5. Notes to Financial StatementsCITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 201 I
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The City complies with generally accepted accounting principles (GAAP). GAAP includes all relevant Governmental
Accounting Standards Board (GASB) pronouncements. In the government -wide financial statements and the fund financial
statements for the proprietary funds, Financial Accounting Standards Board (FASB) pronouncements and Accounting
Principles Board (APB) opinions issued on or before November 30, 1989, have been applied unless those pronouncements
conflict with or contradict GASB pronouncements, in which case GASB prevails. For enterprise funds GASB statement Nos.
20 and 34 provide the City the option of electing to apply FASB pronouncements issued after November 30, 1989. The City
has elected not to apply those pronouncements.
In June 2004, the Governmental Accounting Standards Board (GASB) issued Statement No. 45, Accounting and Financial
Reporting by Employers for Postretirement Benefits Other Than Pensions. The City implemented this new statement during
the year ended June 30, 2011. Certain significant changes in the Statement include the following:
1. Recognition of cost of postemployment benefits on the government -wide financial statements on the accrual basis of
accounting instead of the cash basis.
2. Provide information on current values of future benefits, associated liabilities, and summarize major plan provisions
and demographics.
Financial Reporting Entity
In determining the financial reporting entity, the City complies with the provisions for GASB statement No. 14, The Financial
Reporting Entity, and includes all component units of which the City appointed a voting majority of the units' board; the City
is either able to impose its will on the unit or a financial benefit or burden relationship exists.
Primary Government
The City of Kalispell is a political subdivision of the State of Montana governed by an elected Mayor and Council duly
elected by the registered voters of the City. The City utilizes the City Manager form of government. The City is considered a
primary government because it is a general purpose local government. Further, it meets the following criteria: (a) It has a
separately elected governing body (b) It is legally separate and (c) It is fiscally independent from the State and other local
governments.
The accompanying financial statements present the primary government and its component units, entities for which the
government is considered to be financially accountable. These financial statements include all funds, agencies, boards,
commissions and authorities which meet the criteria for inclusion in the City's financial report. These criteria include
financial accountability, appointment of a majority of the secondary government and the financial benefit or burden derived
by the primary government from a secondary government.
Discretely Presented Component Units
Discretely presented component units are separate legal entities that meet the component unit criteria described above but do
not meet the criteria for blending. The Cities' two discretely presented component units, the Kalispell Parking Commission,
and the Downtown Business Improvement District are legally separate organizations of the City, but the City is financially
accountable. The component units are reported in a separate column to emphasize that they are legally separate from the City.
38
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Kalispell Parking Commission
The Kalispell City Council passed Resolution 4103, a Resolution of intention to create Special Parking District #2 on June
21, 1993. Also passed was Resolution 4104, a resolution of intention to provide for funding the cost of maintaining,
operating, repairing, and improving Special Parking Maintenance District #2 and Resolution 4105, a Resolution declaring the
need for a Parking Commission to function in the City of Kalispell and declaring a jurisdictional area wherein said Parking
Commission is authorized to function. The Mayor and City Council appointed the Board of Directors composed of City
residents who operate businesses within the district. The Parking Commission opened their doors on February 1st 1994. The
City transferred $53,000 in Fiscal 1994 to the district as start up money; no further City fiords have been given to the district.
It is intended that the Parking Commission be operated as a Proprietary type fund and has been classified as such in the City's
financial statements.
Downtown Business Improvement District
On September 2, 2003, by resolution 4828, the City created the Downtown Business Improvement District. The Mayor and
City Council appointed the Board of Directors. The City is able to impose its will on the BID as it is authorized to levy
assessments to support the activities of the BID. The annual budget of the BID is subject to approval by the City Council.
The purpose of said Business Improvement District is to promote the health, safety, prosperity, security and general welfare of
the inhabitants of the City of Kalispell and the proposed district, and appears to be of special benefit to the property within the
District. The District boundaries are roughly 2°d Avenue East to 2°d Avenue West between Center Street and 41i Street South.
Publicly owned property and owner occupied single family dwellings are exempt from the assessments related to the District.
Tourism Business Improvement District
On May 3, 2010, by resolution 5425, the City created the Tourism Business Improvement District. The Mayor with the
approval of the City Council appointed seven owners of property within the district to act as the Board of Trustees of the
District. The City is able to impose its will on the TBID as it is authorized to levy assessments to support the activities of the
TBID. The annual budget of the TBID is subject to approval by the City Council. The purpose of said Tourism Business
Improvement District is to promote the health, safety, prosperity, security and general welfare of the inhabitants of the City of
Kalispell and the proposed district, and appears to be of special benefit to the property within the District. The District is
made up of those properties within the corporate limits of the City of Kalispell with five or more rooms providing overnight
stays for transient patrons at its business.
For fiscal year 2011, the City of Kalispell is not including the financial statements of the Tourism Business Improvement
District in its annual report. In making the decision to not include these financial statements the City considered the TBID's
assets, revenues, and expenditures in relation to other governmental funds of the City. The TBID accounts for 1 %, or less, of
said assets, revenues, and expenditures.
Basis of Presentation, Measurement Focus, and Basis of Accounting
Government -wide Financial Statements
The government -wide financial statements (i.e., the Statement of Net Assets and the Statement of Activities) report
information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the
effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported
by taxes and intergovernmental revenues, are reported separately from business -type activities, which rely to a significant
extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate
component units for which the primary government is financially accountable.
Eliminations have been made to minimize the double -counting of business -type activities.
fit
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by
program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. The general
government function of the City includes expenses which are, in essence, indirect expenses of other functions. These
expenses are allocated to each related function. Program revenues include 1) charges to customers or applicants who
purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants
and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment.
Taxes and other items not properly included among program revenues are reported instead as general revenues.
Indirect expenses reported in the statement of activities must be allocated to the different functions of the City. These
expenses include administration, data processing, and central garage. The administrative cost allocation is based on each
functions percentage of total City expenses. Data processing is allocated based approximately on that functions usage of the
City's computer servers. Central garage expenses are allocated to the other functions of the City based on actual invoicing.
Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the
latter are excluded from the government -wide financial statements. Major individual governmental funds and major
individual enterprise funds are reported as separate columns in the fund financial statements.
Certain eliminations have been made as prescribed by GASB 34 in regards to inter -fund activities, payables and receivables.
All internal balances in the Statement of Net Assets have been eliminated except those representing balances between the
governmental activities and business -type activities, which are presented as internal balances and eliminated in the total
primary government column. In the Statement of Activities, internal service fund transactions have been eliminated; however,
those transactions between governmental and business -type activities have not been eliminated.
Measurement Focus and Basis of Accounting
On the government -wide Statement of Net Assets and the Statement of Activities, both governmental and business -type
activities are presented using the economic resources measurement focus and the accrual basis of accounting. Under the
accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred,
regardless of the timing of the cash flows. Property taxes are recognized as revenues in the year for which they are levied.
Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been
met. The City generally applies restricted resources to expenses incurred before using unrestricted resources when both
restricted and unrestricted net assets are available.
The City has chosen not to accrue the interest payable of general long-term debt at year end. This practice results in interest
expense reported for governmental activities on the statement of activities to equal the interest expenditure on the statement of
revenues, expenditures, and changes in fund balance. Although, this is contrary to full accrual accounting, the City feels that
it is immaterial in the presentation of its financial statement.
