2. Financial SectionsMANAGEMENT'S DISCUSSION AND ANALYSIS
As management of the City of Kalispell, we offer readers of the City of Kalispell's financial
statements this narrative overview and analysis of the financial activities of the City of Kalispell
for the fiscal year ended June 30, 2009. We encourage readers to consider the information
presented here in conjunction with additional information that we have furnished in our letter of
transmittal.
FINANCIAL HIGHLIGHTS
➢ The assets of the City of Kalispell exceeded its liabilities at the close of the recent fiscal year
by $149,636,962(net assets). Of this amount, $12,627,497(unrestricted net assets) may be
used to meet the government's ongoing obligations to citizens and creditors.
➢ As of the close of fiscal year 2009, the City of Kalispell's governmental funds reported
combined ending net assets of $77,124,993, an increase of almost 2%.
➢ The City of Kalispell's total net assets increased by $1,643,273. A decrease in both restricted
and unrestricted net assets was offset by an increase of $6,126,355 in invested in capital
assets, net of related debt, mostly attributable to over $5,000,000 worth of annexed streets.
➢ As of the close of fiscal year 2009, the City of Kalispell's governmental funds reported
combined ending fund balances of $6,467,556, a decrease of $978,346 from the prior fiscal
year. Most of this amount, $5,523,715, is available for spending at the City of Kalispell's
discretion (unreserved fund balance).
➢ Revenues of the governmental funds increased slightly. Investment revenue was down 42%
due to lower interest rates and less invested funds. Substantial decreases were seen in
licenses and permit revenue (-$401,190), and miscellaneous revenue (-$325,256), largely
because of the stale housing market (building permits) and a large donation for equipment in
the prior fiscal year. These decreases were offset by increases in taxes and assessments
revenue (487,507) and a 9% ($465,613) increase intergovernmental revenue. The
intergovernmental revenue increase was largely due to community development grants which
passed thru the city's books.
➢ Governmental fund expenditures decreased $2,569,029 from fiscal year 2008. Debt service
principal and interest and capital outlay expenditures decreased $869,391 and $676,378
respectively. The decrease in debt service is a direct result of the refinancing of the new city
hall building in fiscal year 2008. Capital outlays were decreased because of budget
constraints. Reductions were also seen in public safety ($626,555), and parks ($263,789)
expenditures. Public safety decrease was mainly due to the elimination of grant funds.
Budget constraints resulted in parks eliminating many seasonal positions.
➢ At the end of the current fiscal year, unreserved fund balance for the general fund decreased
$241,902 (39%) to $372,381. This fund balance represents 3 percent of total general fund
expenditures.
➢ General fund expenditures were down $800,000. The majority of this decrease can be
attributed to the creation of a new special revenue fund for the parks department.
➢ The City of Kalispell's total debt increased by almost $2,000,000 during fiscal year 2009.
This new debt is all related to the expansion of the wastewater treatment plant.
➢ Net assets of the City's business -type activities increased to $72,511,969, up $345,029 from
the prior fiscal year. The increase of $3,618,142 in invested in capital assets, net of related
debt is offset by reductions in the other categories of net assets. $5,856,860 is unrestricted
net assets.
M
In the City's business -type activities, capital grants and contributions revenue decreased
$8,229,160. The majority of this is water, sewer and storm water infrastructure contributed
by developers, a direct result of the depressed construction industry.
AN OVERVIEW OF THE FINANCIAL STATEMENTS
There are three main components to the City of Kalispell's financial statements: 1) government -
wide financial statements, 2) fund financial statements, and 3) notes to the financial statements.
Other supplementary material is included in this report in addition to the basic financial
statements themselves. The City of Kalispell intends for this discussion and analysis to be used
in conjunction with the basic financial statements and other material as an introduction and also
as a means to help the user better understand the information.
Government -wide Financial Statements
The government -wide financial statements are designed to provide readers with a broad
overview of the City of Kalispell's finances. The way information is presented in these
statements is comparable to how the financial information of a private -sector business would be
presented.
