Port of Olympia Thurston County

Transcription

1 Washington State Auditor s Office Financial Statements and Federal Single Audit Report Port of Olympia Thurston County Audit Period January 1, 2007 through December 31, 2007 Report No Issue Date September 29, 2008

2 Washington State Auditor Brian Sonntag September 29, 2008 Board of Commissioners Port of Olympia Olympia, Washington Report on Financial Statements and Federal Single Audit Please find attached our report on the Port of Olympia s financial statements and compliance with federal laws and regulations. We are issuing this report in order to provide information on the Port s financial condition. In addition to this work, we look at other areas of our audit client s operations for compliance with state laws and regulations. The results of that audit will be included in a separately issued accountability report. Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR Insurance Building, P.O. Box Olympia, Washington (360) TDD Relay (800) FAX (360)

3 Table of Contents Port of Olympia Thurston County January 1, 2007 through December 31, 2007 Federal Summary... 1 Schedule of Prior Federal Audit Findings... 2 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards... 3 Independent Auditor s Report on Compliance with Requirements Applicable to its Major Program and Internal Control over Compliance in Accordance with OMB Circular A Independent Auditor s Report on Financial Statements... 7 Financial Section... 9

4 Federal Summary Port of Olympia Thurston County January 1, 2007 through December 31, 2007 The results of our audit of the Port of Olympia are summarized below in accordance with U.S. Office of Management and Budget Circular A-133. FINANCIAL STATEMENTS An unqualified opinion was issued on the basic financial statements. Internal Control Over Financial Reporting: Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over financial reporting that we consider to be significant deficiencies. Material Weaknesses: We identified no significant deficiencies that we consider to be material weaknesses. We noted no instances of noncompliance that were material to the financial statements of the Port. FEDERAL AWARDS Internal Control Over Major Programs: Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over major federal programs that we consider to be significant deficiencies. Material Weaknesses: We identified no significant deficiencies that we consider to be material weaknesses. We issued an unqualified opinion on the Port s compliance with requirements applicable to its major federal program. We reported no findings that are required to be disclosed under OMB Circular A-133. Identification of Major Programs: The following was a major program during the period under audit: CFDA No. Program Title Airport Improvement Program The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by OMB Circular A-133, was $300,000. The Port qualified as a low-risk auditee under OMB Circular A

5 Schedule of Prior Federal Audit Findings Port of Olympia Thurston County January 1, 2007 through December 31, 2007 This schedule presents the status of federal findings reported in prior audit periods. The status listed below is the representation of the Port of Olympia. The State Auditor s Office has reviewed the status as presented by the Port. Audit Period: Report Reference No: Finding Reference No: CFDA Number(s): Federal Program Name and Granting Agency: Pass-Through Agency Name: Airport Improvement Program U. S. Department NA of Transportation Finding Caption: The Port of Olympia did not comply with federal suspension and debarment requirements for its Airport Improvement Program. Background: For the year ended December 31, 2006, the Port of Olympia spent $2,019,784 in federal money from the Airport Improvement Program. Approximately $328,695 of that amount was used to purchase engineering services and approximately $125,634 was used to pay for tree clearing. The Port did not ensure that these vendors were not suspended or debarred from working on federal contracts. Status of Corrective Action: (check one) Fully Corrected Partially Corrected No Corrective Action Taken Finding is considered no longer valid Corrective Action Taken: New Professional Service Agreement Terms and Conditions have been standardized for Federal projects. Also, the debarment paragraph has been added to templates for soliciting proposals and qualifications from Consultants. In addition, for construction contract documents, the contract administration staff is verifying exclusion from debarment list after determination of apparent responsive, responsible bidder. The debarment statement has also been added to Specification Section Bid Form. 2

6 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards Port of Olympia Thurston County January 1, 2007 through December 31, 2007 Board of Commissioners Port of Olympia Olympia, Washington We have audited the basic financial statements of the Port of Olympia, Thurston County, Washington, as of and for the years ended December 31, 2007 and 2006, and have issued our report thereon dated September 3, We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audits, we considered the Port s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Port s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Port s internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the Port's ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Port's financial statements that is more than inconsequential will not be prevented or detected by the Port's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity s internal control. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 3

7 COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the Port s financial statements are free of material misstatement, we performed tests of the Port s compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended for the information and use of management, the Board of Commissioners, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR September 3,

8 Independent Auditor s Report on Compliance with Requirements Applicable to its Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133 Port of Olympia Thurston County January 1, 2007 through December 31, 2007 Board of Commissioners Port of Olympia Olympia, Washington COMPLIANCE We have audited the compliance of the Port of Olympia, Thurston County, Washington, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to its major federal program for the year ended December 31, The Port s major federal program is identified in the Federal Summary. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal program is the responsibility of the Port s management. Our responsibility is to express an opinion on the Port s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Port s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the Port s compliance with those requirements. In our opinion, the Port complied, in all material respects, with the requirements referred to above that are applicable to its major federal program for the year ended December 31, INTERNAL CONTROL OVER COMPLIANCE The management of the Port is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the Port s internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance, but not for the purpose of expressing an opinion on the 5

9 effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Port's internal control over compliance. A control deficiency in an entity s internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity s ability to administer a federal program such that there is a more than remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity s internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in a more than remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity s internal control. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended for the information of management, the Board of Commissioners, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR September 3,

10 Independent Auditor s Report on Financial Statements Port of Olympia Thurston County January 1, 2007 through December 31, 2007 Board of Commissioners Port of Olympia Olympia, Washington We have audited the accompanying basic financial statements of the Port of Olympia, Thurston County, Washington, as of and for the years ended December 31, 2007 and 2006, as listed on page 9. These financial statements are the responsibility of the Port s management. Our responsibility is to express opinions on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Port of Olympia, as of December 31, 2007 and 2006, and the changes in financial position and, where applicable, cash flows thereof for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report on our consideration of the Port s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audits. The management s discussion and analysis on pages 10 through 16 is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audits were performed for the purpose of forming an opinion on the financial statements that collectively comprise the Port s basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. This schedule is not a required part of the basic financial statements. Such information 7

11 has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The Schedule of Long-Term Debt is not a required part of the basic financial statements but is supplementary information presented for purposes of additional analysis. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on it. BRIAN SONNTAG, CGFM STATE AUDITOR September 3,

12 Financial Section Port of Olympia Thurston County January 1, 2007 through December 31, 2007 REQUIRED SUPPLEMENTAL INFORMATION Management s Discussion and Analysis 2007 BASIC FINANCIAL STATEMENTS Statement of Net Assets 2007 Statement of Revenues, Expenses and Changes in Fund Net Assets 2007 Statement of Cash Flows 2007 Notes to Financial Statements 2007 SUPPLEMENTAL INFORMATION Schedule of Long-Term Debt 2007 Schedule of Expenditures of Federal Awards 2007 Notes to the Schedule of Expenditures Federal Awards

13 Management s Discussion and Analysis As managers of the Port of Olympia, we offer this narrative overview and analysis of the financial activities for the years ended December 31, 2007 and We present this information in conjunction with the information included in our financial statements, which follow. Financial Highlights Year Ended December 31, 2007: Total assets of the Port of Olympia exceeded its liabilities by $64.7 million (reported as net assets). This represented an increase of $3.7 million in comparison with the prior year. Of the $64.7 million net assets, $5.8 million was reported as unrestricted net assets. Unrestricted net assets represent the amount available to be used to meet the port s ongoing obligations to citizens and creditors. The remaining $58.9 million was invested in capital assets, net of related debt. Capital assets, net of related debt represent the net book value of all the port s property, plant & equipment (including infrastructure assets) of $80.4 million less related general obligation bonds of $21.4 million. The port s capital assets increased by $6.8 million while total bond debt decreased by $1.9 million during the current year. While the overall increase in net assets during the year was $3.7 million, the port reflected an operating loss of $2.8 million during the current year. Year Ended December 31, 2006: Total assets of the Port of Olympia exceeded its liabilities by $60.9 million (reported as net assets). This represented an increase of $6.6 million in comparison with the prior year. Of the $60.9 million net assets, $10.8 million was reported as unrestricted net assets. Unrestricted net assets represent the amount available to be used to meet the port s ongoing obligations to citizens and creditors. The remaining $50.1 million was invested in capital assets, net of related debt. Capital assets, net of related debt represent the net book value of all the port s property, plant & equipment (including infrastructure assets) of $73.6 million less related general obligation bonds of $23.5 million. The port s capital assets increased by $3.2 million while total bond debt decreased by $1.8 million during the current year. While the overall increase in net assets during the year was $6.6 million, the port reflected an operating loss of $3.5 million during the current year. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the port s basic financial statements. The port s basic financial statements included two components: 1) financial statements, and 2) notes to the financial statements. The port is not required to reflect both a government-wide perspective financial report and a fund perspective financial report since the port maintains a single enterprise fund which uses the same measurement focus (economic resources) and accounting basis (full accrual) as would be reflected in the government-wide financial statements. 10

