Tax Increment Financing Commission of Kansas City, Missouri

Transcription

1 A Component Unit of the City of Accountants Reports and Financial Statements

2 A Component Unit of the City of Contents Independent Accountants Report... 1 Management s Discussion and Analysis... 2 Basic Financial Statements Statement of Net Assets (Deficit)... 7 Statement of Activities... 8 Balance Sheet Governmental Funds... 9 Reconciliation of the Balance Sheet Governmental Funds to the Statement of Net Assets (Deficit) Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Funds Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Funds to the Statement of Activities Notes to Basic Financial Statements Independent Accountants Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards Schedule of Findings and Responses... 29

3 Independent Accountants Report Board of Commissioners Tax Increment Financing Commission of We have audited the accompanying financial statements of the governmental activities and each major fund of the Tax Increment Financing Commission of (the Commission), a component unit of the City of, as of, which collectively comprise the Commission s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Commission s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the Tax Increment Financing Commission of as of, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 6, in 2011 the Commission retroactively changed its method of accounting for revenue recognition. In accordance with Government Auditing Standards, we have also issued our report dated September 15, 2011, on our consideration of the Commission s internal control over financial reporting and 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

4 Board of Commissioners Tax Increment Financing Commission of Page 2 The accompanying management s discussion and analysis as listed in the table of contents is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. September 15, 2011

5 A Component Unit of the City of Management s Discussion and Analysis Year Ended As management of the Tax Increment Financing Commission of (the Commission ), we offer readers the Commission s financial statements with this narrative overview and analysis of the financial activities of the Commission for the fiscal year ended. We encourage readers to read the information presented here in conjunction with additional information that we have furnished in the Commission s financial statements which follow this narrative. Financial Highlights Reimbursable developer project costs decreased by $84 million over the prior fiscal period. This relates to costs approved during the year having been less than the payments made to the developer. In addition, there were several large cost certifications in the prior period that did not occur in the current year. The Commission issued two bond series for the Brywood Centre TIF Plan. Series 2010 was issued in December 2010 for $4.1 million and Series 2011 was issued in February 2011 for $2.2 million. The Commission received $11 million from the City of for economic activity taxes for the years 1995 to Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the Commission s basic financial statements. The Commission s basic financial statements consist of three components: 1) government-wide financial statements, 2) fund financial statements and 3) notes to the financial statements. The basic financial statements present two different views of the Commission through the use of government-wide statements and fund financial statements. Basic Financial Statements The first two statements in the basic financial statements are the Government-wide Financial Statements. They provide both short- and long-term information about the Commission s financial status. The next statements are Fund Financial Statements. These statements focus on the activities of the individual parts of the Commission s government. These statements provide more detail than the government-wide statements. The next section of the basic financial statements is the Notes. The notes to the financial statements explain in detail some of the data contained in those statements. 2

6 A Component Unit of the City of Management s Discussion and Analysis Year Ended Government-wide Financial Statements The government-wide financial statements are designed to provide the reader with a broad overview of the Commission s finances, similar in format to a financial statement of a private-sector business. The government-wide financial statements provide short- and long-term information about the Commission s financial status as a whole. 1. The statement of net assets represents information on all the Commission s assets and liabilities, with the difference between the two reported as net assets. Measuring net assets is one way to gauge the Commission s financial condition. 2. The statement of activities presents information showing how the Commission s net assets changed during the year. This statement includes all of the Commission s revenues and expenses, regardless of when the cash is received or paid. Fund Financial Statements The fund financial statements provide a more detailed look at the Commission s most significant activities. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Governmental Funds Governmental funds are used to account for those functions reported as governmental activities in the government-wide financial statements. All of the Commission s basic services are accounted for in governmental funds. These funds focus on how assets can readily be converted into cash flow in and out, and what monies are left at year-end that will be available for spending in the next year. Governmental funds are reported using an accounting method called modified accrual accounting, which provides a short-term spending focus. As a result, the governmental fund financial statements provide a detailed short-term view that helps the reader determine if there are more or fewer financial resources available to finance the Commission s programs. The relationship between government activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is described in a reconciliation that is a part of the fund financial statements. Notes to the Basic Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. 3

