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Home My WebLink About2006 Financial Statements & Federal Single Audit ReportWashington State Auditor's Office Financial Statements Audit Report City of Port Townsend Jefferson County Audit Period January 1, 2006 through December 31, 2006 Issue Date January 22, 2008 Report No. 73889 F1 0 "*1, -j4$ swv*o�-1011 Washington State Auditor Brian Sonntag January 22, 2008 City Council City of Port Townsend Port Townsend, Washington Report on Financial Statements Please find attached our report on the City of Port Townsend's financial statements. We are issuing this report in order to provide information on the City'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 40021 • Olympia, Washington 98504-0021 • (360) 902-0370 • TDD Relay (800) 833-6388 FAX (360) 753-0646 • http://www.sao.wa.gov Table of Contents City of Port Townsend Jefferson County January 1, 2006 through December 31, 2006 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards ....................... Independent Auditor's Report on Financial Statements Financial Section Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and other Matters in Accordance with Government Auditing Standards City of Port Townsend Jefferson County January 1, 2006 through December 31, 2006 Council City of Port Townsend Port Townsend, Washington We have audited the financial statements of the City of Port Townsend, Jefferson County, Washington, as of and for the year ended December 31, 2006, and have issued our report thereon dated October 25, 2007. We conducted our audit 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 audit, we considered the City's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City'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 City'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 City's financial statements that is more than inconsequential will not be prevented or detected by the City'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. Washington State Auditor's Office 1 COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of the City'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 and the Council. 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 October 25, 2007 Washington State Auditor's Office 2 Independent Auditor's Report on Financial Statements City of Port Townsend Jefferson County January 1, 2006 through December 31, 2006 Council City of Port Townsend Port Townsend, Washington We have audited the accompanying financial statements of each major fund and individual funds of the City of Port Townsend, Jefferson County, Washington, as of and for the year ended December 31, 2006, as listed on page 5. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit. 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 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 audit provides a reasonable basis for our opinion. As described in Note 1 to the financial statements, the City prepares the financial statements for certain proprietary funds in conformity with accounting principles generally accepted in the United States of America applicable to proprietary funds of local governments. As described in Note 1 to the financial statements, the City prepares its financial statements for the remaining funds on the basis of accounting that demonstrates compliance with Washington State statutes and the Budgeting, Accounting and Reporting System (BARS) manual prescribed by the State Auditor, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of each major fund of the City of Port Townsend, as of December 31, 2006, and the changes in financial position and, where applicable, cash flows thereof for the Water/Sewer and Stormwater funds for the year then ended in accordance with accounting principles generally accepted in the United States of America. For the remaining funds, in our opinion, the financial statements present fairly the financial position and results of operations of the funds of the City of Port Townsend, for the year ended December 31, 2006, on the basis of accounting prescribed by the BARS manual. In accordance with Government Auditing Standards, we have also issued our report on our consideration of the City'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 audit. Washington State Auditor's Office 3 The management's discussion and analysis on pages 6 through 8 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. The accompanying Schedule of Long -Term Debt is presented for purposes of additional analysis as required by the prescribed BARS manual. This schedule is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. BRIAN SONNTAG, CGFM STATE AUDITOR October 25, 2007 Washington State Auditor's Office 4 Financial Section City of Port Townsend Jefferson County January 1, 2006 through December 31, 2006 REQUIRED SUPPLEMENTAL INFORMATION Management Discussion and Analysis — 2006 FINANCIAL STATEMENTS Fund Resources and Uses Arising from Cash Transactions — 2006 Statement of Net Assets — Proprietary Funds — 2006 Statement of Revenues, Expenses and Changes in Net Assets — Proprietary Funds — 2006 Statement of Cash Flows — Proprietary Funds — 2006 Notes to the Financial Statements — 2006 SUPPLEMENTAL INFORMATION Schedule of Long -Term Debt — 2006 Washington State Auditor's Office 5 MANAGEMENT DISCUSSION AND ANALYSIS This discussion and analysis is designed to provide an overview of the City of Port Townsend's utility financial activities for the year ended December 31, 2006. Please read this supplementary information in conjunction with the City's financial statements. Overview of the Financial Statements The basic financial statements include the Statement of Net Assets, the Statement of Revenues, Expenses and Changes in Net Assets, and the Statement of Cash Flows. The Statement of Net Assets presents the City's Water/Sewer Utility and Stormwater Utility assets and liabilities with the difference between them reported as net assets. This statement provides information about the amount of investments in resources (assets) and the obligations to creditors (liabilities). The net assets increase when revenues exceed expenses. This statement provides the basis for evaluating the capital structure, and assessing liquidity and financial flexibility of the City. The Statement of Revenue, Expenses and Changes in Net Assets reports revenues, expenses, and the change in net assets for the years indicated. This statement measures the success of the City's Water/Sewer Utility and Stormwater Utility operations and can be used to evaluate the level of cost recovery from charges for products and services. The Statement of Cash Flows provides information concerning cash receipts and disbursements resulting from operational, financing, and investing activities. This statement provides insight into the City's Water/Sewer and Stormwater Utility ability to generate cash flow and to meet obligations and is an important indicator of the utility's liquidity and financial strength. The Notes to the Financial Statements provide additional information