14 The following is a brief discussion of the various statements contained within the basic financial statements. Statement of Net Assets reflects the port s financial position at year-end. Financial position is represented by the difference between assets owned and liabilities owed at a specific point in time. The difference between the two is reflected as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the port is improving or deteriorating. Statement of Revenues, Expenses and Changes in Fund Net Assets reflects the change in the port s financial position (net assets) during the current year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods (e.g., uncollected taxes and unpaid liabilities owed to vendors). This statement presents net income or loss from operations as well as nonoperating revenues and expenses, capital contributions and extraordinary items. Statement of Cash Flows reflects the net increases or decreases in cash from four activities: 1) Operating Activities, with a reconciliation of cash flows from operating activities to net income or loss from operations; 2) Noncapital financing activities; 3) Capital and related activities; 4) investing activities. The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the financial statements. The notes to the financial statements are considered to be an integral part of the basic financial statements. Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government s financial position. The port s total assets exceeded liabilities by $64.7 million at December 31, 2007 as compared to $60.9 million at December 31, 2006 and $54.4 million at December 31, The largest portion of the port s net assets (87.7% as of December 31, 2007 as compared to 82.8% as of December 31, 2006 and 83.0% as of December 31, 2005) reflects its investment in capital assets (e.g. land, buildings, machinery, equipment, infrastructure, and construction in progress), less any related debt used to acquire those assets that is still outstanding. Although the port 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. 11

15 Condensed Comparative Financial Data Port of Olympia s Net Assets (in thousands of dollars) Current and other assets $ 11,283 $ 15,721 $ 13,858 Capital assets 80,446 73,626 70,360 Total Assets 91,729 89,347 84,220 Long-term liabilities outstanding 21,699 23,709 25,652 Other liabilities 5,346 4,662 4,179 Total Liabilities 27,045 28,370 29,831 Net Assets: Invested in capital assets, net of related debt 58,825 50,133 45,166 Unrestricted 5,859 10,844 9,223 Total Net Assets $ 64,684 $ 60,977 $ 54,389 Port of Olympia s Changes in Net Assets (In thousands of dollars) Operating Revenues: Olympia Regional Airport $ 663 $ 594 $ 566 Swantown Marina and Boatworks 2,443 2,269 2,052 Marine Terminal 2,374 1,789 2,707 Properties 2,112 1,886 1,635 Total Operating Revenues 7,592 6,538 6,960 Nonoperating Revenues: Investment income Property taxes 4,328 4,090 3,782 Settlements Operating grants Forest board & leasehold taxes Other nonoperating revenues 293 4, Total Non Operating Revenues 5,650 9,167 5,060 Total Revenues 13,242 15,705 12,020 Operating Expenses: General Operations 3,419 3,079 3,265 Maintenance 999 1,252 1,167 General and Administrative 3,160 2,927 2,501 Depreciation 2,820 2,747 2,660 Total Operating Expenses 10,398 10,005 9,593 Nonoperating Expenses: Environmental costs Interest expense 1,138 1,228 1,249 Election expense Other nonoperating expenses Total Nonoperating expenses 1,718 1,589 2,114 Total Expenses 12,116 11,594 11,707 Excess (Deficiency) Before Capital Contributions, Special & Extraordinary Items 1,127 4, Contributions 2,580 2,477 4,092 Special & extraordinary items Change in Net Assets $ 3,707 $ 6,588 $ 4,406 Ending Net Assets $ 64,684 $ 60,977 $ 54,389 12

16 Overall Analysis of Financial Position and Results of Operations Current year activities resulted in a net increase in the Port s net assets of $3.7 million. Key elements of this increase are as follows: The port received approximately $2.3 million in capital grants from the federal government to finance airport improvements. Another $240 thousand in capital grants from the federal government was used to finance Security and Transportation initiatives. Additionally, the port received approximately $270 thousand from the state government to contribute to the port s environmental programs. In the latter half of fiscal year 2005, the Port began experiencing a decline in shipping activity from the historically high-level of activity experienced in fiscal year This decrease in activity reflected similar decreases in the Pacific Northwest shipping market and resulting in a $900 thousand reduction to operating revenues in fiscal year Marine terminal operations reflected a $585 thousand increase in revenues during fiscal year 2007 as the Port experienced an increase in both wind energy and military cargoes. The marina and boatworks experienced a $174 thousand increase in operating revenues generated primarily from increased moorage rates at the marina and an expansion of the boatworks facility that was completed in fiscal year Property lease revenues increased by $226 thousand due to the effect of increased property values on lease rates and new tenant leases. The airport experienced a slight increase in revenues primarily due to increases to the airports rates and fees. General and administrative expenses increased by $233 thousand. This increase is attributable to several factors as follows: Increases in legal costs of approximately $110 thousand. This increase in legal fees is associated with numerous State Environmental Policy Act (SEPA) appeals related to airport, marine terminal& property development projects, as well as numerous public records requests. Approximately $250 thousand of the increase in G&A costs is attributable to an increase in personnel costs. In addition to the above increases in general and administrative costs, the port realized a $45 thousand reduction in professional service fees as well as an $80 thousand dollar reduction in claims and damages. There was little change to other general administrative costs from that of the prior year. Prior year activities resulted in a net increase in the Port s net assets of $6.5 million. Key elements of this increase are as follows: The port received approximately $2.1 million in capital grants from the federal government to finance airport improvements. Another $95 thousand in capital grants from the federal government was used to finance marina guest dock renovations. Additionally, the port received approximately $300 thousand from the state government to contribute to the marine terminal rail improvements. 13

17 In the latter half of fiscal year 2005, the Port began experiencing a decline in shipping activity from the historically high-level of activity experienced in fiscal year This decrease in activity reflected similar decreases in the Pacific Northwest shipping market and resulted in a $900 thousand reduction to operating revenues. The marina and boatworks experienced a $200 thousand increase in operating revenues generated from an increased use of the guest moorage facilities to accommodate displaced boat-owners from a nearby marina under-going significant repairs and maintenance as well as an increase in the rates and fees charged by the Port s marina. Property lease revenues increased by $250 thousand due to the effect of increased property values on lease rates and new tenant leases. The airport experienced a slight increase in revenues primarily due to increases to the airports rates and fees. General and administrative expenses increased by $425 thousand. This increase is attributable to several factors as follows: Increases in legal costs of approximately $250 thousand. This increase in legal fees is associated with numerous State Environmental Policy Act (SEPA) appeals related to airport and marine terminal operations, as well as numerous public records requests. Approximately $100 thousand of the increase in G&A costs is attributable to a reduction in capitalized public works employee s salaries, due in part to delays in construction activities caused by the various SEPA Appeals and challenges. The remaining $75 thousand increase in G&A costs is represents an approximate 3% increase over the prior year which represents the cost of inflation. Capital Assets. The port s investment in capital assets as of December 31, 2007, amounts to $80.4 million (net of accumulated depreciation). This investment in capital assets includes infrastructure, land & land rights, buildings & other improvements, furnishings & equipment, as well as construction in progress. Year Ended December 31, 2007: The port invested $9.5 million in additional fixed assets during the year ended December 31, This investment included approximately $3.7 million for airport improvements, approximately $2.2 million for marine terminal improvements, $1.9 million for land acquisition, $1.0 million for property development, $500 thousand for marina upgrades and boatyard expansion. The remaining $200 thousand was for various equipment and infrastructure improvements. Remaining commitments on these and other miscellaneous construction projects total $121,587. Year Ended December 31, 2006: The port invested $5.8 million in additional fixed assets during the year ended December 31, This investment included approximately $1.5 million for airport improvements, approximately $2.8 million for marine terminal improvements, and approximately $500 thousand for marina upgrades and improvements. The remaining $100 thousand was for various equipment and infrastructure improvements. Remaining commitments on these and other miscellaneous construction projects total $154,223. Additional information on the port s capital assets can be found in Note 4 to the financial statements. 14

18 Port of Olympia s Capital Assets (Net of depreciation) (in thousands of dollars) Land & land rights $ 25,505 $ 23,595 $ 23,595 Buildings structures & improvements 21,816 19,577 20,436 Machinery & equipment 3,538 3,893 4,163 Other improvements 21,680 16,539 13,591 Construction in progress 7,907 10,022 8,576 Total, net of depreciation $ 80,446 $ 73,626 $ 70,361 Bond Debt. The port had general obligation bond debt outstanding of $21.4 million and $23.2 million at December 31, 2007 and 2006, respectively. This represents a decrease of $1.8 million in general obligation bond debt during the current year. During the year ended December 31, 2006, the port reduced its general obligation bond debt by $1.8 million. During 2005, the port undertook an advance refunding of $15.8 million in general obligation bond debt to reduce future debt service payments over the next ten years by $3.2 million. This resulted in a net present value savings of approximately $800 thousand. The port had no revenue bonds outstanding at any time during the years ended December 31, 2007 or Port of Olympia s Bond Debt (in thousands of dollars) General obligation (G.O.) bonds $ 21,409 $ 23,278 $ 25,061 Revenue bonds Total Bond Debt $ 21,409 $ 23,278 $ 25,061 General Obligation Debt Limitations: Under State statutes, as set forth in RCW , the Port s permitted non-voted general obligation indebtedness, net of applicable assets, is limited to ¼ of 1% of the assessed valuation of taxable property within the port district. Additional general obligation debt may be issued by the Port, pursuant to a 60% majority vote of qualified electors as follows. ½ of 1% of the assessed valuation of taxable property within the port district for general Port purposes 1% of the assessed valuation of taxable property within the port district for indebtedness related to the Port s investment in Foreign Trade Zone related capital assets. 15

