Document Kennewick_doc_2e70e64d23

Washington State Auditor’s Office Financial Statements and Federal Single Audit Report City of Kennewick Benton County Audit Period January 1, 2009 through December 31, 2009 Report No. 1003911 Issue Date July 19, 2010 ---PAGE BREAK--- July 19, 2010 Mayor and City Council City of Kennewick Kennewick, Washington Report on Financial Statements and Federal Single Audit Please find attached our report on the City of Kennewick’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, BRIAN SONNTAG, CGFM STATE AUDITOR Washington State Auditor Brian Sonntag Insurance Building, P.O. Box 40021  Olympia, Washington 98504-0021  (360) 902-0370  TDD Relay (800) 833-6388 FAX (360) 753-0646  http://www.sao.wa.gov ---PAGE BREAK--- Table of Contents City of Kennewick Benton County January 1, 2009 through December 31, 2009 Federal Summary 1 Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards 3 Independent Auditor’s Report on Compliance with Requirements Applicable to each Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133 5 Independent Auditor’s Report on Financial Statements 7 Financial Section 9 ---PAGE BREAK--- Federal Summary City of Kennewick Benton County January 1, 2009 through December 31, 2009 The results of our audit of the City of Kennewick are summarized below in accordance with U.S. Office of Management and Budget Circular A-133. FINANCIAL STATEMENTS An unqualified opinion was issued on the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate discretely presented component units and remaining fund information. Internal Control Over Financial Reporting:  Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over financial reporting that we consider to be significant deficiencies.  Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses. We noted no instances of noncompliance that were material to the financial statements of the City. FEDERAL AWARDS Internal Control Over Major Programs:  Significant Deficiencies: We identified no deficiencies in the design or operation of internal control over major federal programs that we consider to be significant deficiencies.  Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses. We issued an unqualified opinion on the City’s compliance with requirements applicable to its major federal programs. We reported findings that are required to be disclosed under OMB Circular A-133. Washington State Auditor's Office 1 ---PAGE BREAK--- Identification of Major Programs: The following were major programs during the period under audit: CFDA No. 14.218 14.253 Program Title Community Development Block Grant ARRA – Community Development Block Grant Cluster – Entitlement Grants (Recovery Act) 66.468 Capitalization Grants for Drinking Water State Revolving Funds The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by OMB Circular A-133, was $300,000. The City qualified as a low-risk auditee under OMB Circular A-133. Washington State Auditor's Office 2 ---PAGE BREAK--- Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards City of Kennewick Benton County January 1, 2009 through December 31, 2009 Mayor and City Council City of Kennewick Kennewick, Washington We have audited the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate discretely presented component units and remaining fund information of the City of Kennewick, Benton County, Washington, as of and for the year ended December 31, 2009, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated June 28, 2010. The prior year partial comparative information has been derived from the City’s 2008 financial statements that we issued our report dated June 22, 2009. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit, we considered the City’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over financial reporting. A 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. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Washington State Auditor's Office 3 ---PAGE BREAK--- COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the City’s financial statements are free of material misstatement, we performed tests of the City’s compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended for the information and use of management, the Mayor and City Council, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR June 28, 2010 Washington State Auditor's Office 4 ---PAGE BREAK--- Independent Auditor’s Report on Compliance with Requirements Applicable to each Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133 City of Kennewick Benton County January 1, 2009 through December 31, 2009 Mayor and City Council City of Kennewick Kennewick, Washington COMPLIANCE We have audited the compliance of the City of Kennewick, Benton County, Washington, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to its major federal programs for the year ended December 31, 2009. The City’s major federal programs are identified in the Federal Summary. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal programs is the responsibility of the City’s management. Our responsibility is to express an opinion on the City’s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City’s compliance with those requirements. In our opinion, the City complied, in all material respects, with the requirements referred to above that are applicable to its major federal programs for the year ended December 31, 2009. INTERNAL CONTROL OVER COMPLIANCE The management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City’s internal Washington State Auditor's Office 5 ---PAGE BREAK--- control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance. A 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. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended for the information of management, the Mayor and City Council, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR June 28, 2010 Washington State Auditor's Office 6 ---PAGE BREAK--- Independent Auditor’s Report on Financial Statements City of Kennewick Benton County January 1, 2009 through December 31, 2009 Mayor and City Council City of Kennewick Kennewick, Washington We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund and the aggregate discretely presented component units and remaining fund information of the City of Kennewick, Benton County, Washington, as of and for the year ended December 31, 2009, which collectively comprise the City’s basic financial statements as listed on page 9. These financial statements are the responsibility of the City’s management. Our responsibility is to express opinions on these financial statements based on our audit. The prior year partial comparative information has been derived from the City’s 2008 financial statements that we issued our report dated June 22, 2009. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund and the aggregate discretely presented component units and remaining fund information of the City of Kennewick, as of December 31, 2009, and the respective changes in financial position and, where applicable, cash flows thereof, and the respective budgetary comparison for the General Fund and Community Development Fund, for the year then ended in conformity with accounting principles generally accepted in the United States of America. The financial statements include partial prior year comparative totals information. Such information does not include all of the information required for a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the City’s financial statements for the year ended December 31, 2008, from which such partial information was derived. In accordance with Government Auditing Standards, we have also issued our report on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and Washington State Auditor's Office 7 ---PAGE BREAK--- other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The management’s discussion and analysis on page 10 through 32, pension trust fund on page 88 and information on postemployment benefits other than pensions on page 89 are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. This schedule is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. BRIAN SONNTAG, CGFM STATE AUDITOR June 28, 2010 Washington State Auditor's Office 8 ---PAGE BREAK--- Financial Section City of Kennewick Benton County January 1, 2009 through December 31, 2009 REQUIRED SUPPLEMENTAL INFORMATION Management’s Discussion and Analysis – 2009 BASICFINANCIAL STATEMENTS Statement of Net Assets – 2009 and 2008 Statement of Activities – 2009 and 2008 Balance Sheet – Governmental Funds – 2009 and 2008 Reconciliation of Balance Sheet to the Statement of Net Assets – Governmental Funds – 2009 Statement of Revenues, Expenditures and Changes in Fund Balance – Governmental Funds – 2009 and 2008 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities – 2009 General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual – 2009, 2008 and 2007 Community Development Fund Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual – 2009, 2008 and 2007 Statement of Net Assets – Proprietary Funds – 2009 and 2008 Reconciliation of the Statement of Net Assets – Proprietary Funds – 2009 Statement of Revenues, Expenses and Changes in Fund Net Assets – Proprietary Funds – 2009 and 2008 Reconciliation of the Statement of Revenues, Expenses, and Changes in Fund Net Assets of Proprietary Funds – 2009 Statement of Cash Flows – Proprietary Funds – 2009 and 2008 Statement of Fiduciary Net Assets – Fiduciary Funds – 2009 and 2008 Statement of Changes in Fiduciary Net Assets – Fiduciary Funds – 2009 and 2008 Notes to Financial Statements – 2009 REQUIRED SUPPLEMENTAL INFORMATION Firemen’s Pension Fund – 2009 Other Postemployment Benefits (LEOFF I Retiree Medical) – 2009 SUPPLEMENTAL INFORMATION Schedule of Expenditures of Federal Awards – 2009 Notes to the Schedule of Expenditures of Federal Awards – 2009 Washington State Auditor's Office 9 ---PAGE BREAK--- Management’s Discussion and Analysis As management of the City of Kennewick, we offer readers of the City of Kennewick’s financial statements this narrative overview and analysis of the financial activities of the City of Kennewick for the year ended December 31, 2009. Financial Highlights  The assets of the City of Kennewick exceeded its liabilities at December 31, 2009 by $303,693,900 (net assets). Of this amount, $24,369,851 (unrestricted net assets) may be used to meet the City’s ongoing obligations to citizens and creditors. However, a portion of unrestricted net assets as of December 31, 2009 are earmarked by City Council for projects that are scheduled to be completed during the remainder of the 2009/2010 biennium.  The City’s total net assets increased by $5,713,332 in 2009. A significant portion of this increase is attributable to capital grants and contributions received from developers in the form of donated infrastructure related to residential and commercial development and state and federal grants received for street reconstruction and improvement projects and water and sewer infrastructure improvements.  Expenses were $35,941,196 greater than the program revenues generated for governmental activities. Program revenues exceeded expenses by $1,170,871 for business-type activities.  As of December 31, 2009, the City of Kennewick’s governmental funds reported combined ending fund balances of $19,312,944, a decrease of $1,484,408 in comparison with the prior year. Approximately 58 percent of this total amount, $11,124,593, represents unreserved fund balance. A significant portion of unreserved fund balance (approximately 46 percent) is needed to meet Council policies that require a minimum fund balance (reserve) in the general fund and cash reserve fund. In addition, a portion of unreserved fund balance as of December 31, 2009 is also earmarked by City Council for projects that are scheduled to be completed during the current 2009/2010 biennium, but will not be completed until 2010.  As of December 31, 2009, unreserved fund balance for the general fund was $1,894,867, or 4.8 percent of total general fund expenditures and 4.5 percent of total operating fund expenditures (general and street fund), which did not meet the City’s budgetary policy of maintaining fund balance equal to 5 percent of annual operating expenditures for these funds. However, fund balance in the City’s cash reserve fund remained at $2,500,000 as of December 31, 2009. Together these fund balances represent approximately 10.5 percent of 2009 operating funds expenditures.  The City of Kennewick’s total capital assets increased by $9,976,056 during the year ended December 31, 2009. This increase reflects the investment made in the City’s infrastructure including parks, city streets and water and sewer infrastructure. These capital projects were funded utilizing a combination of private and public resources. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City of Kennewick’s basic financial statements and as a tool to assist users in their interpretation of them. The City of Kennewick’s basic financial statements are comprised of three components: 1) government-wide financial statements, Washington State Auditor's Office 10 ---PAGE BREAK--- 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. The government-wide financial statements are designed to provide readers with a broad overview of the City of Kennewick’s finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the City of Kennewick’s assets and liabilities, with the difference between the two reported as net assets. Analyzing net assets over a period of time may be a useful indicator of whether the financial position of the City of Kennewick is improving or deteriorating. The statement of activities presents information on how the government’s net assets changed during the most recent fiscal year. All changes in net assets 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 in this statement for some items that will result in cash flows in future fiscal periods. Examples of these types of items include uncollected taxes and earned, but unused, vacation and sick leave. The fund financial statements present financial information about the City of Kennewick in a more traditional manner. The City of Kennewick, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on a near-term view of the City’s financial resources available for spending. The modified accrual basis of accounting is utilized in preparation of these statements, which may be useful in evaluating 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 the information presented for governmental activities in the government-wide financial statements. This comparison provides readers with a better understanding of the long-term impacts of near-term financing decisions. Both the governmental balance sheet and governmental fund statement of revenues, expenditures and changes in fund balance provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Kennewick maintains sixteen individual governmental funds. Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures, and changes in fund balance for the general fund, community development fund and the capital improvement fund, all of which have been determined to be major funds. Data from the other governmental funds is combined into a single, aggregated presentation. The City of Kennewick adopts a biennial appropriated budget. A budgetary comparison for the general fund and major special revenue funds has been provided to demonstrate compliance with their respective budgets. The City of Kennewick 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. The City of Kennewick uses five enterprise funds to account for its water and sewer utility, ambulance service, building inspection function, coliseum facility operations and stormwater utility. Internal service funds are used to account for the financing of goods or services provided by one Washington State Auditor's Office 11 ---PAGE BREAK--- department or agency to other departments or agencies of the City, or to other governmental units on a cost-reimbursement basis. The City of Kennewick uses three internal service funds to account for the management, maintenance, and repair of all City-owned equipment, the purchasing, warehousing, and disbursement of office and maintenance supplies for all departments within the City, and for self- insurance services to all City departments. Because all three of these services predominantly benefit governmental rather than business-type functions, they have been included within the governmental activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the water and sewer fund, coliseum fund and stormwater fund, all of which are considered to be major funds. Data from the other enterprise funds is combined into a single, aggregated column. In addition, all three internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Fiduciary funds are used to account for resources held for the benefit of parties outside of the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of Kennewick’s own programs. The method of accounting utilized for these funds is similar in nature to that of the proprietary funds. The notes to the financial statements provide additional information that is considered to be essential for a full understanding of the information provided in the government-wide and fund financial statements. In addition to the basic financial statements and accompanying notes, this report also contains certain required supplementary information concerning the City of Kennewick’s progress in funding its obligation to provide pension benefits to members of the City’s firemen’s pension fund and other post- employment benefits (OPEB) in the form of healthcare to its Fire Pension act and Law Enforcement Officers and Firefighters (LEOFF) retirement plan 1 retirees. Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. As of December 31, 2009, the City of Kennewick’s assets exceeded liabilities by $303,693,900. The following is a condensed version of the City’s statement of net assets for the years ended December 31, 2009 and 2008, respectively. Washington State Auditor's Office 12 ---PAGE BREAK--- The majority of the City of Kennewick’s net assets (90 percent) reflect its investment in capital assets, such as land, buildings, improvements, infrastructure and equipment, less any related debt used to acquire those assets that is still outstanding, net of any unspent debt proceeds, which is $55,282,788. These capital assets are used to provide services to citizens and therefore, it should be noted that these assets are not available for future spending. In addition, it should also be noted that although the City of Kennewick’s investment in its capital assets is reported net of related debt, other resources will be drawn upon to repay this debt, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City of Kennewick’s net assets (2 percent) is subject to external restrictions, including bond covenants and construction requirements, on how they must be used. The remaining balance of unrestricted net assets of $24,369,851 may be used to meet the government’s ongoing obligations to citizens and creditors. However, a significant portion of unrestricted net assets as of December 31, 2009 is earmarked by City Council for future projects and other needs of the City for 2010, the second year of the City’s 2009/2010 biennium. As of December 31, 2009, the City of Kennewick was able to report positive balances in all three categories of net assets. In addition, both governmental activities and business-type activities were also able to report positive balances in all categories, with the exception of unrestricted net assets for business- type activities. This deficit balance is attributable to a deficit in the unrestricted net assets for the coliseum business-type activity, which is primarily the result of the fact that the City utilized an interfund loan to finance the acquisition of its coliseum facility, as opposed to external debt. The outstanding balance of this interfund loan, which is approximately $5.05 million, is not considered capital related debt under generally accepted accounting principles for purposes of calculating the net assets category of invested in capital assets, net of related debt. Instead, the interfund loan balance reduces unrestricted net assets, despite the fact that the purpose of the interfund loan was to finance a capital purchase. 2009 2008 2009 2008 2009 2008 Assets Current assets 30,729,834 $ 30,661,514 $ (124,531) $ 2,467,373 $ 30,605,303 $ 33,128,887 $ Capital assets 179,817,079 190,901,968 148,796,587 127,735,642 328,613,666 318,637,610 Other noncurrent assets 7,286,884 7,506,024 4,045,214 6,090,339 11,332,098 13,596,363 Total assets 217,833,797 $ 229,069,506 $ 152,717,270 $ 136,293,354 $ 370,551,067 $ 365,362,860 $ Liabilities Current liabilities 5,772,825 $ 6,590,303 $ 4,020,336 $ 3,766,140 $ 9,793,161 $ 10,356,443 $ Noncurrent liabilities 25,749,264 27,658,240 31,314,742 29,367,609 57,064,006 57,025,849 Total liabilities 31,522,089 34,248,543 35,335,078 33,133,749 66,857,167 67,382,292 Net Assets Invested in capital assets, net of related debt 156,258,231 164,906,436 117,072,647 97,410,593 273,330,878 262,317,029 Restricted 3,903,139 11,273,661 2,090,032 4,903,901 5,993,171 16,177,562 Unrestricted (deficit) 26,150,338 18,640,866 (1,780,487) 845,111 24,369,851 19,485,977 Total net assets 186,311,708 194,820,963 117,382,192 103,159,605 303,693,900 297,980,568 Total liabilities and net assets 217,833,797 $ 229,069,506 $ 152,717,270 $ 136,293,354 $ 370,551,067 $ 365,362,860 $ City of Kennewick Net Assets Governmental Activities Business-Type Activities Total Washington State Auditor's Office 13 ---PAGE BREAK--- As mentioned in the financial highlights section of this analysis, the City’s net assets increased by $5,713,332 overall for the year ended December 31, 2009. A large portion of this increase is attributable to capital grants and contributions received from developers in the form of donated infrastructure related to residential and commercial development and state and federal grants received for street reconstruction and improvement projects and water and sewer infrastructure improvements. Governmental activities decreased the City of Kennewick’s net assets by $8,509,255 during the year ended December 31, 2009. However, this overall decrease reflects a transfer of $11,484,435 in capital assets from governmental activities to the City’s newly formed stormwater business-type activity in 2009. Absent this one-time transfer, governmental activities actually increased the City’s net assets by $2,975,180 during the year, which equated to 52.1 percent of the overall increase of $5,713,332 for the government as a whole. Key elements of the current year’s increase in net assets and changes relative to the prior year follow.  Program revenues decreased by approximately $5.2 million during 2009 as the result of a significant decrease in capital grants and contributions received by the City during the year. This decrease was attributable to a reduction in developer contributions of right of way and other infrastructure in 2009 as a direct result of a decline in residential development in the City. 2009 2008 2009 2008 2009 2008 Revenues Program revenues: Charges for services 5,305,858 $ 5,026,526 $ 21,296,241 $ 19,916,809 $ 26,602,099 $ 24,943,335 $ Operating grants and contributions 4,643,115 4,042,873 34,386 1,644 4,677,501 4,044,517 Capital grants and contributions 2,625,573 8,729,387 1,713,426 2,808,794 4,338,999 11,538,181 General revenues: Property taxes 10,150,832 9,741,527 - - 10,150,832 9,741,527 Sales taxes 13,509,115 13,867,829 - - 13,509,115 13,867,829 Utility taxes 11,656,614 9,975,148 - - 11,656,614 9,975,148 Real estate excise tax 1,215,835 1,516,920 - - 1,215,835 1,516,920 Privilege tax 570,306 551,689 570,306 551,689 Gambling excise tax 784,199 885,084 784,199 885,084 Lodging tax 1,031,013 1,096,392 1,031,013 1,096,392 Other taxes 475,568 489,969 - - 475,568 489,969 Gain on sale of capital assets 174,543 - - - 174,543 - Unrestricted investment earnings 579,127 1,135,612 336,505 594,555 915,632 1,730,167 Total revenues 52,721,698 57,058,956 23,380,558 23,321,802 76,102,256 80,380,758 Expenses: General government 7,493,615 7,203,903 - - 7,493,615 7,203,903 Public safety 23,853,761 24,161,484 - - 23,853,761 24,161,484 Transportation 7,285,954 8,033,491 - - 7,285,954 8,033,491 Physical environment 1,946,895 1,693,773 - - 1,946,895 1,693,773 Economic environment 1,571,991 1,633,463 - - 1,571,991 1,633,463 Culture and recreation 5,294,988 5,505,989 - - 5,294,988 5,505,989 Interest on long-term debt 1,068,538 1,048,369 - - 1,068,538 1,048,369 Water and Sewer - - 13,428,742 13,467,168 13,428,742 13,467,168 Medical Services - - 3,680,664 3,423,474 3,680,664 3,423,474 Building Safety - - 1,006,417 1,091,083 1,006,417 1,091,083 Stormwater - - 564,626 - 564,626 - Coliseum - - 3,192,733 2,771,384 3,192,733 2,771,384 Total expenses 48,515,742 49,280,472 21,873,182 20,753,109 70,388,924 70,033,581 Increase in net assets before transfers 4,205,956 7,778,484 1,507,376 2,568,693 5,713,332 10,347,177 Transfers (12,715,211) (2,204,161) 12,715,211 2,204,161 - - Increase (decrease) in net assets (8,509,255) 5,574,323 14,222,587 4,772,854 5,713,332 10,347,177 Net assets - beginning 194,820,963 189,246,640 103,159,605 98,386,751 297,980,568 287,633,391 Net assets - ending 186,311,708 $ 194,820,963 $ 117,382,192 $ 103,159,605 $ 303,693,900 $ 297,980,568 $ Governmental Activities Business-Type Activities Total City of Kennewick Changes in Net Assets Washington State Auditor's Office 14 ---PAGE BREAK---  On a full accrual basis, tax revenues increased by 3.3 percent in 2009 when compared to 2008, which equates to a total increase of $1,268,924. This overall increase was comprised of a 4.2 percent increase in property tax revenues and a 16.9 percent increase in utility tax revenues, which were offset by a 2.6 percent decrease in sales tax revenues, a 19.9 percent decrease in real estate excise tax and a 5.4 percent decrease in other taxes. The increase in property tax revenue for 2009 was attributable to $116.7 million in new construction and $13.5 million in annexed areas that were added to the City’s assessed valuation in 2008 for the 2009 tax levy. Utility tax revenues generated in 2009 increased substantially when compared to 2008, which was primarily due to increases in tax revenues generated from the sale of telephone services, natural gas and electricity. Early in 2009, the City received a large payment from a cellular phone service provider for back taxes owed for the period of 2006 through 2008 after it was discovered that the provider had never properly reported or remitted utility taxes while operating within the City. In addition to the revenue generated from this one-time payment, the City also began receiving payments from this provider, which also significantly increased the City’s utility tax revenue generated from telephone services on an ongoing basis. Additionally, utility tax revenue from sales of natural gas and electricity both increased during 2009 as a result of rate increases and minor increases in consumption. Sales tax revenue, which is the City’s largest source of tax revenue, declined by approximately 2.6 percent, or $359,000 in 2009. This trend was attributable to the impact that the national recession had on the local economy and specifically on local consumerism during the year. Despite the fact that Kennewick’s economy was relatively sheltered from the national recession, six of the City’s top ten taxpayers experienced declining retail sales during the year. Sales of residential and commercial properties continued to decline in 2009, which led to a significant decrease in real estate excise tax revenue for the year. Again, this decrease is attributable to the impacts of the national recession on the local economy and in particular, the very tight credit market that developers encountered throughout the year when pursuing financing for their development projects. Revenue generated from other tax sources decreased by 5.4 percent, or roughly $162,000, during 2009. The overall decline in other taxes was the result of a decrease in gambling tax revenues resulting from a reduction in taxes from two of the City’s larger casinos and the closure of a third casino. Gambling taxes continue to be a very volatile tax revenue for the City due to the fact that overall gambling activity in the region tends to remain fairly consistent but does shift between Kennewick and its neighboring cities based on the newly opened or remodeled casinos in each area.  In 2009, approximately $175,000 in revenue was generated from the sale of a parcel of city owned land and sales of scrap material. No such sales occurred during 2008.  