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FY19 CAFR FINALCITY OF KALISPELL ANNUAL FINANCIAL REPORT TABLE OF CONTENTS 2 STATISTICAL SECTION Financial Trends Net Position by Component..................................................................................................................... 138 Changes in Net Position........................................................................................................................... 139 Fund Balances of Governmental Funds................................................................................................. 140 Changes in Fund Balances, Governmental Funds................................................................................. 141 Revenue Capacity Market Value of Taxable Property ........................................................................................................ 142 Direct and Overlapping Property Tax Rates......................................................................................... 143 Principal Property Tax Payers ............................................................................................................... 144 Property Tax Levies and Collections...................................................................................................... 145 Debt Capacity Ratios of Outstanding Debt by Type...................................................................................................... 146 Ratios of General Bonded Debt Outstanding ........................................................................................ 147 Legal Debt Margin Information............................................................................................................. 148 Direct and Overlapping Governmental Activities Debt........................................................................ 149 Pledged Revenue Coverage..................................................................................................................... 150 Demographics and Economics Demographic and Economic Statistics ................................................................................................... 151 Principal Employers................................................................................................................................. 152 Operating Statistics Full-time Equivalent City Government Employees by Function/Program......................................... 153 Operating Indicators by Function.......................................................................................................... 154 Capital Assets Statistics by Function/Program ..................................................................................... 155 Additional Information The Water System.................................................................................................................................... 156 The Sewer System .................................................................................................................................... 157 Tax Increment District Information.......................................................................................................158-162 Special Improvement District Information............................................................................................ 163 General Obligation Debt Ratios.............................................................................................................. 164 REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS Independent Auditor’s Report on Compliance and on Internal Control over Financial Reporting based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards................................................................................................................................. 165-166 Schedule of Findings and Questioned Costs..................................................................................................... 167 3 City of Kalispell Post Office Box 1997 - Kalispell, Montana 59903-1997 Telephone (406) 758-7701 Fax - (406) 758-7758 December 30, 2019 To the Honorable Mayor, members of the City Council, and Citizens of the City of Kalispell, Montana: CAFR TRANSMITTAL State law requires that all general-purpose local governments publish within six months of the close of each fiscal year (by December 31) a complete set of financial statements presented in conformity with generally accepted accounting principles (GAAP). State law also requires a biannual audit of these statements in accordance with generally accepted auditing standards by a firm of licensed certified public accountants to be completed within 9 months of the close of every other fiscal year (by March 31). It is the belief of the City Council and the Executive staff that an annual audit assures a higher level of financial management and fiscal responsibility. Pursuant to this policy and these requirements, the audited annual financial report for the City of Kalispell, Montana for the fiscal year ended June 30, 2019, is submitted for your review. Management Representation The Finance Office prepared this report. Responsibility for the accuracy and completeness of the presented data, including all disclosures, rests with the City. We believe the data, as presented, is accurate in all material aspects. The material is presented in a manner designed to state fairly the financial position and results of operations of the City as measured by the financial activity of its various funds. All disclosures necessary to enable the reader to gain an understanding of the City's financial affairs have been included. To provide a reasonable basis for making these representations, management of the City has established and maintains an internal control system designed to ensure that the assets of the City are protected from loss, theft or abuse. The internal control system has been designed to also ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with accounting principles generally accepted in the United States (US GAAP) and to comply with laws and regulations. The system of internal control is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. 12 INDEPENDENT AUDITOR’S REPORT City Council Members City of Kalispell Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Kalispell, Montana (the City), as of and for the year ended June 30, 2019 and the related notes to the financial statements, which collectively comprise the City’s basic financial statements 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; 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. