CITY OF MADISON TAX INCREMENTAL DISTRICT NO. 32 Madison, Wisconsin

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1 Madison, Wisconsin FINANCIAL STATEMENTS From Date of Creation Through December 31, 2008

2 TABLE OF CONTENTS From Date of Creation Through December 31, 2008 Independent Auditors' Report Tax Incremental District No Balance Sheet Tax Incremental District No Historical Summary of Project Costs, Project Revenues and Net Cost to be Recovered Through Tax Increments Tax Incremental District No Historical Summary of Sources, Uses, and Status of Funds Notes to Financial Statements Supplemental Information Tax Incremental District No Detailed Schedule of Sources, Uses, and Status of Funds Tax Incremental District No Detailed Schedule of Capital Expenditures Independent Auditors' Report on Compliance

3 ~AKER TILLY B.hrTilly Vin:how Kr.oUK, LLP T~n Torn «Cr, PO Box 7398 Madison. WI ,d fax bak""ijly.cqrn INDEPENDENT AUDITORS' REPORT To the City Council City of Madison Madison, Wisconsin We have audited the accompanying Balance Sheet, Historical Summary of Project Costs, Project Revenues and Net Cost to be Recovered Through Tax Increments and the related Historical Summary of Sources, Uses and Status of Funds of the City of Madison Tax Incremental District No. 32 (the "District") as of December and from the date the District was created through December 31, These financial statements are the responsibility of the city's management. OUf responsibility is to express an opinion 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1, the financial statements present only the transactions of the District and do not purport to, and do not, present fairly the financial position of the City of Madison as of December 31, 2008, and the changes in its financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects. the financial position and the net project costs to be recovered through tax increments as of December 31, 2008 and the sources, uses and status of funds from the creation date of the District through December 31,2008, in conformity with accounting principles generally accepted in the United States of America. The City of Madison, Wisconsin, has not presented the management's discussion and analysis that accounting principles generally accepted in the United States of America require to supplement. although not be part of, the financial statements. ~ ;KE"R-TiUy Page 1 INTERNATIONAL

4 To the City Council City of Madison Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The detailed schedules included as supplemental information, as identified in the table of contents, are presented for purposes of additional analysis and are not a required part of the financial statements of the City of Madison, Wisconsin. The information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. We have also previously audited, in accordance with auditing standards generally accepted in the United States of America, the financial statements of the City of Madison, Wisconsin as of December 31, B and for the years then ended (none of which is presented herein). In our opinion, the detailed schedule of sources, uses and status of funds is fairly stated in all material respects in relation to the financial statements from which it has been derived. Madison, Wisconsin September B, 2009 Page 2

5 BALANCE SHEET December 31, 2008 ASSETS Cash Taxes receivable Capital Projects Fund $ 976,351 2,330,294 TOTAL ASSETS LIABILITIES AND FUND BALANCE Liabilities Accounts payable Deferred revenue Total Liabilities $ 3,306,645 $ 6,347 2,330,294 2,336,641 Fund Balance Reserved for encumbrances Unreserved Undesignated Total Fund Balance TOTAL LIABILITIES AND FUND BALANCE , ,004 $ 3,306,645 See accompanying notes to financial statements. Page 3

6 HISTORICAL SUMMARY OF PROJECT COSTS. PROJECT REVENUES AND NET COST TO BE RECOVERED THROUGH TAX INCREMENTS From Dale of Creation Through December 31, 2008 PROJECT COSTS Capital expenditures Interest on advances Interest on long~te rm debt T alai Project Costs PROJECT REVENUES Tax increment Exempt computer aid Investment income T alai Project Revenues NET COSTS RECOVERED THROUGH TAX INCREMENTS - DECEMBER 31, 2008 $ 8,700,671 1, ,991 9,006,034 3,339,806 51, ,204 3,649,492 $ 5,356,542 RECONCILIATION OF RECOVERABLE COSTS G.O. debt payable Less; Fund balance $ 6,326,546 (970,004) NET COSTS RECOVERED THROUGH TAX INCREMENTS - DECEMBER 31, 2008 $ 5,356,542 See accompa nying notes to financial statements. Page 4

7 HISTORICAL SUMMARY OF SOURCES. USES. AND STATUS OF FUNDS From Date of Creation Through December 3 1, 2008 SOURCES OF FUNDS Tax increment Exempt computer aid Investment income Long-term debt issued Total Sources of Funds $ 3,339,806 51, ,204 7, 127,000 10, USES OF FUNDS Capital expenditures Interest on advances Principal on long-term debt Interest on long-term debt Total Uses of Funds FUND BALANCE - DECEMBER 31, ,700,671 1, , ,991 9,806,488 $ 970,004 See accompanying notes to financial statements. Page 5