Fund Financial Statements
Basis of Presentation
Fund financial statements of the City are organized into funds. A fund is an independent fiscal and accounting entity with a
self -balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid
management in demonstrating compliance with finance -related legal and contractual provisions. The minimum number of
funds is maintained consistent with legal and managerial requirements. Funds are organized into three categories:
governmental, proprietary, and fiduciary. An emphasis is placed on major funds within the governmental and proprietary
categories. Each major fund is displayed in a separate column in the governmental funds statements. All of the remaining
40
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
fiends are aggregated and reported in a single column as non -major fiords. A fund is considered major if it is the primary
operating fund of the City or meets the following criteria:
a. Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or enterprise fund
are at least 10 percent of the corresponding total for all funds of that category or type; and
b. Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or enterprise funds
are at least 5 percent of the corresponding total for all governmental and enterprise fiords combined.
Measurement focus and Basis of Accounting
Governmental funds are used to account for the City's general government activities. Governmental fund types use the flow
of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual
basis of accounting, revenues are recognized when susceptible to accrual. (i.e., when they are "measurable and available")
"Measurable" means the amount of the transaction can be determined and "available" means collectible within the current
period or soon enough thereafter to pay liabilities of the current period. The City considers all revenues available if they are
collected within 60 days after year-end. Expenditures are recorded when the related fund liability is incurred except for un-
matured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and
judgments which are recognized when the obligations are expected to be liquidated with expendable available financial
resources.
Real and personal property taxes, special assessments, charges for current services, and interest earnings are susceptible to
accrual. Other receipts and taxes become measurable and available when cash is received by the City and are recognized as
revenue at that time. The City recorded real and personal property taxes and assessments levied for the current year as
revenue. Taxes and assessments receivable remaining unpaid at year-end and not expected to be collected soon enough
thereafter to be available to pay obligations of the current year were recorded as deferred revenue, with a corresponding
reduction in revenues, as required by generally accepted accounting principles. In addition, prior period delinquent taxes and
assessments collected in the current period were recorded as revenue in the current period as required by generally accepted
accounting principles. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to
accrual criteria are met. Expenditure driven grants are recognized as revenue when the qualifying expenditures have been
incurred and all other grant requirements have been met.
Major Funds
The City reports the following major governmental funds:
The General Fund is always a major fund. This is the City's primary operating fund and it accounts for all financial
resources of the City except those required to be accounted for in other funds.
The Community Development Loan Revolving Fund was established to account for the lending and repayment of monies
loaned to businesses and individuals for projects approved by the City's Community Development department.
SID 344 is a debt service fund established to account for the resources accumulated and payments made for principal and interest
on the 20 year bonds sold to finance the construction of the Old School Station Industrial and Technology Park.
Proprietary funds are accounted for using the accrual basis of accounting. These funds account for operations that are primarily
financed by user charges. The flow of economic resources focus concerns determining costs as a means of maintaining the capital
investment and management control. Revenues are recognized when earned and expenses are recognized when incurred.
Allocations of costs, such as depreciation, are recorded in proprietary funds.
41
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Proprietary funds distinguish operating revenues and expenses from non -operating items. Operating revenues and expenses
generally result from providing services and producing and delivering goods in connections with a proprietary fund's
principal ongoing operations. The principal operating revenues for enterprise funds are charges to customers for sales and
services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and
depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non -operating revenues
and expenses. When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted
resources first, then unrestricted resources as they are needed.
The City reports the following major proprietary funds:
The Water Fund accounts for the activities of the City's water distribution operations.
The Sewer Fund accounts for the activities of the City's sewer collection and treatment operations and includes the storm
sewer system.
Fiduciary funds account for assets held by the government in a trustee capacity or as an agent on behalf of others.
The agency fund is custodial in nature and does not present results of operations or have a measurement focus. Agency funds
are accounted for using the modified accrual basis of accounting. This fund is used to account for assets that the City holds
for others in an agency capacity.
As a general rule the effect of inter -fund activity has been eliminated from the government -wide financial statements, and the
internal service funds have been absorbed pro -ratably into governmental -type and business -type activities on the government -
wide financial statements. Exceptions to this general rule are charges for services between various functions of the
government. Elimination of these charges would distort the direct costs and program revenues reported for the various
functions concerned.
Budget Process
An annual appropriated operating budget is adopted each fiscal year for the general fund, special revenue funds, debt service
funds and capital projects funds on the modified accrual basis. In addition, a budget is adopted for the enterprise and internal
service funds on a full accrual basis. The appropriated budget is prepared by fund, function, and for the general fund and
certain other funds, by department.
The final budget is legally enacted by the City Council, after holding public hearings as required by State statutes, and within
forty-five days of the State providing final shared revenue figures. Budget appropriation transfers may be made between
general classifications of salaries and wages, maintenance and operation and capital outlay. Reported budget amounts
represent the originally adopted budget as amended by resolution of the City Council. It is management's responsibility to see
that the budget is followed to the budgetary line item.
The City Council may amend a final budget when shortfalls in budgeted revenues require reductions in approved
appropriations to avert deficit spending; when savings result from unanticipated adjustments in projected expenditures; when
unanticipated state or federal monies are received; or when a public emergency occurs which could not have been foreseen at
the time of adoption. The procedure to amend the budget in total can be made only after the City prepares a resolution, notice
is published of a public hearing, and a public hearing is held in accordance with state law.
42
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
All material budget amendments and transfers during FY 2010 are described below:
Governmental Funds
Accepted a Bureau of Justice Assistance Grant (fund 2920) and approved appropriation of the $250,000 to fund information
technology upgrades in the City of Kalispell Public Safety Building (Resolution No. 5457).
Accepted a Bureau of Justice Assistance Grant (fund 2919) and approved appropriation of the $19,189 to fund equipment for
the City of Kalispell Police Department (Resolution No. 5459).
Accepted a Community Development Block Grant (fiord 2886) and approved appropriation of the $20,000 to partially fund a
comprehensive growth policy update (Resolution No. 5457).
Accepted a U.S. Environmental Protection Agency Grant (fund 2954) and approved appropriation of the $175,000 to fund the
evaluation of the City of Kalispell's core revitalization area (Resolution No. 5465).
Amended the Airport TIF budget (fund 2185) by $21,051 to appropriate funds for a redevelopment project installing a fiber
optic line under Highway 93 South (Resolution No. 5472)
Accepted a National Park Service "Preserve America" grant (fund 2930) and approved appropriation of the $75,000 to
expand heritage tourism in downtown Kalispell (Resolution No. 5474).
Accepted a Montana Department of Transportation DUI Court Implementation grant (fund 2951) and approved a budget
amendment of $81,043 to continue the implementation of a DUI court (Resolution No. 5475).
Accepted a Montana Department of Transportation "Selective Traffic Enforcement Program" grant (fund 2919) and approved
a budget amendment of $10,000 to continue to fund overtime to provide high visibility traffic enforcement (Resolution No.
5476).
Assets, Liabilities, and Net Assets or Equity
1. Cash, Cash Equivalents, and Investments
The City's cash and cash equivalents are considered to be cash on hand, demand and time deposits, government backed
securities, bonds and warrants, and investments with the State of Montana's short-term investment pool (STEP). The cash
resources of the individual funds are combined to form a pool of cash and investments which is managed by the City
Treasurer.
