1. IntroductionCITY OF
AUDITED ANNUAL FINANCIAL REPORT
FISCAL YEAR 2010 July 1, 2009 - June 30, 2010
CITY OF KALISPELL
ANNUAL FINANCIAL REPORT
TABLE OF CONTENTS
Letterof Transmittal............................................................................................................................................ 3-6
OrganizationalChart........................................................................................................................................... 7
CityElected and Appointed Officials................................................................................................................. g
IndependentAuditor's Report............................................................................................................................
9-10
Management's Discussion and Analysis.............................................................................................................
11-21
Basic Financial Statements:
Government -wide Financial Statements:
Statementof Net Assets.......................................................................................................................
22
Statementof Activities.........................................................................................................................
23
Governmental Fund Financial Statements:
BalanceSheet — Governmental Funds................................................................................................
24
Reconciliation of the Balance Sheet — Governmental Funds to the Statement of Net Assets ........
25
Statement of Revenues, Expenditures, and Changes in Fund Balances — Governmental Funds..
26
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances -
Governmental Funds to the Statement of Activities.....................................................................
27
Proprietary Fund Financial Statements:
BalanceSheet — Proprietary Funds....................................................................................................
28
Statement of Revenues, Expenses, and Changes in Net Assets — Proprietary Funds .....................
29
Statement of Cash Flows — Proprietary Funds..................................................................................
30
Fiduciary Fund Financial Statements:
Statement of Fiduciary Net Assets — Fiduciary Funds......................................................................
31
Dotesto the Financial Statements.......................................................................................................................
32-61
Required Supplementary Information other than Management Discussion and Analysis:
Schedule of Funding Progress and Employer Contributions — Other Post -Employment
HealthcareBenefits...........................................................................................................................
62
Budgetary Comparison Schedule — General and Major Special Revenue Funds ...........................
63
Supplemental Information:
Combining and Individual Governmental Fund Statements and Schedules:
Combining Balance Sheet — Nonmajor Governmental Funds.........................................................
64-69
Combining Statement of Revenues, Expenditures and Changes in Fund Balances —
NonmajorGovernmental Funds....................................................................................................
70-77
Budgetary Comparison Schedule —
MajorDebt Service Fund...............................................................................................................
78
Budgetary Comparison Schedule —
NonmajorGovernmental Funds....................................................................................................
79-98
Combining and Individual Proprietary Fund Statements:
Combining Balance Sheet — Nonmajor Proprietary Funds............................................................
99
Combining Statement of Revenues, Expenditures, and Changes in Net Assets — Nonmajor
ProprietaryFunds.........................................................................................................................
100
Combining Statement of Cash Flows — Nonmajor Proprietary Funds ..........................................
101
Combining and Individual Agency Fund Statements:
Combining Statement of Fiduciary Net Assets - Agency Funds .....................................................
102
Combining Statement of Changes in Assets and Liabilities - Agency Funds ..............................
103
CITY 0PKALISP8LL
ANNUAL FINANCIAL REPORT
TABLE OF CONTENTS
Financial Trends
Net Assets by 104
Changes in Net Assets' 105
Fund Balances oCGovernmental Funds ................................................................................................. 106
ChangesimFund Balances, Governmental Funds ................................................................................ 107
Revenue Capacity
Directand Overlapping Property Tax Rates ........................................................................................ 108
Property Tax Levies and Collwcdnmm.....,....,,,,....~....,,..,...~....-,.,,-..,..-...--..,..~...,..,..,~..,,....~.,..,... 109
WaterSold byType ofCustomer ........................................................................................................... 110
Demographics and Economics
Operating Section
Full-time Equivalent City Government Employees by Function/Program ......................................... 118
AWARDS AS REQUIRED BY OMB CIRCULAR A-133
Schedule ofExpenditures of Federal Awards.~. . ~~~.....~~_.~_. __,.~.~~ 120
Notesbothe Schedule ufExpenditures nYFederal Awards ............................................................................. 128
Independent Auditor's Report on Compliance and on Internal Control over Financial Reporting
based omumAudit oyFinancial Statements Performed iaAccordance with Government
AuditingStuodamdw..------------------..,,.-.-....-.----.-'..---------------------.~----' 122-123
Independent Auditor's Report on Compliance with Requirements Applicable to Each Major
Program and Internal Control over Compliance inaccordance with OMB Circular A-133........... 124-125
Schedule of Findings and Questioned Costs ..................................................................................................... 126-129
Report oaother Compliance, Financial, and Internal Accounting Control Matters ..................................... 130
't� �'
City of Kalispell
Post Office Box 1997 - Kalispell, Montana 59903-1997
Telephone (406) 758-7701 Fax - (406) 758-7758
December 30, 2010
To the Honorable Mayor, members of the City Council, and Citizens of the City of Kalispell,
Montana:
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. 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, 2010, is submitted
for your review.
