Financial Statements September 30, 2012 City of Meridian, Idaho

Transcription

1 Photo by Shelly Houston Financial Statements

2 Table of Contents Independent Auditor s Report... 1 Management s Discussion and Analysis... 3 Financial Section Basic Financial Statements Government-wide Financial Statements Statement of Net Assets Statement of Activities Fund Financial Statements Balance Sheet Governmental Funds Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Statement of Net Assets Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Fund Statement of Cash Flows Proprietary Fund Notes to Financial Statements Required Supplementary Information Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund Notes to Required Supplementary Information Other Information Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual Capital Projects Fund Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual Enterprise Fund 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 Independent Auditor s Report on Compliance with Requirements that Could Have a Direct and Material Effect on Its Major Program and on Internal Control over Compliance in Accordance with OMB Circular A Single Audit Section Schedule of Findings and Questioned Costs Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards... 58

3 Independent Auditor s Report Mayor and Members of the City Council Meridian, Idaho We have audited the accompanying financial statements of the governmental activities, the business-type activities, the discretely presented component unit, and each major fund of (the City) as of and for the year ended, which collectively comprise the City s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the discretely presented component unit, and the major fund of the City as of and the respective changes in financial position, and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated February 13, 2013, 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 and should be considered in assessing the results of our audit W. Main St., Ste. 800 Boise, ID T F EOE

4 Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information listed in the table of contents 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. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City s financial statements as a whole. The supplementary information as listed in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the financial statements. The supplementary information and the schedule of expenditures of federal awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the 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 financial statements as a whole. Boise, Idaho February 13,

5 Management s Discussion and Analysis This section of the City of Meridian s (City s) annual financial report presents management s discussion and analysis of the City s financial performance during the year ended. Please use this information in conjunction with the information furnished in the City s financial statements. Financial Highlights The total assets of the City exceeded its liabilities at by $340,912,888. Of this amount $61,421,073 is unrestricted and available to meet the City s on-going obligations to citizens and creditors. During fiscal year 2012 the City s total net assets increased $36,239,531 as compared to an increase of $3,559,369 during fiscal year Net assets of the governmental activities increased $27,807,711 and net assets of business-type activities increased $8,431,820. Total fund balance of governmental funds at was $31,099,332 compared to a total governmental fund balance at September 30, 2011 of $27,171,632. Of the balance, $4,533,359 is restricted for park, police and fire impact fee capital expenditures, $4,824 is restricted for grant expenditures, $92,827 is non-spendable, $ 4,831,675 is assigned for budget carry forward, $2,655,530 is assigned for capital projects, $2,104,586 is assigned for public safety capital projects, and the remaining $16,876,531 is unassigned. Overview of the Financial Statements This annual report consists of five parts management discussion and analysis, the government-wide financial statements, fund financial statements, notes to the financial statements, and required supplementary information. Government - Wide Financial Statements These statements report information about all of the operations of the City using accounting methods similar to those used by private sector companies. These statements are prepared using the flow of economic resources measurement focus and accrual basis of accounting. The current year s revenues and expenses are recorded as transactions occur rather than when cash is received or paid. The government-wide financial statements are divided into two categories: Statement of Net Assets Reports the net position of the City s assets and liabilities with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. Statement of Activities Reports all of the City s revenues and expenses for the year by function. Examples of functions are public safety, administration, and water and sewer activities. Revenues, such as property tax which cannot be traced to a specific function, are reported as General Revenues. 3

6 Management s Discussion and Analysis Fund Financial Statements The Fund financial statements provide information about the City s major funds, not the City as a whole. The City uses a method of accounting, called fund accounting, to separate specific sources of funds and corresponding expenditures. Funds may be required by law or may be established by the City Council. The City has the following funds: Governmental Funds: These funds encompass the City s basic services, public safety, community planning and development, administration, and parks and recreation. Governmental fund financial statements focus on shortterm inflows and outflows of spendable resources, an accounting approach known as the flow of current financial resources measurement focus and the modified accrual basis of accounting. Information provided by these statements provides a short-term view of what resources will be available to meet needs. The City has two governmental funds: General Fund The general fund is the general operating fund of the City. It derives most of its income from property tax and funds the operations of the City. It includes the Development Services Fund, used to account for revenue and expenses of the community planning and development function, and the Public Safety Fund used to set aside funds for police and fire capital projects. It also includes the Impact Fee Fund used to account for park and public safety impact fee revenue and capital acquisitions. Capital Projects Fund The Capital Projects Fund is used to account for financial resources to be used for the acquisition of major capital facilities. Proprietary Fund: User fees finance activities in these funds. The City of Meridian only has one type of propriety fund, the enterprise fund. The water and sewer utilities and all the activities necessary to support their operation are accounted for in this fund. Accounting for this fund is the same as a private business on a full accrual basis. Notes to the Financial Statements The notes provide additional information that is necessary to fully understand the data presented in the government-wide and fund financial statements. Required Supplementary Information This section has information that further explains and supports the information in the financial statements by including a comparison of the City s budget data for the year. 4

7 Management s Discussion and Analysis FINANCIAL ANALYSIS OF THE CITY OF MERIDIAN AS A WHOLE Net Assets Net assets measure the difference between what the City owns (assets) versus what the City owes (liabilities). At, the City s combined assets exceeded liabilities by $340,912,888. In comparison, at September 30, 2011, combined assets exceeded liabilities by $304,673,357 and by $301,113,988 at the end of FY2010. The largest portion of the City s net assets, 80%, is invested in capital assets net of related debt. Capital assets include land, building, equipment and machinery, and sewer and water utility infrastructure. This percentage distribution has remained virtually unchanged for the last five years. Assets restricted to a particular use are 2% of net assets. The City s restricted fund balance is composed of; $4,533,359 in park, police, and fire impact fee funds, (portion of building permit collected for the construction of new assets to retain existing service levels), $2,655,533 is for the Capital Improvement Fund. Unrestricted net assets equal 18% of net assets; this percentage composition is unchanged from the prior year. The City s net assets increased 12% or $36,239,531 from FY2011 to FY2012. $25 million dollars of this increase can be attributed to the donation of a large developed park. In comparison, from FY2010 to FY2011, the City s net assets increased by $3,559,369 million dollars or 1%. The table below has been condensed from the Statement of Net Assets. Primary Government Governmental Business - type Activities Activities Total Current and Other Assets $ 54,358,179 $ 49,935,109 $ 43,745,722 $ 36,914,877 $ 98,103,901 $ 86,849,986 Capital Assets 86,347,287 61,985, ,280, ,265, ,627, ,250,535 TOTAL Assets 140,705, ,920, ,026, ,180, ,731, ,100,521 Current Liabilities 25,046,249 21,874,536 3,450,588 3,061,562 28,496,837 24,936,098 Long-term Liabilities 1,150,351 3,344, , ,297 1,321,911 3,491,066 TOTAL Liabilities 26,196,600 25,219,305 3,622,148 3,207,859 29,818,748 28,427,164 Net Assets: Invested in Capital Assets Net of Related Debt 86,022,475 61,660, ,280, ,265, ,302, ,925,725 Restricted 7,188,892 5,646, ,188,892 5,646,716 Unrestricted 21,297,499 19,393,898 40,123,574 33,707,018 61,421,073 53,100,916 TOTAL Net Assets $ 114,508,866 $ 86,701,155 $ 226,404,022 $ 217,972,202 $ 340,912,888 $ 304,673,357 5

8 Management s Discussion and Analysis Changes in Net Position During the year the City s financial position improved by $36,239,531. The following condensed financial information was derived from the government-wide Statement of Activities and shows how the City s net position changed during the year. Changes in Net Position for Fiscal Year Ending Revenues Program Revenues Governmental Business-Type Total Primary Activities Activities Government FY2012 FY2011 FY2012 FY2011 FY2012 FY2011 Charges for services $ 6,965,190 $ 5,390,186 $ 20,675,507 $ 19,437,576 $ 27,640,697 $ 24,827,762 Operating grants and contributions 1,312, ,518 4,762,513 2,911,265 6,075,017 3,677,783 Capital Grants and Contributions 26,802,358 1,156,323 1,780,396 1,666,396 28,582,754 2,822,719 General Revenue: Property taxes 19,544,240 19,315,073 19,544,240 19,315,073 Franchise fees 1,289,679 1,351,868 1,289,679 1,351,868 Sales tax and other governmental 4,033,356 3,577,052 4,033,356 3,577,052 Investment Earnings 182, , , , , ,845 Other Revenue 65,932 14,086 (71,409) (1,112,397) (5,477) (1,098,311) Total Revenues 60,195,923 31,887,640 27,411,963 23,289,151 87,607,886 55,176,791 Expenses General Government Administration 6,170,058 9,062,939 6,170,058 9,062,939 Law Enforcement 12,166,967 11,173,681 12,166,967 11,173,681 Fire Department 8,914,476 8,005,424 8,914,476 8,005,424 Parks and Recreation 3,991,443 3,231,199 3,991,443 3,231,199 Community Planning and Devlp 2,552,116 2,044,533 2,552,116 2,044,533 Interest on long-term debt 120, , , ,844 Enterprise - sewer and water 17,452,669 17,976,802 17,452,669 17,976,802 Total Expenses 33,915,686 33,640,620 17,452,669 17,976,802 51,368,355 51,617,422 Excess (deficiency) of revenues over expenditures before transfers 26,280,237 (1,752,980) 9,959,294 5,312,349 36,239,531 3,559,369 Transfers - internal activities 1,527,474 1,218,294 (1,527,474) (1,218,294) - - Increase (decrease) in net assets 27,807,711 (534,686) 8,431,820 4,094,055 36,239,531 3,559,369 Net Assets, Beginning of Year 86,701,155 87,235, ,972, ,878, ,673, ,113,988 Net Assets, Ending of Year $ 114,508,866 $ 86,701,155 $ 226,404,022 $ 217,972,202 $ 340,912,888 $ 304,673,357 6