Investments are carried at cost, which does approximate fair value as described in Note III, A, except for investments in STIP
and particular bonds, which are reported at fair value.
For purposes of the statement of cash flows, the enterprise and internal services funds consider all funds (including restricted
assets) held in the City's cash management pool to be cash equivalents.
43
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
TUNE 30, 2011
2. Receivables and Payables
Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year
are referred to as either interfund receivables/payables (i.e., the current portion of interfund loans) or advances to/from other
funds (i.e., the non -current portion of interfund loans). All other outstanding balances between funds are reported as due
to/from other funds.
Advances between funds are offset by a fund balance reserve account in applicable governmental funds to indicate they are
not available for appropriation and are not expendable available financial resources.
Property tax levies are set within forty-five days of the State providing shared revenue figures, in connection with the budget
process. Real property (and certain attached personal property) taxes are billed within ten days after the third Monday in
October and are due in equal installments on November 30 and the following May 31. After those dates, they become
delinquent, and a lien is filed upon the property. After three years, the City may exercise the lien and take title to the
property. Special assessments are billed in two equal installments due November 30 and the following May 31. Personal
property taxes (other than those billed with real estate) are generally billed no later than the second Monday in July (normally
in May or June), based on the prior November's levies. Personal property taxes, other than mobile homes, are due thirty days
after billing. Mobile home taxes are billed in two halves, the first due thirty days after billing; the second due September 30.
The tax billings are considered past due after the respective due dates and are subject to penalty and interest charges.
An allowance for uncollectible accounts was not maintained for real and personal property taxes and special assessments
receivable. The direct write-off method is used for these accounts.
A reserve for estimated uncollectible accounts receivable is maintained for the Water Fund and Sewer Fund. The reserve
balances are as follows for June 30, 2011:
Water $ 10,784
Sewer $ 16,373
3. Inventories and Prepaid Items
Inventories for materials and supplies for governmental fund types are expended at the time of purchase. Enterprise Fund
inventory of materials and supplies are valued at cost and the First -In First -Out (FIFO) method is utilized. Certain payments
to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items.
4. Restricted Assets
Certain proceeds of the City's enterprise fund revenue bonds, as well as certain resources set aside for their repayment, are
classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. When an
expense is incurred for which both restricted and unrestricted net assets are available, it is the City's policy to first apply the
restricted resources.
5. Capital Assets
Capital assets, which include property, plant, and equipment, are reported in the applicable governmental or business -type
activities columns in the government -wide financial statements. Capital assets are defined by the government as assets with
an initial, individual cost of more than $5,000 and an estimated useful life in excess of five years. Such assets are recorded at
historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair
44
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
DUNE 30, 2011
market value at the date of donation. As required by GASB, the City of Kalispell has retroactively reported its streets as part
of capital assets in the financial reports for fiscal year 2009. More detailed information on the City's streets and all capital
assets can be found in Note D. Capital Assets.
The costs of normal maintenance and repairs that do not add to the value of the assets or extend asset lives are not capitalized.
Improvements are capitalized and depreciated over the remaining useful lives of the related assets. Major outlays for capital
assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of fixed
assets is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the
same period.
Depreciation has been provided for the property, plant and equipment of the City of Kalispell using the straight line method.
The useful lives of these assets have been estimated as follows:
Buildings
20-50 years
Improvements Other than buildings
10-50 years
Streets
40 years
Machinery, vehicles and equipment
5-20 years
Water and Sewer lines, pump stations
10-50 years
6. Compensated Absences
It is the City's policy and state law to permit employees to accumulate a limited amount of earned but unused vacation
benefits, which will be paid to employees upon separation from City service. Employees are allowed to accumulate and carry
over a maximum of two times their annual accumulation of vacation. Any vacation leave time accumulated over this
maximum carryover must be used within 90 days of the new calendar year. There is no restriction on the amount of sick leave
that may be accumulated. Upon separation, employees are paid 100 percent of accumulated vacation and 25 percent of
accumulated sick leave.
The liability associated with governmental fund -type employees is reported in Governmental Activities column of the
Statement of Net Assets, while the liability associated with proprietary fund -type employees is recorded in the respective fund
and the Business -type Activities column of the Statement of Net Assets. For the purpose of reporting these compensated
absences payable as current or noncurrent, the City uses a last in first out assumption. Under this assumption, the only
compensated absences the City reports as current are the liabilities associated with employees who will retire within the 12
months following the fiscal year being reported.
7. Long - Term Obligations
In the government -wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and
other long-term obligations are reported as liabilities in the applicable governmental activities, or proprietary fund type
statement of net assets. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are
expensed when incurred.
In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance
costs, during the current period. The face amount of the debt issued is reported as other financing sources. Premiums
received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other
financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service
expenditures.
45
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
8. Net Assets/Fund Balance
Net assets in the government wide and proprietary fund financial statements show the amount of the capital assets less any
outstanding debt issued to fund them as "invested in capital assets, net of related debt." Restricted net assets are those that
have constraints placed on them either by external parties or imposed by law or enabling legislation.
The City implemented GASB Statement 54 for fiscal year 2011. This statement requires governmental fund balances to be
allocated to categories as follows:
Non -spendable — funds that are not spendable in form (i.e., Inventory);
Restricted — externally enforceable legal restrictions exist, such as state law or bond covenants;
Committed — constraint formally imposed by the City Council by the end of the reporting period;
Assigned — constraint imposed at a level below the City Council by the reporting date;
Unassigned — remaining balance.
The City Council is the highest governing body in the City and any constraints on funds set by it must be reported as
committed if action is taken by fiscal year end. The City Manager is generally the only other person that can impose
constraints that would cause amounts to be assigned.
NOTE 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY
A. Excess of expenditures over appropriations
For the year ended June 30, 2011, all City funds expenditures were less than or equal to budgeted appropriations.
B. Deficit Fund Balances
The following Funds had deficit fund balances at June 30, 2011:
Special Revenue Funds:
Courtyard $ 46,765
*Sale is pending for the Courtyard Apartments.
NOTE 3. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS
A. Cash and Cash Equivalents
Investment Income
Income from pooled investments is allocated to the individual funds based on the fund's month end cash balance in relation to
total pooled investments.
Cash Composition
Cash and investments may include cash and cash items; demand, time, savings, and fiscal agent deposits; investments in the
State Short -Term Investment Pool (STIP); repurchase agreements; U.S. government treasury bills, notes bonds, and other
treasury obligations such as state and local government series; general obligations of certain agencies of the United States
such as Federal Home Loan Bank; and U.S. government security money market funds if the fiord meets certain conditions.
46
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Total City's (primary governmental and component units) composition of cash, deposits and investments at fair value as of
June 30, 2011, are as follows:
Cash on hand
$ 3,127
Cash in banks:
Demand Deposits
10,176,221
Savings Deposits
34,181
Bonds/Warrants
42,194
STIP
1,507
Government Backed Securities
10,801,000
Total
J21,058.230
Credit Risk
Section 7-6-202, MCA, limits investments of public money of a local government in the following eligible securities:
(a) United States government treasury bills, notes and bonds and in the United States treasury obligations, such as state
and local government series (SLGLS), separate trading of registered interest and principal of securities (STRIPS), or
similar United States treasury obligations;
(b) United States treasury receipts in a form evidencing the holder's ownership of future interest or principal payments
on specific United States treasury obligations that, in the absence of payment default by the United States, are held in
a special custody account by an independent trust company in a certificate or book entry form with the federal
reserve bank of New York; or
(c) Obligations of the following agencies of the United States, subject to the limitations in subsection 2 (not included):
(i) federal home loan bank;
(ii) federal national mortgage association;
(iii) federal home mortgage corporation; and
(iv) federal farm credit bank.
