February 28, Hernando County Board of County Commissioners 20 N. Main Street Brooksville, Florida Ladies and Gentlemen:

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1 February 28, 2002 Hernando County Board of County Commissioners 20 N. Main Street Brooksville, Florida Ladies and Gentlemen: The Comprehensive Annual Financial Report of Hernando County, Florida, for the fiscal year ended September 30, 2001, is submitted herewith. This report was prepared by the County's Finance Department, a division of the office of the Clerk of Circuit Court. Responsibility for both the accuracy of the data presented and the completeness and fairness of the presentation, including all disclosures, rests with the County. We believe that the data as presented is accurate in all material respects; that it is presented in a manner designed to fairly state 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 maximum understanding of the County's financial affairs have been included. The report has been developed and organized to conform to generally accepted accounting principles and pronouncements of the Governmental Accounting Standards Board and to meet the program requirements of the Government Finance Officers Association Certificate of Achievement in Financial Reporting. The purpose of this letter is to narratively point out the highlights of the County's Financial Operations for the Fiscal Year. This report contains three major sections: the introductory, financial and statistical sections. The introductory section is designed to give the reader of the financial report some basic background about the governmental unit as a whole. The financial section is divided into the general purpose financial statements, the footnotes, and combining statements by fund type. It also includes the schedules and report on the Single Audit Act of 1984, and U.S. Office of Management and Budget Circular A-133, Audits of State and Local Governments and the Florida Single Audit Act. The statistical section reflects social, demographic, economic, and financial data and trends. Hernando County provides a full range of services including tax assessment and collection, public safety, transportation, physical environment, economic environment, human services, culture and recreation, and general government services. v

2 Hernando County Board of County Commissioners The Hernando County Board of County Commissioners, as the legislative body for Hernando County, budgets and provides all of the funding used by its Departments and the separate Constitutional Officers with the exception of certain fees collected by the Tax Collector, Property Appraiser and Clerk of Circuit Court. Under the direction of the Clerk of Circuit Court, the Finance Department maintains the accounting system for the Board of County Commissioners and the Clerk of Circuit Court. The Tax Collector, Property Appraiser, Supervisor of Elections and Sheriff maintain their own accounting systems. This report includes all funds and account groups of Hernando County, Florida. The combined financial statements include the operations of the Board of County Commissioners, Clerk of Circuit Court, Tax Collector, Property Appraiser, Supervisor of Elections and Sheriff of Hernando County, Florida. The financial statements include Hernando County (the primary government) and its component unit, Spring Hill Fire and Rescue District. Taxing Districts, Boards and Authorities that are considered to be financially accountable to Hernando County include the Hernando County Water and Sewer District and Hernando County Public Facilities Finance Authority, Inc., Health Facilities Finance Authority and the Hernando County Port Authority. Taxing Districts, Boards and Authorities that are determined not to be under the control of the Board of County Commissioners, and therefore are excluded from this report, are the following: Hernando County School Board, Hernando Healthcare, Inc., and the Hernando County Housing Authority. ECONOMIC CONDITION AND OUTLOOK Hernando County is located in the central region of the State of Florida, allowing easy access to the Tampa and Orlando metropolitan areas. This combined with the mild climate, low cost of housing and economic growth has contributed to Hernando County's boom in population. Hernando County s population has increased from 104,394 only 10 years ago to 135,423 in 2001, a 30% increase. Many economic development and infrastructure activities are taking place which should support continued growth and stability. Previously strictly a rock-mining, citrus and agricultural community, the County's growth has resulted in an increase in retirement, banking and related financial services, retail, health care, light industry and other service related fields. vi

