POLK COUNTY FLORIDA Comprehensive Annual Financial Report Fiscal Year Ended September 30, 2013
COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED SEPTEMBER 30, 2013 PREPARED BY THE OFFICE OF STACY M. BUTTERFIELD, CPA, CLERK OF CIRCUIT COURT AND COUNTY COMPTROLLER
TABLE OF CONTENTS YEAR ENDED SEPTEMBER 30, 2013 INTRODUCTORY SECTION Clerk and Accountants Letter of Transmittal A-1 Certificate of Achievement for Excellence in Financial Reporting A-8 Principal Officials A-9 Organizational Chart A-10 FINANCIAL SECTION INDEPENDENT AUDITORS REPORT B-1 MANAGEMENT S DISCUSSION AND ANALYSIS C-1 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements: Statement of Net Position D-1 Statement of Activities D-3 Fund Financial Statements: Balance Sheet Governmental Funds D-5 Reconciliation of the Governmental Funds Balance Sheet D-6 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds D-7 Reconciliation of the Statement of Revenues, Expenditures, and Changes In Fund Balances Governmental Funds to the Statement of Activities D-8 Statement of Revenues, Expenditures, and Changes in Fund Balance Budget (GAAP Basis) and Actual General Fund D-9 Statement of Fund Net Position Proprietary Funds D-10 Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Funds D-12 Statement of Cash Flows Proprietary Funds D-13 Statement of Fiduciary Net Position Agency Fund D-15 Notes to Financial Statements E-1 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress Other Postemployment Benefits F-1 Notes to Required Supplementary Information F-2
TABLE OF CONTENTS (CONTINUED) YEAR ENDED SEPTEMBER 30, 2013 COMBINING AND INDIVIDUAL FUND SCHEDULES Nonmajor Governmental Funds: G-1 Combining Balance Sheet Nonmajor Governmental Funds G-5 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds G-10 Schedules of Revenues, Expenditures, and Changes in Fund Balance Budget (GAAP Basis) and Actual G-16 Internal Service Funds: G-47 Combining Statement of Fund Net Position Internal Service Funds G-48 Combining Statement of Revenues, Expenses, and Changes in Fund Net Position Internal Service Funds G-49 Combining Statement of Cash Flows Internal Service Funds G-50 Agency Funds: G-51 Combining Statement of Fiduciary Assets and Liabilities All Agency Funds G-52 Combining Schedule of Changes in Assets and Liabilities All Agency Funds G-54 North Ridge Community Redevelopment Agency Balance Sheet North Ridge Community Redevelopment Agency H-1 Statement of Revenues, Expenditures and Changes in Fund Balance North Ridge Community Redevelopment Agency H-2 Notes to North Ridge Community Redevelopment Agency Financial Statements H-3 Harden/Parkway Community Redevelopment Agency Balance Sheet Harden/Parkway Community Redevelopment Agency H-6 Statement of Revenues, Expenditures and Changes in Fund Balance Harden/Parkway Community Redevelopment Agency H-7 Notes to Harden/Parkway Community Redevelopment Agency Financial Statements H-8 Polk Commerce Centre Community Redevelopment Agency Balance Sheet Polk Commerce Centre Community Redevelopment Agency H-11 Statement of Revenues, Expenditures and Changes in Fund Balance Polk Commerce Centre Community Redevelopment Agency H-12 Notes to Polk Commerce Centre Community Redevelopment Agency Financial Statements H-13 Eloise Community Redevelopment Agency Balance Sheet Eloise Community Redevelopment Agency H-16 Statement of Revenues, Expenditures and Changes in Fund Balance Eloise Community Redevelopment Agency H-17 Notes to Eloise Community Redevelopment Agency Financial Statements H-18
TABLE OF CONTENTS (CONTINUED) YEAR ENDED SEPTEMBER 30, 2013 STATISTICAL SECTION Financial Trends: Net Position by Component Last Ten Years I-1 Changes in Net Position Last Ten Years I-3 Fund Balances Governmental Funds, Last Ten Years I-7 Changes in Fund Balances Governmental Funds, Last Ten Years I-9 Revenue Capacity: Just Value and Estimated Actual Value of Taxable Property, Last Ten Years I-11 Direct and Overlapping Property Tax Rates, Last Ten Years I-13 Principal Property Tax Payers, Current Year and Nine Years Ago I-14 Property Tax Levies and Collections, Last Ten Years I-15 Debt Capacity: Ratios of Outstanding Debt by Type, Last Ten Years I-16 Pledged Revenue Coverage, Last Ten Years, Sales Tax Revenue Bonds I-20 Pledged Revenue Coverage, Last Ten Years, Constitutional Fuel Tax Revenue Refunding Bonds I-19 Pledged Revenue Coverage, Last Ten Years, Local Option Fuel Tax and Public Service Tax Bonds I-22 Pledged Revenue Coverage, Last Ten Years, Public Service Tax Revenue Bonds I-23 Pledged Revenue Coverage, Last Ten Years, Water and Sewer Bonds I-24 Demographic and Economic: Demographic and Economic Statistics, Last Ten Years I-25 Principal Employers, Current Year and Nine Years Ago I-26 Operating: Operating Indicators by Function and Program, Last Ten Years I-27 Full-Time Equivalent Government Employees by Function, Last Ten Years I-31 Capital Asset Statistics by Function and Program, Last Ten Years I-32 Other Supplemental Schedules: Capital Improvement Revenue Bonds, Series 2002, 2004A, and 2010 Continuing Disclosure Distribution Percentages Historical Sales Tax Revenues of the County I-34 Public Facilities Revenue Bonds, Series 2005 Continuing Disclosure County Revenue Sharing Apportionment Factor Data I-35 Revenue Sharing Trust Fund for Counties Receipts Pledged Revenue Share Monies Pro Forma Debt Coverage I-36