8 NOTES TO FINANCIAL STATEMENTS December 31, 2008 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the City of Madison's Tax Incremental District No. 32 (the "Dislricf') conform to accounting principles as applicable to governmental units and as defined by Wisconsin Statutes Section The city uses the criteria set forth by the Governmental Accounting Standards Board to determine the scope of the City of Madison's Tax Incremental District No. 32 reporting entity. The accompanying financial statements reflect all the significant operations of the City of Madison's Tax Incremental District No. 32. A. DESCRfPnON OF FUND STRUCTURE This report contains the financial information of the City of Madison's Tax Incremental District No. 32. The summary statements were prepared from data recorded in the following city funds and the city's long-term debt: General Fund Capital Projects Fund Detailed descriptions of the purpose of these funds can be found in the City of Madison's basic financial statements. The data was consolidated for purposes of this report. Therefore, the amounts shown in the accompanying statements will not directly correlate with amounts shown in the basic financial statements of the city. The District was created under the provisions of Wisconsin Statute Section The purpose of that section is to allow a city to recover development and improvements costs in a designated area from the property taxes generated on the increased value of the property after the creation date of the District. The tax on the increased value is called a tax increment. The statutes allow the city to collect tax increments until the net project cost has been fully recovered, or until 27 years after the creation date, whichever occurs first. Project costs uncollected at the dissolution date are absorbed by the city. Project costs may be incurred up to five years before the unextended termination date of the District. Original Last Date to Incur Last Year to Project Plan Creation Date Project Costs Collect Increment District No. 32 January 1, 2003 July Last Date to Incur Last Year to Plan Amendment Adoption Date Project Costs Collect Increment District No. 32 July July Page 6

9 NOTES TO FINANCIAL STATEMENTS December 31, 2008 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (coni.) B. BASIS ofaccounn NG The modified accrual basis of accounting was followed in the preparation of these statements. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual, i.e., both measurable and available. Available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Project costs. other than interest on long-term debt, are recorded when the related fund liability is incurred. District increments are recorded as revenues in the year due. Intergovernmental aids and grants are recognized as revenues in the period the related expenditures are incurred, if applicable, or when the city is entitled to the aids. Special assessments are recorded as revenues when collected. Annual installments due in future years are accounted for as receivables and deferred revenues. Other general revenues are recognized w hen received in cash or when measurable and available under the criteria described above. C. USE OF E STIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions thai affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. D. MEASUREMENT Focus The measurement focus of all governmental funds is the funds flow concept. Under the funds flow concept, sources and uses of financial resources, including capital outlays, debt proceeds and debt retirements are reflected in operations. Resources not available to finance expenditures and commitments of the current period are recognized as deferred revenue or a reservation of fund equity. Liabilities for claims, judgments, compensated absences and pension contributions which will not be currently liquidated using expendable available financial resources are shown in the long-term debt footnote disclosure. The related expenditures are recognized when the liabilities are liquidated. E. PROJECT PLAN BUDGET The estimated revenues and expenditures of the District are adopted in the project plan. Those estimates are for the entire life of the District. and may not be comparable to interim results presented in this report. Page 7

10 NOTES TO FINANCIAL STATEMENTS December NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) F. LONG-TERM DEBT Short-term liabilities are recorded as fund liabilities. All other long-term liabilities are shown in the 10ngterm debt footnote disclosure. Proceeds of long-term debt issues not recorded as fund liabilities are reflected as "Sources of Funds" in the operating statement of the recipient fund. Retirement of these issues is reported as an expenditure in the year in which the debt matures or is repaid, whichever is earlier. G. CLAIMS AND JUDGMENTS Claims and judgments are recorded as liabilities if all the conditions of Governmental Accounting Standards Board pronouncements are met. Claims and judgments that would normally be liquidated with expendable available financial resources are recorded during the year as expenditures in the governmental funds. If they are not liquidated with expendable available financial resources, a liability is presented in the l ong~te rm debt footnote disclosure. The related expenditure is recognized when the liability is liquidated. NOTE 2 - CASH AND TEMPORARY INVESTMENTS The District invests its funds in accordance with the provisions of the Wisconsin Statutes (1m) and 67.11(2). Investments are stated at fair value, which is the amount at which an investment could be exchanged in a current transaction between willing parties. Fair values are based on quoted market prices. No investments are reported at amortized cost. Adjustments necessary to record investments at fair value are recorded in the operating statement as increases or decreases in investment income. The District, as a fund of the city. maintains separate and common cash and investment accounts at the same financial institutions utilized by the city. Federal depository insurance and the State of Wisconsin Guarantee fund insurance apply to the City of Madison as an individual municipality and. accordingly. the amount of insured funds is not determinable for the District. NOTE 3 - LONG~TERM DEBT A. GENERAL DBUGA T10N DEBT All general obligation notes payable are backed by the full faith and credit of the city. Notes borrowed to finance District expenditures will be retired by tax increments accumulated by the TIF fund. If those revenues are not sufficient, payments wi ll be made by future lax levies. Page 8