that is essential to a full understanding of the information contained in the basic financial statements. Financial Highlights No rate increases were implemented for 2006 as capital projects completed were not at the same rate as in the utility rate study that was completed in 2003. A new utility rate study was commissioned in 2006 and will include a cost of service componet; the anticipated completion date for the new rate study is July 2007. Water customers increased by 63, or 1.4%. Sewer customers also increased by 63, or 1.7%, in 2006. Water/Sewer revenues increased by 2% due to growth and consumption increases. Water consumption billed increased 4.5%. The City Water/Sewer Utility ended 2006 with $7,900,135 unrestricted cash. The City Stormwater Utility ended 2006 with $498,367 unrestricted cash. These levels of cash are enough to provide adequate insurance for meeting continuing cash flow needs. The City Water/Sewer Utility also is maintaining debt service coverage levels of 3.14, well above the minimum required level of 1.25. The Stormwater Utility has no outstanding debt. Financial Analysis The following information provides analysis of the 2006 and 2005 comparative financial information provided in the following table. Water/Sewer Utility Fund Condensed Financial Information for December 31, 2006, and 2005 Statement of Net Assets 2006 2005 Change % Change Current Assets 8,802,681 8,837,531 -34,850 -.39 Noncurrent Assets 24,989,933 25,075,229 -85,296 -.34 Total Assets 33,792,614 33,912,760 -120,146 -.35 Current Liabilities 902,546 841,062 61,484 7.3 Noncurrent Liabilities 5,740,595 6,484,163 -743,568 -11.5 Total Liabilities 6,643,141 7,325,225 -682,084 -9.3 Net Assets 27,149,473 26,587,535 561,938 2.1 Washington State Auditor's Office 6 Statement of Revenue, Expenses and Changes in Net Assets 2006 2005 Change % Change Operating Revenues 4,355,066 4,269,424 85,642 2.0 Operating Expenses 4,783,488 4,144,149 639,339 15.4 Net Operating Income -428,422 125,275 -553,697 -442.0 NonOperating Revenues 478,235 308,814 169,421 54.8 NonOperating Expenses -181,129 -212,009 30,880 14.6 NonOperating Revenue (Expenses) 297,106 96,804 199,980 205.9 Contributed Capital 692,787 922,378 -229,591 -24.9 Change in Net Assets 561,471 1,144,458 -583,308 -51.0 Net Assets - beginning of year 26,588,405 25,443,626 1,144,779 4.5 Net Assets - end of year 27,149,876 26,588,084 561,471 2.1 Stormwater Utility Fund Condensed Financial Information for December 31, 2006, and 2005 Statement of Net Assets 2006 2005 Change % Change Current Assets 501,531 369,021 132,510 35.9 Noncurrent Assets 2,614,874 2,495,343 119,531 4.8 Total Assets 3,116,405 2,864,364 252,041 8.8 Current Liabilities 3,164 3,164 0 0 Noncurrent Liabilities 0 0 0 0 Total Liabilities 3,164 3,164 0 0 Net Assets 3,113,241 2,861,200 252,041 8.8 Statement of Revenue, Expenses and Changes in Net Assets 2006 2005 Change % Change Operating Revenues 538,466 449,462 89,004 19.8 Operating Expenses 448,509 435,043 13,460 3.1 Net Operating Income 89,957 14,419 75,538 524.0 NonOperating Revenues 21,149 9,175 11,974 130.0 NonOperating Expenses 0 0 0 0 NonOperating Revenue (Expenses) 21,149 9,175 11,974 130.0 Contributed Capital 140,936 99,540 41,396 41.2 Change in Net Assets 252,041 123,134 128,907 104.0 Net Assets - beginning of year 2,861,200 2,738,066 123,134 4.5 Net Assets - end of year 3,113,241 2,861,200 252,041 8.8 Assets Water/Sewer Utility current assets in 2006 increased $ from 2006, or .39%. Noncurrent assets decreased in 2006 in the amount of $85,296 or .34%. Stormwater Utility current assets in 2006 increased $132,510 from 2005, or 35.9%. Noncurrent assets increased in 2006 in the amount of $119,531, or 4.8%. Liabilities Water/Sewer Utility current liabilities increased 7.3% in 2006 from 2005. Noncurrent liabilities decreased $743,568 mostly in debt outstanding. Stormwater Utility current liabilities remained the same in 2006 as in 2005. Net Assets Water/Sewer Utility net assets increased by $561,938 or 2.1 %. The increase in total net assets was mostly due to a decrease in liabilities due to debt repayment. Stormwater Utility net assets increased $252,041 or 8.8%, from 2005. The increase in Total net assets was mostly due to an increase in capital assets and cash. Washington State Auditor's Office 7 Operating Revenues Water/Sewer Utility operating revenues increased by 2% over 2005. This is an increase of $85,642. The City Water and Sewer Utility customers increased by 63 in 2006. Stormwater Utility operating revenues increased by 19.8% over 2005. This is an increase of $89,004; mostly due to a IAC grant received. Operating Expenses Water/Sewer Utility operating expenses increased by $639,339 or 15.4%, in 2006. This was due to an increase in equipment rental fees and overhead. Stormwater Utility operating expenses increased by $13,460 or 3.1 %, in 2006. This was due to an increase in interfund charges as compared to 2005. Nonoperating Revenues and Expenses Water/Sewer Utility total nonoperating revenues and expenses increased by $199,980 or 205.9%, in 2006 due to higher interest rates earned on cash balances. Stormwater nonoperating revenues and expenses increased by $11,974 or 130% in 2006. Capital Assets and Long Term Debt Activity Water/Sewer Utility Net Plant Assets increased by $561,939 in 2006. The main capital projects included work on the 35th Street waterline and the water system master plan. No new debt was issued in 2006. The debt service coverage ratio for 2006 is 3.77 for the Storm utility and 3.14 for the Water/Sewer utility. Washington State Auditor's Office 8 MCAG NO. 0364 IINIV,go]0go] V1MCOMM 011y: 1►1w STATEMENT C-4 FUND RESOURCES AND USES ARISING FROM CASH TRANSACTION For The Year Ended December 31, 2006 BARS CODE Beginning Net Cash and Investments Revenues and Other Sources: 310 Taxes 320 Licenses and Permits 330 Intergovernmental 340 Charges for Goods and Services 350 Fines and Forfeits 360 Miscellaneous 390 Other Financing Sources Total Revenues and Other Sources Total Resources gyrating Expenditures: 510 General Government 520 Security of Persons and Property 530 Physical Environment 540 Transportation 550 Economic Environment 560 Mental and Physical Health 570 Culture and Recreational Total Operating Expenditures 591-93 Debt Service 594-96 Capital Outlay Total Expenditures 597 Other Financing Uses Total Expenditures and Other Uses Excess (Deficit) of Resources Over Uses 380 Nonrevenues (Except 384) 580 Nonexpenditures (Except 584) Ending Net Cash and Investments Fund Number And Name 010 - CURRENT EXPENSE Budqet F Actual Fund Number And Name 110 - STREET Budqet TActual $ 411,731 $ 463,224 $ 125,166 $ 109,48911 $ 5, 238, 541 $ 5,197,134 $ - $ - 665,125 355,640 - - 262, 570 200,129 207,169 203,253 936,436 872,392 - 19,540 111,954 119,761 - - 41,251 30,040 - 6,481 5,347 5,899 200,000 200,000 7,261,224 6,780,995 407,169 429,274 $ 7.672.955 $ 7.244.219 $ 532.335 $ 538.763 $ 1,371,961 $ 1,397,663 $ - $ - 2,158,261 2,222,207 - - 3,600 - - - - - 417,827 411,568 850,297 819,380 - - 57,914 53,688 - - $ 4,442,033 $ 