TABLE OF CONTENTS (CONTINUED) YEAR ENDED SEPTEMBER 30, 2013 STATISTICAL SECTION (CONTINUED) Other Supplemental Schedules (continued): Constitutional Fuel Tax Revenue Refunding Bonds, Series 2006 Continuing Disclosure Historical Distribution of Constitutional Fuel Tax Revenues to Polk County I-37 Historical and Pro Forma Debt Service Coverage Historical Gasoline Sales, Population Count, Distribution Factor and Relative Land Area for Polk County I-38 Transportation Improvement Revenue Bonds, Series 2010 Continuing Disclosure Annual Share of Polk County Fuel Tax Revenue Motor Fuel Gallons Sold in Polk County I-39 Polk County Distribution Percentages (Under Ordinance No. 87.04) Annual Public Service Tax Revenue I-40 Utility Systems Revenue Bonds, Series 2003, 2004A, 2004B, 2010 and 2012 Continuing Disclosure Historical Revenues and Expenses I-41 Residential Water, Wastewater and Reclaimed Water Rates I-44 Water System Permitted Capacity, Actual Demand and Peak Demand I-52 Wastewater System Permitted Capacity, Actual Flows and Peak Flows I-53 COMPLIANCE SECTION Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards J-1 Independent Auditors Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Federal and State Project and on Internal Control Over Compliance in Accordance with OMB Circular A-133 and Chapter 10.550 J-3 Schedule of Expenditures of Federal Awards and State Financial Assistance J-6 Notes to Schedule of Expenditures of Federal Awards and State Financial Assistance J-18 Schedule of Findings and Questioned Costs Federal Programs and State Projects J-19
INTRODUCTORY SECTION
COUNTY PROFILE Polk County, Florida, is a political subdivision of the State of Florida. On November 3, 1998, the citizens of Polk County adopted a Home Rule Charter in accordance with the Constitution and Statutes of the State of Florida. The Home Rule Charter assumed all powers and duties on the first day of January 1999. The Home Rule Charter sets forth a commission form of government under which a five member Board of County Commissioners is elected to serve as the executive and legislative body for the County. The Commissioners appoint a County Manager whose duties include the administration of directives and policies of the Commissioners, responsibility for the operation of all business centers and the provision of services under the purview of the Commissioners. The citizens of the County also elect a Sheriff, a Clerk of the Circuit Court and County Comptroller, a Supervisor of Elections, a Tax Collector and a Property Appraiser, whose responsibilities and duties are not altered by this Home Rule Charter. The Constitutional Officers shall perform their executive and administrative functions as specified by law. The financial statements of Polk County include all government functions and operations for which the County is financially accountable. Accordingly, the financial statements include all the elected officials referred to above. Formal budgetary integration is employed as a management control device during the year for all fund types. The Constitutional Officers submit, at various times, to the Board and to certain divisions within the Department of Revenue, State of Florida, a proposed operating budget for the fiscal year commencing the following October 1. The operating budget includes proposed expenditures and the means of financing them as set forth in Chapter 129 of the Florida Statutes. Constitutional Officers and all departments of the Board of County Commissioners submit their proposed budgets to the Budget and Procurement Division for assistance, review and compilation. The County Manager then reviews the budgets of all County departments and Constitutional Officers and makes his budget recommendation to the Board of County Commissioners on or before July 15 of each year. The tentative budget includes proposed appropriations and the means of financing them. During September, public hearings are held pursuant to Section 200.065, Florida Statutes, in order for the Board to receive public input on the tentative budget. At the end of the last public hearing, the Board adopts resolutions, at the fund level, to approve the budgets for all governmental fund types. The budgets legally adopted by the Board set forth the anticipated revenues by source and the appropriations by function. Budgets for enterprise and internal service funds are adopted on a basis consistent with generally accepted accounting principles. Computerized integrated budget reports are used for management control purposes throughout the year. Management is authorized to transfer budgeted amounts between cost centers and divisions in any fund as long as the total appropriations of a fund are not exceeded. Board approval is required to appropriate reserves and to amend the budget when unanticipated revenues are received that management wishes to have appropriated, thereby increasing the total appropriations of a fund. Appropriations for the County lapse at the close of the fiscal year. Imperial Polk County is the geographical center of the State of Florida and has a population of 619,950 persons. With 2,010 square miles of area, Polk County is the largest county located north of the Everglades. Polk County is known as the phosphate, water skiing and citrus capital of the world and is home to some of the State s leading corporations. The County enjoys an average of 263 sun-filled days per year with a mean annual temperature of 73 degrees. A-2
