COMPREHENSIVE ANNUAL FINANCIAL REPORT ESCAMBIA COUNTY, FLORIDA YEAR ENDED SEPTEMBER 30, 2007 TABLE OF CONTENTS INTRODUCTORY SECTION

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2 COMPREHENSIVE ANNUAL FINANCIAL REPORT ESCAMBIA COUNTY, FLORIDA YEAR ENDED SEPTEMBER 30, 2007 TABLE OF CONTENTS Page INTRODUCTORY SECTION Title Page... i Letter of Transmittal... ii - vi Certificate of Achievement... vii Organizational Charts... viii ix List of Officials... x FINANCIAL SECTION REPORT OF INDEPENDENT AUDITORS MANAGEMENTS DISCUSSION AND ANALYSIS (REQUIRED SUPPLEMENTARY INFORMATION) BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Assets Statement of Activities FUND FINANCIAL STATEMENTS Balance Sheet Governmental Funds Reconciliation of the Balance Sheet to the Statement of Net Assets Statement of Revenues, Expenditures, and Changes in Fund Balances Reconciliation of the Statement of Revenues Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual General Fund, Disaster Recovery Fund, HHRP, Community Redevelopment Agency and Transportation and Drainage Fund Statement of Net Assets Proprietary Funds Statement of Revenues, Expenses, and Changes in Net Assets Proprietary Funds Statement of Cash Flows Proprietary Funds Statement of Fiduciary Net Assets Fiduciary Funds... 37

3 COMPREHENSIVE ANNUAL FINANCIAL REPORT ESCAMBIA COUNTY, FLORIDA YEAR ENDED SEPTEMBER 30, 2007 TABLE OF CONTENTS (CONTINUED) Page Component Units Financial Statements Statement of Net Assets Statement of Activities Notes to Financial Statements COMBINING FINANCIAL STATEMENTS Combining Balance Sheet - Non-major Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Non-major Governmental Funds Schedules of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Comparison All Other Governmental Funds Combining Statement of Net Assets Non-major Enterprise Funds Combining Statement of Revenues, Expenses, and Changes in Net Assets Non-major Enterprise Funds Combining Statement of Cash Flows Non-major Enterprise Funds Combining Statement of Net Assets Internal Service Funds Combining Statement of Revenues, Expenses, and Changes in Net Assets Internal Service Funds Combining Statement of Cash Flows Internal Service Funds Combining Statement of Fiduciary Net Assets Agency Funds Statement of Changes in Assets and Liabilities Agency Funds STATISTICAL SECTION (UNAUDITED) Net Assets by Component Last Five Fiscal Years Changes in Net Assets Last Five Fiscal Years Fund Balances, Governmental Funds Last Five Fiscal Years Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years Assessed Value and Actual Value of Taxable Property Direct and Overlapping Property Tax Rates Last Ten Years Principle Property Tax Payers Current Year and Nine Years Ago Property Tax Levies and Collections Last 10 Fiscal Years Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years Direct and Overlapping Governmental Activities Debt Demographic and Economic Statistics Last Ten Fiscal Years Principle Employers Current and Nine Years Ago Full-Time Equivalent County Government Employees by Function Last Ten Fiscal Years Operating Indicators by Function Last Ten Fiscal Years Capital Asset Statistics by Function Last Ten Fiscal Years

4 COMPREHENSIVE ANNUAL FINANCIAL REPORT ESCAMBIA COUNTY, FLORIDA YEAR ENDED SEPTEMBER 30, 2007 TABLE OF CONTENTS (CONTINUED) Page CONTINUING DISCLOSURE SECTION (UNAUDITED) PLEDGED REVENUES Summarized Schedule Bob Sikes Toll Bridge Revenues Constitutional Gas Tax Half-Cent Sales Tax Tourist Development Tax Lease Revenues OUTSTANDING BONDS Sales Tax Revenue Refunding Bonds, Series Tourist Development Revenue Refunding Bonds, Series Capital Improvement Revenue Bonds, Series OTHER COUNTY DEBT Summarized Statement City of Gulf Breeze Capital Improvement Bond, Series City of Gulf Breeze Capital Improvement Bond, Series City of Gulf Breeze Capital Improvement Bond, Series 1999C City of Gulf Breeze Capital Improvement Bond, Series State of Florida s Toll Facilities Revolving Trust Fund (TFRTF) REFUNDED BONDS Schedule of Outstanding Refunded Debt Capital Improvement Refunding and Revenue Bonds, Series and Solid Waste Disposal System Revenue Bonds, Series Capital Improvement Refunding and Revenue Bonds, Series Special Obligation Bonds, Series 1980A Capital Improvement Refunding Revenue Bonds, Series Tourist Development Tax Revenue Bonds, Series Sales Tax Revenue Refunding Bonds, Series ECONOMIC INDICATORS Per Capita Income Comparison Employment by Industry Unemployment Rate Florida Price Level Index Taxable Retail Sales Visitors by Air Comparison of Lodging and Restaurants Age of Escambia County Population

