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Management’s Discussion And Analysis The management discussion and analysis section of the City of Redmond’s Comprehensive Annual Financial Report provides an overview of the City’s financial activities for the year ending December 31, 2017, and resulting changes in the financial position as of December 31, 2017. For a better understanding of Redmond’s finances for the previous year, readers should consider this information in conjunction with the preceding letter of transmittal, the financial statements and notes to the financial statements that follow. Financial Highlights In 2017, the City held a steady course focusing on the vision of two vibrant urban centers by continuing work in the downtown corridor, planning for future development in the Overlake area and connecting established neighborhoods. As shown below, the City continues its legacy of prudent financial management. The assets and deferred outflows of resources of the City of Redmond exceeded its liabilities and deferred inflows at fiscal year-end by $945.8 million (net position), an increase of $54.6 million or 6.1% over 2016. Of this amount, a majority ($725.4 million) is a net investment in capital assets. The unrestricted net position totals $115.3 million and may be used to meet the city’s ongoing obligations to citizens and creditors. In addition, the restricted net position totals $105.1 million and is earmarked for debt service, capital projects and special revenue funds. Net position increased $1.7 million due to a change in reporting entity. Per GASB Statement No. 73, the Firefighters Pension Fund is now reported in the City’s general fund instead of as a fiduciary fund. For additional information, see Note 18 Accounting and Reporting Changes. At December 31, 2017, the City’s governmental activities reported combined ending net position of $527.4 million, an increase of $34.0 million over 2016. Approximately 6.6% of this amount ($35.0 million) is available for spending at the City’s discretion (unrestricted net position). The City of Redmond’s net investment in capital assets increased by $45.9 million during the fiscal year. The increase is primarily due to the development of the urban centers, including Downtown Park ($9.2 million), transitioning the two Downtown one-way streets to two-way ($10.7 million) and construction of the Overlake Station Stormwater Vault ($9.2 million). In addition to the more significant projects, the City made progress on the Redmond Central Connector Phase II, improvements to the Trinity Building at the Maintenance and Operations Center and encouraging a greener Redmond through LED street light replacement and solar paneling. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City of Redmond’s basic financial statements, which are comprised of three components: 1) government wide financial statements, 2) fund financial statements and 3) notes to the financial statements. Other supplementary information, intended to furnish additional detail to support the basic financial statements, is also contained in the report. Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City of Redmond’s finances, in a manner similar to a private-sector business. 2017 Comprehensive Annual Financial Report 1 City of Redmond ---PAGE BREAK--- The Statement of Net Position presents financial information on all of the City of Redmond’s assets, liabilities, and deferred inflows/outflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City of Redmond is improving or deteriorating. The Statement of Activities presents information designed to show how the City’s net position changed during the year. The statement distinguishes revenue generated by specific functions from revenue provided by taxes and other sources not related to a specific function. The revenue generated by the specific functions (charges for services, grants, and contributions) is compared to the expenses for those functions to show the degree to which each function supports itself or relies on taxes and other general funding sources for support. All activity on this statement is reported on the accrual basis of accounting, requiring that revenues are reported when they are earned and expenses are reported when they are incurred, regardless of when cash is received or disbursed. Items such as (but not limited to) uncollected taxes, unpaid vendor invoices for goods or services received during the year, and earned but unused vacation leave are included in the statement of activities as revenue and expenses even though no cash has changed hands. Both the government-wide financial statements distinguish functions of the City of Redmond that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Redmond include general government (finance, executive and