SNOHOMISH COUNTY, WASHINGTON,

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1 NEW ISSUE - Book Entry Only OFFICIAL STATEMENT DATED AUGUST 4, 2010 Moody s Rating: Aa2 Standard and Poor s Rating: AA (See RATINGS herein) In the opinion of Bond Counsel, as of the date of issue of the Bonds and assuming compliance by the County with applicable requirements of the Internal Revenue Code of 1986, as amended (the Code ), that must be satisfied subsequent to the issuance of the Bonds, under existing federal law, interest on the Bonds (including any original issue discount properly allocable to an owner thereof) is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of determining the federal alternative minimum tax imposed on individuals and corporations. However, under existing federal law, interest on the Bonds is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on certain corporations. See the information herein under the caption TAX EXEMPTION. The proposed form of Bond Counsel s approving opinion is attached as APPENDIX B hereto. DATED: Date of Issue SNOHOMISH COUNTY, WASHINGTON, $119,740,000 Limited Tax General Obligation Refunding Bonds, 2010, Series A DUE: December 1, as shown below The Snohomish County, Washington (the County ) Limited Tax General Obligation Refunding Bonds, 2010, Series A (the Bonds ) will be issued as fully registered bonds under a book-entry system, initially registered in the name of CEDE & Co. (the Registered Owner ), as nominee for The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Bonds. Individual purchases of the Bonds will be made in book-entry form in the principal amount of $5,000 each or any integral multiple thereof within a single maturity. Purchasers of the Bonds (the Beneficial Owners ) will not receive certificates representing their beneficial ownership interests in the Bonds. Interest on the Bonds is payable on June 1 and December 1, commencing June 1, 2011, until maturity or prior redemption, by the fiscal agency of the State of Washington, currently The Bank of New York Mellon in New York, New York (the Registrar ). As long as DTC or its nominee is the registered owner of the Bonds, such payments will be made by the Registrar to DTC, which will in turn remit such principal and interest to its broker-dealer Participants, which will in turn remit such payments to the Beneficial Owners of the Bonds as described herein in Appendix C - BOOK-ENTRY SYSTEM. Due Dec. 1 Principal Amount Interest Rate Yield CUSIP No. Due Dec. 1 Principal Amount Interest Rate Yield CUSIP No $2,370, % 0.36% D $4,870, % 2.77% * E ,715, D ,065, * E ,830, D ,855, * E ,945, D ,050, * F ,100, E ,250, * F ,265, E ,465, * F ,435, E ,690, * F ,545, E ,920, * F ,730, E ,590, F99 $10,540, % Term Bonds due December 1, 2029 at a price of % CUSIP No F81 $11,865, % Term Bonds due December 1, 2032 at a yield of 4.15% CUSIP No G31 $19,645, % Term Bonds due December 1, 2035 at a yield of 4.25% CUSIP No G64 * Priced to the call date of June 1, The Bonds will be subject to redemption prior to maturity as further described herein. See THE BONDS - Redemption Provisions. The Bonds are limited tax general obligations of the County. The County has irrevocably covenanted that, for as long as any of the Bonds are outstanding and unpaid, each year it will include in its budget and levy an ad valorem tax within the constitutional and statutory tax limitations provided by law without a vote of the people upon all the property within the County subject to taxation in an amount that will be sufficient, together with all other revenues and money of the County legally available for such purposes, to pay the principal of and interest on the Bonds as the same shall become due. The full faith, credit and resources of the County have been irrevocably pledged for the annual levy and collection of such taxes and for the prompt payment of the principal of and interest on the Bonds as the same shall become due. This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. The Bonds are offered when, as and if executed and delivered, subject to receipt of the legal opinion of Gottlieb Fisher PLLC, Seattle, Washington, Bond Counsel, and certain other conditions. It is expected that the Bonds will be available for delivery through the facilities of DTC in New York, New York, or to the Registrar on behalf of DTC by Fast Automated Securities Transfer, on or about August 18, 2010 (the Date of Issue ).

2 No quotations from or summaries or explanations of the provisions of laws or documents herein purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. This Official Statement is not to be construed as a contract or agreement between the County and the purchasers or owners of any of the Bonds. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or matters of opinion and not as representations of fact or guarantees of a result. The cover page hereof and appendices attached hereto are part of this Official Statement. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale hereunder shall create any implication that there has been no change in the financial condition or operations of the County described herein since the date hereof. This Official Statement contains, in part, estimates and matters of opinion that are not intended as statements of fact, and no representation or warranty is made as to the correctness of such estimates and opinions or that they will be realized. The information set forth in Appendix C - BOOK-ENTRY SYSTEM has been furnished by DTC. All other information set forth herein has been obtained from the County and other sources identified herein that are believed to be reliable. No dealer, broker, sales representative or other person has been authorized by the County to give any information or to make any representations, other than as contained in this Official Statement in connection with the offering made hereby and, if given or made, such information or representations must not be relied upon. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor will there be any sale of the Bonds by any person, in any jurisdiction in which it is unlawful for such persons to make such offer, solicitation or sale. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE ORDINANCE AUTHORIZING THE ISSUANCE AND SALE OF THE BONDS HAS NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF SECURITIES LAWS OF THE STATES IN WHICH THE BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. The CUSIP numbers included on the front cover are provided by Standard and Poor s CUSIP Service Bureau. These numbers are not intended to create a database and do not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for the convenience of reference only. CUSIP numbers are subject to change. Neither the County nor the Underwriter takes any responsibility for the accuracy of such CUSIP numbers.

3 SNOHOMISH COUNTY, WASHINGTON 3000 Rockefeller Avenue Everett, Washington (425) Council Members Current Term Expires Dave Gossett Chair December 31, 2013 Dave Somers Vice-Chair December 31, 2013 Brian Sullivan Member December 31, 2011 John Koster Member December 31, 2013 Vacant * Member December 31, 2011 County Officials Aaron Reardon County Executive December 31, 2011 Mark Roe Prosecutor December 31, 2010 Kirke Sievers Treasurer December 31, 2011 Cindy Portman Assessor December 31, 2011 Carolyn Weikel Auditor December 31, 2011 Sonya Kraski Clerk December 31, 2011 John Lovick Sheriff December 31, 2011 County Executive Administrative Staff Gary Haakenson Roger Neumaier Deputy County Executive Finance Director Bond Counsel Gottlieb Fisher PLLC Seattle, Washington Financial Advisor A. Dashen & Associates Bellevue, Washington * Position to be filled in accordance with County Charter, expected to occur in August i

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5 TABLE OF CONTENTS Page THE BONDS... 1 Principal Amount, Date, Interest Rates and Maturities... 1 Form and Denomination... 1 Registrar... 1 Redemption Provisions... 1 Notice of Redemption... 2 Open Market Purchase... 2 Procedure in the Event of Revisions of Book-Entry Transfer System... 3 PURPOSE AND APPLICATION OF BOND PROCEEDS... 3 Refunding Plan... 3 Verification of Mathematical Calculations... 3 SOURCES AND USES OF FUNDS... 4 AUTHORIZATION FOR ISSUANCE... 4 SECURITY FOR THE BONDS... 4 Debt Payment Record... 4 TAX LEVY LIMITATIONS AND INFORMATION... 4 Property Tax Rates and Limitations... 4 Property Tax Levy Procedures... 6 Tax Liens and Foreclosure... 6 Tax Collection Record... 6 Major Taxpayers... 7 Collection of Other Taxes... 7 DEBT LIMITATION AND CAPACITY... 8 SUMMARY OF DEBT SERVICE REQUIREMENTS AND FUTURE FINANCING... 9 Future Financings... 9 Outstanding Long Term Debt COUNTY FINANCIAL INFORMATION Financial Summary Net Direct and Estimated Overlapping Debt Bonded Debt Ratios Auditing of County Finances Accounting Practices County Budgetary Process General Fund Comparative Balance Sheet General Fund Revenues and Expenditures General Fund Budget County Response to Economic Recession INVESTMENT POLICY County Investment Policy Authorized Investments State Government Investment Pool SNOHOMISH COUNTY GENERAL AND ECONOMIC INFORMATION LITIGATION INITIATIVES APPROVAL OF COUNSEL TAX EXEMPTION Federal Income Taxation Continuing Requirements Other Federal Tax Matters PRESERVATION OF TAX EXEMPTION CONTINUING DISCLOSURE RATINGS FINANCIAL ADVISOR UNDERWRITING OFFICIAL STATEMENT EXCERPTS FROM SNOHOMISH COUNTY S 2009 COMPREHENSIVE ANNUAL FINANCIAL REPORT... APPENDIX A FORM OF BOND COUNSEL S APPROVING OPINION... APPENDIX B BOOK-ENTRY SYSTEM... APPENDIX C iii

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7 Official Statement SNOHOMISH COUNTY, WASHINGTON $119,740,000 Limited Tax General Obligation Bonds, 2010, Series A Snohomish County, Washington (the County ), a political subdivision duly organized and existing under and by virtue of the laws of the State of Washington (the State ), furnishes this Official Statement in connection with the offering of its Limited Tax General Obligation Refunding Bonds, 2010, Series A (the Bonds ). This Official Statement, which includes the cover page and appendices, provides information concerning the County and the Bonds. The Bonds are issued pursuant to County Ordinance No , adopted July 21, 2010 (the Ordinance ), and Amended Motion No of the Snohomish County Council adopted August 4, 2010 (the Sale Motion and, collectively with the Ordinance, the Bond Legislation ). THE BONDS Principal Amount, Date, Interest Rates and Maturities The Bonds will be dated and bear interest from their date of initial delivery. The Bonds will mature on the dates and in the principal amounts and will bear interest (payable semiannually on June 1 and December 1, commencing June 1, 2011) at the rates as set forth on the cover of this Official Statement. Interest on the Bonds will be computed on the basis of a 360-day year consisting of twelve 30-day months. Form and Denomination The Bonds will be issued in fully registered form in the denomination of $5,000 each or integral multiples thereof within a single maturity. Individual purchases may be made in book-entry form only. Purchasers will not receive certificates representing their interest in the Bonds purchased. The Bonds, when issued, will be registered in the name of CEDE & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ( DTC ). So long as CEDE & Co. is the registered owner of the Bonds, references herein to the registered owners or bond owners will mean CEDE & Co. and will not mean the Beneficial Owners of the Bonds. In this Official Statement, the term Beneficial Owner will mean the person for whom a DTC participant acquires an interest in the Bonds. See APPENDIX C BOOK-ENTRY SYSTEM for further information about DTC and the book-entry system. Registrar Principal of and interest on the Bonds will be payable by the fiscal agency of the State in New York, New York, currently The Bank of New York Mellon (or such other fiscal agency or agencies as the County may from time to time designate) (the Registrar ). So long as CEDE & Co. is the registered owner of the Bonds, principal of and interest on the Bonds are payable by wire transfer by the Registrar to DTC, which, in turn, is obligated to remit such principal and interest to the DTC participants for subsequent disbursement to the Beneficial Owners of the Bonds, as further described herein in Appendix C - BOOK-ENTRY SYSTEM. Redemption Provisions Optional Redemption. The Bonds maturing on December 1 in the years 2011 through 2019, inclusive, are not subject to optional redemption prior to their stated maturity. The Bonds maturing on and after December 1, 2020, are subject to optional redemption, as a whole or in part (and if in part, with maturities to be selected by the County), on any date on or after June 1, 2020, at a price of par plus accrued interest to the redemption date. 1

8 Mandatory Redemption. The Bonds maturing on December 1 in the years 2029, 2032, and 2035 are Term Bonds and shall be redeemed prior to maturity (or paid at maturity), not later than December 1 in the years as shown below (to the extent such Bonds have not been previously redeemed or purchased) and in the principal amounts set forth below, without premium, together with the interest accrued to the date fixed for redemption: 2029 Term Bonds Redemption Years Amounts 2028 $5,165,000 (1) ,375,000 (1) Maturity 2032 Term Bonds Redemption Years Amounts 2031 $5,815, (1) 6,050,000 (1) Maturity 2035 Term Bonds Redemption Years Amounts 2033 $6,285, ,545, (1) 6,815,000 (1) Final Maturity To the extent the County redeems (other than in satisfaction of the mandatory sinking fund requirements) or purchases for cancellation any Term Bonds that are subject to mandatory redemption, the County may reduce the mandatory sinking fund requirements of such Term Bonds of the same maturity, in like aggregate principal amount for the year specified by the County. Selection of Bonds for Redemption. For as long as the Bonds are held in book-entry only form, the selection of particular Bonds within a maturity to be redeemed will be made in accordance with the operational arrangements then in effect at DTC. If the Bonds are no longer held in uncertificated form, the selection of such Bonds to be redeemed and the surrender and reissuance thereof, as applicable, shall be made as provided herein. If the County redeems at any one time fewer than all of the Bonds having the same maturity date, the particular Bonds or portions of Bonds of such maturity to be redeemed shall be selected by lot (or in such manner determined by the Registrar) in increments of $5,000. In the case of a Bond of a denomination greater than $5,000, the County and the Registrar will treat each Bond as representing such number of separate Bonds each of the denomination of $5,000 as is obtained by dividing the actual principal amount of such Bond by $5,000. In the event that only a portion of the principal sum of a Bond is redeemed, upon surrender of such Bond at the principal office of the Registrar there shall be issued to the Registered Owner, without charge therefor, for the then unredeemed balance of the principal sum thereof, at the option of the Registered Owner, a Bond or Bonds of like maturity and interest rate in any of the denominations authorized in the Ordinance. Notice of Redemption When the County determines to redeem any Bonds, notice of such redemption (which notice may be conditional) will be given at least 20 days, but not more than 60 days, prior to the redemption date by first class mail, postage prepaid, to the Registered Owner of any Bond to be redeemed at the address of the registered owner appearing in the Bond Register; provided, however, that for so long as the Bonds are held in fully immobilized form by DTC and are registered in the name of CEDE & Co. or its registered assigns, all notices (which notices may be conditional) will be given only in accordance with DTC s operational arrangements. The County will not provide notice of redemption to any Beneficial Owners of Bonds. Open Market Purchase The County reserves the right to purchase any or all of the Bonds on the open market at any time and at any price. 2