11 NOTES TO FINANCIAL STATEMENTS December 31, 2008 NOTE 3 - LONG-TERM D EBT (cont.) A. GENERAL OSUGAnON DEBT (cont.) Title of Issue Dale of Issue Original Due Interest Indebted- Balance Date Rates ness Repaid G.O. Promissory Notes G.O. Promissory Notes % $ 4,000,000 $ 3.82% 3,127, ,454 $ 3,199,546 3,127,000 Totals $ 7.127,000 $ 800,454 $ 6, Aggregate maturities of all long-term debt relating to the District are as follows: Calendar Year Principal Interest 2009 $ $ Totals $ $ Totals $ $ NOTE 4 - ADVANCES FROM GENERAL FUND The general fund has advanced funds to TIF District No. 32 when the District is in a negative cash position. The general fund charges the TlF District interest on the advance based on the outstanding advance balance at the end of the year at a rate based on the cost of funds to the city. No repayment schedule has been established. There was no advance outstanding as of December 31, NOTE 5 - GUARANTEED REVENUE The City of Madison has entered into a development agreement with University Square, LLC. The agreement guarantees that University Square, LLC shall pay the difference between the guaranteed tax increment and the tax increment actually levied. The guarantee obligation shall terminate when the city has collected from the tax increment generated from the District or been paid under this agreement the full amount of the project costs of not less than $3,000,000. Page 9

12 SUPPLEMENTAL INFORMATION

13 DETAILED SCHEDULE OF SOURCES, USES, AND STATUS OF FUNDS From Date of Creation Through December 31, 2008 SOURCES OF FUNDS Tax increment Exempt computer aid Investment income Long-term debt issued Total Sources of Funds S S $112,678 S 744,601 S 961,344 14,962 13,092 12,700 56, ,786 4,000, ,640 4,814,474 1,105,830 Project Plan 2008 Totals Estimate 51,521,183 $ 3, S 28,611,000 10,728 51,482 69, ,204 3,127,000 7,127,000 10,000,000 4,728,548 10,776,492 38!611,000 USES OF FUNDS Capital expenditures Interest on advances Principal on long-term debt Interest on long-term debt Total Uses of Funds , , , ,000 1,386 64,532 39,753 2,282, ,781 6,127,480 8,700,671 22,440,000 1, , ,454 10,000, , ,991 6,171,000 6,671,698 9,806,488 ~6 1 1,000 FUND BALANCE - DECEMBER 31,2008 $ 970,004 Page 10

14 DETAILED SCHEDULE OF CAPITAL EXPENDITURES From Date of Creation Through December 31,2008 Actual Capital Expenditures Street reconstruction $ Other public works projects Revitalization loans 3.000,000 Affordable housing set-aside Land acquisition Organizational costs TOTAL CAPITAL EXPENDITURES $ 8,700,671 Project Plan Estimate $ ,200 3,000, , , ,000 $ 22, Page 11

15 B.k~r Tilly Virchow K",\l5C, LLP Tefl T~r",«Cr, PO Bnl7398 M~json, WI d fu s32 I».hrrilly.com INDEPENDENT AUDITORS' REPORT ON COMPLIANCE To the City Council City of Madison Madison, Wisconsin We have audited the accompanying Balance Sheet, Historical Summary of Project Costs, Project Revenues and Net Cost to be Recovered Through Tax Increments and the related Historical Summary of Sources, Uses and Status of Funds of the City of Madison, Wisconsin Tax Incremental District No. 32 (the "District") as of December 31, 2008 and from the date the District was created through December 31, 2008 and have issued our report thereon dated September 8, We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Compliance with tax increment financing District laws, regulations and the project plan is the responsibility of City of Madison, Wisconsin management. As part of obtaining reasonable assurance about whether the aforementioned financial statements are free of material misstatement, we performed tests of city's compliance with Wisconsin State Statutes Section and the project plan. However, it should be noted that our objective was not to provide an opinion on overall compliance with such provisions. The results of our tests indicate that, with respect to the items tested, the City of Madison, Wisconsin complied, in all material respects, with the provisions referred to in the preceding paragraph except for the following: 1. The municipal clerk gave written notice of the amendment to the Wisconsin Department of Revenue (DOR) more than 60 days after adoption of the amendment. State statutes require that the notice of the amendment be sent to DOR within 60 days after adoption. 2. The Joint Review Board approved the resolution for amendment more than 30 days after the date the resolution was adopted. State statutes require that the Joint Review Board approval be no less than 10 days nor more than 30 days after the date the resolution is adopted. With respect to items not tested, nothing came to our attention that caused us to believe that the City of Madison, Wisconsin had not complied, in all material respects, with those provisions. This report is intended solely for the information and use of the city, its management, and the overlapping taxing Districts and is not intended to be, and should not be, used by anyone other than the specified parties. Madison, Wisconsin September 8, 2009 ~ AKERi- iuy INTERNATION... l Page 12