Unrestricted investment earnings decreased by 49 percent in 2009 when compared to 2008, or approximately $556,000. This increase is directly tied to interest rates available for the City’s investment portfolio, which were significantly lower during 2009 than 2008. As an example, one of the City’s primary investment vehicles, the Washington State Local Government Investment Pool (LGIP), had an average earnings rate of .70 percent during 2009, compared to 2.68 percent for 2008. Additionally, the City’s yield on its investments in agency securities also declined considerably during the year, particularly as older investments matured or were called and had to be replaced with newer, lower yielding investments. Washington State Auditor's Office 15 ---PAGE BREAK---  Expenses within governmental activities decreased by $764,730 in 2009 relative to 2008, which equates to a 1.6 percent decrease. The major factors leading to this overall decrease follow. Personnel expenses across all governmental activities functions increased by 3.6 percent in 2009, which equates to approximately $1.03 million. This net increase was the result of several factors. Three of the City’s public safety bargaining units, as well as the City’s Operating Engineer bargaining group, received wage increases for 2009 under the terms of their respective collective bargaining agreements. Additionally, the City’s firefighter bargaining unit reached agreement with the City in the fall of 2009 on its 2008 – 2010 collective bargaining agreement. Under the terms of this agreement, the employees received retroactive pay increases for 2008 in addition to the wage increases outlined for 2009. These increases, coupled with the increase in salary and wage expense associated with a cost of living adjustment that was provided to non-represented employees, resulted in a significant increase in the City’s salary and wage expenses in 2009. Expenses for medical insurance benefits increased by 8.9 percent in 2009 within all governmental activities. In the fall of 2008, the City chose to discontinue its self-insured/consumer-driven medical plan and move to a more traditional medical plan. Unfortunately, due to poor claims experience while on its previous plan, the City was assessed a 15 percent premium surcharge for the first year to join the new plan. Additionally, the City’s firefighter union employees did not move to the new plan in 2009 as a result of ongoing negotiations for their 2008 - 2010 contract. Due to the reduction in the number of employees covered on the self-insured plan, the administrative and overall cost per employee increased significantly. The City was successful in negotiating the removal of the 15 percent surcharge in May of 2009, which reduced the cost of the plan for the remainder of the year. However, overall costs still increased significantly for the year. The increases in personnel expenses outlined above were partially offset by the elimination or reclassification of positions and other personnel costs during 2009. As a budget balancing strategy for the City’s 2009/2010 biennium, five vacant full-time positions within governmental activities were eliminated at the start of 2009. An additional six vacant full-time positions were eliminated late in 2009 as a result of a budgetary shortfall resulting from reduced sales tax revenues. Additionally, the City formed a stormwater utility in June of 2009 to account for its stormwater system program as an enterprise activity. In conjunction with the formation of this utility, approximately three full-time positions were reallocated from the City’s street fund to the newly formed stormwater fund. And lastly, medical expenses for the City’s LEOFF 1 police retirees were reallocated from governmental activities to a newly formed other post employment benefits (OPEB) trust (agency) fund beginning in 2009 after the City enacted a 6.5 percent utility tax on water and sewer rate revenue and dedicated the proceeds for the payment of these retiree medical costs. In addition to the changes in personnel expenses described above, there were two other factors that contributed to the net reduction in expenses within governmental activities for 2009. Expenses for street overlay projects within the transportation activity decreased by nearly $600,000 in 2009, which was attributable to the prioritization of capital projects over maintenance projects in 2009 when the City’s capital improvement plan was established. Also, within the public safety function, there was approximately $580,000 in one-time non-capital furniture and equipment expenses related to the opening of the City’s new police station in 2008 that were not repeated in 2009.  Net transfers made from governmental activities to business-type activities increased by $10,511,050 in 2009. As outlined previously within this report, the bulk of this increase was attributable to a Washington State Auditor's Office 16 ---PAGE BREAK--- transfer of $11,484,435 in capital assets from governmental activities to the City’s newly formed stormwater business-type activity in 2009. Absent this one-time transfer, the net transfers made from governmental activities to business-type activities actually decreased by $973,385 in 2009. This net decrease was attributable to a decrease in transfers to the coliseum and medical services business-type activities, increases in the amounts transferred from the City’s water and sewer, building safety and stormwater business-type activities to governmental activities for their contributions towards personnel costs and an increase in transfers from the water and sewer business activity to the capital improvement fund for capital projects. In total, transfers from governmental activities to the coliseum business-type activity decreased by more than $107,000 in 2009. Transfers from governmental activities to the coliseum business-type activity for operations decreased by approximately $123,000 in 2009 as a result of improved operating results for the facility in 2009 and an $88,750 transfer that was made early in 2008 to cover a budget deficit for the facility from 2007, which inflated the 2008 transfer. Additionally, transfers from governmental activities to fund capital improvements at the facility decreased by approximately $34,000 in 2009. Finally, transfers from governmental activities for interfund debt service associated with the acquisition of the facility increased by $50,000 in 2009 based on a budgetary policy change to pay down the debt used to acquire the facility using excess lodging tax proceeds that had accumulated. In 2009, transfers from governmental activities to subsidize the operations of the medical services business-type activity decreased by approximately $255,000. This reduction was the direct result of a new utility charge that was implemented on April 1, 2008 designed to generate the net revenue the City lost in 2004 when the Washington State Supreme Court ruled that the City’s previous utility charge was an invalid tax. The additional revenue generated from the first full year of this utility charge, coupled with a moderate increase in revenue generated from emergency ambulance transports during the year, resulted in a reduction to the operating subsidy needed by the medical services business-type activity in 2009. Beginning in 2009, the City pooled its administrative personnel and formed a citywide administrative services support team whose personnel costs were paid for entirely by governmental activities and then reimbursed by business-type activities based on their proportionate usage of the team. As a result of this change, transfers from the water and sewer, building safety and stormwater business- type activities to governmental activities increased by approximately $238,000 in 2009. Lastly, transfers from the water and sewer business-type activity to governmental activities for capital projects increased by approximately $362,000 in 2009. This increase represented the water and sewer business-type activity’s portion of a street reconstruction project that was completed to replace water and sewer infrastructure located under the street. The chart below illustrates the surplus or net subsidy required for different governmental programs. The illustration clearly shows that all governmental programs, with the exception of transportation, were reliant on tax revenues in 2009 to cover the shortfall of program revenues available to cover the costs of providing service to Kennewick’s citizens. The excess of program revenues over expenses for the transportation program in 2009 was partially attributable to capital contributions of right of way and infrastructure from developers of nearly $745,000 during the year. However, several of the transportation program’s costs and the infrastructure donated by developers are capitalized on the government-wide statements. Over time, these capitalized costs will be depreciated, which will significantly add to the costs of this activity. Ultimately, general taxes will be required to subsidize the ongoing maintenance and operation for the City’s transportation program. Washington State Auditor's Office 17 ---PAGE BREAK--- The graph on the following page illustrates different components of the City of Kennewick's revenues from governmental activities. As the graph illustrates, taxes are the major revenue source, making up approximately 75 percent of the total revenues that support governmental activities. Program revenues, which include charges for services provided as well as operating and capital contributions from external parties, are also a large source of revenue used to support governmental activities, making up approximately 24 percent of total revenues. $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 General government Public safety Transportation Physical environment Economic environment Culture and recreation Interest on long- term debt Expenses and Program Revenues - Governmental Activities Expenses Program revenues Washington State Auditor's Office 18 ---PAGE BREAK--- Business-type activities contributed to the City of Kennewick’s net assets by $14,222,587 for the period ended December 31, 2009. However, as outlined earlier under the discussion of governmental activities, the change in net assets for business-type activities reflects a transfer of $11,484,435 in capital assets from governmental activities to the City’s newly formed stormwater business-type activity in 2009. Without this transfer, the change in net assets for business type activities would have been $2,738,152 for the year ended December 31, 2009, which equated to 47.9 percent of the overall increase of $5,713,332 for the government as a whole. The graph presented below illustrates the excess of program revenues over expenses or expenses in excess of program revenues for each of the City’s business-type activities. Key elements of the current year increase in net assets and changes relative to the prior year follow. Charges for services 10.1% Operating grants and contributions 8.8% Privilege taxes 1.08% Capital grants and contributions 5.0% Sales taxes 25.6% Gambling taxes 1.5% Unrestricted investment earnings 1.1% Utility taxes 22.1% Other taxes 0.9% Gain on sale of capital assets 0.3% Property taxes 19.3% Real estate excise taxes 2.3% Lodging taxes 2.0% Revenue by Source -Governmental Activities Washington State Auditor's Office 19 ---PAGE BREAK---  The largest component of revenues for business-type activities, charges for services, increased 6.9 percent in 2009. The water and sewer business-type activity, which contributes most significantly to this revenue category when looking at business-type activities as a whole, experienced an overall increase of approximately 1.3 percent in 2009. This increase was almost entirely attributable to growth in the number of active water and sewer accounts within the City, as there was no increase to water and sewer rates during the year. Within the medical services business-type activity, charges for services increased by 19.2 percent overall during 2009. This increase was the result of a new utility charge that was implemented on April 1, 2008 designed to generate the net revenue the City lost in 2004 when the Washington State Supreme Court ruled that the City’s previous utility charge was an invalid tax. The revenue generated from the first full year of this utility charge, coupled with a moderate increase in revenue generated from emergency ambulance transports during the year, resulted in a significant increase in program revenue for the medical services business-type activity in 2009. Charges for services in the building safety business-type activity decreased by 7.4 percent in 2009 as a result of building permit activity during the year. While the number of building permits actually increased by 13.3 percent during the year, the overall valuation of permits decreased by 9.4 percent. This decline was primarily the result of a reduction in the value of commercial permits issued during the year. The City formed its stormwater business-type activity in June of 2009 to account for the operations of the City’s stormwater system. In conjunction with the formation of this business-type activity, the City implemented a stormwater utility charge that is assessed to all residential, multi-family, commercial and other non-residential customers. The revenue collected during the stormwater - 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 Water and Sewer Medical Services Building Safety Stormwater Coliseum Expenses and Program Revenues - Business-type Activities Expenses Program revenues Washington State Auditor's Office 20 ---PAGE BREAK--- business-type activity’s seven months of operations in 2009 contributed to the overall increase in revenue from charges for services for business-type activities. Finally, revenues generated from charges for services increased by 25 percent within the coliseum business-type activity in 2009, which was partially attributable to an increase in revenue generated from events at the facility during the year. Additionally, the facility’s food and beverage services, which were previously contracted out, were taken over by the management company running the facility on behalf of the City in the summer of 2009. As a result, the gross revenue from food and beverage services is now reflected within the operating revenues of this business-type activity, as opposed to only the commissions paid to the facility by the third party contractor, which were only a small portion of the total revenue generated from food and beverage sales at the facility.  Capital grants and contributions for business-type activities decreased by $1.1 million in 2009. The water and sewer business-type activity accounts for all of the capital grants and contributions revenue within the City’s business-type activities. The current year’s decrease in this category was attributable to a reduction in developer contributions in the form of water and sewer infrastructure based on less new residential and commercial development occurring within the City in 2009.  Business-type expenses increased by $1,120,073 overall when compared to 2008, which equates to an increase of 5.4 percent. Expenses for the City’s water and sewer business-type activity actually decreased by $38,426 in 2009, which equated to a .3 percent decrease. This change was primarily attributable to the elimination of five full-time positions within the water and sewer business-type activity during the course of 2009. Three of the positions were eliminated during the preparation of the 2009/2010 biennial budget and therefore a full year’s worth of savings in personnel expenses was recognized in 2009. The additional two positions were formally eliminated in the fall of 2009, although they had been vacant for a period of time prior to that date. Expenses for the medical services business-type activity increased during the year by $257,190, or 7.5 percent. This change was attributable to increases in salary and benefit costs for firefighter personnel stemming from the settlement of their 2008 – 2010 contract in 2009. As a result of this new contract, this employee group received wage increases in 2009 as well as retroactive payment for wage increases agreed to for 2008. Additionally, as discussed earlier in this report, due to ongoing labor negotiations, the City’s firefighters remained on the City’s previous self-insured medical plan in 2009 after the remainder of the City’s employees moved to a new health plan, which increased the cost of the self-insured plan for each employee dramatically. Expenses for the building safety business-type activity decreased by $84,658, or 7.8 percent, in 2009 as a result of the elimination of the Building Safety Manager position early in 2009 after the previous Building Safety Manager retired. Although a Supervisor position was added to the business-type activity, a Building Inspector position was eliminated, resulting in a net reduction of one full-time position. Additionally, a contracted permit technician position was eliminated in 2009, which also contributed to the overall reduction in expenses for the year. Expenses for the coliseum business-type activity increased by $421,349, or 15.2 percent during 2009. This overall increase was primarily the result of a large increase in expenses related to providing food and beverage services at the City’s coliseum facility. As mentioned previously in this section, the facility’s food and beverage services, which were previously contracted out, were taken over by the management company running the facility on behalf of the City in the summer of Washington State Auditor's Office 21 ---PAGE BREAK--- 2009. As a result, the gross expenses associated with providing food and beverage services at the facility are now reflected in the expenses of this business-type activity. Lastly, expenses for the City’s newly formed stormwater business-type activity were $564,626 in 2009, which represents the first seven months of operations for the utility. As previously discussed, this utility was formed to account for the costs associated with maintaining the City’s stormwater infrastructure in compliance with state and federal regulations. The following graph provides an illustration of the different components of the City of Kennewick’s revenues generated from business-type activities. Charges for service, which includes items such as charges for water and sewer services and ambulance services provided, are by far the largest source of revenues for business-type activities, making up 91.1 percent of total revenues. Financial Analysis of the Government’s Funds As noted earlier, the City of Kennewick uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds focus on providing information on the City of Kennewick’s near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of the City’s net resources available for spending. As of December 31, 2009, the City of Kennewick’s governmental funds reported combined ending fund balances of $19,312,944, a decrease of $1,484,408 in comparison with the prior year. Approximately 53 percent of the total ending fund balance, or $11,124,593, constitutes unreserved fund balance. A Charges for services, $21,296,241 91.09% Operating grants and contributions, $34,386 0.15% Capital grants and contributions, $1,713,426 7.33% Unrestricted investment earnings, $336,505 1.44% Revenue by Source - Business-type Activities Washington State Auditor's Office 22 ---PAGE BREAK--- significant portion of unreserved fund balance (approximately 46 percent) is needed to meet Council policies that require a minimum fund balance (reserve) in the general fund and cash reserve fund. The remainder of fund balance is reserved to indicate that it is not available for new spending because it has been committed; 1) to fund interfund advances made by governmental funds to other non-governmental funds ($5,053,3345) for the purpose of purchasing the City’s coliseum facility and is being repaid over the next 16 years, 2) to fund capital projects using restricted resources ($3,031,580), and 3) for other restricted purposes ($103,426) such as grant programs. The general fund is the chief operating fund of the City of Kennewick. As of December 31, 2009, unreserved fund balance in the general fund was $1,894,867. A common measure of the general fund’s liquidity is to compare unreserved fund balance to total fund expenditures. Unreserved fund balance represents 4.8 percent of total general fund expenditures for the year ended December 31, 2009, as compared to 3 percent for the year ended December 31, 2008. It should be noted that the City also continues to maintain a $2.5 million reserve fund for unanticipated changes in revenues and expenditures. The fund balance of the City of Kennewick’s general fund increased by $740,227 during 2009. Key factors in the change are as follows:  Tax revenues are by far the largest funding source for the City of Kennewick’s general fund, making up approximately 71 percent of the fund’s total sources of revenue. In 2009, revenues from taxes grew by approximately 7.2 percent within the general fund due to increases in revenue from property taxes, utility taxes and admissions tax. These increases were offset by an overall reduction in sales and use tax and gambling tax for the year. Property taxes allocated to the general fund increased by roughly 8.8 percent, which was primarily attributable to growth that occurred in the City during 2008 that increased the City’s assessed valuation and the total levy for 2009. In total, the City’s 2009 property tax levy increased by just over $410,000. Of this amount, $307,000 was generated as a result of $116.7 million in new construction, $1.35 million in increases to state assessed utility values and $13.5 million in assessed value for annexed areas that were added to the City’s assessed valuation in 2008 for the 2009 levy. The remainder of the growth in the City’s 2009 levy was attributable to a 1 percent increase to the base levy allowed under state law. Additionally, as a result of the formation of a new stormwater utility in June of 2009 and the corresponding reallocation of approximately 3 full-time equivalent positions to the new utility from the City’s street fund, the required allocation of property tax to the street fund decreased in 2009. Utility tax revenues increased by 15.2 percent overall in 2009. This overall increase was driven by significant increases in telephone and natural gas utility tax revenue and a minor increase in utility tax revenue generated from sales of electricity, which is the second largest source of utility tax for the City. Utility tax generated from the sale of telephone services increased by 38.8 percent in 2009. However, receipts in 2009 included a significant one-time payment for back taxes owed by a cellular service provider for the period of 2006 through 2008. Without this one-time payment, revenues collected during 2009 were up only 17.3 percent. The remaining increase is attributable to the ongoing utility tax payments from this provider that began in 2009. Utility tax generated from the sale of natural gas increased by 37 percent in 2009, which was the result of rate changes enacted by the local natural gas provider. In November of 2008, natural gas rates for residential customers increased by 26 percent and rates for commercial customers increased by 28 percent. Natural gas rates were lowered by 13 to 15 percent across all customer classes effective August 1, 2009. However, due to the seasonality of natural gas use, the most significant impact of these rate reductions will not occur until early 2010. Washington State Auditor's Office 23 ---PAGE BREAK--- Utility tax receipts generated from the sale of electricity increased by 2.9 percent in 2009 despite several rate decreases by the Benton PUD in recent years and major rate reductions enacted during 2008 associated with two lump sum payments it received from the Bonneville Power Administration (BPA) related to litigation over BPA’s residential exchange program. The PUD elected to pass along the first one-time payment it received from the BPA in the first half of 2008 by enacting a one-year rate decrease of 6.9 percent to residential customers that became effective June 1, 2008. The PUD then further expanded this temporary rate decrease in November when it passed along a second one- time payment from BPA to its customers. This expansion equated to an additional 9.5 percent reduction for residential customers and also expired in May of 2009. The minor increase in electric utility tax in 2009 occurred as a result of the expiration of these temporary rate reductions and as a result of a minor increase in consumption of electricity by customers. Sales and use tax revenues receipted into the general fund decreased by 1.23 percent in 2009 overall. Citywide, regular and optional sales and use tax revenue decreased by 4.06 percent in 2009, primarily as a result of the impact of the national recession on local retail activity. Although the City of Kennewick’s economy was not impacted as deeply as many other cities during the recession due to stimulus funding for the Hanford area and other factors that insulated our local economy, the national recession did have an impact on consumerism locally. All of the City’s regular sales tax (first half cent) is receipted into the general fund. In accordance with Council policy, a portion of the proceeds from the City’s optional sales tax (second half cent) is also receipted into the general fund based on a specific formula and an allocation of $500,000 annually to support economic development efforts. In 2009, this formula resulted in a 6 percent increase to the amount of optional sales tax allocated to the general fund. Lastly, criminal justice sales tax, which is a 1/10 percent sales tax in Benton County that is distributed based on population rather than the point of sale, increased by 1.64 percent for the year. Finally, gambling tax revenues decreased by 11.4 percent during 2009, primarily as a result of delinquent taxes for the 2nd and 3rd quarters from two of the City’s major casinos and the closure of a third casino.  Intergovernmental revenues increased by 16.9 percent, or approximately $462,000, in 2009. The increase in this revenue category was primarily attributable to an increase in federal grants for the City’s police department under the Law Enforcement Terrorism Prevention Program (LETPP), Justice Assistance Grant (JAG) and Anti-Gang Initiative programs. A significant portion of the increase in federal grant revenue in 2009 was funded through the American Recovery and Reinvestment Act (ARRA). It should be noted that the City passed through a considerable amount of these federal grants to sub-recipient agencies that participated in the grant programs.  Transfers to the general fund increased by 21.7 percent, or approximately $523,000, in 2009. This revenue category consists of ongoing transfers from the City’s public safety fund of revenues collected from a voted 2.5 percent utility tax on sales of natural gas, telephone and electricity, which is utilized to partially fund 32 Police and Fire positions paid from the general fund. Additionally, beginning in 2009, this category includes operating transfers from enterprise (business-type) funds to pay for their share of personnel costs paid from the general fund for the City’s Administrative Services Support Team (ASST). Also in 2009, a budget policy change was enacted that eliminated an annual operating transfer from the City’s park development fund for personnel costs paid from the general fund for park maintenance services. The overall increase in this category is the result of a significant increase in utility taxes receipted into the public safety fund and transferred to the general fund. As explained earlier within the discussion of general fund tax revenues, utility taxes from natural gas and telephone services both increased significantly in 2009 and utility tax generated from the sale of electricity also increased moderately during the year. Washington State Auditor's Office 24 ---PAGE BREAK---  Expenditures for salary and wages paid from the general fund increased by 5.7 percent in 2009, or about $1,144,000. This increase is primarily the result of negotiated pay increases for the City’s union personnel and for its non-represented employees. However, a portion of the overall increase is also attributable to retroactive payments associated with the settlement of the City’s 2008 – 2010 collective bargaining agreement with its Firefighter union. The City’s Firefighter union completed all of 2008 and a significant portion of 2009 under the terms of a collective bargaining agreement that expired at the close of 2007. As a result, when the current contract was finalized in 2009, the terms of that agreement included retroactive payment back to the expiration date of the previous contract, which is reflected in the financial results for the year.  Expenditures for personnel benefits increased by only 1.4 percent in the general fund in 2009, or approximately $103,000. The net increase within this expenditure category for 2009 was the result of an increase in the cost of medical benefits, industrial insurance and dental insurance, which were offset by the reallocation of LEOFF 1 retiree medical costs from the City’s general fund to the newly formed Other Post-Employment Benefits (OPEB) Trust (Agency) fund beginning in 2009. Expenditures for medical insurance increased by 10.5 percent in 2009 within the general fund as a result of several factors. In the fall of 2008, the City chose to discontinue its self-insured/consumer-driven medical plan and move to a more traditional medical plan offered through a third-party provider. Unfortunately, due to its recent poor claims experience, the City was initially assessed a 15 percent premium surcharge for the first year to join the plan. Additionally, the City’s firefighter union employees did not move to the new plan in 2009 as a result of ongoing negotiations for their 2008 - 2010 contract. Due to the reduction in the number of employees covered on the self-insured plan, the administrative and overall cost per employee increased significantly. The City was able to negotiate the removal of the 15 percent surcharge in May of 2009, which significantly reduced the cost of the plan for the remainder of the year. However, due to the costs of this surcharge for the first four months of the year and the increase in costs for the City’s firefighter group, expenditures for medical insurance increased significantly in 2009. Expenditures for industrial insurance (workers’ compensation) also increased in 2009. Premiums paid for workers’ compensation were approximately 15.1 percent higher in 2009 within the general fund, which was attributable to an average increase of 3 percent in the rates charged by the Washington State Department of Labor & Industries across all worker classifications, coupled with an increase to the City’s experience rating. As a result of these two factors, the City experienced increases ranging from 9 percent to 12 percent in its 2009 premium rates. Expenditures within the general fund for dental insurance increased in 2009 based on an increase to the composite premium charged to departments for each employee. Based on past claims history and expected increases for future claims, the City increased its internal premium by 10 percent effective January 1, 2009. Lastly, medical expenditures for LEOFF 1 Police retirees were reallocated from the general fund to the OPEB trust fund beginning in 2009 when City Council enacted a 6.5 percent utility tax on water and sewer rate revenue and dedicated the proceeds for the payment of all LEOFF 1 retiree medical costs. Under state law, the City is required to pay 100 percent of these costs for this retiree group for life.  