4,492,938 $ 417,827 $ 411,568 25,432 38,051 70,000 81,047 $ 4,467,465 $ 4,530,989 $ 487,827 $ 492,615 $ 2, 542, 455 $ 2,462,847 $ 3,000 $ 2,750 $ 7, 009, 920 $ 6,993,836 $ 490,827 $ 495,365 $ 663,035 $ 250,384 $ 41,508 $ 43,398 5,657 346 - 1,262 - 7,679 - - $ 668,691 $ 258,409 $ 41,508 $ 44,660 The Accompanying Notes Are An Integral Part of This Statement. Washington State Auditor's Office 9 MCAG NO. 0364 STATEMENT C-4 CITY OF PORT TOWNSEND FUND RESOURCES AND USES ARISING FROM CASH TRANSACTION For The Year Ended December 31, 2006 BARS CODE Beginning Net Cash and Investments Revenues and Other Sources: 310 Taxes 320 Licenses and Permits 330 Intergovernmental 340 Charges for Goods and Services 350 Fines and Forfeits 360 Miscellaneous 390 Other Financing Sources Total Revenues and Other Sources Total Resources Operating Expenditures: 510 General Government 520 Security of Persons and Property 530 Physical Environment 540 Transportation 550 Economic Environment 560 Mental and Physical Health 570 Culture and Recreational Total Operating Expenditures 591-93 Debt Service 594-96 Capital Outlay Total Expenditures 597 Other Financing Uses Total Expenditures and Other Uses Excess (Deficit) of Resources Over Uses 380 Nonrevenues (Except 384) 580 Nonexpenditures (Except 584) Ending Net Cash and Investments Fund Number And Name Fund Number And Name 120 - Library Fund 140- PW Admin & Engineerir Budget Actual Budget Actual - 878,777 805,315 10,000 11,112 - 3,290 - 220 705,168 656,238 715,168 670,641 878,777 805,536 $ 715,168 $ 670,641 $ 878,777 $ 805,536 873,277 800,415 607,618 594,526 - - $ 607,618 $ 594,526 $ 873,277 $ 800,415 102,550 76,115 5,500 5,121 $ 710,168 $ 670,641 $ 878,777 $ 805,536 $ 710,168 $ 670,641 $ 878,777 $ 805,5 $ 5,000 $ - $ 0 $ - $ 5,000 $ - $ 0 $ - The Accompanying Notes Are An Integral Part of This Statement. Washington State Auditor's Office 10 MCAG NO. 0364 STATEMENT C-4 CITY OF PORT TOWNSEND FUND RESOURCES AND USES ARISING FROM CASH TRANSACTION For The Year Ended December 31, 2006 BARS Fund Number And Name 171 - Fire and EMS Fund Number And Name 199 - Community Services CODE Budget Actual Budget Actual Beginning Net Cash and Investments $ 1 $ - $ 5,000 $ - Revenues and Other Sources: 310 Taxes $ 366,323 $ 364,436 $ - $ - 320 Licenses and Permits - 330 Intergovernmental 238,808 246,884 2,300 (700) 340 Charges for Goods and Services 125,124 54,895 90,000 69,452 350 Fines and Forfeits 360 Miscellaneous - 25,000 15,031 390 Other Financing Sources 809,000 780,000 657,287 655,608 Total Revenues and Other Sources 1,539,255 1,446,215 774,587 739,390 Total Resources $ 1,539,256 $ 1,446,215 $ 779,587 $ 739,390 Operating Expenditures: 510 General Government $ - $ - 520 Security of Persons and Property 1,492,722 1,482,588 - - 530 Physical Environment 540 Transportation 550 Economic Environment - - 560 Mental and Physical Health - - 570 Culture and Recreational 779,087 725,503 Total Operating Expenditures $ 1,492,722 $ 1,482,588 $ 779,087 $ 725,503 591-93 Debt Service $ - $ 3,442 594-96 Capital Outlay 46,533 46,533 500 13,805 Total Expenditures $ 1,539,255 $ 1,532,563 $ 779,587 $ 739,308 597 Other Financing Uses Total Expenditures and Other Uses $ 1,539,255 $ 1,532,563 $ 779,587 $ 739,308 Excess (Deficit) of Resources Over Uses $ 1 $ 86,348 $ - $ 82 380 Nonrevenues (Except 384) 100,000 - (82) 580 Nonexpenditures (Except 584) - - - - Ending Net Cash and Investments $ 1 $ 13,652 $ - $ (0) The Accompanying Notes Are An Integral Part of This Statement. Washington State Auditor's Office 11 MCAG NO. 0364 IINIV,go]0go] V1MCOMM 011y: 1►1w STATEMENT C-4 FUND RESOURCES AND USES ARISING FROM CASH TRANSACTION For The Year Ended December 31, 2006 BARS CODE Beginning Net Cash and Investments Revenues and Other Sources: 310 Taxes 320 Licenses and Permits 330 Intergovernmental 340 Charges for Goods and Services 350 Fines and Forfeits 360 Miscellaneous 390 Other Financing Sources Total Revenues and Other Sources Total Resources gyrating Expenditures: 510 General Government 520 Security of Persons and Property 530 Physical Environment 540 Transportation 550 Economic Environment 560 Mental and Physical Health 570 Culture and Recreational Total Operating Expenditures 591-93 Debt Service 594-96 Capital Outlay Total Expenditures 597 Other Financing Uses Total Expenditures and Other Uses :ess (Deficit) of Resources Over Uses 380 Nonrevenues (Except 384) 580 Nonexpenditures (Except 584) ling Net Cash and Investments Fund Number And Name 150- Lodging Tax Budqet F Actual Fund Number And Name 195 - System Dev Charge Budqet I Actua $ 158,819 $ 176,186 $ 269,739 $ 400,76511 $ 325,000 $ 331,679 $ 3,176 9,060 5,395 26,39 328,176 340,739 5,395 26,396 $ 486.995 $ 516.925 $ 275.134 $ 427.161 $ 25,109 $ 25,109 $ - $ 274,077 252,764 - $ 299,186 $ 277,874 $ - $ - $ 299,186 $ 277,874 $ - $ - $ 28,000 $ 25,667 $ 350,000 $ 135,000 $ 327,186 $ 303,540 $ 350,000 $ 135,000 $ 159,809 $ 213,385 $ (74,866) $ 292,161 - - 294,690 286,229 The Accompanying Notes Are An Integral Part of This Statement. 159,809 $ 213,385 $ 219,824 $ 578,390II Washington State Auditor's Office 12 MCAG NO. 0364 CITY OF PORT TOWNSEND FUND RESOURCES AND USES ARISING FROM CASH TRANSACTION For The Year Ended December 31, 2006 BARS Fund Number And Name 200 - G.O. Debt Service Fund Number And Name 301 - CAPITAL IMPROVE. FUND CODE Budget T Actual Budget Actual Beginning Net Cash and Investments $ 46,571 $ 51,168 $ 391,847 $ 538,409 Revenues and Other Sources: 310 Taxes $ - $ - $ 531,486 $ 471,970 320 Licenses and Permits - - - - 330 Intergovernmental - - 994,000 192,751 340 Charges for Goods and Services - - - - 350 Fines and Forfeits - - - 360 Miscellaneous 931 6,600 68,484 18,199 370 LID 700,000 - 390 Other Financing Sources 624,493 621,910 580,000 291,545 Total Revenues and Other Sources 625,425 628,510 2,873,970 974,465 Total Resources $ 671,996 $ 679,677 $ 3,265,817 $ 1,512,874 Operating Expenditures: 510 General Government $ 1,000 $ 1,812 $ - $ 11 520 Security of Persons and Property - - - - 530 Physical Environment - - - - 540 Transportation - - - - 550 Economic Environment - - - - 560 Mental and Physical Health - - - - 570 Culture and Recreational - - - - Total Operating Expenditures $ 1,000 $ 1,812 $ - $ 11 591-93 Debt Service $ 623,888 $ 623,891 $ - $ 5,000 594-96 Capital Outlay - - 2,595,000 648,062 Total Expenditures $ 624,888 $ 625,703 $ 2,595,000 $ 653,074 597-598 Other Financing Uses $ - $ - $ 400,960 $ 580,794 Total Expenditures and Other Uses $ 624,888 $ 625,703 $ 2,995,960 $ 1,233,868 Excess (Deficit) of Resources Over Uses $ 47,108 $ 53,974 $ 269,857 $ 279,006 380 Nonrevenues (Except 384) - - - - 580 Nonexpenditures (Except 584) - - - - Ending Net Cash and Investments $ 47,108 $ 53,974 $ 269,857 $ 279,006 The Accompanying Notes Are An Integral Part of This Statement. Washington State Auditor's Office 13 MCAG NO. 0364 STATEMENT C-4 CITY OF PORT TOWNSEND FUND RESOURCES AND USES ARISING FROM CASH TRANSACTION For The Year Ended December 31, 2006 BARS CODE Beginning Net Cash and Investments Revenues and Other Sources: 310 Taxes 320 Licenses