7 A Component Unit of the City of Management s Discussion and Analysis Year Ended Analysis of the Basic Financial Statements Our analysis below focuses on the net assets and changes in net assets of the Commission for the year ended. Net Assets (Deficit) Governmental Activities (Restated) Assets Cash $ 281,355 $ 591,713 Restricted assets Cash and investments 89,456,120 93,695,507 Receivables 24,237,061 42,293,020 Unamortized bond issue costs 3,411,526 3,202,431 Total assets 117,386, ,782,671 Liabilities Current liabilities 57,813,823 32,139,657 Long-term liabilities 624,720, ,706,514 Total liabilities 682,534, ,846,171 Net Assets (Deficit) Restricted - expendable 110,184, ,471,477 Unrestricted (675,332,538) (743,534,977) Total net assets (deficit) $(565,148,180) $(612,063,500) Generally, net assets may serve over time as a useful indicator of a government s financial position. However, because the Commission serves the purpose of financing economic development (i.e., incurring debt for assets that will be owned and maintained by other parties) and because the nature of the debt contains certain restrictions, net assets may be more indicative of past and ongoing economic development activities rather than the financial health of the Commission. As the Commission completed the year, its governmental activities reported combined net assets of $(565,148,180), an increase of $46,915,320 from the prior year. This increase is largely attributed to the decrease in Economic Development Program Expenses in the current year caused by the decrease in the reimbursement amounts being submitted to the Commission for approval. 4

8 A Component Unit of the City of Management s Discussion and Analysis Year Ended Changes in Net Assets (Deficit) Governmental Activities (Restated) Revenues Program Revenues Charges for services $ 1,371,377 $ 384,095 Operating grants and contributions 3,588,180 9,534,856 General Revenues Tax increment financing revenues 103,715, ,190,671 Interest and other 266, ,029 Total revenues 108,942, ,516,651 Program Expenses Economic development 54,971, ,890,032 Interest and fiscal charges 7,055,474 8,069,115 Total expenses 62,026, ,959,147 Change in Net Assets 46,915,320 (159,442,496) Net Assets, Beginning of Year (612,063,500) (452,621,004) Net Assets, End of Year $(565,148,180) $(612,063,500) Financial Analysis of the Commission s Funds The focus of the Commission s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the Commission s financing requirements. In particular, unreserved fund balance serves as a measure of an entity s net resources available for use. Payments in lieu of taxes and economic activity taxes were $3 million higher in the current year when compared to the prior fiscal period. This increase is attributed to the payment of $11 million in historical, from fiscal year 1995 to 2008, economic activity taxes by the City of Kansas City, Missouri to the Commission. This increase was partially offset by a decrease in the payments in lieu of taxes due to the overall decrease in home values. Expenditures decreased $223 million during the year. During the prior year, there were several larger than normal reimbursements approved by the Commission that did not occur again during the current year. 5

9 A Component Unit of the City of Management s Discussion and Analysis Year Ended Capital Assets and Debt Administration At the end of the fiscal year, the Commission did not have any capital assets. At the end of fiscal year 2011, the Commission had $679 million in debt outstanding, a decrease of $69 million when compared to prior year. A majority of the debt, $560 million, relates to certified developer obligations, a decrease of $69 million when compared to prior year. These obligations represent developer project costs that have been certified by the Commission as eligible for reimbursement from tax increment financing revenues. Under tax increment financing plans, the developer may be reimbursed up to the certified cost amount from increment taxes up to a period of 23 years. As these projects age and approach 23 years, there may be significant costs that have been certified that will not be reimbursed to the developer. The long-term debt will be reduced to zero during the year when the plan reaches 23 years. Accordingly, certified project costs in excess of amounts reimbursed to date are reflected as a long-term obligation of the Commission, to the extent that revenues are available to pay those certified costs. The Commission is only obligated for the amount of incremental taxes received attributable to the project. Any deficiencies are the responsibility of the developer (Restated) Revenue bonds $ 118,627,971 $ 118,517,971 Reimbursable project costs 560,397, ,818,543 $ 679,025,419 $ 748,336,514 Requests for Information This report is designed to provide an overview of the Commission s finances for those with an interest in this area. Questions concerning any of the information found in this report or requests for additional information should be directed to the Controller of EDC, 1100 Walnut Street, Suite 1700, Kansas City, Missouri For additional information about our organization, the website address is 6

10 A Component Unit of the City of Statement of Net Assets (Deficit) Governmental Activities Assets Cash $ 281,355 Restricted assets Cash and investments 89,456,120 Receivables 6,054,720 Receivables due from the City of 18,182,341 Unamortized bond issue costs 3,411,526 Total assets 117,386,062 Liabilities Accounts payable 713,521 Developer deposits 505,140 Accrued interest payable 2,290,162 Long term liabilies Due within one year 54,305,000 Due in more than one year 624,720,419 Total liabilities 682,534,242 Net Assets (Deficit) Restricted - expendable 110,184,358 Unrestricted (675,332,538) Total net assets (deficit) $ (565,148,180) See Notes to Basic Financial Statements 7