19 The following table provides information on the Port s available general obligation indebtedness as of December 31, 2007 and 2006 expressed in millions. December 31, 2007: Outstanding (Net of Applicable Assets) Authorized Available Non-voted general obligation indebtedness for general port purposes $ 72.0 $ 18.7 $ 53.3 Voted general obligation indebtedness for: General port purposes Investment in foreign trade zone related capital assets Maximum general obligation indebtedness $ $ 18.7 $ December 31, 2006: Outstanding (Net of Applicable Assets) Authorized Available Non-voted general obligation indebtedness for general port purposes $ 58.7 $ 12.9 $ 45.8 Voted general obligation indebtedness for: General port purposes Investment in foreign trade zone related capital assets Maximum general obligation indebtedness $ $ 12.9 $ Additional information on the port s bond debt obligations is presented in Note 9 to the financial statements. Other Potentially Significant Matters While planning for a dredge project of the Port s marine terminal berthing area and navigation channel, sediment tests identified that areas along the face of the wharf in the berthing area was contaminated with dioxin at levels that would prohibit the Port from disposing of the dredge materials at the previously planned open water site. Other disposal options, such as upland disposal at a certified site, are considerably more expensive than the original disposal plan. Currently estimates range from $4 to $8 million for the dredge project. This is significantly higher than the Port s estimated cost of $800 thousand, had the sediment tested as suitable for open water disposal. Subsequent to year-end, the Port conducted soil testing of approximately 14 acres of waterfront property undergoing re-development. This testing identified various contaminants, including dioxins, which will require a clean-up action plan. Current estimates for the clean-up range from $3 to $10 million. The Port is currently in negotiations with the State Department of Ecology to complete both projects under the Model Toxics Control Act (MTCA). The Port is also working with counsel to develop a cost recovery strategy that includes identifying Potentially Liable Parties (PLP s) under MTCA, and to develop strategies for funding under MTCA that could result in funding under that program for up to 50% of the expected total costs. See Note 14 to the financial statements. 16

20 Port of Olympia Statement of Net Assets For The Years Ending December 31, 2007 and 2006 ASSETS CURRENT ASSETS: Cash and Cash Equivalents $ 3,216,597 $ 4,719,404 Investments 4,393,139 7,432,593 Taxes Receivable 158, ,575 Accounts Receivable, Net of Allowance 1,407, ,588 Interest Receivable 25,928 37,193 Due from Other Governments 500,049 1,163,438 Other Current Assets 218, ,530 Total Current Assets 9,920,143 14,157,321 CAPITAL ASSETS: Property, Plant and Equipment 110,212,054 98,650,330 Construction in Progress 7,906,950 10,022,037 Less: Accumulated Depreciation (37,672,671) (35,046,487) Total Net Capital Assets 80,446,333 73,625,880 OTHER NONCURRENT ASSETS: Organizational Costs, Net 555, ,740 Unamortized Debt Issue Costs, Net 84, ,054 Other Noncurrent Assets 723, ,107 Total Other Noncurrent Assets 1,362,752 1,563,901 TOTAL ASSETS $ 91,729,228 $ 89,347,102 The accompanying notes are an integral part of these financial statements 17

21 Port of Olympia Statement of Net Assets For The Years Ending December 31, 2007 and 2006 LIABILITIES And NET ASSETS CURRENT LIABILITIES: Accounts Payable $ 2,186,712 $ 1,590,964 Accrued Compensated Absences 355, ,160 Other Accrued Liabilities 39,873 51,186 Bond Interest Payable 90,211 97,087 Retainage Payable 121, ,622 Current Portion - Notes and Contracts Payable - 55,000 Current Portion - General Obligation Bonds 1,953,684 1,868,684 Other Current Liabilities 598, ,007 Total Current Liabilities 5,345,651 4,661,710 NONCURRENT LIABILITIES: General Obligation Bonds Payable, Net of Unamortized Premiums and Deferred Amounts on Refunding 19,455,393 21,409,077 Notes and Contracts Payable - - Accrued Environmental Costs 1,858,523 1,936,457 Deferred Revenues 385, ,107 Total Noncurrent Liabilities 21,699,456 23,708,641 TOTAL LIABILITIES 27,045,107 28,370,351 NET ASSETS: Invested in Capital Assets, Net of Related Debt 58,825,458 50,132,410 Unrestricted 5,858,663 10,844,341 Total Net Assets 64,684,121 60,976,751 TOTAL LIABILITIES And NET ASSETS $ 91,729,228 $ 89,347,102 The accompanying notes are an integral part of these financial statements 18

22 Port of Olympia Statement of Revenues, Expenses and Changes in Fund Net Assets For The Years Ending December 31, 2007 & 2006 Operating Revenues Olympia Regional Airport $ 662,958 $ 593,742 Swantown Marina and Boatworks 2,443,465 2,269,297 Marine Terminal 2,373,972 1,789,014 Properties 2,112,011 1,886,212 Total Operating Revenues 7,592,406 6,538,265 Operating Expenses General Operations 3,418,960 3,078,903 Maintenance 998,819 1,251,845 General and Administrative 3,159,844 2,926,813 Depreciation 2,820,096 2,747,207 Total Operating Expenses 10,397,718 10,004,768 OPERATING INCOME (Loss) (2,805,313) (3,466,503) NonOperating Revenue (Expense) Investment Income 605, ,575 Taxes Levied for: General Purposes 1,332,776 1,094,908 Debt Service Principal/Interest 2,995,045 2,995,310 Settlement's - - State Operating Grants 269, ,379 Forest Board & Leasehold 154, ,560 Other Miscellaneous Revenues 293,647 4,008,509 Non Operating Expenses (48,520) (24,675) Environmental Costs (362,209) (333,671) Election Expense (168,652) - Bond Issuance Costs - (2,136) Interest Expense (1,137,995) (1,228,262) Total NonOperating Revenue (Exp) 3,932,788 7,577,497 Income (Loss) before other revenues, expenses, gains, losses and transfers 1,127,475 4,110,994 Capital Contributions 2,579,896 2,477,025 Increase (Decrease) in Net Assets 3,707,371 6,588,019 Net Assets - beginning of period 60,976,750 54,388,731 Net Assets - end of period $ 64,684,121 $ 60,976,750 The accompanying notes are an integral part of these financial statements. 19

23 Port of Olympia Statement of Cash Flows For The Years Ending December 31, 2007 and CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from customers 6,670,101 6,772,103 Cash payments to suppliers for goods and services (3,397,499) (3,417,907) Cash payments to employees and on their behalf (3,541,507) (3,587,725) Net cash provided by operating activities (268,905) (233,529) CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES: Other taxes 1,250, ,213 Settlements and contracts received 0 0 Operating Grants received 335, ,039 Non-operating revenues and grants received 171, ,611 Environmental costs paid (440,143) (347,745) Non-operating expenses paid (217,172) (26,811) Net Cash Provided (used) by Non-capital Financing Activities 1,100,155 1,157,307 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Property taxes 3,068,555 3,114,053 Capital grants 3,177,499 1,646,872 Proceeds from sale of capital assets 276,350 3,991,458 Purchase and construction of capital assets (9,443,672) (5,698,284) Repayment of Long-Term bond debt (1,884,999) (1,840,000) Interest and issuance costs on bond debt (1,183,556) (1,274,053) Net Cash Provided (used) by Capital & Related Financing Activities (5,989,823) (59,954) CASH FLOWS FROM INVESTING ACTIVITIES: Net investment in securities 3,039,454 1,507,860 Interest and dividends received 616, ,382 Net Cash Provided (used) by Investing Activities 3,655,766 2,101,242 Net Increase (decrease) in Cash and Cash Equivalents (1,502,807) 2,965,066 Cash and cash equivalents, beginning of year 4,719,404 1,754,338 Cash and cash equivalents, end of year 3,216,597 4,719,404 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net Operating Income (loss) (2,805,313) (3,466,503) Adjustments to reconcile net income to net cash from operating activities: Depreciation & Amortization 2,808,823 2,716,546 Change in accounts receivable (996,265) 144,844 Change in other current assets 25,056 (2,345) Change in unamortized debt issue costs, net 18,511 23,741 Change in accounts payable 595, ,836 Change in other current liabilities 62,104 59,378 Deferred Revenue item 22,433 (6,026) Total adjustments 2,536,409 3,232,974 Net Cash Provided (used) by Operating Activities (268,905) (233,529) The accompanying notes are an integral part of this financial statement. 20