9 Procedure in the Event of Revisions of Book-Entry Transfer System Upon the resignation of DTC or its successor (or any substitute depository or its successor) from its functions as depository, or a determination by the County that it is no longer in the best interests of the Beneficial Owners of the Bonds to continue the book-entry system of transfer through DTC or its successor, the County may appoint a substitute depository. In the event that DTC or its successor (or substitute depository or its successor) resigns from its functions as depository, and no substitute depository can be obtained, or the County determines that it is in the best interests of the Beneficial Owners of the Bonds that they be able to obtain Bond certificates, the ownership of the Bonds may be transferred to any person as provided in the Ordinance, and the Bonds shall no longer be held in fully immobilized form. The County shall deliver a written request to the Registrar to issue Bonds as provided in the Ordinance in any authorized denomination. Upon receipt of all then outstanding Bonds by the Registrar, together with a written request on behalf of the County to the Registrar, new Bonds shall be issued in such denominations and registered in the names of such persons as are requested in such a written request. Thereafter, interest on the Bonds shall be paid by checks or drafts mailed, or by wire transfer, to the owners of the Bonds at the addresses for such owners appearing on the Register on the 15 th day of the calendar month preceding the interest payment date. Wire transfer will be made only to an account within the United States if so requested in writing and if the owner owns at least $1,000,000 par value of the Bonds. Principal of the Bonds shall be payable at maturity or on such dates as may be fixed for prior redemption upon presentation and surrender of the Bonds by the owners to the Registrar. PURPOSE AND APPLICATION OF BOND PROCEEDS Bond proceeds are expected to be applied: (i) to advance refund all of the County's outstanding Limited Tax General Obligation Bonds, 2001 maturing in the years 2010 through 2026 as follows (the Refunded Bonds ): Maturity (Dec. 1) Principal Amount Interest Rate CUSIP Nos. Maturity (Dec. 1) Principal Amount Interest Rate CUSIP Nos $4,970, % ZQ $ 7,085, % ZX ,230, ZR ,470, ZY ,425, ZS ,880, ZZ ,710, ZT ,305, A ,030, ZU ,745, A ,360, ZV ,760, RT ,710, ZW ,755, RU9 (ii) to pay costs related to the sale and issuance of the Bonds. Refunding Plan A portion of the proceeds of the Bonds, together with other available funds of the County, will be used to advance refund and defease the Refunded Bonds. The County will use such Bond proceeds and other funds to purchase noncallable direct obligations of the United States to be deposited into the Snohomish County Limited Tax General Obligation Refunding Bond Refunding Account, 2010, Series A (the Escrow Fund ), to be held by U.S. Bank National Association, as escrow agent (the Escrow Agent ), pursuant to an Escrow Agreement. The escrow deposit will be sufficient to (i) pay principal and interest coming due on the Refunded Bonds from the Date of Issue to and including December 1, 2011 (the Redemption Date ); and (ii) pay and redeem the Refunded Bonds maturing on and after December 1, 2012, at a price equal to the principal amount thereof, upon their call for early redemption on the Redemption Date. Verification of Mathematical Calculations Grant Thornton LLP, certified public accountants, will verify the accuracy of the mathematical computations concerning the adequacy of the maturing principal amounts of and interest earned on the Government Obligations, together with other escrowed moneys in the Escrow Fund, to pay when due in accordance with the refunding plan described above, the principal, interest and redemption requirements in connection with the Refunded Bonds. 3

10 SOURCES AND USES OF FUNDS The proceeds from the Bonds are estimated to be applied as follows: Source of Funds Principal Amount of Bonds $ 119,740,000 Net Premium 7,098,081 Cash Contribution (1) 425,273 Net Bond Proceeds $ 127,263,354 Use of Funds Deposit to Escrow Fund $ 126,067,134 Issuance Costs (2) 1,196,220 Total $ 127,263,354 (1) Funds received from the City of Arlington to repay an obligation to the County. (2) Includes bond rating fees, underwriter s discount, financial advisor s fees, Bond Counsel s fees, Escrow Agent fees, escrow verification fees, contingency, and other costs incurred in connection with the issuance of the Bonds. AUTHORIZATION FOR ISSUANCE The Bonds are issued pursuant to Chapters 36.67, 39.46, and of the Revised Code of Washington ( RCW ), the County Charter and the Bond Legislation. SECURITY FOR THE BONDS The Bonds are limited tax general obligations of the County. The County has irrevocably covenanted in the Ordinance that, for as long as any of the Bonds are outstanding and unpaid, each year it will include in its budget and levy an ad valorem tax within the constitutional and statutory tax limitations provided by law without a vote of the people upon all the property within the County subject to taxation in an amount that will be sufficient, together with all other revenues and money of the County legally available for such purposes, to pay the principal of and interest on the Bonds as the same shall become due. The full faith, credit and resources of the County have been irrevocably pledged for the annual levy and collection of such taxes and for the prompt payment of the principal of and interest on the Bonds as the same shall become due. The Bonds do not constitute a debt or indebtedness of the State, or any political subdivision thereof other than the County. Debt Payment Record The County has always promptly met principal and interest payments of its outstanding obligations when due. Additionally, no refunding bonds have been issued by the County for the purpose of avoiding an impending default. TAX LEVY LIMITATIONS AND INFORMATION Property Tax Rates and Limitations Nonvoted regular property tax levies are subject to two limitations more specifically described in Regular Property Tax Increase Limitation and Maximum Rate Limitation below. Regular property tax levy receipts may be used for the payment of the principal of and interest on nonvoted general obligations, such as the Bonds, and for any other lawful County purpose. Information relating to regular property tax limitations is based on currently existing statutes, constitutional provisions and circumstances. Regular Property Tax Increase Limitation. Property taxes are subject to the provisions of the statute limiting increases in the dollar amount of annual property tax levies (Chapter RCW). Pursuant to Chapter RCW, the County s tax levy must be set so that the regular property taxes payable in the following year do not exceed the limit factor multiplied by the amount of regular property taxes lawfully levied for the County in the highest of the three most recent years in which taxes were levied plus an additional dollar amount calculated by multiplying the increase in assessed value in the County resulting from new construction, improvements to property, newly constructed wind turbine facilities, and any increase in the assessed value of State-assessed property by the regular property tax levy rate of the County for the preceding year. The limit factor is the lesser of 101 percent or inflation. If inflation is less than 1 percent, the County may nonetheless levy the full 101 percent based on a finding of substantial need by the County Council and approval by the affirmative vote of four members of the County Council. The new limit factor is effective only for taxes collected the following year. 4

11 RCW provides for setting the property tax levy amount at the level that would be allowed if the property tax levy for taxes due in prior years beginning in 1986 had been set at the full amount allowed under Chapter RCW. This allows certain taxing districts, such as the County, to bank levy capacity, taxing at a lower rate while reserving the right to tax at the maximum rate allowed by law. This allows the County to tax at a lower level in the years when the maximum levy is not required, but return to the maximum level in years of need. In 2010, the County had approximately $10,704,437 of banked levy capacity for general purposes, $421,058 for roads and $132,141 for conservation futures. Maximum Rate Limitation. In the State, a county may levy taxes at a maximum rate of $1.80 per $1,000 of assessed value against all the real and personal property in the county subject to taxation for general county purposes, including the payment of principal of and interest on bonds issued by the county without a vote of the people (including limited tax general obligations, such as the Bonds) (Chapter RCW). The County is levying $ per $1,000 of assessed value in 2010 for general county purposes. In addition, counties may levy taxes in unincorporated areas at a maximum rate of $2.25 per $1,000 of assessed value in the exercise of road powers. The County is levying $ per $1,000 of assessed value in 2010 for road construction and maintenance. A county may increase its levy from $1.80 to $2.475 per $1,000 of assessed value for general county purposes if the total levies for both county and road purposes do not exceed $4.05 per $1,000 of assessed value and no other taxing district has had its levy reduced as a result of the increased county levy. The $1.80 per $1,000 of assessed value limitation on the general purposes levy is exclusive of certain regular property taxes: (i) a voted levy for emergency medical services, limited to $0.50 per $1,000 of assessed value (authorized by RCW ); (ii) a voted levy to finance affordable housing for very low income households, limited to $0.50 per $1,000 of assessed value (authorized by RCW ); and (iii) a non-voted levy for conservation futures, limited to $ per $1,000 of assessed value (authorized by RCW ). The County is levying $ per $1,000 of assessed value in 2010 for conservation futures. Aggregate regular property tax levies by the State and all taxing districts except port districts and public utility districts are subject to a rate limitation of one percent of the true and fair value of property (or $10.00 per $1,000 of assessed value) by Article VII, Section 2 of the State Constitution and by RCW Within the one percent limitation, aggregate regular property tax levies by all taxing districts except the State, port districts and public utility districts are subject to a rate limitation of $5.90 per $1,000 of assessed value by RCW (2). This limitation is exclusive of levies for emergency medical services, affordable housing for very low-income households and acquiring conservation futures. If aggregate regular property tax levies exceed the one percent or $5.90 per $1,000 of assessed value limitations, levies requested by junior taxing districts within the area affected are reduced or eliminated according to a detailed prioritized list (RCW ), in order to bring the aggregate levy into compliance. Junior taxing districts are defined by RCW as all taxing districts other than the State, counties, road districts, cities, towns, port districts, and public utility districts. Authorization of Excess Levies. RCW authorizes the levying of taxes in excess of the $5.90 per $1,000 of assessed value and one percent limits imposed by RCW and , respectively, by any taxing district except school districts, when a larger levy is necessary in order to prevent the impairment of the obligation of contracts. Any such taxing district may also levy taxes in excess of the rates specified by statute when authorized to do so by the voters of such taxing district. Levy Lid Lifts. With a majority vote of its electors, a taxing district may levy for the following year or for up to six consecutive years, within the statutory rate limitations described above, more than what otherwise would be allowed by the tax increase limitation, as allowed by RCW This is known as a levy lid lift. In approving a multi-year (up to six years) levy lid lift, voters may approve the amount of the initial lift plus a growth factor (such as CPI) for calculating the amount of increases in subsequent years. In subsequent levy years, the new levy amount is subject to the limit factor. After the expiration of any limited purpose or limited duration specified in the levy lid lift, the levy is calculated as if the taxing district levied up to the limit factor in the interim period unless the ballot proposition authorizing the lid lift specifies that the levy shall be calculated based on the maximum allowable levy amount in the final year of the lid lift. The County currently does not have a levy lid in effect. 5

12 Property Tax Levy Procedures Valuations and Assessments for Property Tax Purposes. In the State, the county assessors (the Assessor ) determine the value of all real and personal property throughout their respective counties that is subject to ad valorem taxation. The Assessor s duties and methods of determining value are prescribed and controlled by statute and by detailed regulations promulgated by the Department of Revenue of the State. For tax purposes, the assessed value of property is set at 100 percent of its actual value. The County revalues property every year. The property is listed by the Assessor on a tax roll at its current assessed value and the tax roll is filed in the Assessor s office. The Assessor s determinations are subject to revision by the County Board of Equalization and, for certain property, subject to further revision by the State Board of Equalization. After all administrative procedures are completed, the County receives the Assessor s final certificate of assessed value of property within the County. Property Tax Collection Procedures. Property taxes are levied in specific amounts, and the rates for all taxes levied for all taxing districts in the county (including the County) are determined, calculated and fixed by the Assessor based upon the assessed valuation of the property within the various taxing districts. The Assessor extends the taxes to be levied within each taxing district upon a tax roll which contains the total amount of taxes to be so levied and collected. The tax roll is delivered to the County Treasurer by January 15 of each year, and an abstract of the tax roll, showing the total amount of taxes collectible in each of the taxing districts for the year, is delivered to the County Auditor at the same time. The County Auditor issues to the County Treasurer a warrant authorizing the collection of taxes listed on the Assessor s certified tax roll. The Treasurer creates a tax account for each taxpayer and is responsible for the collection of taxes due to each account. All such taxes are due and payable on the 30th of April of each year, but if the amount due from a taxpayer exceeds $50, one-half may be paid then and the balance no later than October 31 of that year. The method of giving notice of payment of taxes due, the Treasurer s accounting for the money collected, the division of the taxes among the various taxing districts, notices of delinquency, and collection procedures are all covered by detailed statutes. Tax Liens and Foreclosure Property taxes and all charges and expenses relating to the taxes constitute a statutory lien on the property taxed. The lien attaches to the property from and including January 1 in the year in which the tax is levied, and is discharged only when the taxes are paid. In other respects, and subject to the Homestead Exemption, the lien for delinquent property taxes is prior to all other liens or encumbrances of any kind on real or personal property subject to taxation. The courts have not decided whether the Homestead Law (Chapter 6.13 RCW) may give the occupying homeowner a right in the forced sale of the family residence for delinquent general property taxes to retain the first $125,000 of proceeds of the sale (see Algona v. Sharp, 30 Wn. App. 837, 638 P.2d 627 (1982), holding the homestead right superior to liens for local improvement district assessments). By law, the Treasurer may commence foreclosure of a tax lien on real property after three years have passed since the first delinquency. The County Treasurer may commence foreclosure proceedings in superior court upon all tax liens embraced by the certificate of delinquency. The County Treasurer must immediately sell the property to the highest and best bidder for cash upon entry of the order of foreclosure. The minimum bid allowable is the total amount of the taxes, interest, penalty and costs due. To the extent property is stricken to the County at a foreclosure sale, that property is exempt from taxation for so long as it is held by the County. A property owner may redeem his property at any time prior to the foreclosure sale by paying the County Treasurer the amount of the certificate of delinquency and all taxes, interest and costs accruing after the certificate of delinquency is issued, together with interest on such amount at the rate of 12 percent per annum. Tax Collection Record The following table shows the tax collection record of the County for the last five years. Taxes are due and payable on April 30 of each year succeeding the levy. The entire tax or first half must be made on or before April 30, or else the total amount becomes delinquent on May 1. The second half is payable on or before October 31, becoming delinquent November 1. 6