11 8 Tax Increment Financing Commission of A Component Unit of the City of Statement of Activities Year Ended Net Revenues (Expense) and Changes in Net Assets Program Revenues Primary Government Operating Charges for Grants and Governmental Functions/Programs Expenses Services Contributions Activities Primary Government Government activities Economic development $ 54,971,430 $ 1,371,377 $ 3,588,180 $ (50,011,873) Interest and fiscal charges 7,055, (7,055,474) Total primary government $ 62,026,904 $ 1,371,377 $ 3,588,180 (57,067,347) General Revenues Tax increment financing revenues 103,715,838 Interest 266,829 Total general revenues 103,982,667 Change in Net Assets 46,915,320 Net Assets, Beginning of Year, as Restated (612,063,500) Net Assets, End of Year $ (565,148,180) See Notes to Basic Financial Statements

12 A Component Unit of the City of Balance Sheet Governmental Funds Assets Total General Capital Governmental Fund Projects Funds Cash $ 281,355 $ - $ 281,355 Restricted assets Cash and investments - 89,456,120 89,456,120 Receivables - 6,054,720 6,054,720 Receivables due from the City of - 18,182,341 18,182,341 Interfund accounts receivable (payable) 1,250,991 (1,250,991) - Total assets $ 1,532,346 $ 112,442,190 $ 113,974,536 Liabilities and Fund Balances Liabilities Accounts payable $ - $ 713,521 $ 713,521 Deferred revenue - 18,383,422 18,383,422 Developer deposits - 505, ,140 Total liabilities - 19,602,083 19,602,083 Fund balances Reserved for debt service - 92,840,107 92,840,107 Unreserved, undesignated 1,532,346-1,532,346 Total fund balances 1,532,346 92,840,107 94,372,453 Total liabilities and fund balances $ 1,532,346 $ 112,442,190 $ 113,974,536 See Notes to Basic Financial Statements 9

13 A Component Unit of the City of Reconciliation of the Balance Sheet Governmental Funds to the Statement of Net Assets (Deficit) Amounts reported for governmental activities in the statement of net assets are different because: Total fund balance - governmental funds $ 94,372,453 Revenues that are deferred due to the Commission not receiving cash within 90 days are recognized as revenue in the statement of net assets 18,383,422 Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds Accrued interest (2,290,162) Long-term debt (679,025,419) Cost of issuance resulting from bond issues are considered expenditures in the funds but are recognized as assets in the government-wide statements 3,411,526 Total net assets (deficit) of governmental activities $(565,148,180) See Notes to Basic Financial Statements 10

14 A Component Unit of the City of Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Funds Year Ended Total General Capital Governmental Fund Projects Funds Revenues Tax increment financing revenues $ - $ 110,491,958 $ 110,491,958 Developer revenues - 1,356,173 1,356,173 Intergovernmental appropriations - 2,232,007 2,232,007 Interest 3, , ,829 Other 6,000 1,365,377 1,371,377 Total revenues 9, ,708, ,718,344 Expenditures Current Administration 3,709,794 1,003 3,710,797 Project costs 101,306 20,453,298 20,554,604 Payments to taxing districts - 18,799,783 18,799,783 Professional services 368,886 1,049,749 1,418,635 Debt Service Principal - 64,244,137 64,244,137 Interest and fiscal charges - 6,773,835 6,773,835 Payments on behalf of City of - 19,561,632 19,561,632 Payments on behalf of Briarcliff - 2,372,937 2,372,937 Bond issue costs - 432, ,450 Total expenditures 4,179, ,688, ,868,810 Excess (Deficiency) of Revenues Over Expenditures (4,170,101) (17,980,365) (22,150,466) Other Financing Sources (Uses) Proceeds from bond issuance - 6,380,000 6,380,000 Transfers in (out) 4,103,341 (4,103,341) - Other financing sources (uses), net 4,103,341 2,276,659 6,380,000 Net Change in Fund Balance (66,760) (15,703,706) (15,770,466) Fund Balance, Beginning of Year, as Restated 1,599, ,543, ,142,919 Fund Balance, End of Year $ 1,532,346 $ 92,840,107 $ 94,372,453 See Notes to Basic Financial Statements 11

15 A Component Unit of the City of Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Funds to the Statement of Activities Year Ended Amounts reported for governmental activities in the statement of activities are different because: Net changes in fund balances - total governmental funds $ (15,770,466) In the statement of activities, project costs incurred by developers that have been certified by the Commission are charged to expense in the year certified 11,446,958 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds (6,776,120) The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. In the statement of activities, interest is accrued on outstanding bonds, whereas in the governmental funds, an interest expenditure is reported when due. The following is the detail of the net effect of these differences in the treatment of long-term debt and related items: Bonds proceeds (6,380,000) Repayment of principal 64,244,137 Interest (58,284) Bond issue costs 432,450 Amortization of bond issue costs (223,355) Total changes in net assets of governmental activities $ 46,915,320 See Notes to Basic Financial Statements 12