Among Polk County s assets are 554 lakes and the headwaters of six rivers. The County has some of the best fishing, boating, golfing and tennis in the country. The educational opportunities in Polk County are very accessible to the public including a major state university expansion in progress. Polk County offers many services to its citizens including fire and police protection; emergency medical services; construction and maintenance of street and traffic systems, highways, bridges and other infrastructure; preservation and maintenance of lakes, parks and environmentally sensitive lands; recreational facilities, programs and cultural activities; comprehensive planning and community development; community information and education programs; health and human services; water and wastewater utilities; solid waste collection and disposal facilities; stormwater utility facilities; and public transportation activities. LOCAL ECONOMY Polk County has experienced an economic recession along with the rest of the nation in recent years. Per capita income is lower and the unemployment rate is higher than the Florida or national average. The largest employers by industry are education and healthcare, business services, government and retail. Taxable values have increased 22.3 percent over the last ten years however, more recently the values have declined 35.0 percent since 2008. Population increased 1.0 percent from prior year, but has increased 16.2 percent over the last ten years. Located in the center of the state, Polk County has emerged as one of Florida s leading manufacturing and distribution centers. Within a 100-mile radius of Polk County reside seven and one-half million people about one-half of the State s population. Major corporations have for years taken advantage of Polk County s central location. Polk County is a major contributor of export-related sales, jobs, and taxes. Although phosphate and citrus continue to be in the forefront in maintaining Polk s economic well-being, the County has experienced major diversification in the last five years. Products and services ranging from plastic fish bait to computer software leave Polk County daily for worldwide distribution. The County s extensive transportation system of highway, rail, and nearby air and deep water ports facilitate the rapidly expanding export base. LONG-TERM FINANCIAL PLANNING The citizens of Polk County have communicated to their elected officials that they want balanced growth with quality employment opportunities. The County and its citizens realize that proactive steps are needed in terms of transportation and other infrastructure, educational facilities and quality of life essentials such as parks and libraries. The County has an initiative to catch up on deferred improvements while taking measures to insure that growth pays for itself. The County prepares a biennial budget and 5- year projections to enhance long term financial planning. RELEVANT FINANCIAL POLICIES The fund balance of the County s total governmental funds decreased from the prior year amount of $316.5 million to $297.9 million in fiscal year 2013, for a total decrease of $18.6. This decrease is primarily attributable to reduced tax, grant, and investment income revenues, the net change in the fair value of investments; and reduced, but continued, spending for capital and operations. Having reasonable levels of reserves is essential to the bond markets perceptions of local government strength and related ability to utilize private sector styled business practices, and provides for the availability to anticipate interest as a significant annual recurring revenue source. Outstanding debt is continually monitored in relation to existing conditions in the debt market. When sufficient cost savings can be realized, the debt will be refunded. A-3
Cash management policies and practice In accordance with Section 218.415, Florida Statutes, the County adopted an investment policy that guides the investment of County surplus funds. This policy establishes investment objectives, maturity and liquidity requirements, portfolio composition, risk and diversification requirements, and authorized investments. The primary objectives of investment activities are to preserve capital and maintain sufficient liquidity to meet anticipated cash flow needs. The secondary objective is to obtain competitive returns on the investment of County surplus funds. Surplus funds were invested in direct U.S. government obligations, U.S. agency obligations, commercial deposit bank accounts, certificates of deposit, money markets, the State Board of Administration and the Florida Local Government Investment Trust Fund. During fiscal year 2013, the County s investment portfolio reflected average monthly yields ranging from.87 percent to 1.43 percent. The monthly average yield of the portfolio for the month of September 2013 was 1.03 percent. The following graph represents the total cash and investments for the fund type listed at the end of each fiscal year. CASH AND INVESTMENTS (In Millions) $700 $600 $500 $400 $300 $200 $100 $0 2009 2010 2011 2012 2013 General Fund Special Revenue Debt Service Capital Projects Enterprise Int Service During the past fiscal year, Polk County, under the direction of the Clerk and County Comptroller, maintained an average rate of return on the actively managed investment portfolio of 1.68 percent compared to an average rate of return of 0.22 percent for the State Board of Administration (SBA). The rate difference of 146 basis points is a result of the Clerk s active management and diversification of the portfolio. An overview of the County s investment policy can be found in the notes to the financial statements. A-4