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States 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 involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s 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, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Kalispell, as of June 30, 2019, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States. 13 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States require that the management’s discussion and analysis, schedule of total liability and related ratios – other postemployment benefits, schedules of total pension liability, schedules of contributions, and budgetary comparison information on pages 85-99 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, 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. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, combining and individual non-major fund financial statements, budgetary comparisons, and statistical section are presented for purposes of additional analysis and are not a required part of the financial statements. The combining and individual non- major fund financial statements and budgetary comparisons are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the 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 financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States. In our opinion, the combining and individual non-major fund financial statements and budgetary comparisons are fairly stated in all material respects in relation to the financial statements as a whole. The introductory section and statistical tables 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 them. 14 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 18, 2019 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 effectiveness of the City’s 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 City’s internal control over financial reporting and compliance. Wipfli LLP Helena, Montana December 30, 2019 26 Debt At the end of fiscal year 2019, the City of Kalispell had total long-term debt outstanding of $32,568,773. Of this amount, $940,000 comprises debt backed by the full faith and credit of the government and $5,370,000 represents bonds secured solely by specific revenue sources (i.e., revenue bonds). The remainder consists of $23,139,971 (increase from fiscal year 2018, (westside interceptor borrowing) outstanding on State Revolving Fund loans for construction/expansion of the wastewater treatment plant, the extension of sewer lines south on Highway 93, the construction of a water storage facility and the related distribution/supply system, the removal and replacement of the water main on 4th Avenue East. There is also $1,793,229 of special assessment debt for which the City of Kalispell is liable in the event of default by the property owners subject to the assessment, and $1,325,573 of loans for the purchase of other property and equipment. Governmental Business-type Total activities activities 2019 2018 2019 2018 2019 2018 General obligation bonds 940,000$ 1,415,000$ -$ -$ 940,000$ 1,415,000 Revenue/Urban Renewal bonds 4,965,000 5,300,000 405,000$ 475,000$ 5,370,000$ 5,775,000 SRF loans 567,498 591,760 22,572,473 12,968,771 23,139,971 13,560,531 Assessments 1,793,229 2,045,507 1,793,229 2,045,507 Contract debt/loans 1,325,573 1,458,992 - 39,121 1,325,573 1,498,113 Total 9,591,300$ 10,811,259$ 22,977,473$ 13,482,892$ 32,568,773$ 24,294,151$ CITY OF KALISPELL'S OUTSTANDING DEBT Other obligations of the City of Kalispell include accrued vacation pay and sick leave (compensated absences, $1,796,209), OPEB liability ($2,859,205), and pension liability ($11,350,153). More detailed information about the City’s long-term liabilities is presented in the notes to the financial statements (Note E. Long-Term Debt pages 53-58). ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The City’s elected and appointed officials considered many factors when adopting the fiscal year 2020 budget for tax rates and fees that will be charged by the business-type activities. Some of these factors include: capital improvements identified in the City’s Capital Improvement Program, inflation rates, the City’s collective bargaining units, the local economy, and the citizen’s ability to pay. For the year, inflation rates continued to increase. The Bureau of Labor Statistics of the U.S. Department of Labor reported the Consumer Price Index-Unadjusted for All Items at 1.6 percent for the calendar year ending June of 2019. The index for all items less food and energy rose 2.1 percent for the 12 months ending June of 2019. The food index increased 0.0 percent over the span, and the energy index retreated 2.3 percent. Inflation rates have a significant impact on the cost of City projects. Request for Information This financial report is designed to provide a general overview of the City of Kalispell’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Kalispell, Finance Director, P.O. Box 1997, Kalispell, MT 59903-1997. 165 INDEPENDENT AUDITOR’S 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 City Council Members City of Kalispell We have audited, in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Kalispell, Montana (the City) as of and for the year ended June 30, 2019, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated December 18, 2019. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control 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 and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 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 its 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. 166 Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Wipfli LLP Helena, Montana December 30, 2019 167 Schedule of Findings and Responses For the year ended June 30, 2019 Section I: Summary of Auditor’s Results Type of Auditor’s Report Issued: Unmodified Internal Control Over Financial Reporting Are any material weaknesses identified? ___Yes _X_ No Are any significant deficiencies identified not considered to be material weaknesses? ___Yes _X_ No Is any noncompliance material to the financial statements noted? ___Yes _X_ No Section II: Financial Statement Findings There were no findings related to the financial statements that are required to be reported in accordance with Government Auditing Standards. Section III: Current Status of Prior Year Findings There were no prior year findings required to be reported in accordance with Government Auditing Standards.