Expenditures for intergovernmental services in the general fund increased by 7.3 percent in 2009. This increase was the result of several factors. First, as outlined earlier within this report, the City experienced a large increase in proceeds from federal Washington State Auditor's Office 25 ---PAGE BREAK--- grants during 2009, in part due to programs funded through the Recovery Act. As also reported earlier, the City passed through a considerable amount of these grant proceeds to sub-recipient agencies, which is reflected within this category of expenditures. The City’s costs for jail services increased in 2009 as a result of a 7 percent increase to the prisoner bed day rate charged by the County, which was partially offset by a reduction in the number of prisoner bed days utilized by the City for the year. The City’s costs for District Court services increased in 2009 based on an overall increase in costs for the agency and an increase to the City’s allocation of those costs based on its caseload. The formation of a new Office of the Public Defender and implementation of case caps for contracted public defenders also contributed to the overall increase in the City’s costs in 2009 related to District Court. Lastly, the City experienced a relatively large increase in expenditures in 2009 for election support as a result of having both a primary and general election during the year.  Transfers out, which is another major expenditure of the general fund, increased by 24.6 percent, or approximately $535,000 in 2009, as a result of several factors. As a result of a budget policy change made during 2009, the interfund transfer of approximately $670,000 that has historically been made from the general fund to the debt service fund for the annual debt service on the City’s 2003B bond issue is now made from the City’s capital improvement fund. In 2008, the City utilized a one-time refund from its previous medical insurance carrier of a reserve accumulated while the City was on their medical plan to eliminate the annual transfer required from the general fund to the risk management fund to maintain adequate self-insurance reserves. For 2009, it was necessary to reinstate this transfer of $350,000. Additionally, the general fund was required to transfer $33,500 to fund its share of the City’s unemployment obligations paid out of the risk management fund. Finally, the general fund was also required to transfer just under $202,000 for its share of medical run-out claims paid in 2009 related to the City’s self-insured medical program that was terminated for most employees as of December 31, 2009. In total, transfers made from the general fund to the risk management fund increased by approximately $585,000 in 2009 as a result of these items. Transfers made to the capital improvement fund to fund several City facility and information technology projects decreased by roughly $48,000 during 2009. As the City evaluated strategies for balancing its operating budget for the 2009/2010 biennium, several facility and information technology projects were deferred until such time that they could be further evaluated and prioritized, which led to this reduction in 2009. Transfers to the equipment rental fund increased by approximately $405,000 in 2009. This increase was the result of the City’s decision to fund its Police fleet replacement internally as opposed to utilizing the State Local Lease Financing Program, as it has historically done. The City anticipated paying approximately $478,500 in debt service payments during the 2009/2010 biennium if it financed the Police fleet externally. Instead, the City utilized excess reserves in the equipment rental fund to purchase the fleet replacement and transferred the funds previously earmarked in the general fund for debt service to the fund to replenish reserves. Transfers to the Toyota Center (coliseum fund) decreased by approximately $223,000 in 2009. A portion of this reduction is attributable to improved operating results for the facility in 2009. The Toyota Center and Arena’s operating loss for 2009 and operating subsidy requirement was approximately $34,000 less than the previous year. Additionally, the City enacted a policy change in conjunction with the preparation of its 2009/2010 budget to fund $100,000 of the facility’s annual required operating subsidy Washington State Auditor's Office 26 ---PAGE BREAK--- from the City’s lodging tax fund utilizing excess lodging tax proceeds, which in turn reduced the transfer required from the general fund. Lastly, an $88,750 transfer was made early in 2008 to address a budget deficit for the facility for 2007, which inflated the 2008 transfers made to the facility. Transfers to the medical services fund decreased by $254,500 in 2009. The City’s ambulance utility and ambulance utility charge were implemented on April 1, 2008. Consequently, the operating results of the medical services fund in 2009 reflect a full year of ambulance utility charge revenue. Additionally, billable transports increased by approximately 5 percent in 2009, which increased the net revenue generated from these transports. As a result of these factors, the transfer required from the general fund decreased significantly in 2009. Operating transfers to the firemen’s pension fund decreased by $325,000 in 2009. As outlined earlier in this report, beginning in 2009 the City enacted a 6.5 percent utility tax on water and sewer rate revenue and dedicated the proceeds for the payment of all LEOFF 1 retiree medical costs. Proceeds from the new utility tax, along with all LEOFF 1 retiree medical costs, are now accounted for in the City’s OPEB trust fund. As a result, the operating transfer from the general fund to the firemen’s pension fund that had historically been necessary to fund medical expenditures for LEOFF 1 Firefighter retirees was no longer required in 2009. The community development fund has a total fund balance of $117,932, of which $103,426 is reserved for grant related projects, with the remaining balance representing unreserved fund balance. Fund balance increased by only $813 for the year ended December 31, 2009 in the fund, which is attributable to program expenditures that match grant revenues for the year and indicates that the fund’s financial condition improved during the year. The capital improvement fund has a total fund balance of $10,691,685, of which $7,239,303 is reserved for advances to other funds or specific capital projects as spelled out in grant or loan agreements. Overall fund balance decreased by $1,654,203 for the year, primarily due to an increase in transfers from the fund to the debt service fund and urban arterial street fund. Transfers to the debt service fund increased by approximately $690,000 in 2009, which was attributable to a budget policy change made during the year that reallocated the transfer for annual debt service on the City’s 2003B bond issue from the general fund to the capital improvement fund. Additionally, transfers from the capital improvement fund to the urban arterial street fund increased by nearly $950,000 in 2009 as a result of transfers made for the City’s required matching contribution toward a large street reconstruction project that was funded through a state grant program. The proprietary funds of the City of Kennewick are utilized to account for operations of the City that are commercial in nature and are accounted for in a manner more similar to private enterprise. The statements for proprietary funds contain very similar information to the business-type activities found in the government-wide statements, but in more detail. Total net assets of the City’s proprietary (business-type) funds were $120,364,767 as of December 31, 2009, which was an increase of $14,521,877 for the year. As mentioned earlier within this report, the change in net assets for proprietary funds reflects a capital contribution of $11,484,435 for capital assets transferred from governmental funds to the City’s newly formed stormwater enterprise fund in 2009. Without this capital contribution, the change in net assets for proprietary funds would have been $3,037,442 for the year ended December 31, 2009. Of the total net assets for proprietary funds, $117,072,647 represented investment in capital, net of related debt and $2,090,032 was restricted for capital projects and debt service, leaving unrestricted net assets of $1,202,088. As outlined within the discussion of business-type activities earlier in this report, the unrestricted net assets in proprietary (business-type) funds as a whole are significantly reduced by a deficit in the unrestricted net assets of the Washington State Auditor's Office 27 ---PAGE BREAK--- coliseum fund. This deficit is the result of a decision by the City to utilize an interfund loan to acquire its coliseum facility, which results in the interfund debt being included in the calculation of unrestricted net assets, as opposed to being included in the calculation of the net asset category of invested in capital assets, net of related debt. The City’s water and sewer, coliseum and stormwater funds, which are its major enterprise funds, had total net assets of $104,891,121, $4,100,485 and $11,332,460, respectively, as of December 31, 2009. The water and sewer fund’s net assets consist of $96,716,936 in invested in capital assets, net of related debt, $2,090,032 in restricted net assets for capital projects and debt service, and $6,084,153 in unrestricted net assets. The coliseum fund’s net assets consist of $9,125,647 in invested in capital assets, net of related debt and a deficit of $5,025,162 in unrestricted net assets. As mentioned above, this deficit is the result of the City utilizing an interfund loan to purchase the facility, as opposed to external debt. The City’s newly formed stormwater fund’s net assets consisted of $11,310,108 in invested in capital, net of related debt and unrestricted net assets of $22,352 after its first seven months of operations. For all three of these major enterprise funds, there were no significant restrictions or other commitments that will impact the availability of fund resources for future use. Please refer to the discussion on business-type activities found earlier in this report for further details concerning the finances of business-type funds. General Fund Budgetary Highlights As mentioned previously, the City of Kennewick adopts a biennial budget. The year ended December 31, 2009, marks the mid-point of the City’s 2009/2010 biennial budget cycle. Two budget adjustments were made to the City’s budget during 2009. The budgetary comparison statements for the general fund provide more detail on these adjustments. The following are some of the major adjustments to the general fund budget during 2009:  The reduction of $750,000 in retail sales and use tax based on revised projections for the 2009/2010 biennium that reflect the impacts of the national recession on local consumerism.  A combination of revenue and expenditure adjustments based on a revision to Kennewick City Council’s budget policies. The net impact of these policy revisions is intended to be neutral in terms of the financial impact to the City’s general fund, with the focus instead being to provide for more flexibility in how the City can utilize its limited revenue sources, including legally restricted revenues. The following were the budget adjustments made during 2009 based on these budget policy changes:  An increase of $750,000 in property tax revenue, which reflects a reallocation of $375,000 in annual property taxes that had previously been dedicated to the City’s park development fund.  An increase of $515,100 in admissions tax revenue for the reallocation of this revenue source from the City’s park development fund.  A reduction of $370,000 in the transfer from the park development fund, which was previously made to reimburse the general fund for the personnel costs of park maintenance staff.  A decrease of $1,340,530 in the transfer to the debt service fund for debt service on the City’s 2003B bond issue. This transfer was reallocated to the City’s capital improvement fund as the bond proceeds were used for capital projects.  An increase of $2,000,000 in transfers to the capital improvement fund to fund priority capital projects as identified by City Council. Washington State Auditor's Office 28 ---PAGE BREAK---  The addition of $340,807 in federal grant revenue and corresponding expenditures for the City’s 2009 Justice Assistance Grant (JAG) award, of which $281,926 was funded under the American Recovery and Reinvestment Act (ARRA) of 2009.  An increase of $120,000 for contract planning services for several key long-term planning projects in the City.  An increase of $222,070 in personnel costs in the general fund for the City’s firefighter bargaining group as a result of the settlement of their 2008 – 2010 contract. The City’s adopted budget included assumptions for the increase in expenditures associated with this contract for 2009 and 2010. However, it did not include expenditures related to the retroactive pay for 2008 that was included in the final contract settlement. At the close of 2009, general fund revenues were 49.6 percent of the amounts budgeted for the biennium. Actual expenditures in the general fund for the biennium were at 48.3 percent of the adjusted budget. The City’s general fund’s ending fund balance as of December 31, 2009 was $1,894,867, which is higher than the budgeted ending fund balance for the 2009/2010 biennium but did not meet the City’s budgetary policy to maintain an ending fund balance of at least 5 percent of annual operating expenditures. However, the City also continues to maintain a Cash Reserve Fund for revenue stabilization and contingencies with a balance of $2.5 million. Together these fund balances represent 10.5 percent of annual operating expenditures. Capital Assets and Debt Administration Capital Assets: The City of Kennewick’s investment in capital assets for its governmental and business-type activities as of December 31, 2009, amounts to approximately $318,614,000 (net of accumulated depreciation). This investment includes land, buildings, improvements, infrastructure such as roads and bridges, equipment, and construction in progress. As the following table illustrates, the City of Kennewick’s net capital assets increased by 3.1 percent for the year (a 5.8 percent decrease in governmental activities and a 16.5 percent increase in business-type activities). 2009 2008 2009 2008 2009 2008 Land 72,453 $ 72,067 $ 2,988 $ 2,988 $ 75,441 $ 75,055 $ Buildings 28,500 28,980 138,715 117,906 167,215 146,886 Improvements other than buildings 12,432 5,954 - - 12,432 5,954 Infrastructure 53,078 61,498 - - 53,078 61,498 Equipment 6,954 6,086 308 3,796 7,262 9,882 Construction in progress 6,400 16,317 6,757 3,017 13,157 19,334 Intangibles - - 29 29 29 29 Total capital assets 179,817 $ 190,902 $ 148,797 $ 127,736 $ 328,614 $ 318,638 $ (In thousands) Activities Activities Government City of Kennewick Capital Assets, net of depreciation Total Governmental Business-type Washington State Auditor's Office 29 ---PAGE BREAK--- Major capital asset events during the current fiscal year included the following:  A variety of major street construction projects across the city were completed or were in progress at the close of the year, including projects to reconstruct a portion of 4th avenue from Columbia Center Boulevard to Union and to construct an extension of Steptoe Street from Gage to Clearwater. Construction in progress for these projects and various other street projects was approximately $4.8 million as of December 31, 2009.  Work was completed on a restroom, asphalt walkways and a playground in the City’s Hansen Park. Similar to a parking lot constructed at the park during 2008, these improvements were partially funded through a state grant.  Construction was completed on the water and sewer business-type activity’s $4.9 million ranney well collector 5 improvement project. Additionally, construction began on the City’s $8.6 million wastewater treatment plant project. Additional information about the City’s capital assets can be found in note 6 to the financial statements. Long-term debt: As of December 31, 2009, the City of Kennewick had total outstanding external debt of $57,784,028 in its governmental and business-type activities. This entire amount represents debt backed with the full faith and credit of the City. The following table is a summary of the City of Kennewick’s outstanding debt for the years ended December 31, 2009 and 2008, respectively. The City of Kennewick’s total debt decreased by $613,651 (1.1 percent) during the year ended December 31, 2009. Activity within governmental activities during 2009 consisted only of repayment of the City’s outstanding general obligation bonds, notes, loans and capital leases payable. The City incurred $4.34 million in new debt within its business-type activities during the year, which consisted of proceeds from a state public works trust fund loan and a state revolving loan program fund passed through from the Environmental Protection Agency (EPA), both of which were used to fund the City’s ranney well collector 5 project. Prior to the issuance of this report in March of 2010, the City issued $13.665 million in limited tax general obligation bonds for projects in its Southridge area associated with the State of Washington’s Local Revitalization Financing (LRF) program. At that time, the City received an A+ rating on these bonds from Standard & Poor’s. The City’s previous underlying rating from Moody’s of A3 on its other outstanding limited tax general obligation debt and A2 on its outstanding unlimited tax general obligation debt still applies at this time. 2009 2008 2009 2008 2009 2008 General obligation bonds 19,470,000 $ 20,890,000 $ - $ - $ 19,470,000 $ 20,890,000 $ Notes and loans 6,135,474 7,182,630 32,046,292 30,143,634 38,181,766 37,326,264 Capital leases - - 132,262 181,415 132,262 181,415 25,605,474 $ 28,072,630 $ 32,178,554 $ 30,325,049 $ 57,784,028 $ 58,397,679 $ City of Kennewick Outstanding Debt As of December 31, Activities Activities Totals Governmental Business-type Washington State Auditor's Office 30 ---PAGE BREAK--- State statutes limit the amount of general obligation debt the City can issue to a percentage of the total assessed value of the taxable property of the City. The City is allowed to issue up to 1.5 percent of total assessed value for non-voted debt and 2.5 percent for voted debt. In addition, the City may issue up to 7.5 percent of assessed value for voted debt in excess of the 2.5 percent limit if it is for utilities, parks or open space purposes. As of December 31, 2009, the City had $48.62 million in non-voted capacity and $94.276 million in voted capacity. Additional information on the City of Kennewick’s long-term debt can be found in note 9 of the financial statements. Economic Factors and Next Year’s Budgets and Rates As mentioned previously, the City of Kennewick adopts a biennial budget. The close of the year ended December 31, 2009 marked the completion of the first year of the City’s 2009/2010 budget cycle. Like many cities located in the State of Washington and across the nation, the City of Kennewick is dealing with significant ongoing budgetary challenges within its operating budget. The impacts locally of a national recession, coupled with the ongoing impacts of citizen initiatives and unfunded mandates from both the federal and state governments, have all contributed to the City’s single biggest budgetary challenge, which are general fund revenues that fall short of meeting the service level expectations of our citizens. The financial results for 2009 reflect the impacts of these challenges on the City’s budget in all funds and reinforce the important role that growth revenues have on the City’s ability to continue to maintain its existing service levels. With the roughly $2.1 billion in one-time federal funding for Hanford resulting from the Economic Stimulus Bill still working its way through the local economy and consistency in Hanford’s ongoing annual budget, there is a solid basis for optimism as the City moves into the second year of the 2009/2010 biennium. However, many of the fundamental budgetary challenges that existed for the City prior to the national recession still remain and will have to be addressed. The following are key factors that may impact the City’s governmental activities in 2010 and for the remainder of the 2009/2010 biennium:  Although the City of Kennewick and the Tri-Cities as a whole has not been as severely affected by the national recession as other areas across the nation, the City is clearly not completely immune from the recession’s impacts based on the financial results for 2009. The local economy appears to be well positioned for the near future based on the continuation of consistent ongoing federal funding for Hanford in 2010 in conjunction with the additional one-time Economic Stimulus Bill funding for clean-up work at the site. However, it will be vital for the City to begin receiving the growth revenues associated with this infusion of federal funding in order to avoid having to make program reductions. In particular, trends in sales, utility and property tax receipts will continue to be critical due to the City’s dependence on these revenue sources, all of which are directly tied to the overall growth in our community.  In the fall of 2009, the City received notification that it had been awarded $500,000 per year for up to 25 years under the State of Washington’s Local Revitalization Financing (LRF) program for its Southridge revitalization area. The LRF program is funded through a sales tax credit by the State. In order to qualify for the $500,000 award, the City has to demonstrate that the state has received an increase in sales and property tax receipts in the prior calendar year equal to the award amount. The City is also required to issue bonds to pay for projects in the revitalization area and apply the state’s award toward the debt service on those bonds. The issuance of approximately $13.665 million in limited tax general obligation bonds was completed in March of 2010 for several key projects in the revitalization area and the City believes it will generate the necessary tax increments in 2010 to Washington State Auditor's Office 31 ---PAGE BREAK--- qualify for the state’s award in 2011. The success of this program is critical to the future development of the Southridge area and overall economic growth of Kennewick.  Washington has seen a wave of initiatives and anti-tax measures over the past several years including limitations on property taxes and the elimination of vehicle excise tax and license fees. Future initiatives involving further reductions in tax revenues are a distinct possibility and would have a significant impact on the City of Kennewick’s ability to continue providing its current level of service to citizens if they come to fruition. The following are some factors that may impact the City’s business-type activities in 2010 and for the remainder of the 2009/2010 biennium:  As mentioned earlier in this report, the City’s building safety business-type activity experienced a significant reduction in program (building permit) revenues during 2009 as the result of a 9.4 percent reduction in the value of building permits issued during the year. This decrease followed a 16 percent reduction in the number of building permits issued and a 30 percent reduction in the valuation of building permits in 2008. In particular, building permits issued for single family residential dwellings, new commercial building construction and commercial improvements have all experienced considerable reductions during this two year period. These trends reflect the impacts of the national recession on the local economy and specifically on the availability of credit for residential and commercial developers. City staff is cautiously optimistic that the infusion of economic stimulus funding into the Hanford site’s budget along with consistent federal funding of the site’s ongoing annual budget will result in an increase in both residential and commercial building activity within Kennewick. Trends in permit activity over the latter half of 2009 indicate that building activity is beginning to return to pre-recession levels and staff is already aware of several large projects that will occur in 2010 including the construction of a 168,000 square foot hospital complex in the City’s Southridge area. However, without a return to pre-recession levels of building activity, the building safety business-type activity will likely be required to make program reductions or will require a subsidy from the City’s general fund, which is already facing its own budget constraints. A copy of the City of Kennewick’s most recent budget document for the 2009/2010 biennium is available upon request and can also be accessed on the City’s web site at http://www.ci.kennewick.wa.us. Requests for Information This financial report is designed to provide a general overview of the City of Kennewick’s finances. Questions concerning any of the information provided in this report or request for additional financial information should be addressed to the office of the Support Services Executive Director, City of Kennewick, 210 W. 6th Avenue, PO Box 6108, Kennewick, WA 99336. Washington State Auditor's Office 32 ---PAGE BREAK--- Governmental Business-type Activities Activities 2009 2008 2009 2008 ASSETS Current assets: Equity in pooled cash & investments 14,176,915 $ 5,962,896 $ 20,139,811 $ 23,057,213 $ 1,786,201 $ 1,774,267 $ Receivables, net 8,611,764 1,279,896 9,891,660 9,383,098 319,030 170,813 Internal balances 7,795,917 (7,795,917) - - - - Inventories 145,238 315,979 461,217 466,554 33,487 - Prepaid items - 112,048 112,048 116,043 29,895 36,897 Restricted equity in pooled cash & investments - 567 567 105,979 - - Total current assets 30,729,834 (124,531) 30,605,303 33,128,887 2,168,613 1,981,977 Noncurrent assets: Restricted equity in pooled cash & investments 4,697,356 4,045,214 8,742,570 12,228,346 - - Investment in joint ventures 2,589,528 - 2,589,528 1,368,017 - - Capital assets: Land and construction in progress 78,853,172 9,774,285 88,627,457 94,417,632 - - Depreciable capital assets - net 100,963,907 139,022,302 239,986,209 224,219,978 14,486,254 14,939,607 Total noncurrent assets 187,103,963 152,841,801 339,945,764 332,233,973 14,486,254 14,939,607 Total assets 217,833,797 $ 152,717,270 $ 370,551,067 $ 365,362,860 $ 16,654,867 $ 16,921,584 $ LIABILITIES Current liabilities: Accounts payable and accrued items 1,728,772 $ 712,810 $ 2,441,582 $ 3,039,027 $ 174,824 $ 143,922 $ Unearned revenue - 257,856 257,856 379,619 132,185 47,529 Other current liabilities 83,315 13,500 96,815 75,650 - - Current portion of long-term obligations 3,960,738 3,036,170 6,996,908 6,862,147 - - Total current liabilities 5,772,825 4,020,336 9,793,161 10,356,443 307,009 191,451 Noncurrent liabilities: Net pension obligation 218,972 - 218,972 315,459 - - Net post employment benefit obligation 342,412 - 342,412 156,776 - - Noncurrent portion of long-term obligations 25,187,880 31,314,742 56,502,622 56,553,614 12,966,921 12,974,521 Total noncurrent liabilities 25,749,264 31,314,742 57,064,006 57,025,849 12,966,921 12,974,521 Total liabilities 31,522,089 35,335,078 66,857,167 67,382,292 13,273,930 13,165,972 NET ASSETS Invested in capital assets, net of related debt 156,258,231 117,072,647 273,330,878 262,317,029 1,656,254 2,109,607 Restricted for: Capital projects 845,622 929,758 1,775,380 11,860,685 - - Debt service 49,181 1,160,274 1,209,455 1,182,988 - - Grant programs 2,673,849 - 2,673,849 2,843,050 - - Other purposes 334,487 - 334,487 290,839 - - Unrestricted (deficit) 26,150,338 (1,780,487) 24,369,851 19,485,977 1,724,683 1,646,005 Total net assets 186,311,708 117,382,192 303,693,900 297,980,568 3,380,937 3,755,612 Total liabilities and net assets 217,833,797 $ 152,717,270 $ 370,551,067 $ 365,362,860 $ 16,654,867 $ 16,921,584 $ The accompanying notes are an integral part of this statement. Statement of Net Assets December 31, 2009 (with comparative totals for 2008) Totals Primary Government Component Unit Public Facilities District Washington State Auditor's Office 33 ---PAGE BREAK--- Operating Capital Charges for Grants and Grants and Governmental Business-type Functions/Programs Expenses Services Contributions Contributions Activities Activities 2009 2008 2009 2008 Primary government: Governmental