5 INTRODUCTORY SECTION This section contains the following subsections: TITLE PAGE LETTER OF TRANSMITTAL CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING ESCAMBIA COUNTY ORGANIZATIONAL CHARTS LIST OF OFFICIALS

6 COMPREHENSIVE ANNUAL FINANCIAL REPORT ESCAMBIA COUNTY, FLORIDA PREPARED BY ERNIE LEE MAGAHA CLERK OF THE CIRCUIT COURT & COMPTROLLER FINANCE DEPARTMENT Patricia L. Sheldon, CPA, CGFO, CPFO Administrator for Financial Services FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2007 i

7 ERNIE LEE MAGAHA CLERK OF THE CIRCUIT COURT APPEALS ARCHIVES AND RECORDS CHILD SUPPORT CIRCUIT CIVIL CIRCUIT CRIMINAL COUNTY CIVIL COUNTY CRIMINAL DOMESTIC RELATIONS FAMILY LAW GUARDIANSHIP JURY ASSEMBLY JUVENILE MARRIAGE MENTAL HEALTH PROBATE TRAFFIC CLERK OF THE CIRCUIT COURT & COMPTROLLER OF ESCAMBIA COUNTY, FLORIDA BRANCH OFFICES ARCHIVES AND RECORDS JUVENILE DIVISION CENTURY CLERK TO THE BOARD OF COUNTY COMMISSIONERS OFFICIAL RECORDS COUNTY TREASURY AUDITOR March 17, 2008 To the Honorable Members of the Board of County Commissioners and Citizens of Escambia County, Florida We are pleased to present the Comprehensive Annual Financial Report (CAFR) of Escambia County, Florida, for the fiscal year ended September 30, The report has been prepared in accordance with generally accepted accounting principles by the highly professional and dedicated staff of the Finance Department of the Clerk of the Circuit Court and Comptroller (the Clerk and Comptroller). The Clerk is mandated by the Constitution of the State of Florida to serve as the Chief Financial Officer of the County, and is responsible for both the accuracy of the presented data, and the completeness and fairness of the presentation, including all disclosures. We believe the data as presented is accurate in all material aspects; that it is presented in a manner designed to fairly set forth the financial position and results of operations of the County as measured by the financial activity of its various funds; and that all disclosures necessary to enable the reader to gain a comprehensive understanding of the County s financial activity have been included. This report consists of management s representations concerning the finances of Escambia County, Florida. Consequently, to provide a reasonable basis for making these representations, management of Escambia County is responsible for establishing and maintaining an internal control structure designed to provide reasonable, but not absolute, assurance that the assets of the County are protected from loss, theft or misuse; reliability of financial records for preparing financial statements; and maintaining accountability for assets. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived, and the evaluation of costs and benefits requires estimates and judgments by management. We believe that the County s internal accounting controls adequately safeguard assets and provide reasonable assurance of proper recording of financial transactions. Chapter , Florida Statutes, require an annual financial audit performed by independent certified public accountants. This Comprehensive Annual Financial Report serves to fulfill this requirement. The goal of the independent audit is to provide reasonable assurance that the financial statements of Escambia County are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that Escambia County s financial statements for the fiscal year ended September 30, 2007 are fairly presented in conformity with generally accepted ii 221 Palafox Place Suite 140 Pensacola, Florida (850) FAX (850)

8 accounting principles (GAAP). The independent auditor s report is presented as the first component of the financial section of this report. In addition to meeting the requirements set forth in state statutes, the audit was also designed to meet the requirements of the Federal Single Audit Act and the OMB Circular A-133. The standards governing single audit engagements require the independent auditor to report on the government s internal controls and compliance with legal requirements with special emphasis on the administration of federal awards. These reports are available in a separately issued report, available on file with the Clerk to the Board. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. Escambia County s MD&A can be found immediately following the report of the independent auditors. County Organization Escambia County, located in the northwestern part of the state, was established July 21, 1821 as a non-charter government when the Provisional Governor Andrew Jackson signed an ordinance making the County one of the first two counties in Florida, the other being St. John's County. Escambia County encompasses approximately 661 square miles, or 420,480 acres, with an additional 64,000 acres of water area and serves a population of approximately 295,000. Although northwest Florida has not experienced the rapid growth that southern and central Florida has experienced, the area has grown significantly during the past two decades. There are two municipalities within the County, the City of Pensacola, the County seat, and the Town of Century. Pursuant to Florida Statutes, the legislative and policy-making powers are vested with the fivemember Board of County Commissioners who is elected by district for four-year terms. The Chairman presides over the Board and is elected by the members annually. Separate powers for operation of specific functions of County government are vested with the five Constitutional Officers--Clerk and Comptroller, Property Appraiser, Sheriff, Supervisor of Elections and Tax Collector. The Board of County Commissioners responsibilities include: passing ordinances and resolutions, adopting the budget and levying a property tax on real and personal property, appointing boards and committees and hiring the County Administrator and County Attorney. The Clerk and Comptroller serves as the Chief Financial Officer for the Board of County Commissioners acting as accountant, auditor, recorder, the custodian of all County funds and exofficio Clerk to the Board. The County Administrator is the chief administrative official of the County responsible for carrying out the policies of the Board and overseeing the day-to-day operations of the County. The County Attorney represents the County Commission and all other departments, divisions, boards, and offices in legal matters affecting the County. Escambia County provides a full range of services, including the construction and maintenance of highways, streets, and other infrastructure, sheriff and fire protection, health and social services, emergency medical services, landfill operations, mass transportation services and cultural and recreational programs. The Santa Rosa Island Authority (SRIA) provides management services for Escambia County s Beach Toll Facility and serves as the County s leasing agent for property on Santa Rosa Island owned by the County. The County approves the SRIA s annual budget and has veto power over decisions of the Authority. It too is reported separately within Escambia County s financial statements. The Housing Finance Authority (HFA) is also presented separately within the County s financial statements. Although the County appoints the members of the HFA s board and must approve it s budget, the HFA and the County are not substantially iii