9 Management s Discussion and Analysis Governmental Charges for Services include: o Building permits and filing fees o Court fines o Rural Fire District service reimbursement o Park and Recreation fees Governmental Capital Grants and Contributions include: o Impact fees for Parks, Fire, and Police o Park land donations o Grant revenues o Cash donations Business-Type Charges for Services include: o Water and Sewer sales o Engineering review fees o Trash Administration fees Business-Type Operating Grants and Contributions include: o Water and Sewer connection fees o Cash donations for operating expenses Business-Type Capital Grants and Contributions include: o Developer donated water and sewer lines o Cash Donations for capital outlay Governmental Activities: Governmental net assets increased $27,807,711 this increase is 77% of the total City increase in net assets. This large increase is the result of a capital donation of a 60 acre developed urban park valued at $25 million dollars. The donation is recorded under Capital Grants and Contributions. The City also experienced an increase in the sale of both commercial and residential building permits, with FY2012 revenue for the Community Development Department up $1,071,835 over FY2011. Building permits include an impact fee collected to support capital expansion of buildings and park development, so building permit sales also impact revenue collection. These revenues increased in FY2012 by $598,168 and are accounted for as Capital Grants and Contributions. Property tax is the single greatest source of annual governmental revenue. Property tax revenue can increase due to growth (new construction), annexation, and can also increase by a maximum of 3% at the request of the taxing entity. For fiscal year 2012 the City did not take the allowable 3% increase, so the only increase was 1% from new construction. Governmental expenses increased 1% from FY2011. This small percentage increase is somewhat misleading since several functions had double digit increases. However, the Administration function had a 50% decrease in operating expense due to an unusual expense that incurred in FY2011. The City spent $3.5 million dollars in legal costs pursuant to bringing and losing a civil lawsuit associated with the construction of City Hall. The City has appealed the decision. The City is accruing interest on the unpaid portion of the settlement at $ per day for a total accrual of $120,625 in FY2012. The City is exposed to a potential judgment payout of over $2.4 million dollars in FY2013 plus additional legal costs. 7

10 Management s Discussion and Analysis Two thirds of the cost of the Governmental activities are in personnel, and, of that, 75% is personnel cost related to public safety, fire, and police. Personnel costs for these two functions increased a combined 10%. The Fire Department hired three new positions Division Chiefs late in FY2012 and also experienced an increase in overtime costs. The Police Department did not add any new positions in FY2012; however, salary and wages went up 9% due to increases associated with the wage changes and filling positions that had been vacant. Administration also includes several general support functions, Legal, Accounting, Human Resources, City Clerk, Mayor s Office, City Council, Other Government (general expenses not assigned to other departments), Street Lighting, and City Hall. Fifteen percent of Mayor s staff and one half of Legal, Human Resources, Information Technology, and Accounting costs are transferred to the enterprise fund since these functions support all funds. During the budget process 1.5 full time equivalent positions were added to the Information Technology Department. Both the Parks Department and the Community Development Department had noteworthy increases in operating costs. The Parks Department s depreciation expense increased over $400,000 due to starting depreciation for the development costs of donated park, $13 million, plus $2 million dollars for a Senior Center located in the park. Community Development s operating expenses increased $468,000 which is a 46% increase over FY2011. However of this amount $378,000 is due to increased payments to the contracted building inspectors. This correlates directly to the increase in building permit sales experienced in FY2012 as discussed above. 8

11 Management s Discussion and Analysis Business-Type Activities: Business-type activities, the provision of water and sewer services, increased net position by $8.4 million in FY2012 compared to a $4 million dollar increase in FY2011 and a $13.9 million dollar increase in FY2010. Capital assets net of depreciation increased $2 million and unrestricted net position increased $6.4 million. During the last decade the population in the City of Meridian more than doubled. To facilitate this growth the Utility operations rapidly expanded infrastructure such as water and sewer lines, wells, and wastewater treatment facilities. At the end of FY2001 the capital assets net of depreciation totaled $53.8 million; at the end of fiscal year 2012 the capital assets net of depreciation totaled $186 million. These assets have been funded through a combination of developer contributed assets and City generated funds from fee charges. Developer contributed assets result when developers put in water and sewer lines to serve subdivisions and eventually turn ownership of the infrastructure over to the City to maintain and replace. The City has also made and continues to make a substantial investment in enlarging the capacity of the sewer treatment plant and making technological improvements to meet rigid discharge standards. 9

12 Management s Discussion and Analysis From the end of FY2001 to the end of FY2005, the unrestricted fund balance grew $24.3 million dollars. However, as the expansion of infrastructure reached its peak, the Proprietary fund balance began to decline in spite of the increases in revenue related to development. The Utility has three principal sources of revenue. Operating revenue from selling water and sewer services (charges for services), the previously discussed fees that new homes pay to connect to the utility system (operating grants and contributions) and donated revenue, the value of the developer connected lines and easements (capital grants and contributions). The growth in fund balance was fueled largely by connection fees. Connection or assessment fees are fees charged for businesses and residences to connect to the utility system. The increase in growth that started at the first of the decade resulted in a rapid build-up of funds available for the necessary infrastructure construction that followed. This revenue source climbed steadily through FY2005 and then started a decline that lasted until FY2012. In FY2002, the City made a significant change to the usage rate structure. This change lowered the minimum base fees to reward customers who used lower amounts of water. The effect was a big dip in revenue in FY2002. The City was experiencing such an increase in the number of customers that operating revenue started to increase again the next year. However operating costs increased proportionately more with higher costs associated with water quality requirements and increased service level demands. The City is waiting for the finalization of a more current National Pollutant Discharge Elimination System (NPDES) permit issued by the Environmental Protection Agency (EPA). This permit regulates the amount of pollutants that can be discharged into the Boise River. This permit re-issue could result in increased compliance costs. In order to ensure that the City be able to cover all operating costs, there were rate increases in FY2009 and FY2010. For FY2012, the Utility had operating revenue of $3,244,734. Connection revenue surged in FY2012 totaling $4,762,513, a 59% increase over FY2011. The Proprietary Fund is divided into three basic divisions: Waste Water, Water, Public Works, and Admin or Utility Billing. Public Works provides professional engineering support and supervision, and Utility Billing handles the billing for water and sewer services. Utility Billing also bills and collects for the City s solid waste pickup contractor in return for reimbursement of 6% of the contractor s gross sales. Waste Water is the largest division in the fund. 10

13 Management s Discussion and Analysis The proprietary fund s total operating expenses decreased 1% overall from FY2011 to FY2012. The table below illustrates annual operating expenses for FY2010, FY2011, and FY2012: PROPRIETARY FUND OPERATING EXPENSES % Change % Change FY2012 FY11 to FY12 FY2011 FY10 to FY11 FY2010 Personnel $ 5,755,468 5% $ 5,469,270 8% $ 5,070,348 Other Services/Charges 2,913,757-20% 3,658,531 17% 3,121,815 Depreciation 6,455,243 2% 6,322,956 31% 4,824,482 Supplies 1,525,088-12% 1,741,116 10% 1,581,534 Heat, Lights, Power 803,113 2% 784,929-15% 923,055 Total operating expense 17,452,669-3% 17,976,802 16% 15,521,234 General fund transfer 1,527,474 25% 1,218,294 14% 1,068,396 Total business-type expense $ 18,980,143-1% $ 19,195,096 16% $ 16,589,630 There are a few larger noteworthy items difference between FY2011 and FY2012 expenses. FY2011 was the last year of a multi-year project to replace all of the older water meters in the City with radio read meters. As a result of finishing this project, water meter expense was $433,454 less in FY2012. Normally, water meter expense is offset by revenue because customers pay for water meters as they are installed. Another notable change is the $300,000 decrease in the cost of consulting services for Wastewater. The Public Works Department monitors a variety of Water and Sewer projects such as long range plans for both the sewer and water systems. A single project can span several years. Spending on a couple of large projects dropped significantly in FY2012 as compared to FY2011. For example, the WWTP Facility Plan, and the SCADA master plan (electronic monitoring system). Additionally, the City incurred a settlement expense of $463,000 in FY2011 and had to release title to several assets as the result of a nullification agreement between the City and a developer. In 2006 the City entered into an agreement with a developer to jointly provide water and sewer service for a subdivision under development outside of the City limits. The developer put in a well and turned it over to the City so that homeowners could connect to the City water system. Due to the downturn in the economy, only a small portion of the subdivision was developed, and the agreement was no longer viable. The City paid damages to the developer and reimbursed the existing homeowners for their cost to connect to City water and also deeded back the well, the well lot, a lift station lot, and land easements, which resulted in a loss on disposal of assets in the amount of $1,364,

14 Management s Discussion and Analysis The Utility Fund did not add any additional staff positions in FY2012. Changes in personnel costs are due to merit salary increases or the result of filling existing positions. Operating costs for the utility are divided almost equally between personnel, operating, and depreciation. As a result of operations, the Proprietary Fund ended FY2012 with $3,244,734 in operating income and increased net position by $8,431,820. This compares to prior year operating income of $1,772,375 and an increase in net position of $4,094,055. The difference between the two numbers is the non operating revenues and expenses. These include connection revenue, as discussed above, interest income, and change in investment fair market value and loss or gain on the sale of fixed assets. The Fund experienced a small loss on the disposal of fixed assets in the amount of $106,784. The Propriety Fund paid the general fund $1,527,474 for half of the cost of the administrative and support functions for legal, human resources, information technology, construction management, along with fifteen percent of the Mayor s staff and a share of the costs to maintain the City Hall building. The fund assumed ownership of $1,780,396 sewer and water lines put in by developers. The Water Department closed $179,099 out of construction in progress and the Waste Water Department closed $4.3 million dollars out of construction in progress. Water Department projects include well number 20b and waterline projects. Larger Waste Water Treatment projects include $1.06 million for the tertiary filter building improvements, and $2.2 million dollars for a reclaimed water booster station. Overall, the Utility spent $6.8 million dollars on capital acquisitions. Depreciation expense increased from $6,322,956 in FY2011 to $6,455,243 in FY2012. The Utility still has $6.5 million dollars in construction in progress. FINANCIAL ANALYSIS OF THE CITY S FUNDS Governmental Funds Governmental Funds provide information about near-term inflows, outflows and balances of resources that are available for spending. At the end of a fiscal year, the unreserved fund balance serves as a useful measure of a government s net resources. Types of governmental funds reported by the City include the General Fund, the Capital Projects Fund, the Impact Fee Fund, and the Public Safety Fund. At the end of the current year, the City s governmental funds had a combined ending fund balance of $31,099,332 which is an increase of $3,927,700 over the combined ending fund balance at the end of the prior year. In accordance with GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, the fund balances are classified for the year ended as follows: of the combined ending fund balance of $31,099,332, $92,827 was non spendable, $4,538,183 was restricted by law, $9,591,791 assigned by the intent of the City to specific purposes, and $16,876,531 was unassigned and available for spending by the City within the purposes specified for the City s funds. The General Fund is the primary operating fund of the City, used for major operations including public safety, planning and development, parks, and administration. At the end of the fiscal year, the unassigned fund balance of the General Fund was $16,876,531 down from the previous year balance of $17,408,645. The City makes sure that the unassigned fund balance does not drop below the minimum of four months of on-going personnel and 12