and Permits 330 Intergovernmental 340 Charges for Goods and Services 350 Fines and Forfeits 360 Miscellaneous 390 Other Financing Sources Total Revenues and Other Sources Total Resources Operating Expenditures: 510 General Government 520 Security of Persons and Property 530 Physical Environment 540 Transportation 550 Economic Environment 560 Mental and Physical Health 570 Culture and Recreational Total Operating Expenditures 591-93 Debt Service 594-96 Capital Outlay Total Expenditures 597 Other Financing Uses Total Expenditures and Other Uses Excess (Deficit) of Resources Over Uses 380 Nonrevenues (Except 384) 580 Nonexpenditures (Except 584) ,Ending Net Cash and Investments Fund Number And Name Fund Number And Name 302 - City Hall Capital Improve 500 - EQUIPMENT RENTAL Budget I Actual Budget I Actual $ 2,219,670 $ 113,783 $ 1,267,391 $ 921,755 - 21,362 - - 450,000 715,326 622,290 715,889 450,000 736,688 622,290 715,889 $ 2,669,670 $ 850,471 $ 1,889,681 $ 1,637,644 - - 482,782 554,542 $ - $ - $ 482,782 $ 554,542 900,000 1,158, 061 280,000 71,080 $ 900,000 $ 1,158,061 $ 762,782 $ 625,622 $ 900,000 $ 1,158,061 $ 762,782 $ 625,622 $ 1,769,670 $ 307,590 $ 1,126,899 $ 1,012,022 - 350,000 - - - - - 100,000 $ 1,769,670 $ 42,410 $ 1,126,899 $ 912,022 The Accompanying Notes Are An Integral Part of This Statement. Washington State Auditor's Office 14 MCAG NO. 0364 STATEMENT C-5 PAGE 1 OF 2 CITY OF PORT TOWNSEND FUND RESOURCES AND USES ARISING FROM CASH TRANSACTION For The Year Ended December 31, 2006 Fund Type: Beginning Net Cash and Investments: Revenues and Other Financing Sources Total Resources Expenditures And Other Financing Uses Excess (Deficit) of Resources Over Uses Nonrevenues (Except 384) Nonexpenditures (Except 584) Ending Net Cash and Investments Fund Number And Name Fund Number And Name 101 - DRUG ENFORCEMENT ED 102 - Contingency Budget Actual Budget Actua $ 64 1 $ 64 595 $ 150,046 3,001 $ 151,494 9,382 $ 65 $ 659 $ 153,047 $ 160,876 $ 65 $ 659 $ 153,047 $ 160,876 $ 65 $ 659 $ 153,047 $ 160,8763 Fund Type: Fund Number And Name 170 - Fire Equip Joint Maint Budget Actual Fund Number And Name 190 - COMM DEV BLOCK GRANT Budget Actual Beginning Net Cash and Investments: Revenues and Other Financing Sources Total Resources Expenditures And Other Financing Uses Excess (Deficit) of Resources Over Uses Nonrevenues (Except 384) Nonexpenditures (Except 584) Ending Net Cash and Investments $ $ $ $ 13,932 279 14,211 - 14,211 - - 14,211 $ $ $ $ 9,970 122 10,091 - 10,091 - - 10,091 $ 60,706 6,214 $ 65,243 37,349 $ 66,920 $ 60,000 102,592 22,351 $ 6,920 $ - 80,241 - - - $ 6,920 $ 80,241 Fund Type: Beginning Net Cash and Investments: Revenues and Other Financing Sources Total Resources Expenditures And Other Financing Uses Excess (Deficit) of Resources Over Uses Nonrevenues (Except 384) Nonexpenditures (Except 584) Ending Net Cash and Investments Fund Number And Name 264 - LID #1 Fund Number And Name 266 - LID #2 Budget Actual Budget Actual $ 2,225 - $ 2,260 22 $ 3,032 - $ 3,052 13 $ 2,225 2,225 $ 2,282 2,282 $ 3,032 3,032 $ 3,065 3,065 $ (0) $ - $ 0 $ 0 $ (0) $ - $ 0 $ 0 The Accompanying Notes Are An Integral Part of This Statement. Washington State Auditor's Office 15 MCAG NO. 0364 STATEMENT C-5 PAGE 2OF2 CITY OF PORT TOWNSEND FUND RESOURCES AND USES ARISING FROM CASH TRANSACTION For The Year Ended December 31, 2006 Fund Type: Beginning Net Cash and Investments: Revenues and Other Financing Sources Total Resources Expenditures And Other Financing Uses Excess (Deficit) of Resources Over Uses Nonrevenues (Except 384) Nonexpenditures (Except 584) Ending Net Cash and Investments Fund Type: Fund Number And Name 610 - Fire Pension & Relief Budget Actual $ 297,718 $ 276,943 $ 79,468 92,402 $ 377,186 $ 369,345 $ 91,829 72,962 $ 285,357 $ 296,383 $ 285,357 $ 296,383 j $ Fund Number And Name 621 - Memorial Fund 4,373 $ 4,397 87 24,297 4,460 $ 28,694 - 1,404 $ 27,290 11 - $ 27,290 Fund Number And Name Fund Number and Name 613 - Court -Agency 631-Maritime Center Fund 3udget Actual Budget Actual Beginning Net Cash and Investments: $ - $ 25,386 $ 3,028 $ 3,028 Revenues and Other Financing Sources - - I - 1 Total Resources $ - $ 25,386 $ 3,028 $ 3,029 Expenditures And Other Financing Uses - - - - Excess (Deficit) of Resources Over Uses $ - $ 25,386 $ 3,028 $ 3,029 Nonrevenues (Except 384) - 92,827 693,886 - Nonexpenditures (Except 584) - 67,202 693,886 3,027 Endinq Net Cash and Investments $ - $ 51,012 $ 3,028 $ 2 The Accompanying Notes Are An Integral Part of This Statement. Washington State Auditor's Office 16 CITY OF PORT TOWNSEND Statement of Net Assets Proprietary Funds December 31, 2006 ASSETS Current Assets: Cash and Cash Equivalent Account Receivables (net) Inventories Total Current Assets Noncurrent Assets: Capital Assets, net of accumulated depreciation Construction Work In Progress Loan Receivable Unamortized Sewer Com Plan Unamortized Debt Discount Unamortized Flood Control Plan Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities: Refundable Deposits Unclaimesd property Compensated Absences Accrued interest Current portion long term debt Total Current Liabilities Noncurrent Liabilities: Deferred Amount (refunding) Bonds Other Long Term Debt Total Noncurrent Liabilities Total Liabilities NET ASSETS Investment in Capital Assets, net of debt Restricted Unrestricted Total Net Assets 2006 2006 2006 Enterprise Funds' Water/Sewer Storm Fund Fund Total $ 8,394,366 $ 456,085 $ 8,850,451 408,314 45,445 453,760 8,802,681 501,531 9,304,211 24,489,664 2,434,947 $ 26,924,611 350,000 350,000 79,310 79,310 70,960 70,960 179,927 179,927 24, 989, 933 2,614,874 27, 604, 807 33, 792, 614 $ 3,116, 405 $ 36, 909, 018 $ $ 28,593 $ 3,164 $ 31,757 69,295 - 69,295 35,182 - 35,182 769,475 769,475 902,546 3,164 905,710 (283,876) (283,876) 2,225,000 - 2,225,000 3,799,471 - 3,799,471 5,740,595 - 5,740,595 6,643,141 $ 3,164 $ 6,646, 305 $ $ 19,249,338 $ 2,614,874 $ 21,864,212 7,900,135 498,367 8,398,502 $ 27,149,473 $ 3,113,241 $ 30,262,714 The Accompanying notes are an Integral Part of This Statement Washington State Auditor's Office 17 CITY OF PORT TOWNSEND Statement of Revenues, Expenses and Changes in Net Assets Proprietary Funds Year Ended December 31, 2006 Operating Revenues Charges for services Total Operating Revenue Operating Expenses Operations and Maintenance Administration Amortization Depreciation Taxes Total Operating Expenses Operating Income (Loss) Nonoperating Revenues (Expenses): Interest Income Interest Expense Grant Revenue Other Miscellaneous Income Total Nonoperating Revenues (Expenses) Income (Loss) Before Transfers and Contributed Capital Transfers (to) from Other Funds: Total Transfers (to) from Other Funds Contributed Capital Change in Net Assets Net Assets, January 1 Net Assets, December 31 2006 2006 2006 Water/Sewer Storm Utility Fund Total $ 4,355,066 $ 457,296 $ 4,812,361 $ 4,355,066 $ 457,296 $ 4,812,361 $ 1,740,736 $ 230,065 $ 1,970,801 1,311,581 113,260 $ 1,424,841 58,694 17,970 $ 76,665 1,081,392 33,349 $ 1,114,741 591,085 53,864 $ 644,949 $ 4,783,488 $ 448,509 $ 5,231,997 $ (428,423) $ 8,787 $ (419,636) $ 436,741 18,859 $ 455,601 $ (181,129) - $ (181,129) 81,170 $ 81,170 $ 41,494 2,289 $ 43,783 $ 297,107 $ 102,318 $ 399,425 $ (131,316) $ 111,105 $ (20,211) $ 692,787 $ 140,936 $ 833,723 $ 561,471 $ 252,041 $ 813,512 $ 26,588,425 $ 2,861,200 $ 29,449,625 $ 27,149, 896 $ 3,113, 241 $ 30, 263,137 The Accompanying Notes are an Integral Part of This Statement Washington State Auditor's Office 18 MCAG NO. 0364 CITY OF PORT TOWNSEND Statement of Cash Flow Proprietary Funds For the year ended December 31, 2006 Cash flows from operating activities: Receipts from customers Payments to suppliers for goods and services Payments to employees for services Payments for taxes Net cash provided (used) by operating activities Cash flows from noncapital financing activities: Interfund Loans Operating transfers -from (to) other funds Receipts from other operating revenues Net cash provided (used) by noncapital financing activities Cash flows from capital & related financing activities: Acquisition and construction of capital assets including Work In Progress PWTF & SRF Loan proceeds Payments for principal on revenue bonds and contracts Payments for interest on revenue bonds and contracts Operating Transfers from other funds Cash contributed in aid of construction Loss on retirement of assets Net cash provided (used) by capital &related financing activities Cash flows from investing activities: Sale (Purchase) of investment securities Proceeds from interest and dividends earned Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Cash and cash equivalents consists of: Unrestricted cash and cash equivalents Restricted cash and cash equivalents Total cash and cash equivalents Reconciliation of operating income (loss) to net cash provided by operating activities: Net operating income (loss) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation (Increase) decrease in Accounts Receivable Increase (decrease) in Current Liabilities (Increase) decrease in Deferred Debits Prior year capital acquisition received grant funding this year Total adjustments to reconcile operating income to net cash provided by operating activities: Net cash provided by operating activities: Enterprise Funds Water/Sewer Fund Storm Fund Total $ 4,389,910 $ 459,187 $ 4,849,097 (3,040,160) (197,361) (3,237,521) (145,963) (145,963) (591,085) (53,864) (644,949) 758,665 61,999 820,663 (350,000) (350,000) 100,327 2,289 102,616 (249,673) 2,289 (247,384) (154,164) (29,914) (184,078) (60,683) (60,683) (748,895) (748,895) (180,109) (180,109) 167,967 81,170 249,137 (975,884) 51,256 (924,629) 436,741 18,859 455,600 436,741 18,859 455,600 (30,152) 134,402 104,250 8,424,516 321,682 8,746,198 $ 8,394,364 $ 456,084 $ 8,850,448 $ 8,394,364 $ 456,085 $ 8,850,449 $ 8,394,364 $ 456,085 $ 8,850,449 $ (428,423) $ 89,957 $ (338,466) 1,081,392 33,349 1,114,741 6,398 1,892 8,290 40,599 - 40,599 58,694 17,970 76,665 (81,170) (81,170) 1,187,084 (27,958) 1,159,125 $ 758,661 $ 61,999 $ 820,659 The Accompanying Notes Are An Integral Part of This Statement Washington State Auditor's Office 19 City of Port Townsend Notes to the Financial Statements For the Year Ended December 31, 2006 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the utility funds of the City of Port Townsend conform to generally accepted accounting principles (GAAP) as applicable to utility funds of 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). The following is a summary of the most significant policies (including identification of those policies which result in material departures from generally accepted accounting principles): Reportinga Entity The City of Port Townsend was incorporated on January 16, 1860, and operates under the laws of the State of Washington applicable to a non -charter code city. The city is a general purpose government and provides police and fire protection, water, sewer, storm drainage, as well as maintaining parks, streets, and a library for use by its citizens. B. Basis of Accountina and Presentation The city uses single entry, cash basis accounting for its governmental fund type funds, which is a departure from generally accepted accounting principles (GAAP). The proprietary funds use the accrual basis accounting. Proprietary funds are used to account for activities that are operated in a manner similar to private enterprise business. The City of Port Townsend uses the revenue and expenditure classifications contained in the Budgeting, Accounting and Reporting System (BARS) manual. The manual is prescribed by the State Auditor's Office under the authority of the Washington State law, Chapter 43.09 RCW. The City of Port Townsend applies GASB pronouncements and has not elected to apply Financial Accounting Standard Board (FASB) statements and Accounting Principles Board (APB) pronouncements issued after November 30, 1989. The accounts of the city are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. Each fund is accounted for with a separate set of single entry accounts that comprise its cash, investments, revenues and expenditures or expenses, as appropriate. The accounting records of the City of Port Townsend's utilities are maintained and reported in accordance with the methods prescribed by the State Auditor under the authority of Chapter 43.09 RCW. This prescription requires the City of Port Townsend to report their utilities using GAAP if the combined operating revenue of the enterprise fund is over $5 million. The city's resources are allocated to and accounted for in individual funds depending on what they are to be spent for and how they are controlled. The following are the fund types used by the city: Governmental Fund Types.- are used to finance most governmental functions and account for and report expendable financial resources and related obligations. General Fund (Fund 010) (Current Expense Fund) This fund is the primary operating fund of the city. It accounts for all financial resources except those required to be accounted for in another fund. Special Revenue Funds (Funds in the 100 series) These funds account for revenues derived from specific taxes, grants, or other sources which are designed to finance particular activities of the city. Washington State Auditor's Office 20 C L�7 Debt Service Funds (Funds in the 200 series) These funds are used to gather resources to pay general government debt. Capital Projects Funds (Funds in the 300 series) These funds account for financial resources which are designated for the acquisition or construction of general government capital improvements. Proprietary Fund Types - are used to account for activities similar to those in the private sector and measure net income. Enterprise Funds (Funds in the 400 series) These funds account for operations that provide goods or services to the general public and are supported primarily through user charges. Internal Service Funds (Funds in the 500 series) These funds account for operations that provide goods or services to other departments or funds of the city or other governmental units on a cost -reimbursement