractually required contributions $ (399,315) $ (420,895) Contribution deficiency(excess) $ - $ - Employer's covered employee payroll $ 6,628,805 $ 6,142,722 Contributions as a percentage of covered employee payroll 6.02% 6.85% 1) Until a full 10-year trend can be compiled, two year trend information is presented for the PERS 2/3 penson plan as of 12/31/2017. Page 77 Is- t 0 CD 0 a) N2� a n N- 1- 0 M L CC a CCUl o O . 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The State Auditor is elected by the citizens of Washington and serves four-year terms. We work with our audit clients and citizens to achieve our vision of government that works for citizens, by helping governments work better, cost less, deliver higher value, and earn greater public trust. In fulfilling our mission to hold state and local governments accountable for the use of public resources, we also hold ourselves accountable by continually improving our audit quality and operational efficiency and developing highly engaged and committed employees. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. Our audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. In addition, we conduct performance audits of state agencies and local governments as well as fraud, state whistleblower and citizen hotline investigations. The results of our work are widely distributed through a variety of reports, which are available on our website and through our free, electronic subscription service. We take our role as partners in accountability seriously, and provide training and technical assistance to governments, and have an extensive quality assurance program. Contact information for the State Auditor's Office Public Records requests PublicRecords@sao.wa.gov Main telephone (360) 902-0370 Toll-free Citizen Hotline (866) 902-3900 Website www.sao.wa.gov Washington State Auditor's Office Page 80