With the exception of the assets of a local government group self-insurance program, investments may not have a maturity date
exceeding 5 years except when the investment is used in an escrow account to refund an outstanding bond issue in advance.
Section 7-6-205 and Section 7-6-206, MCA, state that demand deposits may be placed only in banks and Public money not
necessary for immediate use by a county, city, or town that is not invested as authorize in Section 7-6-202 may be placed in time
or savings deposits with a bank, savings and loan association, or credit union in the state or placed in repurchase agreements as
authorized in Section 7-6-213.
The City of Kalispell has no investment policy that would further limit its investment choices.
The City of Kalispell has the following investments and their related credit risk as reported by Standard and Poor's or Moody's
investment service:
47
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Short Term Investment Pool (STIP) Credit Quality ratings by the NRSRO as of June 30, 2011:
Security Investment Type
Credit Quality Rating
Asset Backed Commercial Paper
$ 326,176,221
Al
Corporate Commercial Paper
289,334,734
Al
Corporate Fixed Rate
7,173,761
Al
Corporate Variable Rate
522,126,148
A2
Certificates of Deposit Fixed Rate
28,012,037
A3
Certificates of Deposit Variable -Rate
359,994,307
A2
Other Assets Backed
24,591,903
BBB
U.S. Government Agency Fixed
100,013,159
Al+
U.S. Government Agency Variable -Rate
474,851,769
A1+
Money Market Funds (Unrated)
140,598,914
NR
Money Market Funds (Rated)
111,000,000
Al+
Structured Investment Vehicles
46,317,465
NR
Total Investments
$2,430,190 418
Al
Securities Lending Collateral Investment Pool
$ 32.271,105
NR
Unaudited financial statements for the State of Montana's Board of Investments are available at 555 Fuller Avenue in Helena,
Montana.
Custodial Credit Risk
Custodial Credit risk is the risk that, in the event of a bank failure, the government's deposits may not be returned to it. The City
of Kalispell does not have a deposit policy for custodial credit risk. All deposits are carried at cost plus accrued interest. As of
June 30, 2011, the City of Kalispell's bank balance was exposed to custodial credit risk as follows:
Depository Account Balance
Insured $ 250,000
Collateralized
-Collateral held by the pledging bank's trust
department, but not in the City's name 10,320,390
-Uninsured and uncollateralized 0
Total Deposits 110.570.390
Deposit Security
Section 7-6-207, MCA, states (1) The local governing body may require security only for that portion of the deposits which is not
guaranteed or insured according to law and, as to such unguaranteed or uninsured portion, to the extent of:
(a) 50% of such deposits if the institution in which the deposit is made has a net worth of total assets ratio of 6% or
more; or
(b) 100% if the institution in which the deposit is made has a net worth of total assets ratio of less than 6%.
The amount of collateral held for the City of Kalispell deposits at June 30, 2011, equaled or exceeded the amount required by
State statues.
48
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Concentration of Credit Risk
The City of Kalispell places no limit on the amount the entity may invest in any one issuer. The City of Kalispell's concentration
of credit risk percentages follow for each investment issued that is not issued or explicitly guaranteed by the U.S. government,
invested in mutual funds, external investment pools or other pooled investments:
% of credit risk
Bonds/Warrants <1 %
Interest Rate Risk
The City of Kalispell does not have a formal investment policy that limits investment maturities as a means of managing its
exposure to fair value losses arising from increasing interest rates. The following is a list of individual investments as of June 30,
2011 along with their related interest rates and maturity dates.
Investment
Interest Rate
Maturity Date
Amount
STIP
0.300%
varies
$ 1,507
Federal Home Loan Mortgage Corp
2.550%
7/14/15
501,000
Federal National Mtg Assn
1.500%
7/28/15
1,000,000
Federal Home Loan Bank
1.250%
9/15/15
1,000,000
Federal National Mtg Assn
1.000%
10/28/15
1,000,000
Federal National Mtg Assn
1.250%
11/23/15
1,000,000
Federal Home Loan Bank
1.375%
11/24/15
1,000,000
Federal National Mtg Assn
1.625%
12/16/15
1,000,000
Federal Home Loan Mortgage Corp
2.750%
1/13/16
1,000,000
Federal Home Loan Bank
3.250%
3/28/16
300,000
Federal Home Loan Bank
2.750%
4/28/16
1,000,000
Federal National Mtg Assn
1.500%
6/30/16
1,000,000
Federal Home Loan Mortgage Corp
1.750%
7/25/16
1,000,000
S&C Bonds
3.5%-7.75%
varies
42,194
Total
$10,844,701
B. Interfund Receivables and Payables
The composition of interfund balances as of June 30, 2011, was as follows:
Due to/from other funds:
Receivable Fund Payable Fund Amount Purpose
CD Revolving - Major Governmental Street Maintenance $ 16,000 S/T Loan
SID - Revolving S & C's $ 933 S/T Loan
49
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
C. Operating Transfers
The following is an analysis of transfers in and out during Fiscal Year 2011:
From
Health
Health
Parks - in - Lieu
SID 341
2003 S & C
SID - Revolving
SID - Revolving
Old School Tech TIF
Old School Industrial TIF
Airport TIF - Special Revenue
Airport TIF - Debt Service
General - Major Governmental
General - Major Governmental
General - Major Governmental
D. Capital Assets
To
General - Major Governmental
Parks
CTEP
SID - Revolving
SID - Revolving
SID 342
2002S&C
Old School TIF - Debt Service
Old School TIF - Debt Service
FAA - Planning Grant
Airport TIF - Special Revenue
Drug Grant
COPS Grant
Law Enforcement Block Grant
TOTAL
Capital asset activity for the year ended June 30, 2011 was as follows:
Transfers between fund types
Amount
Purpose
$ 514,326
Operating
63,000
Operating
15,291
Match
7,069
Close out fund
99
Close out fund
2,121
Operating
442
Close out fund
44,266
Operating
4,299
Operating
4,890
Match
500,000
Operating
48,500
Match
20,000
Match
5,000
Match
$ 1,229,303
In fiscal years prior to 2011, the City of Kalispell had an environmental review performed regarding the storm water drainage
design in the lower Spring Creek area located in west Kalispell. The study area was located in the Westside TIF District, and
the City chose to pay for it using TIF dollars. Storm water is included in the Sewer enterprise fund. The Westside TIF
District is a special revenue fund.
In fiscal year 2011, the City of Kalispell received an American Recovery and Reinvestment Act (stimulus) grant. The grant
was for a project that included improving 11`h Street East and West and adding storm drain improvements along that street.
Storm water is included in the Sewer enterprise fund. The Streets Stimulus Grant fund is a special revenue fund.
Below is a breakdown of the infrastructure transferred between fund types as a result of these two projects.