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; that it is presented in a manner designed to fairly
set forth the financial position and results of operations of the City as measured by the financial
activity of its various funds; and that all disclosures necessary to enable the reader to gain an
understanding of the City's financial affairs have been included.
GAAP require that management provide a narrative introduction, overview, and analysis to
accompany the basic financial statements in the form of Management's Discussion and Analysis
(MD&A). This letter of transmittal is designed to complement MD&A and should be read in
conjunction with it. The City of Kalispell's MD&A immediately precedes the City's basic
financial statement within this report.
Reporting Entity and Services Provided
The City of Kalispell, incorporated in 1892, is located in the western part of the state, which is
considered to be one of the top growth areas in the state. The City of Kalispell is empowered to
levy a property tax on both real and personal properties located within its boundaries. It also is
empowered by state statute to extend its corporate limits by annexation, which occurs
periodically when deemed appropriate by the governing council.
The City of Kalispell is operated under the council-manager form of government. Policy -making
and legislative authority are vested in a governing council consisting of the mayor and eight
other members. The governing council is responsible, among other things, for passing
3
The City's accounting records for general governmental operations are maintained on a
modified accrual basis. Under this method, revenues are recorded when measurable and
available; expenditures are recorded when services or goods are received and the liabilities are
incurred. Accounting records for enterprise funds are recorded on the accrual basis. Under this
method, revenues are recorded when the services are performed; expenditures are recorded
when the goods or services are received and the liabilities are incurred.
In developing the City's accounting system, consideration is given to the adequacy of internal
accounting controls. Internal controls are designed to provide reasonable assurance regarding
the safeguarding of assets and the accuracy and reliability of accounting data used for preparing
financial data and maintaining accountability for assets.
Budgetary control is maintained by an annual appropriation system. The Mayor and Council
evaluate the budget proposals of the various City departments to determine the appropriate
level of the operating and public service programs. After giving due consideration to the inpej
received from the citizens, the City Council adopts the budget. The budget is controlled through
El
an on line accounting system. The control is decentralized to the point that individual
tepartment heads are responsible for expending within budgetary limits.
The City's demand deposits are interest bearing money market accounts. The City also utilizes
the Statewide Investment Pool (S.T.I.P), and obligations of the U.S. Treasury for cash
temporarily idle during the year. Rates of return vary based on markets. The City invests all
funds in accordance with State law.
The City of Kalispell joined with over 100 other Montana cities and towns to form a self-
insurance pool offering worker's compensation and liability coverage. Liability limits of
$750,000 per person and $1.5 million per incident were obtained through the insurance pool,
renamed Montana Municipal Interlocal Authority (MMIA). On October 1, 2004, MMIA
established, and the City joined, the Employee Benefits Program for its members, providing a
more affordable health and dental insurance option for members to offer their employees.
The City of Kalispell provides pension benefits for substantially all of its full-time employees.