15 Management s Discussion and Analysis operating expense. The amount of reserve is calculated using the upcoming budget year, i.e. the FY2013 budget is used to calculate the balance at the end of FY2012. For fiscal year end, this amount is $10 million. The restricted impact fee fund can only be spent on police, fire and parks capital projects that sustain the level of service existing when the fees were adopted per Idaho statute. The City did not spend much from the fund in FY2012, the largest purchase was a piece of park land for $265,297. Building permit sales increased in FY2012 compared to prior years and, therefore, impact fee revenue went up $1.7 million dollars compared to $1.1 million dollars in FY2011. The fund balance increased from $3,077,450 at the end of fiscal year 2011 to $4,533,359 at the end of fiscal year When building permit sales and related fees exceed the cost of the Planning and Building Departments, the City assigns the excess to the Capital Projects Fund to use for future capital projects. The City also may transfer other excess funds into the capital projects fund to set them aside for future capital projects. During FY2012, $1,001,858 was assigned to the capital projects fund from the Planning and Building excess revenues. Also, in FY2012, there was a net decrease of $915,594 to the capital projects fund for City Hall building construction. The net change to the Capital Projects Fund was an increase of $86,264 from FY2011. Assigned for Public Safety purchases is a fund used to save for public safety construction or large capital purchases. At the end of FY2012, the balance is $2.1 million, essentially unchanged, except for a small amount of interest. Change in FY2012 FY2011 Fund Balance Nonspendable Prepaids $ 92,827 $ 119,984 $ (27,157) Restricted Impact Fund 4,533,359 3,077,450 1,455,909 Grant Fund 4,824 22,297 (17,473) Assigned Fund Bal Budget Carryforward 4,831,675 1,884,789 2,946,886 Capital Projects Fund 2,655,530 2,569,266 86,264 Public Safety Fund 2,104,586 2,089,201 15,385 Unassigned 16,876,531 17,408,645 (532,114) TOTAL FUND BALANCE $ 31,099,332 $ 27,171,632 $ 3,927,700 13

16 Management s Discussion and Analysis FY2012 General Fund Actual Revenue $35,326,865 Impact Fees Franchise 5% fees 3% Licenses and permits 10% Intergovern 20% Other 6% Property Tax 56% General Fund Budgetary Highlights Total actual general fund revenue exceeded the final budget amount by $4.4 million dollars which is 14%. The largest percentage of General Fund Income is property tax. In FY2012, property tax was 56% of the total income. Property tax collections in FY2012 increased just under 2% from the prior year. The City did not take the allowable 3% increase, collections from new construction were responsible for the increase. Property taxes are paid in arrears so the FY2012 collections were based on the 2011 calendar year. The addition of new construction to the tax rolls was also negatively impacted by legislation passed at the state level that increased developer exemptions and allowed retroactive adjustments. Intergovernmental revenue sharing is the second largest revenue stream at 20% of total revenue. This category includes grants, sales tax revenue sharing, and a joint powers agreement with the Meridian Rural Fire District. Sales tax revenue is half of total intergovernmental revenue. Since FY2009 state revenue sharing has been around $3 million dollars. In FY2012, the state adjusted the formula used to distribute revenue sharing to cities for the 2010 census and the City received almost $3.5 million, well over the budgeted amount of $2.75 million. There was a significant difference between budgeted and actual revenue for license and permit sales. This revenue category is principally residential and commercial building permits. In the spring of 2012, building activity in Meridian started to increase. In addition to selling more residential building permits, the City also experienced a jump in commercial building activity. As a result, revenue from building permits increased just over one million dollars. 14

17 Management s Discussion and Analysis $1,200,000 City of Meridian Commerical Building Permit Sales $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 FY2012 FY2011 FY2010 The bulk of Governmental Fund on-going cost is in personnel, with most of that being in the public safety departments, Police, and Fire. In FY2012, all City departments were budgeted for a 3% merit pool increase and additionally the Police Department step plan moved 3% meaning that essentially all sworn officers received a 3% salary increase in addition to moving up through the step plan as eligibility allows. Both Administration and the Fire Department were budgeted for new positions. Administration added a maintenance position for the City Hall and the Fire Department received three Division Chief Positions in addition to a wage adjustment to increase the salaries of the existing Deputy Chiefs. The budget for Governmental Fund personnel costs increased 5% from FY2012 to FY2011 and the operating budgeted expenses decreased 33%. FY2012 Governmental Fund Actual Personnel and Operating Expenditures $30,385,857 Fire 28% Police 38% Parks 9% Develop Services 8% Admin 17% 15

18 Management s Discussion and Analysis Administration s operating budget dropped by 59% between FY2011 and FY2012 largely due to a one-time budget amendment for an expense that occurred in FY2011. This was the result of costs stemming from a legal issue involving the construction of City Hall. The City paid legal costs of $1.2 million and additionally lost the case and did a budget amendment for the awarded settlement amount of $ 2.3 million. The settlement was not paid in FY2011 or FY2012 because the City is appealing the judgment but it is accrued in the government-wide financial statements. The City is accruing interest of 5.25% ($330.48) per day during the appeal period. A good portion of the increase in Fire Department budgeted operating expenses is due to amending the budget due to receiving one-time grant money of $111,000 in FY2012. Comparing budget to actual personnel costs were 3% under budget and operating costs were 4% under budget. General Government Budget to Actual Personnel Expenditures FY2012 FY2012 Percent Change Final Budget Actual Actual to Budget Administration $ 3,311,430 $ 3,098,072-7% Police 10,084,104 9,812,467-3% Fire 7,349,904 7,317,358 0% Parks 1,635,411 1,513,631-8% Development Services 1,164,213 1,067,267-9% TOTAL $ 23,545,062 $ 22,808,795-3% General Government Budget to Actual Operating Expenditures FY2012 FY2012 Percent Change Final Budget Actual Actual to Budget Administration $ 2,631,220 $ 1,989,051-32% Police 1,907,926 1,861,860-2% Fire 1,018,905 1,031,092 1% Parks 1,368,944 1,218,786-12% Development Services 949,471 1,476,253 36% TOTAL $ 7,876,466 $ 7,577,042-4% Delays in hiring new positions, vacancies, and merit increases less than the budgeted pool of 3% account for the difference between budget and actual personnel. The Fire Department significantly overspent their overtime budget, $432,751, but they were able to cover this extra expense with savings due to vacant positions. Administrative actual operating expense was significantly less than the budget. Every department within the administrative division had operating savings but some of the more significant include: $231,138 of the HUD block grant was not spent, the Legal Department did not spend $52,590 of the amendment they requested for contract legal expenses, the City Hall had slightly over $40,000 savings in utilities cost, and street light electricity was almost $48,000 less than budgeted. Community Development Department operating expenses were 36% over budget; this is due to the increase in building permit sales as discussed above. The City contracts with outside building inspectors so when building permit sales go up the contract cost goes up. The City budgeted conservatively for building permit activity due to the volatility in the construction sector of the economy. 16

19 Management s Discussion and Analysis In FY2012, the Governmental Fund had capital additions of $2.6 million and a capital donation of $25 million developed urban park. The Parks Department completed development of a community park in FY2012 so all the park development costs of just slightly over $2.1 million were moved out of construction in progress. The Parks Department also completed about $160,000 in pathway projects and spent $265,297 to purchase land adjacent to a parcel of undeveloped park land. The Governmental Fund departments spent $559,472 on new and replacement vehicles with about half of those vehicles for the Police Department and the remainder for the Parks and Fire Departments. Other larger expenditures include $916,429 for City Hall improvements and major reworks and $397,337 in construction in progress toward a $3.2 million dollar maintenance building. CAPITAL ASSET and DEBT ADMINISTRATION Capital Assets At the end of fiscal year 2012, the City had $272.6 million invested in capital assets (net of accumulated depreciation). During fiscal year 2012, the City s total investment in net assets increased 11%. See table below: Capital Assets as of (net of depreciation) Governmental Business - Type Total Primary Activities Activities Government Land $ 25,672,511 $ 15,651,367 $ 1,137,275 $ 1,137,275 $ 26,809,786 $ 16,788,642 Easements 293, ,864 7,364,021 6,962,968 7,657,159 7,180,832 Intangibles 23,514 32,919 23,514 32,919 Buildings and improvements other than buildings 55,154,943 38,283,632 40,630,292 41,060,166 95,785,235 79,343,798 Sewer and water lines 112,713, ,210, ,713, ,210,457 Equipment 4,658,444 5,122,616 17,891,921 16,231,044 22,550,365 21,353,660 Construction in progress 544,737 2,676,953 6,543,392 6,663,274 7,088,129 9,340,227 $ 86,347,287 $ 61,985,351 $ 186,280,448 $ 184,265,184 $ 272,627,735 $ 246,250,535 The City s investment in capital assets includes land, buildings, sewer and water lines, buildings, automobiles and equipment. Sidewalks, bridges, and roads belong to the Ada County Highway District. Major capital asset events in the general government funds in FY2012 included: $916,429 for City Hall maintenance and improvements $397,337 for Park Department maintenance building construction in progress account $25.1 for Kleiner Park development, of which $25 million was a donation $265,297 for Borup Park Land acquisition $296,751 for Police vehicles, $203,647 in Fire and $77,003 in Park vehicles and equipment $2.2 million moved from construction in progress for Hero s community park 17