24 Port of Olympia NOTES TO FINANCIAL STATEMENTS NOTE 1 General Information and Summary of Significant Accounting Policies Nature of Business The Port of Olympia (Port) is a municipal corporation formed and operating under the laws of Washington State applicable to a Port District. It has been in continuous operation since 1922 when the voters of Thurston County, Washington, created the corporation. The financial statements of the Port have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governments. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. In June 1999, GASB approved Statement 34, Basic Financial Statements-and Management Discussion and Analysis-for State and Local Governments. This and consecutive statements are reflected in the accompanying financial statements (including notes to financial statements). Reporting Entity The Port is a special purpose government, which is supported primarily through user charges. The Port operates a marina and boatworks facility, airport, marine terminal, and property with industrial development activities. The Port is governed by an elected three member Board of Commissioners. As required by generally accepted accounting principles, management has considered all potential component units in defining the reporting entity. These financial statements present the Port of Olympia (Primary Government) and the Port of Olympia Economic Development Corporation (its component unit). The component unit discussed below is included in the districts reporting entity because of the significance of their operational or financial relationships with the district. Component Unit: During 1981, pursuant to CH RCW, the Port established the Port of Olympia Economic Development Corporation, (EDC), a public corporation, for the purpose of facilitating local economic development opportunities. The public corporation, with the approval of the Port Commission, has issued tax-exempt non-recourse revenue bonds to finance industrial development within the boundaries of the Port district. These bonds are not a liability, a contingent liability, or a lien on any of the Port of Olympia property or revenues. The EDC board consists of all three Port Commissioners and two Thurston County citizens appointed by the Board. This results in a Board of Directors considered under Governmental Accounting Standards Board (GASB) Statement No. 14 to be deemed substantively the same as the Port Commission. Therefore, the financial position of the EDC and the results of its operations and cash flows are reflected in these financial statements using the blending method in accordance with GASB Statement No. 14. A summary of significant accounting policies follows: Basis of Accounting Accounting records for the Port are maintained in accordance with methods prescribed by the Washington State Auditor under the authority of Chapter 43.09, revised Code of Washington. The Port uses the Budgeting, Accounting and Reporting System for Classified Port Districts in the State of Washington. 21

25 Funds are accounted for on a cost of services or capital maintenance measurement focus. This means that all assets and all liabilities (whether current or noncurrent) associated with their activity are included on their statements of net assets. The reported fund equity (total net assets) is segregated into invested in capital assets, net of related debt, restricted (when applicable) and unrestricted net assets. Operating statements present increases (revenues and gains) and decreases (expenses and losses) in net total assets. The Port discloses changes in cash flows by a separate statement that presents their operating, noncapital financing, capital and related financing and investing activities. The full accrual basis of accounting is utilized in which revenues are recognized when earned and expenses are recognized when incurred. The Port reports deferred revenue on its balance sheet. Deferred revenue arises when potential revenue does not meet the recognition criteria in the current period. Deferred revenues also arise when the Port receives resources before it has a legal claim to them. In subsequent periods when the revenue recognition criteria is met, or when the Port has a legal claim to the resources, the liability for deferred revenue is removed from the balance sheet and revenue is recognized. Cash and Cash Equivalents For purposes of the statement of cash flows, the Port considers all liquid investments, including restricted assets, with maturity of three months or less to be cash equivalents. Investments See Note 2 Deposits and Investments Taxes Receivables Taxes receivable consists of property taxes and related interest and penalties. See Note 3 Property Taxes. Because property taxes and special assessments are considered liens on property, no estimates for the uncollectible amounts are established. Accounts Receivable, Net Accounts receivable consists of amounts owed from private individuals or organizations for normal operating charges for goods and services, whether billed or unbilled by the Port at year-end. Receivables have been recorded net of estimated uncollectible amounts. Estimated uncollectible amounts for accounts receivables are $27,000. Settlements Receivable, Current Portion Settlements receivable, current portion consist of amounts owed the Port from a former tenant for environmental clean-up costs, which are due within one year. The final payment was received during the year ended December 31, See Note 14 Environmental Clean-up Activities and Liabilities. Amounts Due To from Other Governments These accounts include amounts due to and from other governments for grants and entitlements. Amounts are considered 100% collectible and therefore, no estimate for the uncollectible amount has been established. Receivables from other governments related to normal operating charges for goods and services are included in accounts receivables. Other Current Assets Other current assets consist of prepaid expenses and inventory. Prepaid expenses included $203,805 of prepaid insurance at December 31, The balance of prepaid insurance at December 31, 2006 was $224,737. Prepaid expenses also include a $1,600 advance deposit on state excise taxes held by the State of Washington Department of Revenue. 22

26 Inventory is valued at the lower of cost or market and consists of maintenance supplies and parts, as well as, promotional items such as clothing, coffee mugs, and similar items that are held for resale and advertising purposes. Capital Assets See Note 4 - Capital Assets and Depreciation Environmental Expenditures Environmental expenditures that related to current or future revenues are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and do not contribute to current or future revenue generation, are expensed. Expenditures that related to an existing condition caused by past operations are capitalized only when they provide future economic benefits or service potential. Liabilities are recorded when environmental assessments or cleanup expenses are probable, and the costs can be reasonably estimated. Organizational Costs, Net Organizational costs, net represent the cost of long-lived organizational master plans being amortized over the plans life using the straight-line method of amortization, which approximates the effective interest method. Unamortized Debt Issuance Costs, Net Bond issuance costs are generally reflected as other non-current assets and amortized over the lives of the bonds using the bonds outstanding method of amortization, which approximates the effective interest method. Debt issue costs related to defeased or refunded debt is expensed as incurred. Premium & Discounts on General Obligation Bonds: The principal balance of general obligation bond principle is netted against any related unamortized premium or discount of the bond sale. The premium or discount is amortized over the life of the bond issue as an increase (bond discounts) or decrease (bond premiums) to interest expense using the straight-line method of amortization. Gain or Loss on General Obligation Bond Refunding: The gain or loss attributable to the difference between the carrying amount of defeased or refunded debt and its reacquisition price is deferred and amortized over the life of the new debt or the refunded debt, whichever is less. The unamortized portion of this gain or loss is reported as a direct increase to (gains) or reduction of (losses) the amount of the liability on the Statement of Net Assets. Other Noncurrent Assets Other noncurrent assets included the following at December 31: Other Noncurrent Assets: Leasehold Purchase $ 340,000 $ 340,000 Notes Receivable 383, ,107 Total Other Noncurrent Assets $ 723,107 $ 723,107 23

27 The leasehold purchase and note receivable are related to property on the northern tip of the Budd Bay Peninsula as follows: Leasehold purchase represents the cost to terminate a tenant lease in order to enable the port take advantage of an opportunity to utilize the previously leased property under a more economically beneficial business venture. The Port will begin amortization of these lease buy-out costs at the inception of the new lease using the straight-line method of amortization over the life of the new lease. The note receivable represents the net present value of a $550,000 note receivable from the new tenant payable in This note represents a reimbursement to the Port for pre-development costs of a land site. Accrued Compensated Absences Accrued compensated absences are absences for which employees will be paid, such as vacation and sick leave. The Port records unpaid leave for compensated absences as an expense and liability when incurred and vested. Vacation pay, which may be accumulated up to 320 hours, fully vests with the employee when earned and is payable upon resignation, retirement, or death. Unpaid vacation leave totaled $173,882 and $216,252 at December 31, 2006 and 2007, respectively. Sick leave may accumulate indefinitely. In 1991, the Port adopted a retirement benefit policy, which allows all employees with five years of continuous service to cash in unused sick leave upon retirement or death at the rate of 25 percent of the employee s current hourly rate, (30 percent if fifteen years of continuous service). As of December 31, 2007, 27 of the employees were currently eligible for retirement benefits under the post-employment benefit agreement. The estimated liability resulting from this agreement totaled $159,278 and $138,797 at December 31, 2006 and 2007, respectively. Other Accrued Expenses These accounts consist, primarily of, accrued wages, payroll taxes, and employee benefits. Other Current Liabilities Other current liabilities represent security deposits and prepaid rents received from tenants. Deferred Revenues Deferred revenues represent amounts recognized as receivables (assets) but not revenues because the revenue recognition criteria have not been met. Net Assets Net assets are reported under one of three classifications as required by GASB Statement #34. Invested in Capital Assets, Net of Related Debt Represents the historical cost of capital assets reduced for accumulated depreciation less outstanding balances of debt attributable to the acquisition, construction or improvement of those assets. Restricted Represents net assets that have been externally restricted by creditors, grantors, contributors, or laws or regulations of other governments, or imposed by law through constitutional provisions or enabling legislation. None of the Port s net assets were restricted at December 31, 2007 or Unrestricted Represents net assets not included in either of the other two categories of net assets. 24