9 the same and the HFA does not provide services almost exclusively for the County. The Law Library is financially integrated with the County in that it relies on court fines and fees that are collected by the Clerk of the Court; therefore it is discretely presented in this report. For additional information on Escambia County s Component Units, please refer to the Notes. Escambia County is committed to providing high levels of service to its residents, at the lowest possible cost, in order to minimize taxpayer burden. As required by Florida Statutes, Chapter 129, on an annual basis, the County must prepare and adopt a balanced budget. The annual budget serves as the foundation for Escambia County s financial planning and control. The County adopts formal budgets for all funds prior to October 1 of each fiscal year. During the year the County Administrator approves intra-departmental budget amendments that do not change the fund total budget or change the personal services budget. The Board must approve budget amendments affecting personal services or reserve for contingencies. Supplemental budgets for revenues not anticipated must also receive Board approval. Encumbrance accounting is employed as an extension of formal budgetary integration in the General Fund, Special Revenue Funds and Capital Project Funds. Although appropriations lapse at year end, outstanding encumbrances are generally re-appropriated as a part of the following year's budget. The elected officials, funded as a part of the County's annual budget, maintain their own budgetary systems consistent with the requirements of state law. As demonstrated by the statements and schedules included in the financial section of this report, Escambia County continues to meet its responsibility for sound financial management. Budget-to-actual comparisons are presented in this report for each governmental fund. The general fund and the major special revenues funds comparisons are included in the basic financial statement section. All other governmental funds budget-to-actual comparisons are included in the combining and individual statements and schedules section of this report. Local Economy There is energy and excitement in Escambia County as we continue to rebound and recover from the devastating effects of Hurricane Ivan in September The tourism industry continues to grow, bringing in close to 3 million visitors annually. Two-thousand seven (2007) was a record year for the tourism industry. The County s economic structure is comprised of the military, industry, tourism and recreation, agriculture, and retail sales providing an historically stable base. Escambia County s unemployment rate remains fairly steady compared to last year at 3.9% locally as compared to the Statewide average of 4.3%. The median age is 36.9 years and 63% of the County s population is between the ages of The County s building industry base is diversified with the three largest industry sectors being health care, retail, and tourism. Goals and Objectives Management s goals and objectives are to continue to provide infrastructure for future growth and sound fiscal management of County resources while maintaining the quality of life we enjoy here in Escambia County. Some examples of these goals and objectives are as follows: Increased efforts designed to encourage business development in the area Increased efforts designed to promote tourism to the area Increased efforts in neighborhood code enforcement activities Increased emphasis for community-wide clean up efforts Foster economic growth and development Improve delivery of Neighborhood and Public Services to the highest level possible iv

10 Efforts to capitalize on alternative revenue generation without increasing the tax burden Enhance County Government s public image A major initiative in the coming year, facilitated through a strategic partnership between the County, City of Pensacola and the Pensacola Economic Development Commission, will be the creation of the downtown Technology Park. This initiative will create office space targeted toward the technology based industry thereby creating jobs and boasting the area s economy. Cash Management At the end of fiscal year 2007 the County's investment portfolio consisted primarily of federal instrumentalities discount notes, certificates of deposit, securities held by the Florida State Board of Administration Local Government Pool, and interest earning bank deposits. The Florida Statutes and the County's investment policy sets forth all criteria for approved investments; limits the percent of the total portfolio that can be in one category of investment; limits the percent of total portfolio that can be placed with only one institution; and the internal control procedures such as "delivery versus payment" and "custodial arrangements". This policy also requires monthly reporting of portfolio activity to the Board of County Commissioners by the Clerk and Comptroller and it provides for oversight by an investment advisory committee comprising volunteer citizens, the County Administrator, and the Clerk and Comptroller. The investments made by the Clerk and Comptroller s Finance Department earned an average yield of 5.42% and generated over $11 million in investment earnings for the fiscal year ending September 30, Risk Management Escambia County has established a risk management program to retain some risk of certain claims against the Board of County Commissioners, the Constitutional Officers, and the Santa Rosa Island Authority, including workers compensation and casualty and property. The County is protected by sovereign immunity for all liability claims in excess of $100,000. Umbrella coverage is purchased for property claims in excess of $100,000 and worker's compensation claims in excess of $450,000. Additional information on Escambia County s risk management activity can be found in the notes to the financial statements. Pension Benefits Escambia County provides pension benefits for its employees through a multiple employer, cost sharing defined benefit pension plan managed by the Florida State Board of Administration. Participating employer contributions are based on statewide rates developed through actuarial analysis. Escambia County has no obligation in connection with employee benefits offered through this plan beyond its annual contractual payment based on the actuarial estimates. Additional information on Escambia County s pension arrangements can be found in the notes to the financial statements. v