From To Amount Purpose
Westside TIF (special revenue) Sewer Enterprise $ 68,582 Environmental review/storm drain design
Streets stimulus grant Sewer Enterprise $ 43,992 Storm drain improvements
Capital assets transferred from governmental funds to enterprise funds are not reported in the Statement of Revenues,
Expenditures, and Changes in Fund Balances, because there has been no flow of current financial resources. The enterprise
funds report it as a capital contribution in the Statement of Revenues, Expenses and Changes in Net Assets. It is reported as a
transfer for both sides in the Statement of Activities.
50
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
City of Kalispell streets
In fiscal year 2007, as required by GAS13, the City of Kalispell retroactively reported its streets as part of capital assets. In
fiscal year 2011, previously missed streets and streets that had been considered county owned, were added to the City's
capital asset list. The historical value of these additional streets was $1,138,755. Adding these existing streets to the City's
capital assets resulted in a restatement on the statement of activities of $899,936.
Balance
Balance
Governmental Activities:
July 1, 2010
Additions
Contributions
Restatements
Transfers
Deductions
June 30, 2011
Capital assets not being depreciated:
Land
$ 2,552,209
$ -
$
-
$
$
$
$ 2,552,209
Construction in Progress
309,514
46,245
114,999
(202,215)
268,543
Total capital assets not being depreciated
$ 2,861,723
$ 46,245
$
114,999
$
$ (202,215)
$
$ 2,820,752
Capital assets being depreciated:
Buildings
$ 18,364,024
$ 808,890
$
638,899
$
$ 89,641
$
$ 19,901,454
Improvements other than buildings
14,292,199
743,069
-
-
15,035,268
Machinery and equipment
6,679,587
346,431
(376,528)
6,649,490
Infrastructure
79,280,573
-
-
1,138,755
80,419,328
Total capital assets being depreciated
$ 118,616,383
$ 1,898,390
$
638,899
$ 1,138,755
$ 89,641
$ (376,528)
$ 122,005,540
Less accumulated depreciation for:
Buildings
$ (6,549,589)
$ (608,967)
$
-
$ -
$ -
$
$ (7,158,556)
Improvements other than buildings
(4,451,089)
(644,992)
(5,096,081)
Machinery and equipment
(3,634,543)
(457,535)
289,191
(3,802,887)
Infrastructure
(16,428,971)
(2,010,483)
(238,819)
(18,678,273)
Total accumulated depreciation
$ (31,064,192)
$ (3,721,977)
$
-
$ (238,819)
$
$ 2 99,191
$ (34,735,797)
Total capital assets being depreciated, net
87,552,191
(1,823,587)
638,899
899,936
89,641
(87,337)
87,269,743
City capital assets, net
$ 90,413,914
$ (1,777,342)
$
753,898
$ 899,936
$ (112,574)
$ (87,337)
$ 90,090,495
Balance
Balance
Internal service funds:
July 1, 2010
Additions
Contributions
Restatements
Transfers
Deductions
June 30, 2011
Data Processing
$ 149,736
$ 33,955
$
$
$
$
$ 183,691
Less accumulated depreciation
(130,735)
(9,941)
(140,676)
Internal service funds assets, net
$ 19,001
$ 24,014
$
$
$
$
$ 43,015
51
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Balance
Deductions /
Balance
Business -type activities:
July 1, 2010
Additions Contributions
Transfers
June 30, 2011
Capital assets not being depreciated:
Land
$ 1,699,194
$ - $
$
$ 1,699,194
Construction in progress
123,210
6,326
129,536
Total capital assets not being depreciated
$ 1,822,404
$ 6,326 $
$
$ 1,828,730
Capital assets being depreciated
Buildings
$ 316,731
$
$ $
$ 316,731
Machinery and equipment
1,800,349
1,800,349
Source of supply
4,524,313
123,912
4,648,225
Pumping plant
3,535,443
-
3,535,443
Treatment plant
37,801,809
25,483
37,827,292
Transmission and distribution
48,549,726
301,146
148,122 (13,149)
48,985,845
General plant
4,287,617
106,232
-
4,393,849
Storm sewer system
12,151,440
5,300
112,574
12,269,314
Total capital assets being depreciated
$ 112,967,428
$ 562,073
$ 260,696 $ (13,149)
$ 113,777,048
Less accumulated depreciation for:
Buildings
$ (206,903)
$ (15,682)
$ - $
$ (222,585)
Machinery and equipment
(1,352,813)
(154,526)
(1,507,339)
Source of supply
(507,614)
(92,593)
(600,207)
Pumping plant
(1,200,233)
(110,037)
(1,310,270)
Treatment plant
(14,376,326)
(1,394,657)
(15,770,983)
Transmission and distribution
(12,121,652)
(1,353,681)
12,802
(13,462,531)
General plant
(2,281,354)
(203,769)
-
(2,485,123)
Storm sewer system
(2,842,559)
(280,786)
-
(3,123,345)
Total accumulated depreciation
$ (34,889,454)
$ (3,605,731)
$ - $ 12,802
$ (38,482,383)
Total capital assets being depreciated, net
$ 78,077,974
$ (3,043,658)
$ 260,696 $ (347)
$ 75,294,665
Business -type activities capital assets, net
$ 79,900,378
$ (3,037,332)
$ 260,696 $ (347)
$ 77,123,395
Balance
Balance
Component Unit:
July 1, 2010
Additions
Contributions Deductions
June 30, 2011
Parking Commission assets
$ 109,098
$ 14,696
$
$ 123,794
Less accumulated depreciation
(82,354)
(6,820)
(89,174)
Component unit assets, net
$ 26,744
$ 7,876
$
$ 34,620
Depreciation was charged to functions/programs of the primary government as follows:
Governmental Activities:
General Government $ 2,633,478
Public Safety 455,407
Public Works 167,812
Parks and Recreation 465,280
Total Governmental Activities $ 3,721,977
Business-tvoe Activities:
Airport $ 100,831
Water 839,662
Sewer 2,516,228
Solid Waste 149,010
Total Business -type Activities $ 3,605,731
52
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
E. Long -Term Debt
During the year ended June 30, 2011, the following changes occurred in liabilities reported in long-term debt
Balance
Balance
Due within
July 1, 2010
Additions
Reductions
June 30, 2011
1 year
Governmental Activities:
G.O. Bonds
$ 4,805,000
$ -
$ (355,000)
$ 4,450,000
$ 365,000
Revenue Bonds
1,445,000
(120,000)
$ 1,325,000
125,000
Assessments
4,410,462
942
(334,210)
$ 4,077,194
317,658
Contract Debt/Loans
2,089,765
99,520
(203,853)
$ 1,985,432
405,271
Intermediary Program
743,575
-
(46,441)
$ 697,134
25,117
Compensated Absences
1,051,049
23,489
(87,115)
$ 987,423
33,479
Governmental Activities Sub Total
$ 14,544,851
$ 123,951
$ (1,146,619)
$ 13,522,183
$ 1,271,525
Internal Service Funds:
Compensated Absences
6,636
-
(2,541)
$ 4,095
-
Internal Service Funds Sub Total
$ 6,636
$ -
$ (2,541)
$ 4,095
$
Business -type Activities:
Revenue Bonds $ 1,761,000
$ (413,000)
$ 1,348,000
$ 94,000
SRF 17,780,000
(718,000)
$ 17,062,000
983,000
Compensated Absences 320,249
3,015 (48,237)
$ 275,027
39,250
Business -type Activities Sub Total $ 19,861,249 $
3,015 $ (1,179,237)
$ 18,685,027
$ 1,116,250
Component Unit:
Compensated Absences 3,501 870 $ 4,371 -
Component Unit Sub Total $ 3,501 $ 870 $ - $ 4,371 $ -
Grand Total $ 34,416,237 $ 127,836 $ (2,328,397) $ 32,215,676 $ 2,387,775
In prior years, the general fund was used to liquidate compensated absences and claims and judgments.