16 A Component Unit of the City of Notes to Basic Financial Statements Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations and Reporting Entity The Tax Increment Financing Commission of (the Commission), was authorized under a state of Missouri law ( Real Property Tax Increment Allocation Redevelopment Act ) as a public body, corporate and politic, and was approved by ordinance of the City Council of in November 1982 to exercise the powers delegated by a municipality under this act. Tax increment financing is a mechanism whereby certain redevelopment project expenses are financed through payments in lieu of taxes (PILOTS) and economic activity taxes (EATS). The above mentioned legislation allows the City of (the City) (through the Commission) to direct a portion of all new taxes (the increment) generated by new redevelopment toward the project costs. The Commission is responsible for preparing and implementing tax increment financing plans and is reimbursed by project developers for certain services rendered. Certain bonds issued in conjunction with the tax increment financing plan or subsequent bond repayments financings by PILOTS and EATS are accounted for by the Commission or the City. The Commission is a component unit of the City as defined by Statement No.14 of the Governmental Accounting Standards Board, The Financial Reporting Entity. A voting majority of the Board of Commissioners of the Commission is appointed by the Mayor of the City. The Commission did not have any component units at. Management and staff of the Commission are comprised of employees from the Economic Development Corporation of (the EDC), a nonprofit business development and redevelopment organization. Basis of Presentation Government-wide Financial Statements The government-wide statement of net assets and statement of activities report the overall financial activity of the Commission. These statements include the governmental activities of the Commission. Governmental activities generally are financed through taxes, intergovernmental revenues and other nonexchange transactions. 13

17 A Component Unit of the City of Notes to Basic Financial Statements The statement of activities presents a comparison between direct expenses and program revenues for the government-wide activities of the Commission and for each function of the Commission s governmental activities. Direct expenses are those that are clearly identifiable with a specific function. Program revenues included (a) charges paid by the recipients for goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements The fund statements provide information about the Commission s funds. The emphasis on fund financial statements is on major governmental funds. Each fund of the Commission is considered a major fund and is presented in a separate column. General Fund The general fund is the principal fund of the Commission, which accounts for all financial transactions not accounted for in other funds. Capital Projects Fund The capital projects fund is used to account for financial resources to be used for the acquisition or construction of major assets that will be held for redevelopment and other expenditures associated with redevelopment projects. Basis of Accounting The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flow takes place. Nonexchange transactions, in which the Commission gives (or receives) value without directly receiving (or giving) equal value in exchange, include grants and donations. On an accrual basis, revenue from grants and other contributions are recognized in the fiscal year in which all eligibility requirements imposed by the provider have been met. Governmental funds 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 Commission considers revenues to be available if they are collected within 90 days of the end of the current fiscal period. Expenditures generally are recorded when the liability is incurred, as under accrual accounting. However, principal and interest on long-term debt are recorded only when due. Proceeds of general long-term debt are reported as an other financing source. 14

18 A Component Unit of the City of Notes to Basic Financial Statements Significant revenue sources that are susceptible to accrual include tax increment financing revenues. Intergovernmental Appropriations Intergovernmental appropriations consist of City funds transferred from the City to the Commission. These funds, which are for debt service and various redevelopment projects, are recorded as revenues when the funds are received or accrued when measurable. Developer Revenues Developer revenues consist of funds received from various developers in connection with redevelopment projects. These funds are recorded as revenues when funds are received or accrued when measurable. Project Costs All capital project activity shown represents revenues and expenditures received and paid by the Commission. Under the terms of various bond indentures and other contractual agreements, all such project revenue and residual fund balances are committed for use in the respective project. Receivables Receivables consist primarily of PILOTS and EATS receivable from the City and other taxing jurisdictions and amounts to be reimbursed by developers. Investments All investments are reported at fair value. The fair value of marketable securities is based on quotations that are generally obtained from national securities exchanges. Where marketable securities are not listed on an exchange, quotations are obtained from brokerage firms or national pricing services. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 15