3 Hernando County Board of County Commissioners MAJOR INITIATIVES For the Year - Hernando County has experienced a lot of change over the past year. One of the most significant changes included the unification of three of Hernando County s fire districts into one. This coupled with the emergency medical service, which was previously privatized, resulted in the creation of the Hernando County Fire Rescue District. Road construction continued on all of the County s major State and Federal highways including U.S. Highway 19, U.S. Highway 41, U. S. Highway 98 and State Road 50. Early in 2001, the Suncoast Parkway opened to traffic. The Parkway is a 42 mile tolled highway which provides direct access to neighboring Pasco and Hillsborough Counties. For the Future - Hernando County has been experiencing a more stable pattern of growth. This has allowed the County to catch-up with its past overwhelming rate of growth and continue to build the necessary infrastructure. With the opening of the Suncoast Parkway, growth is expected to increase. The County Seat, the City of Brooksville, will experience major changes with the widening of its major roadway from three to six lanes. The roadway widening will extend south of Brooksville as well. Plans continue on the implementation in late 2001 of a mass transit service between the two most populous areas of the County. The majority of the funding for the project is anticipated through State and Federal agencies. Management Focus - With the beginning of fiscal year came the creation of a unified fire and rescue service, Hernando County Fire Rescue District. Previously separate Northwest Fire, South Central Fire and East Hernando Fire were consolidated to form the new fire district. The only major areas of the County excluded from the consolidated fire services are The City of Brooksville and surrounding areas, and Spring Hill Fire and Rescue District. Additionally, the previously privatized emergency medical/ambulance service was included in the consolidation, with coverage for all major areas of the County except that covered by Spring Hill Fire and Rescue District. Streamlined management, faster response times and reduced costs were the objectives behind the consolidation. An extensive cross training program allows optimal efficiencies in the use of paramedics and firefighters. With unified coverage of such a large area, the District is also able to manage the location of fire and rescue trucks more efficiently to meet the varying needs of the community. As service continues to develop, a review of the funding necessary and options available is underway. vii

4 Hernando County Board of County Commissioners FINANCIAL INFORMATION Accounting System and Budgetary Control - The County's records for general governmental operations are maintained on a modified accrual basis, with revenues being recognized when available and measurable and expenditures being recognized when the services and goods are received and the liabilities are incurred. Accounting records for the County's Proprietary Funds are maintained on the accrual basis, with the revenues recorded when earned, and expenses recorded when the liabilities are incurred. In developing and evaluating the County's accounting system, consideration is given to the adequacy of internal accounting controls. Internal accounting controls are designed to provide reasonable, but not absolute, assurance regarding: 1. The safeguarding of assets against loss from unauthorized use or disposition; and 2. The reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that: 1. The cost of a control should not exceed the benefits likely to be derived; and 2. The evaluation of costs and benefits requires estimates and judgments by management. All internal control evaluations occur within the above framework. We believe that the County's internal accounting controls adequately safeguard assets and provide reasonable assurance of proper recording of financial transactions. Formal budgetary integration is employed as a management control device during the year for all significant funds. Budgets are adopted on a basis consistent with Generally Accepted Accounting Principles (GAAP) by the Board of County Commissioners. The adoption and amendment of the budget is done consistent with the laws of Florida. Budgetary control is maintained through the use of encumbrances. Single Audit - As a recipient of Federal and State financial assistance, an adequate internal control structure is necessary to ensure compliance with applicable laws and regulations related to these programs. These internal controls, as they apply to each grant, are audited annually by independent auditors. The results of Hernando County's single audit for the fiscal year ended September 30, 2001 showed no material weakness in the internal control structure. viii

5 Hernando County Board of County Commissioners Cash Management - The County pools substantially all cash and investments, except for those which must be maintained separately in accordance with legal restrictions. Investments during the year included United States Government Securities, Florida Local Government Investment Trust, the Local Government Surplus Funds Trust, and a Guaranteed Investment Contract. The County earned interest revenue, including fair market changes, in the amount of $4,911,752 for the Governmental Funds, and $1,631,526 for the Proprietary Funds during the year ended September 30, The average maturity of the County's investments at September 30, 2001 was 319 days with the exception of bond reserve funds which had a maturity of 3.35 years. The average yield on all County investments for the year was 5.44%. The County's investment policy is to maximize the return on the portfolio while maintaining a minimum investment risk. Protection of investment capital is the primary investment objective and all investment decisions follow the "prudent person" standard. All of the County's investments fall into the safest category of credit risk as defined by the Governmental INVESTMENT PORTFOLIO DISTRIBUTION 39.5% 20.0% U.S. Government Securities-Agencies Local Government Surplus Funds Trust Guaranteed Investment Contract Florida Local Government Investment Trust U. S. Government Securities-Treasury Notes 2.0% 12.5% 26.0% Accounting Standards Board. ix