Risk Management The County is exposed to various risk of loss related to theft of, damage to and destruction of assets, errors and omissions, injuries to employees and natural disasters. A self-insurance program is effectively maintained by the County to administer insurance activities related to workers compensation insurance, general and employment practices liability, auto liability and health. The County s self - insurance program covers operations of Board of County Commissioners and the constitutional officers. Under the program, the County has retention limits for each type of claim, which is covered by commercial insurance purchased by the County. Additional information regarding the self-insured employee health plan can be found in Note 7. The County also maintains fully-insured policies with several different carriers for property insurance with the total insured value for all properties estimated at $762,000,000. INITIATIVES Each year, the Polk County Board of County Commissioners holds an annual retreat to discuss and provide direction on key strategic issues. With fiscal year 2013 being the sixth consecutive year of declining ad valorem (property tax) revenue, the Board has focused on being fiscally responsible in balancing the budget, while still meeting the needs of the citizens. In addition to the direction from the Board at the retreat, there are underlying citizen perspectives that are used to help guide the budget process every year. As we move into fiscal year 2014, the local economy is improving, but the county still faces short and long-term financial challenges that must be dealt with through a strategic planning process. Citizens input, a number of years ago, helped establish seven result areas that captured the citizens expectations from government. These result areas continue to help guide the budget and budget process as we focus on providing the services that our citizens want. The following shows not only the result areas, but also some accomplishments in fiscal year 2013: Basic Needs All Polk County residents who are at risk because of their health or economic status will get their basic needs met so they can be as self-sufficient as possible. The County has: coordinated approximately 83,000 health care services to 28,000 people. obtained state and national recognition for an initiative to become a Purple Heart County in support of the combat wounded veteran. provided transit services to health care facilities for approximately 70,000 fixed route rides and over 105,000 door-to-door trips for citizens who are disadvantaged, elderly, disabled, at-risk, and/or low income. Economic Development Good paying jobs and business opportunities will be available here in Polk County, and people will be appropriately trained and educated to take advantage of them. The County has: focused on tourism and sports generating more than $1.5 billion in economic impact for Polk County. provided an Ad Valorem Tax Exemption incentive for companies to locate or expand in Polk County which, since implementation, has created 588 new jobs for citizens. A-5
Recreation and Cultural Arts Polk County offers safe, plentiful and diverse recreation and cultural arts opportunities. The County has: provided recreational and cultural programs and events to an estimated 105,560 participating citizens. currently maintained 326 interior square feet per person of interior recreation space, 149 square feet per person of interior cultural arts space, and 9 acres per 1,000 persons for outdoor recreation. Good Government Citizens can trust that government is well run and is a good steward of their tax dollars. The County has: maintained the same county-wide millage rate as the prior five years during the fall of property values and economic downturn. continued to help citizens stay informed and involved with Polk County Government through enhancements to online services, televised meetings and print communications. Natural Resources and Environment Polk County will have clean and plentiful natural resources for a healthy environment. The County has: treated over 644,000 acres for adult mosquitoes and over 1,900 acres for mosquito larvae. provided over 14,000 acres of County environmental lands for recreational opportunities. Growth/Infrastructure Polk County will grow in a manner and pace that County residents find desirable and allows them to move around the County safely and without excessive congestion. The County has: maintained over 2,500 miles of roads including mowing right of ways, grading unpaved roads, cleaning drainage ditches, and providing other needed roadway repairs. added 989 new water connections and 971 new wastewater connections which indicates that the customer base is continuing to grow. Safety People will feel safe from crime, fire, and the effects of natural disasters. The County has: decreased EMS and Fire response time by increasing staffing, heavy equipment and the number of stations at strategic locations. begun to implement a STEMI Alert protocol, which electronically will send an electrocardiogram (EKG) of heart rhythms directly to hospitals to prepare the emergency staff in advance of the patient s arrival, saving valuable minutes A-6
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PRINCIPAL OFFICIALS SEPTEMBER 30, 2013 BOARD OF COUNTY COMMISSIONERS Melony M. Bell, District 2 Chairman R. Todd Dantzler, District 4 Vice-Chairman George M. Lindsey III, District 1 Member Edwin V. Smith, District 3 Member John E. Hall, District 5 Member CLERK OF THE CIRCUIT COURT Stacy M. Butterfield PROPERTY APPRAISER Marsha Faux SHERIFF Grady Judd SUPERVISOR OF ELECTIONS Lori Edwards TAX COLLECTOR Joe G. Tedder COUNTY MANAGER Jim Freeman A-9