19 A Component Unit of the City of Notes to Basic Financial Statements Risk Management The Commission is exposed to various risks and losses related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. As a result, the Commission purchased commercial insurance to address its exposure to these risks. Settlements have not exceeded insurance coverage in any of the past three fiscal years. Net Assets Net assets of the Commission are classified in two components. Restricted expendable net assets are noncapital assets that must be used for a particular purpose, as specified by creditors, grantors or donors external to the Commission. Unrestricted net assets are remaining assets less remaining liabilities that do not meet the definition of invested in capital assets or restricted expendable. The Commission first applies restricted net assets when an expense or outlay is incurred for purposes for which both restricted and unrestricted net assets are available. Budgetary Accounting The Commission is not required to legally adopt a budget. Internal controls over spending in specific funds, not subject to legal budgets, are maintained by the use of internal spending limits set by management. Note 2: Deposits and Investments Restricted cash and investments consist of amounts held in trust, receipts from developers, PILOTS and EATS that are restricted for use in the future for reimbursable project costs, and good faith deposits from developers in accordance with funding agreements for certain projects. Deposits Custodial credit risk is the risk that in the event of a bank failure, a government s deposits may not be returned to it. The Commission s deposit policy for custodial credit risk requires compliance with the provisions of state law. Collateral is required by state law for demand deposits. The fair value of the collateral must equal 100% of deposits not covered by federal deposit insurance. Obligations that may be pledged as collateral are governed by state law and include U.S. government and government agency bonds and securities; general obligation bonds of any of the 50 states; general obligation bonds of any Missouri county, certain cities and special districts; and revenue bonds of certain Missouri agencies. At, none of the Commission s bank balances were exposed to custodial credit risk. 16

20 A Component Unit of the City of Notes to Basic Financial Statements Investments The Commission s investment policy allows investments in accordance with the State of Missouri guidelines. At, the Commission had the following investments and maturities: Maturities in Years Less More Type Fair Value than than 10 Money market mutual funds $27,384,600 $27,384,600 $ - $ - $ - Repurchase agreements 11,272,934 11,272, $38,657,534 $38,657,534 $ - $ - $ - Interest Rate Risk - Interest rate risk is the risk that the fair value of the Commission s investments will decrease as a result of an increase in interest rates. The Commission s formal investment policy does not contain limits regarding investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. At, the Commission s investments were limited to repurchase agreements with maturities of one year or less and money market mutual funds that are redeemable in full immediately. Credit Risk - Credit risk is the risk that the Commission will not recover its investments due to the ability of the counterparty to fulfill its obligation. The Commission s formal investment policy does not address credit risk. At, the Commission s investments in repurchase agreements and money market mutual funds were not rated. Custodial Credit Risk - Custodial credit risk is the risk that, in the event of the failure of the counterparty, the Commission will not be able to recover the value of its deposits, investments or collateral securities that are in the possession of an outside party (i.e., the Commission s safekeeping institution). All of the underlying securities for the Commission s investments in repurchase agreements at are held by the counterparties in other than the Commission s name. The Commission s investment policy does not address how securities underlying repurchase agreements are to be held. Concentration of Credit Risk - The Commission places no limit on the amount it may invest in any one issuer. At, the Commission s investments in repurchase agreements with Security Bank of Kansas City of $11,272,934 constituted 29% of its total investments. 17

21 A Component Unit of the City of Notes to Basic Financial Statements Summary of Carrying Values The carrying values of deposits and investments shown above are included in the statement of net assets (deficit) as follows: Carrying value Deposits $ 51,079,941 Investments 38,657,534 $ 89,737,475 Included in the following statement of net assets (deficit) captions Cash $ 281,355 Restricted cash and investments 89,456,120 $ 89,737,475 Note 3: Long-Term Debt The following is a summary of the changes in long-term obligations for the year ended April 30, 2011: Balance Additions/ Balance Amount Due April 30, 2010 Adjustments Retirements in One Year Tax Increment Revenue Bonds, Series 1995, interest at 6%, payable through December 2016 (Southtown) $ 245,000 $ - $ 60,000 $ 185,000 $ 65,000 Tax Increment Revenue Bonds, Series 1998, interest at 6.93%, payable through October 2020 (47th & Penn) 19,235, ,000 18,240,000 1,145,000 Tax Increment Revenue Bonds, Series 2002, interest ranging from 5.75% %, payable through April 2022 (Union Hill) 2,522, ,000 2,382, ,000 18