13 Amount Collected Collection Assessed Total Year of As of Year Valuation (1) Tax Levy Levy 4/30/ (2) $ 94,125,212,678 $125,434,420 $ 53,983,607 (2) $ 53,983, ,983,434, ,384, ,345, ,362, ,315,203, ,710, ,200, ,480, ,124,564, ,469, ,398, ,073, ,597,770, ,154, ,369, ,089,400 (1) Assessed valuation is based upon 100 percent of estimated actual valuation. (2) 2010 figures as of April 30, Source: Snohomish County Assessor and Treasurer Major Taxpayers The following table lists the largest taxpayers within the County, based on their 2010 collection year assessed valuation. Taxpayer Business 2010 Collection Year Assessed Value % of Assessed Value Boeing Commercial Aircraft $1,610,081, % GTE/Verizon Telecommunications 419,264, Equity Assets Mgmt Inc. Real Estate 289,107, Kimberly Clark Pulp and Paper 162,953, Avalonbay Communities Inc. Real Estate 156,487, Fred Meyer Retail Stores 155,490, Puget Sound Energy/Gas Utility 152,810, Teachers Ins & Annuity Assn. Real Estate 151,098, Arden Realty Inc. Real Estate 143,719, Alderwood Mall LLC Retail Stores 134,791, Total $3,375,802, % Source: Snohomish County Assessor. Collection of Other Taxes In addition to its regular property tax levy, the County also collects various other taxes, including among others a retail sales tax (also known as a local sales and use tax ) and a real estate excise tax. A table showing historical revenue from major sources is included at the end of this section. Local Sales and Use Tax. The State, counties and cities impose sales and use tax on the selling price for value on any retail sale or use of tangible personal property. The County s sales and use tax is collected by the State Department of Revenue and paid to the County on a monthly basis. The sales and use tax rates within the County as of April 1, 2010 are between 7.7 percent and 9.5 percent. From the tax rate collected in unincorporated areas, 1.0 percent goes to the County. From the tax rate collected in incorporated areas, 0.85 percent goes to the cities and 0.15 percent goes to the County. Additionally, 0.1 percent goes to the County and cities as a criminal justice tax, and 0.1 percent goes to the County as a source to be used for chemical dependency and mental health treatment. The remainder is distributed to the State and other public agencies. The amount of revenue generated by sales tax fluctuates from year to year due to changes in the economy, buying habits of consumers, and the level of construction taking place in the County. Real Estate Excise Tax. The County levies a real estate sale excise tax, which is levied on each sale of real property within the unincorporated areas of the County at the rate of 0.50 percent of the selling price. The following table shows the 2010 budgeted and historical revenues of the County from these taxes. The 2010 budgeted numbers reflect the County s modified budget in April

14 Modified Summary of Tax Revenues Account 2010 Budget Real & Personal Property Tax $ 67,692,296 $ 66,972,572 $ 66,487,821 $ 65,642,037 $ 63,869,880 $ 62,436,486 Sales and Use Tax 32,946,771 32,460,414 35,851,063 38,530,234 36,036,906 32,004,395 Retail Sales Tax Law & Justice 5,468,688 5,244,809 5,647,655 6,462,742 5,958,426 5,335,933 Chemical Dependency & Mental Health Tax (1) 9,742,015 7,633, Real Estate Excise Tax 9,708,666 7,683,502 9,661,389 21,099,233 26,788,967 23,895,135 Total Taxes $ 125,558,436 $ 119,994,794 $ 117,647,928 $ 131,734,246 $ 132,654,179 $ 123,671,949 (1) 2009 was the first year of collection. DEBT LIMITATION AND CAPACITY Voted Debt. Under State law, a county may issue general obligation bonds for general county purposes in an amount not to exceed 2.5 percent of the assessed value of all taxable property. Unlimited tax general obligation bonds require an approving vote, and any election to validate general obligation bonds must have a voter turnout of at least 40 percent of those who voted in the last State general election. Of those voting, 60 percent must vote in the affirmative. The principal of and interest on voted general obligation bonds are payable from property taxes in excess of regular property taxes, without limitation as to rate or amount. Non-voted Debt. The County Council may, by ordinance, authorize the issuance of limited tax general obligation bonds (including the Bonds) in an amount up to 1.5 percent of the assessed valuation of all taxable property within the County without authorization of the voters. No combination of limited and unlimited tax bonds may exceed 2.5 percent of the assessed valuation. The principal of and interest on non-voted debt is payable from regular property tax levies or from other available revenues of the County. Debt Capacity. The following table shows the County s general obligation debt capacity as of May 21, 2010, adjusted for issuance of the Bonds. Computation of Limitation of Indebtedness (As of May 21, 2010) 2010 Collection Year Assessed Value $ 94,125,212,678 Limited Tax General Obligation Debt Capacity (Non-voted) Limited Tax General Obligation Debt Capacity (1-1/2% of Assessed Valuation) $ 1,411,878,190 Less: Outstanding LTGO Bonds and Other Obligations (1) (2) (256,029,628) Less: The Bonds (119,740,000) Plus: Balance in Debt Service Fund 10,741,109 Remaining Capacity (Non-voted) $ 1,046,849,672 Tax General Obligation Debt Capacity (Voted and Non-voted) Total General Obligation Debt Capacity (2-1/2% of Assessed Valuation) $ 2,353,130,317 Less: Outstanding Unlimited General Obligation Bonds - Less: Outstanding LTGO Bonds and Other Obligations (1) (2) (256,029,628) Less: The Bonds (119,740,000) Plus: Balance in Debt Service Fund 10,741,109 Remaining Capacity (Voted and Non-voted) $ 1,988,101,798 (1) Includes State Public Works Trust Fund loans and other obligations. (2) Excludes the 2001 LTGO Bonds being refunded by the Bonds and the approximately $18,210,000 of 2010B and 2010C LTGO Bonds to be issued later this year. 8

15 SUMMARY OF DEBT SERVICE REQUIREMENTS AND FUTURE FINANCING The following table shows debt service on the County s outstanding limited tax general obligation bonds and the Bonds. The County has no unlimited tax general obligation bonds outstanding. Summary of General Obligation Bond Debt Service Requirements (1) Outstanding The Bonds Total Year Bonds Principal Interest Debt Service 2010 $ 24,819,971 $ - $ - $ 24,819, ,741,686 2,370,000 6,320,119 30,431, ,762,130 3,715,000 4,843,031 30,320, ,799,799 3,830,000 4,731,581 30,361, ,837,309 3,945,000 4,616,681 30,398, ,822,191 4,100,000 4,458,881 29,381, ,791,791 4,265,000 4,294,881 27,351, ,463,116 4,435,000 4,124,281 27,022, ,341,884 4,545,000 4,013,406 23,900, ,394,209 4,730,000 3,831,606 23,955, ,374,989 4,870,000 3,689,706 22,934, ,415,839 5,065,000 3,494,906 22,975, ,035,164 3,855,000 3,241,656 20,131, ,320,490 4,050,000 3,048,906 18,419, ,598,700 4,250,000 2,846,406 17,695, ,644,806 4,465,000 2,633,906 17,743, ,670,156 4,690,000 2,410,656 17,770, ,778,500 4,920,000 2,176,156 13,874, ,171,531 5,165,000 1,930,156 8,266, ,094 5,375,000 1,723,556 7,795, ,094 5,590,000 1,508,556 7,792, ,815,000 1,284,956 7,099, ,050,000 1,052,356 7,102, ,285, ,356 7,095, ,545, ,100 7,096, ,815, ,119 7,096,119 Total $ 295,175,449 $ 119,740,000 $ 73,918,925 $ 488,834,374 (1) Excludes the debt service on (i) the 2001 LTGO Bonds being refunded by the Bonds, (ii) the approximately $18,210,000 of 2010B and 2010C LTGO Bonds to be issued later this year, (iii) the 2009C LTGO Bond Anticipation Note to be refunded by the 2010C Bonds, and (iv) the $23,420, A LTGO Bond (Taxable), which the County plans to refinance or repay prior to its maturity date. Future Financings The County has no voter authorized but unissued debt. The County periodically issues bonds for capital improvements. Further, the County is currently planning to issue approximately $13,210,000 of its Limited Tax General Obligation Bonds, 2010, Series B (Federally Taxable Recovery Zone Economic Development Bonds) and $5,000,000 of its Limited Tax General Obligation Bonds, 2010, Series C later in the year. 9

16 Outstanding Long Term Debt The County has the following outstanding long term debt (including the Bonds and excluding the Refunded Bonds). Dated Date of Amount Amount Limited Tax General Obligation Bonds Date Maturity Issued Outstanding 1997 LTGO Series B 6/11/97 12/1/26 $ 1,134,775 $ 1,134, LTGO Refunding 3/15/01 12/1/18 22,805,000 13,380, LTGO 3/15/03 12/1/27 94,900,000 78,020, A LTGO & Refunding 10/15/03 12/1/27 15,610,000 4,675, A LTGO 6/16/05 12/1/30 10,685,000 9,570, B LTGO Refunding 6/16/05 12/1/19 33,990,000 30,120, LTGO 7/18/06 12/1/26 49,100,000 41,415, A LTGO (Taxable) 9/24/08 9/26/11 23,420,555 23,420, A LTGO Refunding 6/17/09 12/1/21 13,820,000 12,990, B LTGO 6/17/09 12/1/28 12,355,000 12,355, C LTGO Bond Anticipation Note 11/16/09 11/16/10 4,930,000 4,930,000 The Bonds 8/24/10 12/1/30 119,740, ,740,000 Total $ 402,490,330 $ 351,750,330 Source: Snohomish County (Remainder of page intentionally left blank) 10

17 COUNTY FINANCIAL INFORMATION Financial Summary Assessed Valuation (2010 Collection Year) - $94,125,212,678 Estimated 2009 Population 704,300 Assessed Valuation - 100% of Actual Value Net Direct and Estimated Overlapping Debt The following table shows general obligation debt of the County as of January 1, 2010, adjusted for the issuance of the Bonds, and estimated overlapping debt of other taxing entities in the County. Direct and Estimated Overlapping Debt Outstanding As of January 1, 2010 Direct Debt Unlimited Tax General Obligation Bonds $ - Outstanding Limited Tax General Obligation Debt (1) (2) 256,029,628 The Bonds 119,740,000 Less: Balance in Debt Service Fund (3) (10,741,109) Net Direct Debt $ 365,028,519 Estimated Overlapping Debt School Districts $ 1,263,062,829 Cities 142,318,247 Hospital Districts 81,117,364 Public Facilities Districts 47,165,000 Library Districts 16,471,712 Fire Districts 16,936,585 Port Districts 18,510,000 Water Districts 2,603,011 Park and Recreation Districts 541,441 Total Overlapping Debt $ 1,588,726,189 Total Net Direct and Overlapping Debt $ 1,953,754,708 (1) Includes State Public Works Trust Fund loans and other obligations. (2) Excludes the 2001 LTGO Bonds being refunded by the Bonds and the approximately $18,210,000 of 2010B and 2010C LTGO Bonds to be issued later this year. (3) As of May 21, Bonded Debt Ratios Net Direct to Assessed Valuation 0.39% Net Direct and Overlapping Debt to Assessed Valuation 2.08% Per Capita Assessed Valuation $ 133,644 Per Capita Net Direct Debt $ 518 Per Capita Net Direct and Overlapping Debt $ 2,774 Auditing of County Finances The County is audited annually by the State Auditor. The examination must include, among other things, the financial condition and resources of the County, whether the laws and Constitution of the State are being complied with, and the methods and accuracy of the accounts and reports of the County. Reports of the Auditor s examinations are required to be filed in the office of the State Auditor and in the auditing department of the County. 11

18 Excerpts from the County s audited 2009 Comprehensive Annual Financial Report are attached to this Official Statement as Appendix A. Accounting Practices The County s financial statements are prepared in conformity with generally accepted accounting principles (the GAAP ) as applied to governmental units. The Governmental Accounting Standards Board (the GASB ) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The accounts of the County are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures, or expenses, as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. For additional information see Appendix A - EXCERPTS FROM SNOHOMISH COUNTY S 2009 COMPREHENSIVE ANNUAL FINANCIAL REPORT. County Budgetary Process In July of each year, all agencies of the County government submit requests for appropriation to the County Executive so that a budget may be prepared. The budget is prepared showing for each fund, department, organization, activity, and object, actual expenditures for the prior year, current year estimates, and requested appropriations for the next fiscal year. On or before October 1 of each year the proposed budget is presented to the County Council for review. The County Council holds public hearings and may add to, subtract from or change appropriations, but may not change the form of the budget. Any changes in the budget must be within the revenues and reserves estimated as available by the County Executive or the revenue estimates must be changed by an affirmative vote of four members of the County Council. At least 30 days prior to the end of the fiscal year, the County Council must adopt the budget. Unless passed as emergency ordinances, appropriation ordinances approved by the County Council may be vetoed by the County Executive. The County Executive is authorized to approve budget transfers between appropriation units within an organizational unit; however the following circumstances require County Council approval: 1) revisions that alter the total expenditures of an organizational unit; 2) revisions that affect the appropriation units of salaries and wages, personnel benefits or capital outlay; 3) revisions that create new salaried positions; 4) revisions that establish new programs; 5) revisions that terminate existing programs; and 6) revisions that affect the non-departmental division of the current expense fund. 12