20 Management s Discussion and Analysis Major capital asset events in the business-type funds in FY2012 included: $2.4 million in sewer trunk, and water line expansions $3.6 million in wastewater improvements $1.8 million in donated and contributed capital water and sewer infrastructure $1.1 million moved out of construction in progress for Tertiary Filter Building $2.4 million moved out of construction in progress for water booster station The City booked $3,270,846 in depreciation expense for governmental City functions and $6,455,243 for business-type activities. FY2013 Budgetary Considerations The City of Meridian s proposed FY2013 budget was driven by the City s long term Capital Improvement Plan and a conservative outlook on short term economic improvement. The funding assumptions for both the Enterprise Fund and the General Fund were conservative with growth projected at only 2%. This is in keeping with the last few years regarding rates for new construction and indicators like the increase in the number of new utility customers. Meridian experienced a growth spurt in building that started in the spring of 2012 and continues through the writing of this report in the winter of However, the City faces some threats to the General Fund revenue base. In Idaho, only the Idaho legislature has the authority to impose or change tax revenue. Changes made and/or proposed in recent years chip away at our property tax base. The City is also likely to have to pick up additional costs pushed down by the County as they seek to reduce their costs or gain reimbursement for certain services. For the last two fiscal years, the City has not taken the allowable 3% to base property tax increase. However, in FY2013, the City returned to taking the 3% to continue to maintain the same service level and to hedge against probably decreases in property tax revenue and additional costs. The City did not go back and collect the foregone revenue as allowed by law. For the FY2013 budget, the City added one and a half positions in the General Fund and two positions in the Enterprise Fund. The General Fund added a Public Information Spokesperson and increased a volunteer coordinator to full time. The Enterprise Fund added an administrative assistant and an electrician. The General Fund replaced just over $700,000 of capital items, with $400,000 of that being replacements of computers and servers. The largest item requested in the General Fund Administration budget is additional backup emergency backup power for the City Hall at a cost of $170,000. The Fire Department is passing $600,000 of impact fees collected to the Rural Fire District as a partial reimbursement for building station number five. The Parks Department plans to spend $365,000 of their impact fees for park development and an additional $300,000 plus of General fund revenue for capital projects. The most significant General Fund item in the FY2013 budget is $2 million dollars toward building a public safety training center. This facility was initially conceived as a firing range for the Police Department but current plans are for a multipurpose center that both the Fire and Police Departments can use for training. The project can be built in stages and depending on possible partnerships with other agencies could ultimately cost between $4 and $8 million dollars. 18

21 Management s Discussion and Analysis The Enterprise fund added $15 million dollars for capital enhancements. Larger Water Department projects include a second ground reservoir, water main replacements, and water quality improvement projects for two existing wells. On the waste water treatment side, there are a couple of $2 million dollar plus projects, one is for sewer line replacements and the other is for the second phase of a three year project to meet newer Department of Environmental Quality phosphorus and nitrogen removal standards. Requests for Information This report is designed to provide a general overview of the City of Meridian s finances for our citizens and customers. If you have questions about this report or need additional financial information, contact: City of Meridian Finance Office 33 E. Broadway Ave. Meridian, Idaho Phone: (208)

22 Primary Government Governmental Business-type Component Activities Activities Total Unit Assets Cash and cash equivalents $ 1,965,352 $ 4,421,026 $ 6,386,378 $ 578,042 Restricted cash and cash equivalents 204, ,445 - Investments 23,890,686 36,330,848 60,221,534 - Restricted investments 4,324,880-4,324,880 - Receivables Accounts (net of $36,000 allowance for enterprise fund uncollectibles) 721,886 2,790,806 3,512,692 - Property taxes 21,270,392-21,270, ,817 Due from other governmental units 1,840,218-1,840,218 - Interest 47,493 58, ,766 - Deposits and prepaid expenses 92, , ,596 1,824 Deferred financing costs, net of accumulated amortization ,658 Noncurrent Assets Capital assets Land, infrastructure, and other assets not depreciated 26,510,386 15,044,688 41,555, ,067 Buildings, improvements and equipment, net of depreciation 59,836, ,235, ,072, ,158 $ 140,705,466 $ 230,026,170 $ 370,731,636 $ 2,871,566 See Notes to Financial Statements

23 Statement of Net Assets Primary Government Governmental Business-type Component Activities Activities Total Unit Liabilities Accounts payable $ 1,143,015 $ 2,951,438 $ 4,094,453 $ 24,244 Accrued payroll and taxes 806, , ,895 - Interest payable ,210 Deferred revenue 20,289,239-20,289, ,233 Customer deposits 239, , ,781 - Due within one year Accrued vacation, current portion 127,817 19, ,879 - Accrued judgment 2,439,590-2,439,590 - Note payable - current portion ,870 Due in more than one year Accrued vacation - less current portion 1,150, ,560 1,321,911 - Note payable - less current portion ,203 Total liabilities 26,196,600 3,622,148 29,818,748 1,737,760 Net Assets Invested in capital assets, net of related debt 86,022, ,280, ,302, ,152 Restricted for Impact funds 4,533,359-4,533,359 - Capital improvements 2,655,533-2,655,533 - Unrestricted 21,297,499 40,123,574 61,421, ,654 Total net assets 114,508, ,404, ,912,888 1,133,806 $ 140,705,466 $ 230,026,170 $ 370,731,636 $ 2,871,566 20

24 Functions/Programs Primary Government Governmental Activities General government Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions Administration $ 6,170,058 $ 173,980 $ 259,897 $ 4,200 Public safety Law enforcement 12,166, , ,816 79,390 Fire department 8,914,476 1,831, , ,118 Parks and recreation 3,991, , ,919 26,366,650 Community development 2,552,116 3,572,243 42,629 - Interest on long-term debt 120, Total governmental activities 33,915,686 6,965,190 1,312,504 26,802,358 Business-Type Activities Water and wastewater 17,452,669 20,675,507 4,762,513 1,780,396 Total Primary Government $ 51,368,355 $ 27,640,697 $ 6,075,017 $ 28,582,754 Component Unit Downtown development $ 593,837 $ - $ 21,949 $ - General revenues Shared revenues Property taxes, levied for general purposes Franchise fees Sales tax and other governmental Investment earnings Net increase (decrease) in fair value of investments Miscellaneous Gain (loss) on sale of fixed assets Transfers - internal activities Total General Revenues and Transfers Change in Net Assets Net Assets, Beginning of Year Net Assets, Ending of Year See Notes to Financial Statements

25 Statement of Activities Year Ended Net (Expense) Revenue and Changes in Net Assets Primary Government Governmental Business-type Component Activities Activities Total Unit $ (5,731,981) $ - $ (5,731,981) $ - (10,503,857) - (10,503,857) - (6,628,298) - (6,628,298) - 23,086,372-23,086,372-1,062,756-1,062,756 - (120,626) - (120,626) - 1,164,366-1,164, ,765,747 9,765,747 - $ 1,164,366 $ 9,765,747 $ 10,930,113 $ - $ - $ - $ - $ (571,888) $ 19,544,240 $ - $ 19,544,240 $ 766,596 1,289,679-1,289,679-4,033,356-4,033, , , , ,106 13,479 38,585-51,464 21,896 73,360 5,060 (10,638) (106,784) (117,422) (1,916,700) 1,527,474 (1,527,474) ,643,345 (1,333,927) 25,309,418 (1,144,806) 27,807,711 8,431,820 36,239,531 (1,716,694) 86,701, ,972, ,673,357 2,850,500 $ 114,508,866 $ 226,404,022 $ 340,912,888 $ 1,133,806 21

26 Balance Sheet Governmental Funds Total Capital Governmental General Projects Funds Assets Cash and cash equivalents $ 1,929,558 $ 35,794 $ 1,965,352 Investments 23,301, ,765 23,890,686 Receivables Accounts 721, ,886 Property taxes 21,270,392-21,270,392 Due from other governmental units 1,607,626-1,607,626 Grants 232, ,592 Interest 47, ,493 Prepaid items 92,827-92,827 Restricted assets Cash and cash equivalents 204, ,445 Investments 4,324,880-4,324,880 $ 53,733,481 $ 624,698 $ 54,358,179 Liabilities and Fund Balances Liabilities Current Liabilities Accounts payable $ 1,128,933 $ 14,082 $ 1,143,015 Accrued payroll and taxes 806, ,672 Deferred revenue 21,069,244-21,069,244 Customer deposits 239, ,916 Total current liabilities 23,244,765 14,082 23,258,847 Total liabilities 23,244,765 14,082 23,258,847 Fund Balances Nonspendable Prepaids 92,827-92,827 Restricted Impact Fund 4,533,359-4,533,359 Grant Fund 4,824-4,824 Assigned Fund Balance Budget of Carryforward 4,831,675-4,831,675 Capital Projects Fund 2,044, ,616 2,655,530 Public Safety Fund 2,104,586-2,104,586 Unassigned 16,876,531-16,876,531 Total fund balances 30,488, ,616 31,099,332 $ 53,733,481 $ 624,698 $ 54,358,179 See Notes to Financial Statements 22

27 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets Fund balance - total governmental funds 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. Some of the property taxes receivable are not available to pay for current-period expenditures and therefore are deferred in the funds. $ 31,099,332 86,347, ,005 Judgment is not payable in the current period and therefore is not reported in the funds. Accrued vacation is not due and payable in the current period and therefore is not reported in the funds. (2,439,590) (1,278,168) Net assets of governmental activities $ 114,508,866 See Notes to Financial Statements 23