ORGANIZATIONAL CHART SEPTEMBER 30, 2013 A-10
FINANCIAL SECTION
INDEPENDENT AUDITORS' REPORT Board of County Commissioners Polk County, Florida Bartow, Florida Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of Polk County (the County ), as of and for the year ended September 30, 2013, and the related notes to the financial statements, which collectively comprise the entity s basic financial statements as listed in the table of contents. We have also audited the financial statements of the North Ridge Community Redevelopment Agency, Harden/Parkway Community Redevelopment Agency, Polk Commerce Centre Community Redevelopment Agency, and the Eloise Community Redevelopment Agency (each CRA is a nonmajor special revenue fund) which are presented in the accompanying combining and individual fund schedule section as of and for the year ended September 30, 2013, as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Tax Collector, Polk County, Florida, which represents 3.05% and 5.10% respectively, of the assets and revenues of the general fund, and 0.08% and 2.73% respectively, of assets and revenues of the governmental activities. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Tax Collector, Polk County, Florida, is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An independent member of Nexia International B-1
Board of County Commissioners Polk County, Florida An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, the aggregate remaining fund information and the North Ridge Community Redevelopment Agency, Harden/Parkway Community Redevelopment Agency, Polk Commerce Centre Community Redevelopment Agency, and the Eloise Community Redevelopment Agency (each CRA is a nonmajor special revenue fund) of the County as of September 30, 2013, and the respective changes in financial position and, where applicable, cash flows thereof, and the respective budgetary comparison for the general fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that management s discussion and analysis and the schedule of funding progress other postemployment benefits on pages C-1 to C-15 and F-1 to F-2 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. B-2
Board of County Commissioners Polk County, Florida Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County s basic financial statements and the financial statements of the North Ridge Community Redevelopment Agency, Harden/Parkway Community Redevelopment Agency, Polk Commerce Centre Community Redevelopment Agency, and the Eloise Community Redevelopment Agency. The combining and individual fund schedules (with the exception of the North Ridge Community Redevelopment Agency, Harden/Parkway Community Redevelopment Agency, Polk Commerce Centre Community Redevelopment Agency, and the Eloise Community Redevelopment Agency) and the Introductory and Statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards and state financial assistance is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and Chapter 10.550, Local Governmental Entity Audits, Rules of the Auditor General of the State of Florida, and is also not a required part of the basic financial statements. The combining and individual fund schedules (with the exception of the North Ridge Community Redevelopment Agency, Harden/Parkway Community Redevelopment Agency, Polk Commerce Centre Community Redevelopment Agency, and the Eloise Community Redevelopment Agency), and the schedule of expenditures of federal awards and state financial assistance are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 26, 2014 on our consideration of the County 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the County s internal control over financial reporting and compliance. CliftonLarsonAllen LLP Lakeland, Florida March 26, 2014 B-3
MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED SEPTEMBER 30, 2013 Polk County s discussion and analysis provides a narrative overview and easily readable analysis of the County s financial activities. The analysis provides summary financial information for the County and should be read in conjunction with the transmittal letter and the County s financial statements. FINANCIAL HIGHLIGHTS Total net position decreased by $57.7 million during the current fiscal year included a decrease of $57.2 million in the governmental activities and a $0.5 million decrease in business-type activities. The total assets of the primary government exceeded total liabilities (net position) by $3,951.7 million at 2013 fiscal year end compared to $4,009.3 million the prior year. Unrestricted net position for governmental activities was $3.1 million in 2013 and $9.0 million in 2012. For business-type activities, unrestricted net position was $103.1 million in 2013 and $87.8 million in 2012. Polk County s governmental funds combined ending fund balance was $297.9 million, a decrease of $18.6 million from the prior year ending fund balances of $316.5 million. As of September 30, 2013, $157.9 million of the fund balance was restricted and $36.1 was unassigned in the various governmental fund types of the County. At the end of the current fiscal year, unassigned fund balance for the general fund was $37.3 million. Total long-term liabilities of Polk County decreased $0.7 million in fiscal year 2013. This decrease is primarily attributable to a $13.8 million reduction in bonds and notes payable offset by an increase of $10.2 million in other postemployment benefits as required by GASB Statement No. 45, and a $2.7 million increase in the closure and long-term care liability. OVERVIEW OF THE FINANCIAL STATEMENTS The County s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains the statistical section, single audit and other supplementary information in addition to the basic financial statements themselves. The government-wide financial statements present an overall picture of the County s financial position and results of operations. The fund financial statements present financial information for the County s various funds. The notes to the financial statements provide additional information that is not disclosed in the government-wide or fund financial statements. The government-wide financial statements are the statement of net position and the statement of activities. These statements use accounting methods similar to those used by private-sector companies. Emphasis is placed on the net position of governmental activities and business-type activities and the change in net position. Governmental activities are primarily supported by property taxes, charges for services, fuel taxes, sales taxes, services taxes, and grants. Business-type activities are supported by charges to the users of those activities, such as water and sewer service charges and landfill tipping fees. C-1
MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED SEPTEMBER 30, 2013 The government-wide financial statements include not only Polk County itself (known as the primary government) but also legally separate component units for which Polk County is financially accountable. These component units are detailed in the notes to the financial statements. The statement of net position presents information on all assets and liabilities of the County, with the difference between assets and liabilities reported as net position. Net position is reported in three categories: 1) net investment in capital assets, 2) restricted, and 3) unrestricted. Assets, liabilities, and net position are reported for all governmental activities separate from the assets, liabilities and net position of business-type activities. The statement of activities presents information on all revenues and expenses of the County and the change in net position. Expenses are reported by major function and program revenues relating to those functions are reported, providing the net cost of all functions of the County. To assist in understanding the County s operations, expenses have been reported as governmental activities or business-type activities. Governmental activities financed by the County include general government, public safety, physical environment, transportation, economic environment, human services, culture and recreation and debt service. Business-type activities financed by user charges include water and sewer services, solid waste disposal, and the Rohr nursing home facility. Fund financial statements present financial information for governmental funds, proprietary funds, and fiduciary funds. Governmental fund financial statements provide information on the current assets and liabilities of the funds, changes in current financial resources (revenues and expenditures), and current available resources. The proprietary funds financial statements provide information on all assets and liabilities of the funds, changes in the economic resources (revenues and expenses), and total economic resources. The fiduciary fund statement provides information concerning assets held in trust by the County on behalf of others. Fund financial statements include a balance sheet and a statement of revenues, expenditures, and changes in fund balances budget and actual for all governmental funds. For the proprietary funds, which include internal service funds in addition to business-type activities, a statement of net position, a statement of revenues, expenses, and changes in fund net position and a statement of cash flows are presented. A statement of fiduciary assets and liabilities is presented for the County s agency funds. Fund financial statements provide more detailed information about the County s activities. Individual funds are established by the County to track revenues that are restricted to certain uses, comply with legal requirements, or account for the use of state and federal grants. The government-wide financial statements and the fund financial statements provide different pictures of the County. The government-wide financial statements provide an overall picture of the County s financial standing, divided into governmental activities and business-type activities. These statements are comparable to private-sector companies and give a good understanding of the County s overall financial health and how the County paid for the various activities, or functions, provided by the County. Assets of the County, including buildings, land, roads, bridges, and traffic signals are reported in the statement of net position. All liabilities, including principal outstanding on bonds and future employee benefits obligated but not paid by the County, are included. The statement of activities includes depreciation on all long lived assets of the County, but transactions between the different functions of the County have been eliminated in order to avoid duplication of the revenues and expenses. The fund financial statements provide a picture of the major funds of the County and all non-major funds. In the case of governmental activities, outlays for long lived assets are reported as expenditures; long-term liabilities, such as general obligation bonds, are not included in the fund financial statements. C-2
MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED SEPTEMBER 30, 2013 A reconciliation has been included to provide a link from the fund financial statements to the government-wide financial statements. Notes to the financial statements provide additional detail concerning the financial activities and financial balances of the County. Additional information about the accounting practices of the County, investments of the County, capital assets, and long-term debt are some of the items included in the notes to the financial statements. The statistical section has been prepared in accordance with Governmental Accounting Standards Board Statement No. 44. This section contains selected data regarding financial trends, revenue capacity, debt capacity, demographic and economic conditions, and operating indicators of the County. The single audit grants compliance section lists the expenditures of Federal Awards and State Financial Assistance during the fiscal year and presents grant compliance information and auditor reports. C-3
MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED SEPTEMBER 30, 2013 GOVERNMENT-WIDE FINANCIAL ANALYSIS The following schedule provides a summary of assets, deferred outflows of resources, liabilities, and net position of the County for fiscal years 2013 and 2012: Net Position September 30, 2013 and 2012 (in Millions) Governmental Activities Business-Type Activities Total 2013 2012 2013 2012 2013 2012 Current and Other Assets $ 404.0 $ 424.7 $ 201.5 $ 213.1 $ 605.5 $ 637.8 Capital Assets 3,534.0 3,579.6 479.4 466.7 4,013.4 4,046.3 Total Assets 3,938.0 4,004.3 680.9 679.8 4,618.9 4,684.1 Deferred outflows of resources 2.2-1.5-3.7 - Other Liabilities 53.6 57.7 12.4 11.5 66.0 69.2 Long-Term Liabilities 388.1 390.9 216.8 214.7 604.9 605.6 Total Liabilities 441.7 448.6 229.2 226.2 670.9 674.8 Net Investment in Capital Assets 3,343.1 3,380.5 330.5 320.1 3,673.6 3,700.6 Restricted 152.3 166.2 19.6 45.7 171.9 211.9 Unrestricted 3.1 9.0 103.1 87.8 106.2 96.8 Total Net Position $ 3,498.5 $ 3,555.7 $ 453.2 $ 453.6 $ 3,951.7 $ 4,009.3 Polk County s net investment in capital assets, such as land, roads, parks, buildings, machinery and equipment as a percentage of net position represents 93.0 percent and 92.3 percent at year end 2013 and 2012, respectively. These asset values are presented less any outstanding debt related to the acquisition and including accumulated depreciation of those assets. The County uses capital assets to provide services to the citizens. Consequently, these assets are not available for future spending. Although the investment in capital assets is reported net of related debt, the capital assets themselves cannot be used to liquidate that liability and, therefore, other resources will be needed to repay any associated debt. The County s unrestricted net position increased $9.4 million and restricted net position decreased $40.0 million for fiscal year 2013. Unrestricted net position represents County resources that may be used to meet the County s ongoing obligations to citizens and creditors while restricted net position represents resources subject to external restrictions. C-4
MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED SEPTEMBER 30, 2013 The schedule below provides a summary of the changes in net position for fiscal years 2013 and 2012. Change in Net Position Years Ended September 30, 2013 and 2012 (in Millions) Governmental Activities Business-Type Activities Total Government 2013 2012 2013 2012 2013 2012 REVENUES Program Revenues: Charges for Services $ 112.1 $ 108.4 $ 97.0 $ 90.6 $ 209.1 $ 199.0 Operating Grants and Contributions 32.3 30.0 0.2 1.3 32.5 31.3 Capital Grants and Contributions 8.2 12.3 1.0 0.2 9.2 12.5 General Revenues: Property Taxes 164.5 173.3 - - 164.5 173.3 Fuel Tax 28.0 28.1 - - 28.0 28.1 Sales Tax 61.7 58.7 - - 61.7 58.7 Services Tax 39.7 39.6 - - 39.7 39.6 Other Taxes 9.8 9.1 - - 9.8 9.1 State Shared Revenues 11.6 11.0 - - 11.6 11.0 Investment Earnings 2.3 5.7 1.5 2.9 3.8 8.6 Net Change in Fair Value of Investments (5.8) 0.7 (4.1) 0.4 (9.9) 1.1 Gain (Loss) on Sale of Capital Assets 0.9 - - - 0.9 - Miscellaneous 6.7 5.6 6.6 3.5 13.3 9.1 Transfers 15.4 - (15.4) - - - Total Revenues 487.4 482.5 86.8 98.9 574.2 581.4 EXPENSES General Government 103.6 105.0 - - 103.6 105.0 Public Safety 214.6 206.0 - - 214.6 206.0 Physical Environment 7.2 7.2 - - 7.2 7.2 Transportation 131.8 126.9 - - 131.8 126.9 Economic Environment 19.0 17.1 - - 19.0 17.1 Human Services 45.3 51.9 - - 45.3 51.9 Culture/Recreation 13.5 13.9 - - 13.5 13.9 Interest on Long-Term Debt 9.6 9.1 - - 9.6 9.1 Water and Sewer - - 50.8 50.7 50.8 50.7 Garbage Collection/Disposal - - 31.2 27.9 31.2 27.9 Other - - 5.3 5.6 5.3 5.6 Total Expenses 544.6 537.1 87.3 84.2 631.9 621.3 CHANGE IN NET POSITION (57.2) (54.6) (0.4) 14.7 (57.6) (39.9) Net Position - Beginning of Year, 3,555.7 3,610.3 453.6 438.9 4,009.3 4,049.2 NET POSITION - ENDING $ 3,498.5 $ 3,555.7 $ 453.2 $ 453.6 $ 3,951.7 $ 4,009.3 Certain prior year reported balances have been reclassified to conform to current year presentation. C-5
MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED SEPTEMBER 30, 2013 The following chart depicts revenues of the governmental activities for the fiscal year, excluding transfers and net change in fair market value of investments. Revenues-Governmental Activities Fiscal Year Ended September 30, 2013 C-6
MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED SEPTEMBER 30, 2013 The following chart depicts governmental activities expenses compared to program revenues (excluding capital grants), which funded those activities for the fiscal year; the amounts not funded by program revenues were funded by general revenues (e.g., property taxes, etc.). C-7
MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED SEPTEMBER 30, 2013 Governmental Activities: Governmental activities resulted in a $57.2 million decrease in net position as the result of current fiscal year activities. Overall, revenues related to governmental activities increased $4.9 million or 1.0 percent. Property tax revenues decreased $8.8 million or 5.1 percent as a result of the economic recession and its impact on property values. Charges for services increased $3.7 million or 3.4 percent due to an increase in ambulance fees, a change in legislation related to Clerk funding, an increase related to law enforcement services provided to municipalities, and a slight increase in building permit revenue. Sales tax revenues increased $3.0 million due to an improving economy. The net change in fair value of investments decreased $6.5 million and investment earnings decreased $3.4 million due to market conditions. Net transfers to governmental activities from the business-type activities increased by $15.4 million as a result of a transfer from the Waste Resource Management Fund to the General Fund for nonrecurring expenses, including the State of Florida s back billing of Medicaid. In total, expenses in governmental activities increased $7.5 million or 1.4 percent. Depreciation expense increased $1.6 million or 1.7 percent. Approximately $2.5 million of the increase in Public Safety expenses is attributable to an increase in the Sheriff s operating expense for law enforcement and detention services. Transportation expenses increased $4.9 million primarily due to the first year of a three year County funding of a road project related to an interlocal agreement. Human Services expenses in the Indigent Health Care Fund decreased $2.6 million due to reduced claim expenses. An increase in net income of the Employee Health Insurance Fund allocated to governmental activities resulted in a $4.6 million reduction in expenses. C-8
MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED SEPTEMBER 30, 2013 The following chart depicts revenues of the business-type activities for the fiscal year, excluding transfers and net change in fair market value of investments. The following chart depicts business-type activities expenses compared to revenues. C-9
MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED SEPTEMBER 30, 2013 Business-Type Activities: Business-type activities resulted in a 0.4 million decrease in net position for the fiscal year. Overall, revenues for business-type activities decreased by $12.1 million or 12.2 percent largely due to a $15.4 million transfer from the Waste Resource Management Fund to the General Fund for one time projects, including the back billing of Medicaid. The net change in fair value of investments decreased $4.5 million and investment earnings decreased $1.4 million due to market conditions. Charges for services increased $6.4 million or 7.1 percent due to increased Utility rates, and increased landfill volumes. Miscellaneous revenues increased by $3.1 million or 88.6 percent due to a $1.5 million reimbursement for Waste Resource Management operational expenses. Miscellaneous revenues also increased for Utilities due to a $0.3 million dollar reimbursement for aquifer storage, and a $0.7 million claim settlement for equipment failure. In total, expenses in business-type activities increased $3.1 million or 3.7 percent primarily due to an increase in landfill closure and long term care expense of $2.7 million. C-10
MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED SEPTEMBER 30, 2013 FINANCIAL ANALYSIS OF FUNDS Fund accounting is used to demonstrate and insure compliance with finance-related legal requirements. Governmental Funds Governmental funds provide information on near-term inflows, outflows, and balances of spendable resources. In assessing Polk County s financing requirements, unassigned fund balance is a particularly useful measure of net resources available for spending at the end of the fiscal year. The County s governmental fund types include the general, special revenue, debt service and capital project funds. Polk County s governmental funds combined fund balance was $297.9 million in 2013 as compared to $316.5 million in 2012. These fund balances reflect a decrease of $18.6 million and $38.5 million for 2013 and 2012, respectively. Major Funds Information (in Millions) General Fiscal Year 2013: Revenues $ 260.8 Expenditures (265.0) Transfers in 15.7 Transfers out (7.1) Net Change in Fund Balances $ 4.4 Fiscal Year 2012: Revenues $ 255.3 Expenditures (257.8) Transfers in 0.5 Transfers out (7.5) Net Change in Fund Balances $ (9.5) General Fund The County s General Fund is the main operating fund of the County. It is used to account for financial resources that are not restricted by State or Federal laws, County ordinances, or other externally imposed requirements. As of September 30, 2013, total assets were $106.8 million and total liabilities were $39.0 million. Revenues increased 2.2 percent and expenditures increased 2.8 percent from fiscal year 2012 to 2013. These increases, when combined with net transfers in of $8.6 million, resulted in a increase in fund balance to $67.8 million as of September 30, 2013, compared to $63.4 million in the prior year. C-11