basis. Fiduciary Fund Types - Fiduciary funds account for assets held by the city in a trustee capacity or as an agent on behalf of others. Pension (and Other Employee Benefit) Trust Funds (611-620) Firemen's Pension Private Purpose Trust Funds (621-630) Funds used to report all trust arrangements under which principal and income benefit individual, private organization and other government. Agency Funds (Funds 631-699) This fund accounts for assets whereby the city acts as a pass through agent for various government entities. Basis of Accounting Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Revenues are recognized only when cash is received and expenditures are recognized when paid, including those properly chargeable against the prior year(s) budget appropriations as required by state law for the governmental fund types. Purchases of capital assets are expensed during the year of acquisition. There is no capitalization of capital assets, nor allocation of depreciation expense for the governmental fund types. Inventory is expensed when purchased. A different basis of accounting is used for the water, sewer, and storm drainage enterprise functions as prescribed for. See Notes 9 through 16. Budaets and Budaetary Accountina Annual appropriated budgets are adopted for all funds. The financial statements include budgetary comparisons for those funds. Annual appropriated budgets are adopted at the fund level. The budgets constitute the legal authority for expenditures at that level. Annual appropriations for all funds lapse at year end. The city manager is authorized to transfer budgeted amounts between (department within and fund/object classes with departments); however, any revisions that alter the total expenditures of a fund, or that affect the number of authorized employee positions, salary ranges, hours, or other conditions of employment must be approved by the city council. Washington State Auditor's Office 21 E. Assets, Liabilities and Equities Cash and Equivalents It is the city's policy to invest all temporary cash surpluses. The amounts are included in the net cash and investments shown on the statements of fund resources and uses arising from cash transactions. The interest on these investments is prorated to the various funds. The average compensating balances maintained during 2006 were approximately $374,340.65. The city's deposits are entirely covered by federal depository insurance (FDIC and FSLIC) or by collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commission (PDPC). Investments See Note 3. Capital Assets Capital assets are long-lived assets of the city and are recorded as expenditures when purchased in the government fund types. The proprietary funds capitalization threshold is $5,000 and utility capital assets are depreciated over their useful lives. See Notes 4, 8 and 9. Compensated Absences Vacation pay, which may be accumulated up to 6 weeks, is payable upon resignation, retirement or death. Sick leave may be accumulated up to 1440 hours. Long -Term Debt See Note 5. Other Financing Sources Or Uses The city's "Other Financing Sources or Uses" consist of Operating transfers -in, Operating transfers -out, Special assessment bond proceeds, Proceeds from refunding bonds, and Capital leases. Risk Management See Note 7. NOTE 2 - COMPLIANCE AND ACCOUNTABILITY There have been no material violations of finance -related legal or contractual provisions, and there have been no expenditures exceeding legal appropriations in any of the funds of the city. NOTE 3 - INVESTMENTS The city's investments are either insured, registered, or held by the city or its agent in the city's name. As required by state law, all investments of the city's funds are obligations of the U S Government, the State Treasurer's Investment Pool, or deposits with Washington State banks and savings and loan institutions. Investments by type at December 31, 2006 are as follows: Investments Carrying Amount Market value Washington State Treasurer's Investment Pool $11,330,882.90 $11,330,882.90 US Bank Savings Account US Bank Investment Account $55,707.32 $325,230.92 $55,707.37 $325,230.92 2006 Total Investments =$1,711,821.19 $11,711,821.19 NOTE 4 — UTILITY CAPITAL ASSETS Major expenses for capital assets, including capital leases and major repairs that increase useful lives, are capitalized. Maintenance, repairs and minor renewals are accounted for as expenses when incurred. Washington State Auditor's Office 22 Capital assets are recorded at cost. Donations are recorded at fair market value at the time of donations or the appraised value. Utility Capital Asset activity for the year ended December 31, 2006 was as follows: Beginning Balance Increase Decrease Ending Balance Capital Assets not being depreciated: Land $2,124,868 $21,244 $2,146,112 Construction in Progress $- $- $ - $_ Total Capital Assets not being deprreciated. $2,124,868 $21,244 $- $2,146,112 Capital Assets being depreciated: Other Improvements $31,069,875 $792,746 $ - $31,862,621 Machinery & Equipment $7,581,356 $35,844 $7,617,200 Total Capital Assets being depreciated. $38,651,231 $828,590 $39,479,821 Less accumulated depreciation for: Other Improvements $8,033,214 $707,118 $- $8,740,331 Machinery & Equipment $5,561,702 $399,290 $5,960,992 Total accumulated depreciation $13,594,916 $1,106,407 $14,701,323 Total Capital Assets being depreciated, net: $25,056,315 $ (277,817) $24,778,498 TOTAL CAPITAL ASSETS, NET $27,181,184 $(256,573) $26,924,610 NOTE 5 - PROPERTY TAXES The Jefferson County Treasurer acts as agent to collect property taxes levied in the county for all taxing authorities. Collections are distributed after the total collected surpasses $10,000; with any balance left over distributed at month -end. Property tax revenues are recognized when cash is collected. Delinquent taxes are considered fully collectible because a lien affixes to the property when taxes are levied. The city's regular levy for 2006 was $1.39798 per $1,000.00 on an assessed valuation of $1,156,702,595 for a total regular levy of $1,617,047. In 2006 the city also had a special levy for Emergency Medical Services (EMS). The EMS levy rate was $ .31544 per $1,000 for a total levy of $364,870. The accompanying Schedule of Long-term Debt (09) provides a listing of the outstanding debt of the city A. BONDS The City of Port Townsend issues general obligation and revenue bonds to finance the construction and remodel of capital assets. Bonded indebtedness has also been entered into to advance refund revenue bonds. General obligation bonds have been issued for both general government and business -type activities and are being repaid from the applicable resources. The revenue bonds are being repaid by proprietary fund revenues. Washington State Auditor's Office 23 General obligation bonds currently outstanding are as follows: Issue Date Purpose Original Issue Interest Rate Maturity Date Debt Outstanding 1991 Limited GO Bonds for reconstruction of the Balloon Hanger at Ft. Worden for performing $535,000 6.4 — 5.45% 2011 $83,606 arts. 1999 