28 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended Total Capital Governmental General Projects Funds Revenues Taxes $ 19,767,154 $ - $ 19,767,154 Licenses and permits 3,537,776-3,537,776 Intergovernmental 6,975,316-6,975,316 Franchise fees 1,289,679-1,289,679 Fines and forfeitures 551, ,524 Charges for services 1,195,412-1,195,412 Interest 180,433 2, ,664 Miscellaneous 51,464-51,464 Donations 55,223-55,223 Impact revenues 1,722,884-1,722,884 Total revenues 35,326,865 2,231 35,329,096 Expenditures General government 5,087,123-5,087,123 Public safety 20,022,777-20,022,777 Parks and recreation 2,732,417-2,732,417 Community planning and development 2,543,520-2,543,520 Capital outlay 1,673, ,429 2,590,405 Total expenditures 32,059, ,429 32,976,242 Excess of Revenues Over (Under) Expenditures 3,267,052 (914,198) 2,352,854 Other Financing Sources (Uses) Operating transfer in 1,717,959-1,717,959 Operating transfer out (190,485) - (190,485) Unrealized gain (loss) on investments 26,509 (1,396) 25,113 Proceeds from sale of capital assets 22,259-22,259 Total other financing sources (uses) 1,576,242 (1,396) 1,574,846 Net Change in Fund Balances 4,843,294 (915,594) 3,927,700 Fund Balance, Beginning of Year 25,645,422 1,526,210 27,171,632 Fund Balance, End of Year $ 30,488,716 $ 610,616 $ 31,099,332 See Notes to Financial Statements 24

29 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year Ended Net change in fund balances - total governmental funds $ 3,927,700 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlay 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 capital outlays exceeded depreciation and loss on sale of assets in the current period. New capital $ 2,590,405 Depreciation (3,270,846) Loss on fixed asset (32,898) Total (713,339) Capital assets contributed by citizens or developers are not a source of financial resources and thus, are not recognized in the governmental funds. Some property tax revenue in the statement of activities does not provide current financial resources and is not reported as revenue in the governmental funds. Contingent liability is recognized regardless of when financial resources are available and is not reported as a liability in the governmental funds. In the statement of activities, accrued vacation is measured by the amounts earned during the year. In governmental funds, however, expenditures for these items are measured by the amount of financial resources used. This is the amount by which benefits earned exceeded benefits paid in the current year. Change in net assets of governmental activities $ 25,075,275 (222,914) (120,625) (138,386) 27,807,711 See Notes to Financial Statements 25

30 Statement of Net Assets Proprietary Fund Assets Enterprise Fund Water and Sewer Current Assets Cash and cash equivalents $ 4,421,026 Investments 36,330,848 Receivables Accounts (net of $36,673 allowance for uncollectibles) 2,790,806 Interest 58,273 Prepaid items 144,769 Total current assets 43,745,722 Noncurrent Assets Capital assets Land 1,137,275 Easements 7,364,021 Construction in progress 6,543,392 Buildings and improvements other than buildings 55,499,885 Sewer and water lines 140,176,027 Machinery and equipment 28,372,441 Less accumulated depreciation (52,812,593) Liabilities and Net Assets $ 230,026,170 Current Liabilities Accounts payable $ 2,951,438 Accrued payroll and taxes 182,223 Accrued vacation, current portion 19,062 Customer deposits 297,865 Total current liabilities 3,450,588 Noncurrent Liabilities Accrued vacation - less current portion 171,560 Net Assets Net invested in capital assets 186,280,448 Unrestricted 40,123,574 Total net assets 226,404,022 $ 230,026,170 See Notes to Financial Statements 26

31 Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Fund Year Ended Operating Revenues Charges for services Enterprise Fund Water and Sewer Water sales $ 7,133,275 Sewer sales 12,268,589 Other service revenues 404,670 Sale of meters 210,399 Trash billing service 527,808 Engineering fees 130,767 Miscellaneous 21,895 Total operating revenues 20,697,403 Operating Expenses Personnel services 5,755,468 Other services and charges 2,913,757 Depreciation 6,455,243 Supplies 1,525,088 Heat, lights and power 803,113 Total operating expenses 17,452,669 Operating Income 3,244,734 Nonoperating Revenues (Expenses) Interest revenue 264,956 Connection assessment fees and donations 4,762,513 Loss on sale of fixed assets (106,784) Net decrease in fair value of investments 13,479 Total nonoperating revenues (expenses) 4,934,164 Income Before Contributions and Transfers 8,178,898 Donated waterlines and sewerlines 1,780,396 Operating transfers out (1,527,474) Change in Net Assets 8,431,820 Total Net Assets, Beginning of Year 217,972,202 Total Net Assets, End of Year $ 226,404,022 See Notes to Financial Statements 27

32 Statement of Cash Flows Proprietary Fund Year Ended Enterprise Fund Water and Sewer Operating Activities Receipts from customers and users $ 20,684,125 Payments to suppliers (4,718,311) Payments to employees (5,757,700) Net Cash from Operating Activities 10,208,114 Noncapital Financing Activities Operating transfer to general fund (1,527,474) Net Cash used for Noncapital Financing Activities (1,527,474) Capital and Related Financing Activities Connection assessment fees 4,762,513 Proceeds from sale of capital assets 5,073 Cost to dispose of capital assets - Acquisition of capital assets (6,801,972) Net Cash used for Capital and Related Financing Activities (2,034,386) Investing Activities Purchase of investments (37,129,527) Sale of investments 29,062,161 Interest received 261,031 Net Cash used for Investing Activities (7,806,335) Net Change in Cash (1,160,081) Cash, Beginning of Year 5,581,107 Cash, End of Year $ 4,421,026 See Notes to Financial Statements 28

33 Statement of Cash Flows Proprietary Fund Year Ended Enterprise Fund Water and Sewer Reconciliation of Operating Income to Net Cash from Operating Activities Operating income $ 3,244,734 Adjustments to reconcile operating income to net cash from operating activities Depreciation 6,455,243 Changes in assets and liabilities Accounts receivable (53,338) Due from other governments 40,060 Prepaid items 107,124 Accounts payable 366,570 Accrued payroll and taxes (2,232) Customer deposits 49,953 Net Cash from Operating Activities $ 10,208,114 Supplemental Disclosure of Cash Flow Information Developer and customer contributed sewer and water lines $ 1,780,396 See Notes to Financial Statements 29

34 Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies The (City) was incorporated August, The City operates under a mayor and council form of government and provides the following services as authorized by its charter: public safety (police and fire), community planning and development, parks and recreation, and general administrative services. The financial statements of the City have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to government 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. The accounting and reporting policies of the City relating to the funds included in the accompanying basic financial statements conform to generally accepted accounting principles applicable to state and local governments. Generally accepted accounting principles for local governments include those principles prescribed by the GASB, the American Institute of Certified Public Accountants in the publication entitled Audits of State and Local Governmental Units and by the Financial Accounting Standards Board (when applicable). As allowed in Section P80 of GASB s Codification of Governmental Accounting and Financial Reporting Standards, the City has elected not to apply to its proprietary activities Financial Accounting Standards Board Statements and Interpretations, Accounting Principles Board Opinions, and Accounting Research Bulletins of the Committee of Accounting Procedure issued after November 30, Financial Reporting Entity As required by generally accepted accounting principles, these basic financial statements present the City in conformance with GASB Statement No. 39, "Determining Whether Certain Organizations are Component Units." Under Statement No. 39, component units are organizations that are included in the reporting entity because of the significance of their operational or financial relationships with the City. Component units are legally separate organizations for which the City is financially accountable. The component unit column in the combined financial statements is the financial data of the City s single component unit, the Meridian Development Corporation (MDC). MDC is a separate and distinct legal entity created by state statute. The directors of MDC are appointed by the Mayor and approved by the City Council. MDC provides urban development services for the citizens of the City. Complete financial statements can be obtained from the City of Meridian Division of Financial Management, 33 East Broadway Avenue, Meridian, Idaho. The City contributes to the multi-employer Public Employee Retirement System of Idaho (the System). The System is administered by the State of Idaho and the City is not the major participant in the plan; therefore, the plan s financial statements are not included in this report. Government-Wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the primary government. 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. 30

35 Notes to Financial Statements The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. 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 and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, licenses, and interest associated with the current fiscal 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 assessments 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 by the government. The City reports the following major governmental funds: General Fund - The General Fund is the general operating fund of the City. It is used for all financial resources except those required to be accounted for in another fund. Capital Projects Fund- the Capital Projects Fund is used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds). The City reports the following major proprietary fund: Enterprise Fund The Enterprise Fund is used to account for water and sewer operations financed and operated in a manner similar to private business when the intent of the governing body is that costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges, or the governing body has decided that periodic determination of revenues earned, expenditures incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes. 31

36 Notes to Financial Statements As a general rule, the effect of inter-fund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges between various functions of the government when elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and products and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the City s enterprise funds are charges for services to customers for water and sewer sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses, such as fees property owners pay to connect to the utility system, not meeting this definition are reported as non-operating revenues and expenses. Cash and Cash Equivalents For purposes of the statement of cash flows, the proprietary funds consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Investments Idaho Code provides authorization for the investment of funds as well as specific direction as to what constitutes an allowable investment. City policy is consistent with this direction. The City currently invests in interest bearing bank accounts, certificates of deposit and U.S. Government Agency and Municipal bonds. Property Taxes Receivable and Deferred Revenue Within the governmental fund financial statement, property taxes are recognized as revenue when the amount of taxes levied is measurable, and proceeds are available to finance current period expenditures. Available tax proceeds include property tax receivables expected to be collected within sixty days after year end. Property taxes attach as liens on properties on January 1, and are levied in September of each year. Tax notices are sent to taxpayers during November, with tax payments scheduled to be collected on or before December 20. Taxpayers may pay all or one half of their tax liability on or before December 20, and if one half of the amount is paid, they may pay the remaining balance by the following June 20. Since the City is on a September 30 fiscal year end, property taxes levied during September for the succeeding year's collection are recorded as deferred revenue at the City's year end and recognized as revenue in the following fiscal year. Ada County bills and collects taxes for the City. Customer Services Receivable Amounts owed to the City for customer services are due from area residents and businesses and relate to water, sewer and trash services provided by the City. 32