The statement of net assets presents information on all of the City of Kalispell's assets and
liabilities. The difference between these two (assets minus liabilities) is reported as net assets.
Net assets can be a useful tool in evaluating the financial health of an entity. A substantial
decrease in net assets may be a sign of deteriorating financial position.
The change in net assets during the most recent fiscal period is presented by the statement of
activities. The statement of activities reports changes in net assets at the time the event takes
place without regard to the corresponding cash transaction. This results in some revenues and
expenses being reported in this statement that will not result in cash flow until a future fiscal
period. Some examples of this would be uncollected but earned taxes and earned leave benefits.
The government -wide financial statements of the City of Kalispell are segregated to distinguish
between functions supported predominantly by taxes and intergovernmental revenues
(governmental activities) and those that are intended to recover the majority of their costs
through user fees and charges for services (business -type activities). The governmental activities
of the City of Kalispell include general government/administration, public safety, public works,
culture and recreation, and housing and community development. The business -type activities of
the City of Kalispell include water distribution, sewer collection and treatment, solid waste
collection, and an airport.
The government -wide financial statements include, in addition to the primary government
described in the above paragraph, a legally separate parking commission, and a legally separate
Business Improvement District. The financial information of these component units is reported
separately on the Government -wide financial statements.
7
Fund Financial Statements
The City of Kalispell, like most other governmental entities, uses fund accounting. Funds are set
up to account for specific activities or objectives of the government. Funds also aide in ensuring
compliance with legal requirements. The City of Kalispell categorizes its funds as either
governmental, proprietary, or fiduciary.
➢ Governmental funds correspond with the functions reported as governmental activities in
the government -wide financial statements. Governmental fund financial statements, by
focusing on near -term inflows and outflows of spendable resources, may be more useful
in evaluating a government's short-term fiscal health than the government -wide financial
statements.
A reconciliation has been prepared to help users more easily compare the governmental
fund balance sheet to the government -wide statement of net assets and the governmental
fund statement of revenues, expenditures, and changes in fund balance to the
government -wide statement of activities. These reconciliations can be useful in
contrasting, comparing and understanding the long-term impact (government -wide
statements) of near -term decisions (governmental fund statements).
The City of Kalispell maintains numerous individual governmental funds. The
governmental fund balance sheet and statement of revenues, expenditures, and changes
in fund balance present information separately only for funds which are considered
major. Major funds are determined by a formula which considers the percentage of total
governmental assets, liabilities, revenues, and expenditures contained in each individual
fund. The City of Kalispell has three major governmental funds; the General Fund
(always a major fund), the Community Development Loan Revolving (special revenue)
Fund, and the Special Improvement District 344 (debt service) Fund. All non -major
funds are presented as a group.
The City of Kalispell adopts an annual appropriated budget for its funds. A budgetary
comparison statement has been provided for the general fund and the major special
revenue fund to demonstrate compliance with this budget.
➢ The City of Kalispell maintains two different types of proprietary funds. Enterprise
funds and internal service funds. Enterprise funds are used to report the same functions
presented as business -type activities in the government -wide financial statements.
Water, sewer, solid waste, and the airport make up the City of Kalispell's enterprise
funds. The City of Kalispell uses an internal service fund to accumulate and allocate its
data processing transactions internally among its various functions. Under the old
reporting model internal service funds were reported as proprietary funds because they
recovered most of their cost through user fees from other funds. Under this new model
these funds are eliminated through an allocation process and categorized as either a
governmental or business -type activity. Because the City of Kalispell's internal service
fund benefits governmental more so than business -type functions, it has been included
within the governmental activities in the government -wide financial statements.
Information in the proprietary fund financial statements is of the same type as that
provided in the government -wide financial statements, however, it is more detailed.