19 General Fund Comparative Balance Sheet (As of December 31) (1) ASSETS Current Assets Cash $ 4,098,601 $ 3,940,155 $25,584,957 $20,247,073 $15,255,765 Taxes Receivable 3,490,888 2,827,081 2,564,680 2,563,018 2,676,906 Other Receivables, Net (2) 4,849,288 4,321,585 1,007, , ,377 Interest Receivable 581, , ,924 1,063, ,979 Due from other Governments 11,428,485 10,631,500 12,287,209 13,572,375 11,344,328 Other Current Assets 17,841 1, ,382 Notes/Contracts Receivable 71,124 87,435 79,723 61,128 63,509 Total Current Assets $24,537,977 $22,802,737 $42,098,723 $38,252,330 $30,049,246 LIABILITIES Current Liabilities Accounts Payable $ 1,499,731 $ 2,113,682 $ 3,252,240 $ 2,162,012 $ 2,124,023 Due to other Funds (3) 6,000, ,399 Due to other Governments ,362 1,065 1,875 Accrued Liabilities 3,285,224 3,100,168 3,980,002 2,156,453 2,256,833 Deferred Revenue 4,639,465 3,831,500 3,610,019 3,027,689 2,691,447 Custodial Accounts 107,386 40,718 7,114 6,476 5,064 Total Current Liabilities $15,532,275 $ 9,086,490 $10,850,737 $ 7,353,695 $ 7,385,641 Total Liabilities $15,532,275 $ 9,086,490 $10,850,737 $ 7,353,695 $ 7,385,641 FUND BALANCES Total Unreserved/Unrestricted Equity (4) $ 9,005,702 $13,716,247 $31,247,986 $30,898,635 $22,663,605 Total Liabilities & Fund Balances $24,537,977 $22,802,737 $42,098,723 $38,252,330 $30,049,246 (1) Data for 2005 through 2009 are derived from the County s audited financial statements for each year. (2) Increase in 2008 due primarily to a prior period adjustment for franchise taxes. (3) Amount in 2009 reflects short-term interfund loan. Repaid in the first quarter of (4) See County Response to Economic Recession below for discussion of decrease in fund balance in 2008 and

20 General Fund Revenues and Expenditures (as of December 31) (1) Revenues Property Taxes $ 66,972,753 $ 66,510,532 $ 65,832,569 $ 63,993,228 $ 62,573,424 Sales/Use Taxes 37,829,766 41,190,681 44,992,980 43,124,719 38,585,391 Other Taxes 2,932,824 8,831,096 9,564,897 9,829,803 10,493,366 Licenses & Permits 3,858,410 3,585,338 3,033,967 2,744,882 2,488,857 Charges for Services 32,294,072 30,159,540 31,437,587 35,212,860 27,366,749 Operating Assessments 20,991 21,104 20,842 21,667 21,579 Intergovernmental Revenues 21,505,092 19,128,757 17,443,561 14,825,029 14,966,847 Fines & Forfeitures 6,418,127 5,453,110 5,657,711 6,031,254 5,051,617 Interest & Investment Earnings 9,593,313 5,080,412 8,695,624 7,891,966 4,700,573 Rents, Leases & Concessions 3,438,617 3,534,628 5,226,982 3,672,422 3,392,840 Private Contributions & Donations 25, Miscellaneous Revenues 1,100,432 1,132,544 1,210, , ,451 Total Revenues $185,989,397 $184,627,742 $193,116,747 $187,648,915 $170,118,694 Expenditures Judicial $ 32,235,096 $ 33,980,944 $ 32,110,245 $ 29,799,664 $ 23,815,475 General Government 43,894,579 48,955,105 47,156,791 35,052,529 31,975,911 Public Safety 97,877,531 99,928,510 94,207,057 95,356,201 89,985,359 Physical Environment Transportation ,128 44,493 61,054 Health & Human Services 4,004,116 4,078,559 4,302,421 4,027,064 8,762,135 Economic Environment 3,999,312 4,244,107 4,471,586 3,877,522 4,295,000 Culture & Recreation 9,008,932 9,287,575 9,078,386 9,021,282 8,485,402 Interest & Other Debt Service Cost (2) 533, ,477 1,189,015 11, Total Expenditures $191,553,431 $201,250,277 $192,559,629 $177,190,450 $167,380,687 Other Financial Sources (Uses) Transfers In $ 6,752,655 $ 3,925,095 $ 5,143,754 $ 3,782,833 $ 6,010,777 Transfers Out (5,920,088) (7,741,948) (6,772,179) (28,187,208) (14,208,607) Debt Proceeds - 23,420,555 1,189,015 22,180,940 - Payment to Refund Bond Escrow - (23,387,655) Disposition of Capital Assets (3) 20, ,643-10,500,795 Total Other Financial Sources (Uses) $ 853,489 $ (3,783,953) $ (207,767) $ (2,223,435) $ 2,302,965 Net Change in Fund Equity $ (4,710,545) $(20,406,488) $ 349,351 $ 8,235,030 $ 5,040,972 Fund Balances - Beginning 13,716,247 31,247,986 30,898,635 22,663,605 11,462,000 Transfers/Adjustments (4) - 2,874, ,160,633 Fund Balances - Ending (5) $ 9,005,702 $ 13,716,247 $ 31,247,986 $ 30,898,635 $ 22,663,605 (1) Data for 2005 through 2009 are derived from the County s audited financial statements for each year. (2) Amounts in 2007 through 2009 reflect interest on the County s variable rate 2008 Series A Bond. (3) Amount in 2005 reflects the sale of surplus County property. (4) Reflects accounting adjustments related to one time increases in sales tax revenues (2005) and franchise fees (2008) resulting from the modified accrual method of accounting. (5) See County Response to Economic Recession below for discussion of decrease in fund balance in 2008 and

21 General Fund Budget The County s 2010 General Fund Budget, as modified in April 2010 in response to the economic recession, is shown below. General Fund Budget (Year Ending December 31) 2010 Revenues Property Taxes $ 67,692,296 Sales/Use Taxes 38,415,459 Business and Other Taxes 2,549,543 Operating Assessments 21,000 Licenses & Permits 3,783,923 Intergovernmental Revenues 22,724,933 Charges for Services 33,364,869 Fines & Forfeitures 6,167,256 Interest & Investment Earnings 8,804,677 Rents, Leases & Concessions 3,647,886 Private Contributions & Donations - Miscellaneous Revenues 1,321,608 Disposition of Fixed Assets 1,275,000 Transfers In 10,832,841 Bond Proceeds - Fund Balance (2,915,294) Total Revenues $ 197,685,997 Expenditures Salaries and Wages $ 107,198,702 Personnel Benefits 35,865,463 Supplies 3,683,224 Services and Charges 15,769,812 Intergovernmental/Operating transfers 8,450,539 Capital Outlay 197,072 Debt 500,000 Interfund payment for services 26,021,185 Total Expenditures $ 197,685,997 County Response to Economic Recession The current economic recession has had an impact on the County s financial condition with taxes and other revenues below expectations. As a result, the County decreased its general fund balance in In the 2009 adopted budget, resources were reduced $9.2 million, including 93 fewer employees paid from the County s General Fund, compared to the 2008 budget. Further, a mid-year budget modification, adopted by the County Council in March 2009, reduced 2009 budgeted revenues by an additional $6.7 million and made similar reductions to expenditures. A primary element of the 2009 supplemental expenditure reductions was a furlough program for most General Fund-funded employees outside of the Sheriff s Office. The Sheriff s Office made similar large reductions in its budget, but did not utilize furloughs. The starting point for developing the County s 2010 budget included all of the dollar reductions in the 2009 budget. Additional reductions were added to that budget based on current economic forecasts. The County is continuing to make reductions to its budgeted expenditures in On April 14, 2010, the County Council passed a budget revision ordinance which reduces 2010 General Fund budgeted revenues by $3.6 million to reflect the most recent financial trends. In addition to reducing General Fund revenues, the budget revision also reduced General Fund budgeted expenditures by $6.5 million. 15

22 The net result of the April 2010 action is a budgeted $2.9 million increase to the General Fund s 2010 fund balance, a first step towards increasing General Fund reserves to targeted levels. The action insulates the County from having to make additional reductions later in the year should the County experience further revenue shortfalls. The 2010 budget information presented above includes these budget revisions. INVESTMENT POLICY The County Treasurer receives deposits and makes investments on behalf of the County and of junior taxing districts for which the Treasurer serves as treasurer. All temporary investments are stated at cost plus accrued interest, which approximates market. Investments are shown on the combined balance sheet at cost, net of amortized premium or discount. Reductions in market value are not reflected on the financial statements. Gains or losses on investments sold or exchanged are recognized at the time of sale or exchange. County Investment Policy The County has had an adopted investment policy with investment objectives, in order of priority, of safety, liquidity, and yield. The Treasurer follows a conservative investment approach, and the County holds no derivative investments. The County holds most of its investments until maturity, especially those that are particularly interest rate sensitive. Investments are reported at fair value which is materially equivalent to cost. The County s investments include monies invested by individual funds and residual cash invested for the benefit of the general fund. In accordance with its investment policy, the County manages its exposure to investments that are highly sensitive to changes in fair value due to interest rate change by limiting the weighted average of maturity of its investments. In accordance with the policy one half of the portfolio is comprised of investments maturing within a year; the remainder of the portfolio will not exceed five years in maturity. The following table shows the fair value of investments managed by the Treasurer on behalf of the County and junior taxing districts as of April 30, All of the investments were considered in the lowest credit risk profile by the County. Investment Type Fair Value U.S. Agencies $181,263,140 State Investment Pool (LGIP) 896,719,424 Municipal Investor Account 24,304,567 (1) Certificate of Deposit 5,000,000 (1) Interest-bearing account at local bank Authorized Investments Chapter RCW limits the investment of public funds by local governments to the following authorized instruments: (i) bonds of the State or any local government in the State or general obligation bonds of any other state or political subdivision thereof which has at the time of investment one of the three highest credit ratings of a nationally recognized rating agency, (ii) registered warrants of a local government in the same county as the local government making the investment, (iii) certificates of deposit and (iv) any investments authorized by law for the State Treasurer. In addition to these instruments, bond proceeds may be invested in qualified money market and mutual funds which restrict their portfolios to specified securities and post a bond with the State (RCW ). Investments authorized by law for the State Treasurer include (i) obligations of the U.S. government, its agencies and wholly owned corporations, (ii) bankers acceptances, (iii) commercial paper, (iv) obligations of the Federal Home Loan Bank, Fannie Mae and other government-sponsored enterprises, (v) motor vehicle fund warrants and (vi) certificates of deposit (Chapter RCW). Utility revenue bonds and warrants of any city and bonds or warrants of a local improvement district are also eligible investments (RCW ). The County Treasurer may place funds in the Local Government Investment Pool (the LGIP ), as described below. The LGIP is comparable to a Rule 2a-7 money market fund, as recognized by the Securities and Exchange Commission, and its average maturity does not exceed 90 days. 16

23 State Government Investment Pool The Office of the State Treasurer administers the State LGIP, a fund that invests money on behalf of more than 640 cities, counties, special taxing districts and State agencies. The LGIP had approximately $8.2 billion under investment as of March The LGIP s investment objectives are, in priority order: (i) the safety of principal; (ii) maintaining adequate liquidity to meet cash flow demands; and (iii) to provide a competitive interest rate relative to the first two goals. Historically, the LGIP has had sufficient liquidity to meet all cash flow demands. The LGIP, authorized by Chapter RCW, is a voluntary pool which provides its participants the opportunity to benefit from the economies of scale inherent in pooling. It is also intended to offer participants increased safety of principal and the ability to achieve a higher investment yield than would otherwise be available to them. The LGIP is invested in securities with a maximum final maturity of 397 days except for floating-rate and variable-rate securities and securities that are used for repurchase agreements, and the average life typically is less than 90 days. Investments permitted under the LGIP s guidelines generally include repurchase agreements, U.S. Treasury bills and notes, U.S. agency discount notes, coupons, floating-rate and variable-rate notes, reverse repurchase agreements and bank deposits. SNOHOMISH COUNTY The County operates under a home rule charter, adopted by a vote of the electorate in 1979, and subsequently amended through the charter review process. The County Council, which consists of five members elected by district, is the policy-determining and legislative body of the County. The County Council levies taxes, makes appropriations, and adopts the budget for the County. The elected County Executive presents to the County Council the annual budget, an annual statement of the financial and governmental affairs, and capital improvement plans. The Finance Director holds responsibility for accounting and financial reporting; the elected County Treasurer maintains responsibility for tax collection, receipt of county funds, and the investment of those funds. The County provides some services to both cities and unincorporated areas, and other services only to unincorporated areas. Within appropriate jurisdictions, the County provides road construction and maintenance, law enforcement, criminal prosecution and indigent defense, superior and district court services, criminal detention and correction, tax assessment and collections, planning and community development services, elections and recordings, autopsies, and an array of human services, including mental health, aging, and developmental disability services. The County owns and operates an airport and industrial park, solid waste disposal facilities, fleet management and road maintenance facilities, a golf course, a variety of parks, trails and parkland acreage, a fairgrounds and a data processing center. County Executive The County Executive is an elected position. The County Executive appoints the Deputy County Executive and the Finance Director. Brief resumes for the individuals who currently serve in these positions, for the members of the County Council and for the County Treasurer follow. Aaron Reardon, County Executive, is currently serving his second term. Prior to taking office on January 1, 2004, Mr. Reardon served for five years in the State Legislature, most recently as a Senator and, prior to that, as a member of the House of Representatives, representing the 38th Legislative District. His successes in his first term as County Executive include instituting priorities-based budgeting, developing an Agriculture Action Plan to assist local farmers, instituting an online performance measurement system for County services, and developing a blueprint for the economic future of Snohomish County. In State government, Mr. Reardon chaired the House Committee on Economic Competitiveness in 2002 and served as a member of the Joint Select Committee on Military and Veterans Affairs. His other committee responsibilities included Financial Services, Insurance and Housing, Government Operations and Elections, and Ranking Member on Technology and Communications. During his tenure in the State legislature, Mr. Reardon worked toward government accountability, public safety, and urban renewal, which earned him special appointments to the Democratic Leadership Council, the Washington Economic Development Finance Authority, the Western Congress of States and the Pacific Northwest Regional Economic Council. Prior to the State legislature, Mr. Reardon worked as an economic development specialist for the Downtown Seattle Association, where in 1997 he managed three business improvement areas, and helped develop the 10-year strategic plan for the downtown core. Mr. Reardon earned a Bachelor s Degree in Political Science and Public Administration with a minor in Economics from Central Washington University and is a lifelong resident of Everett, Washington. 17

