Document Kennewick_doc_7092c0e323

Financial Statements and Federal Single Audit Report City of Kennewick Benton County For the period January 1, 2015 through December 31, 2015 Published July 14, 2016 Report No. 1017081 ---PAGE BREAK--- Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 TDD Relay (800) 833-6388 July 14, 2016 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, TROY KELLEY STATE AUDITOR OLYMPIA, WA Washington State Auditor’s Office ---PAGE BREAK--- TABLE OF CONTENTS Schedule Of Findings And Questioned Costs 4 Independent Auditor’s Report On Internal Control Over Financial Reporting And On Compliance And Other Matters Based On An Audit Of Financial Statements Performed In Accordance With Government Auditing Standards 6 Independent Auditor’s Report On Compliance For Each Major Federal Program And Report On Internal Control Over Compliance In Accordance With The Uniform Guidance 9 Independent Auditor’s Report On Financial Statements 12 Financial Section 16 About The State Auditor’s Office Washington State Auditor's Office Page 3 ---PAGE BREAK--- SCHEDULE OF FINDINGS AND QUESTIONED COSTS City of Kennewick Benton County January 1, 2015 through December 31, 2015 SECTION I – SUMMARY OF AUDITOR’S RESULTS The results of our audit of the City of Kennewick are summarized below in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Financial Statements We issued an unmodified opinion on the fair presentation of the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units,each major fund and the aggregate remaining fund information in accordance with accounting principles generally accepted in the United States of America (GAAP). Internal Control over Financial Reporting:  Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over financial reporting that we consider to be significant deficiencies.  Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses. We noted no instances of noncompliance that were material to the financial statements of the City. Federal Awards Internal Control over Major Programs:  Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over major federal programs that we consider to be significant deficiencies.  Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses. Washington State Auditor's Office Page 4 ---PAGE BREAK--- We issued an unmodified opinion on the City’s compliance with requirements applicable to its major federal program. We reported no findings that are required to be disclosed in accordance with 2 CFR 200.516(a). Identification of Major Federal Programs: The following program was selected as a major program in our audit of compliance in accordance with the Uniform Guidance. CFDA No. Program or Cluster Title 20.205 Highway Planning and Construction The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by the Uniform Guidance, was $750,000. The City qualified as a low-risk auditee under the Uniform Guidance. SECTION II – FINANCIAL STATEMENT FINDINGS None reported. SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS None reported. Washington State Auditor's Office Page 5 ---PAGE BREAK--- INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS City of Kennewick Benton County January 1, 2015 through December 31, 2015 Mayor and City Council City of Kennewick Kennewick, Washington We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund and the aggregate remaining fund information of the City of Kennewick, Benton County, Washington, as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated June 28, 2016. As discussed in Note 1 to the financial statements, during the year ended December 31, 2015, the City implemented Governmental Accounting Standards Board Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27. The prior year comparative information has been derived from the City’s 2014 basic financial statements, on which we issued our report dated June 26, 2015. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to Washington State Auditor's Office Page 6 ---PAGE BREAK--- prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of the City’s compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. PURPOSE OF THIS REPORT The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. However, Washington State Auditor's Office Page 7 ---PAGE BREAK--- this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. TROY KELLEY STATE AUDITOR OLYMPIA, WA June 28, 2016 Washington State Auditor's Office Page 8 ---PAGE BREAK--- INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH THE UNIFORM GUIDANCE City of Kennewick Benton County January 1, 2015 through December 31, 2015 Mayor and City Council City of Kennewick Kennewick, Washington REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM 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) Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended December 31, 2015. The City’s major federal programs are identified in the accompanying Schedule of Findings and Questioned Costs. Management’s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal Washington State Auditor's Office Page 9 ---PAGE BREAK--- program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. Our audit does not provide a legal determination on the City’s compliance. Opinion on Each Major Federal Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2015. REPORT ON INTERNAL CONTROL OVER COMPLIANCE Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program in order to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal Washington State Auditor's Office Page 10 ---PAGE BREAK--- control that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Purpose of this Report The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. TROY KELLEY STATE AUDITOR OLYMPIA, WA July 6, 2016 Washington State Auditor's Office Page 11 ---PAGE BREAK--- INDEPENDENT AUDITOR’S REPORT ON FINANCIAL STATEMENTS City of Kennewick Benton County January 1, 2015 through December 31, 2015 Mayor and City Council City of Kennewick Kennewick, Washington REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund and the aggregate remaining fund information of the City of Kennewick, Benton County, Washington, as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed on page 16. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s Washington State Auditor's Office Page 12 ---PAGE BREAK--- judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and aggregate remaining fund information of the City of Kennewick, as of December 31, 2015, and the respective changes in financial position and, where applicable, cash flows thereof, and the year then ended in accordance with accounting principles generally accepted in the United States of America. Matters of Emphasis As discussed in Note 1 to the financial statements, in 2015, the City adopted new accounting guidance, Governmental Accounting Standards Board Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27. Our opinion is not modified with respect to this matter. Other Matters Report on Summarized Comparative Information The financial statements include partial prior-year comparative information. Such information does not include all of the information required for a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the City’s financial statements for the year end December 31, 2014, from which such partial information was derived. We have previously audited the City’s 2014 financial statements we expressed unmodified opinions on the respective financial statements of the governmental activities, business-type activities, aggregate discretely component units, each major fund and aggregate remaining fund in our report dated June 26, 2015. In our opinion, the partial comparative information presented herein as of and for Washington State Auditor's Office Page 13 ---PAGE BREAK--- the year ended December 31, 2015, is consistent, in all material respects, with the audited financial statements from which it has been derived. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 18 through 35, pension plan information on pages 99 through 100, information on postemployment benefits other than pensions on page 101, and budgetary comparison information on pages 102 through 104 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). This schedule is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Washington State Auditor's Office Page 14 ---PAGE BREAK--- OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated June 28, 2016 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. TROY KELLEY STATE AUDITOR OLYMPIA, WA June 28, 2016 Washington State Auditor's Office Page 15 ---PAGE BREAK--- FINANCIAL SECTION City of Kennewick Benton County January 1, 2015 through December 31, 2015 REQUIRED SUPPLEMENTARY INFORMATION Management’s Discussion and Analysis – 2015 BASIC FINANCIAL STATEMENTS Statement of Net Position – 2015 Statement of Activities – 2015 Balance Sheet – Governmental Funds – 2015 Reconciliation of Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position – Governmental Activities – 2015 Statement of Revenues, Expenditures and Changes in Fund Balance – Governmental Funds – 2015 Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balance of Governmental Funds to the Statement of Activities – 2015 Statement of Net Position – Proprietary Funds – 2015 Reconciliation of the Statement of Net Position – Proprietary Funds to the Government-Wide Statement of Net Position – Business-Type Activities – 2015 Statement of Revenues, Expenses and Changes in Fund Net Position – Proprietary Funds – 2015 Reconciliation of the Statement of Revenues, Expenses, and Changes in Fund Net Position of Proprietary Funds to the Statements of Activities – Business – Type Activities – 2015 Statement of Cash Flows – Proprietary Funds – 2015 Statement of Fiduciary Net Position – Fiduciary Funds – 2015 Statement of Changes in Fiduciary Net Position – Fiduciary Funds – 2015 Notes to Financial Statements – 2015 REQUIRED SUPPLEMENTARY INFORMATION Cost Sharing Employer Pension Plans – Schedules of Proportionate Share of the Net Pension Liability – 2015 Cost Sharing Employer Pension Plans – Schedules of Employer Contributions – 2015 Washington State Auditor's Office Page 16 ---PAGE BREAK--- Other Postemployment Benefits (LEOFF 1 Retiree Medical) – 2015 Schedule of Revenues, Expenditures, and Changes in Fund Balances- Budget to Actual – General Fund – 2015 Schedule of Revenues, Expenditures, and Changes in Fund Balances – Budget to Actual – Community Development fund – 2015 Notes to Required Supplementary Information – 2015 SUPPLEMENTARY AND OTHER INFORMATION Schedule of Expenditures of Federal Awards – 2015 Notes to the Schedule of Expenditures of Federal Awards – 2015 Washington State Auditor's Office Page 17 ---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, 2015. The information presented within this overview should be considered in conjunction with the City’s financial statements immediately following this analysis. Financial Highlights  The assets of the City of Kennewick exceeded its liabilities at December 31, 2015 by $357,001,249 (net position). Of this amount, $7,652,683 (unrestricted net position) may be used to meet the City’s ongoing obligations to citizens and creditors. However, although not formally restricted, a portion of unrestricted net position as of December 31, 2015 has been identified by City Council for projects that were in progress or planned at the end of 2015, but will not be completed until 2016 or beyond.  The City’s total net position increased by $17,501,242 in 2015. 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 $35,972,586 greater than the program revenues generated for governmental activities. Program revenues exceeded expenses by $3,645,857 for business-type activities.  As of December 31, 2015, the City of Kennewick’s governmental funds reported combined ending fund balances of $24,767,877, an increase of $11,105,312 in comparison with the prior year. Approximately 11 percent of this total amount, $2,631,063, represents unassigned (undesignated) fund balance. The remaining fund balance within governmental funds is either assigned by City Council’s intent for a specific purpose ($9,129,413), committed for specific purposes pursuant to constraints imposed by a formal action of the City’s highest level of decision making authority ($5,278,985), or restricted externally for a specific purpose ($7,728,416).  As of December 31, 2015, unassigned fund balance for the general fund was $2,631,063, or 5.6 percent of total reported general fund expenditures and 5.4 percent of total operating fund expenditures (general and street fund), which met the City’s budgetary policy of maintaining fund balance equal to 5 percent of annual operating expenditures for these funds. Committed fund balance reported in the City’s general fund was $2,715,500 as of December 31, 2015. This fund balance is committed through council budget policy to respond to potential unforeseen adversities or major projects that were not anticipated when the City’s budget was prepared. Together these fund balances represent approximately 11 percent of actual reported operating fund expenditures for 2015. And finally, restricted fund balance in the general fund was $213,162 as of December 31, 2015, which was associated with a donation received for its senior center facility.  The City of Kennewick’s total net capital assets increased by $4,821,628 during the year ended December 31, 2015. This increase reflects the investment made in the City’s infrastructure including parks, streets and water and sewer infrastructure. These capital projects were funded utilizing a combination of private and public resources.  The City of Kennewick’s total outstanding debt increased by $2,245,264 during the year ended December 31, 2015. Within governmental activities, total outstanding debt increased by $4,873,521, which reflected the issuance of $3,255,000 in taxable general obligation bonds during the year for land acquisitions and $4,085,000 in tax-exempt general obligation bonds issued to fund the construction of the City’s fifth fire station. Additionally, the City issued refunding bonds with a par Washington State Auditor's Office Page 18 ---PAGE BREAK--- value of $5,915,000 during 2015 to advance refund the outstanding balance of a 2006 bond issue at a net present value savings of $483,000. Within business-type activities, total outstanding debt decreased by $2,628,257, which reflected the addition of $407,523 for water and stormwater infrastructure projects, net of scheduled principal payments on the utility’s outstanding debt. 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, 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 position presents information on all of the City of Kennewick’s assets, liabilities, and deferred inflows/outflows of resources, with the difference reported as net position. Analyzing net position 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 position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported 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, paid 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 fifteen individual governmental funds for financial reporting purposes. 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, capital improvement fund and urban arterial fund, all of which are being reported as major funds. Data from the other governmental funds is combined into a single, aggregated presentation. Washington State Auditor's Office Page 19 ---PAGE BREAK--- 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 six enterprise funds to account for its water and sewer utility, ambulance service, building inspection function, coliseum facility operations, stormwater utility and golf course operations. Internal service funds are used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the City. The City of Kennewick uses three internal service funds to account for the management, maintenance, and repair of city-owned equipment, the purchasing, warehousing, and disbursement of office and maintenance supplies for all departments within the City, and for insurance programs and other risk management 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, medical services fund and coliseum 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. Information included as required supplementary information consists of data and statistics related to the City’s four cost sharing pension plans, the City of Kennewick’s progress in funding its obligation to provide 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, and a budgetary comparison for the general fund and major special revenue funds to demonstrate compliance with their respective budgets. Government-wide Financial Analysis As noted earlier, changes in net position may serve over time as a useful indicator of a government’s financial position. As of December 31, 2015, the City of Kennewick’s assets exceeded liabilities by $357,001,249. The following is a condensed version of the City’s statement of net position for the years ended December 31, 2015 and 2014, respectively. The majority of the City of Kennewick’s net position (91 percent) reflects 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 $50,405,808. 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. Washington State Auditor's Office Page 20 ---PAGE BREAK--- An additional portion of the City of Kennewick’s net position (7 percent) is subject to external restrictions, including bond covenants and construction requirements, on how they must be used. The remaining balance of unrestricted net position of $7,652,683 may be used to meet the government’s ongoing obligations to citizens and creditors. However, although not formally restricted, a portion of unrestricted net position as of December 31, 2015 has been identified by City Council for future projects and other needs of the City in the future. As of December 31, 2015, the City of Kennewick was able to report positive balances in all three categories of net position. In addition, governmental activities and business-type activities were also able to report positive balances in all categories, with the exception of unrestricted net position for business-type activities. The overall deficit balance within unrestricted net position for business-type activities was attributable to a deficit in unrestricted net position for the City’s coliseum business-type activity, which is the result of the fact that an interfund loan was utilized to finance the acquisition of its coliseum facility and the refurbishment of the facility’s marquee sign, rather than external debt. Under generally accepted accounting principles, the outstanding balance of these interfund loans, which is $2,489,339, is not considered capital related debt for purposes of calculating the net position category of net investment in capital assets. Instead, the interfund loans reduce unrestricted net position, despite the fact that the purpose of the loans was to acquire the facility and refurbish the sign. As mentioned in the financial highlights section of this analysis, the City’s net position increased by $17,501,242 overall for the year ended December 31, 2015. A large portion of this increase was 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. 2015 2014 2015 2014 2015 2014 Assets Current assets 41,859,668 $ 35,668,799 $ 1,537,589 $ 1,045,756 $ 43,397,257 $ 36,714,555 $ Capital assets 209,529,131 207,033,391 166,481,761 164,155,873 376,010,892 371,189,264 Other noncurrent assets 17,008,604 4,923,795 3,403,694 2,116,394 20,412,298 7,040,189 Total assets 268,397,403 247,625,985 171,423,044 167,318,023 439,820,447 414,944,008 Deferred Outflows of Resources Deferred charge on refunding 663,350 403,391 - - 663,350 403,391 Deferred outflows on pension 1,881,925 - 529,375 - 2,411,300 - Total deferred outflows of resources 2,545,275 403,391 529,375 - 3,074,650 403,391 Total assets and deferred outflows of resources 270,942,678 $ 248,029,376 $ 171,952,419 $ 167,318,023 $ 442,895,097 $ 415,347,399 $ Liabilities Current liabilities 7,178,075 $ 7,818,805 $ 4,899,201 $ 5,319,378 $ 12,077,276 $ 13,138,183 $ Noncurrent liabilities 43,733,707 29,608,540 26,130,170 25,196,755 69,863,877 54,805,295 Total liabilities 50,911,782 37,427,345 31,029,371 30,516,133 81,941,153 67,943,478 Deferred Inflows of Resources Deferred inflows on pension 3,128,542 - 824,153 - 3,952,695 - Total deferred inflows of resources 3,128,542 - 824,153 - 3,952,695 - Net Position Net investment in capital assets 183,090,473 179,385,930 142,514,611 137,560,465 325,605,084 316,946,395 Restricted 20,339,788 8,287,063 3,403,694 2,116,394 23,743,482 10,403,457 Unrestricted (deficit) 13,472,093 22,929,038 (5,819,410) (2,874,969) 7,652,683 20,054,069 Total net position 216,902,354 210,602,031 140,098,895 136,801,890 357,001,249 347,403,921 Total liabilities and net position 270,942,678 $ 248,029,376 $ 171,952,419 $ 167,318,023 $ 442,895,097 $ 415,347,399 $ City of Kennewick Statement of Net Position Governmental Activities Business-Type Activities Total Washington State Auditor's Office Page 21 ---PAGE BREAK--- Governmental activities increased the City of Kennewick’s net position by $11,482,007 during the year ended December 31, 2015, which equated to 66 percent of the overall increase of $17,501,242 for the government as a whole. Key elements of the current year’s increase in net position and changes relative to the prior year follow.  Program revenues decreased by approximately $1.9 million overall during 2015, which represented a decrease of 9 percent. The largest factor in this overall decrease was a reduction in program revenue from capital grants and contributions within the City’s transportation program. Capital grants and contributions decreased by just under $2.4 million in 2015 when compared to 2014, due to significant federal and state grant revenue associated with large transportation projects in the City during 2014 including the extension of Olympia Street from State Route 397 to 27th Street and Steptoe phase 2, which was the second phase of a project that will connect Steptoe Street to Bob Olson Parkway (formerly Hildebrand Boulevard) in the near future and provide a new roadway connection from the City’s northwestern retail district to its southern area where a significant portion of the City’s future growth is expected to occur.  