22 A Component Unit of the City of Notes to Basic Financial Statements Balance Additions/ Balance Amount Due April 30, 2010 Adjustments Retirements in One Year Tax Increment Revenue Bonds, Series 2003, interest ranging from 2.50% %, payable through August 2022 (Swope) 2,320, ,000 1,830, ,000 Tax Increment Revenue Bonds, Variable Rate Demand, Series 2005, payable through November 2028 (Blue Ridge) 35,745, ,000 34,890, ,000 Tax Increment Revenue Bonds, Series 2006A, interest ranging from 5.15% %, payable through June 2024 (Briarcliff) 15,945, ,000 15,620, ,000 Tax Increment Revenue Bonds, Series 2007A, interest ranging from 5.00% %, payable through March 2018 (Maincor) 9,665, ,000 8,890, ,000 Tax Increment Revenue Bonds, Series 2007B, interest at 6%, payable through March 2017 (Southtown) 3,210, ,000 2,880, ,000 Tax Increment Revenue Bonds, Series 2010A, interest ranging from 5.10% %, payable through April 2033 (Brywood Centre) - 4,100,000-4,100,000 - Tax Increment Revenue Bonds, Series 2011, interest at 8.00%, payable through April 2030 (Brywood Centre) - 2,280,000 20,000 2,260,000 - Total Tax Increment Bonds 88,887,971 6,380,000 3,990,000 91,277,971 3,485,000 IDA of Platte County, Missouri, Series 2009, interest at 7.00%, payable through December 2031 (KCI Corridor) 29,630,000-2,280,000 27,350, ,000 Total IDA Bonds 29,630,000-2,280,000 27,350, ,000 Reimbursable developer project costs 629,818,543 (11,446,958) 57,974, ,397,448 50,000,000 Total long-term obligations $ 748,336,514 $ (5,066,958) $ 64,244,137 $ 679,025,419 $ 54,305,000 19

23 A Component Unit of the City of Notes to Basic Financial Statements Tax Increment Bonds On December 1, 1995, the Commission issued tax increment revenue bonds in the amount of $1,000,000 related to the Southtown Corridor Blue Cross Project (Revenue Bonds Series 1995). The bonds are limited special obligations of the Commission payable solely from and secured as to the payments of principal and interest by a pledge of (a) PILOTS and (b) EATS. The bonds mature annually through December 1, 2016 in amounts ranging from $50,000 to $75,000 at an interest rate of 6%. On February 1, 1998, the Commission issued tax increment revenue bonds in the amount of $24,700,000 related to the 47 th and Penn Redevelopment Project (Revenue Bonds Series 1998). In connection with the bond issuance, the City established a neighborhood improvement district (NID) within the project area. Properties within the NID are assessed an annual special assessment which was projected to be sufficient to pay the principal and interest on the bonds. The bonds are special, limited obligations of the Commission payable solely from special assessment revenues, PILOTS, and EATS, should special assessment revenues not be sufficient. The bonds mature annually through October 1, 2020 in amounts ranging from $685,000 to $2,645,000 at an annually established interest rate. On October 12, 2002, the Commission issued $3,551,052 of tax increment revenue bonds related to the Union Hill Project (Revenue Bond Series 2002). The bonds are special, limited obligations of the Commission, payable solely from PILOTS and EATS. The bonds mature in amounts ranging from $30,000 to $455,000 at interest rates varying from 5.75% to 6.75%. On August 1, 2003, the Commission issued $3,015,000 of tax increment revenue bonds related to the Swope Community Builders Project (Brush Creek Corridor) (Revenue Bonds Series 2003). The bonds are special, limited obligations of the Commission payable solely from and secured as to the payments of principal and interest by a pledge of (a) PILOTS and (b) EATS. The bonds mature annually through August 1, 2022 in amounts ranging from $115,000 to $495,000 at interest rates varying from 2.50% to 5.75%. On November 1, 2005, the Commission issued $36,170,000 of tax increment revenue bonds related to the Blue Ridge Mall Redevelopment Project (Revenue Bond Series 2005). The bonds are special, limited obligations of the Commission payable solely from and secured as to the payments of principal and interest by a pledge of (a) PILOTS and (b) EATS. The bonds mature annually through November 1, 2028 in amounts ranging from $110,000 to $7,330,000 at variable interest rates. On June 1, 2006, the Commission issued $16,290,000 of tax increment revenue bonds related to the Briarcliff West Project (Revenue Bonds Series 2006A). The bonds are special, limited obligations of the Commission payable solely from and secured as to the payments of principal and interest by a pledge of (a) PILOTS, (b) EATS and (c) certain other funds held by the bond trustee. The bonds mature annually through June 1, 2024 in amounts ranging from $200,000 to $2,095,000 at interest rates varying from 5.15% to 5.40%. 20