28 Operating and Non-Operating Revenues and Expenses Charges for services provided by the Port, as well as, for the use of the Marine Terminal, Swantown Boatworks and Marina, Airport and Industrial Property are reported as operating revenues. Costs associated with these four segments are reported as operating costs. Ad Valorem and other tax revenues, as well as grants, settlements and other miscellaneous revenues are reported as nonoperating revenues. Interest on debt, costs of elections, costs related to the clean-up of prior year environmental remediation, and other miscellaneous costs are reported as non-operating expenses. NOTE 2 Deposits and Investments DEPOSITS As of December 31, 2007, the carrying amount of the Port s cash and investments was $7,635,773. Of this amount, cash on hand amounted to $1,080, deposits with financial institutions amounted to $3,215,517. The remaining $4,419,176 represented the total carrying amount of investments. Deposits by type, at December 31, 2007 are as follows: Type of Deposit Carrying Amount Bank Balance Insured/ Collateralized Uninsured/ Uncollateralized Cash in Bank $ 3,215,517 $ 4,491,706 $ 4,491,706 $ -0- Total Deposits $ 3,215,517 $ 4,491,706 $ 4,491,706 $ -0- As of December 31, 2006, the carrying amount of the Port s cash and investments was $12,189,190. Of this amount, cash on hand amounted to $1,080, deposits with financial institutions amounted to $4,718,324. The remaining $7,469,786 represented the total carrying amount of investments. Deposits by type, at December 31, 2006 are as follows: Type of Deposit Carrying Amount Bank Balance Insured/ Collateralized Uninsured/ Uncollateralized Cash in Bank $ 4,718,324 5,394,741 5,394,741 $ -0- Total Deposits $ 4,718,324 5,394,741 $ 5,394,741 $ -0- The Port s deposits at year-end were entirely covered by Federal depository insurance (FDIC) or by collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commission (PDPC). The FDIC covers the state s insured deposits. The PDPC provides collateral protection. The PDPC (established under Chapter of the Revised Code of Washington) constitutes a multiple financial institution collateral pool. Pledged securities under the PDPC collateral pool are held by the PDPC agent in the name of the collateral pool. INVESTMENTS As required by state law, all investments of Port funds are obligations of the U.S. Government, U.S. agency issues, obligations of the State of Washington, general obligations of Washington State municipalities, or certificates of deposit with Washington State banks, savings and loan institutions. In July 2002, the Port Commission passed Resolution , appointing one of its members to be the Port Treasurer. The Treasurer maintains the accounts of the Port at Heritage Bank in Olympia, a certified Public Depository Institution. The Port also maintains one certificate of deposit at Venture Bank. The Port invests its surplus cash according to a policy adopted by the Commission in Resolution in July 2002 that uses three criteria to determine what investments are appropriate. The three criteria, in order of importance, are: safety of principal, liquidity of the investment, and overall return on the investment. 25

29 The Port Treasurer uses a strategy of investing surplus funds in a mix of investment instruments, including: short and intermediate term bonds of the US Government or its Agencies that may be held to maturity, certificates of deposit at regulated Washington banks, and mutual funds of US Government Securities managed by professional fund managers. All of the investments were in US Treasury Bonds or notes, or bonds or notes of US Government Agencies, or mutual funds consisting entirely of US Treasury Bonds or Notes or US Agency Securities. All of the Port s investments are either insured, registered, or held by the Port or its agent in the Port s name. The Port investments had a combined unrealized gain of $160,205 and $83,744 during the years ended December 31, 2007 and 2006, respectively. These gains have been recorded and reflected in Investment Income on the Statement of Revenues, Expenses and Changes in Fund Net Assets. As of December 31, 2007, the Port had the following investments: Weighted Average Maturity in Years Market Value Repurchase Agreements 0 $ 0 U.S. Government Securities ,559,197 U.S. Treasury Money Market Fund 0 0 Certificate of Deposits ,967 Total Investments 1.35 $ 4,419,164 As of December 31, 2006, the Port had the following investments: Weighted Average Maturity in Years Market Value Repurchase Agreements 0 $ 0 U.S. Government Securities.86 6,644,882 U.S. Treasury Money Market Fund 0 0 Certificate of Deposits ,904 Total Investments 1.03 $ 7,469,786 For purposes of the Balance Sheet and Statement of Cash Flows, the Port considers all of its investments (including restricted assets, if any) as designed to be held to maturity. This investment strategy required certain securities to be reflected on the Balance sheet as investments valued at fair market value as of the balance sheet date. The Port s deposits in banks are covered by Federal depository insurance. The Port s investment accounts at CitiBank Smith Barney and Merrill Lynch are covered by insurance issued by the SIPC, a Federal agency. 26

30 NOTE 3 Property Taxes The county treasurer acts as an agent to collect property taxes levied in the county for all taxing authorities. Collections are distributed by the 10th day of the month following collection to the Port by the county treasurer. A revaluation of all property is required every four years. Property Tax Calendar January 1 st February 14 th April 30 th May 31 st October 31st Taxes levied and become an enforceable lien against properties. Tax bills are mailed. First of two equal installment payments are due. Assessed value of property is established for the next year s levy at 100% of market value. Second installment is due. Property taxes are recorded as receivable and revenues when levied in accordance with SGAS 33. No allowance for uncollectible taxes is established because delinquent taxes are considered fully collectible. State law allows for the sale of property for failure to pay taxes. Prior year tax levies were recorded using the same principal, and delinquent taxes are evaluated annually. The Port may levy up to $0.45 per $1,000 of assessed valuation for general governmental services. This amount may be reduced for any of the following reasons: 1. Washington State law in RCW limits the growth of regular property taxes to one percent per year, after adjustments for new construction. If the assessed valuation increases by more than one percent due to revaluation, the levy rate will be decreased. 2. The Port may voluntarily levy taxes below the legal limit. The Port s regular levy for 2007 was $ per $1,000 on a total assessed valuation of approximately $23,474,474,955 for a total regular levy of $4,363,608. In 2006, the regular tax levy was $4,097,435. NOTE 4 Capital Assets and Depreciation Expenditures for capital assets, including major repairs that extend the useful life of an existing asset, are capitalized. The Port has established its capitalization threshold at $5,000 or more. Maintenance, repairs and minor renewals are accounted for as expenses when incurred. All capital assets, including the cost of infrastructure, are valued at historical cost. Donations of capital assets from developers and customers are recorded at estimated fair market values at the date of donation. Certain capital assets have been acquired through bankruptcy proceedings from former tenants in satisfaction of amounts owed the Port. These assets are recorded at the lesser of the amount owed by the tenant to the Port or the estimated fair market value of the capital asset received. The Port has acquired certain assets with funding provided by federal and state financial assistance programs. Depending upon the terms of the agreements involved, the funding governmental unit could retain an equity interest in these assets. However, the Port has sufficient legal interest to accomplish the purposes for which the assets were acquired, and has included such assets within the applicable account. An allowance for funds used during construction is capitalized, when significant, as part of the cost of the asset. The procedure is intended to remove the cost of financing construction activity from the operating statements and to treat such cost in the same manner as construction labor and material costs. During the years ended December 31, 2007 and 2006 the port s capitalizable interest costs were insignificant and therefore not capitalized. 27

31 Depreciation expense is charged to operations to allocate the cost of capital assets over their estimated useful lives, using the straight-line method with useful lives of 3 to 60 years. Capital asset activity for the year ended December 31, 2007, was as follows: Beginning Balance January 01, 2007 Increases Decreases Ending Balance December 31, 2007 Capital assets, not being depreciated: Land $ 23,594,715 $ 1,910,211 $ $ 25,504,926 Construction in progress 10,022,037 6,205,027 8,320,115 7,906,950 Total Capital assets, not being depreciated $ 33,616,752 $ 8,115,238 $ 8,320,115 $ 33,411,876 Capital assets being depreciated: Buildings $ 10,199,657 $ 2,587,574 $ $ 12,787,230 Improvements (other than buildings) 26,638, , ,262,503 Machinery and equipment 11,115,946 96,519 15,740 11,196,725 Other 27,101,938 6,358, ,460,669 Total Capital assets being depreciated $ 75,055,615 $ 9,667,253 $ 15,740 $ 84,707,127 Less Accumulated depreciation for: Buildings $ 6,341,620 $ 315,192 $ $ 6,656,812 Improvements (other than buildings) 10,919, , ,576,428 Machinery and equipment 7,222, ,219 12,745 7,658,400 Other 10,562,718 1,344, ,836 11,781,031 Total Accumulated depreciation $ 35,046,487 $ 2,764,766 $ 138,581 $ 37,672,672 Total Capital Assets being depreciated, Net $ 40,009,128 $ 6,902,487 $ 122,841 $ 46,788,774 Total Capital Assets, Net $ 73,625,880 $ 15,017,725 $ 8,197,274 $ 80,446,331 28