Tax revenues are the largest source of revenue within governmental activities, making up approximately 71 percent of total revenues. On a full accrual basis, tax revenues increased by 13 percent in 2015 when compared to 2014, which equates to a total increase of approximately $5.7 2015 2014 2015 2014 2015 2014 Revenues Program revenues: Charges for services 6,707,105 $ 6,691,952 $ 28,535,411 $ 27,360,762 $ 35,242,516 $ 34,052,714 $ Operating grants and contributions 5,723,238 5,265,254 91,745 - 5,814,983 5,265,254 Capital grants and contributions 7,502,813 9,868,925 4,762,394 3,578,988 12,265,207 13,447,913 General revenues: Property taxes 12,052,267 11,844,378 - - 12,052,267 11,844,378 Sales taxes 21,470,287 17,536,255 - - 21,470,287 17,536,255 Utility taxes 11,127,051 10,759,476 - - 11,127,051 10,759,476 Real estate excise tax 2,736,131 1,610,706 - - 2,736,131 1,610,706 Gambling excise tax 696,577 746,328 - - 696,577 746,328 Lodging tax 1,018,734 914,197 - - 1,018,734 914,197 Other taxes 422,703 423,926 - - 422,703 423,926 Gain on sale of capital assets - 593,125 - - - 593,125 Unrestricted investment earnings 225,621 163,436 78,600 79,625 304,221 243,061 Total revenues 69,682,527 66,417,958 33,468,150 31,019,375 103,150,677 97,437,333 Expenses: General government 7,995,740 9,159,699 - - 7,995,740 9,159,699 Public safety 27,870,812 29,690,920 - - 27,870,812 29,690,920 Transportation 9,449,339 8,838,502 - - 9,449,339 8,838,502 Physical environment 9,618 469,205 - - 9,618 469,205 Economic environment 2,439,483 2,126,169 - - 2,439,483 2,126,169 Social services 57,584 50,310 - - 57,584 50,310 Culture and recreation 6,791,723 6,857,438 - - 6,791,723 6,857,438 Interest on long-term debt 1,291,443 1,294,850 - - 1,291,443 1,294,850 Water and Sewer - - 16,919,995 16,139,077 16,919,995 16,139,077 Medical Services - - 5,789,698 4,423,588 5,789,698 4,423,588 Building Safety - - 1,189,976 1,248,757 1,189,976 1,248,757 Stormwater - - 1,676,069 1,547,131 1,676,069 1,547,131 Columbia Park Golf Course - - 308,386 302,752 308,386 302,752 Coliseum - - 3,859,569 3,806,441 3,859,569 3,806,441 Total expenses 55,905,742 58,487,093 29,743,693 27,467,746 85,649,435 85,954,839 Increase in net position before transfers 13,776,785 7,930,865 3,724,457 3,551,629 17,501,242 11,482,494 Transfers (2,294,778) (1,054,030) 2,294,778 1,054,030 - - Increase (decrease) in net position 11,482,007 6,876,835 6,019,235 4,605,659 17,501,242 11,482,494 Net position - beginning, as restated 205,420,347 203,725,196 134,079,660 132,196,231 339,500,007 335,921,427 Net position - ending 216,902,354 $ 210,602,031 $ 140,098,895 $ 136,801,890 $ 357,001,249 $ 347,403,921 $ Governmental Activities Business-Type Activities Total City of Kennewick Changes in Net Position Washington State Auditor's Office Page 22 ---PAGE BREAK--- million. The most significant components of this overall increase were increases in sales and real estate excise tax revenues. Sales tax revenue, which is the City’s largest single source of tax revenue, increased by 22 percent when compared to 2014, or approximately $3.9 million. The largest factor in this increase was the addition of a voter-approved 0.3 percent sales tax within Benton County dedicated towards public safety programs that became effective in January of 2015. Under state law, the proceeds from this new voter-approved sales tax are split between the County and all cities within the County on a 60/40 basis, with the portion allocated to cities then distributed based on population. Under this formula, the City of Kennewick receives approximately half of the proceeds allocated to cities in Benton County, or roughly 20 percent of the total amount received, which equated to just under $2.3 million for 2015. Additionally, the City’s non-voted sales tax revenue increased by 9 percent in 2015, which was the result of low unemployment in the region, growth in both residential and commercial construction, and continued growth in the City’s base sales and use tax, as evidenced by a significant majority of the City’s top fifty taxpayers experiencing growth in their taxable sales activity for the year. Real estate excise tax revenue, which is derived from sales of real estate and must be used primarily for capital purposes (projects) under state law, increased by 70 percent in 2015, or approximately $1.1 million. The increase experienced from this revenue source in 2015 is directly related to the significant new residential and commercial growth the City experienced during the year. Due to the fact that this tax revenue source is tied to real estate activity, it can be highly volatile and difficult to predict.  On an accrual basis, expenses within governmental activities decreased by approximately $2.6 million in 2015 relative to 2014, which equates to a decrease of approximately 4 percent. The single largest factor in this net decrease was a reduction in personnel expenses, which was primarily attributable to three main factors. First, the City reallocated personnel costs for 9.71 full-time equivalent positions from governmental activities to its medical services business-type activity beginning in 2015 after completing a cost of service study for its ambulance program in 2014. This study concluded that the City’s governmental activities were providing an implicit subsidy to the medical services business-type activity based on the actual composition of the Fire Department’s calls for service, which showed that 77 percent of all calls for service were related to the City’s ambulance program. At the same time the City reallocated these personnel costs, it also increased the transfer from governmental activities to the medical services business-type activity for the same amount, with the intent that these changes would be neutral financially to both activities. As part of the adopted budget for the 2015/2016 biennium, the Kennewick City Council approved a $1 increase to the ambulance availability charge for both residential and commercial customers in both 2015 and 2016, with the intent to bring the charge more in line with neighboring jurisdictions and reduce the operating transfer required from governmental activities to support the medical services business-type activity. Second, the City also made a structural change in 2015 to reallocate the personnel expenses for 3 meter reader positions from governmental activities to the water and sewer business-type activity. Historically, the personnel costs associated with these positions were paid from within governmental activities and then were reimbursed by the water and sewer business-type activity. Beginning in 2015, these personnel expenses were paid directly from the water and sewer business-type activity and the previous reimbursement paid to governmental activities was eliminated. Lastly, the City estimates that it averaged roughly 2 more vacant positions per month in 2015 than it did during 2014 within governmental activities. Although this was not a deliberate strategy to reduce personnel expenses, the City works diligently to ensure that it hires the right individual when filling all vacant positions, which can lengthen the hiring process but is much more effective over the long-term. Washington State Auditor's Office Page 23 ---PAGE BREAK--- The follow illustratio 2015 to c slight exc state and these pro depreciate taxes wil transporta The follo governme approxim which inc parties, ar 29 percen wing chart illu n clearly show cover the shor cess of progra federal grant ojects are cap ed, which wi ll likely be ation function owing graph ental activitie ately 71 perc clude charges re also a large nt of total reve ustrates the su ws that most rtfall of progr am revenues o funding for s pitalized on ll significant required to n. h illustrates es. As the cent of the to s for services e source of re enues. urplus or net governmenta ram revenues over expenses street construc the governm ly add to the subsidize th different com graph illustr otal revenues s provided as venue used to subsidy requi al programs w s available to s for the trans ction projects ment-wide st e expenses re he ongoing mponents of rates, taxes s that suppor well as oper o support gov ired for differ were reliant o o fund the cos sportation fun s. However, tatements. O eported for th maintenance f the City are the maj rt governmen rating and ca vernmental ac rent governm on tax revenu sts of providi nction in 201 it should be n Over time, t his function. e and operat of Kennewic jor revenue ntal activities apital contribu ctivities, maki mental program es to some de ing the servic 5 was attribu noted that the these assets Ultimately, tions of the ck's revenue source, mak . Program re utions from e ing up the rem ms. The egree in ce. The utable to e cost of will be general e City’s es from king up evenues, external maining Washington State Auditor's Office Page 24 ---PAGE BREAK--- Business- ended Dec governme expenses current ye  The l increa signif an ov of 1.5 the C region utilizi Withi by 14 increa comm exper Charg comp notew City. Progr activi reside the nu charg year b an in month -type activiti cember 31, 20 ent as a whole in excess of p ear increase in argest compo ase of 4 perc ficantly to thi erall increase 5 percent enac City’s municip n that resulte ing potable w in the medica 4 percent ove ase to its mon mercial units i rienced for thi ges for servic ared to 2014 worthy that bu ram revenue ty consist pr ential and com umber of park e increased b based on the a crease in the hly stormwate es contributed 015, which eq e. The follow program reven n net position onent of reve cent in 2015. is revenue cat e of approxim cted for the y pal code and ed in restrictio water to irrigat al services bus erall during 2 ambulan in the City. T is activity in 2 es in the buil as a result of uilding permi from the cat rimarily of th mmercial unit king stalls lo by 2.5 percen annual chang e number of er charge with d to the City o quated to 34 p wing graph illu nues for each n and changes enues for bus The water tegory when mately 4 perce year based on d an increase ons on the u te their landsc siness-type ac 2015. As di nce availabilit This rate cha 2015. lding safety b f a 2 percent d t revenue in 2 tegory of cha he revenue de ts in the City cated at their nt, which was ge to the consu residential, hin the City. of Kennewick percent of the ustrates the ex h of the City’s relative to th siness-type ac and sewer b looking at bu nt in 2015 as the annual ch in water con se of irrigatio caping. ctivity, revenu scussed earli ty charge that ange was the business-type decrease in th 2014 was at t arges for serv erived from . Commercia r business. In the result of umer price in multi-family k’s net positio e overall incre xcess of prog s business-typ he prior year f ctivities, char business-type usiness-type a s well, which hange to the nsumption du on water and ue derived fro ier in this rep t is assessed t primary facto activity decr he number of the highest am rvices in the a st al units are al n 2015, reven f a rate increa ndex pursuant and comme on by $6,019, ease of $17,50 gram revenues pe activities. follow. rges for servi activity, whi activities as a was attributa consumer pri ue to a state d led to an in om charges fo port, the City to all resident or in the over reased by 5 p f building per mount record City’s storm tormwater ch lso assessed a nue from the ase of 1.5 per t to the City’s ercial units th ,235 for the p 01,242 for the s over expens Key elements ices, experien ich contribute a whole, expe able to a rate i ice index pur wide drough ncrease in cu for services in y implemente tial, multi-fam rall revenue i percent in 201 rmits. Howev ded in history mwater busine harge assesse a surcharge b stor rcent enacted s municipal c hat are asses period e ses or s of the nced an es most erienced increase suant to ht in the ustomers ncreased ed a $1 mily and increase 15 when ver, it is y for the ess-type d to all based on rmwater d for the ode and ssed the Washington State Auditor's Office Page 25 ---PAGE BREAK--- Charges for services for the City’s golf course business-type activity increased by 10 percent in 2015 due to a 13 percent increase in the number of rounds played at the course during the year. The overall increase in the number of rounds played at the course was the direct result of the introduction of foot golf at the facility starting in the spring of 2015. Finally, revenues generated from charges for services increased by 4 percent within the coliseum business-type activity in 2015, which was attributable to a minor increase in the number of events held at the facilities and overall attendance at those events.  Capital grants and contributions for business-type activities increased by approximately 33 percent in 2015, or $1.2 million. The water and sewer and stormwater business-type activity accounts for the majority of capital grants and contributions revenue within the City’s business-type activities as a result of developer contributions in the form of water and sewer infrastructure associated with new commercial and residential development. In 2015, this category of program revenue also included $546,205 for the value of sewer system infrastructure contributed to the water and sewer business-type activity through a local improvement district in the southeast area of the City.  Business-type expenses increased by approximately $2.3 million overall in 2015 when compared to 2014, which equates to an increase of 8 percent. Expenses for the City’s water and sewer business-type activity increased by approximately $781,000 in 2015, which equated to an increase of 5 percent. This change was almost entirely attributable to a one- time payment made during the year for a permanent sewer easement that had previously been leased. The final agreement for this easement also settled a dispute over the amount owed by the water and sewer business-type activity for past lease payments. Without this one-time payment, expenses within this activity would have actually declined by just under 2 percent in 2015. Expenses for the medical services business-type activity increased during 2015 by approximately $1.4 million, or 31 percent. As described earlier in this report under the discussion of expenses for governmental activities, the City reallocated personnel costs for 9.71 full-time equivalent positions from governmental activities to its medical services business-type activity in 2015 after completing a cost of service study for its ambulance program. This reallocation of personnel expenses was the primary factor in the overall increase in expenses within the medical services business-type activity for the year. Expenses for the building safety business-type activity decreased by approximately $59,000, or 5 percent, in 2015. This change was partially attributable to a minor decrease in personnel costs for the activity for the year due to vacant positions as well as a small decrease in expenses for contracted services. Expenses of the stormwater business-type activity increased by approximately $129,000, or 8 percent, in 2015. This overall change was primarily attributable to increases in maintenance and operating costs of the activity, including personnel expenses and other equipment maintenance expenses associated with the City’s compliance with its state stormwater capacity permit. Expenses of the golf course business-type activity increased by approximately $6,000, or 2 percent, in 2015. This overall change was attributable to a moderate increase in maintenance expenses for the course related to equipment that required significant repairs during the year. Lastly, expenses for the coliseum business-type activity increased by approximately $53,000, or 1 percent, during 2015. This modest increase was primarily the result of an increase in variable expenses associated with an increase in events held at the facilities during the year. Washington State Auditor's Office Page 26 ---PAGE BREAK--- The follo revenues charges fo revenues Financial As noted finance-re Governm outflows, requireme resources As of De balances o percent o remaining purpose ( of the Cit purpose The gene unassigne liquidity represents compared maintains committed The gene associated facility. owing graph generated fr for water and for business-t l Analysis of t earlier, the C elated legal re mental funds and balances ents. In part available for cember 31, 2 of $24,767,87 of this total g fund balanc $9,129,413), ty’s highest le $7,728,416). eral fund is t ed fund balan is to compar s 5.6 percent d to 5.2 perce a cash reser d fund balanc eral fund also d with a don provides an rom business d sewer servic type activities the Governm City of Kenne equirements. focus on pr s of spendable ticular, unres spending. 2015, the City 77, an increas amount, $2 e within gove committed fo evel of decisi the chief ope nce in the gen re unassigned of total repor ent for the y rve for unan ce in the gene o had restrict nation receive illustration o -type activiti ces and ambu s, making up ment’s Funds ewick uses fu roviding info e resources. S served fund b y of Kennew se of $11,105 ,631,063, rep ernmental fun or specific pu ion making au erating fund neral fund wa d fund balan rted general fu ear ended De nticipated cha eral fund and ted fund bala ed by the Cit of the differe ies. Charges ulance servic 85 percent of und accountin ormation on Such informa balance may wick’s govern 5,312 in comp presents una nds is either a urposes pursu uthority ($5,2 of the City as $2,631,063 nce to total fu und expenditu ecember 31, anges in reve d had a balanc ance of $213 ty that is res ent compone s for service ces provided, f total revenue ng to ensure a the City of ation is useful serve as a u nmental funds parison with t assigned (und assigned by C uant to constr 278,985), or r of Kennewic 3. A commo fund expendit ures for the y 2014. It sh enues and ex ce of $2.72 m 3,162 at the stricted for im ents of the C es, which inc , are by far t es. and demonstr Kennewick’s l in assessing useful measu s reported co the prior year designated) f City Council’s raints impose restricted exte ck. As of D on measure o tures. Unass year ended De hould be note xpenditures, w million at the conclusion o mprovements City of Kenn clude items the largest so rate complian s near-term i g the City’s fin ure of the Cit mbined endin r. Approxima fund balance s intent for a d by a forma ernally for a December 31 of the general signed fund ecember 31, 2 ed that the C which is repo conclusion o of 2015, whi to its senior newick’s such as ource of nce with inflows, nancing ty’s net ng fund ately 11 e. The specific al action specific 1, 2015, l fund’s balance 2015, as City also orted as of 2015. ich was r center Washington State Auditor's Office Page 27 ---PAGE BREAK--- The total fund balances reported for the City of Kennewick’s general fund increased by $420,541 during 2015. 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 76 percent of the fund’s total sources of revenue in 2015. In 2015, tax revenues reported in the general fund increased by approximately 4 percent overall when compared to 2014. This overall increase was attributable to increases in reported revenue from property, sales and utility taxes, which were partially offset by a decrease in revenue reported in the general fund from gambling taxes. Property taxes allocated to the general fund increased by roughly 4 percent in 2015, which was primarily attributable to growth that occurred in the City during 2014 and increased the tax rolls for 2015. The City added $88 million to its assessed value for the 2014 levy from new construction and annexation. Additionally, the Kennewick City Council elected to increase the City’s base property tax levy by 1 percent for 2015, the maximum allowed under state law. It should be noted that a portion of the City’s property tax revenue is allocated to its street fund. In total, property tax revenue for both the general and street fund increased by approximately 3 percent. Sales and use tax revenues reported in the general fund increased by 7.5 percent in 2015 overall. The City’s general fund receives all of the regular and criminal justice sales and use tax received by the City, as well as a portion of the City’s optional sales and use tax. Citywide, regular and optional sales and use tax revenue increased by 9 percent in 2015. As reported earlier under the discussion of governmental activities tax revenues, the increase in regular and optional sales tax experienced in 2015 was the result of low unemployment in the region, growth in both residential and commercial construction, and continued growth in the City’s base sales and use tax, as evidenced by a significant majority of the City’s top fifty taxpayers experiencing growth in their taxable sales activity for the year. Utility tax revenues increased by less than 1 percent overall in 2015 when measured on a modified accrual basis. The City receives utility taxes from natural gas, garbage collection, cable television, telephone, electric, ambulance, stormwater and water/sewer services. In 2015, the City experienced increases from each of these sources, with the exception of electric and telephone utility taxes, which are the two largest sources of utility tax for the City. Utility tax generated from the sale of the City’s water and sewer services increased by 3.6 percent in 2015, which was the result of two main factors. First, the City implemented a 1.5 percent increase to water and sewer rates in 2015 in accordance with its policy to modify rates annually based on the previous year’s change in the consumer price index (CPI). Additionally, the City experienced an increase in water rate revenue subject to utility tax during 2015 as the result of an increase in water consumption, which was attributable to customers utilizing potable water to irrigate their landscaping after restrictions were put in place by the Kennewick Irrigation District (KID) on the use of irrigation water during the late spring and summer months due to a statewide drought. Utility tax generated from the sale of natural gas increased by 1.7 percent in 2015, primarily as the result of a 5.6 percent rate increase implemented by Cascade Natural Gas in November of 2014. The impact of this rate increase was partially offset by a reduction in natural gas consumption early in 2015 due to unusually mild weather conditions. The City receives utility tax for garbage services from Waste Management as they provide these services to Kennewick’s citizens under a franchise agreement with the City. Utility tax receipts from garbage services increased by 7.2 percent in 2015, which reflects growth in Waste Management’s customer base and a minor rate increase based on the annual percentage change in the consumer price index as authorized under the terms of their franchise agreement. Washington State Auditor's Office Page 28 ---PAGE BREAK--- Finally, utility tax generated from cable television services increased by 2.2 percent in 2015, primarily as a result of rate increases implemented by the local cable provider. The increases in utility tax revenue for the City in 2015 outlined above were almost entirely offset by decreases in tax revenue from the City’s two largest sources of utility tax, which are electric and telephone. Utility tax revenue received from the sale of electricity decreased by 2.4 percent in 2015, despite an average rate increase of 3.9 percent implemented by Benton PUD in September. The overall decrease in electric utility tax was attributable to very mild weather conditions during the first 4 months of the year that reduced overall consumption for the year. Utility tax revenue derived from telephone services decreased by 1.6 percent in 2015. However, this result is somewhat misleading due to a one-time payment the City received from a telephone provider during the year for back taxes owed from 2010 through May of 2015. Without this one-time payment, telephone utility tax revenue would have declined by approximately 10 percent in 2015. This result is attributable to many of the same factors that have led to similar declines from this revenue source over the last several years, including the loss of taxable revenue resulting from the expansion of non-taxable data services by cellular phone service providers, bundling of services by providers that reduces taxable revenue for telephone services, and a reduction of taxable revenue from land lines as a larger number of individuals are eliminating their home phone in favor of using their cell phone as their primary phone.  