Individual fund data is provided for the water fund, and the sewer fund. Individual data
is not required for the airport fund or the solid waste fund, because they are not classified
as major funds.
The City of Kalispell maintains two funds to account for resources held by the
government for the benefit of outside parties. These fiduciary funds are not reflected in
the government -wide financial statements because the resources are not available to
support the City of Kalispell's own programs. The City of Kalispell must ensure that the
assets reported in these funds are used for their intended purpose. The accounting
method used for fiduciary funds is similar to that used for proprietary funds.
Notes to the Financial Statements
The information contained in the government -wide and fund financial statements is meant to be
used in concurrence with the notes to the financial statements. The notes present further detail of
the data provided by these statements.
ANALYZING THE CITY AS A WHOLE
As mentioned prior, net assets can be an important indicator of an entities financial well-being
For the period ending June 30, 2009, the City of Kalispell's assets exceeded liabilities by
$149,636,962.
Net Assets
lGovernmental
Business -type
Activities
Activities
Change
Change
FY09
FY08
Inc Dec
FY09
FY08
Inc Dec
Current and other assets
$ 15,553,761
$ 17,176,175 $
(1,622,414)
$ 13,764,831
$ 20,121,474
$ (6,356,643)
Capital assets
78,875,092
77,355,310
1,519,782
80,811,999
74,254,307
6,557,692
Total assets
94,428,853
94,531,485
(102,632)
94,576 830
94,375,781
201,049
Long-term debt outstanding
15,698,441
16,809,743 $
(1,111,302)
20,942,181
18,064,868
$ 2,877,313
Other liabilities
1,605,419
1,894,993
(289,574)
1,122,680
4,143,973
(3,021,293)
Total liabilities
17,303,860
18,704,736
(1,400,876)
22,064 861
22 208,841
(143,980)
Invested in capital assets, net of debt
65,102,418
62,594,205
2,508,213
60,183,999
56,462,594
3,721,405
Restricted
6,095,175
6,831,619
(736,444)
6,574,373
9,402,486
(2,828,113)
Unrestricted (deficit)
5,927,400
6,400,925
(473,525)
5,753,597
6,301 860
(548,263)
Total net assets
S 77,124,993
S 75,826,749 $
1,298,244
$ 72,511,969
$ 72,166,940
S 345,029
Investment in capital assets (e.g., land, buildings, machinery, and equipment), net of any related
debt still outstanding on those assets makes up 83 % of the City of Kalispell's net assets. These
capital assets are used to provide services to the citizens of Kalispell and are not spendable.
Therefore, repayment of the debt related to capital assets must be provided from other sources.
Restricted net assets equal $11,826,311 or 7% of total net assets. Over $6.5 million of this is
restricted in the enterprise funds to remain in compliance with enabling legislation and third
party restrictions. The $5,251,938 restricted in governmental activities consists of $947,663 for
debt service, and $4,304,275 for special projects. The remaining balance ($12,627,497) of
unrestricted net assets may be used to meet the City of Kalispell's ongoing obligations to citizens
and creditors.
At the end of fiscal year 2009, the City of Kalispell is able to report positive balances in all
categories of net assets.
I
Changes in Net sets
Governmental
Business -type
Activities
Activities
Change
Change
FY09
FY08
Inc Dec
FY09
FY08
Inc Dec
Revenues
Program revenues (by major source):
Charges for services
$ 6,079, $
8,584,0
$
(514,960): $ 7,55ks 935v,
7;8(31 ' $
(71,466)
Operating grants and contributions
2,074;401
2J08,149
,
(33,748)
10,465
(10,465)
Capital grants and contributions
6,551,018
6,318,7 }
232,238
1,257,291
9,486,451 .