11 Awards and Acknowledgments The Government Finance Officers Association (GFOA) awarded Escambia County the Certificate of Achievement for Excellence in Financial Reporting for 25 of the past 26 years (did not apply in 1994). In order to be awarded a Certificate of Achievement, Escambia County must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current comprehensive annual financial report meets the Certificate of Achievement Program's standards and it will be submitted to the GFOA for consideration for the award. In addition, Escambia County also received the GFOA s Distinguished Budget Presentation Award for its Annual Budget for fiscal year ended This is the twelfth consecutive year that Escambia County has received this award. In order to qualify for this award, Escambia County s budget document was judged to be proficient in several categories, including a policy document, a financial plan, an operations guide, and a communications device. This report is a product of the hard work and dedication of the Finance Department of the Clerk and Comptroller of Escambia County as Auditor and Accountant of the Board of County Commissioners. We would like to express our appreciation to all members of the department who assisted and contributed to the preparation of this report. We appreciate the support and cooperation of the Board of County Commissioners and the departments that serve under them and thank the auditing firm of O'Sullivan Creel, LLP for their guidance. Respectfully submitted, Ernie Lee Magaha Ernie Lee Magaha Clerk of the Circuit Court & Comptroller Patricia L. Sheldon Patricia L. Sheldon, CPA, CGFO, CPFO Administrator for Financial Services vi

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13 Citizens of Escambia County Supervisor Of Elections Tax Collector Property Appraiser Board of County Commissioners (BOCC) Sheriff Clerk of the Circuit Court County Administrator* County Attorney BOCC Finance *See next page for additional information. viii

14 Citizens of Escambia County Board of County Commissioners County Attorney County Administrator County Administrator s Staff Administration Human Resources & Risk Management Administrative Services Public Information & Communication Public Works & Land Management Agency Community Services & Public Safety Agency Departments Staff Offices Departments Staff Offices Building Inspections Office of Transportation & Traffic Operations Community Corrections Office of Purchasing Facilities Management Community Services Grants Administrator Information Technology Extension Services Neighborhood & Environ. Svcs. Dept. (NESD) Fire Rescue Road Department Parks & Recreation Planning & Engineering Public Safety Division of Geographic Info. Systems (GIS) Solid Waste Management Division of Environmental Code Enforcement ix

15 COUNTY COMMISSIONERS D.M. Mike Whitehead, District 1 Gene Valentino, District 2 Marie K. Young, District 3 Vice Chair Grover C. Robinson, IV, District 4 Kevin W. White, District 5 - Chair OTHER ELECTED OFFICIALS Ernie Lee Magaha, Clerk of the Circuit Court and Comptroller Ron McNesby, Sheriff Janet Holley, Tax Collector Chris Jones, Property Appraiser David Stafford, Supervisor of Elections OTHER OFFICIALS Robert R. Bob McLaughlin, Interim County Administrator Janet Lander, County Attorney x

16 FINANCIAL SECTION This section contains the following subsections: REPORT OF INDEPENDENT AUDITORS MANAGEMENT S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS FUND FINANCIAL STATEMENTS

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19 Management s Discussion and Analysis As fiscal managers of Escambia County, we offer readers of Escambia County s financial statements this narrative overview and analysis of the financial activities of Escambia County for the fiscal year ended September 30, We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found within this report. Financial Highlights The assets of Escambia County exceeded its liabilities (net assets) as of September 30 th, by $533,330,974 for fiscal year Of this amount, $84,344,640 (unrestricted net assets) may be used to meet the government s ongoing obligations to citizens and creditors. Unrestricted net assets decreased $13,116,190 from the previous year primarily due to a reclassification of capital assets and other amounts previously reported as restricted. The County s total net assets this fiscal year increased $28,986,829 from the previous year with an increase of $31,680,227 resulting from governmental activities and a decrease of $2,693,398 resulting from business-type activities. At September 30, Escambia County s governmental funds reported combined ending fund balances of $128,421,357 a decrease of $11,997,645 in comparison with the prior year. Of this amount, $86,065,214 remains in the various fund types of the County as unreserved. The General Fund reported an unreserved fund balance of $32,714,019; a decrease from last fiscal year of $3,832,465. Escambia County s total bonded debt, leases and loans decreased $14,717,928 from the previous fiscal year. No new notes, leases or bonds were entered into, therefore principal repayments account for the decrease. The General Fund s revenues increased $22,504,551 or 13.8% over the prior fiscal year. The main reason for the increase was a result of the increased assessed value of taxable property which correlated to an increase in property taxes. Closure estimates of the County s Perdido Landfill approved by the Florida Department of Environmental Protection resulted in decrease to the cash closure escrow account of $917,561. The county now holds $6,107,121 in escrow for closure purposes. Interest rates rose over the last fiscal year, resulting in increased interest earnings for the County. The County s average investment portfolio yield rose from 4.69% in 2006 to 5.42% in Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to Escambia County s basic financial statements. Escambia County s basic financial statements comprise three components: 1) governmentwide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. 3