Expenditures reported in the general fund increased by approximately $584,000, or more than 1 percent, in 2015. Major factors for this increase follow. Personnel expenditures represent over 68 percent of total expenditures within the general fund and are by far the most significant categorical expenditure of the fund. In 2015, personnel expenditures declined by approximately $801,000, or 2.4 percent. As outlined earlier in this report within the analysis of the statement of activities for governmental activities, this decline was attributable to three primary factors. First, the City reallocated personnel costs for 9.71 full-time equivalent positions from the general fund to its medical services fund after completing a cost of service study for its ambulance program. This study concluded that the City’s general fund was providing an implicit subsidy to the medical services fund based on the actual composition of the Fire Department’s calls for service, which demonstrated that 77 percent of all calls for service were related to the City’s ambulance program. At the same time the City reallocated these personnel costs, it also increased the transfer from the general fund to the medical services fund by the same amount, with the intent that the reallocation of personnel costs would be budget neutral for both funds. Then, as part of the adopted budget for the 2015/2016 biennium, the Kennewick City Council approved a $1 increase to the ambulance availability charge for both residential and commercial customers in both 2015 and 2016, with the intent to bring the charge more in line with neighboring jurisdictions and reduce the operating transfer required from the general fund to support the medical services fund. Second, the City also made a structural change in 2015 to reallocate the personnel expenditures for 3 meter reader positions from the general fund to the water and sewer fund. Historically, the personnel costs associated with these positions were paid by the general fund and then were reimbursed by the water and sewer fund. Beginning in 2015, these personnel expenditures were paid directly from the water and sewer fund and the previous reimbursement paid to the general fund was eliminated. Lastly, the City estimates that it averaged roughly 2 more vacant positions per month in 2015 than it did during 2014 within its general fund. Although this was not a deliberate strategy to reduce personnel expenditures, the City works diligently to ensure that it hires the right individual when filling all vacant positions, which can lengthen the hiring process but is much more effective over the long-term. Washington State Auditor's Office Page 29 ---PAGE BREAK--- Expenditures for intergovernmental services decreased by 2.9 percent in 2015, or approximately $161,000. This overall decrease was the result of several small items, but the primary reason for this decline was a $130,000 reduction in the City’s expenditures for jail services during 2015. This reduction was directly associated with a drop in the City’s bed days for the year (utilization of the facility), which decreased by approximately 10 percent in 2015 when compared to 2014. Transfers out of the general fund increased by approximately $1,727,000 in 2015, as a result of three primary factors. Transfers made to the capital improvement fund from the general fund were $1,000,000 higher in 2015 than 2014. In 2014, a decision was made to transfer only $500,000 of the normal $1,000,000 transferred each year from the general fund to the capital improvement fund to ensure adequate funding for City Council’s priority capital projects. This decision was made with the understanding that the additional $500,000 capital transfer would be made up in 2015. As a result, $1,500,000 was transferred to the capital improvement fund from the general fund in 2015. As outlined earlier in this section, the City made a structural change within its general fund staring in 2015 to properly reallocate firefighter paramedic positions between the general and medical services funds after completing a cost of service study that indicated that the ambulance utility was receiving an implicit subsidy from the general fund based on the actual composition of calls for service in the Fire Department. As a result, the City reallocated the personnel costs of 9.71 full-time equivalent positions from the general fund to the medical services fund and implemented an operating transfer to more clearly identify the general fund’s true contribution towards this program. As a result of these changes, the general fund transferred $1,350,000 to the medical services fund in 2015 after making no transfers to the fund in the previous year. Finally, transfers out from the general fund to the risk management fund decreased by $575,000 in 2015, which reflects additional transfers that were required in 2014 to replenish reserve levels in the risk management fund due to several one-time items that were paid from the fund during the course of the 2013/2014 biennium. The community development fund has a total fund balance of $255,720, all of which is restricted for grant related projects. Total fund balance decreased by $79,316 for the year ended December 31, 2015 in the fund. Although the purpose of the community development fund does not necessarily dictate that the fund should accumulate or even maintain a large fund balance, this decrease may be interpreted to indicate a moderate decline to the community development fund’s overall financial condition from the perspective that it has less fund balance available to provide funding for program activities. The capital improvement fund has a total fund balance of $17,133,427, of which $6,301,379 is restricted for capital projects, $1,402,450 is committed for advances to other funds in previous years and $1,160,996 is committed to pay for park improvements. Overall fund balance increased by $9,708,043 in 2015. A significant portion of this increase was attributable to proceeds remaining from two bond issues the City completed during 2015 for land acquisitions and construction of a fifth fire station in the City. Assigned fund balance in the capital improvement fund, which represents fund balance available for the purpose of the fund, increased by $3,752,327 during 2015, which is indicative of the fund’s financial condition improving during the year. However, it should be noted that there are multiple large capital projects scheduled for 2016 that will draw down this fund balance significantly. The urban arterial fund has a total fund balance of $802,720, all of which is assigned fund balance, or fund balance available for the purpose of the fund. For the year ended December 31, 2015, the urban arterial fund’s fund balance decreased by $228,249. Due to the fact that the urban arterial street fund’s primary purpose is to account for capital projects that are funded with state and federal grants that are generally paid on a reimbursement-type basis in conjunction with a city match, this change in fund balance represents the Washington State Auditor's Office Page 30 ---PAGE BREAK--- use of the city match previously accumulated in the fund for capital projects that were completed or in progress during 2015. 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 position of the City’s enterprise (business-type) funds was $149,013,919 as of December 31, 2015, which was an increase of $6,798,396 for the year. Of the total net position for enterprise funds, $142,571,903 represented a net investment in capital assets and $3,403,694 was restricted for capital projects, debt service and pension obligations, leaving unrestricted net position of $3,038,322. The unrestricted net position for enterprise (business-type) funds as a whole is significantly reduced by a deficit in the unrestricted net position of the 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 position, as opposed to being included in the calculation of the net position category of net investment in capital assets. The City’s water and sewer, coliseum and medical services funds, which are its major enterprise funds, had total net positions of $129,264,445, $5,865,565 and $1,127,679, respectively, as of December 31, 2015. The water and sewer fund’s net position consists of $122,232,783 in net investment in capital assets, $2,290,693 in restricted net position for capital projects and debt service, and $4,740,969 in unrestricted net position. The coliseum fund’s net position consists of $8,569,006 in net investment in capital assets and a deficit of $2,703,441 in unrestricted net position. And finally, the medical services fund’s net position consists of $78,156 in net investment in capital assets, $1,079,626 in restricted net position for pension obligations, and a deficit of $30,103 in unrestricted net position. For each 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, 2015, marks the completion of the first year of the City’s 2015/2016 biennial budget cycle. Two budget adjustments were made to the City’s budget during 2015. The budgetary comparison statement for the general fund provides more detail on these adjustments. The following are some of the major adjustments to the general fund budget during 2015:  An increase of approximately $194,000 in personnel and equipment costs associated with a reorganization of the Fire Department and the implementation of a fire inspection program in 2015.  An increase of $500,000 to carry forward the balance of the 2013/2014 budgeted transfer from the City’s General Fund to its Capital Improvement Fund to provide funding for City Council’s priority capital projects. Under Kennewick City Council’s budget policies, the City evaluates making a $1 million transfer annually from the General Fund to the Capital Improvement Fund to provide funding for priority capital projects. In 2014, the City only transferred $500,000 of this amount, with the commitment to carry forward the remaining $500,000 to the 2015/2016 biennial budget.  An increase of approximately $150,000 for the estimated increase in gas tax revenue that the City will receive during its 2015/2016 biennium as a result of a 16-year, $16.1 billion statewide transportation package approved by the Washington State Legislature in 2015.  An increase of approximately $170,600 in projected telephone utility tax resulting from the completion of an audit of a local telephone provider in 2015. Washington State Auditor's Office Page 31 ---PAGE BREAK---  An increase of $150,600 in donation revenue as the result of a significant donation received by the City for its senior center facility. As the proceeds of this donation are restricted for improvements at this facility, a corresponding capital expenditure for this same amount was budgeted as well.  An increase of $98,900 to appropriate for a newly authorized position in the City’s Parks & Recreation Department. At the mid-point of the City’s 2015/2016 biennium, general fund revenues were 49.3 percent of the adjusted biennial budget. Actual expenditures in the general fund for the biennium were 48.9 percent of the adjusted biennial budget. The City’s general fund had an unassigned fund balance of $2,631,063 as of December 31, 2015, which was higher than the budgeted ending fund balance for the 2015/2016 biennium and exceeded the City’s budgetary policy to maintain an ending fund balance of at least 5 percent of budgeted annual operating expenditures. Additionally, the City also continues to maintain a cash reserve balance for revenue stabilization and contingencies with a balance of approximately $2.72 million. Together these balances represented 12 percent of 2015 expenditures within the City’s general and street funds. 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, 2015, amounts to approximately $376,011,000 (net of accumulated depreciation). This investment includes land, buildings, improvements, infrastructure such as roads and bridges, equipment, and construction in progress. As the following Schedule illustrates, the City of Kennewick’s net capital assets increased by just over 1 percent for the year (a 1 percent increase in both governmental activities and business-type activities). Major capital asset events during the current fiscal year included the following:  A $5.3 million street construction project to complete the final phase of Steptoe Street from 4th Avenue to 10th avenue was completed, which is an important piece of the City’s plan to complete a roadway network from Highway 240 near the northern border of the City to State Route 395 in the south.  A variety of other major street construction projects across the City were in progress at the close of the year, including a $6 million project to construct Hildebrand Boulevard from Steptoe Street to the existing Hildebrand Boulevard at the intersection of Sherman Street, which will be the final roadway connection needed to link the City’s retail district to the southern growth area of the City, and a $3 2015 2014 2015 2014 2015 2014 Land 88,807 $ 85,660 $ 2,988 $ 2,988 $ 91,795 $ 88,648 $ Buildings 29,176 30,017 151,958 143,310 181,134 173,327 Improvements other than buildings 12,185 12,936 - - 12,185 12,936 Infrastructure 57,064 58,102 - - 57,064 58,102 Equipment 7,307 8,239 3,104 3,282 10,411 11,521 Construction in progress 14,990 12,079 8,403 14,547 23,393 26,626 Intangibles - - 29 29 29 29 Total capital assets 209,529 $ 207,033 $ 166,482 $ 164,156 $ 376,011 $ 371,189 $ City of Kennewick Capital Assets, net of depreciation Total Governmental Business-type (In thousands) Activities Activities Government Washington State Auditor's Office Page 32 ---PAGE BREAK--- million federally funded project to widen Edison Street from Clearwater Avenue to Canal Drive. Construction in progress for these projects and various other street projects was approximately $3.5 million as of December 31, 2015.  Within the City’s water and sewer business-type activity, a significant amount of water and sewer infrastructure associated with the City’s major street construction projects was in progress or completed during 2015. Additionally, approximately $528,000 was expended during the year to complete a new reservoir in zone 4 of the City for which construction began during the City’s previous biennium. Long-term debt: The City of Kennewick’s total debt increased by $2,245,264 (4 percent) during the year ended December 31, 2015. As outlined earlier in this report, debt within governmental activities increased by $4,873,521 in 2015, which was attributable to the City issuing $3,255,000 in taxable general obligation bonds in 2015 for land acquisition and $4,085,000 in tax-exempt general obligation bonds to fund the construction of the City’s fifth fire station. Additionally, the City issued $5,915,000 in refunding bonds to advance refund the outstanding balance of a 2006 bond issue at a net present value savings of $483,000. Within business-type activities, total debt decreased by $2,628,257 based primarily on scheduled payments on the City’s existing debt obligations. Approximately $407,000 in new debt was also added within business-type activities in the form of state loans for water and stormwater infrastructure projects. During the process of issuing bonds in 2015, the City underwent a rating review from Standard & Poor’s and received affirmation of its existing rating of AA for its limited tax general obligation (LTGO) bonds. 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, 2015, the City had approximately $53 million in non-voted capacity and $110 million in voted capacity. The City has a contingent loan agreement in place with the Kennewick Public Facilities District (KPFD) to loan the KPFD money if it is unable to pay debt service on its outstanding debt associated with the construction of its Three Rivers Convention Center, which is not reflected in the debt capacity figures provided above. As of December 31, 2015, the balance outstanding of the KPFD’s debt was $11,510,000. 2015 2014 2015 2014 2015 2014 General obligation bonds 29,115,000 $ 23,820,000 $ - $ - $ 29,115,000 $ 23,820,000 $ Notes and loans 1,839,093 2,288,214 23,967,151 26,595,408 25,806,244 28,883,622 Capital leases 967,936 1,305,148 - - 967,936 1,305,148 Special assessments 450,703 85,849 - - 450,703 85,849 32,372,732 $ 27,499,211 $ 23,967,151 $ 26,595,408 $ 56,339,883 $ 54,094,619 $ City of Kennewick Outstanding Debt As of December 31, Activities Activities Totals Governmental Business-type Washington State Auditor's Office Page 33 ---PAGE BREAK--- 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, 2015 marks the mid-point of the City’s 2015/2016 budget cycle. The local economy for the City of Kennewick and Tri-Cities region as a whole continued to be relatively healthy during 2015, which is reflected in the financial results of the City for this period. However, several financial challenges remain as the City completes its 2015/2016 biennium and begins planning for the 2017/208 biennium. The following are key factors that may impact the City’s governmental activities in the near future:  Like many states across the nation, the State of Washington has faced severe budget deficits over the past 7-8 years. In order to balance its budget in recent bienniums, the state has made several budget cuts that dramatically impacted all Washington cities, including Kennewick. Perhaps the item with the most significant impact to the City of Kennewick was the elimination of the Public Works Trust Fund (PWTF) low-interest loan program, which the City had used historically and planned to use in the future to finance critical street and other infrastructure improvements for its growing community. Without the PWTF program, the City must evaluate more costly financing alternatives and ultimately may have to defer or eliminate important capital projects to ensure that adequate funding is available for the completion of the highest priority projects for the City. Additionally, the state has reduced state- shared liquor excise taxes and other state-shared revenues historically provided to cities. In 2012, the Washington State Supreme Court issued a decision in McCleary vs. the State of Washington that the state was violating its own constitution by failing to adequately fund K-12 education. The decision also mandated that the State Legislature begin making measurable progress towards meeting its obligation to adequately fund basic education. In response to this decision, the State Legislature passed legislation that committed the State to meet its funding requirements by 2018. In the years since the McCleary decision, the issue of funding basic education has become increasingly political and has put tremendous pressure on the State Legislature with regard to their ability to adopt balanced budgets. As the 2018 deadline approaches, the State is still well short of meeting its obligations to fund basic education. Although estimates vary, most agree the State will need to allocate at least 2-3 billion dollars more in its 2017-2019 biennial budget for basic education, which leaves cities extremely vulnerable to further reductions in state-shared revenues, higher fees and charges for mandated state licenses and permits, and reductions in cost sharing for joint programs administered through the state. The following are key factors that may impact the City’s business-type activities in 2016 and beyond:  As required under State law, the City completed a comprehensive cost of service study for its ambulance program (ambulance business-type activity) in 2014 in conjunction with the development of the City’s 2015/2016 biennial budget. The results of that study indicated that the City had capacity to increase its ambulance availability charge assessed to all residential, commercial and multi- family units from its current level of $5.67 per month to an amount as high as $9.64 per month. The Kennewick City Council elected to modify the City’s ambulance charge to $6.67 per month effective January 1, 2015 and then to $7.67 per month effective January 1, 2016, which will significantly reduce the amount of ongoing subsidy required from the City’s general fund for this program. Additionally, the remaining capacity available for the ambulance charge provides a potential funding source for the future needs of the City’s ambulance program.  During 2016, the City will be conducting a rate review for its water and sewer utility (business-type activity), incorporating the results of updates to the utility’s water and sewer comprehensive plan updates, as well as other maintenance and operational needs that have been identified as necessary to keep pace with the growth occurring in the City’s water and sewer systems. Although the outcome of this rate review will not be known until the latter part of 2016 and any modifications to rates will likely Washington State Auditor's Office Page 34 ---PAGE BREAK--- not be implemented until 2017 or later, there is a high likelihood that the rate structure for the water and sewer utility will be changing as it has been over 20 years since the City last conducted a rate review. A copy of the City of Kennewick’s most recent budget document for the 2015/2016 biennium is available upon request and can also be accessed on the City’s web site at http://www.go2kennewick.com. 