human resources), security (police and fire), economic environment, transportation, and culture and recreation. The City’s business-type activities are limited to water/wastewater and stormwater utilities. Governmental activities are primarily supported by taxes, charges for services, and grants. Business-type activities are primarily self-supporting through user fees and charges. Fund Financial Statements The annual financial report includes fund financial statements in addition to the government-wide financial statements. While the government-wide statements present the City’s finances based on the type of activity, general government versus business-type, the fund financial statements are presented by fund type such as the general fund, special revenue funds, and proprietary funds. A fund is a fiscal and accounting entity with a self-balancing set of accounts used to account for specific activities or meet certain objectives. Funds are often set up in accordance with special regulations, restrictions or limitations. The City of Redmond, like other state and local governments, uses fund accounting to ensure and show compliance with finance-related legal requirements. The City’s funds are divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds are used to account for essentially the same functions as are reported as governmental activities in the government-wide financial statements. These reports use a different “basis of accounting” than that used in government-wide financial statements. The governmental fund statements focus on near-term revenues/financial resources and expenditures while the government-wide financial statements include both near-term and long-term revenues/financial resources and expenses. The information in the governmental fund statements can be used to evaluate the City’s near-term financing requirements and immediate fiscal health. Comparing the governmental fund statements with the government-wide statements can help the reader better understand the long-term impact of the City’s current year financing decisions. To assist in this comparison, reconciliations between the governmental fund statements and the government-wide financial statements are included with the governmental fund Balance Sheet and the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances. The City of Redmond maintains thirteen individual governmental funds. The City’s two major governmental funds – the general fund and the capital investments program fund – are presented 2017 Comprehensive Annual Financial Report 2 City of Redmond ---PAGE BREAK--- separately in the governmental fund Balance Sheet and the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances. The remaining governmental funds are combined in this statement into a single column labeled other governmental funds. Individual fund data for each of the other governmental funds can be found in combining statements later in this report. The City maintains budgetary control over its operating funds through the adoption of a biennial budget. Budgets are adopted at the fund level for all funds in accordance with state law. All budgetary comparison schedules are included following the other governmental funds’ combining statements in this report. Following is a brief analysis of each of the City’s major governmental funds: The General Fund is the primary operating fund of the City through which all receipts and payments of ordinary City operations are processed, unless they are required to be accounted for in another fund. At the end of 2017, the fund balance of the General Fund was $39.3 million, which represents an increase from the prior year of $0.7 million. General Fund revenues increased by $4.2 million in 2017. The key elements of this increase are as follows: Taxes increased by $1.2 million including growth in property taxes by $1.3 million due to a rise in new construction and the 1% levy increase allowed by law. In contrast, Redmond experienced a decrease in sales tax of $0.7 million due to a one-time audit conducted by the State’s Department of Revenue on telecommunications companies which had the effect of shifting approximately $1.4 million of sales tax to other jurisdictions. Electric, garbage and gas utility taxes increased by $421,000 while cable and telephone utility taxes decreased by $255,000. Intergovernmental revenues increased by $1.3 million mostly due to additional money granted under the King County contract for basic life support services. In response to the development surge the City is experiencing, licenses and permits grew by $1.3 million. General Fund expenditures increased $8.9 million (10.1%) over 2016, due to an increase in staffing costs as a result of a process improvement effort in the prosecutors office, retroactive payments from a new Police