20 Government-Wide Financial Statements Government-wide financial statements are designed to provide a broad overview of the financial position of Escambia County and are similar to private-sector financial statements. They include a statement of net assets and a statement of activities. The Statement of Net Assets shows the County s assets less its liabilities as of September 30, The difference between these assets and liabilities is reported as net assets. Changes in net assets over time may be helpful in indicating an improving or deteriorating financial position. The Statement of Activities presents information showing how the net assets changed during the most recent fiscal year. The statement presents all underlying events giving rise to the change, regardless of the timing of the related cash flows. Some included items, such as accounts payable or earned but unused vacation leave, will produce changes in cash in a future fiscal period. Both government-wide statements distinguish functions of Escambia County that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (businesstype activities). Governmental activities reported in the statements include general government, public safety, physical environment, transportation, economic environment, human services, culture and recreation, and court related functions. Major business activities in Escambia County include landfill operations and civic center operations. Other business activities include inspections and emergency medical services (ambulance services). The government-wide financial statements include not only Escambia County itself (known as the primary government), but also the Santa Rosa Island Authority, the Housing Finance Authority, and the Escambia County Law Library, all legally separate entities for which Escambia County is financially accountable or with which the County is financially integrated. Financial information for these component units is reported separately from the financial information for the primary government itself. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Like other state and local governments, Escambia County uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All funds of Escambia County government can be divided into three categories: governmental, proprietary and fiduciary funds. Governmental Funds. Governmental funds are used to account for essentially the same functions as those reported in the government-wide statement of net assets and statement of activities. However, unlike the government-wide financial statements, governmental fund financial statements focus on events that produce near-term inflows and outflows of spendable resources as well as on the balances of spendable resources available at the end of the fiscal year and is a narrower focus than the governmentwide financial statements. Such information may be useful in evaluating Escambia County s near-term financing requirements and available resources. By comparing functions between the two sets of statements for governmental funds and governmental activities, readers may better understand the long-term impact of the government s near term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison. Governmental funds individually presented in Escambia County s statements include six major funds, the General Fund, the Disaster Recovery Fund, the Hurricane Housing Recovery Program (HHRP) Fund, the Community Redevelopment Agency Fund, the Transportation and Drainage Fund, and the Local Option Sales Tax Fund. Although there are many smaller governmental funds in Escambia County s government, they have been presented in a total column termed as other governmental funds. 4

21 Combining statements for these other governmental funds have been presented in the Combining Statements and Schedules section of this report. Escambia County adopts an annual appropriated budget for all its governmental funds. Budgetary comparison statements and schedules have been provided for these funds to demonstrate budgetary compliance. Proprietary Funds. Escambia County maintains and presents two different types of proprietary funds-- enterprise and internal service. Enterprise funds report, in detail, the same information presented as business-type activities in the government-wide financial statements for landfill operations, inspections, ambulance and emergency medical services, and civic center. Inspections and ambulance are presented in one total column but may be separately reviewed in the combining statements elsewhere in the report. The internal service fund is an accounting mechanism to accumulate and allocate costs internally for Escambia County s government. The County uses several internal service funds to account for the risk financing activities for the County s insurance program. The risk management program is established to retain some risk of certain claims including worker s compensation and casualty and property insurance. Garage and fuel activities provided to other County departments and the administration of employee benefits are also included in the internal service fund. The Sheriff and Clerk each use an Internal Service Fund to account for the annual costs related to the Compensated Absences Policy activities provided for by each respective office, as well as to accumulate certain compensated absences liabilities. The internal service fund is presented in one total column in the Proprietary Funds financial statements but may be separately reviewed in the combining statements elsewhere in the report. Fiduciary Funds. Escambia County uses fiduciary agency funds to account for resources held for the benefit of parties outside of county government. Although these funds are presented in the fund financial statements, they do not appear in the government-wide financial statements because the resources of these agency funds are not available to support Escambia County s own programs. Agency funds are unlike all other fund types in that agency funds report only assets and liabilities. They do however, use the accrual basis of accounting to recognize receivables and payables. Notes to the Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in both the government-wide and fund financial statements. Other Information. Combining and individual statements and schedules referred to earlier, which present more detailed views of nonmajor funds used in governmental and proprietary funds, includes schedules for nonmajor special revenue funds, capital project funds, enterprise funds, internal service funds, and agency funds. Additional information about the County is found under the Statistical and Continuing Disclosure sections of this report. Government-Wide Financial Analysis This is the sixth fiscal year that the County has reported under the total approach to governmental accounting, promulgated by the GASB with its Statement No. 34 model. Comparative data for fiscal years ending September 30, 2007 and 2006 are included in the analysis. 5