37 Notes to Financial Statements Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g., parks, wells, water and sewer lines and similar items) are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of $5,000 and over for machinery and equipment, $25,000 and over for improvements, buildings, intangibles, and infrastructure, and an estimated useful life in excess of three years. Land acquisitions regardless of cost are recorded as capital assets. All material fixed assets are valued at cost. Donated fixed assets are valued at their estimated fair value on the date donated. The City implemented GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets in FY2010. This statement requires that the City capitalize and report intangible assets, such as easements and internally created software. To value easements, the City uses current land values calculated from Ada County Assessor s data divided by two, and internally developed software is valued at cost. Depreciation is recorded by use of the straight-line method. The book value of each asset is reduced by equal amounts over its estimated useful life as follows: Estimated Useful Life (Years) Buildings 30 Sewer plant 25 Sewer and water lines 50 Improvements other than buildings Equipment and software 5-20 Public domain infrastructure 40 Maintenance, repairs, and minor renewals are charged to operations as incurred. When an asset is disposed of, accumulated depreciation is deducted from the original cost, and any gain or loss arising from its disposal is credited or charged to operations. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest costs incurred during construction of capital assets of business-type activities are capitalized when they are material. No interest costs were included as part of the cost of capital assets under construction in the current year. Compensated Absences Payable The City provides vacation and sick leave to its full-time employees. Earned vacation is paid to employees when taken or paid to employees or beneficiaries upon the employees termination, retirement or death. The City does not pay earned sick pay upon the employees termination, retirement or death for non-union employees. The Fire Department union members are paid ten percent of their sick leave accrual upon the employees termination, retirement, or death. The amount of unused vacation accumulated by City employees is accrued as expense when incurred in the Proprietary Fund, which uses the accrual basis of accounting. In the Governmental Funds, only the amount that normally would be liquidated with expendable available financial resources is accrued as current year expenditures. Unless it is anticipated that compensated absences will be used in excess of a normal year s accumulation, no additional expenditures are accrued. 33

38 Notes to Financial Statements Risk Management The City is exposed to various risks of loss related to theft of, damage to, or destruction of assets. The City participates in a public entity risk pool, Idaho Counties Risk Management Pool (ICRMP), for liability, medical and disability insurance. The City's exposure to loss from its participation in ICRMP is limited only to the extent of their deductible. Fund Balances Fund balance of governmental funds is reported in various categories based on the nature of any limitation requiring the use for specific purposes. Fund balances in the governmental balance sheet are categorized as follows: Nonspendable - when the resources cannot be spent because they are either legally or contractually required to be maintained intact, or are in a nonspendable form such as inventories, prepaid accounts, and assets held for resale. Restricted - when the constraints placed on the use of resources are either: (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments: or (b) imposed by law through constitutional provisions or enabling legislation. Committed - when the City Council passes an ordinance or resolution that places specific constraints on how the resources may be used. The City Council can modify or rescind the ordinance or resolution at any time through passage of an additional ordinance or resolution, respectively. Assigned - when it is intended for a specific purpose and the authority to assign is delegated to the City s Chief Financial Officer. Unassigned - fund balance is the residual classification for the General Fund. This classification represents fund balance that has not been restricted, committed, or assigned within the General Fund. This classification is also used to report any negative fund balance amounts in other governmental funds. The City Council adopted a Fund Balance Policy that establishes a practice of reserving four months of the current year budget of personnel and recurring annual operating costs as minimum fund balance needed to ensure sufficient cash flow to meet the City s obligations. This reserve will be in the unassigned fund balance. This policy also recommends a spending order of restricted, committed, assigned and then unassigned unless Council approves otherwise. 34

39 Notes to Financial Statements Encumbrances Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation, is not employed by the City. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of American requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenditures or expenses during the reporting period. Actual results could differ from those estimates. Note 2 - Cash and Investments Cash and investments as of are classified in the accompanying financial statements as follows: Cash and cash equivalents $ 6,386,378 Cash and cash equivalents - restricted 204,445 Total cash and cash equivalents $ 6,590,823 Investments $ 60,221,534 Investments - restricted 4,324,880 Total investments $ 64,546,414 Investments Authorized by the State of Idaho and the City of Meridian s Investment Policy Investment types that are authorized for the City of Meridian by the Idaho Code and the City s investment policy are as follows: 1. Local, State and U.S. Agency Bonds 2. U. S. Agency Securities 3. Certificates of Deposit The City also participates in the State of Idaho Local Investment Pool (LGIP) and the State of Idaho Diversified Bond Fund (DBF). Both the LGIP and the DBF are regulated by Idaho Code under the oversight of the Treasurer of the State of Idaho. The LGIP is a low risk investment pool with high liquidity. The City s investment in the pool is reported in the accompanying financial statements based on the City pro-rata share of the fair market value provided by the fund for the entire portfolio. The LGIP is not currently rated by a nationally recognized rating agency. The funds are invested in short term investments in the priority order of safety, liquidity, and yield. The DBF invests in longer term investment vehicles with higher returns over time than the LGIP. The DBF is not currently rated by a nationally recognized rating agency however the investment guidelines require that funds be 35

40 Notes to Financial Statements invested in high quality securities that provide a high level of return with a reasonable level of risk while meeting or exceeding the Barclay s Capital Intermediate A+ Aggregate Fixed Income Index. The City invests money in the DBF that it does not expect to need within the next three to five years. The City s investment in the DBF is reported based on its pro-rata share of the fair market value provided by the fund for the entire portfolio. Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely impact the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates. This risk can be managed using a calculation called duration that uses various inputs such as yield and years until maturity to estimate interest rate risk. Generally the higher the duration number the higher the risk. The City manages exposure to interest rate risk by purchasing a combination of long and short-term investments. Investment Type Fair Value Rating Duration Agency bonds $ 34,178,752 AAA 3.2 Municipal bonds 101,508 AAA 4.3 Municipal bonds 55,921 AA+ 1.6 Municipal bonds 212,927 BAA1 3.3 Certificates of deposit 1,220,948 not rated 5.2 Idaho Local Government Investment Pool (LGIP) 21,769,501 not rated Idaho Diversified Bond Fund 7,006,857 not rated Money market funds 4,409,022 not rated Other cash and cash equivalents 2,181,801 Total cash and investments $ 71,137,237 Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The City s investment policy is consistent with the State Code related to credit risk. Concentration of Credit Risk When investments are concentrated in one issuer this concentration represents increased risk of potential loss. The Governmental Accounting Standards Board has adopted a principal that governments should provide note disclosure when five percent of the entity s total investments are concentrated in any one issuer. Investments in obligations specifically guaranteed by the U.S. Government, mutual funds, and other pooled investments are exempt from disclosure. The City s investment policy has no limitations on the amount that can be invested in any one issuer. 36

41 Notes to Financial Statements Investments in any one issuer (other than State Investment Pools) that represent 5% or more of total City investments are as follows: Issuer Investment Type Reported Amount Percentage Freddie Mac U.S. Agency Bond $ 4,907,876 8% Federal Farm Credit Bank U.S. Agency Bond 4,103,160 6% Federal Home Loan Bank U.S. Agency Bond 9,169,536 14% Fannie Mae U.S. Agency Bond 15,998,180 25% Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in possession of an outside party. The custodial credit risk for investments is the risk that in the event of the failure of the counterparty (e.g. broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. At year end, the carrying amount of the City s cash deposits was $6,590,823 and the bank balance was $6,621,375. Of the bank balance $2,005,845 was secured by federal home loan mortgage held at the Federal Home Bank of Seattle for the Bank of the Cascades and pledged to the City of Meridian. The remainder of the bank balance of the City s deposits is insured by federal depository insurance, or the Securities Investor Protection Corporation. The City minimizes exposure to custodial credit risk with investments by requiring that to the extent possible they be identified as to City of Meridian ownership and be held in the City s name. All commercial paper, agency bonds and municipal bonds are held in custody by Charles Schwab & Co. in the City s name. The City further reduces risk by confining investment to insured levels in any one institution. Note 3 - Due from Other Governmental Units The following summarizes the intergovernmental receivables at : State of Idaho State Liquor Dispensary $ 105,698 State Tax Commission 807,186 Idaho Transportation Department 29,004 Federal agencies 331,640 Other Governmental Agencies 1,182 Meridian Rural Fire District 316,552 Ada County 248,956 Total Due from Other Governmental Units $ 1,840,218 37

42 Notes to Financial Statements Note 4 - Capital Assets Changes to capital assets are as follows: Balance Balance Governmental Activities Oct. 1, Sept. 30, 2011 Additions Deletions Transfers 2012 Capital assets, not depreciated Land $ 15,651,367 $ 10,021,144 $ - $ - $ 25,672,511 Easements 217,864 75, ,138 Construction in progress 2,676, ,203 - (2,531,419) 544,737 Total capital assets, not depreciated 18,546,184 10,495,621 - (2,531,419) 26,510,386 Capital assets, depreciated Buildings 31,051,734 3,166, ,024 34,376,187 Improvements other than buildings 14,750,460 13,372,229-2,373,395 30,496,084 Internally developed software 47, ,027 Equipment 11,249, , ,883-11,551,523 Total capital assets, depreciated 57,098,226 17,170, ,883 2,531,419 76,470,821 Less accumulated depreciation for Buildings 4,092,929 1,074, ,167,834 Improvements other than buildings 3,425,633 1,123, ,549,494 Internally developed software 14,108 9, ,513 Equipment 6,126,389 1,062, ,985-6,893,079 Total accumulated depreciation 13,659,059 3,270, ,985-16,633,920 Total net capital assets, depreciated 43,439,167 13,899,213 32,898 2,531,419 59,836,901 Governmental activities capital assets, net $ 61,985,351 $ 24,394,834 $ 32,898 $ - $ 86,347,287 38