activities: General government 7,493,615 $ 1,303,750 $ 102,807 $ 101,000 $ (5,986,058) $ - $ (5,986,058) $ (5,606,546) $ - $ - $ Public safety 23,853,761 1,944,114 1,412,800 79,107 (20,417,740) - (20,417,740) (21,205,218) - - Transportation 7,285,954 97,637 2,109,965 2,379,687 (2,698,665) - (2,698,665) 2,711,923 - - Physical environment 1,946,895 1,233,622 - 65,779 (647,494) - (647,494) (701,213) - - Economic environment 1,571,991 84,905 740,282 - (746,804) - (746,804) (715,196) - - Culture and recreation 5,294,988 641,830 277,261 - (4,375,897) - (4,375,897) (4,917,067) - - Interest on long-term debt 1,068,538 - - - (1,068,538) - (1,068,538) (1,048,369) - - Total governmental activities 48,515,742 5,305,858 4,643,115 2,625,573 (35,941,196) - (35,941,196) (31,481,686) - - Business-type activities: Water and Sewer 13,428,742 14,932,351 32,660 1,713,426 - 3,249,695 3,249,695 4,076,971 - - Medical Services 3,680,664 2,937,231 1,726 - - (741,707) (741,707) (957,173) - - Building Safety 1,006,417 817,705 - - - (188,712) (188,712) (207,853) - - Stormwater 564,626 317,457 - - - (247,169) (247,169) - Coliseum 3,192,733 2,291,497 - - - (901,236) (901,236) (937,807) - - Total business-type activities 21,873,182 21,296,241 34,386 1,713,426 - 1,170,871 1,170,871 1,974,138 - - Total primary government 70,388,924 $ 26,602,099 $ 4,677,501 $ 4,338,999 $ (35,941,196) $ 1,170,871 $ (34,770,325) $ (29,507,548) $ - $ - $ Component unit: Public Facilities District 2,357,324 973,270 92,612 - - - - - (1,291,442) (1,324,159) Total component unit 2,357,324 $ 973,270 $ 92,612 $ - $ - $ - $ - $ - $ (1,291,442) $ (1,324,159) $ General revenues: Property taxes 10,150,832 $ - $ 10,150,832 $ 9,741,527 $ - $ - $ Sales taxes 13,509,115 - 13,509,115 13,867,829 878,464 955,453 Utility taxes 11,656,614 - 11,656,614 9,975,148 - - Real estate excise tax 1,215,835 - 1,215,835 1,516,920 - - Privilege tax 570,306 - 570,306 551,689 - - Gambling excise tax 784,199 - 784,199 885,084 - - Lodging tax 1,031,013 - 1,031,013 1,096,392 - - Other taxes 475,568 - 475,568 489,969 - - Unrestricted investment earnings 579,127 336,505 915,632 1,730,167 38,303 44,796 Gain on sale of capital assets 174,543 - 174,543 - - - Transfers (12,715,211) 12,715,211 - - - - Total general revenues and transfers 27,431,941 13,051,716 40,483,657 39,854,725 916,767 1,000,249 Change in net assets (8,509,255) 14,222,587 5,713,332 10,347,177 (374,675) (323,910) Net assets - beginning 194,820,963 103,159,605 297,980,568 287,633,391 3,755,612 4,079,522 Net assets - ending 186,311,708 $ 117,382,192 $ 303,693,900 $ 297,980,568 $ 3,380,937 $ 3,755,612 $ The accompanying notes are an integral part of this statement. Totals Primary Government Component Unit Public Facilities District Statement of Activities For the Year Ended December 31, 2009 (with comparative totals for 2008) Program Revenues Net (Expense) Revenue and Changes in Net Assets Revenue and Changes in Net Assets Net (Expense) Washington State Auditor's Office 34 ---PAGE BREAK--- Balance Sheet Governmental Funds December 31, 2009 (with comparative totals for 2008) Other Community Capital Non-Major General Development Improvement Governmental Fund Fund Fund Funds 2009 2008 ASSETS Equity in pooled cash & investments 2,711,991 $ 22,976 $ 3,998,293 $ 4,769,731 $ 11,502,991 $ 11,316,737 $ Receivables (net of allowance for uncollectibles) 3,276,058 2,270,190 1,032,732 572,891 7,151,871 7,455,793 Due from other funds - - 5,053,345 645,567 5,698,912 5,490,710 Due from other governments 13,780 382,397 2,548 953,351 1,352,076 588,951 Restricted equity in pooled cash & investments - 49,892 2,181,387 897,564 3,128,843 5,324,859 Total assets 6,001,829 $ 2,725,455 $ 12,268,305 $ 7,839,104 $ 28,834,693 $ 30,177,050 $ LIABILITIES AND FUND BALANCES Liabilities: Accounts payable 944,514 $ 36,828 $ 306,671 $ 127,194 $ 1,415,207 $ 1,487,541 $ Due to other funds - - 240,000 645,567 885,567 320,000 Due to other governments 372 272 - 3,075 3,719 51,916 Deposits payable 83,315 - - - 83,315 58,950 Deferred revenue 3,078,761 2,570,423 1,029,949 454,808 7,133,941 7,413,975 Liabilities payable from restricted assets - - - - - 47,316 Total liabilities 4,106,962 2,607,523 1,576,620 1,230,644 9,521,749 9,379,698 Fund balances: Reserved for: Advances - - 5,053,345 - 5,053,345 5,490,709 Capital improvements - - 2,185,958 845,622 3,031,580 4,848,438 Grant programs - 103,426 - - 103,426 88,178 Unreserved, designated for retro personnel costs - - - - - 250,400 Unreserved, undesignated reported in: General fund 1,894,867 - - - 1,894,867 904,240 Special revenue funds - 14,506 - 4,011,121 4,025,627 3,653,341 Debt service funds - - - 49,181 49,181 70,030 Capital projects funds - - 3,452,382 1,702,536 5,154,918 5,492,016 Total fund balances 1,894,867 117,932 10,691,685 6,608,460 19,312,944 20,797,352 Total liabilities and fund balances 6,001,829 $ 2,725,455 $ 12,268,305 $ 7,839,104 $ 28,834,693 $ 30,177,050 $ The accompanying notes are an integral part of this statement. Total Governmental Funds Washington State Auditor's Office 35 ---PAGE BREAK--- Reconciliation of the Balance Sheet to the Statement of Net Assets Governmental Funds December 31, 2009 Total governmental fund balances 19,312,944 $ Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. 176,570,560 Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the funds. 7,133,941 Internal service funds are used by management to charge the costs of fleet management, central stores and risk management to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net assets. 12,983,042 Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds. (29,688,779) Net assets of governmental activities 186,311,708 $ The accompanying notes are an intergral part of this statement. Washington State Auditor's Office 36 ---PAGE BREAK--- Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2009 (with comparative totals for 2008) Other Community Capital Non-Major General Development Improvement Governmental Fund Fund Fund Funds 2009 2008 REVENUES Taxes: Property 9,154,592 $ - $ - $ 960,133 $ 10,114,725 $ 9,658,201 $ Sales 9,605,968 - 3,835,902 - 13,441,870 13,946,265 Utility 8,887,234 - - 2,690,864 11,578,098 9,937,835 Real estate excise tax - - - 1,215,835 1,215,835 1,516,920 Gambling tax 784,199 - - - 784,199 885,084 Lodging tax - - - 1,064,121 1,064,121 709,095 Other 474,346 - - 539 474,885 846,544 Licenses and permits 494,921 - - - 494,921 487,225 Intergovernmental 2,179,081 904,731 144,886 3,496,683 6,725,381 5,852,799 Charges for services 4,303,530 - 36,430 456,669 4,796,629 4,724,909 Fines and forfeitures 1,361,754 - - - 1,361,754 1,356,092 Investment earnings 131,431 1,500 208,121 119,390 460,442 881,208 Rents and leases 99,481 - 8,448 9,873 117,802 106,629 Miscellaneous revenues 202,223 - 59,546 61,489 323,258 311,930 Total revenues 37,678,760 906,231 4,293,333 10,075,596 52,953,920 51,220,736 EXPENDITURES Current : General government 7,843,205 - 498,907 301,735 8,643,847 8,089,139 Public safety 23,148,688 - 719 19,817 23,169,224 22,646,631 Transportation - - 522,221 2,204,066 2,726,287 3,568,348 Physical environment 1,896,274 - - - 1,896,274 1,692,066 Economic environment 814,412 754,540 - 9,647 1,578,599 1,580,337 Culture and recreation 3,868,873 - 184 636,602 4,505,659 4,806,902 Debt service: Principal - - 1,047,157 1,420,000 2,467,157 2,455,834 Interest/issue costs - - 195,326 882,544 1,077,870 1,052,763 Capital outlay: General government 80,376 - 91,174 - 171,550 586,230 Public safety 38,047 - 1,507,419 - 1,545,466 4,135,972 Transportation - - 832,307 2,736,080 3,568,387 4,211,008 Economic environment - 138,178 - - 138,178 7,362 Culture and recreation - - - 916,799 916,799 811,683 Total expenditures 37,689,875 892,718 4,695,414 9,127,290 52,405,297 55,644,275 Excess (deficiency) of revenues over (under) expenditures (11,115) 13,513 (402,081) 948,306 548,623 (4,423,539) OTHER FINANCING SOURCES (USES) Transfers in 2,928,624 - 1,542,176 3,404,781 7,875,581 6,945,400 Transfers out (2,177,282) (12,700) (3,178,375) (4,924,332) (10,292,689) (9,383,179) Debt issuance and capital leases - - - - - 4,119 Disposition of capital assets - - 384,077 - 384,077 - Total other financing sources (uses) 751,342 (12,700) (1,252,122) (1,519,551) (2,033,031) (2,433,660) Net change in fund balances 740,227 813 (1,654,203) (571,245) (1,484,408) (6,857,199) Fund balances - beginning 1,154,640 117,119 12,345,888 7,179,705 20,797,352 27,654,551 Fund balances - ending 1,894,867 $ 117,932 $ 10,691,685 $ 6,608,460 $ 19,312,944 $ 20,797,352 $ The accompanying notes are an integral part of this statement. Governmental Funds Total Washington State Auditor's Office 37 ---PAGE BREAK--- Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances - total governmental funds (1,484,408) $ 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 and reported as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the current period. (801,064) The stormwater drainage infrastructure assets of $11,484,434 were transferred from governmental funds into the newly created Stormwater Utility Fund during 2009. Assets 14,942,270 $ Depreciation (3,659,944) Construction Work in Progress 202,108 (11,484,434) (12,285,498) The issuance of long-term debt bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amount are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. 2,467,157 In the statement of activities, developer contributions are reported as income for the City based on the fair market value of these assets. 742,907 The statement of activities shows increases and (decreases) in joint venture notes. (280,038) Some revenues reported in the statement of activities do not provide current financial resources and, therefore, are not reported as revenues in governmental funds. 1,221,511 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. (356,732) Internal service funds are used by management to charge the costs of certain activities to individual funds. The net revenue of most of these activities are reported with governmental activities. 1,465,846 Change in net assets of governmental activities (8,509,255) $ The accompanying notes are an integral part of this statement. December 31, 2009 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds To the Statement of Activities Washington State Auditor's Office 38 ---PAGE BREAK--- Budget and Actual Original Final 2009 Original Final 2008 2007 REVENUES Taxes: Property 18,121,793 $ 18,871,793 $ 9,154,592 $ (9,717,201) $ 15,383,637 $ 16,095,699 $ 8,413,425 $ 7,742,989 $ 60,715 $ Sales 21,518,500 20,768,500 9,605,968 (11,162,532) 18,554,474 19,142,574 9,725,428 9,313,938 (103,208) Utility 16,018,500 16,070,750 8,887,234 (7,183,516) 15,645,471 16,040,471 7,716,794 7,471,060 (852,617) Gambling 2,228,000 2,228,000 784,199 (1,443,801) 1,333,401 1,823,056 885,084 1,009,661 71,689 Other 502,000 1,017,100 474,346 (542,754) 814,896 520,241 235,278 219,004 (65,959) Licenses and permits 1,156,000 1,156,000 494,921 (661,079) 1,130,715 1,130,715 487,225 516,951 (126,539) Intergovernmental 3,414,500 3,825,761 2,179,081 (1,646,680) 2,988,406 3,387,739 1,694,908 1,681,892 (10,939) Charges for services 8,211,600 8,211,600 4,303,530 (3,908,070) 8,045,477 8,462,947 4,285,889 4,220,141 43,083 Fines and forfeitures 3,059,000 3,059,000 1,361,754 (1,697,246) 2,296,134 2,711,134 1,356,092 1,359,808 4,766 Investment earnings 710,000 710,000 131,431 (578,569) 594,048 594,048 277,400 322,029 5,381 Rents and leases 183,200 183,200 99,481 (83,719) 191,793 191,793 89,155 84,197 (18,441) Miscellaneous revenues 475,000 488,150 202,223 (285,927) 202,788 437,728 230,044 180,747 (26,937) Total revenues 75,598,093 76,589,854 37,678,760 (38,911,094) 67,181,240 70,538,145 35,396,722 34,122,417 (1,019,006) EXPENDITURES Current : General government 16,032,182 16,075,943 7,843,205 (8,232,738) 13,367,066 14,081,047 7,339,845 6,590,021 (151,181) Public safety 46,732,359 47,347,135 23,148,688 (24,198,447) 40,833,005 43,433,400 22,046,341 21,161,659 (225,400) Physical environment 4,058,666 4,034,904 1,896,274 (2,138,630) 3,512,842 3,654,316 1,692,066 1,757,805 (204,445) Economic environment 1,393,259 1,515,160 814,412 (700,748) 1,515,895 1,545,177 737,618 737,592 (69,967) Culture and recreation 8,376,721 8,376,721 3,868,873 (4,507,848) 8,343,389 8,407,478 4,016,705 3,850,616 (540,157) Debt service: Principal 478,512 - - - 401,500 401,500 136,130 265,370 - Interest/issue costs 46,488 46,488 - (46,488) 13,945 13,945 2,351 11,594 - Capital outlay: General government 32,430 81,430 80,376 (1,054) 352,979 239,339 16,215 42,334 (180,790) Public safety 30,000 40,830 38,047 (2,783) - 5,805 - 1,113 (4,692) Physical environment - - - - - - - - - Total expenditures 77,180,617 77,518,611 37,689,875 (39,828,736) 68,340,621 71,782,007 35,987,271 34,418,104 (1,376,632) Excess (deficiency) of revenues over (under) expenditures (1,582,524) (928,757) (11,115) 917,642 (1,159,381) (1,243,862) (590,549) (295,687) 357,626 OTHER FINANCING SOURCES (USES) Transfers in 5,660,075 5,290,075 2,928,624 (2,361,451) 4,996,037 5,091,870 2,406,041 2,347,094 (338,735) Transfers out (3,940,100) (5,008,082) (2,177,282) 2,830,800 (3,745,855) (3,641,762) (2,386,892) (2,138,611) (883,741) Total other financing sources and uses 1,719,975 281,993 751,342 469,349 1,250,182 1,450,108 19,149 208,483 (1,222,476) Net change in fund balances 137,451 (646,764) 740,227 1,386,991 90,801 206,246 (571,400) (87,204) (864,850) Fund balances - beginning 1,995,300 1,154,640 1,154,640 - 1,838,198 1,813,244 1,726,040 1,813,244 - Fund balances - ending 2,132,751 $ 507,876 $ 1,894,867 $ 1,386,991 $ 1,928,999 $ 2,019,490 $ 1,154,640 $ 1,726,040 $ (864,850) $ The accompanying notes are an integral part of this statement. General Fund For the Years Ended December 31, 2009, 2008 and 2007 Variance with Final Budget - Over (Under) Statement of Revenues, Expenditures, and Changes in Fund Balances 2009/2010 Biennial Budgeted Amounts Actuals 2007/2008 Biennial Budgeted Amounts Actuals Variance with Final Budget - Over (Under) Washington State Auditor's Office 39 ---PAGE BREAK--- Budget and Actual Original Final 2009 Original Final 2008 2007 REVENUES Intergovernmental 1,470,000 $ 2,466,285 $ 904,731 $ (1,561,554) $ 1,611,480 $ 2,324,497 $ 826,023 $ 1,050,480 $ (447,994) $ Investment earnings - - 1,500 1,500 - - 2,190 2,442 4,632 Total revenues 1,470,000 2,466,285 906,231 (1,560,054) 1,611,480 2,324,497 828,213 1,052,922 (443,362) EXPENDITURES Current: Economic environment 1,479,666 1,678,142 754,540 (923,602) 1,451,208 959,753 465,135 295,048 (199,570) Capital outlay: Economic environment - 817,084 138,178 (678,906) - 887,734 372,674 271,937 (243,123) Total expenditures 1,479,666 2,495,226 892,718 (1,602,508) 1,451,208 1,847,487 837,809 566,985 (442,693) Excess (deficiency) of revenues over (under) expenditures (9,666) (28,941) 13,513 42,454 160,272 477,010 (9,596) 485,937 (669) OTHER FINANCING SOURCES (USES) Transfers in - - - - - - 9,862 - 9,862 Transfers out - - (12,700) (12,700) (200,000) (562,076) - (536,619) 25,457 Total other financing sources and uses - - (12,700) (12,700) (200,000) (562,076) 9,862 (536,619) 25,457 Net change in fund balances (9,666) (28,941) 813 29,754 (39,728) (85,066) 266 (50,682) 24,788 Fund balances - beginning 82,469 117,119 117,119 - 80,044 167,535 116,853 167,535 116,853 Fund balances - ending 72,803 $ 88,178 $ 117,932 $ 29,754 $ 40,316 $ 82,469 $ 117,119 $ 116,853 $ 141,641 $ The accompanying notes are an integral part of this statement. Variance with Final Budget - Over (Under) Actuals 2007/2008 Biennial Budgeted Amounts Community Development Fund For the Years Ended December 31, 2009, 2008 and 2007 Variance with Final Budget - Over (Under) Statement of Revenues, Expenditures, and Changes in Fund Balances Actuals 2009/2010 Biennial Budgeted Amounts Washington State Auditor's Office 40 ---PAGE BREAK--- Proprietary Funds December 31, 2009 (with comparative totals for 2008) Water and Sewer Coliseum Stormwater Other Non-Major Enterprise Fund Fund Fund Funds 2009 2008 2009 2008 ASSETS Current assets: Equity in pooled cash & investments 5,268,152 $ 562,456 $ 19,880 $ 112,975 $ 5,963,463 $ 8,527,276 $ 3,907,101 $ 3,213,200 $ Receivables, net 709,257 112,727 31,745 422,236 1,275,965 1,284,320 107,817 50,160 Due from other funds 240,000 - - - 240,000 320,000 - - Due from other governments 3,931 - - - 3,931 - - 3,874 Inventories 274,483 41,496 - - 315,979 335,066 145,238 131,488 Prepaid items 38,618 73,430 - - 112,048 116,043 - - Restricted equity in pooled cash & investments 567 - - - 567 58,663 - - Total current assets 6,535,008 790,109 51,625 535,211 7,911,953 10,641,368 4,160,156 3,398,722 Noncurrent assets: Restricted equity in pooled cash & investments 4,044,647 - - - 4,044,647 6,090,339 335,336 860,464 Capital assets: Land 1,734,272 1,282,641 - - 3,016,913 2,987,734 - - Buildings and improvements 165,137,130 10,831,465 14,942,270 - 190,910,865 166,323,529 318,843 318,843 Equipment 7,142,860 2,966,865 - 224,842 10,334,567 9,992,894 12,535,881 12,485,246 Construction in progress 6,545,309 9,955 202,108 - 6,757,372 3,017,464 - - Less accumulated depreciation (52,250,957) (5,965,279) (3,834,270) (172,624) (62,223,130) (54,585,979) (7,018,677) (7,425,743) Total noncurrent assets 132,353,261 9,125,647 11,310,108 52,218 152,841,234 133,825,981 6,171,383 6,238,810 Total Assets 138,888,269 $ 9,915,756 $ 11,361,733 $ 587,429 $ 160,753,187 $ 144,467,349 $ 10,331,539 $ 9,637,532 $ LIABILITIES Current liabilities: Accounts payable 116,299 $ 479,678 $ 10,730 $ 81,708 $ 688,415 $ 606,548 $ 229,776 $ 728,850 $ Due to other funds - 5,053,342 - - 5,053,342 5,490,710 - - Accrued interest payable - 24,395 - - 24,395 27,454 - - Compensated absences 173,651 - 11,629 152,175 337,455 279,868 34,549 43,765 Bonds, notes, and loans payable 2,647,463 - - 51,252 2,698,715 2,406,798 - - Deposits payable 13,500 - - - 13,500 16,700 - - Other current liabilities - 257,856 - - 257,856 379,619 - - Total current liabilities 2,950,913 5,815,271 22,359 285,135 9,073,678 9,207,697 264,325 772,615 Noncurrent liabilities: Compensated absences 147,405 - 6,914 180,583 334,902 298,511 66,744 31,002 Due to other governments 29,398,830 - - 81,010 29,479,840 27,918,251 - - Other noncurrent liabilities 1,500,000 - - - 1,500,000 1,200,000 - - Total noncurrent liabilities 31,046,235 - 6,914 261,593 31,314,742 29,416,762 66,744 31,002 Total Liabilities 33,997,148 5,815,271 29,273 546,728 40,388,420 38,624,459 331,069 803,617 NET ASSETS Invested in capital assets, net of related debt 96,716,936 9,125,647 11,310,108 (80,044) 117,072,647 97,410,593 5,836,047 5,378,346 Restricted for: Capital projects 929,758 - - - 929,758 3,743,627 - - Debt service 1,160,274 - - - 1,160,274 1,160,274 - - Landfill settlement - - - - - - 334,487 355,502 Unrestricted 6,084,153 (5,025,162) 22,352 120,745 1,202,088 3,528,396 3,829,936 3,100,067 Total Net Assets 104,891,121 4,100,485 11,332,460 40,701 120,364,767 105,842,890 10,000,470 8,833,915 Total Liabilities and Net Assets 138,888,269 $ 9,915,756 $ 11,361,733 $ 587,429 $ 160,753,187 $ 144,467,349 $ 10,331,539 $ 9,637,532 $ The accompanying notes are an integral part of this statement. Governmental Activities Statement of Net Assets Enterprise Funds Enterprise Funds Internal Service Funds Total Enterprise Funds Business-Type Activities Business-Type Activities Washington State Auditor's Office 41 ---PAGE BREAK--- Amounts reported for business-type activities in the statement of net assets are different because: Net assets - total proprietary funds 120,364,767 $ The accumulated net revenue of certain activities of internal service funds is reported with governmental activities. (2,982,575) Net assets of business-type activities 117,382,192 $ The accompanying notes are an integral part of this statement. December 31, 2009 Reconciliation of the Statement of Net Assets - Proprietary Funds To the Statement of Net Assets - Business-Type Activities Washington State Auditor's Office 42 ---PAGE BREAK--- Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds For the Year Ended December 31, 2009 (with comparative totals for 2008) Water and Sewer Coliseum Stormwater Other Non-Major Enterprise Fund Fund Fund Funds 2009 2008 2009 2008 Operating revenues: Charges for services 14,932,351 $ 2,291,497 $ 317,457 $ 3,754,911 $ 21,296,216 $ 19,916,949 $ 4,062,442 $ 7,657,121 $ Total operating revenues 14,932,351 2,291,497 317,457 3,754,911 21,296,216 19,916,949 4,062,442 7,657,121 Operating expenses: Maintenance and operations 5,534,938 2,623,023 387,125 3,902,572 12,447,658 11,314,622 4,078,107 8,913,771 Administrative and general 2,142,632 - - 586,388 2,729,020 2,800,014 11,650 11,000 Taxes 1,519,233 54,620 3,175 - 1,577,028 1,529,691 - - Depreciation 3,604,886 462,217 174,326 13,411 4,254,840 3,942,508 763,655 818,258 Total operating expenses 12,801,689 3,139,860 564,626 4,502,371 21,008,546 19,586,835 4,853,412 9,743,029 Operating income (loss) 2,130,662 (848,363) (247,169) (747,460) 287,670 330,114 (790,970) (2,085,908) Nonoperating revenues (expenses): Intergovernmental 32,660 - - 1,726 34,386 1,644 625,799 611,898 Investment earnings 327,421 - 207 8,881 336,509 594,418 93,682 183,204 Interest expense (505,326) (52,873) - (7,151) (565,350) (588,112) - - Miscellaneous nonoperating revenue - - - 25 25 - - - Gain (loss) on disposition of assets - - - - - - 23,878 (77,846) Total nonoperating revenue (expenses) (145,245) (52,873) 207 3,481 (194,430) 7,950 743,359 717,256 Income (loss) before contributions and transfers 1,985,417 (901,236) (246,962) (743,979) 93,240 338,064 (47,611) (1,368,652) Capital contributions 1,713,426 - 11,484,435 - 13,197,861 2,808,794 27,832 - Transfers in - 1,507,489 100,000 467,000 2,074,489 2,336,036 1,190,888 268,501 Transfers out (760,893) - (5,013) (77,807) (843,713) (131,876) (4,554) (34,884) Change in net assets 2,937,950 606,253 11,332,460 (354,786) 14,521,877 5,351,018 1,166,555 (1,135,035) Total net assets - beginning 101,953,171 3,494,232 - 395,487 105,842,890 100,491,872 8,833,915 9,968,950 Total net assets - ending 104,891,121 $ 4,100,485 $ 11,332,460 $ 40,701 $ 120,364,767 $ 105,842,890 $ 10,000,470 $ 8,833,915 $ The accompanying notes are an integral part of this statement. Total Internal Service Governmental Activities Total Enterprise Funds Business-type Activities- Enterprise Funds Business-type Activities- Enterprise Funds Washington State Auditor's Office 43 ---PAGE BREAK--- Amounts reported for business-type activities in the statement of activities are different because: Net change in net assets - total proprietary funds 14,521,877 $ The current year net revenue of certain activities of internal service funds is reported with governmental activities. (299,290) Change in net assets of business-type activities 14,222,587 $ The accompanying notes are an integral part of this statement. December 31, 2009 Reconciliation of the Statement of Revenues, Expenses, and Changes in Fund Net Assets of Proprietary Funds To the Statement of Activities - Business-Type Activities Washington State Auditor's Office 44 ---PAGE BREAK--- Statement of Cash Flows Proprietary Funds For the Year Ended December 31, 2009 (with comparative totals for 2008) Water and Sewer Coliseum Stormwater Other Non- Major Enterprise Fund Fund Fund Funds 2009 2008 2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 14,324,256 $ 2,244,760 $ 285,754 $ 3,696,832 $ 20,551,602 $ 19,523,445 $ 3,980,846 $ 7,963,571 $ Other operating revenue 574,884 - - - 574,884 720,383 11,188 4,023 Payments to suppliers (4,450,923) (1,498,986) (160,875) (1,100,732) (7,211,516) (7,585,306) (3,754,542) (8,263,964) Payments to employees (3,381,330) (1,124,583) (196,977) (3,345,496) (8,048,386) (7,023,278) (817,645) (539,524) Internal activity - payments to other funds (1,004,461) - (3,174) - (1,007,635) (983,740) - - Net cash provided by (used in) operating activities 6,062,426 (378,809) (75,272) (749,396) 4,858,949 4,651,504 (580,153) (835,894) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Advances to other fund 80,000 - - - 80,000 80,000 - - Operating subsidies and transfers from other fund - 1,507,489 100,000 467,000 2,074,489 2,336,036 636,500 40,116 Operating subsidies and transfers to other fund (359,495) - (5,013) (77,807) (442,315) - (4,554) - Net cash provided by (used in) noncapital financing activities (279,495) 1,507,489 94,987 389,193 1,712,174 2,416,036 631,946 40,116 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital contributions 1,713,426 - - - 1,713,426 2,808,794 - - Capital replacement charges - - - - - - 625,799 805,401 Proceeds from capital debt 4,337,922 - - - 4,337,922 1,100,000 - - Purchases of capital assets (13,227,088) (604,265) - - (13,831,353) (8,034,427) (1,297,323) (1,881,836) Principal paid on capital debt (2,435,263) (437,368) - (49,153) (2,921,784) (2,898,042) - - Interest paid on capital debt (505,327) (55,932) - (7,151) (568,410) (592,799) - - Proceeds from sale of equipment - - - - - - 127,680 18,829 Capital grant 32,660 - - 1,726 34,386 1,644 - - Transfer for capital purposes (401,398) - - - (401,398) (131,875) 554,388 - Net cash provided by (used in) capital and related financing activities (10,485,068) (1,097,565) - (54,578) (11,637,211) (7,746,705) 10,544 (1,057,606) CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends 386,668 - 165 11,654 398,487 611,001 106,436 197,602 Net cash provided by investing activities 386,668 - 165 11,654 398,487 611,001 106,436 197,602 Net increase (decrease) in pooled cash and investments (4,315,469) 31,115 19,880 (403,127) (4,667,601) (68,164) 168,773 (1,655,782) Balance - beginning of the year 13,628,835 531,341 - 516,102 14,676,278 14,744,442 4,073,664 5,729,446 Balance - end of the year 9,313,366 $ 562,456 $ 19,880 $ 112,975 $ 10,008,677 $ 14,676,278 $ 4,242,437 $ 4,073,664 $ Reconciliation of operating income (loss) to net cash provided by (used in) operating activities: Operating income (loss) 2,130,662 $ (848,363) $ (247,169) $ (747,460) $ 287,670 $ 330,114 $ (790,970) $ (2,085,908) $ Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation expense 3,604,886 462,217 174,326 13,411 4,254,840 3,942,508 763,655 818,258 Change in uncollectible accounts 14,871 - 503 - 15,374 (118,912) - - Change in assets and liabilities: Receivables, net (44,151) 65,469 (32,205) (58,078) (68,965) 256,053 (70,410) 310,472 Inventories 54,666 (35,579) - - 19,087 (60,976) (13,750) 990 Prepaid expenses 326 3,669 - - 3,995 8,377 - - Due from other government's (3,931) - - - (3,931) 47,980 - - Accounts and other payables (38,314) 85,984 10,730 10,707 69,107 (182,363) (499,076) 120,981 Unearned revenue 300,000 (112,206) - - 187,794 444,267 - - Accrued expenses 43,411 - 18,543 32,024 93,978 (15,544) 30,398 (687) Net cash provided by (used in) operating activities 6,062,426 $ (378,809) $ (75,272) $ (749,396) $ 4,858,949 $ 4,651,504 $ (580,153) $ (835,894) $ Noncash capital activities/developer contributions: 1,713,426 $ - - $ - 1,713,426 $ 2,808,794 $ 27,832 $ - Noncash capital activities/transfer assets from Govt'l Fund: - $ - 11,484,435 $ - 11,484,435 $ The accompanying notes are an integral part of this statement. Totals Totals Business-type Activities - Enterprise Funds Business-type Activities Enterprise Funds Governmental Activities Internal Service Funds Washington State Auditor's Office 45 ---PAGE BREAK--- 2009 2008 2009 2008 ASSETS Equity in pooled cash & investments 658,145 $ 407,950 $ 1,105,478 $ 909,428 $ Receivables 47,028 - 978 1,798 Due from other governments - - 100,456 - Total assets 705,173 $ 407,950 $ 1,206,912 $ 911,226 $ LIABILITIES Accounts payable 3,601 $ 3,613 $ 146,777 $ 117,128 $ Due to other governments - - 1,046,758 794,098 Deferred revenue - - 13,377 - Total liabilities 3,601 3,613 1,206,912 911,226 NET ASSETS Held in trust for pension benefits and other purposes 701,572 $ 404,337 $ - $ - $ The accompanying notes are an integral part of this statement. Statement of Fiduciary Net Assets Trust Funds Agency Funds December 31, 2009 Fiduciary Funds Washington State Auditor's Office 46 ---PAGE BREAK--- 2009 2008 ADDITIONS Contributions: Employer 1,141,737 $ 596,419 $ Total contributions 1,141,737 596,419 Investment earnings: Interest 13,985 10,242 Total investment earnings 13,985 10,242 Total additions 1,155,722 606,661 DEDUCTIONS Benefits 858,465 528,342 Administrative expenses 22 12,087 Total deductions 858,487 540,429 Change in net assets 297,235 66,232 Net assets - beginning 404,337 338,105 Net assets - ending 701,572 $ 404,337 $ The accompanying notes are an integral part of this statement. Trust Fund Statement of Changes in Fiduciary Net Assets Fiduciary Funds For the Year Ended December 31, 2009 (with comparative totals for 2008) Washington State Auditor's Office 47 ---PAGE BREAK--- City of Kennewick, Washington NOTES TO THE FINANCIAL STATEMENTS December 31, 2009 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Kennewick have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described below: A. The Reporting Entity The City of Kennewick was incorporated on February 5, 1904 and operates under the laws of the State of Washington applicable to a Council-Manager form of government. As required by generally accepted accounting principles, the financial statements present the City of Kennewick as a primary government and its component units, entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the government’s operations. Each discretely presented component unit is reported in a separate column in the government-wide financial statements (see note below for description) to emphasize that it is legally separate from the government. The City's primary government major operations include police and fire protection including emergency medical response, a water and sewer system, a storm drainage system, parks and recreation, street construction and maintenance, planning