6 Hernando County Board of County Commissioners General Government Functions - The results of General Government Functions for the reporting entity, including the component unit, for Fiscal Year are as follows. They include the General, Special Revenue, Debt Service and Capital Project Funds. GENERAL GOVERNMENT REVENUES Percent Percent Percent Revenues Amount Of Total Amount Of Total Change Taxes $45,724, % $46,640, % 2.0% Licenses and Permits 179, % 213, % 18.4% Intergovernmental 14,740, % 13,889, % -5.8% Revenue Charges for Services 14,198, % 15,491, % 9.1% Fines and Forfeitures 504, % 732, % 45.2% Special Assessments/ 7,099, % 8,367, % 17.9% Impact Fees Interest Income 4,085, % 4,911, % 20.2% Miscellaneous 1,214, % 1,123, % -7.5% Total Revenues $87,746, % $91,370, % 4.1% x

7 Hernando County Board of County Commissioners GENERAL GOVERNMENT EXPENDITURES Percent Percent Percent Expenditures Amount Of Total Amount Of Total Change General Government $14,258, % $14,180, % -.6% Public Safety 35,430, % 39,446, % 11.3% Physical Environment 498, % 613, % 23.3% Transportation 6,142, % 8,146, % 32.6% Economic Environment 1,526, % 1,689, % 10.6% Human Services 2,934, % 2,890, % -1.5% Culture and Recreation 3,547, % 3,991, % 12.5% Court-Related 2,278, % 2,540, % 11.5% Debt Service 4,752, % 4,606, % -3.1% Capital Outlay 18,043, % 14,469, % -19.8% 51.0% Taxes 0.2% Licenses and Permits 15.2% Intergovernmental Revenues 17.0% Charges for Services 1.2% Miscellaneous 5.4% Interest Income 9.2% Special Assessments 0.8% Fines and Forfeitures Total Expenditures $89,413, % $92,573, % 3.5% xi

8 Hernando County Board of County Commissioners Taxes are the County's most significant single revenue source, comprising 51.0% of general governmental revenue. The January 1, 2000 taxable valuation, the base for levying Fiscal Year property taxes, was $4.741 billion (statistical table 4), representing a 10.15% increase over the previous year. Fines and Forfeitures increased 45.2% due to a reclassification of some Sheriff s fines from Miscellaneous Revenue, and additional Sheriff s fines collected. Interest Income increased 20.2% due to an increase in yield and fair market value of the County s investments. Transportation expenditures increased 32.6% due to increases in equipment repair and maintenance, contracted services, and materials charges for road maintenance. Capital Outlay expenditures decreased by 20.0% predominantly due to the planned delay of the budgeted Public Works/Fleet Compound. 42.6% Public Safety 0.7% Physical Environment 15.3% General Governmental 8.8% Transportation 4.3% Culture and Recreation 2.8% Court-Related 5.0% Debt Service 3.1% Human Services 1.8% Economic Environment 15.6% Capital Outlay xii

9 Hernando County Board of County Commissioners General Fund Balance - The fund balance of the General Fund reflected a 5.5% increase over the prior year. The following is a graph representing the General Fund Balance activity for the last ten years. Proprietary Operations - The County's proprietary operations consist of four Enterprise Funds and seven Internal Service Funds. Enterprise Fund Operations - The Enterprise Funds are used to account for operations that are financed and operated in a manner similar to private business enterprises, where the intent of the governing body is that the cost (expenses, including depreciation) of providing the goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. Hernando County's Enterprise Funds include the Water and Sewer District, Aviation Authority, Waste Management, and Development Services. The Water and Sewer District reported revenues from operations of $9,147,045 which was a slight decrease of.7% from the previous year with the district reporting net income of xiii

10 Hernando County Board of County Commissioners $1,354,918. New connections to the water and sewer system produced connection fees of $610,325. The fund was able to finance necessary expansion projects while reporting debt service coverage of The Aviation Authority reported net income for the year of $564,324 and a resulting increase in retained earnings to $1,138,689. Capital Contributions in the amount of $625,049 coupled with a Loss Before Other Financing Sources resulted in a positive net income. The Waste Management Division reported operating revenues of $5,852,786 and the fund reported net income of $736,260. Retained earnings increased to $5,825,758, comprised of $1,943,629 reserved for renewal and replacement and $3,882,129 unreserved. The current estimate for closure and postclosure costs increased from $3,062,313 at September 30, 2000 to $3,744,061 at September 30, The Development Services fund reported operating revenues of $2,224,371 during the year. Net income for the year totaled $64,132 which increased the retained earnings total to $1,220,450. Internal Service Operations - The County's Internal Service funds are used to account for the financing of goods or services provided by one department to other departments of the County on a cost-reimbursement basis. Hernando County's Internal Service funds include Central Fueling System, Risk Management, Worker's Compensation, Central Stores, Copier Services, Vehicle Maintenance, and Fleet Replacement. Combined Operating Revenues for these operations totaled $5,882,203, an increase from the prior year of $2,922,793 with $2,080,571 of the increase attributable to the establishment during the year of the Fleet Replacement Fund. Combined retained earnings totaled $2,372,547. Debt Administration General Bonded Indebtedness xiv