contract, investments in information technology and one-time expenses for capital equipment replacement, increased grants to support affordable housing and consultant work for planning studies. The Capital Investments Program Fund (CIP Fund) accounts for financial resources to be used for the acquisition, construction, and preservation of major capital facilities other than those financed by proprietary funds. At the end of 2017, the fund balance of the Capital Investments Program Fund was $29.3 million, which represents a decrease from the prior year of $4.1 million. Capital Investment Program Fund revenues increased by $2.6 million (15.4%) in 2017, primarily due to an increase of $5.6 million in intergovernmental grant revenues, and an increase of $3.3 million in miscellaneous revenue related to special assessment revenues. Some of these revenues were offset by a reduction in impact fee revenues of $6.1 million. Capital Investment Program Fund expenditures increased by $4.5 million (18.6%) in 2017, due to the continuing construction of Downtown Park, converting the Downtown one-way streets to two-way, facility improvements and expansion of the Redmond Central Connector. Capital Investments Program Fund net transfers between other funds decreased by $10.0 million primarily due to transfers from the CIP Fund to the utility funds for projects funded by Community Facilities District 2016-1 and between the capital construction funds and the major maintanence funds in the general fund. 2017 Comprehensive Annual Financial Report 3 City of Redmond ---PAGE BREAK--- Proprietary funds are used by governments to account for their business-type activities. Business-type activities provide specific goods or services to a group of customers that are paid for by fees charged to those customers. There is a direct relationship between the fees paid and the services received. The City of Redmond has two types of proprietary funds, enterprise funds and internal service funds. Enterprise funds are used to account for goods and services provided to citizens and the community. Internal service funds are used to account for goods and services provided internally to various City departments. The same basis of accounting is used for proprietary funds in both the government-wide statements and the individual fund statements. Enterprise funds of the City are used to report the same functions presented as business-type activities in the government-wide statements with the fund statements providing more detail than is reported in the government-wide statements. The enterprise fund statements provide separate information for the City’s water/wastewater utility, an Urban Planned Development (UPD) water/wastewater utility outside the City limits, and the City’s stormwater utility. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for its fleet of vehicles, insurance premiums and claims, medical self-insurance, worker’s compensation self- insurance program, and information technology. Internal service fund activities are predominantly governmental and have been included in the governmental activities columns of the government- wide Statement of Net Position and Statement of Activities. Fiduciary funds account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governments or other funds. Fiduciary funds are not included in the government-wide financial statements because their assets are not available to support the City of Redmond’s activities. The City has one type of fiduciary fund, called agency funds. Agency funds are custodial in nature and do not include revenues and expenses as they do not measure the results of operations. Notes to the financial statements The notes to the financial statements provide additional information that is important for a full understanding of the data in the government-wide and fund financial statements. The notes are located immediately following the basic financial statements. Other information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City’s progress in funding its obligation to provide pension benefits, and lifetime medical benefits to uniformed personnel hired before October 1, 1977. Required supplementary information may be found immediately following the notes to the financial statements. The combining statements for other governmental funds, internal service funds, and agency-type fiduciary funds are presented immediately following the required supplementary information. Government–wide Financial Analysis Statement of Net Position The Statement of Net Position can serve as a useful indicator of the City’s financial position. The City of Redmond’s net position at December 31, 2016 and 2017 total $891.2 million and $945.8 million, respectively. The City’s overall net position increased $54.6 million from the prior 