Limited GO Bonds for Fire & Library repairs from interfund loans; city facilities, Marine Science Ctr and Police Station. $645,000 5.0 — 6.0% 2016 $505,000 2002 Limited GO Bonds for construction of City Hall Annex and old City Hall. $3,465,000 1.95— 4.70% 2022 $3,245,000 2003 Limited GO Bonds for Skateboard Park, the Wave Viewing Gallery, City Hall, Fire Station, Pool & Pink House Lease settlement. $2,390,000 1.85-4.60% 2023 $2,300,000 2005 Limited GO Bonds for construction funds for City Hall Annex and Old City Hall $1,545,000 3.05- 4.35% 2025 $1,525,000 TOTAL I I 1 $7.658,606 The annual debt service requirements to maturity for general obligation bonds are as follows: Govermental Activities Year ending December 31 Principal Interest 2007 $316,744 $321,379 2008 $345,7411 $311,396 2009 $351,800 $300,145 2010 $367,920 $288,046 2011 $383,401 $274,646 2012-2016 $2,063,000 $1,143,454 2017-2021 $2,520,000 $670.800 2022-2026 $1,400,000 $126,345 Total $7,748,606 $3,436,212 As of December 31, 2006 the long term debt payable from proprietary fund resources consisted of the following: Issue Date Purpose Original Issue Interest Rate Maturiy Date Debt Outstanding 1978 Water/Sewer Revenue Bonds Water and Sewer Improvements $395,000 5% 2018 $205,000 1998 Water/Sewer Revenue Bonds Refunding 1992 issue Sewer Treatment Plant, refunded 1978 Series B Bonds $5,950,000 4.10-4.65% 2011 $2,525,000 TOTAL $2,730,000 Washington State Auditor's Office 24 Debt service requirements to maturity for proprietary funds: Business Type Activities Year ending December 31 Principal Interest 2007 $765,343 $156,929 2008 $790,931 $133,092 2009 $811,527 $108,162 2010 $842,133 $81,833 2011 $722,748 $49,775 2012-2016 $1,438,294 $114,851 2017-2021 $1,151,773 $38,641 2022-2026 215 513 $4,264 Total $6,738,262 $687,546 B. Public Works Trust Fund Loans and State Revolving Fund Loans State of Washington Public Works Trust Fund (PWTF) Loans are an intergovernmental loan from the Public Works Board to undertake local public works projects. These loans are a direct responsibility of the City of Port Townsend. The City currently has five such loans. State Revolving Fund (SRF) Loans are State of Washington Department of Ecology low interest loans for projects that protect and improve water quality. The City of Port Townsend currently has one SRF loan. As of December 31, 2006 the long-term debt payable for PWTF and SRF loans consisted of the following: Issue Date Purpose Original Issue Interest Rate Maturity Date Debt Outstanding 1998 PWTF Loan CT Pipeline Tri-Area Water Storage Tri-Area Well upgrades (payoff of $1,186,718 with sale of Tri-Area assets) $2,172,055 1 % 2018 $536,617 1999 PWTF Loan Gaines St Lift Station San Juan Sewer Trunk Line $1,434,365 1 % 2019 $774,732 2001 PWTF Loan Wastewater Treatment Outfall Expansion Trunk Sewer Line replacement $1,153,350 .5% 2021 $829,146 2002 PWTF Loan Morgan Hill Water System Improvements $1,242,742 .5% 2023 $1,067,230 SRF Loan 2002 Wastewater Conveyance Storm and sewer separation $856,803 1.5% 2024 $800,542 Gaines St Lift Station Phase 2 Trunk Sewer Replace 2003 PWTF Loan Transportation Planning $90,000 0% 2009 $90,000 TOTAL I I 1 1 $4,098,267 Washington State Auditor's Office 25 C. ADVANCED REFUNDING AND DEFEASED BONDS In 1998 the City of Port Townsend refunded two prior revenue bond issues while issuing an additional $1,000,000 of debt. This 1998 Revenue Bond issue was partially defeased in 2002 due to the sale of some associated asset improvements in the Tri-Area. The 1978 "series B" revenue bonds were refunded in the amount of $115,000 and the 1992 Revenue Bonds were refunded in the amount of $4,835,000 in the 1998 Bond issue. As part of the Tri-Area well and reservoir assets sold in 2002, $1,490,000 in bonds were defeased. NOTE 6 - PENSION PLANS Substantially all city full-time and qualifying part-time employees participated in Public Employees' Retirement System (PERS), Law Enforcement Officers' and Fire Fighters' Retirement System (LEOFF) Volunteer Firemen Relief and Pension Fund, Firemen's Pension and Relief Fund administered by the Department of Retirement Systems, under cost -sharing multi -employer define benefit public employee retirement systems. Actuarial information in on a system -wide basis and is not considered pertinent to the city's financial statements. Contributions to the systems by both employee and employer are based upon gross wages covered by the plan. Historical trends or other information regarding each plan is presented in the state Department of Retirement Systems 2004 annual financial report. A copy of this report may be obtained at: Department of Retirement Systems PO Box 48380 Olympia, WA 98504-8380 NOTE 7 - RISK MANAGEMENT The City of Port Townsend is a member of the Washington Cities Insurance Authority (WCIA) Utilizing Chapter 48.62 RCW (self-insurance regulation) and Chapter 39.34 RCW (Interlocal Cooperation Act), nine cities originally formed WCIA on January 1, 1981. WCIA was created for the purpose of providing a pooling mechanism for jointly purchasing insurance, jointly self -insuring, and/or jointly contracting for management services. WCIA has a total of 121 members. New members initially contract for a three year term, and thereafter automatically renew on an annual basis. A one year withdrawal notice is required before membership can be terminated. Termination does not relieve a former member from its unresolved loss history incurred during membership. Liability coverage is written on an occurrence basis, without deductibles. Coverage includes general, automobile, police, public officials' errors and omissions, stop gap, and employee benefits liability. Limits are $3 million per occurrence self insured layer, $12 million per occurrence in the re -insured excess layer with no annual aggregate except $10 million per member for public officials errors and omissions. The excess layer is insured by the purchase of reinsurance and insurance. Total limits are $15 million per occurrence subject to aggregate sublimits in the excess layers. The Board of directors determines the limits and terms of coverage annually. Insurance coverage for property, automobile physical damage, fidelity , inland marine, and boiler and machinery are purchased on a group basis. Various deductibles apply by type of coverage. Auto physical damage coverage and property insurance are self funded up to $500,000, for all perils other than flood and earthquake, and insured above that amount by the purchase of reinsurance. In-house services include risk management consultation, loss control field services, claims and litigation administration, and loss analysis. WCIA contracts for the claims investigation consultants for personal issues and land use problems, insurance brokerage, and lobbyist services. Washington State Auditor's Office 26 WCIA is fully funded by its members, who make annual assessments on a prospectively rated basis, as determined by an outside, independent actuary. The assessment covers loss, loss adjustment, and administrative expenses. As outlined in the