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 Finance Director, City of Kennewick, 210 W. 6th Avenue, PO Box 6108, Kennewick, WA 99336. Washington State Auditor's Office Page 35 ---PAGE BREAK--- Governmental Business-type Activities Activities 2015 2014 2015 2014 ASSETS Current assets: Equity in pooled cash & investments 21,877,805 $ 9,096,250 $ 30,974,055 $ 24,629,864 $ 1,554,440 $ 2,197,321 $ Receivables, net 9,498,092 2,356,111 11,854,203 11,505,986 238,869 311,656 Due from primary government - - - - 128,364 160,095 Internal balances 10,317,474 (10,317,474) - - - - Inventories 166,297 324,878 491,175 521,660 41,786 36,506 Prepaid items - 77,824 77,824 57,045 50,691 44,048 Total current assets 41,859,668 1,537,589 43,397,257 36,714,555 2,014,150 2,749,626 Noncurrent assets: Restricted equity in pooled cash & investments 7,533,135 2,290,693 9,823,828 3,468,131 - - Restricted pension asset 6,142,548 1,113,001 7,255,549 - - - Net pension asset 201,170 - 201,170 157,296 - - Investment in joint ventures 3,131,751 - 3,131,751 3,414,762 - - Capital assets: Land, construction in progress and intangibles 103,797,332 11,419,853 115,217,185 115,303,060 - - Depreciable capital assets - net 105,731,799 155,061,908 260,793,707 255,886,204 12,793,010 12,442,813 Total noncurrent assets 226,537,735 169,885,455 396,423,190 378,229,453 12,793,010 12,442,813 Total assets 268,397,403 171,423,044 439,820,447 414,944,008 14,807,160 15,192,439 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding 663,350 - 663,350 403,391 368,944 409,758 Deferred outflows on pension 1,881,925 529,375 2,411,300 - - - Total deferred outflows of resources 2,545,275 529,375 3,074,650 403,391 368,944 409,758 Total assets and deferred outflows of resources 270,942,678 $ 171,952,419 $ 442,895,097 $ 415,347,399 $ 15,176,104 $ 15,602,197 $ LIABILITIES Current liabilities: Accounts payable and accrued items 2,001,060 $ 690,016 $ 2,691,076 $ 4,049,493 $ 118,431 $ 163,088 $ Due to component unit - 128,364 128,364 160,095 - - Liabilities payable from restricted assets 2,502 - 2,502 8,415 - - Unearned revenue 32,823 419,368 452,191 712,869 86,770 85,344 Other current liabilities 395,300 23,323 418,623 375,341 - - Current portion of long-term obligations 4,746,390 3,638,130 8,384,520 7,831,970 745,000 695,000 Total current liabilities 7,178,075 4,899,201 12,077,276 13,138,183 950,201 943,432 Noncurrent liabilities: Landfill closure costs payable from restricted assets 41,396 - 41,396 90,519 - - Net post employment benefit obligation 1,847,593 - 1,847,593 1,465,782 - - Pension liability (net) 8,524,410 3,183,336 11,707,746 - - - Noncurrent portion of long-term obligations 33,320,308 22,946,834 56,267,142 53,248,994 11,182,298 11,974,098 Total noncurrent liabilities 43,733,707 26,130,170 69,863,877 54,805,295 11,182,298 11,974,098 Total liabilities 50,911,782 31,029,371 81,941,153 67,943,478 12,132,499 12,917,530 DEFERRED INFLOWS OF RESOURCES Deferred inflows on pension 3,128,542 824,153 3,952,695 - - - Total deferred inflows of resources 3,128,542 824,153 3,952,695 - - - NET POSITION Net investment in capital assets 183,090,473 142,514,611 325,605,084 316,946,395 1,234,656 183,473 Restricted for: Capital projects 8,262,595 1,131,885 9,394,480 3,191,655 - - Debt service 40,506 1,158,808 1,199,314 1,199,916 - - Grant programs 3,178,639 - 3,178,639 3,296,386 - - Cash reserve 2,715,500 - 2,715,500 2,715,500 - - Pension 6,142,548 1,113,001 7,255,549 - - - Unrestricted (deficit) 13,472,093 (5,819,410) 7,652,683 20,054,069 1,808,949 2,501,194 Total net position 216,902,354 140,098,895 357,001,249 347,403,921 3,043,605 2,684,667 Total liabilities, deferred inflows of resources and 270,942,678 $ 171,952,419 $ 442,895,097 $ 415,347,399 $ 15,176,104 $ 15,602,197 $ net position The notes to the financial statements are an integral part of this statement. Statement of Net Position December 31, 2015 (with comparative totals for 2014) Totals Primary Government Component Unit Public Facilities District Washington State Auditor's Office Page 36 ---PAGE BREAK--- Washington State Auditor's Office Page 37 ---PAGE BREAK--- The notes to the financial statements are an integral part of this statement. Balance Sheet Governmental Funds December 31, 2015 (with comparative totals for 2014) Community Capital Urban General Development Improvement Arterial Street Fund Fund Fund Fund ASSETS Equity in pooled cash & investments 6,213,908 $ 189,000 $ 8,330,502 $ 902,261 $ Receivables (net of allowance for uncollectibles) 3,634,543 2,905,990 1,231,707 190,540 Due from other funds - - 1,402,450 - Due from other governments 18,933 50,710 44,953 66,850 Restricted equity in pooled cash & investments - 36,867 7,454,922 - Total assets 9,867,384 $ 3,182,567 $ 18,464,534 $ 1,159,651 $ LIABILITIES Accounts payable 843,976 $ 2,214 $ 362,447 $ 356,931 $ Due to other funds - - - - Due to other governments 115,650 1,715 - - Deposits payable 395,300 - - - Unearned revenue 25,811 - 7,012 - Liabilities payable from restricted assets - - 2,502 - Total liabilities 1,380,737 3,929 371,961 356,931 DEFERRED INFLOWS OF RESOURCES Unavailable revenue 2,926,922 2,922,918 959,146 - Total deferred inflows of resources 2,926,922 2,922,918 959,146 - FUND BALANCES Restricted Debt service - - - - General fund 213,162 - - - Community development - 255,720 - - Public Safety - - - - Tourism - - - - Capital projects - - 6,301,379 - Committed Coliseum loan - - 1,402,450 - Park reserves - - 1,160,996 - Debt service - - - - Cash reserve 2,715,500 - - - Assigned Capital projects - - 8,268,602 802,720 Debt service - - - - Transportation - - - - Unassigned 2,631,063 - - - Total fund balances 5,559,725 255,720 17,133,427 802,720 Total liabilities, deferred inflows of resources, 9,867,384 $ 3,182,567 $ 18,464,534 $ 1,159,651 $ and fund balances (deficits) Washington State Auditor's Office Page 38 ---PAGE BREAK--- Other Non-Major Governmental Funds 2015 2014 1,157,374 $ 16,793,045 $ 12,320,563 $ 1,345,409 9,308,189 7,864,430 - 1,402,450 1,702,097 - 181,446 1,525,211 - 7,491,789 1,261,255 2,502,783 $ 35,176,919 $ 24,673,556 $ 146,522 $ 1,712,090 $ 2,617,417 $ - - 542,388 887 118,252 4,100 - 395,300 351,520 - 32,823 224,892 - 2,502 8,415 147,409 2,260,967 3,748,732 1,339,089 8,148,075 7,262,259 1,339,089 8,148,075 7,262,259 5,228 5,228 5,068 - 213,162 - - 255,720 335,036 718,000 718,000 109,738 234,927 234,927 124,314 - 6,301,379 - - 1,402,450 1,696,605 - 1,160,996 1,212,504 39 39 31 - 2,715,500 2,715,500 - 9,071,322 5,547,244 49,067 49,067 35,020 9,024 9,024 18,395 - 2,631,063 1,863,110 1,016,285 24,767,877 13,662,565 2,502,783 $ 35,176,919 $ 24,673,556 $ Total Governmental Funds Washington State Auditor's Office Page 39 The notes to the financial statements are an integral part of this statement ---PAGE BREAK--- The notes to the financial statements are an integral part of this statement. Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position - Governmental Activities December 31, 2015 Total governmental fund balances 24,767,877 $ Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. 206,591,212 Other long-term assets are earned in the upcoming period but not available to pay for current period expenditures. 8,349,246 Proportionate share of defined benefit pension plans. (3,383,260) 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 position. 19,123,397 Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds. (38,546,118) Net position of governmental activities 216,902,354 $ Washington State Auditor's Office Page 40 ---PAGE BREAK--- Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2015 (with comparative totals for 2014) Community Capital Urban General Development Improvement Arterial Street Fund Fund Fund Fund REVENUES Taxes: Property 11,441,616 $ - $ 124,017 $ - $ Sales 14,802,344 - 4,172,299 - Utility 8,715,086 - - - Real estate excise tax - - 2,736,131 - Gambling tax 696,577 - - - Lodging tax - - - - Other 412,009 - - - Licenses and permits 769,224 - - - Intergovernmental 1,876,177 906,563 76,341 3,481,962 Charges for services 4,412,759 - 148,916 - Fines and forfeitures 1,200,188 - - - Investment earnings 108,882 376 77,509 - Special assessments - - - - Rents and leases 355,370 - 13,295 - Miscellaneous revenues 205,286 - 68,200 - Total revenues 44,995,518 906,939 7,416,708 3,481,962 EXPENDITURES Current: General government 8,186,906 121,006 - - Public safety 26,257,715 - - - Transportation 2,163,492 - - 909,731 Social services 18,584 39,000 - - Physical environment - - - - Economic environment 1,221,365 345,538 - - Culture and recreation 5,512,220 24,950 - - Debt service: Principal - - 558,733 - Interest/issue costs - - 102,939 - Capital outlay: General government - - 939,422 - Public safety 13,906 - 674,509 - Transportation - - 292,470 4,362,880 Physical environment - - - - Culture and recreation 3,185 - 116,238 - Total expenditures 43,377,373 530,494 2,684,311 5,272,611 Excess (deficiency) of revenues over (under) expenditures 1,618,145 376,445 4,732,397 (1,790,649) OTHER FINANCING SOURCES (USES) Transfers in 2,397,396 - 2,139,433 1,562,400 Transfers out (3,595,000) (455,761) (5,019,381) - Special assessment note issued - - - - Advance refunding escrow - - - - Debt issuance - - 7,340,000 - Capital leases - - - - Premiums - - 287,162 - Disposition of capital assets - - 228,432 - Total other financing sources (uses) (1,197,604) (455,761) 4,975,646 1,562,400 Net change in fund balances 420,541 (79,316) 9,708,043 (228,249) Fund balances (deficit) - beginning 5,139,184 335,036 7,425,384 1,030,969 Fund balances (deficit) - ending 5,559,725 $ 255,720 $ 17,133,427 $ 802,720 $ The notes to the financial statements are an integral part of this statement. Washington State Auditor's Office Page 41 ---PAGE BREAK--- Other Non-Major Governmental Funds 2015 2014 532,647 $ 12,098,280 $ 11,841,251 $ 1,894,290 20,868,933 17,402,118 2,388,744 11,103,830 11,126,514 - 2,736,131 1,610,706 - 696,577 746,328 1,007,931 1,007,931 901,229 16,525 428,534 423,100 - 769,224 620,109 1,846,707 8,187,750 10,870,578 1,017,510 5,579,185 5,747,562 - 1,200,188 1,262,089 5,567 192,334 110,559 232,073 232,073 11,223 - 368,665 341,359 29,920 303,405 341,507 8,971,914 65,773,040 63,356,232 330,410 8,638,322 8,576,939 1,182,481 27,440,196 27,441,317 1,842,998 4,916,221 4,250,566 - 57,584 50,310 - - 266,941 793,616 2,360,519 2,053,707 - 5,537,170 5,541,375 2,021,147 2,579,880 2,209,123 1,206,917 1,309,856 1,278,748 - 939,422 107,520 - 688,415 451,969 - 4,655,350 8,639,114 - - 56,476 - 119,423 - 7,377,569 59,242,358 60,924,105 1,594,345 6,530,682 2,432,127 3,104,487 9,203,716 8,974,977 (3,840,179) (12,910,320) (11,725,454) 371,000 371,000 - (6,287,505) (6,287,505) - 5,915,000 13,255,000 - - - 380,000 427,145 714,307 - - 228,432 593,126 (310,052) 4,574,630 (1,777,351) 1,284,293 11,105,312 654,776 (268,008) 13,662,565 13,007,789 1,016,285 $ 24,767,877 $ 13,662,565 $ Governmental Funds Total Washington State Auditor's Office Page 42 The notes to the financial statements are an integral part of this statement ---PAGE BREAK--- The notes to the financial statements are an integral part of this statement. Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances - total governmental funds 11,105,312 $ 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. Capital Outlays 6,402,610 $ Depreciation (6,525,645) Cost of Assets Sold (856,121) (979,156) 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 position. Also, governmental funds report the effect of 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. (5,472,922) In the statement of activities, developer contributions are reported as income for the City based on the fair market value of these assets. 4,020,851 The statement of activities shows increases and (decreases) in the City's equity (283,011) interest in joint ventures. Some revenues reported in the statement of activities do not provide current financial resources and, therefore, are not reported as revenues in governmental funds. 885,819 The statement of activities reports the increase (decrease) in proportionate share of defined benefit pension plans. 1,542,335 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. (491,414) 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. 1,154,193 Change in net position of governmental activities 11,482,007 $ For the Year Ended December 31, 2015 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 Page 43 ---PAGE BREAK--- Proprietary Funds December 31, 2015 (with comparative totals for 2014) Water and Sewer Coliseum Medical Services Other Non-Major Enterprise Fund Fund Fund Funds ASSETS Current assets: Equity in pooled cash & investments 6,552,826 $ 515,011 $ 21,140 $ 2,007,273 $ Receivables, net 1,146,435 128,371 772,054 93,310 Due from other funds 1,086,892 - - - Due from other governments 215,941 - - - Inventories 287,954 33,973 - 2,951 Prepaid items 31,979 43,838 - 2,007 Total current assets 9,322,027 721,193 793,194 2,105,541 Noncurrent assets: Restricted equity in pooled cash & investments 2,290,693 - - - Restricted pension asset - - 1,079,626 33,375 Capital assets: Land and intangibles 1,734,272 1,282,641 - - Buildings and improvements 206,388,040 12,220,890 - 18,203,495 Equipment 6,714,885 4,041,250 72,829 47,700 Construction in progress 8,402,940 - - - Less accumulated depreciation (77,786,783) (8,975,775) (51,966) (5,812,657) Total noncurrent assets 147,744,047 8,569,006 1,100,489 12,471,913 Total assets 157,066,074 9,290,199 1,893,683 14,577,454 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows on pension 267,284 - 170,787 91,304 Total assets and deferred outflows of resources 157,333,358 $ 9,290,199 $ 2,064,470 $ 14,668,758 $ LIABILITIES Current liabilities: Accounts payable 138,654 $ 362,381 $ 88,296 $ 75,064 $ Due to other funds - 2,489,340 - - Due to component unit - 140,493 - - Accrued interest payable - 13,492 - - Compensated absences 187,082 - 164,195 85,503 Bonds, notes, and loans payable 3,017,106 - - 184,244 Deposits payable 19,900 - - 3,423 Other current liabilities - 418,928 - 440 Total current liabilities 3,362,742 3,424,634 252,491 348,674 Noncurrent liabilities: Landfill closure costs payable from restricted assets - - - - Compensated absences 249,589 - 246,376 122,152 Bonds, notes, and loans payable 20,203,464 - - 562,336 Pension liability (net) 2,325,158 - 106,541 751,637 Other noncurrent liabilities 1,562,919 - - - Total noncurrent liabilities 24,341,130 - 352,917 1,436,125 Total liabilities 27,703,872 3,424,634 605,408 1,784,799 DEFERRED INFLOWS OF RESOURCES Deferred inflows on pension 365,041 - 331,383 127,729 NET POSITION Net investment in capital assets 122,232,783 8,569,006 78,156 11,691,958 Restricted for: Capital projects 1,131,885 - - - Debt service 1,158,808 - - - Pension - - 1,079,626 33,375 Unrestricted 4,740,969 (2,703,441) (30,103) 1,030,897 Total net position 129,264,445 5,865,565 1,127,679 12,756,230 Total liabilities, deferred inflows of resources 157,333,358 $ 9,290,199 $ 2,064,470 $ 14,668,758 $ and net position The notes to the financial statements are an integral part of this statement. Business-Type Activities Statement of Net Position Enterprise Funds Washington State Auditor's Office Page 44 ---PAGE BREAK--- 2015 2014 2015 2014 9,096,250 $ 7,854,535 $ 5,084,757 $ 4,454,766 $ 2,140,170 1,808,084 8,457 13,187 1,086,892 1,887,527 - - 215,941 295,074 - - 324,878 326,586 166,297 195,071 77,824 57,045 - - 12,941,955 12,228,851 5,259,511 4,663,024 2,290,693 2,116,394 41,343 90,482 1,113,001 - - - 3,016,913 3,016,913 - - 236,812,425 223,093,750 318,843 318,843 10,876,664 10,696,501 15,260,886 14,942,773 8,402,940 14,547,277 - - (92,627,181) (87,198,568) (9,510,059) (8,645,994) 169,885,455 166,272,267 6,111,013 6,706,104 182,827,410 178,501,118 11,370,524 11,369,128 529,375 - 27,052 - 183,356,785 $ 178,501,118 $ 11,397,576 $ 11,369,128 $ 664,395 $ 1,150,905 $ 60,593 $ 132,138 $ 2,489,340 3,047,236 - - 140,493 160,095 - - 13,492 15,823 2,455 3,024 436,780 435,646 23,794 20,710 3,201,350 3,036,859 234,534 227,602 23,323 23,509 - - 419,368 488,289 - - 7,388,541 8,358,362 321,376 383,474 - - 41,396 90,519 618,117 583,538 25,283 20,591 20,765,800 23,558,549 528,880 785,117 3,183,336 - 235,326 - 1,562,919 1,062,917 - - 26,130,172 25,205,004 830,885 896,227 33,518,713 33,563,366 1,152,261 1,279,701 824,153 - 36,945 - 142,571,903 137,560,465 5,306,256 5,602,903 1,131,885 956,597 - - 1,158,808 1,159,797 - - 1,113,001 - - - 3,038,322 5,260,893 4,902,114 4,486,524 149,013,919 144,937,752 10,208,370 10,089,427 183,356,785 $ 178,501,118 $ 11,397,576 $ 11,369,128 $ Business-Type Activities Governmental Activities Enterprise Funds Internal Service Funds Total Enterprise Funds Washington State Auditor's Office Page 45 The notes to the financial statements are an integral part of this statement ---PAGE BREAK--- The notes to the financial statements are an integral part of this statement. Amounts reported for business-type activities in the statement of net position are different because: Net position - total enterprise funds 149,013,919 $ The accumulated net revenue of certain activities of internal service funds is reported with governmental activities. (8,915,024) Net position of business-type activities 140,098,895 $ December 31, 2015 Reconciliation of the Statement of Net Position - Proprietary Funds To the Government-Wide Statement of Net Position - Business-Type Activities Washington State Auditor's Office Page 46 ---PAGE BREAK--- Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Funds For the Year Ended December 31, 2015 (with comparative totals for 2014) Water and Sewer Coliseum Medical Services Other Non-Major Enterprise Fund Fund Fund Funds Operating revenues: Charges for services 18,213,126 $ 2,786,985 $ 4,580,696 $ 2,931,401 $ Other operating revenues - - 88,994 25,957 Total operating revenues 18,213,126 2,786,985 4,669,690 2,957,358 Operating expenses: Maintenance and operations 7,004,940 3,185,783 4,508,559 2,533,018 Administrative and general 2,595,928 - 904,545 85,727 Taxes 2,183,796 39,189 120,288 29,023 Depreciation 4,519,477 570,392 6,253 350,586 Total operating expenses 16,304,141 3,795,364 5,539,645 2,998,354 Operating income (loss) 1,908,985 (1,008,379) (869,955) (40,996) Nonoperating revenues (expenses): Investment earnings 68,048 - (1,056) 11,609 Interest expense (289,335) (29,315) - (8,379) Miscellaneous nonoperating revenue (expenses) - - - - Gain (loss) on disposition of assets - - - - Total nonoperating revenue (expenses) (221,287) (29,315) (1,056) 3,230 Income (loss) before contributions and transfers 1,687,698 (1,037,694) (871,011) (37,766) Capital contributions 4,130,511 - - 631,884 Transfers in - 1,099,358 1,350,000 52,430 Transfers out (103,917) - (46,534) (56,563) Change in net position 5,714,292 61,664 432,455 589,985 Total net position - beginning, as restated 123,550,153 5,803,901 695,224 12,166,245 Total net position - ending 129,264,445 $ 5,865,565 $ 1,127,679 $ 12,756,230 $ The notes to the financial statements are an integral part of this statement. Business-type Activities- Enterprise Funds Washington State Auditor's Office Page 47 ---PAGE BREAK--- 2015 2014 2015 2014 28,512,208 $ 27,219,657 $ 2,804,870 $ 3,177,556 $ 114,951 146,794 - - 28,627,159 27,366,451 2,804,870 3,177,556 17,232,300 14,831,223 2,721,062 3,550,776 3,586,200 3,698,862 13,550 13,104 2,372,296 2,271,467 - - 5,446,708 5,398,631 1,110,936 1,078,536 28,637,504 26,200,183 3,845,548 4,642,416 (10,345) 1,166,268 (1,040,678) (1,464,860) 78,601 79,624 27,733 24,515 (327,029) (362,934) (10,600) (12,514) - 678 3,806 9,095 - (6,365) (17,060) (44,777) (248,428) (288,997) 3,879 (23,681) (258,773) 877,271 (1,036,799) (1,488,541) 4,762,395 3,578,988 - - 2,501,788 1,105,110 1,411,829 1,736,300 (207,014) (51,083) - (39,850) 6,798,396 5,510,286 375,030 207,909 142,215,523 139,427,466 9,833,340 9,881,518 149,013,919 $ 144,937,752 $ 10,208,370 $ 10,089,427 $ Total Internal Service Governmental Activities Total Enterprise Funds Business-type Activities- Enterprise Funds Washington State Auditor's Office Page 48 The notes to the financial statements are an integral part of this statement ---PAGE BREAK--- The notes to the financial statements are an integral part of this statement. Amounts reported for business-type activities in the statement of activities are different because: Net change in net position - total enterprise funds 6,798,396 $ The current year net revenue of certain activities of internal service funds is reported with governmental activities. (779,161) Change in net position of business-type activities 6,019,235 $ For the Year Ended December 31, 2015 Reconciliation of the Statement of Revenues, Expenses, and Changes in Fund Net Position of Proprietary Funds To the Statement of Activities - Business-Type Activities Washington State Auditor's Office Page 49 ---PAGE BREAK--- Statement of Cash Flows Proprietary Funds For the Year Ended December 31, 2015 (with comparative totals for 2014) Water and Sewer Coliseum Medical Services Other Non- Major Enterprise Fund Fund Fund Funds CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 16,967,858 $ 2,761,608 $ 4,330,120 $ 2,920,459 $ Other operating revenue 1,119,512 - - - Payments to suppliers (5,269,766) (1,624,358) (1,305,590) (949,101) Payments to employees (5,297,348) (1,509,132) (4,265,110) (1,659,676) Other receipts - - - 83,301 Internal activity - payments to other funds (1,538,056) - - (29,023) Net cash provided by (used in) operating activities 5,982,200 (371,882) (1,240,580) 365,960 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Repayment for advances to other fund 536,899 - - - Payments from landfill liability - - - - Operating subsidies and transfers from other fund - 898,850 1,350,000 45,000 Operating subsidies and transfers to other fund - - (40,691) 40,691 Net cash provided by noncapital financing activities 536,899 898,850 1,309,309 85,691 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital contributions 846,427 - - 7,688 Repayment for advances to other fund 223,045 - - - Proceeds from capital debt 26,407 - - 219,227 Purchases of capital assets (3,497,348) (205,621) - (213,949) Principal paid on capital debt (2,984,851) (517,203) - (50,930) Interest paid on capital debt (289,335) (31,647) - (8,379) Proceeds from sale of equipment - - - - Capital grant 234,978 - - - Transfer for capital purposes (103,917) 200,508 (46,534) (49,133) Net cash provided by (used in) capital and related financing activities (5,544,594) (553,963) (46,534) (95,476) CASH FLOWS FROM INVESTING ACTIVITIES Interest and dividends 81,432 - (1,055) 9,757 Net cash provided by (used in) investing activities 81,432 - (1,055) 9,757 Net increase (decrease) in pooled cash and investments 1,055,937 (26,995) 21,140 365,932 Balance - beginning of the year 7,787,582 542,006 - 1,641,341 Balance - end of the year 8,843,519 $ 515,011 $ 21,140 $ 2,007,273 $ Reconciliation of operating income (loss) to net cash provided by (used in) operating activities: Operating income (loss) 1,908,985 $ (1,008,379) $ (869,955) $ (40,996) $ Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation expense 4,519,477 570,392 6,253 350,586 Pension adjustment for net pension liability (107,384) - (208,716) (41,016) Miscellaneous nonoperating income - - - - Change in assets and liabilities: Receivables, net (127,546) 42,090 (749,332) 50,648 Change in uncollectible accounts 1,790 - 498,758 69 Inventories (16,135) 17,338 - 505 Prepaid expenses (31,973) 12,079 - (878) Accounts and other payables (602,023) 45,559 2,631 30,329 Unearned revenue 500,000 (67,467) - - Accrued expenses (62,991) 16,506 79,781 16,713 Net cash provided by (used in) operating activities 5,982,200 $ (371,882) $ (1,240,580) $ 365,960 $ Noncash capital activities/developer contributions: 3,231,480 $ - $ - $ 624,197 $ The notes to the financial statements are an integral part of this statement. Business-type Activities - Enterprise Funds Washington State Auditor's Office Page 50 ---PAGE BREAK--- 2015 2014 2015 2014 26,980,045 $ 26,291,249 $ 2,816,240 $ 3,234,048 $ 1,119,512 1,062,058 3,806 9,095 (9,148,815) (9,023,726) (2,222,250) (2,957,947) (12,731,266) (9,468,763) (558,223) (573,123) 83,301 95,123 - - (1,567,079) (1,512,575) - - 4,735,698 7,443,366 39,573 (287,927) 536,899 (44,840) - - - - (49,480) (63,606) 2,293,850 1,215,696 500,000 1,075,000 - (41,691) - (39,850) 2,830,749 1,129,165 450,520 971,544 854,115 307,454 - - 223,045 193,318 - - 245,634 4,718,573 - - (3,916,918) (9,977,556) (606,857) (697,230) (3,552,984) (3,232,256) (227,601) (221,968) (329,361) (362,875) (32,873) (38,506) - (45) 22,639 37,865 234,978 832,652 - - 924 36,179 911,829 661,300 (6,240,567) (7,484,556) 67,137 (258,539) 90,134 64,982 23,622 25,651 90,134 64,982 23,622 25,651 1,416,014 1,152,957 580,852 450,729 9,970,929 8,817,972 4,545,248 4,094,519 11,386,943 $ 9,970,929 $ 5,126,100 $ 4,545,248 $ (10,345) $ 1,166,268 $ (1,040,678) $ (1,464,860) $ 5,446,708 5,398,631 1,110,936 1,078,536 (357,116) 678 (10,870) - - - 3,806 9,095 (784,140) (11,446) 11,370 56,491 500,617 75,635 - - 1,708 22,962 28,775 25,470 (20,772) 15,110 - - (523,504) 12,014 (71,544) 4,908 432,533 478,331 - - 50,009 285,183 7,778 2,433 4,735,698 $ 7,443,366 $ 39,573 $ (287,927) $ 3,855,677 $ 2,942,408 $ - $ - $ Totals Totals Business-type Activities Enterprise Funds Governmental Activities Internal Service Funds Washington State Auditor's Office Page 51 The notes to the financial statements are an integral part of this statement ---PAGE BREAK--- The notes to the financial statements are an integral part of this statement. 2015 2014 2015 2014 ASSETS Equity in pooled cash & investments 2,297,156 $ 2,117,936 $ 1,225,735 $ 1,253,949 $ Investments 450,702 85,849 - - Receivables 92,972 71,915 453 157 Due from other governments - - 37,808 42,687 Total assets 2,840,830 2,275,700 1,263,996 1,296,793 LIABILITIES Accounts payable 9,755 6,534 184,539 215,413 Due to other governments - - 1,053,643 1,054,115 Custodial accounts - - 25,814 27,265 Total liabilities 9,755 6,534 1,263,996 1,296,793 NET POSITION Held in trust for pension benefits and OPEB 2,831,075 $ 2,269,166 $ - $ - $ Statement of Fiduciary Net Position Trust Funds Agency Funds December 31, 2015 (with comparative totals for 2014) Fiduciary Funds Washington State Auditor's Office Page 52 ---PAGE BREAK--- The notes to the financial statements are an integral part of this statement. 