2017 Comprehensive Annual Financial Report 4 City of Redmond ---PAGE BREAK--- fiscal year. The reasons for this overall increase are discussed in the following sections for governmental activities and business-type activities. By far, the largest portion of the City’s net position ($725.4 million; 76.7%) reflects net investment in capital assets land, buildings, machinery, equipment, vehicles, and infrastructure), less any related outstanding debt that was used to acquire those assets. The City uses these capital assets to provide a variety of services to citizens. Accordingly, these assets are not available for future spending. Although investment in capital assets is reported net of related debt, it should be noted that the resources used to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City’s net position ($105.1 million or 11.1%) represents resources that are subject to external restrictions on how they may be used. The largest portion of these funds is restricted for capital projects ($68.7 million), net pension asset ($14.5 million), and police, fire and advance life support ($7.0 million). The remaining balance of $115.3 million (12.2%) is unrestricted and may be used to meet the City’s ongoing obligations to its citizens and creditors. Following is a condensed version of the government-wide Statement of Net Position for 2017 compared to 2016. City of Redmond’s Net Position (in thousands) Governmental Activities Business-Type Activities Total 2017 2016 2017 2016 2017 2016 Current and other assets $ 168,558 $ 166,873 $ 104,392 $ 94,272 $ 272,950 $ 261,145 Net pension asset 14,539 6,655 - - 14,539 6,655 Capital assets, net of 454,761 425,963 362,042 347,628 816,803 773,591 accumulated depreciation Total assets $ 637,858 $ 599,491 $ 466,434 $ 441,900 $ 1,104,292 $ 1,041,391 Deferred outflows: Debt refunding 3,289 3,501 - - 3,289 3,501 Pensions 4,836 8,499 693 1,062 5,529 9,561 Total assets and deferred outflows $ 645,983 $ 611,491 $ 467,127 $ 442,962 $ 1,113,110 $ 1,054,453 Long-term liabilities $ 72,589 $ 75,599 $ 32,890 $ 34,847 $ 105,479 $ 110,446 Net pension liability 20,735 26,931 4,761 6,145 25,496 33,076 Other liabilities 18,015 14,974 10,287 4,009 28,302 18,983 Total liabilities $ 111,339 $ 117,504 $ 47,938 $ 45,001 $ 159,277 $ 162,505 Deferred inflows - Pensions 7,218 582 856 185 8,074 767 Total liabilities and deferred inflows $ 118,557 $ 118,086 $ 48,794 $ 45,186 $ 167,351 $ 163,272 Net investment in capital assets $ 396,280 $ 366,768 $ 329,089 $ 312,718 $ 725,369 $ 679,486 Restricted 96,149 85,499 8,917 8,917 105,066 94,416 Unrestricted 34,997 41,138 80,326 76,141 115,323 117,279 Total net position $ 527,426 $ 493,405 $ 418,332 $ 397,776 $ 945,758 $ 891,181 Changes in net position The change in net position table illustrates the increases or decreases in net position of the City resulting from its operating activities. Following is a condensed version of the City’s changes in net position. The table shows the revenues, expenses, and related changes in net position in tabular form for the governmental activities separate from the business-type activities for 2017 and 2016. 2017 Comprehensive Annual Financial Report 5 City of Redmond ---PAGE BREAK--- City of Redmond’s Changes in Net Position (in thousands) Governmental Activities Business-Type Activities Total 2017 2016 2017 2016 2017 2016 Revenues: Program revenues: Charges for services $ 43,284 $ 47,229 $ 59,764 $ 54,486 $ 103,048 $ 101,715 Operating grants and contributions 5,360 3,841 1,342 787 6,702 4,628 Capital grants and contributions 10,624 5,003 6,677 13,779 17,301 18,782 General revenues: Property taxes 25,304 23,967 - - 25,304 23,967 Sales taxes 27,398 27,979 - - 27,398 27,979 Other taxes 22,807 24,490 - - 22,807 24,490 Investment interest 1,303 1,896 722 612 2,025 2,508 Miscellaneous 16,790 32,992 3,543 175 20,333 33,167 Total revenues $ 152,870 $ 167,397 $ 72,048 $ 69,839 $ 224,918 $ 237,236 Expenses: General government $ 24,849 $ 22,766 $ - $ - $ 24,849 $ 22,766 Security 55,314 53,615 - - 55,314 53,615 Economic environment 8,099 6,509 - - 8,099 6,509 Transportation 14,882 13,327 - - 14,882 13,327 Culture and recreation 14,920 12,065 - - 14,920 12,065 Interest on long term debt 2,531 2,615 1,207 1,302 3,738 3,917 Water/Wastewater - - 33,790 34,227 33,790 34,227 UPD Water/Wastewater - - 6,474 5,887 6,474 5,887 Stormwater - - 10,021 9,216 10,021 9,216 Total expenses $ 120,595 $ 110,897 $ 51,492 $ 50,632 $ 172,087 $ 161,529 Increase/(Decrease) in net position 32,275 56,500 20,556 19,207 52,831 75,707 Net position - beginning 493,405 405,361 397,776 378,569 891,181 783,930 Prior period adjustments - 31,544 - - - 31,544 Changes in accounting principles 1,746 - - - 1,746 - Net position - ending $ 527,426 $ 493,405 $ 418,332 $ 397,776 $ 945,758 $ 891,181 Governmental