24 A Component Unit of the City of Notes to Basic Financial Statements On September 26, 2007, the Commission issued $11,045,000 of tax increment revenue bonds related to the Maincor Project (Revenue Bonds Series 2007A). The bonds are special, limited obligations of the Commission payable solely from and secured as to the payments of principal and interest by a pledge of PILOTS. The bonds mature annually through March 1, 2018 in amounts ranging from $645,000 to $2,535,000 at interest rates varying from 5.00% to 5.25%. On December 20, 2007, the Commission issued $4,165,000 of tax increment revenue bonds related to the Southtown Project (Revenue Bond Series 2007B). The bonds are special, limited obligations of the Commission payable solely from and secured as to the payments of principal and interest by a pledge of (a) PILOTS and (b) EATS. The bonds mature annually through March 1, 2017 in amounts ranging from $350,000 to $900,000 at an interest rate of 6.00%. On December 17, 2010, the Commission issued $4,100,000 of tax increment revenue bonds related to the Brywood Centre Project (Revenue Bonds Series 2010A). The bonds are special, limited obligations of the Commission payable solely from and secured as to the payments of principal and interest by a pledge of (a) PILOTS and (b) EATS. The bonds mature annually through April 1, 2033 in amounts ranging from $5,000 to $480,000 at interest rates varying from 5.10% to 8.00%. On February 14, 2011, the Commission issued $2,280,000 of tax increment revenue bonds related to the Brywood Centre Project (Revenue Bonds Series 2011). In connection with the bond issuance, the City established a community improvement district (CID) within the project area. Retail businesses within the project are required to collect a 1% sales tax from all purchasers at the time of sale. The proceeds of the tax are pledged to pay the principal and interest of the bonds. The proceeds from the CID sales tax are projected to be sufficient to cover all future principal and interest payments of the bonds. The bonds are special, limited obligations of the Commission payable solely from CID sales tax revenues, and certain funds held by the bond trustee, should CID sales tax revenues not be sufficient. The bonds mature annually through April 1, 2030 in amounts ranging from $20,000 to $390,000 at an interest rate of 8.00%. Industrial Development Authority of Platte County, Missouri On March 15, 2009, the Industrial Development Authority of Platte County, Missouri issued $31,430,000 of 7% bonds for the KCI Corridor Project. The Commission s obligation with respect to the KCI Corridor bonds is limited solely to EATS generated within the project area. Should the EATS revenues not be sufficient to make bond payments, the Commission is not obligated to make such bond payments from any other sources of its revenue. 21

25 A Component Unit of the City of Notes to Basic Financial Statements Reimbursable Developer Project Costs These obligations represent developer costs that have been certified by the Commission as eligible for reimbursement from tax increment financing revenues attributable to the project. Under tax increment financing plans, the developer may be reimbursed up to the certified cost amount from incremental taxes up to a period of 23 years. Accordingly, certified project costs in excess of amounts reimbursed to date are reflected as a long-term obligation of the Commission. The Commission is only obligated for the amount of incremental taxes received attributable to the project; any deficiencies are the responsibility of the developer. As of, management has presented $50,000,000 as an estimated amount of developer obligations due in the next fiscal year. The estimate was derived from information on past payments and anticipated future payments to developers. Scheduled Maturities Aggregate annual maturities of long-term debt, exclusive of developer reimbursements, at April 30, 2011 are: Fiscal Year Principal Interest 2012 $ 4,305,000 $ 6,840, ,930,000 6,575, ,580,000 6,658, ,100,000 6,303, ,750,000 5,929, ,712,971 22,971, ,555,000 11,251, ,535,000 3,708, ,160, ,875 $118,627,971 $ 70,363,329 Other Industrial Development Authority of Kansas City Bonds The Industrial Development Commission of Kansas City (IDA) issued 2005A and 2005B serial bonds in the amounts of $115,015,000 and $64,985,000, respectively. In addition, on July 20, 2006, IDA also issued 2006A and 2006B serial bonds in the amounts of $69,500,000 and $45,500,000, respectively. The bonds are special obligations of IDA and do not constitute a pledge of the full faith and credit of the Commission. The proceeds of these bonds are to be used to create 510,000 square feet of entertainment, dining, specialty retail and approximately 240 housing units. 22