and zoning, and general administrative functions. The City has no blended component units. The City’s financial statements also include the financial activity of the City of Kennewick Foundation, a legally separate, tax exempt nonprofit corporation that was created solely for the purpose of providing a legal mechanism for the City to receive a gift from a private citizen of approximately 8.18 acres of land including buildings and other facilities situated on the land. The City of Kennewick Foundation was established for the exclusive benefit of the City of Kennewick and therefore meets the criteria established for blending its financial activity with that of a primary government. The Kennewick Public Facilities District (District) was formed in December 2000, with a primary mission to build and operate a regional convention center as allowed by Washington state statute. The Public Facilities District is included in the City’s reporting entity as a discretely presented component unit because of the financial accountability relationship. The City appoints the Public Facilities District five-member board and has the ability to impose its will on the District. The District and the City entered into a lease under which the City provides the land on which the Three Rivers Convention Center is located. The lease has an initial term of fifty years, through April 15, 2053, with renewal options thereafter. The City is waiving rent through April 15, 2026, as an in- kind contribution. During this time, the rent will be valued at 10% of the fair market value of the leasehold real estate as determined by the City, subject to review every five years. Beginning April 15, 2026, the rent will change to $1.00 per year. In addition to the payment of nominal rent, the District will be responsible for all costs of its maintenance, utilities, insurance and operation of the Convention Center. Washington State Auditor's Office 48 ---PAGE BREAK--- City of Kennewick, Washington The District and the City of Kennewick entered into an Annual Contribution Agreement in which the City agreed to issue $3,995,000 in construction bonds and to provide annual financial support to the District. Until the year 2027, the City will pay the District an amount equal to $725,000 less (ii) the aggregate debt service payments on the City bonds during a calendar year, and less (iii) the Annual Credit. The Annual Credit is defined as the lesser of $600,000 and (ii) the sum of amounts received by the District from the Pasco Public Facility District that are in excess of $150,000 annually. During 2027, the City’s payments will be limited to the scheduled debt service on the District’s bonds, reduced by amounts received by the District from the Benton Public Facility District and Pasco Public Facility District. The City of Kennewick has a contingent payment obligation relating to $12,830,000 in bonds issued by the District for construction of the facility. The District’s first principal payment will be in 2010 and the final maturity of these bonds will occur in 2027. If the District has insufficient funds to make a required debt service payment, the City will make a loan to the District for that purpose. In the event the District lacks sufficient non-voted debt capacity to incur a loan, the City will make the debt service payment and receive a proportionate ownership interest in the facility. The component unit columns in the financial statements include the financial data of the Kennewick Public Facilities District only; therefore segregation of this information separate from the face of the financial statements is not necessary. Complete separate financial statements for the Kennewick Public Facilities District may be obtained at the Three Rivers Convention Center, 7016 W. Grandridge Blvd., Kennewick, Washington. B. Government- Wide and Fund Financial Statements The government-wide financial statements the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Our policy is 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 of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Washington State Auditor's Office 49 ---PAGE BREAK--- City of Kennewick, Washington C. Measurement Focus and Basis of Accounting 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. Fiduciary funds account for resources legally held in trust or agency capacity for others and which therefore cannot be used to support the government’s own programs. Trust funds employ the same economic resource measurement focus and accrual basis of accounting as proprietary funds. Agency funds report only assets and liabilities and do not have a measurement focus. They use the accrual basis of accounting to recognize receivables and payables. Governmental fund financial statements are reported using the current financial resources measurement focus and 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, revenues are considered to be available if they are collected within 60 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. Property taxes, 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. All other revenue items are considered to be measurable and available only when cash is received. The City reports the following major governmental funds:  General Fund – The government’s primary operating fund. It accounts for all financial resources of the general government not accounted for in another fund.  Special Revenue – Community Development Fund – The fund that accounts for proceeds of specific revenue sources (other than those for major capital projects) that are restricted legally to expenditures for specified purposes of community development.  Capital Projects – Capital Improvement Fund – The fund that accounts for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds and trust funds). Washington State Auditor's Office 50 ---PAGE BREAK--- City of Kennewick, Washington The City reports the following major proprietary funds:  Water and Sewer Fund – The water and sewer fund operates the water distribution system, the sewer treatment plant, sewage pumping stations and collection systems. Proprietary funds account for operations that are financed and operated in a manner similar to private business enterprises. The intent of the City is that the cost (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges.  Coliseum Fund – The coliseum fund accounts for activities of the government’s coliseum operations.  Stormwater Utility Fund – The stormwater utility fund provides and maintains storm drainage systems throughout the City. Additionally, the City reports the following fund types:  Internal Service Funds – Account for equipment rental, central stores and risk management functions.  Fiduciary Trust Funds – Account for resources legally held in trust or agency capacity for others and which therefore cannot be used to support the government’s own programs. The fiduciary fund category includes two trust funds for 1) firemen’s pension and 2) OPEB and four agency trust funds for 1) payroll clearing fund 2) bi- county police information fund 3) emergency medical services fund and 4) metro drug task force fund. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. As a general rule, the effect of the interfund activity has been eliminated for the government-wide financial statements. Exceptions to this general rule are actual costs and receipts that are not equivalent to overhead (e.g. insurance settlements, claim recoveries, miscellaneous revenues). 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 nonoperating 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 enterprise funds are charges to customers for utility, ambulance, storm water, and inspection services and coliseum sales and services. The principal operating revenues of the internal service funds are charges to customers for supply sales, copier services, fleet management and insurance. 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 this definition are reported as non-operating revenues and Washington State Auditor's Office 51 ---PAGE BREAK--- City of Kennewick, Washington expenses. D. Assets, Liabilities and Equities Equity in Pooled Cash and Investments – The City follows the practice of pooling cash and investments of individual funds for investment purposes. Each fund’s portion of total cash and investments is summarized by fund type in the combined balance sheet as equity in pooled cash and investments. Cash with fiscal agent is disclosed separately on the balance sheet. Cash and Cash Equivalents - It is the City's policy to invest all temporary cash surpluses. At December 31, 2009, the treasurer was holding $13,657,947 in cash on deposit with financial institutions and the State Treasurer’s Investment Pool. The State Investment Pool is considered a cash equivalent. The interest on these balances is prorated to the various funds based on the average balance for each fund. For purposes of the Statement of Cash Flows, the City considers all highly liquid investments (including restricted assets) with a maturity date of three months or less when purchased to be cash equivalents. The City's deposits are entirely covered by federal depository insurance (FDIC) or by collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commission Receivables - Taxes receivable consists of property, utility and real estate excise taxes. Customer accounts receivable consists of amounts owed from private individuals or organizations for goods and services. Special assessments receivable consists of assessments that are recorded when levied and are liens against the property benefited. There were no special assessment receivables on December 31, 2009. Accrued interest receivable consists of amounts earned on investments, notes, and contracts at year-end. Amounts Due to and from Other Funds and Governments, Interfund Loans and Advances Receivable – Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “interfund loans receivable/payable” or “advances to/from other funds.” All other outstanding balances between funds are reported as “due to/from other funds.” Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances.” A separate schedule of interfund loans receivable and payable is furnished in Note 14. Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. Inventories – There are currently no inventories in governmental funds. Inventories in proprietary funds are valued by the FIFO method (which approximates the market value). Restricted Assets and Liabilities – These accounts contain resources for construction and debt service in enterprise funds. Specific debt service reserve requirements are described in Note 9. The restricted assets of the enterprise funds are composed of pooled cash and investments of $1,160,274 in Debt Service and $929,758 Capital Projects. Washington State Auditor's Office 52 ---PAGE BREAK--- City of Kennewick, Washington Capital Assets - All capital assets acquired or constructed for general governmental purposes are reported as expenditures in the fund that finances the asset acquisition and capitalized at cost in the government-wide statements. The City's Capital Asset Policy establishes a capitalization limit of $5,000. Donated capital assets are reported at estimated fair market value at the time received. Public domain (infrastructure) general governmental capital assets such as roads, bridges, curbs and gutters, streets and sidewalks are capitalized and depreciated. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Property and equipment acquired by Proprietary and Pension Trust Funds are reported in those funds at cost or at estimated fair market value at time of donation. Construction costs that are reimbursed by users or are financed directly or indirectly by developers and property owners are capitalized and recognized as contributed capital revenue in the Enterprise Fund. Depreciation - Depreciation is provided on capital assets. Depreciation is charged to operations of the Primary Government and Component Unit over the capital assets' estimated useful lives using the straight-line method. The following lives are used: Buildings and Improvements 25 - 50 Years Source of Supply Pumping, Treatment, and Distribution Mains and Reservoirs 13 - 60 Years Lift Stations, Interceptors and Laterals 20 - 75 Years General Plant 10 - 40 Years Vehicles and Motorized Equipment 2 - 20 Years Compensated Absences - Eligible employees can earn vacation leave and sick leave which, if unused, is paid upon termination of employment according to the terms of applicable collective bargaining agreements, personnel rules and regulations, and the employee's length of service. In governmental funds, only liabilities for compensated absences of employees terminated prior to the close of the calendar year that will not be paid until the subsequent year are reported as an expenditure and fund liability in the fund that will pay for them. The remainder of the compensated absence liability is only recognized in the government-wide report. In proprietary funds, compensated absences are recorded as an expense and liability of the fund that will pay for them. Compensated absences are shown as long and short term liabilities based on an estimated amount of annual usage. As of December 31, 2009, the City's compensated absences payable in accordance with GASB Statement No. 16 for all funds amounted to 105,726 hours and $4,076,170. A liability for these amounts are to be reported in the governmental funds only if they have matured, for example, as a result of employee resignations and retirements. Long-Term Liabilities – In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable government activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issue costs are reported as deferred charges and amortized over the term of the related debt. Long-term obligations used to finance Proprietary Fund operations and payable from revenue of the Proprietary Funds are accounted for in the applicable fund. See Note 10. Washington State Auditor's Office 53 ---PAGE BREAK--- City of Kennewick, Washington Deferred Revenues - Deferred Revenues are those revenues that are measurable but not yet available, under the modified accrual basis of accounting. Accordingly, they are not recorded as revenue. The balance sheet records the receivable, but includes deferred revenue as its offset. The City recognized the following deferred items in 2009: 1. Uncollected property taxes levied. 2. Unbilled special assessments levied against benefited property for the cost of local improvements. An allowance for uncollectibles is not necessary since the assessments are liens against the property benefited. 3. Contracts receivable for real estate sales. Fund Equity – In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. NOTE 2 – RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS A. Explanation of Certain Differences between the Governmental Funds Balance Sheet and the Government-Wide Statement of Net Assets. The governmental fund balance sheet includes a reconciliation between fund balance - total governmental funds and net assets - governmental activities as reported in the government wide statement of net assets. One element of that reconciliation explains that "long-term liabilities", including bonds payable, are not due and payable in the current period and therefore not reported in the funds. The details of this $29,688,779 difference are shown below. Bonds and Notes Payable $ 19,470,000 Bond Premium 242,909 Unamortized Refunding Interest (103,577) Public Works Trust Fund Loans Payable 5,431,810 Water Pollution Control RF Loan 203,664 Frost Facility Loan 500,000 Net Pension Obligation 218,972 Net OPEB Obligation 342,412 Accrued Interest 80,070 Compensated Absences 3,302,519 $ 29,688,779 Other long-term assets are not available to pay for current-period expenditures and, therefore are deferred in the funds. The following table details the $7,133,941 difference. Washington State Auditor's Office 54 ---PAGE BREAK--- City of Kennewick, Washington Operating Grant - Economic Environment $ 2,570,423 Interfund Loan Interest 17,189 Contracts Receivable 217,756 Nuisance Abatement 31,592 Public Safety 19,527 Miscellaneous Receivables 15,459 Sales Tax 2,591,037 Motor Vehicle Fuel Tax 114,547 Utility Tax 944,139 Hotel/Motel Tax 90,264 Liquor Excise Tax 82,103 Admissions Tax 7,900 Property Tax 432,005 $ 7,133,941 Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. The following table details the $177,570,560 difference. Land $72,452,599 Depreciable Assets 157,686,754 Depreciation (62,558,894) Construction in Progress 6,400,573 Joint Ventures 2,589,528 $176,570,560 B. Explanation of Certain Differences between the Government Funds Statement of Revenues, Expenditures, and Changes in Fund Balances and the Government-Wide Statement of Activities. Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. The stormwater drainage infrastructure assets were transferred from governmental funds into the newly created Stormwater Utility Fund (a proprietary fund) during 2009. The following table details the reporting differences from capital activity in the current year. Capital Outlays $5,340,380 Depreciation (6,125,779) Transfer Assets (11,484,434) Cost of Assets Sold (15,665) ($12,285,498) Washington State Auditor's Office 55 ---PAGE BREAK--- City of Kennewick, Washington The issuance of long-term debt bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items and is as follows: Debt Retired $2,467,157 Some revenues reported in the statement of activities do not provide current financial resources and, therefore, are not reported as revenues in governmental funds. Property Taxes ($35,568) Sales Tax (67,245) Utility Tax (78,516) Other Tax 31,885 Licenses & Permits 2,190 Public Safety (15,632) Contract Receivable 217,757 Community Development Receivables 184,449 Interest Receivable 30,931 Miscellaneous Receivable 9,787 $280,038 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 the governmental funds. Compensated Absences ($380,171) Net Pension Obligation (89,149) Claims and Judgments 97,598 Interest on Long Term Debt 9,332 Amortized Bond Premium 22,921 Amortized Refunding Interest (17,263) ($356,732) Internal service funds are used by management to charge the costs of certain activities, such as insurance, supplies and fleet maintenance to individual funds. These are shown on the following table. Washington State Auditor's Office 56 ---PAGE BREAK--- City of Kennewick, Washington Internal Service Fund Operating Costs ($491,683) Transfer of Equipment to Internal Service Funds 625,799 Contributions 27,832 Investment Earnings 93,681 Disposition of Fixed Assets 23,880 Transfers 1,186,337 $1,465,846 NOTE 3 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information The City of Kennewick follows these procedures in establishing the budgetary data reflected in the financial statements: 1. Prior to November 1 in even-numbered years, the City Manager submits to the City Council a proposed operating budget for the biennial period commencing the following January 1. The operating budget includes proposed expenditures and their means of financing. 2. Public hearings are conducted at regular Council meetings to obtain taxpayer comments. 3. During December, the biennial budget is legally enacted through passage of an ordinance. 4. The adopted biennial budget constitutes the legal authority for expenditures. The level of control at which expenditures may not legally exceed appropriations is the fund. Revisions that alter the total expenditures of any fund must be approved by the City Council and adopted by ordinance. The City's biennial budget was amended twice during 2009 . The financial statements present the amended budget as approved. 5. All appropriations, except for debt service and capital projects, lapse at the end of the biennium. 6. The City budgets all funds in accordance with the Optional Municipal Code 35A.33 of the Revised Code of Washington. Biennially appropriated budgets are adopted for the General and Special Revenue Funds on the modified accrual basis of accounting. Proprietary Funds are budgeted on the accrual basis. There are no differences between the budgetary basis and generally accepted accounting principles. Budgets which are established for Debt Service, Capital Projects and Proprietary Funds are "management budgets" and as such are not reported in the CAFR. B. Encumbrance Accounting For budget control purposes, the City utilizes an encumbrance accounting procedure through an automated centralized purchasing system. Encumbrances are made at the time goods or services are requisitioned based upon estimated or known costs. Upon payment, this encumbered value is reversed and the actual cost recorded. Outstanding encumbrances at the end of the biennium are Washington State Auditor's Office 57 ---PAGE BREAK--- City of Kennewick, Washington canceled and must be re-budgeted in the following biennium or absorbed in that period's established appropriations. The outstanding encumbrances for 2009 are not reservations of fund balance and are not recorded as expenditures unless susceptible to accrual. At year-end, the City had open purchase orders in the amount of $2,045,202 recorded in memorandum records. C. Excess of Expenditures over Appropriations There have been no material violations of finance-related legal or contractual provisions in any of the funds of the City. D. Budget Revisions During 2009, the biennial budget was revised as shown on the following schedule: NOTE 4 – EQUITY IN CASH, DEPOSITS AND INVESTMENTS A. Cash and Deposits At year-end, the carrying amount of the City’s cash balances was $1,317,475, which consisted of $1,265,296 per the City’s checking account bank balances, deposits in transit of $302,730, $43,926 in cash drawers and advance travel funds, less outstanding checks of $294,477. No deposits were Original Amended Biennial Total Biennial Budget Revisions Budget General Fund 83,253,468 $ (218,899) $ 83,034,569 $ Street Fund 4,141,707 - 4,141,707 Arterial Street Fund 2,345,385 1,469,754 3,815,139 Urban Arterial Street Fund 3,648,430 6,272,951 9,921,381 Capital Improvement Fund 22,553,232 17,570,103 40,123,335 Park Development/Const Fund 10,100,752 (3,446,419) 6,654,333 Water & Sewer Fund 54,021,450 (272,237) 53,749,213 Medical Services Fund 7,301,519 79,432 7,380,951 Building Safety Fund 2,590,101 (72,547) 2,517,554 Coliseum Fund 5,191,520 785,669 5,977,189 Storwater Utility 2,067,000 - 2,067,000 Equipment Rental Fund 8,302,750 (482,726) 7,820,024 Central Stores Fund 673,758 963 674,721 Risk Management Fund 14,909,843 (405,038) 14,504,805 Debt Service Fund 4,788,446 (130,264) 4,658,182 LID Guaranty Fund 12,902 19,922 32,824 BI-PIN Operations Fund 551,257 3,574 554,831 Community Development Fund 1,552,469 1,030,935 2,583,404 MPD Assistant Operations Fund 68,372 - 68,372 Asset Forfeiture Fund 59,050 2,912 61,962 Public Safety Fund 4,798,000 - 4,798,000 Solid Waste/Environmental Fund 313,671 36,466 350,137 Cash Reserve Fund 2,500,000 - 2,500,000 Lodging Tax Fund 2,529,570 (13,669) 2,515,901 Total 238,274,652 $ 22,230,882 $ 260,505,534 $ Washington State Auditor's Office 58 ---PAGE BREAK--- City of Kennewick, Washington uninsured or uncollateralized. Insurance coverage up to $100,000 is through the Federal Deposit Insurance Corporation (FDIC) and the Washington Public Deposit Protection Commission for amounts over $100,000. Under State statute, members of a multiple-financial institution collateral pool, may be assessed losses on a prorated basis if the pool’s collateral provides insufficient coverage. Deposits collateralized in the multiple-institution collateral pool are considered insured, and therefore not exposed to custodial credit risk. The following is a summary of cash and deposits as of December 31, 2009: Item Checking Accounts Deposits $ 1,273,549 Cash in Change Funds 23,926 Cash in Advance Travel Funds 20,000 $ 1,317,475 B. Investments All of the City's investments are stated at amortized cost, except in the case of the State Treasurer’s Investment Pool. The City’s deposits in the State Treasurer’s investment pool are reported based on the pool’s share price since it is a 2a7-like pool. The fair value of the positions in the State Treasurer’s Investment Pool is the same as the value of the pool shares. The State Treasurer’s Investment Pool was formed under and is regulated by the Revised Code of Washington. As of December 31, 2009, the City had the following investments: Investment Type Book Value Fair Value Weighted Average Maturity (Years) U.S. Agency Securities 16,993,688 $ 17,001,875 $ 3.57 State Treasurer's Investment Pool 12,340,472 12,340,472 0.14 Total 29,334,160 $ 29,342,347 $ Portfolio weighted average maturity 2.13 Interest rate risk. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. In accordance with its investment policy, the City manages its exposure to declines in fair value by limiting the maturity of investments to five years, unless matched to a specific cash flow. In addition, to achieve its financial objective of maintaining liquidity to meet all operating requirements, the City typically selects investments that have much shorter average maturities. Credit risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. As required by state law and local ordinances, all investments of the City’s funds (except as noted) are obligations of the U.S. Government, U.S. agency issues, the State Treasurer’s Investment Pool or certificates of deposit with Washington State banks. The City has no investment policy that would further limit its investment choices. As of December 31, 2009, the City’s investments in agency securities were all rated AAA. The State Treasurer’s Investment Pool is unrated. The credit risk of the State Treasurer’s Investment Pool is limited as most investments are either obligations of the U.S. Government, government sponsored enterprises, or insured demand deposit accounts and certificates of deposit. Investments or deposits held by the State Pool are all classified as category 1 risk level investments. They are either insured Washington State Auditor's Office 59 ---PAGE BREAK--- City of Kennewick, Washington or held by a third-party custody provider in the State Pool’s name. Concentration of credit risk. Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. The City’s investment policy does not allow for an investment in any one security type or financial institution that is in excess of fifty percent of total investments. The City’s investments in which more than five percent is invested in any single issuer as of December 31, 2009 are shown in the following table. Concentration of Credit Risk as a Percentage of Total Investments Issuer Book Value Federal National Mortgage Association $8,000,000 27% Federal Home Loan Bank 6,993,688 24% Federal Farm Credit Bank 2,000,000 7% Custodial credit risk. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty, the system will not be able to recover the value of its investments that are in the possession of an outside party. By City policy, all security transactions are settled “delivery versus payment”. This means that payment is made simultaneously with the receipt of the security. These securities are delivered to the City’s safekeeping bank. NOTE 5 - PROPERTY TAXES The County Treasurer acts as an agent to collect property taxes levied in the County for all taxing authorities. Collections are distributed to the City on a daily basis by the County Treasurer in compliance with RCW 84.56.230. Property Tax Calendar January 1 Taxes are levied and become an enforceable lien against properties. February 14 Tax bills are mailed. April 30 First of two equal installment payments is due. May 31 Assessed value of property established for next year’s levy at 100 percent of market value. October 31 Second installment is due. Property taxes are recorded as a receivable and deferred revenue when levied. No allowance for uncollectible taxes is established because delinquent taxes are considered fully collectible. Prior year tax levies were recorded using the same principal. The City may levy up to $3.60 per $1,000 of assessed valuation for general governmental services. For Kennewick, this limit has been reduced to $3.10 per $1,000 of assessed valuation to reflect the City’s annexation to the Kennewick Library District. The levy rate is also subject to the following limitations: Washington State Auditor's Office 60 ---PAGE BREAK--- City of Kennewick, Washington A. The Washington State Constitution limits total regular property taxes to 1% 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 1% limit. B. Washington State law in RCW 84.55.010 limits the growth of non-voted property taxes to the lesser of 1% per year, or the Implicit Price Deflator. Adjustments for new construction are excluded from this calculation. As a code city, Kennewick must adopt a separate ordinance or resolution authorizing a property tax increase in both dollars and percentage to be filed with the County by November 30th. The City's regular levy for 2009 was $2.2846 per $1,000, on an assessed valuation of $4,373,699,449, for a total regular levy of $9,992,066. The City dedicated $179,000 of the regular levy to the Firemen's Pension Fund. Special levies approved by the voters are not subject to the limitations listed above. In 2009, the City levied an additional $.0864 per $1,000 for the 1996 voted-approved G.O. bond issue for a total additional levy of $375,000 for 2009. NOTE 6 - CAPITAL ASSETS Capital assets activity for the year ended December 31, 2009 was as follows: Balance Balance Governmental Activities 12/31/2008 Additions Deletions 12/31/2009 Non-depreciable capital assets: Land (including ROW) 72,066,655 $ 396,301 $ (10,357) $ 72,452,599 $ Construction in Progress 16,316,600 4,809,525 (14,725,553) 6,400,572 Subtotal non-depreciable capital assets 88,383,255 5,205,826 (14,735,910) 78,853,171 Depreciable capital assets: Buildings 36,963,995 260,271 - 37,224,266 Improvements other than buildings 8,842,522 7,078,132 (15,920) 15,904,734 Infrastructure 110,014,891 7,581,102 (15,144,377) 102,451,616 Equipment 14,226,717 2,011,457 (1,277,313) 14,960,861 Subtotal depreciable capital assets 170,048,125 16,930,962 (16,437,610) 170,541,477 Accumulated Depreciation: Buildings (7,984,355) (739,699) - (8,724,054) Improvements other than buildings (2,888,574) (594,423) 10,612 (3,472,385) Infrastructure (48,516,321) (4,517,742) 3,659,943 (49,374,120) Equipment (8,140,162) (1,038,129) 1,171,281 (8,007,010) Subtotal accumulated depreciation (67,529,412) (6,889,993) 4,841,836 (69,577,569) Governmental activities capital assets, net 190,901,968 $ 15,246,795 $ (26,331,684) $ 179,817,079 $ Washington State Auditor's Office 61 ---PAGE BREAK--- City of Kennewick, Washington Depreciation is summarized as follows: Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of the capital assets of business-type activities is included as part of the capitalized value of the assets constructed. The City has active construction projects as of December 31, 2009. At year-end the City’s commitments with contractors are as shown on the schedule on the following page. Balance Balance Business-Type Activities 12/31/2008 Additions Deletions 12/31/2009 Non-depreciable capital assets: Land 2,987,734 $ - $ - $ 2,987,734 $ Intangible 29,179 - - 29,179 Construction in Progress 3,017,464 11,862,996 (8,123,088) 6,757,372 Subtotal non-depreciable capital assets 6,034,377 11,862,996 (8,123,088) 9,774,285 Depreciable capital assets: Buildings and improvements 166,294,352 24,889,092 (272,579) 190,910,865 Equipment 9,992,895 346,730 (5,058) 10,334,567 Subtotal depreciable capital assets 176,287,247 25,235,822 (277,637) 201,245,432 Accumulated Depreciation: Buildings and improvements (48,388,613) (7,642,025) - (56,030,638) Equipment (6,197,368) (272,759) 277,635 (6,192,492) Subtotal accumulated depreciation (54,585,981) (7,914,784) 277,635 (62,223,130) Business-type activities capital assets, net 127,735,643 $ 29,184,034 $ (8,123,090) $ 148,796,587 $ Governmental activities: General Government 506,401 $ Security of Persons & Property 767,805 Physical Environment 175,983 Transportation 4,600,521 Economic Environment 23,072 Culture & Recreation 816,211 Total 6,889,993 $ Business-type activities: Water and sewer service 3,604,887 $ Medical service 13,411 Coliseum service 462,216 Stormwater service 3,834,270 Total 7,914,784 $ Washington State Auditor's Office 62 ---PAGE BREAK--- City of Kennewick, Washington NOTE 7 - PENSION PLANS Substantially all City full-time and qualifying part-time employees participate in one of the following statewide local government retirement systems administered by the Department of Retirement Systems, under cost-sharing multiple-employer public employee defined benefit and defined contribution retirement plans. The Department of Retirement Systems (DRS), a department 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 from the Department of Retirement Systems, Communications Unit, P.O. Box 48380, Olympia, WA 98504-8380 or it may be downloaded from the DRS website at www.drs.wa.gov. The following disclosures are made pursuant to GASB Statement 27, Accounting for Pensions by State and Local Government Employers and No. 50 Pension Disclosures, an Amendment of GASB Statements No. 25 and No. 27. A. Public Employees' Retirement System (PERS) Plans 1, 2 and 3 Plan Description PERS is a cost-sharing multiple employer retirement system comprised of three separate plans for membership purposes: Plans 1 and 2 are defined benefit plans and Plan 3 is a defined benefit plan with a defined contribution component. Membership in the system includes: elected officials; state employees; employees of the Supreme, Appeals, and Superior courts (other than judges in a judicial retirement system); employees of legislative committees; community and technical colleges, college and university employees not participating in national higher education retirement programs; judges of district and municipal courts; and employees of local governments. PERS participants who joined the system by September 30, 1977, are Plan 1 members. Those who joined on or after October 1, 1977 and by either, February 28, 2002 for state and higher education employees, or August 31, 2002 for local government employees, are plan 2 members unless they exercise an option to transfer their membership to Plan 3. PERS participants joining the system on or Project Expenditures as of 12/31/2009 Remaining Commitment Citywide Flashing Yellow Arrow Implementation 213,141 $ 8,859 $ 4th Ave - Young to Union 500,597 320,403 Grant Match - Streets 16,316 21,184 Grant Match - Streets 44,354 16,396 Senior Center Improvements - ARRA 110,286 30,714 Miscellaneous Street Projects 17,287 17,288 Fire Station #2 11,323 14,700 Fire Station #3 - 8,400 CP River Levee/Duffy's Pond Improvements 317,702 3,609 7th Ave - 395 to Vancouver 8,156 1,844 WWTP Upgrade Construction - PWTF 5,998,663 1,201,337 7,237,825 $ 1,644,734 $ Washington State Auditor's Office 63 ---PAGE BREAK--- City of Kennewick, Washington after March 1, 2002 for state and higher education employees, or September 1, 2002 for local government employees have the irrevocable option of choosing membership in either PERS Plan 2 or PERS Plan 3. The option must be exercised within 90 days of employment. An employee is reported in Plan 2 until a choice is made. Employees who fail to choose within 90 days default to PERS Plan 3. Notwithstanding, PERS Plan 2 and Plan 3 members may opt out of plan membership if terminally ill, with less than five years to live. PERS defined benefit retirement benefits are financed from a combination of investment earnings and employer and employee contributions. PERS retirement benefit provisions are established in state statute and may be amended only by the State Legislature. PERS Plan 1 members are vested after the completion of five years of eligible service. Plan 1 members are eligible for retirement after 30 years of service, or at the age of 60 with 5 years of service, or at the age of 55 with 25 years of service. The annual pension is 2 percent of the average final compensation (AFC) per year of service, capped at 60 percent. The AFC is based on the greatest compensation during any 24 eligible consecutive compensation months. This annual benefit is subject to a minimum for PERS Plan 1 retirees who have 25 years of service and have been retired 20 year, or who have 20 years of service and have been retired 25 years. Plan 1 members who retire from inactive status prior to the age of 65 may receive actuarially reduced benefits. The benefit is actuarially reduced to reflect the choice of a survivor option. A cost-of living allowance (COLA) is granted at age 66 based upon years of service times the COLA amount, increased by three percent annually. Plan 1 members may also elect to receive an additional COLA amount that provides an automatic annual adjustment based on the Consumer Price Index. The adjustment is capped at three percent annually. To offset the cost of this annual adjustment, the benefit is reduced. Plan 2 members are vested after the completion of five years of eligible service. Plan 2 members may retire at the age of 65 with 5 years of service with an allowance of 2 percent of the AFC per year of service. The AFC is based on the greatest compensation during any eligible consecutive 60-month period. Plan 2 members who retire prior to the age of 65 receive reduced benefits. If retirement is at 55 or older with at least 30 years of service, a three percent per year reduction applies; otherwise an actuarial reduction will apply. The benefit is also actuarially reduced to reflect the choice of a survivor option. There is no cap on years of service credit; and a cost-of-living allowance is granted (based on the Consumer Price Index), capped at 3 percent annually. Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component, and member contributions finance a defined contribution component. The defined benefit portion provides a benefit calculated at 1 percent of the AFC per year of service. The AFC is based on the greatest compensation during any eligible consecutive 60-month period. Effective June 7, 2006, Plan 3 members are vested in the defined benefit portion of their plan after ten years of service; or after five years if twelve months of that service are earned after age 44; or after five service years earned in PERS Plan 2 prior to June 1, 2003. Plan 3 members are immediately vested in the defined contribution portion of their plan. Vested Plan 3 members are eligible to retire with full benefits at age 65, or at age 55 with 10 years of service. Retirements prior to the age of 65 receive reduced benefits. If retirement is at age 55 or older with at least 30 years of service, a 3 percent per year reduction applies; otherwise an actuarial reduction will apply. The benefit is also actuarially reduced to reflect the choice of a survivor option. There is no cap on years of service credit; and Plan 3 provides the same cost-of-living allowance as Plan 2. The defined contribution portion can be distributed in accordance with an option selected by the member, either as a lump sum or pursuant to other options authorized by the Employee Retirement Washington State Auditor's Office 64 ---PAGE BREAK--- City of Kennewick, Washington Benefits Board. There are 1,192 participating employers in PERS. Membership in PERS consisted of the following as of the latest actuarial valuation date for the plans of June 30, 2008: Retirees and beneficiaries receiving benefits 73,122 Terminated plan members entitled to but not yet receiving benefits 27,267 Active plan members vested 105,212 Active plan members nonvested 56,456 Total 262,057 Funding Policy Each biennium the state Pension Funding Council adopts Plan 1 employer contribution rates and Plan 2 employer and employee contribution rates, and Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are established by statute at 6 percent for state agencies and local government unit employees, and 7.5 percent for state government elected officials. The employer and employee contribution rates for Plan 2 and employer contribution rate for Plan 3 are developed by the Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. All employers are required to contribute at the level established by the Legislature. Under PERS Plan 3, employer contributions finance the defined benefit portion of the plan, and member contributions finance the defined contribution portion. The Employee Retirement Benefits Board sets Plan 3 employee contribution rates. Six rate options are available ranging from 5 to 15 percent; two of the options are graduated rates dependent on the employee’s age. As a result of the implementation of the Judicial Benefit Multiplier Program in January 2007, a second tier of employer and employee rates was developed to fund, along with investment earnings, the increased retirement benefits of those justices and judges that participate in the program. The methods used to determine the contribution requirements are established under state statute in accordance with Chapters 41.40 and 41.45 of the Revised Code of Washington (RCW). The required contribution rates expressed as a percentage of current year covered payroll, as of December 31, 2009 were: PERS Plan 1 PERS Plan 2 PERS Plan 3 Employer* 5.31% 5.31% 5.31% Employee 6.00% 3.90% * The employer rates include the employer administrative expense fee currently set at 0.16%. The employer rate for state elected officials is 7.89% for Plan 1, 5.31% for Plan 2 and Plan 3. Plan 3 defined benefit portion only. The employee rate for state elected officials is 7.50% for Plan 1 and 3.90% for Plan 2. Variable from 5.0% minimum to 15% maximum based on rate selected by the PERS 3 member. Both the City and the employees made the required contributions. The City's required contributions for the years ending December 31 were as follows: PERS Plan 1 PERS Plan 2 PERS Plan 3 2009 $50,493 $649,650 $173,774 2008 125,552 671,970 183,581 2007 67,614 509,120 129,525 Washington State Auditor's Office 65 ---PAGE BREAK--- City of Kennewick, Washington B. Law Enforcement Officers and Fire Fighters Retirement System (LEOFF) Plans 1 and 2 Plan Description LEOFF is a cost-sharing multiple-employer retirement system comprised of two separate defined benefit plans. LEOFF participants who joined the system by September 30, 1977 are Plan 1 members. Those who joined on or after October 1, 1977 are Plan 2 members. Membership in the system includes all full-time, fully compensated, local law enforcement officers and firefighters and, as of July 24, 2005, those emergency medical technicians who were given the option and chose LEOFF Plan 2 membership. LEOFF membership is comprised primarily of non-state employees, with the Department of Fish and Wildlife enforcement officers, who were first included prospectively effective July 27, 2003 being an exception. Effective July 1, 2003, the LEOFF Plan 2 Retirement Board was established by Initiative 790 to provide governance of LEOFF Plan 2. The Board’s duties include adopting contribution rates and recommending policy changes to the Legislature for the LEOFF Plan 2 retirement plan. LEOFF defined benefit retirement benefits are financed from a combination of investments earnings, employer and employee contributions, and a special funding situation in which the state pays through state legislative appropriations. LEOFF retirement benefit provisions are established in state statute and may be amended only by the State Legislature. LEOFF Plan 1 members are vested after the completion of 5 years of eligible service. Plan 1 members are eligible to retire with five years of service at age 50. The benefit per year of service calculated as a percent of final average salary is as follows: Term of Percent of Final Service Average Salary 20 or more years 2.0% 10 but less than 20 years 1.5% 5 but less than 10 years 1.0% The final average salary is the basic salary received at the time of retirement, provided a member has held the same position or rank for 12 months preceding the date of retirement. Otherwise, it is the average of the highest consecutive 24 months’ salary within the last 10 years of service. A cost-of-living allowance is granted based on the Consumer Price Index. LEOFF Plan 2 retirement benefits are vested after an employee completes five years of eligible service. Plan 2 members may retire at the age of 50 with 20 years of service or at 53 with 5 years of service, with an allowance of 2 percent of the final average salary per year of service. The final average salary is based on the highest consecutive 60 months. Plan 2 retirements prior to the age of 53 receive reduced benefits. Benefits are actuarially reduced for each year the benefit commences prior to age 53 and to reflect the choice of a survivor option. If the member has at least 20 years of service and is age 50, the reduction is three percent for each year prior to age 53. There is no cap on years of service credit; and a cost-of-living allowance is granted based on the Consumer Price Index, capped at 3 percent annually. There are 375 participating employers in LEOFF. Membership in LEOFF consisted of the following as of the latest actuarial valuation date for the plans at June 30, 2008: Washington State Auditor's Office 66 ---PAGE BREAK--- City of Kennewick, Washington Retirees and beneficiaries receiving benefits 9,268 Terminated plan members entitled to but not yet receiving benefits 650 Active plan members vested 13,120 Active plan members non-vested 3,927 Total 26,965 Funding Policy Starting on July 1, 2000, Plan 1 employers and employees will contribute zero percent as long as the plan remains fully funded. Employer and employee rates are developed by the Office of the State Actuary to fully fund the plan. LEOFF Plan 2 employers and employees are required to pay at the level adopted by the LEOFF 2 Retirement Board. All employers are required to contribute at the level required by state law. The Legislature has the ability, by means of a special funding arrangement, to appropriate money from the state General Fund to supplement the current service liability and fund the prior service costs of LEOFF Plan 2 in accordance with the requirements of the Pension Funding Council and the LEOFF Plan 2 retirement Board. However, this special funding situation is not mandated by the state constitution and this funding requirement could be returned to the employers by a change of statute. The required contribution rates expressed as a percentage of current-year covered payroll, as of December 31, 2009 were as follows: LEOFF Plan 1 LEOFF Plan 2 Employer* 0.16% 5.24%** Employee 0.00% 8.46% State NA 3.38% * The employer rates include the employer administrative expense fee currently set at 0.16%. The employer rate for ports and universities is 8.99%. Both the City and the employees made the required contributions. The City's required contributions for the years ended December 31 were: LEOFF Plan 1 LEOFF Plan 2 2009 $ 338 $758,123 2008 348 682,146 2007 566 641,597 Postemployment Benefits Plan 1 members who take service or disability retirements are eligible to have 100% of their medical expenses paid by the City. These expenses are reduced by amounts received or eligible to be received under Workers' Compensation, Medicare, or insurance provided by another employer and are paid at the discretion of the local disability board. The disability board has authority to designate the provider of the services. As of December 31, 2009 there were 23 retired police officers collecting health benefits under the LEOFF system. The total cost for this postemployment benefit was $288,773 for 2009. No assets were specifically allocated for postemployment benefits and expenses are funded on a "pay as you go" basis by the General Fund. Washington State Auditor's Office 67 ---PAGE BREAK--- City of Kennewick, Washington An explanation of retired fire fighters health benefits is explained in Section C of this note. C. Firemen's Pension Fund The City administers a closed, small single-employer defined benefit plan called Firemen's Pension Fund. The plan is shown as a trust fund in the financial reports of the City of Kennewick. GASB Statements No. 25 and 27 require the performance of biennial actuarial valuations. The most recent actuarial study of the system was done by Milliman & Robertson, Inc., to determine the funding requirements as of January 1, 2008. GASB Statement No. 27 requires an actuarial valuation to be performed at least biennially or annually if significant changes have occurred since the previous valuation. No significant changes to the Cities Firemen’s Pension Fund have occurred over the past year and therefore no new valuation has been performed. The City of Kennewick’s obligations under the Firemen’s Pension Fund are limited to the benefits provided to firefighters retired prior to March 1, 1970. As of December 31, 2009, there were 14 individuals covered by the Fund, all of which were drawing benefits. To meet these obligations, the City may contribute annually to the Fund the amount raised by levying all or part of a tax of up to $0.45 per $1,000 of true and fair market value, the maximum provided by law for maintaining the Fund. Contributions also include donations and income from state fire insurance premium collection. All actuarial calculations are based on RCW 41.16 and 41.18, the statutes establishing the Firefighter’s Pension Fund, and RCW 41.26, the statute establishing the Washington Law Enforcement Officers’ and Firefighters’ Retirement System. Benefit provisions are established in state statute and may be amended only by the State Legislature. Each retiree receives the greater of the benefit payable under the Washington Law Enforcement Officers’ and Firefighters’ Retirement System and the benefits available under the provisions of prior law. Where benefits under the old law exceed those under the new for any firefighter, the excess benefits are paid from the Firefighter’s Pension Fund of the city employing them on March 1, 1970. For a service retirement the member’s benefit is 50% of salary plus an additional 2% for each year of service in excess of 25 years. The maximum benefit is 60% of salary. The survivor benefit is the same as the member’s: if spouse – same plus additional 5% of salary per child, if no spouse – 30% of salary for first child, 10% for each additional child. The maximum benefit in either case is 60% of salary. For a duty disability retirement the member must be disabled for a six-month waiting period, during which time salary is payable from the Fund. The amount of the benefit is 50% of salary plus an additional 5% for each unmarried child under the age of 18. For a non-duty disability retirement the member must be disabled after a 90-day waiting period, during which time salary is payable from the Fund. For non-duty related disability the benefit is the same as duty related disability. For both the duty related and non-duty related disabilities the survivor benefits to spouse and/or child are as follows: Percentage of salary: 33.3% to widow only 45.8% to widow and one child 47.6% to widow and two children 50.0% to widow and three children 33.3% to children only Washington State Auditor's Office 68 ---PAGE BREAK--- City of Kennewick, Washington For purposes of retirement benefit payments, salaries are escalated in proportion to the current salary of the rank from which the firefighter retired. After April 25, 1973, a minimum benefit of $300 per month to all retired firefighters and their survivors apply. A funeral benefit of $500 is provided to defray funeral expenses. The cash balance at December 31, 2009 was $531,381 and retirement pensions in 2009 totaled $124,922. No other significant activities occurred in 2009. The annual required contribution was computed using the entry age normal cost method. Under this method the projected benefits are allocated on a level basis as a percentage of salary over the earnings of each individual between entry age and assumed exit age. The annual pension cost (APC) and net pension obligation (NPO) are shown on the following schedule as of December 31: The unfunded actuarial accrued liability is amortized as a level dollar amount over a closed 30-year period beginning January 1, 2000. All assets are carried on a market value basis. Future investment earnings are assumed to accrue at an annual rate of 5.0%. Future salaries and postretirement benefits are assumed to increase at the rate of 4.0% per annum. The CPI was assumed to increase at the rate of 3.0% per annum. The following schedule shows the three-year trend beginning with 2007 as of December 31: Annual Contribution as Net Pension Pension Cost a Percentage Obligation Year (APC) of APC (NPO) 2009 142,964 167% 218,972 2008 143,161 113% [PHONE REDACTED] 149,921 131% 333,845 2005 2006 2007 2008 2009 Annual normal cost at beg. of year (BOY) $ - $ - $ - $ - - $ Amortization of UAAL (BOY) 98,406 148,828 148,828 143,451 143,451 Interest to end of year (EOY) 6,396 8,186 8,186 7,173 7,173 Annual required contribution (ARC) 104,802 157,014 157,014 150,624 150,624 Interest on NPO (3,131) 12,944 20,951 16,692 15,773 Adjustment to ARC 3,708 (16,962) (28,044) (24,155) (23,433) Annual pension cost (APC) 105,379 152,996 149,921 143,161 142,964 Total contributions (178,130) 7,414 197,000 161,547 239,451 Change in NPO 283,509 145,582 (47,079) (18,386) (96,487) NPO at BOY (48,167) 235,342 380,924 333,845 315,459 NPO at EOY 235,342 380,924 333,845 315,459 218,972 Fiscal Year Ending Washington State Auditor's Office 69 ---PAGE BREAK--- City of Kennewick, Washington The following schedule shows the annual development of pension cost as of December 31: Annual Interest Annual Required On ARC Pension Total Change in NPO Amortization Amortization Ending Year Contribution NPO Adjustment Cost (APC) Contributions NPO Balance Gain/Loss Factor of Gain/Loss Balance 2009 150,624 15,773 23,433 142,964 239,451 (96,487) 218,972 (88,827) 13.4622 23,433 218,972 2008 150,624 16,692 24,155 143,161 161,547 (18,386) 315,459 (10,922) 13.8212 24,155 315,459 2007 157,014 20,951 28,044 149,921 197,000 (47,079) 333,845 (39,986) 13.5832 28,044 333,845 2006 157,014 12,944 16,962 152,996 7,414 145,582 380,924 149,600 13.8750 16,962 380,924 2005 104,802 (3,131) (3,708) 105,379 (178,130) 283,509 235,342 282,932 12.9907 (3,708) 235,342 2004 104,802 (5,002) (5,831) 105,631 76,847 28,784 (48,167) 27,955 13.1979 (5,831) (48,167) 2003 58,274 (4,697) (5,232) 58,809 68,659 (9,850) (76,951) (10,385) 12.8258 (5,232) (76,951) 2002 58,274 (4,199) (4,619) 58,694 65,807 (7,113) (67,101) (7,533) 12.9867 (4,619) (67,101) Investment earnings are assumed to accrue at an annual rate of 6.5%. Salary and postretirement benefit increases are each estimated at 4.0% per annum. The inflation rate is assumed to increase at 3.0% per annum. The unfunded actuarial accrued liability is amortized as a level dollar amount over a closed 30-year period beginning January 1, 2000. All assets are carried on a market value basis and a 5.0% discount rate was used. D. Statewide City Employees Retirement System Prior to 1972, all full-time City employees, except firemen, were covered by Statewide City Employees Retirement System, a contributory plan. PERS absorbed this retirement system in January 1972. The City pays defined benefits for one pensioner, which totaled $2,604 in 2009. NOTE 8 - SELF INSURANCE The City is exposed to various risks of loss related to torts; theft, damage, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City established the Risk Management Fund (an Internal Service Fund) to account for and finance its uninsured losses. Chapter 48.62 RCW authorizes the governing body of any one or more governmental entities to form together into or join a pool or organization for the joint purchasing of insurance, and/or joint self-insuring, and/or joint hiring or contracting for risk management services to the same extent they may individually purchase insurance, self-insurance, or hire or contract for risk management services. An agreement to form a pool arrangement was made pursuant to the provisions of Chapter 39.34 RCW, the Interlocal Cooperation Act On September 1, 2004 the City of Kennewick became a member of the Cities Insurance Association of Washington (CIAW) for handling all liability claims. Since CIAW is a cooperative program that belongs to a pool, there is a joint liability spread among the participating members for any given claim. The pool allows members to jointly purchase insurance coverage and they provide related services, such as administration, risk management and claims administration. Liability coverage for Public Officials is executed on a “claims made basis” and all other coverage is carried out on an “occurrence basis”. Currently, the CIAW has 86 member Washington State Auditor's Office 70 ---PAGE BREAK--- City of Kennewick, Washington cities and 170 associate members. The pool acquires liability insurance from through St. Paul Fire & Marine Insurance Company (Travelers) that are subject to a per-occurrence deductible of $100,000. The City of Kennewick is responsible for the first $25,000 of the deductible amount of each claim, while the pool is responsible for the remaining $75,000. Insurance carriers cover insured losses over $100,000 to the limits of each policy. Since the pool is a cooperative program, there is a joint liability among the participating members towards the sharing of the pool’s portion of the deductible. The pool also purchases a Stop Loss Policy in the amount of $5,500,000 to cap the total claims paid by the pool in any one year. Each new regular member now pays the pool an admittance fee. This amount covers the member’s share of unrestricted reserves. Members contract to remain in the pool for a minimum of one year, and must give notice before August 31 before terminating participation the following September 1. The Interlocal Governmental Agreement is renewed automatically each year. Even after termination, a member remains responsible for contributions to the pool for any unresolved, unreported, and in-process claims for the period they were a signatory to the Interlocal Governmental Agreement. Canfield & Associates has been contracted to perform claims administration, claims adjustment and loss prevention for the pool. The pool is fully funded by its member participants. Fees paid to the third party administrator under this arrangement for the year ended August 31, 2008 and 2009 were $1,321,289 and $1,389,379 respectively. A governing board is selected by the membership and is responsible for conducting the business affairs of the pool. The Board of Directors has contracted with Canfield & Associates to perform the day-to-day administration of the pool and therefore the pool has no employees. Copies of the pool’s annual report may be obtained by writing to 451 Diamond Drive, Ephrata, WA 98823. The City of Kennewick also contracted with F. M. Global Insurance Company of Bellevue, Washington on September 1, 2004 to handle all property, boiler and machinery claims. In general, claim deductibles are $25,000 per occurrence. The City paid $66,906 to F. M. Global Insurance Company for their services in 2009. On December 18, 1979, the City established a self-insurance program for unemployment compensation, which is reported in the Risk Management Fund. Various City funds are charged premiums. During 1983, self-insurance for sewer back-up claims was added