11 Hernando County Board of County Commissioners Principal Description Purpose September 30, 2001 Gas Tax Revenue Refunding Bonds, Series 1992 Construction of Road $ 5,915,000 Improvements Certificates of Participation, Construction of County 4,180,000 Series1992 Jail Facility, Fire Stations, Records Facility Building and Master Lease Program Capital Improvement Construction of Government Complex 14,695,000 Revenue Refunding and Related Facilities Bonds, Series 1993 Capital Improvement Advance refund the Capital 8,995,000 Revenue Refunding Improvement Revenue Bonds, Bonds, Series 1998 Series 1994 and a portion of the outstanding Certificates of Participation, Series 1992 Road Improvement Satisfy obligations of the County under 1,845,000 Revenue Refunding a Lease-Purchase Agreement among Bonds, Series 1997 the County and various entities of the State of Florida dated as of December 1, 1979 Total General Bonded Indebtedness $35,630,000 Enterprise Fund Indebtedness xv

12 Hernando County Board of County Commissioners Principal Description September 30, 2001 Hernando County Water and Sewer District: Water and Sewer Revenue Refunding and Improvement Bonds, Series 1992 $11,455,000 Water and Sewer Revenue Refunding and Improvement Bonds, Series ,670,000 Springwood 200,000 Dogwood Estates 57,600 Holland Springs Notes 39,950 18,422,550 Unamortized Discount (184,948) Balance of Deferred Economic Loss from Advance Refunding (423,321) Total Hernando County Water and Sewer District $ 17,814,281 Hernando County Waste Management: Solid Waste System Revenue Bonds, Series 1993 $ 7,680,000 Unamortized Discount (96,106) Total Hernando County Waste Management $ 7,583,894 Hernando County has insured its bond issues and has maintained an AAA rating from Standard & Poors, an Aaa rating from Moody's, and an AAA rating from Fitch. xvi

13 Hernando County Board of County Commissioners Risk Management - Hernando County's Workers Compensation Self-Insurance Internal Service Fund is maintained by accumulating funds contributed by its participants. These funds are accumulated to meet potential losses that are not covered by third-party coverage. The County's Risk Management Fund accounts for and pays premiums related to the general insurance for the County's assets. Charges are made at the departmental level for the premium portion attributable to that department. The Risk Management Division continually monitors potential exposure to risk, and strives to minimize the economic effect of claims through effective claims administration and risk management policies. OTHER INFORMATION Independent Audit - The Florida Statutes require an independent, certified public accountant's financial audit of Counties in the State. This requirement has been complied with and the opinion of the auditors, KPMG, LLP, has been included in the report. Awards - The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to Hernando County for its Comprehensive Annual Financial Report for the fiscal year ended September 30, In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report, whose contents conform to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. Hernando County has received a Certificate of Achievement for the last sixteen consecutive years. We believe our current report continues to conform to the Certificate of Achievement Program requirements, and we are submitting it to the GFOA. xvii

14 Hernando County Board Of County Commissioners Acknowledgments - This report is the product of the dedication of the Finance Department of the Clerk of Circuit Court of Hernando County as Auditor and Comptroller to the Board of County Commissioners. We would like to express our appreciation and thanks to: Sandy Sanders and Dee Frye who worked so diligently on the report; the firm of KPMG, LLP, who helped us with their comments and advice throughout the year; the County Administration and Budget Offices; and Mel Harris of the Hernando County Sheriff s Office for the cover photograph. Respectfully submitted, Karen Nicolai, CPA Clerk of Circuit Court Amy Gillis, CPA, CGFO Finance Director xviii

15 CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to Hernando County, Florida for its comprehensive annual financial report for the fiscal year ended September 30, The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government financial reports. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. Hernando County has received a Certificate of Achievement for the last sixteen consecutive years. We believe our current report continues to conform to the Certificate of Achievement program requirements, and we are submitting it to GFOA.

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