activities During the 2017 fiscal year, net position for governmental activities increased $34.0 million compared to $88.0 million (21.7%) in 2016. Key elements of the increase are as follows: Total assets and deferred outflows from Governmental activities increased by $34.5 million - Cash and investments increased $3.6 million from 2016 to 2017 Changes in reporting entity per GASB 73 which required that the Firefighters Pension Fund be reported with the City’s general fund resulted in a $1.7 million increase. - Special assessments receivable decreased $7.8 million due to payments received, and due from other governments increased $3.7 million (83.3%) due to grants dedicated to capital projects such as Downtown Park. - Investment in capital assets increased by $30.0 million which is consistent with the City’s plans for investments in infrastructure and technology and includes assets contributed by developers as a result of the City’s development surge. - Net pension asset increased $7.9 million, and deferred outlows for pensions decreased $3.7 million. See Note 7 – Pensions for additional information. 2017 Comprehensive Annual Financial Report 6 City of Redmond ---PAGE BREAK--- Total liabilities and deferred inflows from Governmental activities increased by $0.5 million - Debt decreased by $4.2 million due to principal payments on debt previously held by the City. See Note 11 to the financial statements for more information. - Net pension liability decreased by $6.2 million and deferred inflows for pensions increased $6.6 million. See Note 7 – Pensions for additional information. - Other current liabilities increased by $3.0 million, primarily due to year-end accounts payable related to capital projects and wages payable. Total revenue decreased between 2016 and 2017 by $14.5 million or 8.7%. - Total tax revenues decreased by $0.9 million compared to 2016, due to a decrease in sales tax offset by growth in property taxes related to new construction and excise taxes in 2016 as compared to 2017. - Program revenues increased by $3.2 million due to increased grant revenues related to capital projects. - Miscellaneous revenue decreases of $16.2 million are primarily due to higher special assessments revenues in 2016 as compared to 2017 for Redmond Community Facilities District 2016-1. - Total expenses increased by $9.7 million primarily attributable to capital construction to further the goals of the City’s Capital Investment Strategy. Investments in Downtown Park and the Couplet conversion projects as well as facility improvements to the Public Safety Building all contributed to the increase in expenditures. The graph that follows compares program revenues to program expenses from the Statement of Activities and illustrates the impact of various city functions on net position from operations before taxes, for the governmental activities for 2017. $0 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 General government Security Economic environment Transportation Culture and recreation Expenses and Program Revenues ‐ Governmental Activities Program Revenues Expenses 2017 Comprehensive Annual Financial Report 7 City of Redmond ---PAGE BREAK--- General Fund Budgetary Highlights The City of Redmond budgets on a biennial basis and in comparing the original budget to the final budget for 2017-2018, several changes took place including: Recognizing the difference between budgeted and actual beginning fund balances. Establishing two new capital funds for the City’s Community Facilities Districts (CFD 2014-1 and CFD 2016-1) and recognizing revenue and expenses related to the capital investments in those funds. A total of $31.6 million was budgeted in Fund CFD 2014-1 to support the design and construction of the Technology Center Pedestrian Bridge and $15.6 million in Fund CFD 2016-1 to fund various mobility and stormwater improvements. Recognizing revenue and expenses related to departmental reorganizations. Recognizing additional personnel related to lean process improvement efforts in the Prosecutors Office, a project manager to support capital investments funded by King County and additional development services employees to support light rail design and construction. Recognizing additional Real Estate Excise Tax collections to be invested in lease payments for the City’s new community center and construction of the Customer Service Center at City Hall. Other miscellaneous adjustments for recognition of grants and increasing transfers between the City’s major maintenance and capital investment funds. Total actual revenues came in over budget by $0.3 million including fund balances. When comparing budget to actuals, some notable differences occurred, including: The City ended 2017 with $3 million over projected beginning fund balance. The