32 Capital asset activity for the year ended December 31, 2006, was as follows: Beginning Balance January 01, 2006 Increases Decreases Ending Balance December 31, 2006 Capital assets, not being depreciated: Land $ 23,594,715 $ $ -0- $ 23,594,715 Construction in progress 8,575,533 4,917,940 3,471,436 10,022,037 Total Capital assets, not being depreciated $ 32,170,248 $ 4,917,940 $ 3,471,436 $ 33,616,752 Capital assets being depreciated: Buildings $ 10,149,070 $ 50,587 $ $ 10,199,657 Improvements (other than buildings) 26,568,328 69, ,638,074 Machinery and equipment 10,952, ,038 30,661 11,115,946 Other 23,044,891 4,057, ,101,938 Total Capital assets being depreciated $ 70,714,858 $ 4,371,418 $ 30,661 $ 75,055,615 Less Accumulated depreciation for: Buildings $ 6,012,135 $ 329,486 $ $ 6,341,621 Improvements (other than buildings) 10,268, , ,919,222 Machinery and equipment 6,790, ,699 28,894 7,222,926 Other 9,453,116 1,109, ,562,718 Total Accumulated depreciation $ 32,524,168 $ 2,551,213 $ 28,894 $ 35,046,487 Total Capital Assets being depreciated, Net $ 38,190,690 $ 1,820,205 $ 1,767 $ 40,009,128 Total Capital Assets, Net $ 70,360,938 $ 6,738,145 $ 3,473,203 $ 73,625,880 Preliminary costs incurred for the construction or acquisition of capital assets is deferred pending the completion of the acquisition or construction of the project. Costs relating to projects ultimately constructed are transferred to the appropriate account. Charges related to abandoned projects are expensed when the project is abandoned. Construction Commitments Construction in progress represents expenditures to date on authorized projects. During the year ended December 31, 2007, the Port incurred costs for construction in progress totaling $6,205,027 projects include the property development, airport runway improvements, marine terminal improvements, and boatyard expansion. At December 31, 2007, the district s commitments with contractors were as follows: Project Spent To Date Remaining Commitment Swantown Boatworks Expansion $ 238,618 $ 12,559 Swantown Marina B & C Dock Repair 171,289 9,015 Runway Line of Sight 2,068, ,013 Total: $ 2,478,181 $ 121,587 29

33 Note 5 Stewardship, Compliance and Accountability There have been no material violations of finance-related legal or contractual provisions. Note 6 Pension Plan Substantially all Port of Olympia s full-time and qualifying part-time employees participate in one of the following statewide retirement systems administered by the Washington State Department of Retirement Systems, under cost-sharing multiple-employer public employee defined benefit and defined contribution retirement plans. The Department of Retirement Systems (DRS), a department within the primary government of the State of Washington, issues a publicly available comprehensive annual financial report (CAFR) that includes financial statements and required supplementary information for each plan. The DRS CAFR may be obtained by writing to: Department of Retirement Systems Communications Unit P.O. Box Olympia, WA Public Employees Retirement System (PERS) Plans 1, 2, and 3 Plan Description PERS is a cost-sharing multiple-employer retirement system comprised of three separate plans for membership purposes: Plans 1 and 2 are defined benefit plans and Plan 3 is a combination defined benefit/defined contribution plan. Membership in the system includes: elected officials; state employees; employees of the Supreme, Appeals, and Superior courts (other than judges currently in a judicial retirement system); employees of legislative committees; community and technical colleges, college and university employees (not in national higher education retirement programs); judges of district and municipal courts; and employees of local governments. PERS participants who joined the system by September 30, 1977, are Plan 1 members. Those who joined on or after October 1, 1977 and by either, February 28, 2002 for state and higher education employees, or August 31, 2002 for local government employees, are Plan 2 members unless they exercise an option to transfer their membership to Plan 3. PERS participants joining the system on or after March 1, 2002 for state and higher education employees, or September 1, 2002 for local government employees have the irrevocable option of choosing membership in either PERS Plan 2 or PERS Plan 3. The option must be exercised within 90 days of employment. An employee is reported in Plan 2 until a choice is made. Employees who fail to choose within 90 days default to PERS Plan 3. PERS defined benefit retirement benefits are financed from a combination of investment earnings and employer and employee contributions. PERS retirement benefit provisions are established in state statute and may be amended only by the State Legislature. Plan 1 retirement benefits are vested after an employee completes five years of eligible service. Plan 1 members are eligible for retirement at any age after 30 years of service, or at the age of 60 with five years of service, or at the age of 55 with 25 years of service. The annual pension is 2 percent of the average final compensation per year of service, capped at 60 percent. The average final compensation is based on the greatest compensation during any 24 eligible consecutive compensation months. If qualified, after reaching the age of 66 a cost-of-living allowance is granted based on years of service credit and is capped at 3 percent annually. Plan 2 retirement benefits are vested after an employee completes five years of eligible service. Plan 2 members may retire at the age of 65 with five years of service, or at the age of 55 with 20 years of service, with an allowance of 2 percent of the average final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive 60-month period. Plan 2 retirements prior to the age of 65 receive reduced benefits. If retirement is at age 55 or older with at least 30 years of service, a 3 percent per year reduction 30

34 applies; otherwise, an actuarial reduction will apply. There is no cap on years of service credit; and a cost-of-living allowance is granted (indexed to the Seattle Consumer Price Index), capped at 3 percent annually. Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component, and member contributions finance a defined contribution component. The defined benefit portion provides a benefit calculated at 1 percent of the average final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive 60-month period. Plan 3 members become eligible for retirement if they have: at least ten years of service; or five years including twelve months that were earned after age 54; or five service credit years earned in PERS Plan 2 prior to June 1, Plan 3 retirements prior to the age of 65 receive reduced benefits. If retirement is at age 55 or older with at least 30 years of service, a 3 percent per year reduction applies; otherwise, an actuarial reduction will apply. There is no cap on years of service credit; and Plan 3 provides the same cost-of-living allowance as Plan 2. The defined contribution portion can be distributed in accordance with an option selected by the member, either as a lump sum or pursuant to other options authorized by the Employee Retirement Benefits Board. There are 1,188 participating employers in PERS. Membership in PERS consisted of the following as of the latest actuarial valuation date for the plans of September 30, 2006: Retirees and Beneficiaries Receiving Benefits 70,201 Terminated Plan Members Entitled to But Not Yet Receiving Benefits 25,610 Active Plan Members Vested 105,215 Active Plan Members Non-vested 49,812 Funding Policy Total 250,838 Each biennium, the state Pension Funding Council adopts Plan 1 employer contribution rates, Plan 2 employer and employee contribution rates, and Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are established by statute at 6 percent for state agencies and local government unit employees, and 7.5 percent for state government elected officers. The employer and employee contribution rates for Plan 2 and the employer contribution rate for Plan 3 are developed by the Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. All employers are required to contribute at the level established by the Legislature. PERS Plan 3 defined contribution is a non-contributing plan for employers. Employees who participate in the defined contribution portion of PERS Plan 3 do not contribute to the defined benefit portion of PERS Plan 3. The Employee Retirement Benefits Board sets Plan 3 employee contribution rates. Six rate options are available ranging from 5 to 15 percent; two of the options are graduated rates dependent on the employee s age. The methods used to determine the contribution requirements are established under state statute in accordance with chapters and RCW. The required contribution rates expressed as a percentage of covered payroll were as follows: December 31, 2007: PERS Plan 1 PERS Plan 2 PERS Plan 3 Employer * 6.13%** 6.13%** 6.13% *** Employee 6.00%**** 4.15%**** ***** Employer rates* for all PERS plans during the year ended December 31, 2006 were 3.69%. Employee rates for plan 1 were 6.00% and 3.50% for plan 2. Employee rates for Plan 3***** remained unchanged throughout the year. * The employer rates include the employer administrative expense fee currently set at 0.16%. ** The employer rate for Plan 1 state elected officials is 9.12% and 6.13% for Plan 2 and Plan 3. *** Plan 3 defined benefit portions only. **** The employee rate for Plan 1 state elected officials is 7.50% and 4.15% for Plan 2. ***** Variable from 5.0% minimum to 15.0% maximum based on rate selected by the PERS 3 member. 31