General Obligation Bonds — The City issues general obligation bonds to provide funds for the acquisition and construction
of major capital facilities. General obligation bonds are direct obligations and pledge the full faith and credit of the City.
General obligation bonds outstanding as of June 30, 2011 were as follows:
Origination
Interest
Due
Principal
Annual
Balance
Purpose Date
Rate Term
Date
Amount
Payment
30-Jun-11
Aquatic Facility 4/15/2002
4.2%-4.9% 20 years
2022
$ 3,675,000
varies
$ 2,440,000
Fire Station #62 4/1/2005
3%-6.5% 15 years
2020
3,000,000
varies
2,010,000
Total G.O. Bonds
$ 6,675,000
$ 4,450,000
53
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Special Assessment Debt — Special assessment bonds are secured by a lien on the assessed properties. The primary source of
repayment is the assessments levied against the benefiting properties. However, the City is liable, to an extent, for repayment
of these special assessment bonds. The City is authorized by State law to establish and has established a revolving fund to
ensure the payment of debt service on the bonds in the event that assessed property owners default.
Origination
Interest
Due
Principal
Annual
Balance
Purpose
Date
Rate
Term
Date
Amount
Payment
30-Jun-11
SID343
6/12/2001
3.6%-5.5%
20 years
2021
1,581,500
varies
640,000
SID344
6/15/2006
3.7%-5.1%
20years
2026
4,520,000
varies
3,395,000
2003 S&C
1/1/2004
4.50%
8 years
2012
13,758
varies
1,720
2004 S&C
1/3/2005
5.00%
8 years
2013
31,693
varies
7,923
2005 S&C
1/3/2006
7.25%
8 years
2014
22,850
varies
8,569
2007 S&C
1/3/2008
6.00%
8 years
2016
15,407
varies
9,629
2008 S&C
1/3/2009
3.50%
8 years
2017
8,981
varies
6,735
2009 S&C
1/4/2010
3.50%
8 years
2018
7,629
varies
6,676
2010 S&C
1/6/2011
3.00%
8 years
2019
942
varies
942
Total Special
Assessment Bonds
$ 6,202,760
$ 4,077,194
SID's 343 Assessments
In the event that all future and delinquent assessments are paid and that there are no future adjustments to assessments by the
City of Kalispell, there is a projected surplus of principal assessments in SID 343 of $154,657.
SID 344 Bonds
The City of Kalispell entered into a Continuing Disclosure Undertaking dated as of June 29, 2006 with respect to the SID 344
Bonds. As part of the Undertaking, the City covenanted and agreed to provide continuing disclosure of certain financial
information, operating data, and timely notices of the occurrence of certain events for the benefit of the Holders of the Bonds
in order to assist the Participating Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b) (5),
promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Rule"). The Bonds were issued pursuant to Resolution No. 5123, adopted by the City Council of the City on June 19, 2006.
Pursuant to Resolution No. 5123, principal of and interest on the Bonds are secured by: (i) special assessments payable by
taxpayers in SID 344; (ii) certain tax increment revenues pledged to the Bonds; (iii) a bond reserve account ($226,000)
established in the SID 344 fund; (iv) the debt service revolving fund ($226,000). On the July 1, 2009 payment date for the
Bonds, the City used $169,652.02 of the $452,000 in the SID 344 bond reserve account to fully satisfy the regularly
scheduled debt service payment of $318,603.75. As of June 30, 2011, these reserves have been fully reestablished.
The use of the bond reserve monies was necessary because the largest property owner in SID 344 (currently the owner of 12
of the 17 total parcels in SID 344) had not paid 2008/2009 Special Assessments when due on November 30, 2008 and May
31, 2009 and the available Special Assessments and Tax Increments were insufficient to fully satisfy the regularly scheduled
payment. The City has determined that the use of bond reserve monies constitutes a material event (as defined by the Rule
and the Undertaking) because it is an unscheduled draw on the reserves reflecting financial difficulties for the Bonds. In
October 2009, Lot 2 of Special Improvement District 344 was sold. The purchaser of Lot 2 made a $250,000 prepaid tax
payment. The seller used the proceeds to bring the taxes current on 6 of the remaining unsold lots. The City used a portion of
these payments to replenish the bond reserve account to its required amount of $226,000. These prepaid taxes also allowed
the City to make the fiscal year 2010 debt payments without the use of reserve money. At June 30, 2011, $226,000 is in the
SID 344 bond reserve account, and $256,621 is in the debt service revolving fund available to pay future debt service on the
bonds.
54
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Revenue Bonds — Revenue bonds are directly related to and expected to be paid from the proprietary fund. The 2005 Airport
Tax Increment bonds are accounted for in the Government -wide financial statements.
Issue
Interest
Purpose
Date
Rate
Term
Governmental Activities:
2005A - Airport TIF
Sep-05
3.8%-4.40%
10 years
Governmental Activities Sub Total
Business -type Activities:
2001 Water
Jun-01
4.00%
20 years
2004 Water Refunding
May-04
2.5%-4.85%
20 years
Business -type Activities Sub Total
Total Revenue Bonds
Final Bonds Balance
Maturity Issued 30-Jun-11
Significant Provisions of the Series 2005 Airport Urban Renewal Tax Increment Bond
2020 1,445,000 1,325,000
1,445,000 1,325,000
2021 $ 761,000 $ 443,000
2024 1,840,000 905,000
$ 2,601,000 $1,348,000
$ 4,046,000 $ 2,673,000
Reserve Account — The City shall maintain a debt service reserve account with a balance equal to the lesser of: (i) ten percent
of the sum of the original principal amounts of each series of Bonds of which any Bond is Outstanding or (ii) the maximum
amount of principal and interest due on the Outstanding Bonds (giving effect to any mandatory sinking fund redemption) in
the then current or any future calendar year.
Maximum amount of principal and interest due in any future fiscal year $180,700
City's Reserve $184,875
Significant Provisions of the Water System Revenue Bonds
Debt Service Account - Monthly an amount equal to not less than 1/6 of the interest due within the next six months and 1/12
of the principal to become due within the next twelve months shall be credited to the debt service account. The debt service
account was zero as of June 30, 2011, as all debt service payments were made as of the end of the fiscal year, leaving no
accrued interest or principal balance.
Reserve Account - The City shall keep in the reserve account an amount equal to the lesser of 10% of the original principal or
the maximum amount of principal and interest required in the current or any subsequent fiscal year. For the Water fund the
City complies with the maximum amount of principal and interest required in the current or any subsequent fiscal year.