22 Escambia County, Florida Net Assets (in thousands) Governmental Business-type Activities Activities Total Current and other assets $191,614 $208,940 $41,604 $30,066 $233,218 $239,006 Capital assets 506, ,504 23,774 44, , ,342 Total assets 698, ,444 65,378 74, , ,348 Long-term liabilities 172, ,428 16,302 15, , ,827 Other liabilities 38,749 46,882 3,154 4,295 41,903 51,177 Total liabilities 211, ,310 19,456 19, , ,004 Net assets: Invested in capital assets net of related debt 406, ,455 41,604 43, , ,793 Restricted 747 7, ,090 Unrestricted 80,027 85,589 4,318 11,872 84,345 97,461 $487,409 $449,134 $45,922 $55,210 $533,331 $504,344 The overall financial position of the County improved in both fiscal years 2007 and As noted earlier, changes in net assets over time can be one of the best and most useful indicators of the County s financial position. Escambia County s increase in net assets for the fiscal years ending September 30, 2007 and 2006 amounted to $28,986,829 and $51,527,279, respectively. Overall, the County experienced an increase in net assets of 5.7%. Escambia County s growth rate continued during fiscal year 2007; the County s unemployment rate remained steady and continues to remain below the national and state average. This trend supports a positive fiscal outlook for Escambia County. As in the prior year, at the end of the fiscal year 2007, the County as a whole, is able to report positive balances in all three categories of net assets. The County s unrestricted net assets at September 30, 2007 decreased $13,116,190 from This decrease is primarily attributable to the County s continued commitment to achieve a successful recovery from the recent hurricanes as well as to continue to manage the basic needs of our community. The services that are provided on a regular basis to the community require the use of resources, which translates to costs. The County s restricted net assets decreased from 2006 by $6,342,443. This decrease is due to the early pay off of two bond issues which will allow for reduced burden on the General Fund revenue that was pledged toward the bonds going forward. Unrestricted net assets are County resources that may be used to meet the County s ongoing obligations to citizens and creditors while restricted net assets are resources subject to external restriction. Escambia County s investment in capital assets such as land, roads, parks, buildings, machinery and equipment, as a percentage of net assets, amounts to 84% and 79% at September 2007, and 2006, respectively. These asset values are presented less any outstanding debt related to the acquisition and accumulated depreciation of those assets. The County uses capital assets to provide services to the citizens and consequently these assets are not available for future spending. Although our investment in 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. 6

23 Net Assets (in thousands) 500, , , , , , , , , , , , , , , , ,000 75,000 50,000 25,000 0 Net Capital Assets Restricted Net Assets Unrestricted Net Assets 2007 Governmental Activities Business-Type Activities 2006 Cash and investment accounts of the County s funds decreased a total of $30,012,431 from the previous year, decreasing $29,409,672 of that amount in the current asset category and decreasing $602,759 in the restricted asset category. Increased expenditures on code enforcement activities, grant related activities, road construction and transportation and drainage were the major uses of cash resources. A comparison of current unrestricted assets as compared to current unrestricted liabilities for both governmental and business-type activities can be a good indication of the County s ability to meet its current and existing operational responsibilities. The ratios for both years are as follows: 7

24 Escambia County, Florida Comparison of Current Unrestricted Assets and Liabilities (in thousands) Fiscal year ending September 30, 2007: Governmental Activities Business-type Activities Current unrestricted assets $189,841 $17,292 Current unrestricted liabilities $38,701 $2,779 Ratio of current assets to current liabilities Fiscal year ending September 30, 2006: Current unrestricted assets $207,087 $22,981 Current unrestricted liabilities $46,835 $4,295 Ratio of current assets to current liabilities The main factor for the decrease in both governmental-type and business-type liabilities is due to the completion of several large contracts associated with clean-up efforts due to Hurricanes Ivan and Dennis that were outstanding at the end of fiscal The County continues to maintain healthy ratios as noted above which indicates more than adequate cash flows of Escambia County. 8