to the Risk Management Fund. The source of revenue was a two percent surcharge added to sewer fees. The surcharge was eliminated on January 1, 1988 at which time the reserve was determined to be self-sustaining. In 1996, an unusual influx of claims was submitted and the Water/Sewer Fund contributed a one-time sum of $100,000 to the reserve, an additional contribution was made during 2008 of $75,000. Future claims will continue to be monitored and the two percent surcharge may be reinstated if it is deemed necessary. Reserves at December 31, 2009 were $75,925. During 1986, a program to provide for self-insured retention was added to the Risk Management Fund. The source of revenue was operating transfers from various City funds. Reserves at December 31, 2009, were ($45,374). During 1992, self-insurance for employee dental claims was added to the Risk Management Fund. Various City funds are charged for premiums. In March of 1998 individual stop loss insurance for dental claims was dropped because it was never used and it was estimated it would not likely be needed in the future. Washington State Auditor's Office 71 ---PAGE BREAK--- City of Kennewick, Washington Cash reserves available for claims on December 31, 2009, were $138,331 and the liability for claims incurred but not reported (IBNR) was $33,667 on that date. Management estimates unpaid claims based upon historical trends. Expenditures were not adjusted due to salvage or subrogation in 2009. During 2005, self-insurance for employee medical, prescription and vision claims was added to the Risk Management Fund. Various City funds are charged for premiums. From August of 2005 stop loss premiums have been paid to protect against excessive costly claims. A stop loss insurance claim is made only if expenses incurred by each insured employee or dependent exceed $125,000 or if aggregate medical, vision and prescription annual cost exceed expected claims by 25%. Cash reserves available for claims on December 31, 2009, were $372,243 and the liability for claims incurred but not reported (IBNR) was $107,270 on that date. Management estimates unpaid claims based upon historical trends. Expenditures were not adjusted due to salvage or subrogation in 2009. The City opted out of the medical self-insurance plan for the majority of its employees and moved to a more traditional plan effective January 1, 2009. However, due to collective bargaining constraints, the City’s firefighter union employees did not move to the new plan until January 1, 2010 and remained on the self insured plan during 2009. The change in aggregate liability for the Risk Management Fund for the prior and current fiscal years is as follows: During 2005, funds earmarked for the Pasco landfill settlement were reserved in the Risk Management Fund. This amount represents the City’s portion of a larger settlement that was agreed upon by the group of entities participating in the landfill clean up ordered by the Department of Ecology. These funds will be used for future legal costs or to offset additional clean-up efforts. Cash reserves available for claims on December 31, 2009, were $334,487. During 2002 the City enrolled in the Department of Labor and Industries Retrospective Rating plan for industrial insurance through participation in the Building Industry Association of Washington’s (BIAW) group plan. The City insures itself for workplace injuries by participating in the State’s Workers Compensation program. The Retrospective Rating plan is an optional financial incentive program, which rewards employers who minimize their industrial insurance losses. The City paid $5,894 to Building Industry Association of Washington in 2009 to help administer this program. For 3 years after the coverage period, Labor and Industries calculates premium adjustments over the City’s experience rating period. If losses for the coverage period are less than paid premiums, portions of premiums are refunded through the BIAW group plan. During 2009 the City received refunds totaling $49,427. There have been no settlements in excess of insurance coverage under the City’s risk management programs during the last three calendar years. Beginning Claims Claims Ending Beginning Claims Claims Ending Balance Incurred Payments Balance Balance Incurred Payments Balance General Liabilities 174,500 $ - $ (174,500) $ - $ - $ - $ - $ - $ Unemployment Claims - 43,617 (43,617) - - 86,131 (86,131) - Medical Claims 305,550 6,555,678 (6,231,383) 629,845 629,845 1,068,987 (1,591,562) 107,270 Dental Claims 51,660 397,506 (415,752) 33,414 33,414 499,437 (499,184) 33,667 531,710 $ 6,996,801 $ (6,865,252) $ 663,259 $ 663,259 $ 1,654,555 $ (2,176,877) $ 140,937 $ 2008 2009 Washington State Auditor's Office 72 ---PAGE BREAK--- City of Kennewick, Washington NOTE 9 - LONG-TERM DEBT AND CAPITAL LEASE General Obligation Bonds The City issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. Bonded indebtedness has also been entered into in prior years to advance refund bonds. Currently, general obligation bonds are outstanding for general government activities only. General obligation bonds currently outstanding are as follows: Annual debt service requirements to maturity for general obligation bonds are as follows: Special Assessment Bonds Local improvement districts (LID's) are created for the primary purposes of constructing streets, storm drainage, sidewalk, street lighting, water, and sewer improvements. The principal and interest on the bond issues are expected to be paid solely from special assessments collected. The assessments are liens against the property and are subject to foreclosure. Under the provisions of the City's LID bond ordinances, special assessment bonds are called annually with no premium as cash accumulates in the related Debt Service Fund. The bonds are called on the interest payment date in numerical order. If the available cash exceeds the annual debt service requirements, additional bonds may be redeemed prior to their stated maturity date. The LID Guaranty Fund guarantees all unpaid special assessment bonds. State law requires that the Guaranty Fund maintain a balance of at least 10% of the outstanding obligations guaranteed by the fund in any single Year Ending December 31 Principal Interest 2010 1,500,000 830,129 2011 1,575,000 776,279 2012 1,650,000 718,248 2013 1,560,000 656,848 2014 1,215,000 591,398 2015 - 2019 5,745,000 2,086,825 2020 - 2024 5,520,000 819,930 2025 705,000 28,200 $19,470,000 $6,507,855 Governmental Activities Issuance Final Debt Amount Installments Maturity Interest Rates Oustanding 2005 GO refunding bonds 3,285,000 $ $80,000 - $385,000 12/2/2016 3.0 - 4.5% 2,380,000 $ 2003A GO bonds - convention center 3,995,000 $ $260,000 - $535,000 12/1/2013 2.0 - 3.625% 1,890,000 2003B GO bonds - capital projects 8,700,000 $ $310,000 - $640,000 12/1/2023 2.0 - 5.0% 6,730,000 2006 GO bonds - police station 9,790,000 $ $270,000 - $705,000 12/1/2025 3.75 - 5.0% 8,470,000 19,470,000 $ Washington State Auditor's Office 73 ---PAGE BREAK--- City of Kennewick, Washington year. This balance is established and maintained by a tax levy not to exceed 12% of the amount guaranteed. There are no outstanding special assessment bonds at December 31, 2009. Debt Limit Capacities The City's limitation on bond issues is established by State law and is calculated using a formula based on a percentage of assessed valuation (AV) of taxable property. The three specific debt capacities defined, their assessed value limitation and their remaining capacities at December 31, 2009 are as follows: Remaining Purpose % of Av Capacity Notes General Government 2 1/2% $94,440,000 ($48,620,000 is Councilmanic) Park and Open Space 2 1/2% 117,052,000 Utility 2 1/2% 117,052,000 Notes and Loans Payable The City has taken advantage of low interest loans through the State of Washington for the financing of street and utility projects for both general government and business-type activities. The City also has entered into a loan with Cascade Columbia Foods, LLC, a Washington limited liability company to purchase land that is located next to the Frost Facility. Annual debt service requirements to maturity for notes payable are as follows: Year Ending December 31 Principal Interest Principal Interest 2010 967,037 76,098 2,647,463 505,589 2011 904,593 61,766 2,672,974 461,186 2012 827,191 48,059 2,503,631 415,560 2013 599,318 35,992 2,531,651 369,797 2014 549,123 27,522 2,557,948 322,688 2015 - 2019 2,042,352 69,498 11,373,359 881,175 2020 - 2024 245,859 2,459 6,549,390 1,082,610 2025 - 2028 - - 1,209,877 1,171,982 $6,135,473 $321,394 $32,046,292 $5,210,586 Governmental Activities Business-type Activities Washington State Auditor's Office 74 ---PAGE BREAK--- City of Kennewick, Washington Outstanding notes and loans are shown on the following table for both governmental and business activities as of December 31, 2009. At December 31, 2009, restricted assets in proprietary funds contain $1,160,274 in reserves as required by the SRF loan agreement. Capital Leases The City had one outstanding lease agreements through the state’s LOCAL lease program during 2009. The lease provided financing for the purchase of a fire truck. The City entered into a lease agreement during 2002 to finance the purchase of a fire truck. The amount Issuance Final Debt Amount Installments Maturity Interest Rates Outstanding Business-type Activities: PWTF - Water Lines $639,664 $33,695 07/01/11 1.00% 67,388 $ PWTF - 19th Avenue 24,542 3,068 07/01/13 1.00% 12,271 PWTF - Water System Imp 6,856,358 368,669 07/01/16 1.00% 2,580,688 PWTF - Wastewater Lagoon 2,450,000 130,464 07/01/20 1.00% 1,435,109 PWTF - Misc W/S Imp 3,000,000 159,375 07/01/21 0.50% 1,912,500 PWTF - Advanced Water Treatment 9,500,000 531,250 07/01/25 0.50% 8,500,000 PWTF - Waste Wtr Plant-Precon 510,000 127,500 - 184,167 07/01/11 0.50% 324,765 PWTF - Waste Wtr Plant-Const 5,500,000 275,000 07/01/28 0.50% 2,475,000 CERB - Welch's Project 125,000 4,689 - 9,338 01/01/21 4.70% 98,660 SRF - Drinking Water 4,040,000 212,632 10/01/24 1.50% 3,189,472 SRF - Water Treatment Facility 4,080,000 240,833 10/01/23 1.00% 3,173,332 SRF - Ranney Improvements 3,030,000 173,030 10/01/25 1.50% 2,521,201 SRF - Wastewater Treatment Facility 10,063,642 479,167 - 748,141 05/31/17 4.50% 5,755,906 Total Business-type Activities 32,046,292 $ Purpose Issuance Final Debt Amount Installments Maturity Interest Rates Outstanding Governmental Activities: PWTF - W Hood/S Ely 1,492,148 $ 77,742 $ 07/01/11 2.00% 155,485 $ PWTF - 10th-Olympia/SR395 3,045,552 159,645 07/01/12 1.00% 478,936 PWTF - Washington St 1,189,303 62,783 07/01/10 2.00% 62,783 PWTF - 19th Avenue 967,770 50,194 07/01/13 1.00% 200,778 PWTF - Comp Street Imp I 3,817,100 203,264 07/01/18 1.00% 1,829,372 PWTF - Comp Street Imp II 4,550,000 215,526 07/01/20 1.00% 2,704,456 Water Pollution Control Revolving Loan 300,000 33,753 03/25/13 0.50% 203,664 Frost Facility Loan 600,000 100,000 01/15/14 3.63% 500,000 Total Governmental Activities 6,135,474 $ Purpose Washington State Auditor's Office 75 ---PAGE BREAK--- City of Kennewick, Washington financed was $456,000, with a ten-year term and 4.22% interest rate. Payments are to be made from the Medical Services Fund. This lease qualifies as capital leases for accounting purposes and, therefore, has been recorded at the present value of their future minimum lease payments as of the inception date. The asset acquired through the capital lease, the future minimum lease obligation and the net present value of these minimum lease payments as of December 31, 2009 are on the following schedule. Arbitrage Federal Tax Reform Act of 1986 requires issuers of tax-exempt debt to make payments to the United States Treasury of investment income received at yields that exceed the issuer’s tax exempt borrowing rates. The U.S. Treasury requires payment every five years. The City issued bonds for capital projects of $8,700,000 on December 1, 2003. The City is subject to arbitrage requirements for this issue, since it does not qualify for any of the “safe harbor” exemptions. The rebatable arbitrage on this issue as of December 1, 2008 was $11,810. NOTE 10 – CHANGES IN LONG-TERM LIABILITIES The table on the following page shows a summary of changes in long-term liabilities for the year ended December 31, 2009: Business-type Leased Equipment Activities Fire Truck 456,000 $ Less: Accumulated Depreciation (323,738) 132,262 $ Business-Type Year Ending December 31 Activities 2010 56,304 $ 2011 56,304 2012 28,152 Total minimum lease payments 140,760 $ Less: amount representing interest (8,498) Present value of minimum lease payments 132,262 $ Washington State Auditor's Office 76 ---PAGE BREAK--- City of Kennewick, Washington Internal service funds predominantly serve the governmental funds. Accordingly, long-term liabilities for them are included as part of the above totals for governmental activities. The above amounts include $101,293 of internal services funds compensated absences. The biosolids reserve was established to pay for future maintenance costs associated with the periodic removal of biosolids from the sewer system. Liabilities for compensated absences are liquidated using resources from the fund to which the employee terminating service previously charged his or her salary and benefit costs. Prior year liquidation of governmental fund compensated absences has been paid primarily from General Fund operating revenues. NOTE 11 – CONTINGENT LIABILITIES AND LITIGATION Contingent Liabilities The City has received several Federal and State grants for specific purposes, which are subject to review and audit by the grantor agencies. Such audits could lead to requests for reimbursement to grantor agencies for expenditures disallowed under the terms of the grant. Based upon experience, City Management believes such disallowance, if any, will be immaterial. Beginning Balance Additions Reductions Ending Balance Due Within One Year Governmental Activities: Bonds and notes payable: General obligation bonds 20,890,000 $ - $ 1,420,000 $ 19,470,000 $ 1,500,000 $ Notes and loans 7,182,630 - 1,047,156 6,135,474 967,037 Total bonds and notes payable 28,072,630 - 2,467,156 25,605,474 2,467,037 Adjust for deferred amounts: For issuance premium 265,830 - 22,921 242,909 - Net effect of refunding bond issue (120,840) - (17,263) (103,577) - Claims & Judgements 97,598 - 97,598 - - Net pension obligation 315,459 142,964 239,451 218,972 - OPEB payable 156,776 919,178 733,542 342,412 - Compensated absences 2,997,116 2,208,653 1,801,957 3,403,812 1,493,701 Governmental activity Long-term liabilities 31,784,569 $ 3,270,795 $ 5,345,362 $ 29,710,002 $ 3,960,738 $ Business-type Activities: Notes and loans payable 30,143,634 $ 4,337,922 $ 2,435,263 $ 32,046,293 $ 2,647,463 $ Capital leases 181,415 - 49,153 132,262 51,252 Biosolids reserve 1,200,000 300,000 - 1,500,000 - Compensated absences 578,378 650,276 556,297 672,357 337,455 Business-type activity Long-term liabilities 32,103,427 $ 5,288,198 $ 3,040,713 $ 34,350,912 $ 3,036,170 $ Washington State Auditor's Office 77 ---PAGE BREAK--- City of Kennewick, Washington Litigation The City, in the normal course of its activities, is involved in various claims and litigation. The City currently has claims and lawsuits pending, which could ultimately result in liability for the City over the next few years. The amount of these claims cannot be reasonably estimated at this time and management estimates that claims not covered by insurance resulting from such litigation would not materially affect the financial statements of the City. In June of 2009, the City of Kennewick incurred an unfavorable verdict in a lawsuit involving a claim of breach of contract on the part of the City made by a developer stemming from a dispute over a development option agreement. The jury in the case awarded $3,000,000 in damages to the plaintiff. The case is currently under appeal before the Division Three Court of Appeals and the matter is expected to be ongoing for at least another year. Although the City cannot guarantee a successful outcome on appeal, the City does believe there is a high probability that it will prevail. If the City does not prevail, the original judgment award plus interest would be paid by the City. In December of 2009, the City received a demand letter from a local digital subscriber line (DSL) internet provider requesting a refund of utility tax paid by it to the City for its sales between 2005 and 2009. At this juncture, the City is in the process of reviewing this claim to determine its validity and the City’s financial exposure, if any. NOTE 12 - COMMITMENTS The City capitalizes equipment obtained by financing lease agreements. The liability for these leases and annual amortization requirements are disclosed in Note 9. Pension and other post employment benefit (OPEB) commitments are discussed in Notes 7 and 18, respectively. NOTE 13 – RECEIVABLE AND PAYABLE BALANCES A. Receivables at December 31, 2009 were as follows: B. Payables at December 31, 2009 are shown on the following schedule: Nonmajor Community Capital Nonmajor Proprietary Internal Receivables General Development Improvement Govt' l Funds Water/Sewer Coliseum Stormwater Fund Service Fund Total Interest 5,638 $ 169 $ 29,973 $ 13,197 $ 19,517 $ - $ 42 $ 237 $ 7,859 $ 76,632 $ Taxes 3,088,473 - 785,004 550,958 - - - - - 4,424,435 Accounts 181,947 2,225,502 - 8,736 729,012 112,727 32,206 541,999 99,958 3,932,087 Contracts - 44,520 217,756 - - - - - - 262,276 Due from other governments 13,780 382,397 2,548 953,351 3,931 - - - - 1,356,005 Gross Receivables 3,289,838 2,652,588 1,035,281 1,526,242 752,460 112,727 32,248 542,236 107,817 10,051,435 Less: allowance for uncollectible accounts - - - - (39,272) - (503) (120,000) - (159,775) Net Total Receivables 3,289,838 $ 2,652,588 $ 1,035,281 $ 1,526,242 $ 713,188 $ 112,727 $ 31,745 $ 422,236 $ 107,817 $ 9,891,660 $ Washington State Auditor's Office 78 ---PAGE BREAK--- City of Kennewick, Washington NOTE 14 - INTERFUND TRANSACTIONS Interfund transactions are classified as follows: 1. Transactions that would be treated as revenues, expenditures or expenses if they involved external organizations, such as buying goods and services or payments in lieu of taxes, are similarly treated when they involve other funds of the City. 2. Transfers to support the operations of other funds are recorded as "Transfers" and classified as "Other Financing Sources or Uses" in the fund statements. Transfers between governmental or proprietary funds are netted as part of the reconciliation to the government-wide financial statements. 3. Capital contributions to enterprise or internal service funds, transfers of capital assets between proprietary and governmental funds, transfers to establish or reduce working capital in other funds, and transfers of remaining balances when funds are closed are classified as non-operating revenue. 4. Loans between funds are classified as interfund loans receivable and payable or as advances to and from other funds in the fund statements. Interfund loans do not affect total fund equity, but advances to other funds are offset by a reservation of fund equity. Loans and Advances are subject to elimination upon consolidation. As of December 31, 2009 outstanding inferfund balances (resulting from various interfund transaction) were as follows: Nonmajor Community Capital Nonmajor Proprietary Internal Payables General Development Improvement Govt' l Funds Water/Sewer Coliseum Stormwater Fund Service Fund Total Interest - $ - $ - $ - $ - $ 24,395 $ - $ - $ - $ 24,395 $ Claims and judgements - - - - - - - - 140,937 140,937 Accounts 404,917 34,353 227,539 90,516 51,975 367,583 2,692 15,985 79,143 1,274,703 Salaries and benefits 534,500 2,476 25,983 64,324 - 8,038 65,723 9,696 710,740 Taxes 5,096 - - - - 16,026 - - - 21,122 Retainage - - 79,132 10,695 - - - - - 89,827 Due to other governments 372 272 - 3,075 - 96,069 - - - 99,788 Total Govt' l & Bus Activities 944,885 $ 37,101 $ 306,671 $ 130,269 $ 116,299 $ 504,073 $ 10,730 $ 81,708 $ 229,776 $ 2,361,512 $ Reconciliation of financial statements to governmental wide financial statements: Accrued long term interest 80,070 - - - - - - - - 80,070 Net Total Payables 1,024,955 $ 37,101 $ 306,671 $ 130,269 $ 116,299 $ 504,073 $ 10,730 $ 81,708 $ 229,776 $ 2,441,582 $ Due from Due to Interfund Loans Purpose - Due to other funds other funds other funds Capital Improvement Fund Land Purchase 5,053,345 $ 240,000 $ Water & Sewer Fund 240,000 - Coliseum Fund Capital Construction - 5,053,345 Total 5,293,345 $ 5,293,345 $ Washington State Auditor's Office 79 ---PAGE BREAK--- City of Kennewick, Washington NOTE 15 - SEGMENT INFORMATION FOR ENTERPRISE FUNDS The City maintains five Enterprise Funds that provide ambulance service, building inspection services, water and sewer utility services, stormwater utility service, and the operation of the coliseum. The only fund that meets the criteria for segment reporting is a major fund and therefore the required segment information can be found on the Proprietary Fund statements. NOTE 16 - ECONOMIC DEVELOPMENT CORPORATION The City of Kennewick established the Economic Development Corporation (EDC) in August 1982, under the provisions of Title 39, Chapter 84 of the Revised Code of Washington. The EDC was established for the purposes of facilitating local economic development and employment opportunities through the financing of industrial development facilities using non-recourse revenue bonds. The EDC entered into an agreement with a non-governmental third party to provide financing through non- recourse revenue bonds, Series 1984, issued in the principal amount of $1,500,000 on August 2, 1984. Debt service on this issue was completed in July 2004. The bonds did not constitute indebtedness of either the City or the State and were secured solely by revenues derived from the organization on whose behalf the bonds were issued. The EDC is a discretely presented component unit of the City of Kennewick. It has a separate and distinct governing authority, which is appointed by the City. The City has no governing authority over the day-to-day Interfund Transfers Purpose - Transfers out Transfers in Transfers out General Fund Operations Transfers (Routine) 2,928,623 $ - $ General Fund Capital Transfers (Non-routine) - 837,873 General Fund Operations Transfer (Ambulance) - 467,000 General Fund Operations Transfer (Coliseum) - 287,015 General Fund Operations Transfer (Risk 585,394 Community Development Fund Street Improvements (Non-routine) - 12,700 Capital Improvement Fund Transfers (Routine) 725,000 450,000 Capital Improvement Fund Capital Transfers (Non-routine) 817,178 1,068,310 Capital Improvement Fund Debt Service (Routine) - 1,660,066 Other Non-Major Govt'l Funds Operations Transfers (Routine) 450,000 3,284,164 Other Non-Major Govt'l Funds Capital Transfers (Non-routine) 1,051,483 1,396,936 Other Non-Major Govt'l Funds Debt Service (Routine) 1,903,298 243,232 Water/Sewer Fund Capital Transfers (Non-routine) - 760,895 Coliseum Fund Capital Transfers (Non-routine) 1,507,489 - Stormwater Utility Fund Operations Transfers (Routine) 100,000 5,013 Other Non-Major Enterprise Funds Operations Transfers (Routine) 467,000 26,909 Other Non-Major Enterprise Funds Capital Transfers (Non-routine) - 50,898 Internal Service Funds Operations Transfers (Routine) 636,500 - Internal Service Funds Capital Transfers (Non-routine) 554,388 4,554 Total 11,140,959 $ 11,140,959 $ Washington State Auditor's Office 80 ---PAGE BREAK--- City of Kennewick, Washington operating decisions of the EDC; all obligations of the EDC are paid by user fees. The EDC is fiscally dependent upon the City as all bond issues must be approved by the City of Kennewick. The lack of any assets, liabilities or operating activities for 2009 precludes the need to include a separate column in the City's financial statements. NOTE 17 - JOINT VENTURES A. Benton County Emergency Services Benton County Emergency Services (BCES), providing public safety communications and emergency management services, was formed January 1, 1997 when an Interlocal Agreement was entered into by the cities of Kennewick, Richland, West Richland, Benton City, Prosser and Benton County. The new Interlocal superseded the Interlocal Agreements previously associated with Benton County Emergency Management and Southeast Communications Center. The new Interlocal Agreement shall continue indefinitely, unless terminated by a participant. Benton County Emergency Services is served by an Executive Board composed of the City Managers of Kennewick and Richland, City Administrators for Prosser and West Richland, a Councilmember from Benton City and a Benton County Commissioner. Benton County Emergency Services is comprised of three Divisions: Southeast Communications Center (SECOMM), Benton County Emergency Management (BCEM) and 800 MHz Radio. 1. SECOMM The Southeast Communications Center provides public safety communications services to three principal participating jurisdictions: The cities of Kennewick and Richland and Benton County. The three principal participating jurisdictions own an equal share of net assets. Allocation of financial participation among the three principle jurisdictions is based on an equal share of capital expense and an equal share of predetermined fixed costs, direct costs and percent of use. The Southeast Communications Center also provides public safety communications services via contract to the City of West Richland, Benton County Fire Protection District Service contract agencies are assessed on a cost per capita or cost per call basis. 2. BCEM Benton County Emergency Management provides disaster response planning, event and response coordination and disaster recovery for Benton County and its political subdivisions per RCW 38.52. Four grant programs fund BCEM: Radiological Emergency Preparedness, DOE Emergency Preparedness, Chemical Stockpile Emergency Preparedness and State and Local Government Assistance program. The six participating jurisdictions own an equal share of net assets unless otherwise defined in the grant programs. Financial participation for Benton County and the cities of Kennewick, Richland, West Richland, Prosser and Benton City are allocated based on an equal share of a predetermined basic charge and a value determined by percent of population and assessed value. Washington State Auditor's Office 81 ---PAGE BREAK--- City of Kennewick, Washington 3. 