(8,229,160)
General revenues (by major source):
Property taxes for gen' ra pur" mes '
6,252,363
5,824.984 :
427,379
-
Interestrtrttrestmentearn"
15%ZW
278,957':
(119,749)
467,038
832,2
(365,258)
State entitlement
2,221,985
2,1 i.593'
61,392
-
Gas tax
354,678
342926
12,452
revenues
txcess (denciency) betore
special items and transfers 1,931,744 539,995 1,391,749 352,809 9,881,144 (9,528,335)
Trans{er5, net, A15,503`: (415,503) 415,503
Increase (decrease)In net assets W $ 1,931,744 $ 955,498 $ 976,246 $ 352,809 $ 9,465,641 $ (9,112,832)
Governmental activities. Net assets of the City's governmental activities increased $1,931,744.
Revenues increased slightly. Charges for services decreased $514,960. Seventy-eight percent of
this decrease can be attributed to the building fees and related permits, a direct result of the
depressed construction industry. Community development charges for services decreased
$278,710 (54%), mostly due to a GASB 34 deferred revenue adjustment. Parks and recreation
charges for services also decreased 18%.
Governmental funds expenditures decreased $1,386,245 (5%) to $21,762,380. Public safety and
general government programs provided the biggest decreases, $646,157 and $451,674
respectively.
Business -type activities. Business -type activities increased the City of Kalispell's net assets by
$352,809. Revenues decreased by $8,676,349. Most of this decrease can be attributed to a
capital contributions decrease of $8,229,160, due to the depressed construction industry.
Expenses of business -type activities increased moderately.
ANALYZING THE CITY'S INDIVIDUAL FUNDS
Governmental Funds
The focus of the City of Kalispell's governmental funds is to provide information on near -term
inflows, outflows, and balances of spendable resources (fund balance). Unreserved fund balance
is a useful tool when assessing the net resources a government has available to spend at the end
of a fiscal period.
At the end of fiscal year 2009, the City of Kalispell's governmental funds reported combined
ending fund balances of $6,467,556, a decrease of $978,346 in comparison with the prior fiscal
10
year. Of the ending fund balance, $943,841 is reserved for either debt service or capital projects
and, therefore, is not available for new spending.
The general fund is the chief operating fund of the City of Kalispell. At the end of fiscal year
2009 unreserved fund balance of the general fund was $372,381. Unreserved fund balance as a
percentage of total fund expenditures can be a good tool to use to measure the liquidity of the
general fund. For fiscal year 2009, unreserved fund balance represented 3% of total general fund
expenditures. Although general fund expenditures decreased in almost all programs, the general
fund experienced a 38% decrease in the fund balance during fiscal year 2009.
The Community Development Loan Revolving fund is a special revenue fund used to make low
interest housing and commercial loans within a designated area. Principal and interest from
these loans or the purchase and subsequent resale of a fixed asset are the only sources of revenue
in this fund. At June 30, 2009, the fund balance of this fund was $247,562, a decrease of
$11,568 from June 30, 2008.
Special Improvement District 344 (debt service) fund was established by the City of Kalispell in
fiscal year 2006 for the purpose of servicing the debt attributable to the construction of the
infrastructure needed in the industrial/commercial development known as Old School Station.
Due to the economic downturn, many of the lots in this development remain empty and the
developer is delinquent on the taxes. Fund balance at June 30, 2009, for SID 344 was $56,348.
n.vruw W S.. -- -1. - Y.r Y
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Proprietary Funds
The City of Kalispell's proprietary funds financial statements provide the same type of
information found in the government -wide financial statements, but in more detail.
Unrestricted net assets of all proprietary funds at the end of the fiscal year amounted to
$5,856,860. Of this amount, $3,013,660 was attributable to the water fund and $2,394,956 to the
sewer. The total growth in net assets of all proprietary funds equaled $352,809. The water fund
increase in net assets for fiscal year 2009 was $608,643. $139,535 of this was attributable to
operations (operating income). The sewer funds net assets decreased $124,465, however,
operations of the sewer fund showed expenses exceeding revenues by $605,179. System
development charges (impact fees), a non -operating revenue of the Water and Sewer funds
decreased 32% or $407,322. Other factors concerning the finances of the water and sewer funds
have already been addressed in the discussion of the City of Kalispell's business -type activities.