26 A Component Unit of the City of Notes to Basic Financial Statements Future phases are anticipated to include additional residential and office development. The Project includes site acquisition and relocation of existing businesses, utility relocations, public improvements to streets, sidewalks and utilities and the development of several parking facilities. The Project is commonly referred to as KC Live and is located at 1200 Main between the City s convention center complex and a City-owned, voter-approved 18,000 seat multi-purpose indoor arena. The debt is to be paid using revenues derived from several sources: 1. Tax Increment Financing (TIF) revenues these consist of payments in lieu of taxes (PILOTs) and economic activity taxes (EATs) paid within the project areas. 2. Downtown Economic Stimulus Authority of (DESA) revenues these consist of state income tax increment and the state sales tax increment paid within the DESA project area. DESA revenues are to be used only for debt service and administrative expenses related to the 2005A bonds. 3. City Revenues these revenues will be appropriated from the City s super TIF revenues generated from the project. Based on the financing agreement dated March 1, 2005, the City may make an annual appropriation sufficient to pay all the debt service payments for the next fiscal year on or before the last day of each fiscal year. If these revenue sources are insufficient for the debt service, the City would then have to use general revenues in order to fund the annual appropriation. Management of the Commission and the City has determined that the liability for these obligations is best reported in its entirety in the financial statements of the city. The Commission s future revenue streams, consisting of EATS and PILOTS, are entirely pledged as security for bonded indebtedness issued to finance costs of the 1200 Main project. Any incremental revenues collected by the Commission will be remitted to the trustee of the bonds noted above to cover outstanding debt service requirements of the project. At, the outstanding balance of the bonds noted above was $288,430,000. Note 4: Interfund Activity The Statement of revenues, expenditures and changes in fund balance reflects a transfer from the capital projects fund to the general fund in the amount of $4,103,341. This transfer consisted of reimbursement of personnel costs and administrative fees, which are calculated based upon a percentage of tax increment financing revenues collected during the year. At, the balance sheet reflects an interfund balance of $1,250,991, represented as a receivable and payable to the general fund and capital projects fund, respectively. 23

27 A Component Unit of the City of Notes to Basic Financial Statements Note 5: Related Party Transactions The Commission annually pays the EDC for office space and certain other administrative services. The Commission paid the EDC $3,680,000 for these services for the year ended. Note 6: Restatement of Beginning Balances During 2011, the Commission identified several items that required a restatement of the beginning net deficit and fund balances for the year ended. When reviewing its revenue recognition policies, the Commission identified several receivables recognized as revenue on the statement of revenues, expenditures and changes in fund balances even though the amounts were not in compliance with the Commission s revenue recognition policy. Under the Commission s stated revenue recognition policy, receivables are only susceptible to accrual when the amounts are received within 90 days of fiscal year end. Revenue recognition is deferred for all amounts received outside of the 90 day period. The Commission has adjusted its April 30, 2010 fund balance by the amounts not received within the 90 day period. During the year ended April 30, 2010, the April 30, 2009 net deficit balances were restated due to some changes in the Commission s debt balances. The unamortized bond issue costs were not adjusted to reflect the changes made to the Commission s long-term liabilities. As a result, the Commission s statement of net assets still reflected unamortized bond issue costs for bond issuances that were not the Commission s ultimate liability. In addition, the bond issue costs for one issuance were incorrectly omitted from the deferred financing financial statement caption. The Commission has adjusted its April 30, 2010 net deficit balance by the aggregate amount of these misstatements. During the year ended April 30, 2010, a principal payment on one of the Commission s outstanding revenue bonds was incorrectly recorded as an interest expense. The statement of activities reflected this payment as an expense, when the payment should have been presented as a reduction of a long-term liability. The net deficit balance has been reduced by the amount incorrectly recognized as an expense during the 2010 fiscal year. 24

28 A Component Unit of the City of Notes to Basic Financial Statements The following is a tabular presentation of the impact of these misstatements: Fund Balances Net Deficit Governmental Governmental Funds Activities Net deficit and fund balances as originally reported at April 30, 2010 $ 135,302,461 $(613,762,286) Deferral of revenue (25,159,542) - Capitalize bond issue costs related to the KCI Corridor bond issuance - 690,000 Amortize the KCI Corridor bond issue costs - (13,068) Deletion of bond issue costs for bonds that are not the Commission's liability - (323,146) Reclassification of expense from interest payments to principal payments - 1,345,000 Net deficit and fund balances at April 30, 2010 as restated $ 110,142,919 $(612,063,500) Note 7: Significant Estimates and Concentrations Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following: General Litigation The Commission is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position and changes in financial position of the Commission. 25

29 A Component Unit of the City of Notes to Basic Financial Statements Current Economic Conditions The current protracted economic decline continues to present governments with difficult circumstances and challenges, which in some cases have resulted in large and unanticipated declines in the fair value of investments and other assets, governmental support, tax revenue, etc., constraints on liquidity and difficulty obtaining financing. The financial statements have been prepared using values and information currently available to the Commission. In addition, given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in investment values and allowances for accounts receivable that could negatively impact the Commission s ability to maintain sufficient liquidity. Note 8: Subsequent Events In May 2011, the Commission issued $30,000,000 of Tax Increment Revenue Bonds (Series 2011), (Shoal Creek Parkway Project). The bond proceeds were issued to provide funds to finance certain costs related to the redevelopment of the Shoal Creek area in, fund a debt service reserve and pay the costs related to the issuance of the Series 2011 bonds. The Series 2011 and interest thereon shall be special, limited obligations of the Commission, payable solely from the EATS received in the project area. 26