43 Notes to Financial Statements Balance Balance Business-type Activities Oct. 1, Sept. 30, 2011 Additions Deletions Transfers 2012 Capital assets, not depreciated Land $ 1,137,275 $ - $ - $ - $ 1,137,275 Easements 6,962, , ,364,021 Construction in progress 6,663,274 4,371,687 - (4,491,569) 6,543,392 Total capital assets, not depreciated 14,763,517 4,772,740 - (4,491,569) 15,044,688 Capital assets, depreciated Buildings and improvements other than buildings 54,263, , ,907 1,187,977 55,499,885 Sewer and water lines 136,881,887 2,448, , ,176,027 Machinery and equipment 25,249, ,555 19,706 2,457,779 28,372,441 Total capital assets, depreciated 216,394,773 3,809, ,613 4,491, ,048,353 Less accumulated depreciation for Buildings and improvements other than buildings 13,202,907 2,182, ,050-14,869,593 Sewer and water lines 24,671,430 2,791, ,462,480 Machinery and equipment 9,018,769 1,481,457 19,706-10,480,520 Total accumulated depreciation 46,893,106 6,455, ,756-52,812,593 Total net capital assets, depreciated 169,501,667 (2,645,619) 111,857 4,491, ,235,760 Business-type activities capital assets, net $ 184,265,184 $ 2,127,121 $ 111,857 $ - $ 186,280,448 Depreciation expense was charged to functions/programs of the City as follows: Governmental activities General government $ 1,066,652 Public safety 946,679 Community development 3,239 Parks and recreation 1,254,276 Total depreciation expense - governmental activities $ 3,270,846 Business-type activities Water and Sewer $ 6,455,243 Total depreciation expense - business-type activities $ 6,455,243 39

44 Notes to Financial Statements Note 5 - Interfund Balances and Transfers The following transfers were made for the purpose of funding operations: Transfer In Capital General Projects Fund Fund Total Transfer out General fund $ - $ - $ - Enterprise fund 1,527,474-1,527,474 Total transfers $ 1,527,474 $ - $ 1,527,474 The transfer from the enterprise fund to the general fund was related to personnel and operating costs that were paid by the general fund during FY2012. As of, there were no internal balances due to or from other funds. Note 6 - Changes in Long-Term Obligations The following is a summary of changes in long-term obligations of the City for the year ended September 30, Balance Balance Due Oct.1, Debt Debt Sept. 30, Within Oct. 1, 2011 Issued Retired 2012 One Year Governmental activities Accrued vacation $ 1,139,782 $ 138,386 $ - $ 1,278,168 $ 127,817 Business-type activities Accrued vacation $ 162,552 $ 28,070 $ - $ 190,622 $ 19,062 40

45 Notes to Financial Statements Note 7 - Fund Balances Governmental Funds As of fund balances were classified as follows: Nonspendable - the City s nonspendable fund balance was for prepaid expenses. Restricted - the City had restricted fund balances for impact fees as mandated by the State of Idaho and for grant revenues per the grant agreement. Assigned - Includes; carry forward of FY2012 balance to be spent in FY2013 (carry forward amounts), Capital Projects Funds (General Fund capital construction projects), and an assignment of fund balance for public safety capital projects or purchases. Unassigned - this classification represents fund balance that has not been restricted, committed, or assigned within the General Fund. Fund Balances Nonspendable Balance Balance Oct.1, Sept. 30, 2011 net change 2012 Prepaids $ 119,984 $ (27,157) $ 92,827 Restricted Impact Fund 3,077,450 1,455,909 4,533,359 Grant Fund 22,297 (17,473) 4,824 Assigned Fund Balance budget of carryforward 1,884,789 2,946,886 4,831,675 Capital projects fund 2,569,266 86,264 2,655,530 Public safety fund 2,089,201 15,385 2,104,586 Unassigned 17,408,645 (532,114) 16,876,531 Total fund balances $ 27,171,632 $ 3,927,700 $ 31,099,332 Note 8 - Lease Agreements The City leases land and office equipment, under operating leases. The equipment lease agreements cover various periods starting July 24, 2007 through October 1, 2015, and the minimum annual payments range from $2,166 to $18,047. The land lease was entered into July 24, 2007 and is year to year with an annual payment of $18,047 plus an annual increase. Total rental expense in FY2012 for all operating leases (which include rental, maintenance and usage) was approximately $145,

46 Notes to Financial Statements Future minimum annual lease payments for operating leases with remaining lease terms in excess of one year are as follows: Operating Leases 2013 $ 70, ,271 30,175 Total minimum obligations $ 146,045 Note 9 - Defined Benefit Pension Plan The City participates in the Public Employee Retirement System of Idaho (PERSI) - The PERSI Base Plan, a cost sharing multiple-employer public retirement system administered by the State of Idaho. It is a defined benefit plan requiring contributions from the covered member and the employer. The Plan provides benefits based on members years of service, age, and compensation. In addition, benefits are provided for disability, death, and survivors of eligible members or beneficiaries. The authority to establish and amend benefit provisions is established in Idaho Code. Designed as a mandatory system for eligible state and school district employees, the legislation provided for other political subdivisions to participate by contractual agreement with PERSI. Financial reports for the plan are available on the PERSI website or in print upon request. After 5 years of credited service, members become fully vested in retirement benefits earned to date. Members are eligible for retirement benefits upon attainment of the ages specified for their employment classification. For each month of credited service, the annual service retirement allowance is 2.0% (2.3% police/firefighter) of the average monthly salary for the highest consecutive 42 months. The actuarial determined requirements of the City of Meridian and its employees are established and may be amended by the PERSI Board of Trustees. For the year ended, the required contribution rates as a percentage of covered payroll for members are as follows: Employee Employer General Member 6.23% 10.39% Police and Fire Member 7.69% 10.73% Contributions required and paid for the last three years were: FY2010 FY2011 FY2012 $ 1,812,183 $ 1,948,165 $ 2,136,900 42

47 Notes to Financial Statements Note 10 - Other Commitments The City has the following commitments at : Commitment Amount Construction Management or Architectural services $ 282,260 Janitorial services 108,580 Parks - Kleiner park additional amenities 43,809 Parks - Lawn care maintenance 158,788 Parks - maintenance facility construction 2,080,583 Professional Services 76,796 Public Works software implementation 33,124 Telephone software annual maintenance 13,661 Wastewater clarifier retrofit 102,888 Wastewater flowmeters 19,900 Wastewater projects 375,891 Wastewater RAS construction 1,638,802 Wastewater reclaimed water irrigation 109,699 Wastewater Refurbish Non Potable Water Pump 10,583 Wastewater sewer line construction 86,638 Water & Sewer line replacements 494,478 Water & Wastewater Engineering Services 344,644 Water Engineering Services for wells 35,667 Water ground reservoir design 31,262 Water line construction 115,681 Water SCADA radio path 82,038 Water well #10b construction 316,764 Water well #21 treatment facility design 320,405 Total Commitments $ 6,882,941 Note 11 - Other Post-Employment Benefits The City provides post employment health care to retirees of the Fire Union members only. To be eligible for the benefits, a fire union employee must qualify under PERSI s Rule of 80 by points, age, medical disability, or by any method in existence at the time of retirement allowed by PERSI. This post employment health care benefit is the value of 25% of their sick leave balance at the time of retirement, set aside to pay the health insurance premium for the employee only until the cash value is depleted. 43

48 Notes to Financial Statements With such a small pool of employees eligible for this post employment benefit, it is the City s position that it is not cost effective to have an actuarial determination performed to calculate the ARC (Annual Required Contribution) as required by GASB 45. In accordance with GASB 45 the City has 30 years to accrue the unfunded portion of any existing liability. The cumulative amount for fiscal year 2012 is immaterial; therefore the City did not accrue a liability for this fiscal year. Note 12 - Contingent Liabilities The City has been named as a defendant in various legal actions, the results of which are not presently determinable, except as described below. However, in the opinion of the City Attorney, the amount of losses that might be sustained, if any, would not materially affect the City s financial position. The City has a contingent liability where the probability of loss is high and the amount is determinable. The City entered into ligation with the City Hall construction manager concerning the scope and quality of the construction manager s work. The City lost the case and The District Court of the Fourth Judicial District awarded the plaintiff disputed construction management fees, along with attorney fees, costs and interest. The District Court stayed the need to pay the judgment until conclusion of the City s appeal to the Idaho Supreme Court. The Idaho Supreme Court set the issue for hearing in February of In addition to the judgment already awarded the City could incur additional legal fees of an unknown amount. At year-end in the government-wide statements the City has recorded the additional construction management fees in the amount of $324,800 and the Plaintiff s costs, interest, and legal fees in the amount of $2,114,790. The City is incurring interest at 5.25% or $ per day on these amounts until they are paid or the City prevails at the conclusion of the appeal. Under the terms of federal and state grants, periodic audits are required and certain costs may be questioned as not being appropriate expenditures under the terms of the grants. Any disallowed claims, including amounts already collected, could become a liability of the City. City management believes disallowances, if any, will not be material. Note 13 - Related Party The City partners with Meridian Development Corporation (MDC) for various downtown improvements. During the year ended, the City reimbursed MDC $23,949 for a CDBG street lighting grant project and received $34,050 for various items reimbursed by MDC. Note 14 - Component Unit The MDC is created by and exists under the Idaho Urban Renewal Law of 1965, as amended, and is a separate and legal entity. The following is a summary of the significant disclosures required for a fair presentation of the component unit in the City s financial statements. 44

49 Notes to Financial Statements Note 14A - MDC Capital Assets Changes to capital assets are as follows: Governmental Activities Capital assets, not depreciated Balance Balance Oct. 1, Sept. 30, 2011 Additions Deletions Transfers 2012 CIP $ 2,051,438 $ 1,071,267 $ - $ (3,122,705) $ - Land 1,311,358 - (466,291) - 845,067 Total capital assets, not depreciated 3,362,796 1,071,267 (466,291) (3,122,705) 845,067 Capital assets, depreciated Buildings 502,517 77,193 (3,122,705) 3,122, ,710 Equipment 96,719 - (3,876) 11, ,196 Leasehold improvements 83,023 - (32,057) (50,966) - Intangibles 140,898 - (350) 39, ,161 Total capital assets, depreciated 823,157 77,193 (3,158,988) 3,122, ,067 Less accumulated depreciation for Buildings (41,876) (18,895) - - (60,771) Equipment (17,810) (19,186) - (8,062) (45,058) Leasehold improvements (18,893) - 6,870 12,023 - Intangibles (49,342) (36,812) 35 (3,961) (90,080) Total accumulated depreciation (127,921) (74,893) 6,905 - (195,909) Total net capital assets, depreciated 695,236 2,300 (3,152,083) 3,122, ,158 Governmental activities capital assets, net $ 4,058,032 $ 1,073,567 $ (3,618,374) $ - $ 1,513,225 Note 14B - MDC - Changes in Long-Term Debt During fiscal year 2011, MDC obtained two promissory notes, totaling $2,850,000, with Washington Trust Bank. These notes payable were incurred in order to complete a building to be sold as condominium and office space units. The first note was for $1,576,000 and matured on March 5, The second note was for $1,274,000 and matures on March 5, Proceeds from the sales of the units were used to repay the first note in total and a portion of the second note. In fiscal year 2010, MDC entered into a lease for a copier for the business incubator for a period of 19 months. Payments were $213 per month beginning in February 2010 for a total cost of $4,043. This lease was paid in full during fiscal year