These benefits are provided through the Montana Public Employees' Retirement System
(PERS); Municipal Police Officer's Retirement System (MPORS): and the Firefighters' Unified
Retirement System (FURS). The City of Kalispell has no obligation in connection with
employee benefits offered through this plan beyond its matching contributions. Additional
information on the City of Kalispell's pension arrangements can be found in the notes to the
financial statements.
'fhe City of Kalispell has not been immune to the effects of the recent nation-wide economic
downturn. Two of the Flathead Valley's core industries have been hit particularly hard. The
logging industry is virtually shut down, which trickles down to closures in related industries.
Construction is at a stand -still and the real estate market is filled with foreclosures. Columbia
Falls Aluminum Company, which has been struggling to continue operations for years, has
announced its closure.
Since November 1986 and the passage of Initiative 105, which limited certain property taxes to
the 1986 levels, the ability of the City to raise revenue for basic services is increasingly difficult.
Then, the legislature, with SB184, lowered tax rates forcing the City to increase mill levies to
maintain the same level of revenue. The City's cash reserves in most funds vary between 10%
and 20% of appropriations. State law allows for reserves of 50%. Reserves provide for cash flow
between tax revenue receipts to keep the City from having to borrow funds for operations.
Additional revenues generated by *increased taxable valuation come with the additional costs of
an increased service area. The City of Kalispell's Police and Fire Departments, Courts system,
W
Building Department, Public Works and Parks have felt the increased pressure from the influx of
people to Flathead County. These pressures impact the budgets of all departments.
The outlook for the City of Kalispell is to continue providing basic services while looking for
additional ways to fund the increasing costs of those services.
Acknowledgments
In conclusion, overall the City of Kalispell is in good financial condition. The completion of the
Annual Financial Report on a timely basis was made possible by the entire staff of the Finance
Department and the cooperation of the administrative staff of all City departments. I would also
like to give recognition to the mayor, governing council, and the city manager for their consistent
support for maintaining the highest standards in the management of the City of Kalispell's
finances.
In accordance with Section 7-6-4111, MCA I hereby transmit the City of Kalispell Audited
Annual Financial Report as of June 30, 2010 for the fiscal year then ended.
Respectfully submitted,
Amy Robertson
Finance Director
M
rf
Rick Wills
Assistant Finance Director
MUNICIPAL JUDGE
Heidi Ulbricht
CITY OF KALISPELL, MONTANA
ORGANIZATIONAL CHART
CITY COUNCIL
CITY CLERK
Theresa White�--1 CITY MANAGER
Jane Howington
AIRPORT FINANCE
Fred Leistiko Amy Robertson
HUMAN PUBLIC WORKS INFORMATION
RESOURCES Jim Hansz TECHNOLOGY
Terry Mitton Erika Hess
PLANNING & PARKS &
BUILDING RECREATION
Tom Jentz Mike Baker
PUBLIC SAFETY PUBLIC'SAFETY LEGAL
FIRE POLICE Charlie Harball
Dan Diehl Roger Nasset
TERM
ELECTED OFFICIALS EXPIRES
Mayor Tammi E. Fisher 12/2013
Mari Gabriel
Ward 1
12/2011
Jim Atkinson
Ward 111
12/2013
Robert Hafferman
and 1
12/2013
Randy Kenyon
and 111
12/2011
Wayne Saverud
and 11
12/2011
M. Duane Larson
and IV
12/2011
JeffZauner
and 11
12/2013
Tim Kluesner
and IV
12/2013
Municipal Court Judge:
Heidi Ulbricht
12/2013
City 711anager
Jane Howington
Attorney
Charles Harball
City Clerk
Theresa White
Police Chief
Roger Nasset
Fire Chief
Dan Diehl
Finance Director
Amy Robertson
Public Works Director
James Hansz
Parks Director
Michael Baker
Airport Manager
Fred Leistiko
Planning Director
Tom Jentz
Human Resource Director
Terry Mitton
City Treasurer
Deb Diest
Assistant Finance Director
Rick Wills