Maximum Principal and Interest $ 460,107
Total Reserve Requirement 460,107
Reserve balance 6/30/11 $ 515 449
Property Insurance - The City will cause all buildings, properties, fixtures, and equipment to be kept insured in amounts that
are ordinarily carried.
Liability Insurance - The City will carry insurance against liability of the City and its employees.
55
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Rates and Charges — Rates and charges will be made and kept sufficient to provide gross income and revenues adequate to
pay promptly the reasonable and current expenses of operating and maintaining the system and to produce in each fiscal year
net revenues in excess of such current expenses, equal to 125% of the maximum amount of principal and interest payable
from the Revenue Bond Account in any subsequent fiscal year.
Cash Flow Coverage
*Water Service Charges
$2,223,507
Misc. Revenue
128,441
Total Operating Revenue
$2,351,948
Less: Operating Expense (before depreciation)
1,699,689
Available for Debt Service
$ 652,259
**Maximum Debt Service
$ 460,107
Coverage FY 11
141 %
*includes interest revenue
**includes all debt service needs of the water fund
State Revolving Fund — the City has five (5) loan agreements with the State Revolving Fund (SRF). These obligations are to
be repaid from the operating income of the fund.
SRF LOANS
Purpose
Sewer - WWTP (construction)
Sewer (Highway 93 S extension)
Water 2007 'A' (refinance)
Water 2007'B' (well, storage, distribution)
Sewer - WWTP (expansion)
Sewer Debt Required Information
Origination
Interest
Rate
FY92
4.00%
FY04
3.75%
FY07
3.75%
FY08
3.75%
FY08
3.75%
Total SRF Loans
Amount
Outstanding
Term
Borrowed
30-Jun-11
20 years
$ 3,913,425
$ 411,000
20 years
1,475,860
1,075,000
8 years
1,283,159
689,000
20 years
1,500,000
1,401,000
20 years
14,470,000
13,486,000
$ 22,642,444
$17,062,000
Operating Reserve — The city shall keep in the operating reserve account an amount equal to one month's operating expenses.
As of June 30, 2011, the operating reserve account contains $190,000.
Debt Service Account - Monthly an amount equal to not less than 1/6 of the interest due within the next six months and 1/12
of the principal to become due within the next twelve months shall be credited to the debt service account. The debt service
account was zero as of June 30, 2011, as all debt service payments were made as of the end of the fiscal year, leaving no
accrued interest or principal balance.
Reserve Account - The City shall keep in the reserve account an amount equal to the lesser of 10% of the original principal,
the maximum amount of principal and interest required in the current or any subsequent fiscal year, or 125% of the average
debt service payable in any fiscal year. The City is in compliance with the maximum amount of principal and interest
required in the current or any subsequent year. As of June 30, 2011, the debt service reserve account contains $1,371,162.
we
CITY OF KAL,ISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Rates and Charges — Rates and charges will be made and kept sufficient to provide gross income and revenues adequate to
pay promptly the reasonable and current expenses of operating and maintaining the system and to produce in each fiscal year
net revenues in excess of such current expenses, equal to 125% of the maximum amount of principal and interest payable
from the Revenue Bond Account in any subsequent fiscal year.
Cash Flow Coverage
*Operating Revenue $4,208,494
Impact Fees pledged for debt service 250,000
Less: Operating Expense (before depreciation) 2,778,717
Available for Debt Service $1.679, 777
"Maximum Debt Service $1,352,429
Coverage FYI 124%
*includes interest revenue
*includes all debt service needs of the sewer fund
Loans/Contracted Debt
Governmental Funds
Purpose
*Board of Housing
BOI:City Hall HVAC
BOI:Fire Truck
BOI:Bucket Truck
BOI:Mower
Rocky Mtn Bank - Fire Truck
Capital One Public Funding -
201 1 st Ave E -City Hall
USDA: Intermediary
Relending Program
Relending Program
Origination
Date
3/1/1995
7/16/2004
4/22/2005
12/30/2010
3/4/2011
3/7/2008
Interest
Rate**
6.00%
varies
varies
varies
varies
3.95%
Term
30 years
10 years
10 years
5 years
5 years
10 years
10/25/2007 4.85% 12 years
Sub total BOI loans/contracted debt
Due
Principal
Balance
Date
Amount
30-Jun-11
2/1 /2025
$ 271,000
$ 181,542
2/15/2014
151,836
57,442
8/15/2015
279,900
139,077
2/15/2016
28,300
28,300
2/15/2016
71,220
71,220
3/1/2018
575,000
426,500
9/15/2019 1,420,165 1,081,351
2,797,421 1,985,432
10/12/2004 1.00% 30 years
10/12/2034 520,000
468,861
11/27/2006 1.00% 30 years
11/27/2036 257,500
228,273
Sub total USDA Intermediary
777,500
697,134
Total loans/contracted debt
$ 3,574,921
$ 2,682,566
BOI - Board of Investments Intercap Loan Program
*The board of housing loan is paid from the proceeds of the rents on the Courtyard Apartments per the
agreement with Northwest Human Resources.
57
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Requirements to amortize debt
The annual requirements to amortize all long-term debt outstanding, excluding compensated absences payable, as of June 30,
2011, were as follows:
Governmental Activities:
SPECIAL
G.O.
ASSESSMENT
CONTRACTED
INTERMEDIARY
REVENUE
FOR FISCAL
BONDS
BONDS
LOANS/DEBT
LOAN PROGRAM
BONDS
(EAR ENDED
PRINCIPAL
INTEREST
PRINCIPAL INTEREST
PRINCIPAL INTEREST
PRINCIPAL INTEREST
PRINCIPAL INTEREST
TOTAL
2012
365,000
190,288
317,658
199,231
405,272
73,188
25,117
6,971
125,000
55,575
1,763,300
2013
385,000
176,573
315,938
185,249
232,194
64,616
25,368
6,720
130,000
50,700
1,010,785
2014
395,000
161,618
311,976
171,135
242,611
55,657
25,621
6,467
135,000
45,500
1,550,585
2015
415,000
145,783
309,120
157,007
243,209
46,336
25,878
6,210
140,000
40,033
1,528,576
2016
430,000
128,720
309,120
142,876
229,082
36,801
26,960
6,044
145,000
34,223
1,488,826
2017-2021
2,185,000
348,410
1,368,382
492,093
633,064
56,254
138,898
26,121
650,000
72,468
5,970,690
2022-2026
275,000
13,475
1,145,000
175,583
145,983
19,036
1,774,077
2027-2031
153,430
11,589
165,019
2032-2036
129,879
3,763
133,642
TOTAL
4,450,000
1,164,867
4,077,194
1,523,174
1,985,432
332,852
697,134
92,921
1,325,000
298,499
15,385,500
Business -type
Activities:
SRF
REVENUE
FOR FISCAL
LOANS
BONDS
(EAR ENDED
PRINCIPAL
INTEREST
PRINCIPAL INTEREST
TOTAL
2012
983,000
632,079
94,000
58,535
1,767,614
2013
911,000
592,781
96,000
54,515
1,654,296
2014
1,037,000
560,294
102,000
50,695
1,749,989
2015
1,122,000
487,576
104,000
45,475
1,759,051
2016
965,000
479,913
111,000
42,135
1,598,048
2017-2021
5,220,000
1,828,331
586,000
136,518
7,770,849
2022-2026
5,688,000
808,230
255,000
25,220
6,776,450
2027-2031
1,136,000
31,950
1,167,950
TOTAL
17,062,000
5,421,154
1,348,000
413,093
24,244,247
F. State -Wide Retirement Plans
Substantially all full-time City employees are eligible for one of three retirement plans: Montana Public Employees'
Retirement System (PERS); Municipal Police Officer's Retirement System (MPORS): and the Firefighters' Unified
Retirement System (FURS). The plans are established by State law and administered by the State of Montana. The plans are
cost -sharing multiple -employer defined benefit and/or defined contribution plans that provide retirement, disability and death
benefits to plan members and beneficiaries. The City had a total payroll of $9,798,564 for FYI], of which $9,468,410 is
covered by PERS, MPORS, or FURS. Component Unit payroll covered by PERS was $51,386 for the Parking Commission.