24 Gary Haakenson, Deputy County Executive, was appointed in He had served as the Mayor of the City of Edmonds for the previous 11 years and served on the Edmonds City Council for four years before being elected mayor. Prior to entering government service, Mr. Haakenson worked in retail management including co-founding Zumiez, a national retail clothing chain with nearly 400 stores. Mr. Haakenson earned a Bachelor s Degree in Business Administration from Seattle University. Roger Neumaier, CPA, Finance Director, began his employment with Snohomish County in Prior to Snohomish County, he worked for twelve years for the State as chief finance officer for Labor and Industries and later for the Health Care Authority. He was employed by Seafirst Corporation prior to his employment at the State. Mr. Neumaier is a CPA and a graduate of Carleton College in Minnesota. County Treasurer Kirke Sievers was elected County Treasurer in November 2008 after serving three consecutive four year terms with the County Council. Mr. Sievers, who holds a Bachelor s of Arts degree in Business and a teaching certificate from the University of Washington, previously served 21 years as County Treasurer, taught business classes for 23 years at Everett Community College, and taught Business Education for 6 years in the Marysville School District. Mr. Sievers participates in various civic organizations, including the Everett Navy League and the Port Gardner Neighborhood Association. County Council The current members of the County Council and their respective term expiration dates are as follows: Council Members Council Member Position Current Term Expires Dave Gossett Chair December 31, 2013 Dave Somers Vice-Chair December 31, 2013 Brian Sullivan Member December 31, 2011 John Koster Member December 31, 2013 Vacant * Member December 31, 2011 * Position to be filled in accordance with County Charter, expected to occur in August Dave Gossett, County Council Chair, was first elected to the County Council in November 2001, and chairs the Law and Justice Committee. His previous work includes eleven years of employment as Legislative Analyst to the County Council, and twelve years of service on the Mountlake Terrace City Council, including a six-year term as Mayor. He also serves as a board member on the Puget Sound Regional Council Operations Committee, I-405 Steering Committee, Greater Seattle Trade Development Alliance, the Economic Development District, the North Sound Mental Health Administration, the County E911 system, the Snohomish Health District, the Northshore Parks and Recreation Service Area Board, and Community Transit. Mr. Gossett holds both a Bachelor s degree in History and Philosophy and a Master s degree in History from the University of Washington, where he graduated magna cum laude. Dave Somers, County Council Vice-Chair, is serving his second term on the County Council and chairs the Planning and Development Committee. He has served as chair of the Puget Sound Regional Council s Growth Management Policy Board and the Puget Sound Clean Air Agency. He served as a member of the Executive Committee for the Tri-County salmon recovery effort and the Forest Practice Board. From , he served as a policy analyst for the Northwest Indian Fisheries Commission. He received the Washington State Environmental Excellence Award in 1988 for his work on the Timber/Fish/Wildlife agreement and the development of the Puget Sound Action Plan. Mr. Somers is a graduate of the University of Washington with a Bachelor of Science degree in Fisheries Science and a Master of Science degree in Forest Ecology. Brian Sullivan was elected to the County Council in November Mr. Sullivan was elected as State Representative, 21st District in 2001 and served until January Mr. Sullivan previously served as Mayor of Mukilteo ( ) and as a City Councilmember in Mukilteo ( ). His community involvement includes: Mukilteo/South Everett Rotary, Member Boys and Girls Clubs of America and Boardmember to various groups including the Snohomish County Chapter of the American Red Cross, Mukilteo Lions Club and Mukilteo 18

25 Boys' and Girls' Club Parent Board. Mr. Sullivan studied Political Science at the University of Washington and Central Washington University. John Koster was first elected to the County Council in November Previously, he served six years in the State House of Representatives, on the Transportation, Criminal Justice & Corrections, Agriculture & Ecology, and Capital Budget committees, and currently chairs the County Council s Operations Committee. He has served on the Snohomish County Agriculture Advisory Committee and is a past Board President of the Arlington Christian School. A graduate of Arlington High School and Everett Community College, Councilman Koster has worked as a business consultant and is a third generation dairyman who owned and operated his own business for over 20 years. Labor Relations Snohomish County has 2,661 regular employees, of which 2,233 are members of bargaining units. The bargaining units representing County employees and their current contract expiration dates are shown on the table below. Bargaining Unit Approximate Number of Employees Contract Expires American Federation of State, County and Municipal Employees 1,507 12/31/2010 County Clerks Association 70 12/31/2010 Corrections Custody Guild (1) /31/2009 International Association of Firefighters 12 12/31/2011 Teamsters Union (2) /31/2010 Snohomish County Deputy Sheriff's Association (3) 255 3/31/2010 Sheriff s Office Management Team (4) 13 3/31/2010 (1) Currently in negotiation. (2) Includes four Teamster units. (3) Contract extension through March 31, 2011 currently pending. (4) Contract negotiations not yet opened. Pension System Salaried employees of the County are covered by pensions operated and managed by the State. County employees are covered by the Public Employees Retirement System ( PERS ), the Public Safety Employees Retirement System ( PSERS ) and the Law Enforcement Officers and Firefighters Retirement System ( LEOFF ). PERS, PSERS and LEOFF are cost-sharing multiple-employer public employee retirement plans. LEOFF includes two plans, PSERS includes one plan and PERS includes three plans: LEOFF Plans 1 and 2, PSERS and PERS Plans 1 and 2 are defined benefit plans and PERS Plan 3 is a combination defined benefit/defined contribution plan. Defined benefit retirement benefits are financed from a combination of investment earnings and employer and employee contributions. Retirement benefit provisions are established in State statute and may be amended only by the State Legislature. PERS, PSERS and LEOFF employer and employee contribution rates have risen over the past few years, but the State legislature reduced those contribution rates for the state budget biennium. Rates are expected to increase for the next state budget biennium. The County s contributions to PERS and PSERS are current, and there is no unfunded liability on the part of the County. The County contributed $10,095,688, $800,411, and $1,232,405 to PERS, PSERS, and LEOFF, respectively, in 2009 for all of the County s employees covered under such plans. The GASB issued a standard concerning Accounting and Financial Reporting by employers for Post Employment Benefits Other than Pensions (GASB 45). In addition to pensions, many state and local governments provide other post employment benefits ( OPEB ) as a part of total compensation to attract and retain the services of qualified employees. OPEB includes post retirement health care as well as other forms of post employment benefits when provided separately from a pension plan. The standard provides for the measurement, recognition, and display of OPEB expenses/expenditures, related liabilities (assets), note disclosures, and if applicable, required supplementary information in the financial reports. This pronouncement was effective for the County for the fiscal year ending on December 31, The County allows retirees to participate in a medical program at the time retirement begins. Most retirees are responsible for paying the full medical insurance premium, which prior to retirement was paid in part by the County. However, the County pays for the full medical premium and all other medical costs not covered by the 19

26 medical plan for County retirees who are members of the LEOFF Plan 1. This group consists of 5 current and 71 retired employees who worked as full-time law enforcement officers or firefighters for the County prior to October 1, Insurance The County uses two internal service funds to account for and finance: (1) property/casualty and worker s compensation programs, and (2) employee medical and dental benefits self-insurance programs. The County purchases insurance for liability and property damage losses greater than the self-insured retention of one million dollars. Workers compensation insurance is purchased for claims that exceed $500,000. The County has invested in a loss control program to anticipate and respond to areas of risk thereby managing and limiting liability exposure. The County provides employee health care benefits through a self-insured health care plan provided through a thirdparty administrator. Eighty percent of the County s workforce receives coverage through this self-insured plan. Twenty percent receives coverage through an insured health maintenance organization. This plan includes individual and aggregate stop-loss coverage as recommended by the County s actuarial health care consultant. Both the property/casualty self-insured plan and the employee benefit self-insured plan are reviewed under the auspices of the State Office of Risk Management. GENERAL AND ECONOMIC INFORMATION The County encompasses a land area of approximately 2,100 square miles in northwestern Washington. The County extends from Puget Sound to the crest of the Cascade Mountain range 70 miles to the east. The County includes a significant portion of the Puget Sound metropolitan area and is the third most populated county in the State, after King and Pierce Counties. Historical population figures for the County and the City of Everett are shown as follows: Source: Washington State Office of Financial Management. Population Snohomish City of Year County Everett , , , , , , , , ,800 97,500 Industry and Employment The County s economy is an urban-rural mix. A high technology, urban job market predominates in Everett and the southern part of the County, including aircraft production, biotechnology, electronics and electrical equipment manufacturing. Additionally, in the northern and eastern regions of the County, agriculture and forest products remain strong. Snohomish County has benefitted from significant economic and population growth in Western Washington over the last decade and has been among the fastest growing counties in the State. As Seattle and King County, directly to the south, run out of developable land, business and residential growth in Snohomish County is expected to continue. The Boeing Company The Boeing Company ( Boeing ), the County s largest employer, established an airplane manufacturing plant at the south end of the City of Everett in From its original size, it was expanded by more than 45 percent in 1980 to house the 767 assembly line, and another 50-percent enlargement was added in 1993 for 777 assembly. The Boeing Everett factory accommodates production lines for the 747, 767, 777 and 787 airplanes. Production rates vary with market activity, but have been as high as seven per month for the 747 and 777, and five per month for the 767. Located adjacent to the Snohomish County Airport ( Paine Field ), the complex presently includes the world s largest volume building with 472 million cubic feet. In addition to the factory and warehouses, the site contains nine office buildings and one 500,000-square-foot building that supplies interior paneling and stowage bins 20

27 for all Boeing jetliners. The first flights of the 787 and the new long-range freighter, the 747-8, took place in December 2009 and February 2010, with first deliveries scheduled in the fourth quarter of Paine Field Paine Field, owned and operated by the County, lies just southwest of Everett. The airport is used by Boeing in conjunction with its Everett production facility. The Federal Aviation Administration has designated Paine Field as a reliever airport, to relieve congestion at Seattle-Tacoma International Airport when high volume and weather conditions dictate. The Future of Flight Aviation Center and Boeing Tour, offering hands-on exhibits, videos, graphics and interactive stations, and an adjacent hotel were completed in December 2005 near Paine Field. A number of businesses are located at Paine Field, which serves as an economic development tool for the region. Paine Field is accounted for as an enterprise fund by the County. Port of Everett The Port of Everett (the Port ), a major deep-water port on Puget Sound, is an important element in the County s economy. The Port s operations include nine deep-water piers, three steel warehouses and the largest marina on the west coast, with 2,200 moorage slips. The Port opened the 12 th Street Yacht Basin in June 2007, a new marina located just north of the main Everett Marina. This marina offers access to the San Juan Islands for personal crafts. It was designed with larger vessels in mind and will accommodate yachts 40 to 70 with end-ties up to 140. A commercial village with shops and restaurants is also part of the marina, which has become an important local tourist attraction. U.S. Navy Home Port The U.S. Navy operates a $265 million homeport for a nuclear aircraft carrier battle group in Everett. Naval Station Everett is home to two destroyers, three frigates, one nuclear-powered aircraft carrier and two Coast Guard cutters. There are approximately 5,500 sailors and 650 civil service persons assigned to Naval Station Everett. Transportation/Commercial Trade Transportation is an important aspect of the County s economy. In addition to the Port activity, the area is served by east-west and north-south rail service. Interstate 5, running north-south, provides access to Seattle and Tacoma and Interstate 405 connects to Bellevue and other communities east of Seattle. Five airfields in the County, including Paine Field, handle private and chartered aircraft. The nearest major commercial airport is Seattle- Tacoma International Airport, 55 miles south of Everett. Everett Transit and Community Transit provide bus transportation in and around Everett. Two Washington State ferry docks are located in the County for commuters to the Olympic Peninsula from Edmonds and to Whidbey Island from Mukilteo, just south of Everett. A daily commuter train runs from Everett to Seattle with over 68,000 boardings in the fourth quarter of 2009, a 3% decrease over the similar quarter in Express bus service connecting the County with Seattle and East King County also saw ridership increases in 2009 of 5% and 3%, respectively, due in part to the opening of the South Everett Parkand-Ride in September Commercial trade is a major contributor to the County s economy. The Everett Mall has four anchor stores and approximately 104 shops. Alderwood Mall, one of the Northwest s largest retail centers, is located in Lynnwood. High Technology In south Snohomish County, a technology corridor has developed which includes over 18 million square feet of commercial space in business parks in a ten-mile area which spans from the Cities of Bothell to Everett. The corridor includes seven major business centers. The Koll North Creek complex and the Quadrant Business Park - Bothell are located in King County while the Canyon Park Business Center, Harbor Pointe, Seaway Center, Quadrant I-5 Business Center and Quadrant Monte Villa Center are all in Snohomish County. The technology corridor is expected to continue to be a growing segment of the County s economy. 21

28 Following are employment and economic indicators for the County. Employment Characteristics Labor Force and Employment Data (1) Annual Average Snohomish County May 2010 (2) May Civilian Labor Force 382, , , , , , ,140 Employment 347, , , , , , ,440 Unemployment 34,730 37,280 36,590 20,060 15,500 16,270 17,700 Unemployment Rate 9.1% 9.7% 9.5% 5.4% 4.2% 4.5% 5.1% Washington State Civilian Labor Force 3,516,540 3,532,900 3,528,710 3,476,370 3,390,410 3,317,390 3,255,530 Employment 3,206,470 3,218,320 3,214,500 3,290,090 3,235,960 3,154,420 3,075,970 Unemployment 310, , , , , , ,560 Unemployment Rate 8.8% 8.9% 8.9% 5.4% 4.6% 4.9% 5.5% (1) Not seasonally adjusted. (2) Preliminary. Source: Washington State Department of Employment Security Nonagricultural Wage and Salary Employment Snohomish County Annual Averages NAICS Industry Title 2010 (1) Construction 17,000 18,100 22,700 25,000 22,000 19,800 Manufacturing 51,700 52,800 55,400 53,900 48,400 44,500 Trade, Transportation and 41,800 42,700 45,200 44,700 41,300 39,100 Utilities Information 4,700 4,900 5,500 5,900 5,200 4,100 Financial Activities 11,100 11,500 12,500 13,200 13,100 12,900 Professional and Business 19,800 20,800 22,700 23,200 20,300 19,100 Services Education and Health Services 26,900 26,100 25,200 24,100 22,500 21,500 Leisure and Hospitality 22,000 22,600 23,700 23,600 22,000 20,600 Other Services 8,800 8,900 9,000 8,800 8,500 9,000 Government 38,600 38,800 38,100 36,700 36,400 36,500 Total Nonfarm (2) 242, , , , , ,000 (1) Through April Data for April is preliminary. (2) Totals may not add due to rounding. Source: Washington State Employment Security Department, Labor Market and Economic Analysis Branch Economic Indices Snohomish County County Building Permits New Construction Year Median Household Income Taxable Retail Sales Number of Permits Value of Permits 2009 N/A $ 9,244,408,434 1,873 $423,957, $67,324 10,320,564,762 1, ,102, ,755 11,209,498,657 3, ,808, ,485 10,438,479,556 3, ,527, ,311 9,292,804,838 4, ,992,985 Sources: U.S. Bureau of Economic Analysis, Washington State Department of Revenue and U.S. Census Bureau 22