increase in fund balance accounted for most of the net change in comparison to budgeted levels. Sales and use tax came in $0.6 million or 0.3% under budgeted levels. The decrease is primarily due to an audit adjustment by the Department of Revenue that corrected sales tax collections for goods and services that should not have been disbursed to Redmond. Permit revenue also declined by $0.3 million in comparison to budget over the prior year. However, collections were forecasted to grow about 8.5% over 2016 collections and the numbers came in just under the more robust forecast due to the development surge being experienced by the City. After several years of declining interest earnings, interest revenue increased from a budgeted $0.23 million in 2017 to end the year at approximately $0.44 million, a 32% increase. This growth is important as it marks a turning point toward a more robust economy. State entitlement revenue made up the remaining differences in the increases between budget and actuals in 2017. Liquor board profits, liquor excise and criminal justice entitlements made up the bulk of the $326,000 revenue over the projected budget. Other smaller increases included additional funds from state public safety grants, Total actual expenditures were $3.4 million under budget, excluding ending fund balances, in the General Fund due to: Approximately $2.1 million of the underexpenditures is due to regular salary savings in the general government and security of persons and property categories including approximately $413,000 in the City’s salary and benefit contingency which is budgeted to mitigate labor contract settlement agreements that are higher than anticipated. In the transportation category, approximately $850,000 was underspent compared to budget due to savings in the professional services categories including one-time money allocated to the North/South Corridor and the Leary Way Phase II studies. Approximately $1 million in 2017 Comprehensive Annual Financial Report 8 City of Redmond ---PAGE BREAK--- various expenditures remained unspent at the end of the year, including travel ($103,000), supplemental salaries ($142,000), electricity ($448,000), contributions to the medical self- inurance fund ($169,000) and miscellaneous expenses ($171,000). Business-type Activities Business-type activities account for 44.2% of the City’s net position. Business-type activities of the City’s utilities increased the City of Redmond’s net position by $20.6 million Key elements of this increase are as follows: Net investment in capital assets increased $16.4 million or 5.2% between 2016 and 2017. The Water/Wastewater utility showed operating income of $5.0 million in 2017 compared to $1.4 million in 2016, while the Novelty Hill Water/Wastewater utilities showed an operating income of $0.8 million compared to $0.5 million in 2016. This is primarily related to a higher level of development activities as well as the continued build out of the Novelty Hill infrastructure. When non-operating income and capital contributions are included, the change in net position is $7.2 million for the Water/Wastewater utility and $1.1 million for the UPD Water/Wastewater utility. The Storm water utility showed operating income of $3.9 million in 2017 compared to $3.2 million in 2016, primarily due to a $1.5 million increase in operating revenues, offset by a $0.7 million increase in operating expenses, primarily due to delivery of significant capital projects. When non-operating income and capital contributions are included, the change in net position is $12.3 million, compared to $10.5 million in 2016. This is primarily due to increases in grant revenues and transfers in from the CIP Fund for projects funded by the Community Facilities District 2016-1. The City continues to do significant work in the Overlake and Downtown urban centers most notably the construction of the Station Vault in the Overlake area. In 2017 the City’s business-type activities invested $816,762 in the Groundwater Protection Incentive Program, which is included as an intangible asset with an indefinite useful life. The program provides funds for retrofitting existing private infiltration facilities that are determined to pose a significant groundwater hazard in wellhead protection zones 1 and 2, to ensure a safe supply of drinking water for the City. The graph that follows compares program revenues to program expenses from the Statement of Activities and illustrates the revenues by source separately for the business-type activities for 2017: $0 $10,000,000 $20,000,000 $30,000,000 $40,000,000 Water/Wastewater UPD Water/Wastewater Stormwater Expenses and Program Revenues ‐ Business‐type Activities Program Revenues Expenses 2017 Comprehensive Annual Financial Report 9 City of Redmond ---PAGE