50 Notes to Financial Statements The following is a summary of changes in debt of MDC for the year ended. Balance Balance Oct. 1, Sept. 30, 2011 Debt Issued Debt Retired 2012 Governmental Activities Lease payable - copier $ 282 $ - $ (282) $ - Note payable - building 1,333,996 1,254,343 (1,598,266) 990,073 Governmental activities long-term liabilities $ 1,334,278 $ 1,254,343 $ (1,598,548) $ 990,073 Maturities of the note payable are as follows for the years ended September 30: Fiscal Year Principal Interest Total 2013 $ 87,870 $ 33,750 $ 121, ,350 33, , ,967 29, , ,728 26, , ,638 22, , ,520 47, ,701 Totals $ 990,073 $ 192,566 $ 1,182,639 Note 14C - MDC - Related Party Transactions MDC partners with the City of Meridian for various downtown improvements. During the fiscal year, total expenditures were $34,050. In addition, MDC had a contract with Red Sky Public Relations for administrative services and for a contract for public relations and marketing. The administrator of MDC during fiscal year 2012 worked for Red Sky Public Relations from October 1, 2011 through January 31, Pursuant to the agreement, MDC paid $8,333 per month for administration. Total expenses to Red Sky for the year were $37,042 for administration and $4,521 for public relations and marketing. 46

51 Required Supplementary Information

52 Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund Year Ended Budgeted Amounts Variance Actual With Original Final Amounts Final Budget Revenues Taxes $ 19,335,124 $ 19,335,124 $ 19,767,154 $ 432,030 Licenses and permits 1,928,000 1,928,000 3,537,776 1,609,776 Intergovernmental 5,246,420 5,753,463 6,975,316 1,221,853 Franchise fees 1,320,000 1,320,000 1,289,679 (30,321) Fines and forfeitures 405, , , ,524 Charges for services 695, ,083 1,195, ,329 Impact revenues 940, ,000 1,722, ,884 Donations 14,000 70,950 55,223 (15,727) Interest 330, , ,433 (149,567) Miscellaneous 100, ,000 51,464 (48,536) Total revenues 30,313,544 30,895,620 35,326,865 4,431,245 Expenditures General government personnel costs 3,247,950 3,311,430 3,098, ,358 General government operating expense 2,278,737 2,631,220 1,989, ,169 Public safety Police personnel costs 10,151,435 10,084,104 9,812, ,637 Police operating expenses 1,700,745 1,907,926 1,861,860 46,066 Fire personnel costs 7,349,904 7,349,904 7,317,358 32,546 Fire operating expenses 879,600 1,018,905 1,031,092 (12,187) Parks and recreation personnel costs 1,635,410 1,635,411 1,513, ,780 Parks and recreation operating expenses 1,283,610 1,368,944 1,218, ,158 Community development personnel costs 1,141,663 1,164,213 1,067,267 96,946 Community development operating expenses 934, ,471 1,476,253 (526,782) Capital outlay General government 46, ,000 78,183 21,817 Public safety Police 493, , , ,099 Fire 223, , ,102 12,898 Parks and recreation 3,951,192 5,077,649 1,070,040 4,007,609 Community development Total expenditures 35,316,863 37,240,927 32,059,813 5,181,114 Excess (Deficiency) of Revenues over (Under) Expenditures (5,003,319) (6,345,307) 3,267,052 9,612,359 See Notes to Required Supplementary Information 47

53 Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund Year Ended Budgeted Amounts Variance Actual With Original Final Amounts Final Budget Other Financing Sources (Uses) Operating transfer in 1,894,869 1,864,056 1,717,959 (146,097) Operating transfer out (200,811) (200,811) (190,485) 10,326 Unrealized gain (loss) on investments ,509 26,509 Gain on sale of capital assets ,259 22,259 Total other financing sources (uses) 1,694,058 1,663,245 1,576,242 (87,003) Excess (Deficiency) of Revenues and Other Sources (Uses) over (Under) Expenditures (3,309,261) (4,682,062) 4,843,294 9,525,356 Fund Balance, Beginning of Year 25,645,422 25,645,422 25,645,422 - Fund Balance, End of Year $ 22,336,161 $ 20,963,360 $ 30,488,716 $ 9,525,356 See Notes to Required Supplementary Information 48

54 Notes to Required Supplementary Information Note 1 - Budgets and Budgetary Accounting The City follows these procedures in establishing the budgetary data reflected in the financial statements: Prior to September 1, the CFO, Department Directors, Mayor, and City Council prepare a proposed operating budget for the fiscal year commencing on October 1. The operating budget includes proposed expenditures and the means of financing them. Public hearings are conducted at City Hall to obtain taxpayer comments. Prior to October 1, the budget is legally enacted through passage of an ordinance. Budgets are not adopted on a basis consistent with generally accepted accounting principles (GAAP) for the general fund. Budgets for enterprise funds are not legally required but are adopted on a non-gaap basis. All annual appropriations lapse at fiscal year end. Revisions that alter the total expenditure appropriation of any fund must be approved by the City Council. State law does not allow fund expenditures to exceed fund appropriations. The budget presented in the report has been amended. Formal budgetary integration is employed as a management control device during the year for all funds. 49

55 Other Information

56 Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual Capital Projects Fund Year Ended Budgeted Amounts Variance Actual With Original Final Amounts Final Budget Revenues Interest $ 1,000 $ 1,000 $ 2,231 $ 1,231 Total revenues 1,000 1,000 2,231 1,231 Expenditures General government capital outlay 1,678,767 1,520, , ,315 Total expenditures 1,678,767 1,520, , ,315 Excess (Deficiency) of Revenues over (Under) Expenditures (1,677,767) (1,519,744) (914,198) 605,546 Other Financing Sources (Uses) Operating transfer in Operating transfer out Unrealized gain (loss) on investments - - (1,396) (1,396) Total other financing sources (uses) - - (1,396) (1,396) Excess (Deficiency) of Revenues and Other Sources (Uses) over (Under) Expenditures (1,677,767) (1,519,744) (915,594) 604,150 Fund Balance, Beginning of Year 1,526,210 1,526,210 1,526,210 - Fund Balance, End of Year $ (151,557) $ 6,466 $ 610,616 $ 604,150 50

57 Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual Enterprise Fund Year Ended Budgeted Amounts Variance Actual With Original Final Amounts Final Budget Revenues Water sales $ 6,700,000 $ 6,700,000 $ 7,133,275 $ 433,275 Sewer sales 11,800,000 11,800,000 12,268, ,589 Other service revenues 20,000 20, , ,138 Sale of meters 150, , ,399 60,399 Trash billing service 500, , ,808 27,808 Engineering fees 45,000 45, ,299 56,299 Assessment revenue and cash donations 3,050,000 3,050,000 4,762,513 1,712,513 Interest 425, , ,956 (160,044) Miscellaneous ,895 21,895 Total revenues 22,690,000 22,690,000 25,724,872 3,034,872 Expenditures Administration personnel costs 2,540,505 2,612,319 2,559,369 52,950 Administration operating expenses 2,311,454 1,940,535 1,513, ,587 Water personnel costs 1,394,027 1,394,027 1,240, ,030 Water operating expenses 4,112,546 4,071,497 3,632, ,775 Wastewater personnel costs 2,203,228 2,203,229 1,955, ,127 Wastewater operating expenses 5,947,583 5,782,736 6,550,529 (767,793) Capital outlay 11,631,475 9,049,675 6,801,970 2,247,705 Less depreciation and loss on disposals (4,824,482) (4,824,482) (6,567,100) 1,742,618 Total expenditures 25,316,336 22,229,536 17,687,537 4,541,999 Excess (Deficiency) of Revenues over (Under) Expenditures (2,626,336) 460,464 8,037,335 7,576,871 Other Financing Sources (Uses) Operating transfer out (1,694,060) (1,663,247) (1,527,474) 135,773 Unrealized gain on investments ,479 13,479 Gain (loss) on sale of capital assets - - (106,784) (106,784) Total other financing sources (uses) (1,694,060) (1,663,247) (1,620,779) 42,468 Excess (Deficiency) of Revenues and Other Sources (Uses) over (Under) Expenditures (4,320,396) (1,202,783) 6,416,556 7,619,339 Fund Balance, Beginning of Year 33,707,018 33,707,018 33,707,018 - Fund Balance, End of Year $ 29,386,622 $ 32,504,235 $ 40,123,574 $ 7,619,339 51

58 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 Mayor and Members of the City Council Meridian, Idaho We have audited the financial statements of the governmental activities, the business-type activities, the discretely presented component units, and each major fund of (the City), as of and for the year ended, which collectively comprise the City s basic financial statements and have issued our report thereon dated February 13, 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. Internal Control Over Financial Reporting Management of the City is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the City s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the City s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above W. Main St., Ste. 800 Boise, ID T F EOE

59 Compliance and Other Matters As part of obtaining reasonable assurance about whether City s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of management, City Council, others within the entity, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Boise, Idaho February 13,

60 Independent Auditor s Report on Compliance with Requirements that Could Have a Direct and Material Effect on Its Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 Mayor and Members of the City Council Meridian, Idaho Compliance We have audited s (the City) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on the City s major federal program for the year ended. The City s major federal program is identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to its major federal program is the responsibility of the City s management. Our responsibility is to express an opinion on the City s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the City s compliance with those requirements. In our opinion, the City, complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended Internal Control over Compliance Management of the City, is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the City s internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test W. Main St., Ste. 800 Boise, ID T F EOE