29 The major private and public employers in the County are shown on the following table: Major Private Employers Major Public Employers Employer Employment Employer Employment The Boeing Company 32,000 Naval Station Everett 6,000 Providence Everett Medical Center 3,200 Washington State 2,800 Premera 3,200 Snohomish County Government 2,661 Tulalip Tribes 3,020 Everett School District 1,700 Philips Medical Systems 1,600 Stevens Healthcare 1,400 Verizon 1,500 Edmonds School District 1,350 Zumiez (1) 1,400 Monroe Correctional Complex 1,200 Aviation Technical Services 1,400 City of Everett 1,200 Everett Clinic 1,400 Marysville School District 1,200 CEMEX (Rinker Materials) 1,200 Snohomish PUD (electric utility) 900 (1) Subsequent to the date of this information, Zumiez announced intentions to close its Everett Distribution Center, relocating that portion of its business to Corona, California. Source: Economic Development Council, Snohomish County, 2009 and the County. LITIGATION The County is not aware of any current claims which would not be covered under either its self-insurance program or its umbrella liability insurance policy. There is no litigation pending or threatened questioning the validity of the Bonds or the power and authority of the County to issue the Bonds. INITIATIVES Under the State Constitution, the voters of the State have the ability to initiate legislation through the power of initiative. Initiatives to the Legislature and initiatives to the voters are submitted upon receipt of petitions signed by at least eight percent of the number of voters registered and voting for the office of Governor at the preceding regular gubernatorial election. Qualifying initiatives to the voters are submitted at the next state general election and must be approved by a majority of voters to be enacted into law. Initiatives to the Legislature are submitted to the Legislature at its regular session each January. Once submitted, the Legislature must either adopt the initiative as proposed, reject the proposed initiative (in which case the initiative must be placed on the ballot at the next state general election) or approve an amended version of the proposed initiative (in which case both the amended version and the original proposal must be placed on the next state general election ballot). Any initiative approved by a majority of voters may not be amended or repealed by the Legislature within a period of two years following enactment, except by a vote of two thirds of all the members elected to each house of the Legislature; after two years, the law is subject to amendment or repeal by the Legislature in the same manner as other laws. APPROVAL OF COUNSEL Legal matters incident to the authorization, execution and delivery of the Bonds are subject to the unqualified approving legal opinion of Gottlieb Fisher PLLC, Seattle, Washington, Bond Counsel. The form of Bond Counsel s approving opinion is included in Appendix B of this Official Statement. TAX EXEMPTION Federal Income Taxation In the opinion of Gottlieb Fisher PLLC, Bond Counsel, as of the Date of Issue and assuming compliance by the County with applicable requirements of the Internal Revenue Code of 1986, as amended (the Code ), that must be satisfied subsequent to the issuance of the Bonds, under existing federal law, interest on the Bonds (including any original issue discount properly allocable to an owner thereof) is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of determining the federal alternative minimum tax imposed on individuals and corporations. However, under existing federal law, interest on the Bonds is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax 23

30 imposed on certain corporations. Bond Counsel expresses no opinion as to any other federal or state tax consequences of the ownership or disposition of the Bonds. Potential purchasers of the Bonds should consult with their tax advisors as to all possible tax consequences of ownership of the Bonds. See also, Other Federal Tax Matters, herein. Continuing Requirements The Code contains certain requirements that must be satisfied subsequent to the issuance of the Bonds in order to maintain the exclusion of interest on the Bonds (including any original issue discount properly allocable to an owner thereof) from gross income for federal income tax purposes, including requirements relating to application of the proceeds of the Bonds, use of facilities refinanced with such proceeds, limitations on income derived from the investment of gross proceeds of the Bonds (as defined in Section 148 of the Code), and rebate to the United States Treasury of certain investment earnings on such gross proceeds. The County has covenanted to comply with these requirements to the extent applicable, and the opinion expressed by Bond Counsel and described in the preceding paragraph assumes such compliance. However, Bond Counsel has not undertaken and does not undertake to monitor compliance by the County with such requirements; and if the County should fail to comply with such requirements, interest on the Bonds (including any original issue discount properly allocable to an owner thereof) could become includable in gross income for federal income tax purposes and could be treated as an item of tax preference for purposes of determining the federal alternative minimum tax imposed on individuals and corporations, in each case, retroactively to the Date of Issue. Original Issue Discount The Bonds maturing on December 1 in the years 2030, 2032, and 2035 are Discount Bonds. The difference between the principal amount of a Discount Bond and the initial offering price to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriter or wholesaler) at which price a substantial amount of the Discount Bonds of the same maturity was sold constitutes original issue discount, which is excluded from gross income for federal income tax purposes to the same extent as interest on the Discount Bonds. Further, this original issue discount accrues on the basis of a constant yield to maturity over the term of each Discount Bond and the basis of each Discount Bond acquired at such initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount. Original Issue Premium The Bonds maturing on December 1 in the years 2011 through 2027, inclusive, are Premium Bonds. An amount equal to the excess of the purchase price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bonds. A purchaser of a Premium Bond must amortize any premium over the term of such Premium Bond using constant yield principles, based on the yield to maturity of such Premium Bond. As premium is amortized, the purchaser s basis in the Premium Bond is reduced by a corresponding amount, resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes on sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser s basis is reduced, no federal income tax deduction is allowed. Purchasers of Premium Bonds, whether at the time of initial issuance or subsequent thereto, should consult their tax advisors with respect to the determination and treatment of premium for federal income tax purposes, and with respect to state and local tax consequences of owning such Premium Bonds. Other Federal Tax Matters Ownership of the Bonds may result in other federal tax consequences to certain taxpayers, including, without limitation, certain S corporations, foreign corporations with branches in the United States, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, and taxpayers, including banks, thrift institutions and other financial institutions subject to Section 265 of the Code, who may be deemed to have incurred continued indebtedness to purchase or to carry the Bonds, and taxpayers who have any initial basis in the Bonds greater or less than the principal amount thereof. Bond Counsel is not rendering any opinion as to any federal tax matters other than as described above under the caption TAX EXEMPTION Federal Income Taxation. Prospective purchasers of the Bonds should consult their independent tax advisors. PRESERVATION OF TAX EXEMPTION The County has covenanted in the Bond Legislation that it will not make any use of the proceeds from the sale of the Bonds or any other funds of the County that may be deemed to be proceeds of such Bonds pursuant to 24

31 Section 148 of the Code and the applicable regulations thereunder that will cause the Bonds to be arbitrage bonds within the meaning of said Section and said regulations and that the County will comply with the applicable requirements of Section 148 of the Code (or any successor provision thereof applicable to the Bonds) and the applicable regulations thereunder throughout the term of the Bonds. CONTINUING DISCLOSURE In accordance with subsection (b)(5)(i) of SEC Rule 15c2-12, the County has agreed in the Sale Motion to the following written undertaking for the benefit of the Owners and Beneficial Owners of the Bonds: Financial Statements/Operating Data. The County agrees to provide or cause to be provided to the Municipal Securities Rulemaking Board (the "MSRB") the following annual financial information and operating data for the prior fiscal year (commencing in 2011 for the fiscal year ended December 31, 2010): i. Annual financial statements prepared in accordance with the Budget Accounting and Reporting System ( BARS ) prescribed by the Washington State Auditor pursuant to RCW (or any successor statutes) and generally of the type attached as Appendix A to the official statement for the Bonds, which statements will not be audited, except that if and when audited financial statements are otherwise prepared and available to the County they will be provided; ii. iii. iv. A summary of the assessed value of taxable property in the County; A summary of budgeted General Fund revenues and appropriations; A summary of ad valorem property tax levy rates per $1,000 of assessed value, property taxes collected and delinquency rates; v. A summary of outstanding tax-supported indebtedness of the County; and vi. A schedule of the aggregate annual debt service on tax-supported indebtedness of the County. Items (ii) through (vi) shall be required only to the extent that such information is not included in the annual financial statement. Such annual information and operating data described above shall be provided on or before the expiration of nine months after the end of the County s fiscal year. The County s fiscal year currently ends on December 31. The County may adjust such fiscal year by providing written notice of the change of fiscal year to the MSRB. In lieu of providing such annual financial information and operating data, the County may cross-reference to other documents available to the public on the MSRB's internet web site or filed with the SEC. If not provided as part of the annual financial information discussed above, the County shall provide the County s audited annual financial statement prepared in accordance with BARS when and if available to the MSRB. Material Events. The County agrees to provide or cause to be provided, in a timely manner, to the MSRB, notice of the occurrence of any of the following events with respect to the Bonds, if material: i. Principal and interest payment delinquencies; ii. iii. iv. Non-payment related defaults; Unscheduled draws on debt service reserves reflecting financial difficulties; Unscheduled draws on credit enhancements reflecting financial difficulties; v. Substitution of credit or liquidity providers, or their failure to perform; 25

32 vi. vii. viii. ix. Adverse tax opinions or events affecting the tax-exempt status of the Bonds; Modifications to rights of Bondholders; Optional, contingent or unscheduled calls of any Bonds other than scheduled sinking fund redemptions for which notice is given pursuant to Exchange Act Release ; Defeasances; x. Release, substitution or sale of property securing repayment of the Bonds; and xi. Rating changes. Solely for purposes of disclosure, and not intending to modify its undertaking, the County advises with reference to items (iii) and (x) above that no debt service reserves secure payment of the Bonds and no property secures repayment of the Bonds. The County agrees to provide or cause to be provided, in a timely manner, to the MSRB, notice of its failure to provide the annual financial information described above on or prior to the date set forth above. Electronic Format; Identifying Information. The County agrees that all documents provided to the MSRB pursuant to its undertaking shall be provided in an electronic format and accompanied by such identifying information, each as prescribed by the MSRB. Termination/Modification. The County s obligations to provide annual financial information and notices of material events shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. This section, or any provision hereof, shall be null and void if the County (i) obtains an opinion of nationally recognized bond counsel to the effect that those portions of the rule which require this section, or any such provision, are invalid, have been repealed retroactively or otherwise do not apply to the Bonds; and (ii) notifies the MSRB of such opinion and the cancellation of this section. The County may amend its continuing disclosure undertaking, and any provision of such undertaking may be waived, with an approving opinion of nationally recognized bond counsel and in accordance with the Rule. In the event of any amendment or waiver of a provision of its continuing disclosure undertaking, the County shall describe such amendment in the next annual report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the County. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a material event as described above and (ii) the annual report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Remedies. The right of each Owner or Beneficial Owner of Bonds to enforce the provisions of the County s undertaking shall be limited to the right to obtain specific enforcement of the County s obligations under its undertaking, and any failure by the County to comply with the provisions of its undertaking shall not be a default with respect to the Bonds. The County is in compliance with all previous continuing disclosure undertakings. RATINGS Moody s Investors Service ( Moody s ) and Standard & Poor s Ratings Services, a Division of the McGraw-Hill Companies, Inc. ( Standard and Poor s ), have assigned their municipal bond ratings of Aa2 and AA respectively, to the Bonds. Such ratings reflect only the views of the rating agencies, and explanations of the significance of the ratings may be obtained from Moody s Investors Service, 7 World Trade Center, New York, NY 10007, (212) , and from Standard & Poor s Ratings Services, a Division of the McGraw-Hill Companies, Inc., Public Finance Department, 55 Water Street, New York, NY 10041, (212) There is no assurance that these 26

33 ratings will continue for any given period of time or that they will not be suspended, revised downward or withdrawn entirely by the rating agencies if, in the judgment of the agencies, circumstances so warrant. Any such suspension, downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. FINANCIAL ADVISOR A. Dashen & Associates has served as financial advisor to the County relative to the preparation of the Bonds for sale, timing of the sale and other factors relating to the Bonds. The financial advisor has not audited, authenticated or otherwise verified the information set forth in this Official Statement or other information provided relative to the Bonds. A. Dashen & Associates makes no guaranty, warranty or other representation on any matter related to the information contained in the Official Statement. The financial advisor is an independent financial advisory firm and is not engaged in the business of underwriting, marketing, trading or distributing municipal securities. UNDERWRITING The Bonds are being purchased by Robert W. Baird & Co., Inc. (the Underwriter ) at a price of $125,823, The Bonds will be re-offered at a price of $126,838, The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts) and others at prices lower than the initial offering prices set forth on the cover hereof, and such initial offering prices may be changed from time to time by the Underwriter. After the initial public offering, the public offering prices may be varied from time to time. OFFICIAL STATEMENT Statements in this Official Statement including matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the County or the Underwriter and the Registered Owners of the Bonds. The information contained in this Official Statement is presented for the guidance of prospective purchasers of the Bonds described herein. The information has been compiled from official sources and, while not guaranteed by the County, is believed to be correct. The preparation and distribution of this Official Statement has been authorized by the County. The County has authorized the execution and delivery of this Official Statement. Snohomish County, Washington By: /s/ Roger Neumaier Roger Neumaier, Finance Director 27

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35 APPENDIX A EXCERPTS FROM SNOHOMISH COUNTY S 2009 COMPREHENSIVE ANNUAL FINANCIAL REPORT

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37 [THIS PAGE INTENTIONALLY LEFT BLANK] Snohomish County, Washington Financial Section