Emernes"P nm Pe- - eis'nen.tye KT—. fi rev 2009
a,— wafer sewer wGE wafh
At1
Rave— by Source - Busineu M e P ites br fix l year 2009
Invesh enl Ean*rgs
12
GENERAL FUND BUDGETARY HIGHLIGHTS
The City of Kalispell's general fund expenditures budget of $11,802,841 was revised to
$11,518,179 during fiscal year 2009. Actual expenditures for the year were $11,120,725, a
favorable variance of $397,454. Actual revenues of the general fund were $10,320,114, which
failed to meet the budgeted amount of $10,552,295.
CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets
At the end of 2009, the City of Kalispell has $125,183,154, net of depreciation, invested in a
broad range of capital assets, including police and fire equipment, streets, buildings, land, park
facilities, garbage collection equipment, and water and sewer lines. The City of Kalispell as of
June 30, 2009, in accordance with GASB, has booked all infrastructure, including streets.
Major capital asset events during the fiscal year 2009 included the following:
➢ Streets valued at over $5 million were contributed by developers or annexed.
➢ The street department purchased equipment totaling $72,793, including 20% of a $52,881
Bobcat with the rest of the cost being shared between the water, sewer, storm, and solid
waste departments.
➢ Purchased a new $695,000 fire truck.
➢ Purchased $400,000 worth of Kenwood and Motorola digital radios for the police and fire
department with federal grant money.
➢ Received $314,879 of communication infrastructure and trunking equipment from a
Department of Homeland Security grant.
➢ Resurfaced Hawthorne Park tennis courts at a cost of $44,582.
➢ Invested $60 853 in sidewalks.
1`
Continued work on the Woodland Connector Trails.
The water department purchased equipment for $53,821.
Completed the Sheepherder Hill water production, storage and delivery project.
Purchased a $229,817 solid waste truck.
Developer's installed 14 new fire hydrants valued at $58,287.
3,697 linear feet of new water main valued at $177,226 was installed and contributed to the
City by developers.
The water department replaced 225 meters, and installed 151 new meters.
1,521 linear feet of new sewer main valued at $55,365 was installed and contributed to the
City by developers.
A $40,000 sewer lift station was contributed by a developer.
A mobile pipeline inspection unit was purchased by the sewer (90%) and storm
(10%)departments.
Continued expansion of the wastewater treatment plant.
Storm water collection mains contributed by developer's totaled $65,810.
Replaced storm lift station #1, Mosquito Drain at a total cost of $194,648.
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CITY OF KALISPELL'S CAPITAL ASSETS
(NET OF DEPRECIATION)
Land
Governmental
activities
2009
$ 2,552,209
2008
$ 2,502,775
Business -type
activities
2009
$ 1,699,194
2008
$ 1,610,492
Total
2009
$ 4,251,403
2008
$ :4,113,267
Buildings
$ 12,412,039
$ 12,741,089
125,509
$ 141,191
$ 12,537,548
12,882,280'
Improvements not buildings
$ 10,161,453
$ 10,347,324'
$ 10,161,453
10,347,324
Machinery and equipment
$ 3,234,603
$ 2,256,131
655,386
$ 582,902
$ 3,889,989
2,839,033'
Infrastructure
$ 50,389,282
$ 49,388,113
Construction in Progress
$ 125,508
$ 119,879
21,798,325
'$ 18,322,889'
$ 21,923,833
18,442,768
Source of Supply
4,109,292
492,750
$ 4,109,292
492,750
Pumping Plant
2,446,679
1,688,644:
$ 2,446,679
1,688,644
Treatment Plant
2,694,766
3,362,159
$ 2,694,766
3,362,159
Transmission and Distribution
36,189,226
36,981,170'
$ 36,189,226
36,981170
General Plant
2,169,874
2,180,723
$ 2,169,874
2,180,723
Storm Sewer system
8,923,748
8,891 390
$ 8,923,748
8,891,390
Total
$ 78,875,094
$ 77,355,311
$ 80,811,999
"$ 74,254,310
$ 159,687,093
'$ 151,609,621