2015 2014 ADDITIONS Contributions: Employer 1,248,015 $ 1,210,987 $ Total contributions 1,248,015 1,210,987 Investment earnings: Interest 24,455 13,869 Total investment earnings 24,455 13,869 Total additions 1,272,470 1,224,856 DEDUCTIONS Benefits 683,856 668,103 Administrative expenses 26,705 (556) Total deductions 710,561 667,547 Change in net position 561,909 557,309 Net position - beginning 2,269,166 1,711,857 Net position - ending 2,831,075 $ 2,269,166 $ Trust Funds Statement of Changes in Fiduciary Net Position Fiduciary Funds For the Year Ended December 31, 2015 (with comparative totals for 2014) Washington State Auditor's Office Page 53 ---PAGE BREAK--- NOTES TO THE FINANCIAL STATEMENTS December 31, 2015 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’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. 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 Washington State Auditor's Office Page 54 ---PAGE BREAK--- 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 bonds issued by the District for construction of the facility. The District’s first principal payment was in 2012 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 position 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. 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 Washington State Auditor's Office Page 55 ---PAGE BREAK--- 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 before the last claims run for the prior year, which is on the second Friday of January. 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. As of December 31, 2015, unassigned fund balance for the general fund was $2,631,063, or 5.6 percent of total reported general fund expenditures and 5.4 percent of total operating fund expenditures (general and street fund), which exceeds the city’s budgetary policy of maintaining fund balance equal to 5 percent of annual operating expenditures for these funds.  Special Revenue: Community Development Fund – The fund accounts for activities within the CDBG and HOME programs funded by grants from the U.S. Department of Housing and Urban Development (HUD). Sources of funds are derived from the HUD grant funds and program income.  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). Urban Arterial Street Fund – The fund accounts for the continued development of the arterial street system within the City. Sources of funds are derived from indirect federal and direct state transportation grants and an operating transfer from the Capital Improvement Fund. The City reports the following major enterprise 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.  Coliseum Fund: The coliseum fund accounts for activities of the government’s coliseum operations.  Medical Services Fund: The medical services fund accounts for ambulance service operations. Washington State Auditor's Office Page 56 ---PAGE BREAK--- 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 three agency trust funds for 1) payroll clearing fund 2) bi-county police information fund and 3) metro drug task force fund. 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 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. 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, inspection services, golf course 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 expenses. D. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position/Fund Balance 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 government-wide statement of net position as equity in pooled cash and investments. Cash with fiscal agent is disclosed separately. Cash and Cash Equivalents - It is the City's policy to invest all temporary cash surpluses. At December 31, 2015, the treasurer was holding $15,813,335 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. Washington State Auditor's Office Page 57 ---PAGE BREAK--- 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, sales, 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. Deferred inflows related to assessments on the fund financial statements consist of unbilled special assessments that are liens against the property benefited. As of December 31, 2015, there were delinquent special assessments receivable in the amount of $3,491. 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 – Activities 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 are offset by a fund balance classification 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 $1,158,808 in Debt Service and $1,131,885 in Capital Projects, and a net pension asset of $1,113,001. 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. Washington State Auditor's Office Page 58 ---PAGE BREAK--- 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, 2015, the City's compensated absences payable in accordance with GASB Statement No. 16 for all funds amounted to 123,935 hours and $5,718,207. A liability for these amounts is 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 position. Bond premiums and discounts 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. Under GASB 65, bond issue costs are expensed as incurred. 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 11. Deferred Outflow/Inflows of Resources – In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources until then. The City has two items that qualify for reporting in this category. First is the deferred charge on refunding which results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. Second is the collective deferred outflows for pensions, which is discussed in more detail in Note 7. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City has two items that qualify for reporting in this category: unavailable revenue and the collective deferred inflows for pensions. Unavailable revenue, which arises only under a modified accrual basis of accounting, is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenue from three sources: taxes, special assessments, and long-term loans made with Housing and Urban Development grant funds. These amounts are deferred and recognized as an inflow of resources in the Washington State Auditor's Office Page 59 ---PAGE BREAK--- period that the amounts become available. See Note 7 for more information on the collective deferred inflows for pensions. Pensions – For the year ended December 31, 2015, the City implemented the provisions of GASB 68, Accounting and Financial Reporting for Pensions and GASB 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of all state sponsored pension plans and additions to/deductions from those plans’ fiduciary net position have been determined on the same basis as they are reported by the Washington State Department of Retirement Systems. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Unearned Revenue – This account includes amounts recognized as receivables but not revenues in governmental funds because the revenue recognition has not been met. Fund Balance – Fund balance has been redefined by GASB 54 to establish fund balance classifications that comprise a hierarchy based primarily on the extent to which the City is bound to observe constraints imposed upon the use of the resources reported in governmental funds. 1. The restricted fund balance is used to describe the portion of fund balance that reflects constraints placed on the use of resources externally imposed by creditors, grantors, or contributors; or imposed by law through constitutional provisions or enabling legislation. 2. The committed fund balance can only be used for specific purposes pursuant to constraints imposed by formal action of the city’s highest level of decision-making authority. The city council is the highest level of decision-making authority that can, by adoption of an ordinance, commit fund balance. Once adopted, the limitation imposed by the ordinance remains in place until a similar action is taken to remove or revise the limitation. 3. The assigned fund balance classification of fund balances are constrained by the city council’s intent to be used for specific purposes. In governmental funds other than the general fund, assigned fund balance represents the amount that is not restricted or committed. This indicates that resources in other governmental funds, at a minimum, are intended to be used for the purpose of the fund that is established by Council ordinance. While there are currently no assignments of fund balance in the General Fund, any assignments would be based on Council direction. 4. The unassigned classification of fund balances is the residual classification for the government’s general fund and includes all spendable amounts not contained in the other classifications. In other funds, the unassigned classification will be used only to report a deficit balance resulting from overspending for specific purposes for which amounts had been restricted, committed, or assigned. There are times the government will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. The city considers restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. Washington State Auditor's Office Page 60 ---PAGE BREAK--- 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 Position. The governmental fund balance sheet includes a reconciliation between fund balance - total governmental funds and net position - governmental activities as reported in the government wide statement of net position. One element of that reconciliation explains that "long-term liabilities", including bonds payable, are not due and payable in the current period and therefore not reported in the funds. The details of this $38,546,118 difference are following. Bonds and Notes Payable 29,565,703) Bond Premium (998,806) Unamortized Refunding Gain 663,350 Public Works Trust Fund Loans Payable (1,839,094) Capital Lease (236,370) Net OPEB Obligation (1,847,593) Accrued Interest (107,668) Compensated Absences (4,614,234) 38,546,118) Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. The following schedule details the $206,591,212 difference. Land $ 88,807,309 Depreciable Assets 198,599,917 Depreciation (98,937,788) Construction in Progress 14,990,023 Joint Ventures 3,131,751 $ 206,591,212 Other long-term assets are earned in the upcoming period but not available for current period expenditures. The following schedule details the $8,349,246 difference. Operating Grant - Economic Environment $ 2,922,918 Special Assessment 429,260 Sales Tax 3,782,049 Net Pension Asset 201,170 Motor Vehicle Fuel Tax 128,753 Utility Tax 449,722 Leasehold Excise Tax 4,810 Hotel/Motel Tax 125,619 Property Tax 304,945 $ 8,349,246 Washington State Auditor's Office Page 61 ---PAGE BREAK--- 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 following schedule details the differences from capital activity in the current year. Capital Outlays $ 6,402,610 Depreciation (6,525,645) Cost of Assets Sold (856,121) 979,156) 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 position. Also, governmental funds report the effect of 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 Proceeds 14,340,307) Debt Retired 2,579,880 Refunding 6,287,505 5,472,922) 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 46,013) Sales Tax 592,702 Utility Tax 23,222 Other Tax 13,624 Contract Receivable (38,432) Miscellaneous Receivable 340,716 885,819) 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 302,931) Net Pension Liability 43,874 OPEB Obligation (381,811) Interest on Long Term Debt 18,413 Amortized Bond Premium 213,588 Washington State Auditor's Office Page 62 ---PAGE BREAK--- Amortized Refunding Interest (82,547) 491,414) 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 schedule. Internal Service Fund Operating Costs 817,857) Transfer of Equipment to Internal Service Funds 549,545 Investment Earnings 27,736 Disposition of Capital Assets (17,060) Transfers 1,411,829 $ 1,154,193 NOTE 3 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY 1) 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 2015. 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. Washington State Auditor's Office Page 63 ---PAGE BREAK--- B. Encumbrance Accounting Encumbrance accounting is utilized to the extent necessary to assure effective budgetary control and accountability and to facilitate effective cash planning and control. 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. At year end the amount of encumbrances expected to be honored upon performance is 100% as the City is currently in the middle of the budget biennium. Total encumbrances are as follows: C. Budget Revision During 2015/2016 biennium, the biennial budget was revised as follows: Original Amended Biennial Total Biennial Budget Revisions Budget General Fund 94,842,599 $ 611,369 $ 95,453,968 $ Street Fund 4,027,993 27,516 4,055,509 Urban Arterial Street Fund - 18,005,571 18,005,571 Capital Improvement Fund 24,560,824 9,177,596 33,738,420 Water & Sewer Fund 41,007,458 5,710,650 46,718,108 Medical Services Fund 11,982,200 45,125 12,027,325 Building Safety Fund 3,213,000 340,505 3,553,505 Coliseum Fund 7,997,700 (10,536) 7,987,164 Stormwater Utility Fund 3,034,221 2,154,547 5,188,768 Columbia Park Golf Course Fund 749,380 391,116 1,140,496 Equipment Rental Fund 9,343,332 1,011,758 10,355,090 Central Stores Fund 681,200 23,005 704,205 Risk Management Fund 3,297,130 25,838 3,322,968 Debt Service Fund 6,106,180 6,713,500 12,819,680 LID Guaranty Fund 35,400 20 35,420 Arterial Street Fund 1,600,000 8,596 1,608,596 BI-PIN Operations Fund 679,138 - 679,138 Community Development Fund 1,305,800 873,474 2,179,274 MPD Assistant Operations Fund 62,423 (1,625) 60,798 Asset Forfeiture Fund 150,700 28,183 178,883 Public Safety Fund 5,232,083 71,083 5,303,166 Cash Reserve Fund 2,675,500 40,000 2,715,500 Lodging Tax Fund 2,948,900 399,914 3,348,814 Criminal Justice Sales Tax Fund 3,785,000 - 3,785,000 Fire Pension Fund 1,229,000 4,247 1,233,247 OPEB Trust Fund 3,646,000 (5,080) 3,640,920 Total 234,193,161 $ 45,646,372 $ 279,839,533 $ Encumbrances General Fund 47,997 $ Capital Improvement Fund 3,749,373 Urban Arterial Street Fund 873,374 Othe Non-Major Govt'l Funds 140,860 Water/Sewer Fund 870,657 Medical Services Fund 3,772 Internal Service Funds 460,377 6,146,410 $ Washington State Auditor's Office Page 64 ---PAGE BREAK--- 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 $837,220, which consisted of $981,894 per the City’s checking account bank balances, deposits in transit of $173,146, $54,000 in cash drawers and advance travel funds, less outstanding checks of $371,820. No deposits were uninsured or uncollateralized. The City’s deposits are entirely covered by the Federal Deposit Insurance Corporation (FDIC) or by collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commission Under State statute, members of 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, 2015: Item Checking Accounts Deposits $ 783,220 Cash in Change Funds 34,000 Cash in Advance Travel Funds 20,000 $ 837,220 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, 2015, the City had the following investments: The Firemen’s Pension Trust Fund investment total includes $265,202 in special assessment installment notes and the OPEB Trust Fund investment total includes $185,500 in special assessment installment notes. 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. Weighted Average Investment Type Book Value Fair Maturity (Years) U.S. Agency Securities $28,652,114 $28,469,805 3.10 State Treasurer's Investment Pool 14,831,441 14,831,441 0.00 Total $43,483,555 $43,301,246 Portfolio weighted average 2.04 Washington State Auditor's Office Page 65 ---PAGE BREAK--- 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, 2015, the City’s investments in agency securities were rated AAA or they were unrated. 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 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, 2015 are shown on the following schedule. Concentration of Credit Risk as a Percentage of Total Investments Issuer Book Value Federal National Mortgage Association $12,096,448 28% Federal Home Loan Mortgage Corp 6,997,737 16% Federal Farm Credit Bank 3,994,843 9% Federal Home Loan Bank 3,743,944 9% 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 unearned 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. Washington State Auditor's Office Page 66 ---PAGE BREAK--- 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 $3.22 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: 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 and annexations 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 2015 was $2.1681 per $1,000, on an assessed valuation of $5,403,889,187, for a total regular levy of $11,716,379. The City dedicated $96,000 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 2015, the City levied an additional $.0765 per $1,000 for the 1996 voter-approved G.O. bond issue for a total additional levy of $410,000. NOTE 6 - CAPITAL ASSETS Capital assets activity for the year ended December 31, 2015 was as follows Balance Balance Governmental Activities 12/31/2014 Additions Deletions 12/31/2015 Non-depreciable capital assets: Land (including ROW) 85,660,007 $ 3,446,412 $ (299,110) $ 88,807,309 $ Construction in Progress 12,078,863 5,946,805 (3,035,645) 14,990,023 Subtotal non-depreciable capital assets 97,738,870 9,393,217 (3,334,755) 103,797,332 Depreciable capital assets: Buildings 42,640,512 - - 42,640,512 Improvements other than buildings 19,485,540 - (20,970) 19,464,570 Infrastructure 129,370,318 4,051,981 (546,205) 132,876,094 Equipment 18,938,302 620,763 (360,596) 19,198,469 Subtotal depreciable capital assets 210,434,672 4,672,744 (927,771) 214,179,645 Accumulated Depreciation: Buildings (12,623,931) (840,430) - (13,464,361) Improvements other than buildings (6,549,046) (742,557) 11,536 (7,280,067) Infrastructure (71,267,587) (4,544,782) - (75,812,369) Equipment (10,699,587) (1,508,813) 317,351 (11,891,049) Subtotal accumulated depreciation (101,140,151) (7,636,582) 328,887 (108,447,846) Governmental activities capital assets, net 207,033,391 $ 6,429,379 $ (3,933,639) $ 209,529,131 $ Washington State Auditor's Office Page 67 ---PAGE BREAK--- Depreciation expense was charged to the functions/programs of the governmental activities of the primary government 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. No interest was capitalized in 2015. Balance Balance Business-Type Activities 12/31/2014 Additions Deletions 12/31/2015 Non-depreciable capital assets: Land 2,987,734 $ - $ - $ 2,987,734 $ Intangible 29,179 - - 29,179 Construction in Progress 14,547,277 3,166,798 (9,311,135) 8,402,940 Subtotal non-depreciable capital assets 17,564,190 3,166,798 (9,311,135) 11,419,853 Depreciable capital assets: Buildings and improvements 222,705,968 13,718,675 - 236,424,643 Equipment 11,084,284 198,258 (18,095) 11,264,447 Subtotal depreciable capital assets 233,790,252 13,916,933 (18,095) 247,689,090 Accumulated Depreciation: Buildings and improvements (79,396,773) (5,069,682) - (84,466,455) Equipment (7,801,796) (377,026) 18,095 (8,160,727) Subtotal accumulated depreciation (87,198,569) (5,446,708) 18,095 (92,627,182) Business-type activities capital assets, net 164,155,873 $ 11,637,023 $ (9,311,135) $ 166,481,761 $ Governmental activities: General Government 519,948 $ Public Safety 1,124,169 Physical Environment 210,930 Transportation 4,630,217 Economic Environment 46,859 Culture & Recreation 1,104,459 Total 7,636,582 $ Business-type activities: Water and sewer service 4,519,477 $ Medical service 6,253 Coliseum service 570,392 Golf Course service 344,212 Stormwater service 6,374 Total 5,446,708 $ Washington State Auditor's Office Page 68 ---PAGE BREAK--- The City has active construction projects as of December 31, 2015. At year-end the City’s significant commitments with vendors are as shown on the following schedule. NOTE 7 - PENSION PLANS The following table represents the aggregate pension amounts for all plans subject to the requirements of the GASB Statement 68, Accounting and Financial Reporting for Pensions for the year 2015: Aggregate Pension Amounts – All Plans Pension liabilities $ 11,707,746 Pension assets $ 7,255,549 Deferred outflows of resources $ 2,411,300 Deferred inflows of resources $ 3,952,695 Pension expense/expenditures $ 1,066,419 State Sponsored Pension Plans Substantially all City full-time and qualifying part-time employees participate in one of the following statewide retirement systems administered by the Washington State Department of Retirement Systems, under cost-sharing, multiple-employer public employee defined benefit and defined contribution retirement plans. The state Legislature establishes, and amends, laws pertaining to the creation and administration of all public retirement systems. Project Spent to Date Remaining Commitment Construction Commitments Citywide Safety Project - $ 165,000 $ Clearwater - Leslie to US 395 - 140,000 Columbia Center Blvd Overlay 730,987 64,013 Columbia Gardens - Pretreatment Plant 46,400 53,700 Fire Station #65 429,102 3,502,939 Hildebrand Blvd 2,690,152 509,848 Olympia - SR397 to 27th 4,574,462 95,468 Steptoe Phase 3 3,452,476 71,524 W. 5th 320,010 29,790 Wastewater Trmt Plant Upgrade 169,125 394,625 Other Commitments GIS System 70,044 118,268 Office Machinery & Equipment - 58,535 Software 273,262 77,851 Transportation Equipment - 401,842 12,756,020 $ 5,683,405 $ Washington State Auditor's Office Page 69 ---PAGE BREAK--- The Department of Retirement Systems (DRS), a department within the primary government of the State of Washington, issues a publicly available comprehensive annual financial report (CAFR) that includes financial statements and required supplementary information for each plan. The DRS CAFR may be obtained by writing to: Department of Retirement Systems Communications Unit P.O. Box 48380 Olympia, WA 98540-8380 Or the DRS CAFR may be downloaded from the DRS website at www.drs.wa.gov. A. Public Employees’ Retirement System (PERS) Plans 1, 2, and 3 Plan Description PERS members include elected officials; state employees; employees of the Supreme, Appeals and Superior Courts; employees of the legislature; employees of district and municipal courts; employees of local governments; and higher education employees not participating in higher education retirement programs. PERS is comprised of three separate pension plans for membership purposes. PERS plans 1 and 2 are defined benefit plans, and PERS plan 3 is a defined benefit plan with a defined contribution component. PERS Plan 1 provides retirement, disability and death benefits. Retirement benefits are determined as two percent of the member’s average final compensation (AFC) times the member’s years of service. The AFC is the average of the member’s 24 highest consecutive service months. Members are eligible for retirement from active status at any age with at least 30 years of service, at age 55 with at least 25 years of service, or at age 60 with at least five years of service. Members retiring from active status prior to the age of 65 may receive actuarially reduced benefits. Retirement benefits are actuarially reduced to reflect the choice of a survivor benefit. Other benefits include duty and non-duty disability payments, an optional cost-of-living adjustment (COLA), and a one-time duty-related death benefit, if found eligible by the Department of Labor and Industries. PERS 1 members were vested after the completion of five years of eligible service. The plan was closed to new entrants on September 30, 1977. Contributions The PERS Plan 1 member contribution rate is established by State statute at 6 percent. The employer contribution rate is developed by the Office of the State Actuary and includes an administrative expense