BREAK--- City of Redmond’s Capital Assets (net of depreciation) The City of Redmond’s investment in capital assets for its governmental and business-type activities (not including investment in joint ventures) as of December 31, 2017, amounts to $818.2 million (net of accumulated depreciation) an increase of $44.6 million from 2016. Investment in capital assets includes land, art and construction in progress, which are not subject to depreciation. The other capital assets, buildings and building improvements, improvements other than buildings, machinery and equipment, and infrastructure are subject to depreciation. Governmental type capital assets (net of depreciation) totaled $456.1 million in 2017, an increase of $30.2 million from 2016. Business-type capital assets (net of depreciation) totaled $362.0 million, an increase of $14.4 million from 2016. In addition to the effects of depreciation, these increases are the result of land acquisitions, improvements to buildings, contributed capital, and construction in progress. More information on the City’s Capital Assets can be found in Note 6 – Capital Assets, in the Notes to the Financial Statements. City of Redmond’s Outstanding Debt At the end of 2017, the City of Redmond had total bonded debt outstanding of $82.1 million. Of this amount, $60.4 million is general obligation bonds (City Hall, Bear Creek Parkway, transportation and parks); and $26.0 million is revenue bonded debt for the water/wastewater and stormwater utilities. 2017 2016 2017 2016 2017 2016 Land & Land Rights 141,815 $ 134,330 $ 27,590 $ 27,224 $ 169,405 $ 161,554 $ Intangibles - - 817 - 817 - Buildings/ Bldg. Improvements 62,207 53,536 28,808 29,567 91,015 83,103 Improvements other than Buildings 19,735 20,070 283,810 280,169 303,545 300,239 Machinery and Equipment 13,984 14,257 831 901 14,815 15,158 Construction in Progress 21,246 29,625 20,186 9,767 41,432 39,392 Infrastructure 195,226 173,595 - - 195,226 173,595 Art 549 549 - - 549 549 Total 454,762 $ 425,962 $ 362,042 $ 347,628 $ 816,804 $ 773,590 $ Governmental Activities Business-Type Activities Total 2017 2016 2017 2016 2017 2016 General obligation bonds 56,190 $ 60,380 $ - $ - $ 56,190 $ 60,380 $ G.O. bond premiums 4,259 4,626 - - 4,259 4,626 Revenue bonds - - 26,040 27,630 26,040 27,630 Revenue bond issuance premiums - - 2,823 3,009 2,823 3,009 Public Works Trust Fund loans 1,322 1,417 4,090 4,272 5,412 5,689 Other post-employment benefits 5,512 4,648 - - 5,512 4,648 Compensated absences 5,305 4,528 623 591 5,928 5,119 Net pension liability 20,735 26,931 4,761 6,145 25,496 33,076 Total 93,323 $ 102,530 $ 38,337 $ 41,647 $ 131,660 $ 144,177 $ Governmental Activities Business-Type Activities Total City of Redmond's Long-term Debt (in thousands) 2017 Comprehensive Annual Financial Report 10 City of Redmond ---PAGE BREAK--- In September 2013 the City issued $33.1 million in limited tax general obligation refunding bonds to advance refund $32.8 million of outstanding 2004 Limited Tax General Obligation Lease Revenue Bonds for City Hall and the parking garage. The refunding resulted in deferred outflows of $1.5 million. In December, 2015, the City issued $9,280,000 in limited tax general obligation refunding bonds with an interest rate of 3.00% to advance refund $8,940,000 of outstanding 2008 Limited Tax General Obligation Bonds. The refunding resulted in deferred outflows of $1.0 million. In January, 2016, the City issued $11,630,000 in limited tax general obligation refunding bonds with an interest rate of 2.0%-5.0% to advance refund $11,675,000 of outstanding 2008 Limited Tax General Obligation Bonds. The refunding resulted in deferred outflows of $1,386,462. The remaining combined deferred outflows of $3.3 million for debt refunding is reported as deferred outflows of resources in the Statement of Net Position. In January, 2016, the City also issued $6,000,000 in new limited tax general obligation bonds with an interest rate of 2.0%-5.0% to provide funds to finance the costs of transportation improvements. As discussed in Note 7, Net pension liability decreased $6.2 million. For further details related to the outstanding debt please refer to note 11 – Long-term Obligations, in the Notes to the Financial Statements. Economic Factors and Next Year’s Budget and Rates The City of Redmond budget is an important part of Redmond’s Six-Year Financial Plan that is focused on Redmond’s vision to realize the future as a City with two vibrant urban centers with connected neighbors and provide high quality responsive services in partnership with an engaged community. The City’s infrastructure investments reinforce the urban centers, Downtown and Overlake, as the primary growth areas and preserve the character of Redmond’s residential neighborhoods. Light rail will be arriving at