25 Escambia County, Florida Changes In Net Assets Year Ended September 30, 2007 (in thousands) Governmental Business-type Activities Activities Totals Revenues: Program Revenues: Charges for Services $58,050 $58,695 $30,172 $31,752 $88,222 $90,447 Operating Grants and Contributions 20,137 46, ,167 46,501 Capital Grants and Contributions 42,096 23, ,719 24,039 General Revenues: Property Taxes 125,233 98, ,233 98,875 Other Taxes 85,741 79, ,741 79,508 Other 14,747 28, ,086 15,698 30,647 Total Revenues 346, ,113 31,776 33, , ,017 Expenses: General Government/Court Related 31,491 26, ,491 26,590 Public Safety 142, , , ,533 Physical Environment 13,576 4, ,576 4,159 Transportation 80,398 66, ,398 66,373 Economic Environment 22,639 22, ,639 22,081 Human Services 5,299 4, ,299 4,966 Culture/Recreation 11,311 8, ,311 8,610 Interest on Long-Term Debt 7,245 8, ,245 8,066 Solid Waste 0 0 9,164 8,336 9,164 8,336 Building Inspections 0 0 3,871 3,487 3,871 3,487 Ambulance Service ,760 13,868 14,760 13,868 Civic Center 0 0 6,415 5,876 6,415 5,876 Industrial Parks 0 0 NA 545 NA 545 Total Expenses 314, ,378 34,210 32, , ,490 Increase in Net Assets before Transfers 31,421 49,735 (2,434) 1,792 28,987 51,527 Transfers 259 (88) (259) Increase in Net Assets 31,680 49,647 (2,693) 1,880 28,987 51,527 Net Assets, beginning 455, ,487 48,615 53, , ,817 Net Assets, ending $487,409 $449,134 $45,922 $55,210 $533,331 $504,344 Note: As discussed in Note 8, on page 66, the October 1, 2006 net assets of the Economic Development and Industrial Fund, originally established as a proprietary fund, were reclassified into a Special Revenue Fund. An amount of $6,595,000 previously reported in fiscal year 2006 as part of the business-type net assets were reclassed to the governmental net assets category. 9

26 Governmental Activities Overall, increased revenues and increased expenses in fiscal year 2007 can be noted in the governmental activity in fiscal year Fiscal year 2007 shows a 2% decrease in public safety related expenses, 70% increase in the general government category, 31% increase in the culture and recreation category, a 226% increase in the physical environment category, a 21% increase in the transportation category, a 2.5% increase in the economic environment category, and a 6.7% increase in the human services category. These increased costs reflects the County s continuing commitment to achieve a successful recovery from the recent hurricanes as well as continue to manage the basic needs of our growing population. As in fiscal year 2006, the increase in economic environment category is a direct result of the continued State-led initiative to provide funding for hurricane housing recovery initiatives through grant dollars allocated among Florida Counties. Further description of the program can be found on page 13 under the discussion of the HHRP Fund. In the general government category, insurance costs increased approximately $1 million, a 33% increase. Additionally, software was purchased for a land management records system. A $4,000,000 payment was made by the County to the Emerald Coast Utilities Authority to help defray the cost of moving the Authority s wastewater treatment plant, and a $4,000,000 payment was made to the State of Alabama Department of Transportation to help with the cost of widening Highway 113, a major evacuation route for Escambia County, Florida. In the physical environment category, the increased cost is attributable to continued and increased code enforcement efforts that enforce the County s ordinances to enhance the quality of life and restore pride in neighborhoods. Additionally, various grant projects were awarded to the County for stormwater management, watershed protection, Perdido Key dunes restoration and CDBG Disaster Recovery efforts. In the culture and recreation category, overall maintenance costs increased due to the rising price of fuel and personal services costs. Overall, most categories experienced an increase in personal services costs due to the implementation of salary survey that was conducted during fiscal year The County s population increased less than 1% in this fiscal year; similar to the increase experienced in fiscal year Population is projected to be 317,262 in the year 2010 as the County continues to grow and expand. This combination of increases and decreases in various functional areas described above resulted in an increase in governmental net assets of $31,680,227 which is $17,967,138 less than last year s net assets increase of $49,647,

27 Governmental Activities - Expenses and Program Revenues For the Fiscal Year 2007 $150,000,000 $100,000,000 $50,000,000 $0 General government Public safety Physical environment Transportation Economic environment Human services Culture and recreation Court related Interest on long term debt Dollars Expenses Program Revenues Governmental Activities - Revenue by Source For the Fiscal Year 2007 Unr estr icted inter est 3% Sale of assets 0% Mi scel l aneous r evenues 1% Sal es t axes 17% Gas taxes 4% Charges f or Services 17% Oper ating gr ants and contr i butions 6% State shar ed r evenue 3% Tourist development taxes 2% Capital gr ants and contr ibutions 12% Pr oper ty taxes 35% 11

28 Business-type Activities Business-type activities decreased the County s net assets modestly by $2,693,398 for the fiscal year 2007 as compared to a modest increase of $1,879,884 for fiscal year While revenues in most funds remained fairly stable, key elements of decreased revenues and expenses between the years can be explained as follows: During fiscal year 2007, the BCC made the decision to segregate the Code Enforcement activities from the Solid Waste Fund into a stand-alone fund. The Fines and Forfeitures Revenue associated with Code Enforcement liens was designated to be a dedicated revenue source and the activities were placed in a special revenue fund. The loss of that revenue to the Solid Waste Fund was approximately $1.6 million. Additionally, charges for services revenue experienced a decrease of approximately $550,000 due to less than anticipated tonnage being disposed at the County s Landfill. The Inspections Fund continues to experience a decline in the number of permits issued. Fiscal year 2007 licenses and permits revenues decreased 23% which is reflective of the trend of reduced activity in the real estate market not only locally, but nationally as well. Business-type Activities Expenses and Program Revenues For the Fiscal Year 2007 $15,000,000 $14,000,000 $13,000,000 $12,000,000 $11,000,000 $10,000,000 $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 Solid Waste Civic Center Inspections Ambulance Expenses Program Revenues 12