component that is currently set at 0.18 percent. Each biennium, the state Pension Funding Council adopts Plan 1 employer contribution rates. The PERS Plan 1 required contribution rates (expressed as a percentage of covered payroll) for 2015 were as follows: PERS Plan 1 Actual Contribution Rates: Employer Employee January through June 2015 9.21% 6.00% July through December 2015 11.18% 6.00% The City’s actual contributions to the plan were $13,307 for the year ended December 31, 2015. Washington State Auditor's Office Page 70 ---PAGE BREAK--- PERS Plan 2/3 provides retirement, disability and death benefits. Retirement benefits are determined as two percent of the member’s average final compensation (AFC) times the member’s years of service for Plan 2 and 1 percent of AFC for Plan 3. The AFC is the average of the member’s 60 highest-paid consecutive service months. There is no cap on years of service credit. Members are eligible for retirement with a full benefit at 65 with at least five years of service credit. Retirement before age 65 is considered an early retirement. PERS Plan 2/3 members who have at least 20 years of service credit and are 55 years of age or older, are eligible for early retirement with a benefit that is reduced by a factor that varies according to age for each year before age 65. PERS Plan 2/3 members who have 30 or more years of service credit and are at least 55 years old can retire under one of two provisions:  With a benefit that is reduced by three percent for each year before age 65; or  With a benefit that has a smaller (or no) reduction (depending on age) that imposes stricter return-to-work rules. PERS Plan 2/3 members hired on or after May 1, 2013 have the option to retire early by accepting a reduction of five percent for each year of retirement before age 65. This option is available only to those who are age 55 or older and have at least 30 years of service credit. PERS Plan 2/3 retirement benefits are also actuarially reduced to reflect the choice of a survivor benefit. Other PERS Plan 2/3 benefits include duty and non-duty disability payments, a cost-of-living allowance (based on the CPI), capped at three percent annually and a one-time duty related death benefit, if found eligible by the Department of Labor and Industries. PERS 2 members are vested after completing five years of eligible service. Plan 3 members are vested in the defined benefit portion of their plan after ten years of service; or after five years of service if 12 months of that service are earned after age 44. PERS Plan 3 defined contribution benefits are totally dependent on employee contributions and investment earnings on those contributions. PERS Plan 3 members choose their contribution rate upon joining membership and have a chance to change rates upon changing employers. As established by statute, Plan 3 required defined contribution rates are set at a minimum of 5 percent and escalate to 15 percent with a choice of six options. Employers do not contribute to the defined contribution benefits. PERS Plan 3 members are immediately vested in the defined contribution portion of their plan. Contributions The PERS Plan 2/3 employer and employee contribution rates are developed by the Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. The Plan 2/3 employer rates include a component to address the PERS Plan 1 UAAL and an administrative expense that is currently set at 0.18 percent. Each biennium, the state Pension Funding Council adopts Plan 2 employer and employee contribution rates and Plan 3 contribution rates. The PERS Plan 2/3 required contribution rates (expressed as a percentage of covered payroll) for 2015 were as follows: The City’s actual contributions to the plan were $1,392,017 for the year ended December 31, 2015. PERS Plan 2/3 Actual Contribution Rates: Employer 2/3 Employee 2 January through June 2015 9.21% 4.92% July through December 2015 11.18% 6.12% Employee PERS Plan 3 varies Washington State Auditor's Office Page 71 ---PAGE BREAK--- B. Law Enforcement Officers’ and Fire Fighters’ Retirement System (LEOFF) Plans 1 and 2 Plan Description LEOFF membership includes all full-time, fully compensated, local law enforcement commissioned officers, firefighters, and as of July 24, 2005, emergency medical technicians. LEOFF is comprised of two separate defined benefit plans. LEOFF Plan 1 provides retirement, disability and death benefits. Retirement benefits are determined per year of service calculated as a percent of final average salary (FAS) as follows:  20+ years of service – 2.0% of FAS  10-19 years of service – 1.5% of FAS  5-9 years of service – 1% of FAS The FAS 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 ten years of service. Members are eligible for retirement with five years of service at the age of 50. Other benefits include duty and non-duty disability payments, a cost-of living adjustment (COLA), and a one-time duty-related death benefit, if found eligible by the Department of Labor and Industries. LEOFF 1 members were vested after the completion of five years of eligible service. The plan was closed to new entrants on September 30, 1977. Contributions Starting on July 1, 2000, LEOFF Plan 1 employers and employees contribute zero percent, as long as the plan remains fully funded. The LEOFF Plan I had no required employer or employee contributions for fiscal year 2015. Employers paid only the administrative expense of 0.18 percent of covered payroll. LEOFF Plan 2 provides retirement, disability and death benefits. Retirement benefits are determined as two percent of the final average salary (FAS) per year of service (the FAS is based on the highest consecutive 60 months). Members are eligible for retirement with a full benefit at 53 with at least five years of service credit. Members who retire prior to the age of 53 receive reduced benefits. 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. Otherwise, the benefits are actuarially reduced for each year prior to age 53. LEOFF 2 retirement benefits are also actuarially reduced to reflect the choice of a survivor benefit. Other benefits include duty and non-duty disability payments, a cost-of-living allowance (based on the CPI), capped at three percent annually and a one-time duty-related death benefit, if found eligible by the Department of Labor and Industries. LEOFF 2 members are vested after the completion of five years of eligible service. Washington State Auditor's Office Page 72 ---PAGE BREAK--- Contributions The LEOFF Plan 2 employer and employee contribution rates are developed by the Office of the State Actuary to fully fund Plan 2. The employer rate included an administrative expense component set at 0.18 percent. Plan 2 employers and employees are required to pay at the level adopted by the LEOFF Plan 2 Retirement Board. The LEOFF Plan 2 required contribution rates (expressed as a percentage of covered payroll) for 2015 were as follows: LEOFF Plan 2 Actual Contribution Rates: Employer Employee State and local governments 5.23% 8.41% Ports and Universities 8.59% 8.41% The City’s actual contributions to the plan were $970,499 for the year ended December 31, 2015. The Legislature, by means of a special funding arrangement, appropriates money from the state General Fund to supplement the current service liability and fund the prior service costs of Plan 2 in accordance with the recommendations of the Pension Funding Council and the LEOFF Plan 2 Retirement Board. This special funding situation is not mandated by the state constitution and could be changed by statute. For the state fiscal year ending June 30, 2015, the state contributed $58,339,032 to LEOFF Plan 2. Actuarial Assumptions The total pension liability (TPL) for each of the DRS plans was determined using the most recent actuarial valuation completed in 2015 with a valuation date of June 30, 2014. The actuarial assumptions used in the valuation were based on the results of the Office of the State Actuary’s (OSA) 2007-2012 Experience Study. Additional assumptions for subsequent events and law changes are current as of the 2014 actuarial valuation report. The TPL was calculated as of the valuation date and rolled forward to the measurement date of June 30, 2015. Plan liabilities were rolled forward from June 30, 2014, to June 30, 2015, reflecting each plan’s normal cost (using the entry-age cost method), assumed interest and actual benefit payments.  Inflation: 3% total economic inflation; 3.75% salary inflation  Salary increases: In addition to the base 3.75% salary inflation assumption, salaries are also expected to grow by promotions and longevity.  Investment rate of return: 7.5% Mortality rates were based on the RP-2000 report’s Combined Healthy Table and Combined Disabled Table, published by the Society of Actuaries. The OSA applied offsets to the base table and recognized future improvements in mortality by projecting the mortality rates using 100 percent Scale BB. Mortality rates are applied on a generational basis; meaning, each member is assumed to receive additional mortality improvements in each future year throughout his or her lifetime. There were minor changes in methods and assumptions since the last valuation.  The OSA updated demographic assumptions, consistent with the changes from the 2007- 2012 Experience Study Report, used when valuing the PERS 1 Basic Minimum COLA. Washington State Auditor's Office Page 73 ---PAGE BREAK---  The OSA corrected how valuation software calculates a member’s entry age under the entry age normal actuarial cost method. Previously, the funding age was rounded, resulting in an entry age one year higher in some cases.  For purposes of calculating the Plan 2/3 Entry Age Normal Cost contribution rates, the OSA now uses the current blend of Plan 2 and Plan 3 salaries rather than using a long-term membership assumption of two-thirds Plan 2 members and one-third Plan 3 members.  The OSA changed the way it applies salary limits, as described in the 2007-2012 Experience Study Report. Discount Rate The discount rate used to measure the total pension liability for all DRS plans was 7.5 percent. To determine that rate, an asset sufficiency test included an assumed 7.7 percent long-term discount rate to determine funding liabilities for calculating future contribution rate requirements. (All plans use 7.7 percent except LEOFF 2, which has assumed 7.5 percent). Consistent with the long-term expected rate of return, a 7.5 percent future investment rate of return on invested assets was assumed for the test. Contributions from plan members and employers are assumed to continue being made at contractually required rates (including PERS 2/3 employers, whose rates include a component for the PERS 1 plan liabilities). Based on these assumptions, the pension plans’ fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return of 7.5 percent was used to determine the total liability. Long-Term Expected Rate of Return The long-term expected rate of return on the DRS pension plan investments of 7.5 percent was determined using a building-block-method. The Washington State Investment Board (WSIB) used a best estimate of expected future rates of return (expected returns, net of pension plan investment expense, including inflation) to develop each major asset class. Those expected returns make up one component of WSIB’s capital market assumptions. The WSIB uses the capital market assumptions and their target asset allocation to simulate future investment returns at various future times. The long-term expected rate of return of 7.5 percent approximately equals the median of the simulated investment returns over a 50-year time horizon. Estimated Rates of Return by Asset Class Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of June 30, 2015, are summarized in the table below. The inflation component used to create the table is 2.2 percent and represents the WSIB’s most recent long-term estimate of broad economic inflation. Asset Class Target Allocation % Long-Term Expected Real Rate of Return Arithmetic Fixed Income 20% 1.70% Tangible Assets 5% 4.40% Real Estate 15% 5.80% Global Equity 37% 6.60% Private Equity 23% 9.60% 100% Washington State Auditor's Office Page 74 ---PAGE BREAK--- Sensitivity of NPL The table below presents the City’s proportionate share of the net pension liability calculated using the discount rate of 7.5 percent, as well as what City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (6.5 percent) or 1-percentage point higher (8.5 percent) than the current rate. 1% Decrease Current Discount Rate 1% Increase PERS 1 $ 7,714,371 $ 6,336,226 $ 5,151,147 PERS 2/3 $ 15,706,602 $ 5,371,520 $ (2,541,665) LEOFF 1 $ (583,881) $ (912,666) $ (1,192,894) LEOFF 2 $ 6,351,985 $ (6,342,883) $ (15,896,253) Pension Plan Fiduciary Net Position Detailed information about the State’s pension plans’ fiduciary net position is available in the separately issued DRS financial report. Pension Liabilities (Assets), Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2015, the City reported a total pension liability of $4,452,197 for its proportionate share of the net pension liabilities as follows: Liability (or Asset) PERS 1 $ 6,336,226 PERS 2/3 $ 5,371,520 LEOFF 1 $ (912,666) LEOFF 2 $ (6,342,883) The amount of the liability/(asset) reported above for LEOFF Plan 2 reflects a reduction for State pension support provided to the City. The amount recognized by the City as its proportionate share of the net pension liability/(asset), the related State support, and the total portion of the net pension liability/(asset) that was associated with the City were as follows: Liability (or Asset) LEOFF 2 – employer’s proportionate share $ (6,342,883) LEOFF 2 – State’s proportionate share of the net pension liability/(asset) associated with the employer $ ( 598,080) TOTAL $ (6,940,963) Washington State Auditor's Office Page 75 ---PAGE BREAK--- At June 30, the City’s proportionate share of the collective net pension liabilities was as follows: Proportionate Share 6/30/14 Proportionate Share 6/30/15 Change in Proportion PERS 1 0.123877 % 0.121130 % - 0.002747 % PERS 2/3 0.152120 % 0.150334 % - 0.001786 % LEOFF 1 0.073853 % 0.075726 % + 0.001873 % LEOFF 2 0.609750 % 0.617132 % + 0.007382 % Employer contribution transmittals received and processed by the DRS for the fiscal year ended June 30 are used as the basis for determining each employer’s proportionate share of the collective pension amounts reported by the DRS in the Schedules of Employer and Nonemployer Allocations for all plans except LEOFF 1. LEOFF Plan 1 allocation percentages are based on the total historical employer contributions to LEOFF 1 from 1971 through 2000 and the retirement benefit payments in fiscal year 2015. Historical data was obtained from a 2011 study by the Office of the State Actuary (OSA). In fiscal year 2015, the state of Washington contributed 87.12 percent of LEOFF 1 employer contributions and all other employers contributed the remaining 12.88 percent of employer contributions. LEOFF 1 is fully funded and no further employer contributions have been required since June 2000. If the plan becomes underfunded, funding of the remaining liability will require new legislation. The allocation method the plan chose reflects the projected long-term contribution effort based on historical data. In fiscal year 2015, the state of Washington contributed 39.80 percent of LEOFF 2 employer contributions pursuant to RCW 41.27.726 and all other employers contributed the remaining 60.20 percent of employer contributions. The collective net pension liability (asset) was measured as of June 30, 2015, and the actuarial valuation date on which the total pension liability (asset) is based was as of June 30, 2014, with update procedures used to roll forward the total pension liability to the measurement date. Allocation Method The City must allocate its proportionate share of the net pension liability (asset), deferred outflows/inflows, and pension expense among governmental and business-type activities and individual proprietary funds. This allocation method is similar to that prescribed by GASB Statement 68 for cost-sharing plans, as well as the method used by DRS to calculate the City’s proportionate share. These items are allocated to funds and activities based on their proportionate share of actual employer contributions to the plan. The PERS 2/3 allocation percentages were used for both PERS 1 and PERS 2/3 plans, and the LEOFF 2 allocation percentages were used for both LEOFF 1 and LEOFF 2 plans. Washington State Auditor's Office Page 76 ---PAGE BREAK--- Pension Expense For the year ended December 31, 2015, the City recognized pension expense as follows: Pension Expense PERS 1 $ 223,000 PERS 2/3 $ 644,452 LEOFF 1 $ (194,782) LEOFF 2 $ 393,749 TOTAL $ 1,066,419 Deferred Outflows of Resources and Deferred Inflows of Resources At December 31, 2015, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: PERS 1 Deferred Outflows of Resources Deferred Inflows of Resources Net difference between projected and actual investment earnings on pension plan investments $ 346,661 Contributions subsequent to the measurement date $ 334,469 TOTAL $ 334,469 $ 346,661 PERS 2/3 Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience $ 570,994 Net difference between projected and actual investment earnings on pension plan investments $ 1,433,941 Changes of assumptions $ 8,655 Changes in proportion and differences between contributions and proportionate share of contributions $ 57,467 Contributions subsequent to the measurement date $ 431,724 TOTAL $ 1,011,373 $ 1,491,408 LEOFF 1 Deferred Outflows of Resources Deferred Inflows of Resources Net difference between projected and actual investment earnings on pension plan investments $ 154,076 TOTAL $ 154,076 Washington State Auditor's Office Page 77 ---PAGE BREAK--- LEOFF 2 Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience $ 555,425 Net difference between projected and actual investment earnings on pension plan investments $ 1,921,860 Changes of assumptions $ 16,730 Changes in proportion and differences between contributions and proportionate share of contributions $ 38,690 Contributions subsequent to the measurement date $ 493,303 TOTAL $ 1,065,458 $ 1,960,550 Deferred outflows of resources related to pensions resulting from the City’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2016. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended December 31: PERS 1 PERS 2/3 LEOFF 1 LEOFF 2 2016 $ (134,354) $ (406,223) $ (59,787) $ (648,696) 2017 $ (134,354) $ (406,223) $ (59,787) $ (648,696) 2018 $ (134,354) $ (406,225) $ (59,787) $ (648,696) 2019 $ 56,401 $ 306,912 $ 25,285 $ 434,580 2020 - - - $ 102,588 2021 - - - $ 20,525 Thereafter $ - $ - $ - $ - 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. The most recent actuarial study of the system was performed to determine the funding requirements as of January 1, 2015. This plan was not audited; however, a copy of the review can be obtained by request at the following address: City of Kennewick, 210 W. 6th Ave., Kennewick WA, 99336. The City of Kennewick’s obligations under the Firemen’s Pension Fund are limited to pension benefits provided to firefighters retired prior to March 1, 1970. As of December 31, 2015, there were 9 retirees and 3 survivors covered by the Fund, all of which were drawing pension 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. Washington State Auditor's Office Page 78 ---PAGE BREAK--- 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 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, 2015 was $619,299 and retirement pensions in 2015 totaled $148,561. 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. Washington State Auditor's Office Page 79 ---PAGE BREAK--- The annual pension cost (APC) and net pension obligation (NPO) are shown on the following schedule as of December 31: The following schedule shows the three-year trend beginning with 2013 as of December 31: 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 2015 110,720 (5,505) (12,980) 118,195 162,069 (43,874) (201,170) (51,349) 11.9205 (13,195) (201,170) 2014 106,478 (3,746) (7,727) 110,459 174,113 (63,654) (157,296) (67,636) 12.1184 (7,727) (157,296) 2013 122,244 (1,478) (2,921) 123,687 180,370 (56,684) (93,641) (58,126) 12.6523 (2,921) (93,641) 2012 122,244 717 1,361 121,600 176,474 (54,874) (36,958) (54,230) 13.1657 1,361 (36,958) 2011 115,324 3,391 6,207 112,508 179,370 (66,862) 17,916 (64,046) 13.6593 6,207 17,916 2010 115,324 8,759 15,493 108,590 242,784 (134,194) 84,778 (127,460) 14.1339 15,493 84,778 2009 150,624 15,773 23,433 142,964 239,451 (96,487) 218,972 (88,827) 13.4622 23,433 218,972 Investment earnings are assumed to accrue at an annual rate of 3.5%. Salary and postretirement benefit increases are each estimated at 3.25% per annum. The inflation rate is assumed to increase at 2.25% 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 3.5% discount rate was used. 2013 2014 2015 Amortization of UAAL (BOY) 117,542 $ 102,383 $ 106,975 $ Interest to end of year (EOY) 4,702 4,095 3,744 Annual required contribution (ARC) 122,244 106,479 110,720 Interest on NPO (1,478) (3,746) (5,505) Adjustment to ARC 2,921 7,727 12,980 Annual pension cost (APC) 123,687 110,460 118,195 Total contributions 180,370 174,115 162,069 Change in NPO (56,683) (63,655) (43,874) NPO at BOY (36,958) (93,641) (157,296) NPO at EOY (93,641) (157,296) (201,170) Fiscal Year Ending Annual Pension Contribution as a Net Pension Year Cost (APC) Percentage of APC Obligation (NPO) 2015 $118,566 145% ($201,170) 2014 $110,459 158% ($157,296) 2013 $123,687 146% ($93,641) Washington State Auditor's Office Page 80 ---PAGE BREAK--- 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 12/31/2015 $75,702 $86,367 $162,069 $110,720 146% 12/31/2014 77,558 96,555 174,113 106,478 164% 12/31/2013 70,970 109,400 180,370 122,244 148% 12/31/2012 63,205 113,269 176,474 122,244 144% 12/31/2011 66,376 112,994 179,370 115,324 155% 12/31/2010 64,392 178,392 242,784 115,324 211% 12/31/2009 60,473 178,978 239,451 150,624 159% The schedule below shows the funding progress and presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability of benefits for the Firemen’s Pension Fund (In Thousands): Valuation Date Actuarial Value of Assets Actuarial Accrued Liabilities Entry Age Unfunded Actuarial Accrued Liabilities (UAAL) Funded Ratio January 1, 2015 $867 $2,142 $1,275 40% January 1, 2014 819 2,012 1,193 41% January 1, 2012 716 2,204 1,488 32% January 1, 2010 531 2,038 1,507 26% 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 2015. 