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39 2 Snohomish County, Washington - MD&A For the Year Ended Our discussion and analysis of Snohomish County s financial performance provides an overview of the County s financial activities for the year ended. Please read it in conjunction with the transmittal letter at the front of this report, the County s financial statements and the notes to the financial statements, which follow. FINANCIAL HIGHLIGHTS As of, total assets of the County exceeded the total liabilities by $935.1 million (net assets). $770.6 million or 82 percent, of this amount is invested in capital assets, net of related debt. Of the remaining net assets, $58.4 million is unrestricted and may be used to meet the County s ongoing obligations. In 2009, the County s total net assets increased by 1.7% or $15.3 million from the prior year. The governmental net assets decreased by.7% or $5.4 million from the prior year. The business type net assets increased 15.3% or $20.7 million. As of, the County s governmental funds reported combined ending fund balances of $134.3 million. Approximately 92.3% or $123.9 million is unreserved/unrestricted fund balance available for spending at the government s discretion within the purposes specified for the County s funds. At the end of 2009, the unreserved/unrestricted fund balance for the general fund was $9 million amounting to 4.7 percent of total general fund expenditures for Total fund balance for the general fund decreased by 34% or $4.7 million for the year. New general obligation bonded debt was issued during 2009 in the amount of $26.2 million. Of that amount, $21.4 million was a refunding of prior debt issues including a 2008 bond anticipation note and $4.8 million was new debt. Principal general obligation bonded debt payments made during 2009 were $18.1 million. Total activity for all general obligation debt during 2009 resulted in a net decrease of $3.5 million. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The Basic Financial Statements include the Government-wide Financial Statements, Fund Financial Statements and Notes to the Financial Statements. Within the Government-wide financial Statements, the Statement of Net Assets and the Statement of Activities provide information about the activities of the County as a whole and present a longer-term view of the County s finances. Fund Financial Statements for governmental activities tell how these funds services were financed in the short term as well as what remains for future spending. Fund Financial Statements also report the County s operations in more detail than the Government-wide Statements by providing information about the County s most significant funds. The remaining Basic Financial Statements provide financial information about activities for which the County acts solely as a trustee or agent for the benefit of those outside of the government. 3

40 4 Snohomish County MD&A For the Year Ended The Comprehensive Annual Financial Report (CAFR) also includes a Supplemental Schedules section that provides more detailed information about the County. Reporting the County as a Whole - Countywide Financial Statements The Countywide financial statements are designed to provide readers with a broad overview of the County s finances, in a manner similar to a private-sector business. Statement of Net Assets and Statement of Activities The Statement of Net Assets presents information on all of the County s assets and liabilities, with the difference between the two reported as net assets. The Statement of Activities presents information showing how the County s net assets changed during the current year. These statements are prepared using the accrual basis of accounting similar to the accounting method used by private sector companies. This basis of accounting takes into consideration all of the current year s revenues and expenses, regardless of when the cash is received or paid. These two statements report the County s net assets and changes in them. Over time, increases or decreases in the County s net assets are one indicator of whether its financial health is improving or deteriorating. Readers of these statements should also consider other non-financial factors, such as changes in the County s property tax base and the condition of the County s roads, to assess the overall health of the County. In the Statement of Net Assets and the Statement of Activities, the County is divided into three types of activities: Governmental Activities: Most of the County s functions are reported here, including general government, judicial, public safety, physical environment, transportation, health and human services, economic environment, and culture and recreation. Governmental activities are primarily supported by property taxes, sales taxes, federal and state grants, and state shared revenues. Business-Type Activities: These functions are intended to recover all, or a significant portion of, their costs through user fees and charges to external users of goods and services. User fees are charged for surface water management, solid waste disposal, and the Paine Field Airport. Discretely Presented Component Units: The County s financial statements include financial information of the Pilchuck Development Corporation (PDC) and the Snohomish County Public Facilities District (PFD). These component units are described in the notes to the financial statements. The component units are separate legal entities and may buy, sell, lease, and mortgage property in their own name and can sue or be sued in their own name. Reporting the County s Most Significant Funds Fund Financial Statements: The fund financial statements provide detailed information about the most significant funds. Some funds are required to be established by state law or by bond covenants. The County Council establishes funds to help it control and manage money for particular purposes (an example would be the Snohomish County Snohomish County MD&A For the Year Ended Road Fund) or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money (an example would be grants received from the federal government for various services provided by the Human Services Department). The County s governmental and proprietary funds use different accounting methods. Governmental funds: Most of the County s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the County s general government operations and the basic services it provides. Governmental fund information assists in determining if fewer financial resources can be spent in the near future to finance the County s programs. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government s near-term financing decisions. Reconciliation Statements are provided to describe the relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds. The County s major governmental funds are the General Fund, the Special Revenue Fund, the County Road Fund and the Human Services Fund. Individual fund data for each of the non-major funds is provided in the form of combining statements in the supplemental schedules section. Proprietary funds: Proprietary funds are generally used to account for services for which the County charges customers a fee. Proprietary funds are reported using the accrual method of accounting, which is the same method used for reporting the Statement of Net Assets and the Statement of Activities. The proprietary fund statements provide additional types of information than do the governmental fund statements, such as cash flows. Reporting the County s Fiduciary Responsibilities: The County is the trustee, or fiduciary, for several entities such as fire districts. All of the County s fiduciary activities are reported in a separate Statement of Fiduciary Net Assets and, for the external investment pool, a Statement of Changes in Fiduciary Net Assets. We exclude these activities from the County s other financial statements because the County cannot use these assets to finance its operations. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided on the government-wide and fund financial statements. Other Information Combining Statements The combining statements, which provide detail information for non-major governmental, internal service funds, component units, and agency funds are presented in the supplemental schedules section. 5

41 6 Snohomish County MD&A For the Year Ended FINANCIAL ANALYSIS As noted earlier, the County s net assets, when reviewed over time, may serve as a useful indicator of the County s financial position. The following schedule provides a summary of the assets, liabilities, and net assets of the County. Net Assets Governmental Business-Type Activities Activities Total Assets Current $ 278,017,349 $ 326,038,076 $ 42,363,457 $ 44,721,126 $ 320,380,806 $ 370,759,202 Noncurrent 19,276,367 21,158, , ,272 19,861,455 21,838,925 Capital Assets 896,033, ,372, ,735, ,210,192 1,131,769,173 1,081,582,966 Total Assets 1,193,327,194 1,213,569, ,684, ,611,590 1,472,011,434 1,474,181,093 Liabilities Current Liabilities 145,072, ,494,473 31,989,902 34,620, ,062, ,114,560 Noncurrent Liabilities 269,084, ,514,646 90,800,529 90,766, ,884, ,280,776 Total Liabilities 414,156, ,009, ,790, ,386, ,946, ,395,336 Net Assets Invested in Capital, Net of Related Debt 628,326, ,411, ,317, ,008, ,644, ,419,670 Restricted 104,376, ,862,410 1,600,719 8,227, ,977, ,089,944 Unrestricted 46,467,145 56,286,382 11,975,688 (2,010,239) 58,442,833 54,276,143 Total Net Assets $ 779,170,722 $ 784,560,384 $ 155,893,809 $ 135,225,373 $ 935,064,531 $ 919,785,757 Snohomish County s overall financial position improved for For the year ended, net assets changed as follows: Total Net Assets of the County increased by $15.3 million or 1.7% from the prior year. Governmental Activities Total Net Assets decreased by.7% from the prior year. The decrease was primarily due to decreased tax and fee revenue related to reductions in construction and property sales activity as well as reduced investment earnings. Business-Type Activities Total Net Assets increased by 15% from the prior year. The increase was primarily due to an increase in grant revenues. Total assets of the County exceeded total liabilities by $935 million (net assets). Unrestricted net assets for governmental activities were $46.5 million and for business-type activities were $12 million. These assets assist the County in meeting ongoing obligations to citizens and creditors. A negative balance in unrestricted net assets indicates that no funds were available for discretionary purposes. Governmental activities restricted net assets were $104.4 million. Restricted net assets for business-type activities were $1.6 million. Restricted net assets are subject to external legal or contractual restrictions, such as those imposed by the Revised Code of Washington or by contractual agreements with parties outside the County. The County s total assets were $1.5 billion as of. Capital assets represent $1.1 billion of this amount. As required by GASB Statement No. 34, the County now reports its infrastructure assets, which amounted to $480 million, net of depreciation, at. The County s current assets consist of $238 million of cash and investments, $79.5 million of receivables, net of allowance for Snohomish County MD&A For the Year Ended uncollectible accounts, and miscellaneous other current assets of $2.5 million. Total non-current assets include $11 million for the County s equity interest in the Snohomish Emergency Radio System joint venture, $1.1 million for deferred charges and $7.7 million for notes/contracts receivable. The largest portion of the County s net assets, 82%, reflects its investment in capital assets (e.g., land and improvements, buildings and building improvements, improvements other than buildings, machinery and equipment, vehicles, and infrastructure) less any related debt used to acquire those assets that is still outstanding. The County uses these capital assets for operations and to provide services to citizens; consequently, these assets are not available for future spending. Although the County s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources since the capital assets themselves cannot be used to liquidate these liabilities. At, the County had total outstanding liabilities of $537 million. General obligation bonds and other long-term loans payable were $379.1 million, of which $47.3 million was due within one year. Other current liabilities consist of accounts payable of $18 million, deferred revenues of $73.5 million, accrued liabilities of $17.6 million and landfill closure costs reserve of $12.6 million. A liability of $16.5 million is recorded for general liability, workers compensation and health benefit claims, of which $2.7 million was due within one year. Other non-current liabilities include compensated absences of $14.2 million. 7

42 8 Snohomish County MD&A For the Year Ended The following schedule provides a summary of the changes in net assets: Changes in Net Assets Governmental Business-Type Activities Activities Total Revenues Program Revenues Charges for Services $ 64,421,195 $ 65,406,337 $ 76,164,524 $ 66,591,149 $ 140,585,719 $ 131,997,486 Operating Grants and Contributions 86,759,777 74,989,473 2,157,385 2,554,072 88,917,162 77,543,545 Capital Grants and Contributions 69,699,343 71,807,507 16,933,091 4,832,482 86,632,434 76,639,989 Total Program Revenues 220,880, ,203,317 95,255,000 73,977, ,135, ,181,020 General Revenues Property Taxes 123,711, ,356, ,711, ,356,387 Sales/Use Taxes 45,463,263 41,190, ,463,263 41,190,681 Real Estate Excise Tax 8,384,090 10,626, ,384,090 10,626,703 Business and Other Taxes 9,596,364 9,383, ,596,364 9,383,294 Intergovernmental Revenues 5,673,859 15,272, ,673,859 15,272,055 Interest and Investment Earnings 16,197,768 20,537, ,509 1,621,850 16,943,277 22,158,854 Miscellaneous Revenues 2,111,909 4,057, , ,172 2,226,905 4,722,830 Total General Revenues 211,138, ,423, ,505 2,287, ,999, ,710,804 Total Revenues 432,019, ,627,099 96,115,505 76,264, ,134, ,891,824 Expenses General Government 81,854,974 67,588, ,854,974 67,588,396 Judicial 35,368,881 36,911, ,368,881 36,911,240 Public Safety 121,572, ,100, ,572, ,100,023 Physical Environment 4,461,900 2,768, ,461,900 2,768,527 Transportation 83,624,754 74,522, ,624,754 74,522,179 Health and Human Services 50,651,586 46,821, ,651,586 46,821,175 Economic Environment 28,883,648 33,973, ,883,648 33,973,786 Culture and Recreation 16,276,478 14,276, ,276,478 14,276,131 Interest on Long-Term Debt 13,280,208 13,941, ,280,208 13,941,283 Airport ,997,993 15,460,097 15,997,993 15,460,097 Solid Waste ,604,194 50,857,104 47,604,194 50,857,104 Surface Water ,279,078 12,264,324 13,279,078 12,264,324 Total Expenses 435,974, ,902,740 76,881,265 78,581, ,855, ,484,265 Excess (Deficiency) Before Contributions, Extraordinary Items, and Transfers (3,955,466) 18,724,359 19,234,240 (2,316,800) 15,278,774 16,407,559 Transfers In (Out) (1,434,196) (3,731,261) 1,434,196 3,731, Change in Net Assets (5,389,662) 14,993,098 20,668,436 1,414,461 15,278,774 16,407,559 Net Assets, Beginning of Year $ 784,560,384 $ 769,567,286 $ 135,225,373 $ 133,810,912 $ 919,785,757 $ 903,378,198 Net Assets, End of Year $ 779,170,722 $ 784,560,384 $ 155,893,809 $ 135,225,373 $ 935,064,531 $ 919,785,757 The Total Change in Net Assets was an increase of 1.7% or $15.3 million from the prior year. Of that total, Governmental Activities reported the most significant increases in operating grants and contributions. Most other Governmental Activities revenue streams decreased. Governmental Activities expense increased from the prior year by 4.8%, resulting in a Deficiency Before Contributions, Extraordinary Items and Transfers of $4 million. In total, governmental activities net assets decreased $5.4 million or.7% from the prior year. Business-type Activities net assets increased 15.3% from the prior year primarily due to Snohomish County MD&A For the Year Ended increases of $12.1 million in capital grants and contributions revenues and $9.6 million in charge for service revenues. Total 2009 revenues for the County were $528 million. Of the total County revenues, governmental activities provided 82% or $432 million while business-type activities provided 18% or $96 million. Property taxes, operating and capital grants and contributions, charges for services and sales/use taxes together accounted for 90% of total governmental activity revenues. Property taxes provided 28.6% or $123.7 million, operating grants and contributions provided 20% or $86.8 million, capital grants and contributions provided 16% or $69.7 million, charges for services provided 15% or $64.4 million, and sales/use taxes provided 10.5% or $45.5 million of total governmental activity revenues. Most of the governmental activities resources were spent for Public Safety, 28%, Transportation, 19%, and General Government, 18.8%. Interest on long-term debt of $13.3 million was 3% of governmental activities expenses for Revenues for business-type activities consisted primarily of charges for services of $76.2 million, 79.2%. Operating expenses for Solid Waste Management represented 62% of total expenses for business-type activities, Surface Water Management expenses were at 17%, and Airport expenses were at 21%. FUND FINANCIAL INFORMATION Governmental Funds The General Fund, Special Revenue Fund, County Road Fund and Human Services Fund are the County s 2009 major funds. These funds account for 54% of total governmental fund assets and 32% of total governmental fund balances. Governmental funds total assets amounted to $244 million and total liabilities were $109.7 million. The governmental funds uses of funds exceeded the sources of funds, resulting in a net decrease in fund balance of $41.5 million. This was largely due to a combination of overall decreases in several revenue streams including interest/investment earnings, real estate excise tax, charges for services and various other revenue sources. Of note: expenditures in nearly every classification were reduced as compared to the prior year. The total fund balance for all governmental funds at was $134.3 million. 9