interlocal, WCIA retains the right to additionally assess the membership for any finding shortfall. An investment committee, using investment brokers, produces additional revenue by investment of WCIA's assets in financial instruments that comply with all State guidelines. These revenues directly offset portions of the membership's annual assessment. WCIA is governed by a Board of Directors which is comprised of one designated representative from each member. The Board elects an Executive Committee and appoints a Treasurer to provide general policy direction for the organization. The WCIA Executive Director reports to the Executive Committee and is responsible for conducting the day to day operations of WCIA. NOTE 8 -UTILITY ACCOUNTING AND PRESENTATION The Budgeting, Accounting, and Reporting System (BARS) chart of accounts is used for the Water -sewer Utility and the Storm Drainage Utility as prescribed by the State Auditor under the authority of Chapter 43.09 RCW. A full -accrual basis is in use where revenues are recognized when earned and expenses are recognized when incurred. Capital asset purchases are capitalized and long-term liabilities are accounted for in the appropriate funds. Unbilled water, sewer and storm drainage utility service charges receivable are recorded at year end. Operating income in utility funds includes gains and losses from the disposal of utility plant. The Water -Sewer and Storm Drainage Utility's financial statements include the financial position and results of operations of all enterprise operations which the water -sewer and storm drainage utilities manage. The financial statements include also include the assets and liabilities of all funds for which the water -sewer and storm drainage utilities have a custodial or trust responsibility. NOTE 9 - UTILITY PLANT AND DEPRECIATION Utility plant in service and other capital assets are recorded at cost where the historical cost is known. Where the historical cost is not known, assets are recorded at estimated cost. Donations by developers and customers are recorded at donor cost. The original cost of operating property retired or otherwise disposed of and the cost of removal, less salvage, is charged to accumulated depreciation. However, in the case of the sale of a significant operating unit or system, the original cost is removed from the utility plant accounts, accumulated depreciation is charged with the accumulated depreciation related to the property sold and the net gain or loss on disposition is credited or charged to income. Depreciation is computed on the straight-line method with useful lives of 10 to 70 years. Initial depreciation on the utility plant is recorded subsequent to purchase. Preliminary costs incurred for proposed projects projects ultimately constructed are transferred t NOTE 10- FUND EQUITIES A. Proprietary Fund Types o 1. Capital Contributions — Capital contributions in internal service funds records the amounts of working capital and capital assets received from other funds. 2 .Restricted Net Assets- Net Assets in proprietary fund types is generally restricted to indicate that a portion of net assets has been externally restricted for specific purposes. The amount restricted equals total restricted assets except for amounts intended for payment of current payables and debt proceeds for construction purposes. Washington State Auditor's Office 27 B. Designated Net Assets This category is used to set aside fund equity when city management has plans or tentative commitments to expend resources for certain purposes in future periods. Further legal action will be required to authorize the actual expenses and expenditures. NOTE 11 - RESTRICTED FUNDS In accordance with bond ordinances and certain related agreements, separate restricted funds are required to be established. The assets held in these funds are restricted for specific uses, including construction, debt service, and other special reserve requirements. Assets and liabilities shown as current on the accompanying balance sheets of the Water -Sewer Utility exclude current maturities on revenue bonds and accrued interest thereon because debt service funds are provided for their payment. NOTE 12 - UTILITY RECEIVABLES All delinquent accounts receivable must receive prior City Council approval before they are written off. NOTE 13 - UNAMORTIZED DEBT EXPENSE Costs relating to the sale of bonds are deferred and amortized over the lives of the various bond issues. NOTE 14 - CONTINGENCIES AND LITIGATION In the opinion of management the city's self-insurance reserves are adequate to pay all known or pending claims. (See Note 9.) NOTE 15 - UTILITY PLANT CONSTRUCTION MATERIALS AND SUPPLIES It is the policy of management to charge all expenditures for enterprise utility plant construction materials and supplies to plant in service or maintenance expenses. The inventory account is immaterial to the total assets of the fund. NOTE 16 — INTERFUND LOANS During 2006 the council approved two interfund loans. The first interfund loan was in the amount of $100,000 from the Equipment Rental Fund, which had an excess of cash, to the Fire and EMS Fund. The second interfund loan was approved by council in order to close out the City Hall Project. The lending fund, the Transmission Pipeline Fund, also was deemed to have an excess of funds available for investment purposes, so was able to loan $350,000 to the City Hall Construction Fund. Interest payment rates for both loans were based the current Local Government Investment Pool rates. NOTE 17 - AMORTIZATION OF ENGINEERING STUDIES COSTS Storm Flood Control Proiect Year Expenditures from 1994 to 1999 spent on Year Amortization over twenty years Storm Flood Control Project following each year's expenditures 1994 $64,444.02 1995 $3,222.24 1995 65,563.55 1996 6,500.42 1996 120,976.03 1997 12,549.23 1997 52,054.17 1998 15,151.94 1998 28,810.00 1999 16,592.44 1999 27,560.63 2000-2019 305,392.13 Total $359,408.40 Total $359,408.40 Washington State Auditor's Office 28 O) 0 N W LL J O Q W W 2 (D U Q M 0- Cl) O U Q U 75 V V F CQ Q W Z Q (O 0 O W M Z W O 6 aEi 0 F Z F 0 O LL W O Q O N W LL O ? 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LL 0 0 - 1- m Q 00 G) 0) O a) 0 0 > Z N a3 (0 _ a) p O J O N Z .� a) LL O C a3 C a3 LL F M O to Wa) J J J >> ~ Of 0 ONO LL 00 LL LL ONO N ONO 00 � 00 Z N Co� w L LO N O N � m N D- ((0 N d Cho N (MOO N N N D Washington State Auditor's Office 30 ABOUT THE STATE AUDITORS 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 Chief of Staff Chief Policy Advisor Director of Administration Director of Audit Director of Performance Audit Director of Special Investigations Director for Legal Affairs Local Government Liaison Communications Director Public Records Officer Main number Toll -free hotline for government efficiency Web Site Brian Sonntag, CGFM Ted Rutt Jerry Pugnetti Doug Cochran Chuck Pfeil, CPA Linda Long, CPA, CGFM Jim Brittain, CPA Jan Jutte Mike Murphy Mindy Chambers Mary Leider (360) 902-0370 (866) 902-3900 www.sao.wa.gov (SAO FACTS. DOC - Rev. 07/07)