29 Business-type Activities Revenues by Source For the Fiscal Year 2007 Operating grants and contributions 0% Licenses and permits 11% Capital grants and contributions 2% Interest revenues 4% Franchise fees 0% Other 0% Charges for services 83% Financial Analysis of Escambia County s Funds As noted earlier, Escambia County employs fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds. Governmental funds focus on providing information on near-term inflows, outflows, and balances of spendable resources. In assessing Escambia County s financing requirements, unreserved fund balance is a particularly useful measure of net resources available for spending at the end of the fiscal year. The governmental fund types include the general fund, special revenue, debt service, and capital projects funds. As of September 30, 2007, Escambia County governmental funds reported combined fund balances of $128,421,357, a decrease of $11,997,645 compared to prior year balances. Governmental funds reserved $19,163,091 of fund balance to meet current commitments in the next fiscal year, $1,021,972 for inventory, $21,423,789 for advances made to other funds, and $747,291 to meet debt service requirements next fiscal year. 13

30 The General Fund is the chief operating fund of the County. At September 30, 2007, total fund balance in the general fund was $33,779,829 of which $32,714,019 was unreserved. As a measure of the general fund s liquidity, a comparison of both total and unreserved fund balances compared to total fund expenditures shows percentages of 20.8% and 20.1%, respectively. The fund balances of the County s General Fund decreased by $4,344,801 during the current fiscal year. Key factors in this decrease are as follows: Total revenues increased 13.8% from fiscal year 2006 while expenditures also increased 18% from fiscal year Transfer activity from the general fund overall decreased 2.5%, with decreased transfers going to the Debt Service Fund. However, increased transfer amounts were needed for the Mass Transit Fund and the Transportation and Drainage Fund due to increased costs in these funds. As stated previously, the General Fund experienced increased insurance costs of approximately $1 million, a 33% increase. Additionally, software was purchased for a land management records system. A $4,000,000 payment was made by the County to the Emerald Coast Utilities Authority to help defray the cost of moving the Authority s wastewater treatment plant, and a $4,000,000 payment was made to the State of Alabama Department of Transportation to help with the cost of widening Highway 113, a major evacuation route for Escambia County, Florida. The Other Major Governmental Funds include the Disaster Recovery Fund, HHRP Fund, Community Redevelopment Agency Fund, Transportation and Drainage Fund, and the Local Option Sales Tax (LOST) Fund. The Disaster Recovery Fund was established to account for all the financing provided from various State and Federal grants, such as the Federal Emergency Management Agency (FEMA). The County also receives various insurance reimbursements through this fund. Escambia County was struck by Hurricane Ivan (a Category 3 hurricane) in September 2004 and Hurricane Dennis in July Both hurricanes caused major and widespread destruction across Escambia County. The County s recovery efforts and FEMA reimbursements are tracked in this fund. At September 30, 2007, there were reimbursable expenditures of over $7 million due from Federal and State sources. The HHRP Fund accounts for the revenues and expenditures of grant funds designed to provide adequate funding for housing so that Public-Private partnerships can efficiently build, rehabilitate and preserve affordable housing. In fiscal year 2006, the Board approved a resolution adopting the Escambia/Pensacola Hurricane Housing Recovery Assistance Plan outlining the utilization of $23,816,315 in Hurricane Housing Recovery (HHR) Program Funds awarded by the State. The program provides funds for eligible affordable housing strategies, specifying eligibility and beneficiary definitions and establishing annual program service delivery goals. Through this program, the County is partnering with local non-profit agencies to develop and build affordable housing in the community to replace and supplement the housing that was lost as a result of Hurricane Ivan. Fiscal year 2007 has been the second year of activity and the County expects it to continue for several years. The Community Redevelopment Agency (CRA) Fund accounts for the revenues and expenditures for the redevelopment areas established in the County. There are currently five established redevelopment areas included under the CRA jurisdiction. The CRA is funded through transfers from the General Fund of tax increment (TIF) portions of property taxes for each respective district. The TIF portions for the CRA districts enjoyed a 112% increase in fiscal year 2007 over fiscal year 2006 primarily due to the increase in the assessed value of the property in those areas. Expenditures in those districts increased by 92% as a result of the increase in available resources. The CRA enjoys a healthy fund balance at the end of fiscal year 2007 of $4,804,290. Taxes are a major source of revenue for both the Transportation and Drainage Fund and the LOST Fund. Gas taxes are used by the Transportation Fund for the construction and maintenance of roads in the County. Gas taxes increased in fiscal year 2007 $730,836 (10.4%) due to the increasing costs of gasoline. Revenues and expenditures in the Transportation and Drainage Fund reflect the continuation of multiple road improvement projects in which the County is engaged. 14