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. Washington State Auditor's Office Page 81 ---PAGE BREAK--- 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. The City is a member of the Washington Cities Insurance Authority (WCIA) which was formed by nine cities on January 1, 1981. WCIA was created for the purpose of providing a pooling mechanism for jointly purchasing insurance, jointly self-insuring, and/or jointly contracting for risk management services. WCIA has a total of 179 members. New members initially contract for a three year term, and thereafter automatically renew on an annual basis. A one-year withdrawal notice is required before membership can be terminated. Termination does not relieve a former member from its unresolved loss history incurred during membership. Liability coverage is written on an occurrence basis, without deductibles. Coverage includes general, automobile, police, public officials’ error or omissions, stop gap, and employee benefits liability. Limits are $4 million per occurrence re-insured layer, and $16 million per occurrence in the re-insured excess layer. The excess layer is insured by the purchase of reinsurance and insurance and is subject to aggregate limits. Total limits are $20 million per occurrence subject to aggregate sublimits in the excess layers. The Board of Directors determines the limits and terms of coverage annually. Insurance coverage for liability, automobile physical damage and fidelity are purchased on a group basis. Various deductibles apply by type of coverage. In-house services include risk management consultation, loss control field services, claims and litigation administration, and loss analyses. WCIA contracts for the claims investigation consultants for personnel issues and land use problems, insurance brokerage, and lobbyist services. WCIA is fully funded by its members, who make annual assessments on a prospectively rated basis, as determined by an outside, independent actuary. The assessment covers loss, loss adjustment, and administrative expenses. As outlined in the interlocal, WCIA retains the right to additionally assess the membership for any funding shortfall. An investment committee, using investment brokers, produces additional revenue by investment of WCIA’s assets in financial instruments which comply with all State guidelines. A Board of Directors governs WCIA, which is comprised of one designated representative from each member. The Board elects an Executive Committee and appoints a Treasurer to provide general policy direction for the organization. The WCIA Executive Director reports to the Executive Committee and is responsible for conducting the day to day operations of WCIA. The City of Kennewick also contracted with F. M. Global Insurance Company of Bellevue, Washington on September 1, 2004 to handle all property, inland marine, boiler and machinery claims. In general, claim deductibles are $25,000 per occurrence. The City paid $96,583 to F. M. Global Insurance Company for their services in 2015. Washington State Auditor's Office Page 82 ---PAGE BREAK--- 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, 2015 were $31,801. During 1992, self-insurance for employee dental claims was added to the Risk Management Fund. Various City funds are charged for premiums. The liability for claims incurred but not reported (IBNR) was $32,559 on December 31, 2015, leaving $137,924 cash reserves available for claims. Management estimates unpaid claims based upon historical trends. Expenditures were not adjusted due to salvage or subrogation in 2015. 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. The balance as of December 31, 2015, was $41,344. Since 2011 the City has been with the Association of Washington Cities (AWC) Retrospective Rating Plan and paid $43,067 to AWC to administer this program for 2015. Premium refunds totaling $24,235 were received by Kennewick as part of a subsidy program for Employers from the Washington Department of Labor and Industries for providing modified duty to injured workers. NOTE 9 - LONG-TERM DEBT General Obligation Bonds The City issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. In May of 2015, the City of Kennewick issued $3,255,000 2015A Taxable Bonds to be used to acquire land within the City. In May of 2015, the City also issued $4,085,000 2015B Non-Taxable Bonds to construct and equip a new fire station, acquire firefighting equipment and a new medic unit. 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: Beginning Claims Claims Ending Beginning Claims Claims Ending Balance Incurred Payments Balance Balance Incurred Payments Balance Unemployment Claims - $ 111,989 $ (111,989) $ - $ - $ 81,658 $ (81,658) $ - $ Dental Claims 30,640 448,962 (446,473) 33,129 33,129 413,264 (413,834) 32,559 30,640 $ 560,951 $ (558,462) $ 33,129 $ 33,129 $ 494,922 $ (495,492) $ 32,559 $ 2014 2015 Washington State Auditor's Office Page 83 ---PAGE BREAK--- Annual debt service requirements to maturity for general obligation bonds are as follows: Refunding Bonds The City issued $5,915,000 of general obligation non-taxable refunding bonds (also 2015B). These Bonds were issued to refund all of the City’s callable outstanding Limited Tax GO 2006 Bonds. A portion of the proceeds from the sale of the 2015B Bonds will be used to advance refund the callable portion of the 2006 Bonds maturing on December 1 in the years 2016, 2019, 2021 and 2023 through 2025. The Bonds will be used to provide the money necessary to establish an irrevocable trust escrow to pay interest on the refunded bonds when due, up to and including June 1, 2016; call, pay and redeem on June 1, 2016, all of the Refunded Bonds at a price of par; and pay the administrative costs of the refunding and the allocable costs related to the sale, issuance and delivery of the 2015B Bonds. This will provide a net present value debt service savings for the City of $483,212. Special Assessment Debt 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. This balance is established and maintained by a tax levy not to exceed 12% of the amount guaranteed. The City currently has two outstanding installment notes from the Fire Pension Fund. The first note is for LID #225. The note is currently $79,703 and was issued March 1, 2012 at an interest rate of The note matures on March 1, 2022. Annual principal payments are made to the Fire Pension Fund with special 2016 2017 2018 2019 2020 2021-2025 2026-2030 2031-2034 Total Principal $2,105,000 $1,775,000 $1,825,000 $1,880,000 $1,935,000 $9,345,000 $5,275,000 $4,975,000 $29,115,000 Interest 1,215,366 1,149,113 1,091,294 1,029,292 963,250 3,692,279 2,140,705 687,943 11,969,244 Year Ended December 31 Issuance Final Debt Amount Installments Maturity Interest Rates Oustanding 2005 GO Refunding Bonds 3,285,000 $ $80,000 - $385,000 12/01/16 3.0% - 4.5% 385,000 $ 2011 GO Refunding Bonds 03B 5,330,000 $5,000 - $425,000 12/01/23 3.0% - 4.0% 4,360,000 2010B GO Bonds 11,825,000 $425,000 - $830,000 12/01/34 3.45% - 6.323% 11,400,000 2015A GO Bonds 3,255,000 $175,000 - $355,000 12/01/25 .53% - 3.02% 3,080,000 2015B GO Refunding Bonds 06 5,915,000 $110,000 - $660,000 12/01/25 2.0% - 3.0% 5,805,000 2015B GO Bonds 4,085,000 $225,000 - $490,000 12/02/34 3.0% - 4.0% 4,085,000 29,115,000 $ Washington State Auditor's Office Page 84 ---PAGE BREAK--- assessment installments received to date. Property owners may pay off their special assessments in full at any time so note payments vary from year to year. The second note is for LID #226. The note is currently $185,500 and was issued April 1, 2015 at an interest rate of 3.25%. The note matures on April 1, 2025. Annual principal payments are made to the Fire Pension Fund with special assessment installments received to date. Property owners may pay off their special assessments in full at any time so note payments vary from year to year. The City currently has one outstanding installment notes from the OPEB Trust Fund. The note is for LID #226. The note is currently $185,500 and was issued April 1, 2015 at an interest rate of 3.25%. The note matures on April 1, 2025. Annual principal payments are made to the Fire Pension Fund with special assessment installments received to date. Property owners may pay off their special assessments in full at any time so note payments vary from year to year. 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, 2015 are as follows: Remaining Purpose % of Av Capacity Notes General Government 2 1/2% $ 109,906,164 ($52,923,128 is Councilmanic) Park and Open Space 2 1/2% 140,432,039 Utility 2 1/2% 140,432,039 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. Annual debt service requirements to maturity for notes payable are as follows: Year Ending December 31 Principal Interest Principal Interest 2016 449,123 $ 18,391 $ 3,201,350 $ 251,310 $ 2017 449,123 13,900 2,984,587 210,825 2018 449,123 9,408 3,021,623 150,245 2019 245,863 4,917 2,257,709 102,424 2020 245,861 2,459 2,069,005 85,387 2021 - 2025 - - 7,909,264 202,501 2026 - 2030 - - 2,051,386 33,422 2031-2032 - - 472,227 3,542 1,839,093 $ 49,075 $ 23,967,151 $ 1,039,655 $ Governmental Activities Business-type Activities Washington State Auditor's Office Page 85 ---PAGE BREAK--- Outstanding notes and loans are shown on the following schedule for both governmental and business activities as of December 31, 2015. At December 31, 2015, restricted assets in proprietary funds contain $1,158,808 in reserves as required by the SRF loan agreement. 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. As of December 31, 2015, there was no liability for rebatable arbitrage on any of the City’s bond issues. Issuance Final Debt Amount Installments Maturity Interest Rates Outstanding Governmental Activities: PWTF - Comp Street Imp I 3,817,100 $ 203,264 $ 07/01/18 1.00% 609,796 $ PWTF - Comp Street Imp II 4,550,000 215,526 07/01/20 1.00% 1,229,297 Total Governmental Activities 1,839,093 $ Issuance Final Debt Amount Installments Maturity Interest Rates Outstanding Business-type Activities: PWTF - Water System Imp 6,856,358 $ 368,669 $ 07/01/16 1.00% 368,672 $ PWTF - Wastewater Lagoon 2,450,000 130,464 07/01/20 1.00% 652,323 PWTF - Misc W/S Imp 3,000,000 159,375 07/01/21 0.50% 956,250 PWTF - Advanced Water Treatment 9,500,000 531,250 07/01/25 0.50% 5,312,500 PWTF - Waste Wtr Plant-Const 5,500,000 290,278 07/01/28 0.50% 3,773,610 PWTF - Zone 4 Reservoir 4,250,000 223,685 07/01/32 0.50% 4,013,889 CERB - Welch's Project 125,000 4,689 - 9,338 01/01/21 4.70% 63,963 - LID Manual & Demo Project 390,000 90,358 12/31/19 1.40% 286,751 - Wellhead Area Retrofit 690,000 159,871 12/31/18 1.40% 459,829 - Kennewick Sustainability 725,000 167,993 03/01/21 1.40% 582,586 SRF - Drinking Water 4,040,000 212,632 10/01/24 1.50% 1,913,681 SRF - Water Treatment Facility 4,080,000 240,833 10/01/23 1.00% 1,813,331 SRF - Ranney Improvements 3,030,000 173,030 10/01/25 1.50% 1,575,751 SRF - Wastewater Treatment Facility 10,063,642 479,167 - 748,141 05/31/17 4.50% 2,194,015 Total Business-type Activities 23,967,151 $ Purpose Purpose Washington State Auditor's Office Page 86 ---PAGE BREAK--- Governmental Governmental Leased Equipment Activities Year Ending December 31 Activities Police Vehicles 1,181,136 $ 2016 260,474 $ 2017 260,474 2018 260,474 Total minimum remaining lease pmts 781,422 Less: amount representing interest (49,856) 731,566 $ Computers 345,980 $ 2016 124,169 $ 2017 124,169 Total minimum remaining lease pmts 248,338 Less: amount representing interest (11,968) 236,370 $ NOTE 10 – LEASES Operating Leases The City leases copiers under noncancelable operating leases: Total cost for such leases was $34,792 for the year ended December 31, 2015. The future minimum lease payments for these leases are as follows: Capital Leases The City capitalizes equipment obtained by financing lease agreements. The City had two outstanding lease agreements through the state’s LOCAL lease program during 2014. One lease provided partial funding for the purchase of 29 police vehicles and 27 data mobile data terminals at a cost of $1,301,390. The remaining lease provided funding to replace and or upgrade 304 computers at a cost of $386,056. The amount financed for the vehicles was $1,181,136 with a 5 year term and a 1.36851% interest rate. Payments are made from the Equipment Rental Fund. The amount financed for the computers was $345,980 with a 3 year term and a .70725% interest rate. Payments are made from the Capital Improvement Fund. Both leases were purchased at a premium, vehicles for $91,259 and computers $36,215, both of which are being amortized over the life of the lease. The amortizations are reflected in Note 11 under issuance premium. Both leases qualify as capital leases for accounting purposes and, therefore, have been recorded at the present values of their future minimum lease payments as of the inception date. The assets acquired through the capital lease program, the future minimum lease obligations and the new present values of these minimum lease payments of December 31, 2015 are on the following schedule. Year Ending December 31 Amount 2016 $33,833 2017 27,971 2018 15,331 2019 11,091 2020 1,994 Washington State Auditor's Office Page 87 ---PAGE BREAK--- NOTE 11 – CHANGES IN LONG-TERM LIABILITIES The following schedule shows a summary of changes in long-term liabilities for the year ended December 31, 2015: Internal service funds predominantly serve the governmental funds. Accordingly, long-term liabilities for these funds are included as part of the above totals for governmental activities. The above amounts include $49,077 of internal services funds compensated absences. One capital lease for $731,566 is also an internal service fund lease. 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. Liabilities for net pension obligations and net other postemployment benefit obligations are liquidated with the Firemen’s Pension Fund and the OPEB Trust Fund respectively. See Note 8 for discussion on landfill settlement. Beginning Balance Additions Reductions Ending Balance Due Within One Year Governmental Activities: Bonds and notes payable: General obligation bonds 23,820,000 $ 13,255,000 $ 7,960,000 $ 29,115,000 $ 2,105,000 $ Notes and loans 2,288,214 - 449,121 1,839,093 449,123 Special assessments 85,849 371,000 6,146 450,703 - Total bonds and notes payable 26,194,063 13,626,000 8,415,267 31,404,796 2,554,123 Adjust for deferred amounts: For issuance premium 551,642 714,307 235,291 1,030,658 - Landfill settlement 90,519 - 49,123 41,396 - OPEB payable 1,465,782 381,811 - 1,847,593 - Capital leases 1,305,148 - 337,212 967,936 349,765 Pension liability - 8,524,410 - 8,524,410 - Compensated absences 4,352,602 2,911,374 2,600,668 4,663,308 1,842,502 Governmental activity Long-term liabilities 33,959,756 $ 26,157,902 $ 11,637,561 $ 48,480,097 $ 4,746,390 $ Beginning Balance Additions Reductions Ending Balance Due Within One Year Business-type Activities: Notes and loans payable 26,595,408 $ 407,523 $ 3,035,780 $ 23,967,151 $ 3,201,350 $ Biosolids reserve 1,062,917 499,997 - 1,562,914 - Pension liability - 3,183,336 - 3,183,336 - Compensated absences 1,019,184 866,897 831,182 1,054,899 436,780 Business-type activity Long-term liabilities 28,677,509 $ 4,957,753 $ 3,866,962 $ 29,768,300 $ 3,638,130 $ Washington State Auditor's Office Page 88 ---PAGE BREAK--- NOTE 12 – 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. Litigation The City, in the normal course of its activities, is involved in various claims and litigation. In the opinion of management and the City Attorney, the disposition of these matters is not presently expected to have a material adverse effect on the City’s financial statements. NOTE 13 – RECEIVABLE AND PAYABLE BALANCES A. Receivables at December 31, 2015 are shown on the following schedule: B. Payables at December 31, 2015 are shown on the following schedule: 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. Receivables at December 31, 2015 were as follows: Nonmajor Community Capital Urban Nonmajor Medical Proprietary Internal Receivables General Development Improvement Arterial Street Govt'l Funds Water/Sewer Coliseum Services Fund Service Fund Total Interest 7,833 $ 77 $ 28,128 $ - $ 1,435 $ 17,283 $ - $ - $ 2,539 $ 6,282 $ 63,577 $ Taxes 3,023,428 - 1,188,853 - 909,827 - - - - - 5,122,108 Accounts 619,467 2,905,913 14,726 190,540 434,147 1,205,098 128,371 1,557,168 94,033 2,175 7,151,638 Due from other governments 18,933 50,710 44,953 66,850 - 215,941 - - - - 397,387 Gross Receivables 3,669,661 2,956,700 1,276,660 257,390 1,345,409 1,438,322 128,371 1,557,168 96,572 8,457 12,734,710 Less: allowance for uncollectible accounts (16,185) - - - - (75,946) - (785,114) (3,262) - (880,507) \ Net Total Receivables 3,653,476 $ 2,956,700 $ 1,276,660 $ 257,390 $ 1,345,409 $ 1,362,376 $ 128,371 $ 772,054 $ 93,310 $ 8,457 $ 11,854,203 $ Nonmajor Community Capital Urban Nonmajor Medical Proprietary Internal Payables General Development Improvement Arterial Street Govt'l Funds Water/Sewer Coliseum Services Fund Service Fund Total Interest - $ - $ 591 $ - $ - $ - $ 13,492 $ - $ - $ 2,455 $ 16,538 $ Claims and judgements - - - - - - - - - 32,559 32,559 Accounts 257,534 - 364,358 356,931 91,580 60,278 351,186 3,616 47,861 19,929 1,553,273 Salaries and benefits 586,442 2,214 - - 54,942 78,300 23,324 84,680 27,203 8,105 865,210 Due to other governments 115,650 1,715 - - 888 76 - - - - 118,329 Total Govt'l & Bus Activities 959,626 $ 3,929 $ 364,949 $ 356,931 $ 147,410 $ 138,654 $ 388,002 $ 88,296 $ 75,064 $ 63,048 $ 2,585,909 $ Reconciliation of financial statements to governmental wide financial statements: Accrued long term interest 107,669 $ - - - - - - - - 107,669 $ Net Total Payables 1,067,295 $ 3,929 $ 364,949 $ 356,931 $ 147,410 $ 138,654 $ 388,002 $ 88,296 $ 75,064 $ 63,048 $ 2,693,578 $ Washington State Auditor's Office Page 89 ---PAGE BREAK--- 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, 2015 outstanding interfund balances (resulting from various interfund transactions): Interfund Transfers Purpose - Transfers out Transfers in Transfers out General Fund Operations Transfers (Routine) 2,397,396 $ - $ General Fund Capital Transfers (Non-routine) - 1,500,000 General Fund Operations Transfer (Golf Course) - 45,000 General Fund Operations Transfer (Ambulance) - 1,350,000 General Fund Operations Transfer (Coliseum) - 200,000 General Fund Operations Transfer (Risk - 500,000 Community Development Fund Capital (Non-routine) - 455,761 Capital Improvement Fund Capital Transfers (Non-routine) 2,139,434 2,495,989 Capital Improvement Fund Debt Service (Routine) - 2,523,391 Urban Arterial Street Fund Capital (Non-routine) 1,562,400 - Other Non-Major Govt'l Funds Debt Service (Routine) 2,523,391 - Other Non-Major Govt'l Funds Operations Transfers (Routine) - 3,096,246 Other Non-Major Govt'l Funds Capital Transfers (Non-routine) 581,096 743,933 Water/Sewer Fund Capital Transfers (Non-routine) - 103,917 Medical Services Fund Operating Transfers (Non-routine) 1,350,000 - Medical Services Fund Capital Transfers (Non-routine) - 46,534 Coliseum Fund Operations Transfers (Routine) 898,850 - Coliseum Fund Capital Transfers (Non-routine) 200,508 - Other Non-Major Enterprise Funds Operations Transfers (Routine) 45,000 - Other Non-Major Enterprise Funds Capital Transfers (Non-routine) 7,430 56,563 Internal Service Funds Operations Transfers (Routine) 500,000 - Internal Service Funds Capital Transfers (Non-routine) 911,829 - Total 13,117,334 $ 13,117,334 $ Due from Due to Interfund Loans Purpose - Due to other funds other funds other funds Capital Improvement Fund Capital Purchase 1,402,447 $ - $ Water & Sewer Fund Capital Construction 1,086,892 - Coliseum Fund Capital Construction/Purchase - 2,489,339 Total 2,489,339 $ 2,489,339 $ Washington State Auditor's Office Page 90 ---PAGE BREAK--- NOTE 15 - SEGMENT INFORMATION FOR ENTERPRISE FUNDS The City maintains six Enterprise Funds that provide ambulance service, building inspection services, water and sewer utility services, stormwater utility service, the operation of a golf course, 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 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 2015 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 position. 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. Washington State Auditor's Office Page 91 ---PAGE BREAK--- The Southeast Communications Center also provides public safety communications services via contract to the City of West Richland, Prosser, Benton County Fire Protection District and 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 position 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. 3. 800 MHz Radio 800 MHz Radio provides communication infrastructure and technology for the dispatching of public safety agencies throughout Benton County. The Cities of Kennewick, Richland and Benton County each own a share of 800 MHz’s net assets. User agencies including Benton County Sheriff, Juvenile Justice Center, Public Works, Public Utility District, Animal Control and County Jail, the cities of Kennewick, Richland, West Richland and Prosser, as well as PNNL and the AREVA Corporation. 4. Microwave The microwave system is accounted for separately within its own fund and the user groups are charged a portion of costs based on numbers of circuits utilized. Participating agencies including Benton County and the cities of Kennewick and Richland. 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, 2015, the City of Kennewick's equity interest in SECOMM was $1,297,764, $19,593 in BCEM, $15,886 in Microwave and $1,716,771 in 800 MHz Radio. This equity is reported as an investment in joint ventures in the government-wide statement of net position. 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 eight participating municipal corporations; the cities of Kennewick, Pasco, Richland, Connell West Richland, and Prosser, 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 Washington State Auditor's Office Page 92 ---PAGE BREAK--- 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 position 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, and risk management and information systems. The total amount paid by BI-PIN in 2015 for these transactions was $119,000. The City of Kennewick's equity interest in BI-PIN was $78,014 on December 31, 2015, which is reported as an investment in joint ventures in the government-wide statement of net position. 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 W. 6th Ave., Kennewick, Washington, 99336. 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 July 1, 2009, the City of Kennewick assumed responsibility for the operation of Metro. As the Operating Jurisdiction, Kennewick provides accounting services for the operation of Metro. The City of Kennewick's equity interest in Metro was $3,723 on June 30, 2015, which is reported as an investment in joint ventures in the government-wide statement of net position. 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 Kennewick, 210 West Sixth Avenue, Kennewick, 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, 2015, the City had 41 individuals that met the eligibility requirements of this retirement plan. Washington State Auditor's Office Page 93 ---PAGE BREAK--- B. Encumbrance Accounting Encumbrance accounting is utilized to the extent necessary to assure effective budgetary control and accountability and to facilitate effective cash planning and control. 