Governmental activities machinery and equipment includes the assets of the City's Data Processing fund
Debt
At the end of fiscal year 2009, the City of Kalispell had total long-term debt outstanding of
$36,645,540. Of this amount, $5,145,000 comprises debt backed by the full faith and credit of
the government and $3,800,876 represents bonds secured solely by specified revenue sources
(i.e., revenue bonds). The remainder consists of $14,830,000 outstanding on SRF loans for
construction/expansion of the wastewater treatment plant, and another SRF loan for $1,199,000
which financed the extension of sewer lines south on Highway 93. There is also an SRF loan for
the construction of a water storage facility and the related distribution/supply system with an
outstanding amount of $1,445,000. There is also $4,760,664 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 $826,383 of loans for the purchase of equipment. The City of Kalispell also has
debt outstanding on the books of $1,277,906 for the purchase of the Wells Fargo bank building, a
USDA — Intermediary Relending Program loan for $760,552, and a $197,722 for the financing
of the Courtyard Apartments. The Courtyard debt is paid for by the rent proceeds attributed to
those apartments.
CITY OF KALISPELL'S OUTSTANDING DEBT
General obligation bonds
$
Governmental
activities
2009 2008
5,145,000 $ 5,475,000
Business -type
activities
2009 2008
Total
2009
$ 5,145,000 $
2008:
5,475,000
Revenue/Urban Renewal bonds
$
1,643,876
1,833,073
2,157,000 2,547,000
$ 3,800,876
$
4,380,073
SRF loans
18,471,000-15,244,713'
$ 18,471,000
$ 15,244,713
Assessments
$
4,760,664
5,079,534
$ 4,760,664
$
5,079,534
Contractdebt/loans
$
3,062,563
3,303,829'
$ 3,062,563
$
;3,303,829
Total
$ 14,612,103
$ 15,691,436
$ 20,628,000 $ 17,791,713
$ 35,240.103
$ 33.483.149
Other obligations of the City of Kalispell include accrued vacation pay and sick leave
(compensated absences). More detailed information about the City's long-term liabilities is
presented in the notes to the financial statements.
14
➢ Flathead County's unemployment rate (unadjusted) stood at 9.6% as of June of 2009, which
is 100% above the June 2008 rate of 4.8 percent. This is worse than the State's
unemployment rate of 6.4%, but is slightly better than the nations rate of 9.7 percent.
➢ Applications for building permits and other internal indicators of growth continued to drop
in fiscal year 2009. Short-term future forecast are not favorable.
➢ The rapid population growth which Flathead County and Northwest Montana experienced for
many years has slowed considerably. The City of Kalispell's population grew 19.4%
between the 1990 and 2000 census, and is estimated to have grown 31 % from 2000-2005.
Kalispell and the rest of Flathead County have experienced a 15% population growth rate
since 2000, which exceeds all other Montana counties except Gallatin.
➢ The City's rapid growth (estimated population of almost 20,000 in 2006) through the early
part of this decade continues to put more strain on all City departments, from Fire and Police
to Solid Waste, Water and Sewer.
➢ Energy costs continue to rise. The City's electric and natural gas costs have approximately
doubled since fiscal year 2000.
➢ Cost of labor, health, liability, and property insurance continue to rise.
All of these factors were considered in preparing the City of Kalispell's budget for the 2010
fiscal year.
During fiscal year 2009, unreserved fund balance in the General Fund decreased to $372,381.
The City of Kalispell has not appropriated any of this amount for spending in the 2010 fiscal
year budget. The City has determined that preserving this available fund balance/reserve is
necessary. The City continues to levy the maximum mills permitted by law.
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.
15