35 Both the Port and the employees made the required contributions. The Port s required contributions for the years ending December 31 were as follows: Year Ending Dec. 31. PERS Plan 1 PERS Plan 2 PERS Plan $5,863 $141,429 $8, $3,241 $66,829 $4, $3,189 $35,851 $3,769 Note 7 Risk Management The Port maintains insurance against most normal hazards for commercial automobile, property loss, and general liability. The Port is member of the Washington Governmental Entity Pool (WGEP). Chapter RCW authorizes the governing body of any one or more governmental entities to form together into, or join a pool or organization for the joint purchasing of insurance, and/or joint self-insuring, and/or joint hiring or contracting for risk management services. An agreement to form a pooling arrangement was made pursuant to the provisions of Chapter RCW, the Inter-local Cooperation Act. The Pool was formed July 10, 1987, when two (2) counties and two (2) cities in the state of Washington joined by signing an Inter-local governmental agreement to pool their self-insured losses and jointly purchase insurance and administrative services. The Pool now services health districts, port districts, water and irrigation districts, fire districts, mosquito and weed control districts, library districts, air pollution districts, area on aging, regional mental health support networks, cemetery, park and recreation, conservation districts, public facilities districts, and public development authorities. The Pool allows members to jointly purchase excess insurance coverage, share in the self-insured retention, establish a plan for total self-insurance, and provide excellent risk management services and other related services. The Pool provides occurrence policies for all lines of liability coverage including Public Official s Liability. The Property coverage is written on an all risk basis, blanket form using current Statement of Values. The Property coverage includes mobile equipment, electronic data processing equipment, valuable papers, building ordinance coverage, property in transit, extra expense, consequential loss, accounts receivable, fine arts, inventory or appraisal cost, automobile physical damage to insured vehicles. Boiler and machinery coverage is included on a blanket limit of $50 million for all members. The pool offers employee dishonesty coverage up to a liability limit of $1,000,000. Members make an annual contribution to fund the Pool. The Pool acquires insurance from unrelated underwriters that are subject to a per occurrence $500,000 deductible on liability loss, $100,000 deductible on property loss, and $5,000 deductible on boiler and machinery loss. The member is responsible for the first $1,000 of the deductible amount of each claim, while the Pool is responsible for the remaining $499,000 on liability losses, $99,000 on property loss, $4,000 deductible on boiler and machinery loss. Insurance carriers cover all losses over the deductibles as shown to the policy maximum limits. Since the Pool is a cooperative program, there is a joint liability among the participating members. The contract requires members to remain in the pool for a minimum of three (3) years, and must give notice 60 days before terminating participation. Members joining after October 2000 join the pool with one full fiscal year commitment and must give notice six (6) months before terminating participation. The Inter-local Governmental Agreement is renewed automatically each year, after the initial three (3) year period. Even after termination, a member is still responsible for contribution to the Pool for any unresolved, unreported and in- process claims for the period they were a signatory to the Inter-local Governmental Agreement. The Pool is fully funded by its member participants. Claims are filed by members with the Washington Governmental Entity Pool, and are administered in house. 32

36 A Board of Directors consisting of seven (7) board members governs the pool. Its members elect the board and the positions are filled on a rotating basis. The board meets quarterly, and is responsible for conducting the business affairs of the pool. Note 8 Short - Term Debts The Port had no short-term debt during the year or at year-end. Note 9 Long Term Debts The Port issues general obligation bonds to finance the acquisition and/or construction of capital assets. Bonded indebtedness has also been entered into in prior years to advance refund revenue bonds. General obligation bonds currently outstanding are as follows: Description Interest Rates LTGO Series A bonds 3.65% % $ $ 245,000 Less portion due within one year ,000 Long-term portion $ $ LTGO Series B bonds 3.80% % $ 955,000 $ 1,070,000 Less portion due within one year 120, ,000 Long-term portion $ 835,000 $ 955, LTGO Series D bonds 5.10% % $ 1,390,000 $ 2,035,000 Less portion due within one year 675, ,000 Long-term portion $ 715,000 $ 1,390, LTGO Series B bonds 4.70% % $ 4,020,000 $ 4,145,000 Less portion due within one year 145, ,000 Long-term portion $ 3,875,000 $ 4,020, LTGO bonds 4.50% % $ 840,000 $ 1,035,000 Less portion due within one year 195, ,000 Long-term portion $ 645,000 $ 840, Refunding LTGO bonds 3.00% % $13,860,000 $14,610,000 Less portion due within one year 780, ,000 Long-term portion $13,080,000 $13,860,000 Total Long-term portion of G.O. debt $19,150,000 $21,065,000 Add unamortized premium 995,175 1,121,235 Less unamortized loss on refunding ( 689,783 ) ( 777,158 ) $19,455,393 $21,409,077 The G.O. Bonds were issued to facilitate the purchase of land and making of infrastructure improvements at the Port s industrial and commercial leasing operation, its marine terminal, marina and boatworks facilities and airport operation. The principal and interest of the bonds is payable from ad valorem taxes levied upon all property within the Port district. 33

37 The annual debt service requirements for general obligation bonds are as follows: Year Ending December 31, Principal Interest Total G.O. Bond Debt Service ,915,000 1,082,533 2,997, ,000, ,588 2,998, ,095, ,550 2,995, ,200, ,825 2,998, ,855,000 2,142,243 14,997,243 Total debt service requirement $ 21,065,000 $ 5,922,739 $ 26,987,739 Unamortized debt issue costs are recorded as deferred charges and bonds are displayed net of premium or discount. Annual interest expense is decreased by amortization of debt premium and increased by the amortization of debt issue costs and discounts. Refunded Debt The following bond issues have been refunded as of December 31, Outstanding at December 31, 2004 Outstanding at December 31, 2005 Originally Bond Issue Refunded 1996-A Limited Tax G.O. Bonds $ 2,455,000 $ 2,455,000 $ A Limited Tax G.O. Bonds 4,920,000 4,920, Limited Tax G.O. Bonds 8,415,000 8,415, Total $ 15,790,000 $ 15,790,000 $ The advance refunding was undertaken to reduce total debt service payments over the next ten years by $3,168,375 and resulted in an economic gain of $783,384. Debt service on these bonds is met by cash and investments held by the refunding trustee. As of December 31, 2007 and 2006, the Trustee was holding cash and investments of $13,747,361 and $13,885,850, which are expected to fund debt service fully. These refunded bonds constitute a contingent liability of the Port but are excluded from the financial statements. Notes Payable The Port made the final principal and interest payment for a note payable in the amount of $56,210 related to the cost to terminate a tenant lease. This agreement was entered into in order to enable the port to take advantage of an opportunity to utilize the previously leased property under a more economically beneficial business venture. This note required annual payments of $95,000 plus interest at 2.2% beginning January 1, 2004 and ending January 1, The remaining $55,000 principal plus interest was paid on January 1, The port made principal and interest payments totaling $56,210 and $98,330 on this note during the years ended December 31, 2007 and 2006 respectively. 34

38 Conduit Debt The Port of Olympia Economic Development Corporation, a subsidiary corporation of the Port, has issued conduit debt to the following company s. The Port is by law not allowed to make any payment on or for any of these conduit debt obligations. The outstanding balance is as follows: Dec. 31, 2007 Outstanding Dec. 31, 2006 Outstanding Original Issue Date Principal Spring Air Northwest November 1998 $6,500,000 $3,953,000 $4,603,000 Harold LeMay Enterprises, Inc. April 1999 $8,160,000 $3,290,000 $4,205,000 Ostrom Mushroom Farm August 1999 $2,500,000 $1,422,456 $1,549,575 Changes in Long-Term Liabilities During the year ending December 31, 2007, the following changes occurred in long-term liabilities: Beginning Balance January Ending Balance December 31, 2007 Due Within One Year 1, 2007 Additions Reductions G.O. Bonds Payable $23,277,761 $- 0-1,868,684 $21,409,077 $1,953,606 Notes Payable 55, , Total Long-Term Liabilities $23,332,761 $- 0 - $1,923,684 $21,409,077 $1,953,606 During the year ending December 31, 2006, the following changes occurred in long-term debt: Beginning Balance January Ending Balance December 31, 2006 Due Within One Year 1, 2006 Additions Reductions G.O. Bonds Payable $25,061,446 $- 0-1,783,684 $23,277,761 $1,868,684 Notes Payable 150, ,000 55,000 55,000 Total Long-Term Liabilities $25,211,446 $- 0 - $1,878,684 $23,332,761 $1,923,684 Note 10 Contingencies and Litigation The Port has recorded in its financial statements all material liabilities, including an estimate for situations, which are not yet resolved, but where, based on available information, management believes it is probable that the Port will have to make payment. In the opinion of management, the Port s insurance policies are adequate to pay all known or pending claims. As discussed in Note 9 Long-term Debts, the Port is contingently liable for repayment of refunded debt. The Port participates in a number of federal and state assisted programs. The grants the Port receives under these programs are subject to audit by the grantors or their representatives. Such audits could result in requests for reimbursement to grantor agencies for expenditures disallowed under the terms of the grants. Management believes that such disallowances, if any, will be immaterial. As discussed in Note 14 Environmental Clean-up Activities and Liabilities, the Port holds property where the presence of contaminants has been noted. The Port has accrued a liability for the estimated cost of clean up where it has been determined such costs will be required to be incurred. 35