43 10 Snohomish County MD&A For the Year Ended 240, , , , , , , ,000 80,000 60,000 40,000 20,000 0 General Fund The County s General Fund is the main operating fund of the County and is used to account for all financial resources that are not restricted by state or federal laws, or other externally imposed requirements. As of, total assets were $24.5 million and total liabilities were $15.5 million. The ending fund balance of $9 million represents approximately 4.6% of the 2010 modified budgeted uses of funds for the 2010 fiscal year. The net change in fund balance for the general fund in 2009 was a decrease of $4.7 million or 34.4%. The decrease was greater than budgeted, largely due to general fund revenues having decreased more than anticipated during The Special Revenue Fund The Special Revenue Fund accounts for various revenues that are restricted for specific purposes and are either small in amount or are for projects that have a limited life. The single largest source of project assets currently reported in the Special Revenue Fund are related to Brightwater Mitigation fees received from King County. Current deferred revenues related to those fees amount to $55 million and account for 87% of the fund s total assets and 99.9% of the fund s total liabilities. The fund reported insignificant revenue and expense for other projects. The County Road Fund The County Road Fund accounts for the construction, maintenance and inspection of county streets, roads, and bridges and other countywide public works projects. The fund reported total assets of $21.8 million, (in $ thousands) Sources and Uses of Funds - Governmental Funds Sources Uses Snohomish County MD&A For the Year Ended total liabilities of $9.2 million and an ending fund balance of $12.6 million, a decrease of $27 million or 68% from the prior year. This decrease was primarily due to increased expenditures related to transportation construction projects. The Human Services Fund The Human Services Fund accounts for the administration, planning, development and provision of the following services: energy assistance; long term care and aging; developmental disabilities; mental health; alcohol and other drugs; community services; children and youth; veteran's relief; and other human services in Snohomish County. Total assets for this fund were $22 million and total liabilities were $8.7 million with ending fund balance at $13.3 million, an increase of $7.6 million, or 135% from the prior year. The increase is primarily the result of increased intergovernmental (grant) revenues, document filing fees, and increased sales tax revenue. Other Governmental Funds The County has 29 other special revenue funds, 5 debt service funds and 4 capital projects funds. These funds reported total assets of $112.8 million, total liabilities of $21.3 million and fund balances of $91.6 million. $9.3 million of the ending fund balance was reserved for debt service and $1 million was reserved for long-term contract receivable. Proprietary Funds The County reported three major enterprise funds that represent the business-type activities in the government-wide financial statements. Eight internal service funds account for the operation of services provided to the different departments of the County. The principal users of internal service fund services are the County s governmental activities; therefore, the internal service funds are consolidated into the governmental column in the Government-wide Financial Statements. Net Assets - Proprietary Funds Solid Airport Surface Total Internal Service Waste Water Funds Assets Current Assets $ 24,417,758 $ 27,332,464 $ 3,272,584 $ 6,774,103 $ 14,673,115 $ 10,614,559 $ 42,363,457 $ 44,721,126 $ 32,551,664 $ 37,045,979 Noncurrent Assets 250, , , , ,362 83, , ,272 16,350 17,666 Capital Assets 71,546,263 73,840, ,730, ,978,408 38,458,633 36,390, ,735, ,210,192 43,039,933 42,925,773 Total Assets 96,214, ,547, ,231, ,975,396 53,238,110 47,088, ,684, ,611,590 75,607,947 79,989,418 Liabilities Current Liabilities 20,132,332 24,195,707 9,417,703 7,776,051 2,439,867 2,648,329 31,989,902 34,620,087 9,004,620 10,131,739 Noncurrent Liabilities 31,283,371 31,683,285 46,981,173 45,546,383 12,535,985 13,536,462 90,800,529 90,766,130 22,700,750 24,481,491 Total Liabilities 51,415,703 55,878,992 56,398,876 53,322,434 14,975,852 16,184, ,790, ,386,217 31,705,370 34,613,230 Invested in Capital, Net of Related Debt 38,555,005 39,624,450 78,033,678 64,605,197 25,728,719 24,778, ,317, ,008,078 36,617,700 Restricted 531,141 3,449, ,286 3,680, ,292 1,097,091 1,600,719 8,227,534 3,531,018 Unrestricted 5,713,125 2,594,531 (5,337,684) (9,633,061) 11,600,247 5,028,291 11,975,688 (2,010,239) 3,753,859 Total Net Assets $ 44,799,271 $ 45,668,598 $ 72,832,280 $ 58,652,962 $ 38,262,258 $ 30,903,813 $ 155,893,809 $ 135,225,373 $ 43,902,577 Net Assets $ 45,376,188 4,610,078 5,578,810 35,187,300 11

44 12 Snohomish County MD&A For the Year Ended Changes in Net Assets Proprietary Funds Solid Airport Surface Total Internal Service Waste Water Funds (Loss) $ (600,066) $ (4,229,282) $ (736,835) $ (219,358) $ 5,082,445 $ (2,114,917) $ 3,745,544 $ (6,563,557) Revenues (Expenses) (303,793) 588,975 (1,855,501) 1,531, , ,001 (1,444,395) 2,877,833 and Transfers 34, ,754 16,771,654 (116,496) 1,561,101 4,789,927 18,367,287 5,100,185 Changes in Net Assets $ (869,327) $ (3,213,553) $ 14,179,318 $ 1,196,003 $ 7,358,445 $ 3,432,011 $ 20,668,436 $ 1,414,461 Extraordinary Items Non-Operating Operating Income $ (382,370) $ (3,309,065) 161,957 1,972,195 (1,253,198) 458,555 $ (1,473,611) $ (878,315) Statement of Cash Flow Proprietary Funds Solid Airport Surface Total Internal Service Waste Water Funds Activities $ 3,538,622 $ (1,472,955) $ 4,151,192 $ 7,952,825 $ 5,747,329 $ (845,526) $ 13,437,143 $ 5,634,344 Related Financing Activities (8,367,080) (4,003,483) (7,450,670) (13,844,124) (4,919,901) (7,817,078) (20,737,651) (25,664,685) Financing Activities 1,322,129 1,064, ,177 3,502,443 2,822,576 5,940,782 4,249,882 10,507,246 Cash Flow from Investing Activities 1,041,039 1,241,677 72, , , ,258 1,289,894 1,814,253 Cash Flow from Non-Capital Cash Flow from Capital and Cash Flow from Operating $ 2,341,705 $ 3,715,817 (6,004,151) (3,936,060) (1,834,350) (655,189) (5,580,249) 791,598 Net Increase (Decrease) in Cash and Cash Equivalents $ (2,465,290) $ (3,170,740) $ (3,121,989) $ (2,149,538) $ 3,826,547 $ (2,388,564) $ (1,760,732) $ (7,708,842) $ (11,077,045) $ (83,834) Cash and Cash Equivalents, January 1 10,736,629 13,907,369 5,569,454 7,718,992 9,729,735 12,118,299 26,035,818 33,744,660 34,967,489 35,051,323 Cash and Cash Equivalents, December 31 $ 8,271,339 $ 10,736,629 $ 2,447,465 $ 5,569,454 $ 13,556,282 $ 9,729,735 $ 24,275,086 $ 26,035,818 $ 23,890,444 $ 34,967,489 Solid Waste Management Fund This fund is used to account for solid waste disposal operations, capital improvements and debt service. Restricted investments in the amount of $12.6 million represent funds set aside to finance long-term landfill post-closure care costs. Total assets as of were $96.2 million, total liabilities were $51.4 million, and net assets were $44.8 million. Net Assets decreased $869 thousand or 2% from the prior year primarily due to decreased non-operating revenues. Operating loss was $600 thousand, a decrease in operating loss of $3.6 million as compared to last year s operating loss. Airport Fund This fund is used to account for the operation, capital improvements and debt service of Paine Field, Snohomish County s Airport. Total assets were $129 million, total liabilities were $56.4 million, and net assets were $72.8 million. The operating loss of $737 thousand was an increase of $517.5 thousand from last year's operating loss. The larger operating loss in 2009 resulted primarily from increased depreciation expense. Surface Water Management Fund This fund accounts for the operations of the Surface Water Management Division. The purpose of this division is to protect and enhance water quality and aquatic habitats, and to minimize damage from flooding and erosion. Total assets as of were $53.2 million, total liabilities were $15 million, and net assets were $38.2 million. Surface Water s 2009 operating income of $5.1 million was an increase of $7.2 million from last year s operating loss. The 2009 increase in operating income was largely due to increased operating assessments. Snohomish County MD&A For the Year Ended Internal Service Funds The County s internal service funds are used to provide fleet management, information services, risk management, road surface materials (pits and quarries), employee benefits, facility services, employee training and security services. Total assets as of were $75.6 million, total liabilities were $31.7 million and net assets were $43.9 million. Internal service funds operating loss of $382 thousand was a decrease in operating loss of $2.9 million from last year s operating loss. The decrease in total internal service funds operating loss was the result of a variety of factors particularly decreased supplies expenses. GENERAL FUND BUDGETARY HIGHLIGHTS The depth and length of the current recession has impacted 2009 General Fund revenues. Snohomish County s General Fund fund balance began 2009 at $13.7 million. Based upon 2009 actual revenues and expenditures, year-end fund balance ended at about $9 million, a drop of $4.7 million. On April 14 th of 2010, the County Council passed a budget revision ordinance which reduced 2010 General Fund budgeted revenues by $3.6 million to reflect the most recent financial trends. In addition to reducing General Fund revenues, the budget revision also reduced General Fund budgeted expenditures by $6.5 million. The net results of this action are updated conservative revenue projections and a budgeted $2.9 million 2010 increase to General Fund fund balance, a first step towards increasing General Fund reserves to targeted levels. CAPITAL ASSETS AND DEBT ADMINISTRATION The following schedule provides a summary of the County s capital assets activity. Snohomish County s total investment in capital assets, including construction in progress, amounts to $1.1 billion. Infrastructure assets, net of accumulated depreciation, represent $480 million of capital assets. Capital Assets Governmental Business-type Total Activities Activities Capital Assets Land $ 163,382,020 $ 163,748,379 $ 33,627,405 $ 33,236,492 $ 197,009,425 $ 196,984,871 Building and Structures, Net 194,479, ,463,064 78,112,573 73,738, ,591, ,201,448 Other Improvements, Net 55,061,170 45,428,396 65,649,475 63,746, ,710, ,174,855 Machinery and Equipment, Net 42,042,691 38,880,349 3,504,189 2,065,073 45,546,880 40,945,422 Infrastructure Assets, Net 428,775, ,905,027 51,521,061 26,100, ,296, ,005,105 Construction in Progress 11,697,783 16,275,552 2,582,681 15,552,819 14,280,464 31,828,371 Intangibles, Net 595, , , ,887 1,333,419 1,442,894 Total Capital Assets $ 896,033,478 $ 866,372,774 $ 235,735,695 $ 215,210,192 $ 1,131,769,173 $ 1,081,582,966 Governmental Activities - Capital Assets The net increase of infrastructure was $33.9 million; this was primarily due to County Road s projects. The net decrease of construction in progress for governmental activities was $4.6 million; this was primarily due to completion of park projects. 13

45 14 Snohomish County MD&A For the Year Ended Business-Type Activities - Capital Assets Business-type activities reported an overall increase in capital assets due to completed buildings/structures and infrastructure assets. More detailed information on the County s capital assets can be found in this report in Note 3D. Governmental Activities Debt New debt of $8 million was issued during Of that amount, $3.4 million was refunding bonds, $2.1 million was new bonds, and $2.5 million was a new loan. Principal payments made during 2009 for governmental activities debt totaled $13 million, which included $12 million for general obligation bond debt, $145 thousand for special assessment debt and $802 thousand for loans. Interest expense for 2009 was $13.3 million. See Note 3F to the financial statements for additional information on long-term debt. Business-Type Activities Debt New debt of $21.8 million was issued during Of that amount, $18 million was refunding bonds, $2.6 million was new bonds, and $1.2 million was a new loan. Total principal payments made during 2009 for business-type activities were $7.4 million, which included $6.2 million for general obligation bond debt and $1.3 million for loans. Interest expense for 2009 was $4.1 million. See Note 3F to the financial statements for additional information on long-term debt. ECONOMIC FACTORS AND NEXT YEAR S BUDGETS AND RATES The prolonged national recession and its impacts upon the regional economy continue to affect Snohomish County. While the economy may be able to avoid a double- dip recession, no significant recovery is anticipated in The County government has continued to make pragmatic decisions recognizing that the level of economic activity and related revenue streams represent a new economic base rather than a temporary downturn. Consumers are spending again after having cut back sharply during the recession. Going forward, consumer spending should be helped by a gradual pick up in jobs, a slow recovery in household wealth from recent lows and some improvement in the ability to get loans. County retail sales in 2009 were 10% less than in 2008 and 15% less than in Retail sales are anticipated to stabilize in Real Estate Excise Tax collections were 20% lower than they were in 2008 and 71% lower than in The County has dealt with this significant drop in REET revenue by postponing projects or by finding alternative sources of revenue for those projects. For 2011, the Executive recommended budget will reset the General Fund budget within available resources. Managed savings and department directed savings (negative elements in otherwise fully funded General Fund budgets utilized in balancing the adopted 2009 and 2010 budgets) will not be included as separate reduction elements in the recommended budget. The recommended budget will include specific authorized, fewer but fully funded, expenditures and FTEs included only to the extent that there are available resources. In developing its 2011 budget, The County is making no assumptions that the economy will bounce back from the lower base that has been established. Snohomish County MD&A For the Year Ended CONTACTING THE COUNTY S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and creditors with a general overview of the County s finances and to show the County s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Finance Department, at the following address: Snohomish County, 3000 Rockefeller, M/S 610, Everett, WA or by calling or by visiting our website: 15

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