stations in the Overlake and Downtown Urban Centers in 2023 and 2024, respectively, generating additional growth. Also anchored by a new light rail station, the new Marymoor Village is further anticipated to add over 1,400 dwelling units and one million square feet of new office space by 2030. Development of the Downtown urban center is progressing, with thousands of new housing units having come online and many hundreds more programmed over the next several years, complemented by strategic investments in new parks and reconfiguration of Redmond Way and Cleveland Street. Planning efforts are currently underway to refine design standards, zoning district regulations, parking management, and wellhead protection in the Downtown. Overlake is thoughtfully evolving into the envisioned urban center. Major proposed redevelopment of the Microsoft campus will generate new opportunities and new challenges for the city’s infrastructure and services as more than 8,000 new jobs are located in the area. Other large projects like Esterra Park, for example, have seen this largely suburban area start to take on a more urban feel, replete with needs for large-scale infrastructure investments much like the recently-completed regional stormwater vaults and a the proposed pedestrian bridge over State Route 520. These improvements are in addition to major infrastructure investments by other entities, like Microsoft and Sound Transit. Consistent with the Comprehensive Plan that articulates the vision for growth in the City centers, the Six-Year Financial Plan builds upon the City’s sound financial strategy by providing a framework that allows the City to “catch up” with needed maintenance, “keep up” with growth and demands for service and “step up” to some of the needs and opportunities that become available. Through innovation and efficiencies, Redmond continues to provide quality services 2017 Comprehensive Annual Financial Report 11 City of Redmond ---PAGE BREAK--- that meet or exceed the expectations of our community members. Strong financial stewardship and quality customer service is a hallmark of Redmond city government and is evidenced by the City’s AAA bond rating. In 2017, General Fund revenue ended the year over expectations mostly due to growth in development review and permitting as a result of a more robust economy and a development surge in the region. Departments successfully managed their expenditures, and as a result, General Fund expenditures were approximately 3.4% below the authorized budget (excluding ending fund balances). The City experienced growth in licenses and permits due to a surge in commercial development activity which began in 2014 and is anticipated to last through 2020. In future years, Redmond anticipates making progress on its capital improvement goals by continuing the work in downtown Redmond on the new Downtown Park (anticipated opening in September 2018) and converting the Redmond Way and Cleveland one-way streets into two-way thoroughfares (construction finalized in 2018). Redmond will welcome four light rail stations into the City in 2023 and 2024. Currently, construction is underway for the Technology Center Station along with underground improvements and pedestrian friendly amenities. Light rail coupled with the recently announced refresh of the Microsoft Campus will help Redmond realize its vision. Like many governments in the region, Redmond is investing resources to meet other challenges, such as affordable housing and homelessness. The City has hired a homelessness advocate who works hand in hand with public safety and social service providers to connect the City’s homeless community with needed services. As the area becomes a more popular place to live housing becomes less and less affordable. The City partners with A Regional Coalition for Housing (ARCH) to build affordable units and looks for opportunities to directly invest in affordable housing through transit oriented developments (TOD) and unique buildings such as the recently opened John Gabriel House dedicated to affordable senior housing. The City will continue to rely on its Comprehensive Plan to articulate the vision for growth in the urban centers that is supported by state law, regional planning approaches, several functional area plans, and numerous project-specific efforts that implement Redmond’s vision. Requests for Information This financial report is designed to provide a general overview of the City of Redmond’s finances for readers with an interest in the government’s finances. Questions concerning any of the information provided in this report, or requests for additional information, may be addressed to the Director of Finance, City of Redmond, PO Box 97010, Redmond, WA 98073-9710. 2017 Comprehensive Annual Financial Report 12 City of Redmond