39 Note 11 Deferred Revenue In accordance with generally accepted accounting principles for regulated businesses, the Port recognized deferred receipts of $452,000 in 2001 that are being amortized on the straight-line method over 75 years. These receipts resulted from a 75-year long land lease prepayment for a 1992 lease to an unrelated governmental entity. In exchange for the land lease, the Port received title to another piece of land and certain infrastructure improvement payments with a value of $452,000. In 2001, the Port sold the parcel of land that was received during the 1992 lease exchange, and realized a gain on the land sale. The Port deferred recognizing receipt of $35,950 on a 24 month lease option beginning in August The amortization of the 1992 lease deferral is scheduled over the remaining term of the 75-year land lease, resulting in a realization of $6, per year. The unamortized balance of deferred revenue related to this prepaid lease and the 2007 option was $385,540 and $363,107 at December 31, 2007 and 2006, respectively. Note 12 Segment Information Pursuant to GASBS 34, unless the Port issues debt secured only by one or more of its operations, the Port is not considered to have reportable segments. All of the Port s debt outstanding is general obligation debt, and no separate fund accounting is maintained for any particular line of business. Therefore, no disclosure of separate operating unit information is presented. Note 13 Post employment Benefits In addition to the pension benefits described in Note 6, the Port of Olympia Commission authorized and established through Resolution No , a medical savings account/voluntary employees beneficiary association plan, the MSA/VEBA. The Internal Revenue Code, Section 502 (c) (9) allows for the creation of a voluntary employee beneficiary association, an employee sponsored, tax-exempt health and welfare trust. The tax-exempt plan is made available to the public sector employee in the State of Washington. The Port determined that it is in the Port s best interest to provide its employees incentive payments for non-use of sick leave time accruals. The Port also determined that such a medical savings account payment in ordinary circumstances is substantially similar to the Retirement Benefit Policy, adopted in The Port shall also make an additional contribution to the Plan of $15,000 for the benefit of any employee who: (a) is a member of an electing group of participating employees, (b) who retires with over 15 years of employment with the Port, and (3) is over age 60 upon the date of retirement. A reasonable approximation of the ultimate liability, if any, under this plan cannot be made and no assets have been set aside to fund the plan. Note 14 Environmental Cleanup Activities and Liabilities Cascade Pole Site The Cascade Pole Company (CPC), one of the McFarland-Cascade families of companies, operated a wood treating facility on approximately 13 acres of Port owned property located at the end of the peninsula, that separates the east and west bays of Budd Inlet, until its thirty-year lease expired on March 13, Prior to the lease expiration, the Washington State Department of Ecology (DOE) noted the presence of waste products on the site, including creosote, pentachlorophenol, petroleum hydrocarbons, dioxins, and furans. In 1989, DOE identified both the Port, as property owner, and CPC, as the operator, as potentially liable parties under the state s Model Toxic Control Act (RCW D). The parties have signed a Consent Decree for the completion of a Remedial Investigation and Feasibility Study (RIFS) for a final remedy and the acceleration of interim product recovery. 36

40 Although the cost for ultimate cleanup is yet undetermined, DOE had proposed a cleanup plan that was estimated to cost between $10.1 and $18 million over the next 20 years. The responsibility for the current and future costs incurred, may be offset by additional Model Toxic Control Act (RCW D) cost reimbursement grants. The Port estimates that the ultimate liability is no greater than the amount presently shown within the financial statements. Other Environmental Activities While planning for a dredge project of the Port s marine terminal berthing area and navigation channel, sediment tests identified that areas along the face of the wharf in the berthing area was contaminated with dioxin at levels that would prohibit the Port from disposing of the dredge materials at the previously planned open water site. Other disposal options, such as upland disposal at a certified site, are considerably more expensive than the original disposal plan. Currently estimates range from $4 to $8 million for the dredge project. This is significantly higher than the Port s estimated cost of $800,000, had the sediment tested as suitable for open water disposal. No liability has been reflected in the financial statements for this potential liability since no clean-up order has been issued nor as a determination been made regarding the source of the contaminants or responsible parties. In addition, no clean-up is currently required. The clean -up is triggered by the Port's need to maintenance dredge the berths. Subsequent to year-end, the Port conducted soil testing of approximately 14 acres of waterfront property undergoing re-development. This testing identified various contaminants, including dioxins, which will require a clean-up action plan. Current estimates for the clean-up range from $3 to $10 million. The Port is currently in negotiations with the State Department of Ecology to complete the project under the Model Toxics Control Act (MTCA) to remove the contaminated sediments and dispose of them at an upland site. The Port is also working with counsel to develop a cost recovery strategy that includes identifying Potentially Liable Parties (PLP s) under MTCA, and to develop strategies for funding under MTCA that could result in funding under that program for up to 50% of the expected total costs. Note 15 Miscellaneous Nonoperating Revenues Miscellaneous nonoperating revenues for the year ended December 31, 2007included $276,350 received from the City of Olympia for the 2006 sale of property along West Bay for a future waterfront park. 37

41 Port of Olympia MCAG NO 1761 Schedule of Long-Term Debt Schedule 09 For The Year Ending December 31, ID Number Date of Interest Amount Beginning Amount Amount Ending And Class Date of Final Rates Orginal Outstanding Issued in Redeemed in Outstanding Description Purpose Issue Maturity % Issued Debt Current Year Current Year Debt GO DEBT '96 LTGO-A Capital ,690, '96 LTGO-B Capital ,025,000 1,070, , ,000 '96 LTGO-C Capital ,335, '96 LTGO-D Capital ,210,000 2,035, ,000 1,390,000 '98 LTGO-A Capital ,920, '98 LTGO-B Capital ,280,000 4,145, ,000 4,020, LTGO Capital ,650,000 1,035, , , LTGO Refunding ,790,000 14,992, ,684 14,204,077 Total $ 47,900,000 $ 23,277,761 $ - $ 1,868,684 $ 21,409,077 38

42 Port of Olympia MCAG NO Schedule of Expenditures of Federal Awards Schedule 16 For the Year Ending December 31, Federal CFDA Other Expenditures Foot- Grantor / Pass-Through Grantor Program Number Identification From Pass Through From Direct Total note Program Title Name Number Awards Awards Ref. Direct Programs: Dept. of Transportation ~ Federal Aviation Administration DOT Contract No. DOT-FA00NM-0030 Airport $ 392,824 $ 392,824 Improvement Program Dept. of Transportation ~ Federal Aviation Administration DOT Contract No. DOT-FA00NM-0030 Airport $ 1,950,000 $ 1,950,000 Improvement Program Dept. of Homeland Security Port Security GB-T $ 40,289 $ 40,289 Grant Program Indirect Programs: Fish & Wildlife Service / pass through from Washington State Parks & Recreation Commission Clean Vessel Act $ 56,225 $ 56,225 Dept. of Transportation, Federal RailRoad Administration / pass through from Washington State Department of Transportation RailRoad RR ,082 $ 85,082 Development Dept of Transportation, Federal Highway Administration /pass through from Washington State Department of Transportation Highway ,080 $ 58,080 Planning & Construction Total $ 199,387 $ 2,383,113 $ 2,582,500 39

43 Port of Olympia Notes to the Schedule of Expenditures of Federal Awards For the Year Ending December 31, 2007 NOTE 1 - BASIS OF ACCOUNTING The Schedule of Expenditure of Federal Awards is prepared on the same basis of accounting as the port's financial statements. The Port of Olympia uses the accrual basis of accounting. NOTE 2 - PROGRAM COSTS The amounts shown as current year expenses represent only the federal portion of the program costs. The entire program costs, including the Port's portion, are more than shown. 40

44 ABOUT THE STATE AUDITOR'S OFFICE The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. Our mission is to work in cooperation with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. The State Auditor's Office has 300 employees who are located around the state to deliver our services effectively and efficiently. Approximately 65 percent of our staff are certified public accountants or hold other certifications and advanced degrees. Our regular audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. We also perform fraud and whistleblower investigations. In addition, we have the authority to conduct performance audits of state agencies and local governments. The results of our audits are widely distributed through a variety of reports, which are available on our Web site. We continue to refine our reporting efforts to ensure the results of our audits are useful and understandable. We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive program to coordinate audit efficiency and to ensure high-quality audits. State Auditor Brian Sonntag, CGFM Chief of Staff Ted Rutt Chief Policy Advisor Jerry Pugnetti Director of Administration Doug Cochran Director of State and Local Audits Chuck Pfeil, CPA Director of Performance Audit Linda Long, CPA, CGFM Director of Special Investigations Jim Brittain, CPA Director for Legal Affairs Jan Jutte Local Government Liaison Mike Murphy Communications Director Mindy Chambers Public Records Officer Mary Leider Main number (360) Toll-free hotline for government efficiency (866) Web Site (SAO FACTS.DOC - Rev. 05/08)