800 MHz Radio 800 MHz Radio provides communication infrastructure and technology for the dispatching of public safety agencies throughout Benton County. The 11 participating agencies including Benton County Sheriff and Public Works, the cities of Kennewick, Richland, West Richland and Prosser, Benton County Fire Districts 1, 2 and 4, Benton PUD and Columbia Dive and Rescue are assessed an annual fee per radio to fund system maintenance. Effective January 1, 1997, the City of Richland assumed responsibility for operation of Benton County Emergency Services. As the Operating Jurisdiction, Richland provides all necessary administrative services for the operation of BCES. On December 31, 2009, the City of Kennewick's equity interest in SECOMM was $680,577, $108,925 in BCEM, and $1,385,620 in 800 MHz Radio. This equity is reported as an investment in joint ventures in the government-wide statement of net assets. The change in equity is reflected in the government-wide statement of activities under Public Safety. The City does not anticipate any income distributions from BCES since charges are assessed only to recover anticipated expenses. Complete and separate financial statements for BCES, as SECOMM and BCEM, may be obtained at the City of Richland, 505 Swift Blvd., Richland, Washington. B. Bi-County Police Information Network The Bi-County Police Information Network (BI-PIN) was established November 24, 1982, when an Interlocal Agreement was entered into by five participating municipal corporations; the cities of Kennewick, Pasco and Richland, and Benton and Franklin Counties. BI-PIN was established to assist the participating police and sheriff's departments in the deterrence and solution of criminal incidents. BI-PIN is served by an Executive Committee composed of the City Manager of each of the cities and a member from each of the Boards of County Commissioners of Benton and Franklin Counties. A liaison from the Bi-County Chiefs and Sheriffs is an ex officio, non-voting member. The allocation of financial participation among the participating jurisdictions is based upon the approved budget for that year and is billed quarterly in advance to each agency. On dissolution of the Interlocal Agreement, the net assets will be shared based upon participant contribution. Effective January 1, 1992, the City of Kennewick assumed responsibility for operation of the BI-PIN system. As the Operating Jurisdiction, Kennewick provides all necessary support services for the operation of BI-PIN such as accounting, legal services, risk management and information systems. The total amount paid by BI-PIN in 2009 for these transactions was $118,999. The City of Kennewick's equity interest in BI-PIN was $373,280 on December 31, 2009, which is reported as an investment in joint ventures in the government-wide statement of net assets. The change in equity is reflected in the government-wide statement of activities under Public Safety. The City does not anticipate any income distributions from BI-PIN since charges are assessed only to recover anticipated expenses. Complete separate financial statements for BI-PIN may be obtained at the City of Kennewick, 210 West Sixth Avenue, Kennewick, Washington. Washington State Auditor's Office 82 ---PAGE BREAK--- City of Kennewick, Washington C. Metro Drug Forfeiture Fund The Metropolitan Controlled Substance Enforcement Group (Metro) was established prior to 1987, when an Interlocal Agreement was entered into by six participating municipal corporations, the cities of Kennewick, Pasco, Richland, and West Richland, and Benton and Franklin Counties. Metro was established to account for the proceeds of forfeitures, federal grants, and court ordered contributions, and to facilitate the disbursement of those proceeds for the purpose of drug enforcement and investigations. Metro is served by an Executive Committee composed of the City Manager or designee of each of the cities and a member from each of the Boards of County Commissioners of Benton and Franklin Counties. In addition, a Governing Board consisting of the Chiefs of Police from the cities and the Sheriffs from the counties administers daily activity. Effective January 1, 1990, the City of Pasco assumed responsibility for the operation of Metro. As the Operating Jurisdiction, Pasco provides accounting services for the operation of Metro. Effective July 1, 2009 the City of Kennewick assumed accounting service responsibility for the operation of Metro. Financial reporting for this report is prior to Kennewick’s assumption of the financial accounting responsibility. The City of Kennewick's equity interest in Metro was $41,126 on June 30, 2009, which is reported as an investment in joint ventures in the government-wide statement of net assets. The change in equity is reflected in the government-wide statement of activities under Public Safety. The City does not anticipate any income distributions from Metro. Complete separate financial statements for Metro may be obtained at the City of Pasco, 525 North Third Street, Pasco, Washington. NOTE 18 – OTHER POSTEMPLOYMENT BENEFITS (OPEB) PLAN In addition to the pension benefits outlined in Note 7, the City of Kennewick provides post-retirement health care benefits in accordance with state statute for retired police officers and firefighters who are eligible under the Law Enforcement Officers’ and Firefighters’ (LEOFF) plan 1 retirement system. As of December 31, 2008, the City had 50 individuals that met the eligibility requirements of this retirement plan. A. Plan Description As required by the Revised Code of Washington (RCW), Chapter 41.26, the City provides lifetime medical care for members of the LEOFF retirement system that were hired prior to October 1, 1977 (LEOFF Plan 1 members). The members’ necessary hospital, medical, and nursing home care expenses not payable from Medicare, insurance provided by another employer, another pension plan, or any other similar source are covered. B. Funding Policy Pursuant to state statute, the City reimburses 100% of authorized LEOFF 1 retiree healthcare costs. The City pays a insurance premium to cover each retiree under its medical insurance program as well as any remaining eligible out of pocket expenses. Employer contributions are financed on a pay-as-you-go basis. Beginning in 2009, the City’s costs for health insurance and other medical costs for retired firefighters and law enforcement officers were paid for out of its Other Post Employment Benefits (OPEB) Trust Fund. Funding for these costs is provided from the proceeds of Washington State Auditor's Office 83 ---PAGE BREAK--- City of Kennewick, Washington a 6.5% utility tax assessed on water and sewer sales that was implemented beginning in 2009 and is dedicated for LEOFF 1 retiree medical costs. The projected revenue from this utility tax is expected to mirror the City’s LEOFF 1 retiree medical costs over future years. As the City’s obligations for these costs are reduced, the utility tax rate will also be reduced, until such time that it is completely eliminated. As of December 31, 2009, the City’s OPEB Trust Fund had accumulated a fund balance of $170,192. Although the accumulated balance is not considered to be an OPEB contribution because of the fact that the City has not established an irrevocable trust, these funds are designated for the City’s OPEB costs. C. Annual OPEB Cost and Net OPEB Obligation The City’s annual OPEB cost is calculated based upon the annual required contribution (ARC), an amount actuarially determined in accordance with the parameters of Governmental Accounting Standards Board (GASB) Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liability over a period of thirty years as of January 1, 2008. The City has elected to calculate the ARC and related information using the alternative measurement method permitted by GASB Statement 45 for employers with plans of less than one hundred members. The following table shows the components of the City’s annual OPEB cost, contributions made by the City, and changes to the net OPEB obligation for the years ending December 31, 2008 and 2009, respectively. As the year ending December 31, 2008, was the City’s first year of implementation for GASB Statement 45, annual OPEB cost was equal to the ARC for the year. 2008 2009 Annual required contribution $912,123 $921,747 Interest on net OPEB obligation - 7,055 Adjustment to the ARC - 9,624 Annual OPEB cost (expense) 912,123 919,178 Contributions made 755,347 733,542 Increase in net OPEB obligation 156,776 185,636 Net OPEB obligation – beginning of the year - 156,776 Net OPEB obligation – end of the year $156,776 $342,412 The City’s OPEB cost, the percentage of OPEB cost contributed to the plan, and the net OPEB obligation for the years ending December 31, 2009 and 2009, respectively, were as follows: Fiscal Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 12/31/09 $919,178 79.8% $342,412 12/31/08 $912,123 82.8% $156,776 D. Funding Status and Funding Progress As of January 1, 2008, the most recent actuarial valuation date, the plan was 0% funded. The actuarial accrued liability (AAL) for benefits was $14,354,560 and the actuarial value of plan assets was resulting in an unfunded actuarial accrued liability (UAAL) of $14,354,560. The covered payroll (annual payroll of active employees covered by the plan) was $202,912, and the ratio of the UAAL to the covered payroll was 7074 percent. Washington State Auditor's Office 84 ---PAGE BREAK--- City of Kennewick, Washington Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. E. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The City of Kennewick used the alternative measurement method permitted under GASB Statement No. 45. A single retirement age of 56.22 was assumed for all active members for the purpose of determining the actuarial accrued liability. Termination and mortality rates were assumed to follow the LEOFF 1 termination and mortality rates used in the September 30, 2006 actuarial valuation report issued by the Office of the State Actuary (OSA). Healthcare costs and trends were determined by Milliman and used by OSA in the state-wide LEOFF 1 medical study performed in 2007. These trends include projected medical inflation of 8.5% for 2008, reducing down to 5% by 2015. An inflation rate of 4.5% was utilized for long term care. The results were based on grouped data with 4 active groupings and 4 inactive groupings. The actuarial cost method used to determine the actuarial accrued liability was Projected Unit Credit. Other actuarial assumptions included a 4.5% discount rate and a 3.5% rate of inflation. These assumptions are individually and collectively reasonable for the purposes of this valuation. NOTE 19 – ASSOCIATION OF WASHINGTON CITIES EMPLOYEE BENEFIT TRUST (“Trust”) A. Trust Description The City is a Participating Employer in the Association of Washington Cities Employee Benefits Trust (“Trust”), a cost-sharing multiple-employer welfare plan administered by the Association of Washington Cities. The Trust provides medical benefits to certain eligible retired employees of Participating Employers and their eligible family members. Under Article VII of the Trust document, the Trustees have the authority and power to amend the amount and the nature of the medical and other benefits provided by the Trust. The Trust issues a publicly available financial report that includes financial statements and required supplementary information for the Trust. That report, along with a copy of the Trust document, may be obtained by writing to the Trust at 1076 Franklin Street SE, Olympia, WA 98501-1346, or by calling 1-[PHONE REDACTED]. Washington State Auditor's Office 85 ---PAGE BREAK--- City of Kennewick, Washington Funding Policy The Trust provides that contribution requirements of Participating Employers and of participating employees, retirees and other beneficiaries, if any, are established and may be amended by the Board of Trustees of the Trust. In 2009, retirees of the City receiving medical benefits from the Trust contributed $596.50 per month for non-Medicare enrolled retiree-only coverage, $1,193.00 per month for non-Medicare enrolled retiree and spouse coverage, $923.00 for Medicare enrolled retiree and non-Medicare enrolled spouse (or non-Medicare enrolled retiree and Medicare-enrolled spouse) and $653.00 for Medicare-enrolled retiree and spouse coverage. Participating Employers are contractually required to contribute at a rate assessed each year by the Trust. The required contribution rate expressed as a percentage of current year covered payroll is 17.1%. The City’s contribution to the Trust for the year ended December 31, 2009 was $4,462,926, which equaled the required contribution for the year. Retiring employees from a Participating Employer have several retiree medical plans to choose from. The AWC Trust works directly with the retired employee, and no monies pass through the City (former employer). Additionally, the AWC Trust pools the health care costs of the retiree medical programs, and rates the programs accordingly. Currently, the AWC Trust Board of Trustees have committed to a retiree medical plan subsidy of 25%, which is drawn from the accumulated medical reserve fund. The medical reserves have accumulated over the years from excess premium contributions of employers, active employees and retirees in favorable claims years. The Board of Trustees can change their retiree medical plan subsidy policy in any given year. NOTE 20 - OTHER DISCLOSURES Comparative Data/Reclassifications Comparative total data for the prior year is presented on both government-wide and fund financial statements in order to provide an understanding of the changes in the financial position and operations of these funds. Also, certain amounts presented in the prior year data have been reclassified for consistency purposes on the government-wide statement of net assets with no impact on ending total net assets. Subsequent Event In March of 2010, the City of Kennewick issued $13.665 million in limited tax general obligation bonds to pay for improvements to its Southridge Sports Complex, the design and construction of two vehicle and bike lanes along Hildebrand Boulevard, and other various infrastructure improvements to the Southridge area. These bonds were issued as part of the City’s participation in the State of Washington’s Local Revitalization Financing (LRF) program, which was enacted during the 2009 legislative session. In September of 2009, the City applied for and was awarded $500,000 for its LRF project. The City’s LRF project consists of capital improvements to the “revitalization area” developed by the City in its Southridge neighborhood. The Southridge revitalization area is primarily located in the southern area of the City west of SR 395 and north of Interstate 82. Under the LRF program, if the City demonstrates to the State that development in the revitalization area has generated sales and property tax increments for the State equal to or greater than the $500,000 project award, the State will then allow the City to impose an “LRF Tax”, which is a sales tax designed to generate $500,000 for the City each year over the next 25 years. The LRF tax is taken as a credit Washington State Auditor's Office 86 ---PAGE BREAK--- City of Kennewick, Washington against the State’s portion of the existing sales and use tax rate within the City and therefore does not result in an increase to the existing sales and use tax rate within the City of Kennewick. The tax revenue received under the LRF tax must be used by the City to pay for debt service on the limited tax general obligation bonds issued for the LRF projects in the Southridge revitalization area. Additionally, the City entered into interlocal agreements with Benton County, the Port of Kennewick and the Kennewick General Hospital District that will result in the City receiving up to $143,000 annually in sales and property tax increments generated for these agencies within the Southridge revitalization area. Under the terms of the interlocal agreements, the tax increments received by the City from these agencies must also be used for the purpose of financing the LRF improvements. The City of Kennewick will also apply its own tax increments generated from within the revitalization area towards the financing of LRF projects. Washington State Auditor's Office 87 ---PAGE BREAK--- City of Kennewick, Washington Required Supplementary Information Firemen’s Pension Fund The following is a schedule of contributions from the employer and other contributing entities for the Firemen’s Pension Fund: Annual Fiscal Actual Fire Actual Required Percentage of Year Insurance Employer Total Contribution ARC Ending Premiums Contributions Contributions (ARC) Contributed 12/31/2009 $60,473 $178,978 $239,451 150,624 159% 12/31/2008 63,419 98,128 161,547 150,624 107% 12/31/2007 60,988 136,012 197,000 157,014 125% 12/31/2006 55,586 (48,172) 7,414 157,014 5% 12/31/2005 50,546 (228,676) (178,130) 104,802 (170%) 12/31/2004 50,847 26,000 76,847 104,802 73% Schedule of funding progress for the Firemen’s Pension Fund (In Thousands): Actuarial Accrued Unfunded Actuarial UAAL as a Actuarial Value Liabilities Accrued Liabilities Percentage of Valuation Date of Assets Entry Age (UAAL) Funded Ratio Covered Payroll Covered Payroll January 1, 2008 $ 338 $ 2,321 $ 1,983 15% $ - 0% January 1, 2006 341 2,406 2,065 14% - 0% January 1, 2004 940 2,239 1,299 42% - 0% January 1, 2002 1,285 1,992 707 65% - 0% Washington State Auditor's Office 88 ---PAGE BREAK--- City of Kennewick, Washington Required Supplementary Information Other Postemployment Benefits (LEOFF 1 Retiree Medical) Schedule of employer contributions for other postemployment benefits – LEOFF 1 Retiree Medical: Fiscal Year Ending Employer Contributions Annual Required Contribution Percentage of ARC Contributed December 31, 2009 $733,542 $919,178 79.8% December 31, 2008 $755,347 $912,123 82.8% Schedule of funding progress for other postemployment benefits – LEOFF 1 Retiree Medical: Actuarial Unfunded Actuarial UAAL as a Actuarial Value Accrued Accrued Liability Percentage of Valuation Date* of Assets Liability (AAL) (UAAL) Funded Ratio Covered Payroll Covered Payroll January 1, 2008 $ - $14,354,560 $14,354,560 0% $202,912 7074.28% *This represents the first valuation for the City’s LEOFF 1 Retiree Medical OPEB plan. As a result, only one date is listed in the schedule of funding progress. Washington State Auditor's Office 89 ---PAGE BREAK--- Expenditures of Federal Awards Year Ended December 31, 2009 Grantor/ Federal Current Pass-Through Grantor CFDA Other Identification Year Program Title Number Number Expenditures U.S. Department of Housing and Urban Development 2008 Community Development Block Grant (Direct) 14.218 B-08-MC-53-0001 385,915 $ 2009 Community Development Block Grant (Direct) 14.218 B-09-MC-53-0001 129,736 Total CFDA Number 14.218 515,651 Passed through WA State Department of Commerce: Community Development Block Grant (CDBG) Neighborhood Stabilization Program (NSP) 14.228 08-F6401-031 830 ARRA - Community Development Block Grant Entitlement Grants (CDBG-R)(Recovery Act Funded) 14.253 B-09-MY-53-0001 147,675 Total U.S. Dept of Housing and Urban Development 664,156 Environmental Protection Agency Passed through WA State DCTED and Public Works Board: Capitalization Grants for Drinking Water State Revolving Loans 66.468 04-65104-014 2,521,201 Total Environmental Protection Agency 2,521,201 U.S. Department of Homeland Security Disaster Grants - Public Assistance (Presidentially Declared Disasters) 97.036 D09-444 43,577 Law Enforcement Terrorism Prevention Program (LETPP) 97.074 2007 GE T-0017 2,000 Homeland Security Grant Program 97.067 E09-147 50,000 Assistance to Firefighters Grant 97.044 EMW-2007-FO-07302 79,107 Total U.S. Dept of Homeland Security 174,684 U.S. Department of the Interior, National Park Service Passed through WA State Recreation and Conservation Funding Board (RCFB) Outdoor Recreation Acquisition, Development and Planning 15.916 05-1025D 213,494 Total U.S. Dept of the Interior, National Park Service 213,494 U.S. Department of Justice Bulletproof Vest Partnership Program 16.607 10,566 Anti-Gang Initiative 16.744 F07-66206205 20,454 Anti-Gang Initiative 16.744 F08-66205-003 25,000 Total CFDA Number 16.744 45,454 Edward Byrne Memorial Justice Assistance Grant Program 16.738 2008DJBX0178 6,112 Edward Byrne Memorial Justice Assistance Grant Program 16.738 2009DJBX1220 57,882 Passed through WA State Dept. of Commerce and Metro Drug Task Force: Edward Byrne Memorial Justice Assistance Grant Program 16.738 F07-66201012 20,326 16.738 M09-34021012 2,816 Total CFDA Number 16.738 87,136 ARRA - Edward Byrne Memorial Justice Assistance Grant Program/ 16.804 2009-SB-B9-0485 281,926 Grants to Units of Local Government Passed through WASPC, Franklin County and Metro Drug Task Force: Office of Community Oriented Policing Services/WA State Methamphetamine Initiative 16.710 2009CKWX0392 729 Public Safety Partnerships and Community Policing Grants Passed through WA State Dept. of Commerce and Metro Drug Task Force: ARRA - Edward Byrne Memorial Justice Assistance Grant (JAG) Program/ Grants to States 16.803 F09-34721-012 15,101 and Territories Passed through WA State Patrol and Metro Drug Task Force: Domestic Cannabis Eradication/Suppression 16.999 C090953FED 873 Passed through Metro Drug Task Force: Organized Crime Drug Enforcement Task Forces (OCDETF) - DEA 16.999 PA-WAE-0095 108 Washington State Auditor's Office 90 ---PAGE BREAK--- Expenditures of Federal Awards Year Ended December 31, 2009 Grantor/ Federal Current Pass-Through Grantor CFDA Other Identification Year Program Title Number Number Expenditures Passed through Metro Drug Task Force: Organized Crime Drug Enforcement Task Forces (OCDETF) - DEA 16.999 PA-WAE-0097 1,524 U.S. Marshals Service - Fugitive Task Force 16.999 0324A A3403FWF4014R 30,434 Federal Bureau of Investigation - Tri City Violent Crime Task Force 16.999 281D-SE-C93759 15,907 Total CFDA Number 16.999 48,846 Total U.S. Dept of Justice 489,758 U.S. Department of Transportation Passed-through WA State Traffic Safety Commission: Alcohol Traffic Safety & Drunk Driving Prevention Incentive Grants I 20.601 5,524 Alcohol Impaired Driving Counter Measures Incentive Grants I State and Community Highway Safety 20.600 1,994 Occupant Protection Incentive Grants 20.602 3,755 Total Department of Transportation 11,273 Federal Highway Administration Highway Planning and Construction Recovery Passed-through WA State Dept of Transportation: ARRA - Highway Planning and Construction 20.205 ARRA-3412(007) 112,218 Total Highway and Planning and Construction Grants 112,218 TOTAL EXPENDITURES OF FEDERAL AWARDS 4,186,784 $ The accompanying notes are an integral part of this schedule. Washington State Auditor's Office 91 ---PAGE BREAK--- Notes to Financial Assistance Schedules Year Ended December 31, 2009 NOTE 1 - BASIS OF ACCOUNTING NOTE 2 - PROGRAM COSTS NOTE 3 - FEDERAL LOANS NOTE 4 - NONCASH AWARDS - EQUIPMENT NOTE 5 - AMOUNTS AWARDED TO SUBRECIPIENTS NOTE 6 - AMERICAN RECOVERY AND REINVESTMENT ACT (ARRA) of 2009 ARRA - Community Development Block Grant Entitlement Grants (CDBG-R) ARRA - Edward Byrne Memorial Justice Assistance Grant Program/Grants to Units of Local Government ARRA - Edward Byrne Memorial Justice Assistance Grant (JAG) Program/ Grants to States and Territories ARRA - Highway Planning and Construction NOTE 7 - REPORTING ADJUSTMENT Included on the 2009 grant schedule is $6,112 received on the Edward Byrne Memorial Justice Assistance Grant. These funds were reported in error on the 2008 grant schedule, as the funds were actually expended in 2009, they have been reported again on the 2009 grant schedule. The Schedule of Financial Assistance is prepared on the same basis of accounting as the City's financial statements. The City uses a modified accrual basis of accounting in all of the related Governmental funds and full accrual in the Proprietary funds. The amounts shown as current expenditures represent only the portion of expenses paid for with Federal, State or Local grants. Actual program costs, including the City's portion, may be more than reported. The City was approved by the EPA for a loan of $3,030,000. The amount listed includes loan proceeds received during the year and the outstanding loan balance from prior years for which there are continuing compliance requirements. Both the current and prior year loan amounts are reported on the City's Schedule of Long Term Debt. Expenditures for the following programs were funded by ARRA: Included in the total amount expended for the Anti-Gang Initiative and the Edward Byrne Memorial Justice Assistance Grant Programs is $159,369 that was passed through to subrecipients that administered their own projects. The City received a vehicle that was purchased with federal Department of Justice funds by the U.S. Marshals Service. The amount reported on the schedule includes the $24,406 value of the vehicle on the date it was received by the City and the price paid by the U.S. Marshals Service. Washington State Auditor's Office 92 ---PAGE BREAK--- (SAO FACTS.DOC - Rev. 06/09) ABOUT THE STATE AUDITOR'S OFFICE The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. Our mission is to work in cooperation with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. The State Auditor's Office employees are located around the state to deliver our services effectively and efficiently. Our audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. In addition, we conduct performance audits of state agencies and local governments and fraud, whistleblower and citizen hotline investigations. The results of our work are widely distributed through a variety of reports, which are available on our Web site and through our free, electronic subscription service. We continue to refine our reporting efforts to ensure the results of our audits are useful and understandable. We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive quality assurance program. State Auditor Brian Sonntag, CGFM Chief of Staff Ted Rutt Deputy Chief of Staff Doug Cochran Chief Policy Advisor Jerry Pugnetti Director of Audit Chuck Pfeil, CPA Director of Special Investigations Jim Brittain, CPA Director for Legal Affairs Jan Jutte, CPA, CGFM Director of Quality Assurance Ivan Dansereau Local Government Liaison Mike Murphy Communications Director Mindy Chambers Public Records Officer Mary Leider Main number (360) 902-0370 Toll-free Citizen Hotline (866) 902-3900 Web Site www.sao.wa.gov Subscription Service ---PAGE BREAK--- Washington State Auditor’s Office Accountability Audit Report City of Kennewick Benton County Report Date December 16, 2010 Report No. 1004850 Issue Date January 3, 2011 ---PAGE BREAK--- January 3, 2011 Mayor and City Council City of Kennewick Kennewick, Washington Report on Accountability We appreciate the opportunity to work in cooperation with your City to promote accountability, integrity and openness in government. The State Auditor’s Office takes seriously our role to advocate for government accountability and transparency and to promote positive change. Please find attached our report on the City of Kennewick’s accountability and compliance with state laws and regulations and its own policies and procedures. Thank you for working with us to ensure the efficient and effective use of public resources. Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR Washington State Auditor Brian Sonntag Insurance Building, P.O. Box 40021  Olympia, Washington 98504-0021  (360) 902-0370  TDD Relay (800) 833-6388 FAX (360) 753-0646  http://www.sao.wa.gov ---PAGE BREAK--- Table of Contents City of Kennewick Benton County December 16, 2010 Audit Summary 1 Related Reports 2 Description of the City 3 ---PAGE BREAK--- Washington State Auditor’s Office 1 Audit Summary City of Kennewick Benton County December 16, 2010 ABOUT THE AUDIT This report contains the results of our independent accountability audit of the City of Kennewick from January 1, 2009 through October 31, 2010. We evaluated internal controls and performed audit procedures on the activities of the City. We also determined whether the City complied with state laws and regulations and its own policies and procedures. In keeping with general auditing practices, we do not examine every transaction, activity or area. Instead, the areas examined were those representing the highest risk of noncompliance, misappropriation or misuse. The following areas were examined during this audit period:  Budget compliance  Contracts/agreements  Procurement (bidding/prevailing wage)  Debt/covenants  Fire hydrant costs  Payroll  General disbursements  Cash receipting  Insurance and bonding  Cost allocations  Change orders  Building permits  EMS narcotics – safeguarding of assets RESULTS In the areas we examined, the City’s internal controls were adequate to safeguard public assets. The City also complied with state laws and regulations and its own policies and procedures in the areas we examined. ---PAGE BREAK--- Washington State Auditor’s Office 2 Related Reports City of Kennewick Benton County December 16, 2010 FINANCIAL Our opinion on the City’s financial statements and compliance with federal grant program requirements is provided in a separate report, which includes the City’s financial statements. FEDERAL GRANT PROGRAMS We evaluated internal controls and tested compliance with the federal program requirements, as applicable, for the City’s major federal programs, which are listed in the Federal Summary section of the financial statement and single audit report. ---PAGE BREAK--- Washington State Auditor’s Office 3 Description of the City City of Kennewick Benton County December 16, 2010 ABOUT THE CITY The City of Kennewick serves approximately 68,870 citizens in Benton County. The City provides an array of services including water, sewer, police, fire, parks and recreation, senior center, public improvements, and planning and economic development. The City contracts for solid waste collection and disposal services and the Mid-Columbia Regional Library District provides library services. The Toyota Center Coliseum and Arena are also owned by the City. An elected, seven-member Council governs the City. The Council then selects one of its Members to serve as Mayor. The Council also appoints a Manager to oversee the City’s daily operations as well as its approximately 350 full- and part-time employees. The City has a two-year adjusted budget of approximately $267 million. ELECTED OFFICIALS These officials served during the audit period: Mayor and City Council: Thomas Moak, Mayor (2009) Steve Young, Mayor (2010) and Councilmember (2009) Margery Price, Mayor Pro Tem (2009) Sharon Brown, Mayor Pro Tem (2010) James Hempstead (2009) Bob Olson (2009 and 2010) Paul Parish (2009 and 2010) Bob Parks (2009 and 2010) Don Britain (2010) John Hubbard (2010) APPOINTED OFFICIALS City Manager Interim City Manager Robert Hammond (2009 through August 2010) Marie Mosley (September 2010 through October 2010) ---PAGE BREAK--- Washington State Auditor’s Office 4 CITY CONTACT INFORMATION Address: City of Kennewick 210 W. 6th Avenue P.O. Box 6108 Kennewick, WA 99336 Phone: (509) 585-4200 Website: www.go2kennewick.com AUDIT HISTORY We audit the City annually. This is the 13th consecutive audit with no findings. City staff and officials have always been responsive to our audit recommendations. We believe this reflects the City’s commitment to maintaining a strong financial system and establishing public accountability. ---PAGE BREAK--- (SAO FACTS.DOC - Rev. 06/09) ABOUT THE STATE AUDITOR'S OFFICE The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. Our mission is to work in cooperation with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. The State Auditor's Office employees are located around the state to deliver our services effectively and efficiently. Our audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. In addition, we conduct performance audits of state agencies and local governments and fraud, whistleblower and citizen hotline investigations. The results of our work are widely distributed through a variety of reports, which are available on our Web site and through our free, electronic subscription service. We continue to refine our reporting efforts to ensure the results of our audits are useful and understandable. We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive quality assurance program. State Auditor Brian Sonntag, CGFM Chief of Staff Ted Rutt Deputy Chief of Staff Doug Cochran Chief Policy Advisor Jerry Pugnetti Director of Audit Chuck Pfeil, CPA Director of Special Investigations Jim Brittain, CPA Director for Legal Affairs Jan Jutte, CPA, CGFM Director of Quality Assurance Ivan Dansereau Local Government Liaison Mike Murphy Communications Director Mindy Chambers Public Records Officer Mary Leider Main number (360) 902-0370 Toll-free Citizen Hotline (866) 902-3900 Website www.sao.wa.gov Subscription Service