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. At year end the amount of encumbrances expected to be honored upon performance is 100% as the City is currently in the middle of the budget biennium. Total encumbrances are as follows: C. Budget Revision During 2015/2016 biennium, the biennial budget was revised as follows: Original Amended Biennial Total Biennial Budget Revisions Budget General Fund 94,842,599 $ 611,369 $ 95,453,968 $ Street Fund 4,027,993 27,516 4,055,509 Urban Arterial Street Fund - 18,005,571 18,005,571 Capital Improvement Fund 24,560,824 9,177,596 33,738,420 Water & Sewer Fund 41,007,458 5,710,650 46,718,108 Medical Services Fund 11,982,200 45,125 12,027,325 Building Safety Fund 3,213,000 340,505 3,553,505 Coliseum Fund 7,997,700 (10,536) 7,987,164 Stormwater Utility Fund 3,034,221 2,154,547 5,188,768 Columbia Park Golf Course Fund 749,380 391,116 1,140,496 Equipment Rental Fund 9,343,332 1,011,758 10,355,090 Central Stores Fund 681,200 23,005 704,205 Risk Management Fund 3,297,130 25,838 3,322,968 Debt Service Fund 6,106,180 6,713,500 12,819,680 LID Guaranty Fund 35,400 20 35,420 Arterial Street Fund 1,600,000 8,596 1,608,596 BI-PIN Operations Fund 679,138 - 679,138 Community Development Fund 1,305,800 873,474 2,179,274 MPD Assistant Operations Fund 62,423 (1,625) 60,798 Asset Forfeiture Fund 150,700 28,183 178,883 Public Safety Fund 5,232,083 71,083 5,303,166 Cash Reserve Fund 2,675,500 40,000 2,715,500 Lodging Tax Fund 2,948,900 399,914 3,348,814 Criminal Justice Sales Tax Fund 3,785,000 - 3,785,000 Fire Pension Fund 1,229,000 4,247 1,233,247 OPEB Trust Fund 3,646,000 (5,080) 3,640,920 Total 234,193,161 $ 45,646,372 $ 279,839,533 $ Encumbrances General Fund 47,997 $ Capital Improvement Fund 3,749,373 Urban Arterial Street Fund 873,374 Othe Non-Major Govt'l Funds 140,860 Water/Sewer Fund 870,657 Medical Services Fund 3,772 Internal Service Funds 460,377 6,146,410 $ Washington State Auditor's Office Page 13 Washington State Auditor's Office Page 94 ---PAGE BREAK--- 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, 2013, 2014 and 2015, respectively, were as follows: Fiscal Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 12/31/15 $934,180 59.1% $1,847,593 12/31/14 $990,599 54.1% $1,465,782 12/31/13 $950,218 66.9% $1,010,800 D. Funding Status and Funding Progress As of January 1, 2015, the most recent actuarial valuation date, the plan was 0% funded. The actuarial accrued liability (AAL) for benefits was $17,261,518 and the actuarial value of plan assets was resulting in an unfunded actuarial accrued liability (UAAL) of $17,261,518. The covered payroll (annual payroll of active employees covered by the plan) for 2015 was $0 as there are no longer any active employees covered by the plan. 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 56.24 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 June 30, 2011 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 2015. 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. The AAL and NOO are amortized on an open basis as a level dollar over 30 years. These assumptions are individually and collectively reasonable for the purposes of this valuation. Washington State Auditor's Office Page 95 ---PAGE BREAK--- F. OPEB Trust Fund Financial Statements Statement of Net Position OPEB Trust Fund December 31, 2015 (with comparative totals for 2014) 2015 2014 ASSETS Equity in pooled cash & investments 1,677,857 $ 1,339,076 $ Investments 185,500 - Receivables, net 85,803 69,378 Total assets 1,949,160 1,408,454 LIABILITIES Accounts payable 9,755 6,534 Total liabilities 9,755 6,534 NET POSITION Held in trust for pension benefits and other purposes 1,939,405 $ 1,401,920 $ Statement of Changes in Net Position OPEB Trust Fund For the Year Ended December 31, 2015 (with comparative totals for 2014) 2015 2014 ADDITIONS Contributions: Employer 1,076,313 $ 1,037,429 $ Total contributions 1,076,313 1,037,429 Investment Earnings: Interest 13,541 6,585 Total investment earnings 13,541 6,585 Total additions 1,089,854 1,044,014 DEDUCTIONS Benefits 552,369 535,618 Total deductions 552,369 535,618 Change in net position 537,485 508,396 Net position - beginning 1,401,920 893,524 Net position - ending 1,939,405 $ 1,401,920 $ Totals Totals Washington State Auditor's Office Page 96 ---PAGE BREAK--- NOTE 19 – ASSOCIATION OF WASHINGTON CITIES EMPLOYEE BENEFIT TRUST A. Trust Description The City is a Participating Employer in the Association of Washington Cities Employee Benefits Trust Care Program (“Trust”). RCW 48.62 provides that two or more local government entities may, by Interlocal agreement under RCW 39.34, form together or join a pool or organization for the joint purchasing of insurance, and/or joint self-insurance, to the same extent that they may individually purchase insurance, or self-insure. An agreement to form a pooling arrangement was made pursuant to the provisions of RCW 39.34, the Interlocal Cooperation Act. The Trust was formed on January 1, 2014 when participating cities, towns, and non-city entities of the AWC Employee Benefit Trust in the State of Washington joined together by signing an Interlocal Government Agreement to jointly self-insure certain health benefit plans and programs for participating employees, their covered dependents and other beneficiaries through a designated account within the Trust. As of December 31, 2015, 261 cities/towns/non-city entities participate in the Trust. The Trust allows members to establish a program of joint insurance and provides health and welfare services to all participating members. The Trust pools claims without regard to individual member experience. The pool is actuarially rated each year with the assumption of projected claims run-out for all current members. The Trust includes medical insurance through Group Health, Regence BlueShield and Asuris Northwest Health, dental insurance through Delta Dental of Washington, and vision insurance through Vision Service Plan. Eligible members are cities and towns within the state of Washington. Non-City Entities (public agency, public corporation, intergovernmental agency, or political subdivision within the state of Washington) are eligible to apply for coverage into the Trust, submitting application to the Board of Trustees for review as required in the Trust Agreement. Funding Policy Participating employers pay premiums to the Trust. The Trust is responsible for payment of all covered claims. The Trust purchases stop loss insurance for Regence/Asuris plans at an Individual Stop Loss (ISL) if $1.5 million through Life Map, and Group Health ISL at $750,000 through Sun Life. The aggregate policy is for 200% of expected medical claims. Retirees of the City receiving medical benefits from the Trust contribute the following amounts: AWC Health First - 1000 is $871.51 for non-Medicare enrolled retiree coverage and $879.12 for non- Medicare enrolled spouse coverage. AWC Health First - 2500 is $760.96 for non-Medicare enrolled retiree coverage and $766.49 for non- Medicare enrolled spouse coverage. Participating employers contract to remain in the Trust for a minimum of three years. Participating employers with over 250 employees must provide written notice of termination of all coverage a minimum of 12 months in advance of the termination date, and participating employers with under 250 employees must provide written notice of termination minimum of 6 months in advance of termination date. When all coverage is being terminated, termination will only occur on December 31. Participating employers terminating a group or line of coverage must notify the Trust a minimum of 60 days prior to termination. A participating employer’s termination will not obligate that member to past debts, or further contributions to the Trust. Similarly, the terminating member forfeits all rights and interest to the Trust Account. Washington State Auditor's Office Page 97 ---PAGE BREAK--- The operations of the Health Care Program are managed by the Board of Trustees or its delegates. The Board of Trustees is comprised of four regionally elected officials from Trust member cities or towns, the Employee Benefit Advisory Committee Chair and Vice Chair, and two appointed individuals from the AWC Board of Directors, who are from Trust member cities or towns. The Trustees or its appointed delegates review and analyze Health Care Program related matters and make operational decisions regarding premium contributions, reserve, plan options, and benefits in compliance with RCW 48.62. The Board of Trustees has decision authority consistent with the Trust Agreements, Health Care Program policies, RCW 48.62 and WAC 200-110. The accounting records of the Trust are maintained in accordance with methods prescribed by the State Auditor’s office under the authority of RCW 43.09. The Trust also follows applicable accounting standards established by GASB. Year-end financial reporting is done on an accrual basis and submitted to the Office of the State Auditor as required by WAC 200-110. The audit report for the Employee Benefits Trust Care Program is available from the Washington State Auditor’s Office. NOTE 20 - OTHER DISCLOSURES A. Change in Accounting Principle Net position as of January 1, 2015, has been restated as follows for the implementation of GASB Statement No. 68, as amended by GASB Statement No. 71. Prior year data is presented in the City’s financial statements, but not restated because all of the information needed to restate prior year amounts was not available. B. 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 position with no impact on ending total net position. Government-wide net position as previously reported at December 31, 2014: $ 347,403,921 Net pension asset 8,987,327 Net pension liability (9,315,256) Deferred outflows 1,076,933 Deferred inflows (8,652,918) Government-wide net position as restated, January 1, 2015: $339,500,007 Washington State Auditor's Office Page 98 ---PAGE BREAK--- 2015 PERS 1 Pension Plan City's proportion of the net pension liability/(asset) 0.12% City's proportionate share of the net pension liability/(asset) 6,336,226 $ City's covered employee payroll 239,194 $ City's proportionate share of the net pension liability/(asset) as a percentage of covered employee payroll 2648.99% Plan fiduciary net position as a percentage of the total pension liability/(asset) 59.10% PERS 2/3 Pension Plan City's proportion of the net pension liability/(asset) 0.15% City's proportionate share of the net pension liability/(asset) 5,371,520 $ City's covered employee payroll 13,341,888 $ City's proportionate share of the net pension liability/(asset) as a percentage of covered employee payroll 40.26% Plan fiduciary net position as a percentage of the total pension liability/(asset) 89.20% LEOFF 1 Pension Plan City's proportion of the net pension liability/(asset) 0.08% City's proportionate share of the net pension liability/(asset) (912,666) $ City's covered employee payroll 36,825 $ City's proportionate share of the net pension liability/(asset) as a percentage of covered employee payroll -2478.39% Plan fiduciary net position as a percentage of the total pension liability/(asset) 127.36% LEOFF 2 Pension Plan City's proportion of the net pension liability/(asset) 0.62% City's proportionate share of the net pension liability/(asset) (6,342,883) $ State's proportionate share of the net pension liability/(asset) associated with the City (598,080) TOTAL (6,940,963) $ City's covered employee payroll 17,911,529 $ City's proportionate share of the net pension liability/(asset) as a percentage of covered employee payroll -38.75% Plan fiduciary net position as a percentage of the total pension liability/(asset) 111.67% *These schedules will be built prospectively until they contain ten years of data. RSI – Required Supplementary Information Cost Sharing Employer Pension Plans Schedules of Proportionate Share of the Net Pension Liability Measurement Date of June 30* Washington State Auditor's Office Page 99 ---PAGE BREAK--- 2015 PERS 1 Pension Plan Contractually required contributions 22,030 $ Contributions in relation to the contractually required contributions 22,030 Contribution deficiency (excess) - $ Covered employer payroll 239,194 $ Contributions as a percentage of covered employee payroll 9.21% PERS 2/3 Pension Plan Contractually required contributions 1,228,790 $ Contributions in relation to the contractually required contributions 1,228,790 Contribution deficiency (excess) - $ Covered employer payroll 13,341,888 $ Contributions as a percentage of covered employee payroll 9.21% LEOFF 1 Pension Plan Contractually required contributions 66 $ Contributions in relation to the contractually required contributions 66 Contribution deficiency (excess) - $ Covered employer payroll 36,825 $ Contributions as a percentage of covered employee payroll 0.18% LEOFF 2 Pension Plan Contractually required contributions 936,777 $ Contributions in relation to the contractually required contributions 936,777 Contribution deficiency (excess) - $ Covered employer payroll 17,911,529 $ Contributions as a percentage of covered employee payroll 5.23% *These schedules will be built prospectively until they contain ten years of data. RSI – Required Supplementary Information Cost Sharing Employer Pension Plans Schedules of Employer Contributions Fiscal Year Ended December 31, Washington State Auditor's Office Page 100 ---PAGE BREAK--- RSI – 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, 2015 December 31, 2014 December 31, 2013 $552,369 535,618 635,341 $957,072 1,006,385 959,790 57.7% 53.2% 66.2% December 31, 2012 867,294 955,089 90.8% December 31, 2011 796,313 918,218 86.7% December 31, 2010 767,717 933,497 82.2% December 31, 2009 733,542 921,747 79.6% Schedule of funding progress for other postemployment benefits – LEOFF 1 Retiree Medical: *January 1, 2008 represented the first valuation for the City’s LEOFF 1 Retiree Medical OPEB plan. Actuarial Unfunded UAAL as a Value of Actuarial Percentage Valuation Assets Accrued Liability Funded Covered of Covered Date * (AAL) (UAAL) Ratio Payroll Payroll January 1, 2015 $ - 17,261,518 $ 0% N/A N/A January 1, 2014 - 17,139,220 0% 107,764 $ 15904.40% January 1, 2011 - 14,742,851 0% 107,148 13659.33% January 1, 2008 - 14,354,560 0% 202,912 7074.28% Washington State Auditor's Office Page 101 ---PAGE BREAK--- RSI – Required Supplementary Information Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Actuals Original Final 2015 REVENUES Taxes: Property 22,543,314 $ 22,665,798 $ 11,441,616 $ (11,224,182) $ Sales 25,704,900 25,704,900 13,324,363 (12,380,537) Utility 18,579,275 18,749,875 8,715,086 (10,034,789) Gambling 1,527,000 1,527,000 696,577 (830,423) Other 909,000 909,000 412,009 (496,991) Licenses and permits 1,229,500 1,229,500 769,224 (460,276) Intergovernmental 3,727,600 3,548,517 1,876,177 (1,672,340) Charges for services 9,358,027 9,560,027 4,412,759 (5,147,268) Fines and forfeitures 2,781,800 2,780,600 1,200,188 (1,580,412) Investment earnings 43,700 43,700 108,882 65,182 Rents and leases 598,400 598,400 355,370 (243,030) Miscellaneous revenues 258,000 409,800 205,287 (204,513) Total revenues 87,260,516 87,727,117 43,517,538 (44,209,579) EXPENDITURES Current : General government 16,686,459 16,809,973 7,918,403 (8,891,570) Public safety 53,465,376 53,345,880 26,257,715 (27,088,165) Transportation 3,603,971 3,603,971 1,738,085 (1,865,886) Physical environment - - - - Economic environment 2,616,299 2,630,028 1,221,365 (1,408,663) Health 38,100 38,100 18,584 (19,516) Culture and recreation 10,169,202 10,344,634 4,728,148 (5,616,486) Capital outlay: - General government - 12,601 13,906 1,305 Public safety - 18,000 - (18,000) Culture and recreation - 216,350 3,185 (213,165) Transportation - - - - Total expenditures 86,579,407 87,019,537 41,899,391 (45,120,146) Excess (deficiency) of revenues over (under) expenditures 681,109 707,580 1,618,147 910,567 OTHER FINANCING SOURCES (USES) Transfers in 5,232,083 5,303,166 2,397,396 (2,905,770) Transfers out (5,410,000) (5,941,000) (3,595,000) 2,346,000 Total other financing sources and uses (177,917) (637,834) (1,197,604) (559,770) Net change in fund balances 503,192 69,746 420,543 350,797 Fund balances - beginning 2,350,000 2,423,685 2,423,685 - Fund balances - ending 2,853,192 $ 2,493,431 $ 2,844,228 $ 350,797 $ See notes to required supplementary information. General Fund For the Year Ended December 31, 2015 Variance with Final Budget - Over (Under) Budgeted Amounts 2015/2016 Biennial Washington State Auditor's Office Page 102 ---PAGE BREAK--- RSI – Required Supplementary Information Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Actuals Original Final 2015 REVENUES Intergovernmental 1,240,000 $ 1,843,437 $ 906,563 $ (936,874) $ Investment earnings 800 800 376 (424) Total revenues 1,240,800 1,844,237 906,939 (937,298) EXPENDITURES Current: Economic environment 626,000 1,229,437 530,494 (698,943) Total expenditures 626,000 1,229,437 530,494 (698,943) Excess (deficiency) of revenues over (under) expenditures 614,800 614,800 376,445 (238,355) OTHER FINANCING SOURCES (USES) Transfers out (614,000) (614,000) (455,761) 158,238 Total other financing sources and uses (614,000) (614,000) (455,761) 158,238 Net change in fund balances 800 800 (79,316) (80,117) Fund balances - beginning 65,000 335,037 335,036 - Fund balances - ending 65,800 $ 335,837 $ 255,720 $ (80,117) $ See notes to required supplementary information. Community Development Fund For the Year Ended December 31, 2015 Variance with Final Budget - Over (Under) Budgeted Amounts 2015/2016 Biennial Washington State Auditor's Office Page 103 ---PAGE BREAK--- RSI – Required Supplementary Information (Notes) Note A - Explanation of Differences between Revenues, Expenditures, and Other Financing Sources (Uses) 2015 REVENUES 43,517,538 $ Reclassifications: 1,477,980 44,995,518 EXPENDITURES 41,899,391 Reclassifications: 1,477,982 43,377,373 Actual amounts (budgetary basis) "revenues" from the budgetary comparison schedules Budgetary project revenues are reclassified to the General Fund for GAAP reporting Total revenues as reported on the statement of revenues, expenditures, and changes in fund balances - governmental funds Actual amounts (budgetary basis) "expenditures" from the budgetary comparison schedules Budgetary project expenditures are reclassified to the General Fund for GAAP reporting Total expenditures as reported on the statement of revenues, expenditures, and changes in fund balances - governmental funds Notes to Required Supplementary Information for Budgetary Basis and GAAP Basis - General Fund For the Year Ended December 31, 2015 General Fund Washington State Auditor's Office Page 104 ---PAGE BREAK--- Expenditures of Federal Awards Year Ended December 31, 2015 Expenditures Federal Agency/ Federal Pass-Through Agency CFDA Other Award Program Title Number Number U.S. Department of Agriculture Food and Nutrition Service Cooperative Forestry Assistance 10.664 - $ 500 $ 500 $ - $ U.S. Office of Water, Environmental Protection Agency: Passed through WA State Dept. of Ecology: Capitalization Grants for Clean Water State Revolving Funds 66.458 L1300030 188,299 - 188,299 - 3 Capitalization Grants for Clean Water State Revolving Funds 66.458 L1100015 219,227 - 219,227 - 3 Total CFDA Number 66.458 407,526 - 407,526 - Passed through WA State Dept of Health: Capitalization Grants for Water State Revolving Funds Recovery 66.468 N21377 15,056 - 15,056 - Office of Community Planning and Development, U.S. Department of Housing and Urban Development: 2014 Community Development Block Grants/Entitlement Grants 14.218 B-14-MC-53-0001 - 162,474 162,474 11,250 2015 Community Development Block Grants/Entitlement Grants 14.218 B-15-MC-53-0001 - 489,494 489,494 39,000 Total CFDA Number 14.218 - 651,968 651,968 50,250 U.S. Department of Housing and Urban Development: Passed through City of Richland: HOME Program 14.239 M-14-DC-53-0202 180,150 - 180,150 - HOME Program 14.239 M-15-DC-53-0202 154,136 - 154,136 - Total CFDA Number 14.239 334,286 - 334,286 - U.S. Department of Justice Bureau of Justice Assistance, U.S. Department of Justice Edward Byrne Memorial Justice Assistance Grant Program 16.738 2014-DJBX-0201 - 2,756 2,756 2,756 Edward Byrne Memorial Justice Assistance Grant Program 16.738 2015-DJBX-0544 - 22,355 22,355 8,605 Passed through WA State Dept. of Commerce and Metro Drug Task Force: Edward Byrne Memorial Justice Assistance Grant Program 16.738 M14-31440-009 10,417 - 10,417 - Edward Byrne Memorial Justice Assistance Grant Program 16.738 F15-31440-008 35,040 - 35,040 - Total CFDA Number 16.738 45,457 25,111 70,568 11,361 Criminal Division, U.S. Department of Justice Equitable Sharing Program 16.922 WA0030100 - 27,004 27,004 - U.S. Department of Justice Drug Enforcement Administration - Tri Cities Task Force 16.UNKNOWN MOU - 10,553 10,553 - U.S. Marshals Service - Fugitive Task Force 16.UNKNOWN 0324A A3403FWF4014R - 9,239 9,239 - Federal Bureau of Investigation - Tri City Violent Crime Task Force 16.UNKNOWN 281D-SE-C93759 - 28,235 28,235 - Total CFDA Number 16.UNKNOWN - 48,027 48,027 - National Highway Traffic Safety Administration, U.S. Department of Transportation Passed-through WA State Traffic Safety Commission: State and Community Highway Safety 20.600 8,911 - 8,911 - Federal Highway Administration, U.S. Department of Transportation Passed through Washington State Dept. of Transportation: Highway Planning and Construction 20.205 HSIP-3406(009) - 23,595 23,595 - 20.205 HSIP-000S(317) - 48,540 48,540 - 20.205 STPUL-3413(006) - 586 586 - 20.205 STPUL-3409(006) - 689,414 689,414 - 20.205 STPUL-3457(002) - 7,414 7,414 - 20.205 STPUL-3532(001) - 16,215 16,215 - Total CFDA Number 20.205 - 785,764 785,764 - TOTAL EXPENDITURES OF FEDERAL AWARDS 811,236 $ 1,538,374 $ 2,349,610 $ 61,611 $ The accompanying notes are an integral part of this schedule. Note Reference From Pass- Through Awards From Direct Awards Total Passed through to Subrecipient Washington State Auditor's Office Page 105 ---PAGE BREAK--- Notes to Expenditures of Federal Awards Schedule Year Ended December 31, 2015 NOTE 1 - BASIS OF ACCOUNTING NOTE 2 - PROGRAM COSTS NOTE 3 - FEDERAL LOANS The City of Kennewick was approved by the Washington State Department of Ecology to receive a pass-thru revolving loan from Evironmental Protection Agency. Loan L1300030 was received for $725,000 to provide for the design of the diffused aeration system at the Kennewick Wastewater Treatment Plant. The City of Kennewick was approved by theWashington State Department of Ecology to receive a pass-thru revolving loan from Evironmental Protection Agency. Loan L1100015 was received for $390,000 to provide for the development the Low Impact Development Manual and Low Impact Development Demonstration Project. NOTE 4 - INDIRECT COSTS This Schedule 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 grants. Actual program costs, including the City's portion, may be more than reported. The loans listed above do not have continuing compliance requirements and are considered awards for purposes of the SEFA. As a result, current year activity is all that is reported. The amount expended includes $32,764 claimed as indirect cost recovery based on the City's cost allocation plan. The indirect portion of the overall composite rate is 21%. The City has not elected to use the 10-percent deminimis indirect cost rate allowed under the Uniform Guidance. Washington State Auditor's Office Page 106 ---PAGE BREAK--- 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. We work with our audit clients and citizens to achieve our vision of government that works for citizens, by helping governments work better, cost less, deliver higher value, and earn greater public trust. In fulfilling our mission to hold state and local governments accountable for the use of public resources, we also hold ourselves accountable by continually improving our audit quality and operational efficiency and developing highly engaged and committed employees. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. Our audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. In addition, we conduct performance audits of state agencies and local governments as well as fraud, state whistleblower and citizen hotline investigations. The results of our work are widely distributed through a variety of reports, which are available on our website and through our free, electronic subscription service. We take our role as partners in accountability seriously, and provide training and technical assistance to governments, and have an extensive quality assurance program. Contact information for the State Auditor’s Office Public Records requests [EMAIL REDACTED] Main telephone (360) 902-0370 Toll-free Citizen Hotline (866) 902-3900 Website www.sao.wa.gov Washington State Auditor's Office Page 107