58
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Contribution rates for the plans are required and determined by State law. The contribution rates, expressed as a percentage
of covered payroll for the fiscal year ended June 30, 2011, were:
PERS
MPORS
FURS
Employee
6.90%
9.00%
10.70%
Employer
7.07%
14.41%
14.36%
State
0.10%
29.37%
32.61 %
The State contribution qualifies as an on behalf payment. These amounts have been recorded in the City's financial
statements.
The Retirement System issues a publicly available financial report that includes financial statements and required
supplementary information for all three plans. That report may be obtained by writing to Public Employees Retirement
Division, P. O. Box 200131, Helena, MT 58620-0131 or by calling 1-406-444-3154.
The City's contributions for the years ending June 30, 2009, 2010 and 2011, as listed below, were equal to the required
contributions for each year.
PERS
MPORS
FURS
PARKING COMM
2009 $ 397,550
$ 266,802
$ 285,567
$ 3,664
2010 $ 402,258
$ 263,223
$ 254,540
$ 3,729
2011 $ 382,595
$ 286,797
$ 256,369
$ 3,633
G. Post Employment Health Insurance Benefits
Terminated employees may remain on the City's health insurance plan for up to 18 months if they pay the monthly premiums.
This benefit is required under federal C.O.B.R.A. law. In accordance with Montana State law (see below), retirees may
remain on the City's health plan as long as they wish, at a rate that does not cover all of the related costs. This results in the
reporting of an implied rate subsidy in the financial statements and footnotes. The City's contract with Allegiance Benefits
details the plan eligibility. MMIA is the administrator of the benefit plan which covers both active and retired members. The
City's retirees may continue coverage for themselves and their covered eligible dependents if they are eligible for public
employees' retirement by virtue of their employment with the City of Kalispell. The City's current labor contracts do not
include any obligations for payments to retirees.
Montana Codes Annotated (MCA) Section 2-18-704 states (1) an insurance contract or plan issued under this part must
contain provisions that permit:
(a) The member of a group who retires from active service under the appropriate retirement provisions of a defined
benefit plan provided by law or, in the case of the defined contribution plan provided in Title 19, chapter 3, part 21,
a member with at least 5 years of service and who is a least age 50 while in covered employment to remain a
member of the group until the member becomes eligible for medicare under the federal Health Insurance for the
Aged Act, 42 U.S. C. 1395, as amended, unless the member is a participant in another group plan with substantially
the same or greater benefits at an equivalent cost or group plan with substantially the same or greater benefits at an
equivalent cost;
(b) The surviving spouse of a member to remain a member of the group as long as the spouse is eligible for retirement
benefits accrued by the deceased member as provided by law unless the spouse is eligible for medicare under the
federal Health Insurance for the Aged Act or unless the spouse has or is eligible for equivalent insurance coverage
as provided in subsection (1)(a);
59
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
(c) The surviving children of a member to remain members of the group as long as they are eligible for retirement
benefits accrued by the deceased member as provide by law unless they have equivalent coverage in subsection
(1)(a) or are eligible for insurance coverage by virtue of the employment of a surviving parent or legal guardian.
For FY2011, the City of Kalispell has recorded other post employment benefits in the governmental funds. This recording
resulted in a restatement of $476,270 on the Statement of Activities from the expenses of the two prior fiscal years. OPEB is
recorded on an accrual basis for the governmental funds. The City of Kalispell does not consider its liability for other post
employment benefits in the Water or Sewer funds to be material and has elected not to report OPEB in those funds.
Funding Policy. The plan is unfunded by the City and plan members receiving benefits contribute 100 percent of their cost of
the benefits on a pay-as-you-go basis. The City plan's administratively established retiree medical, dental and vision
premiums vary between $374 and $1,588 per month depending on the medical plan selected, family coverage, and Medicare
eligibility. The plan provides different coinsurance amounts depending on whether members use preferred, non -preferred, or
other hospitals. For fiscal year ended June 30, 2011, the City has 16 retired members receiving benefits.
Annual OPEB Cost and Net OPEB Obligation. The City's annual other post -employment benefit (OPEB) cost (expense) is
calculated based on the annual required contribution of the employer (ARC). The ARC represents a level of funding that, if
paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities (or
funding excess) over a period not to exceed thirty years.
The following table shows the components of the City's annual OPEB cost for the year, the amount implicitly contributed to
the plan, and changes in the City's net OPEB obligation to the Retiree Health Plan:
Annual required contribution/Annual OPEB Cost (Expense)
Interest on beginning of year net OPEB obligation
Adjustment to the Annual Required Contribution
Annual OPEB Cost
Contributions made (implicit)
Net OPEB obligation - beginning of year
Net OPEB obligation - end of year
Governmental Business -type
Total
Activities
Acitivities
$247,511
$209,005
$38,506
$29,420
$24,843
$4,577
-$36,738
-$31,022
-$5,716
$240,193
$202,826
$37,367
-$72,790
-$59,074
-$13,716
$566,853
$476,270
$90,583
$734,256
$620,022
$114,234
The June 30, 2011 year-end OPEB obligation is reported in the City's funds as follows:
Functions/Programs Expenses
Primary Government:
Governmental activities:
General government $620,022
Total governmental activities 620,022
Business -type activities:
Water
Sewer
Total primary government
59,513
54,721
Total business -type activities 114,234
$734,256
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Funded Status and Funding Progress. The projection of future benefit payments for an ongoing plan involves estimates of
the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples
include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the
funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual
results are compared with past expectations and new estimates are made about the future. The schedule of funding progress,
presented as required supplementary information following the notes to the financial statements, presents multiyear trend
information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial
accrued liabilities for benefits. The City has elected not to fund this liability.
Actuarial Methods and Assumptions. As of June 30, 2011, the City's actuarially accrued liability (AAL) for benefits was
$2,145,522. The AAL by status breakdown is shown below:
Active participants:
Retirees, Dependents, and Surviving Spouses:
Total AAA
Normal Cost
Impact on Statement of Activities
Annual OPEB Cost
Impact on Statement of Net Assets
Assumed Contributions
Fiscal
Fiscal
Fiscal
2009
2010
2011
$ 1,450,472
N/A
$1,284,463
$ 1,558,443
N/A
$ 861,059
$ 3,008,915
N/A
$ 2,145,522
$ 170,429
N/A
$ 105,750
$ 282,232
$ 282,232
$ 247,511
$ -
$ -
$ 72,790
Net OPEB Obligation at June 30 $ 282,232 $ 566,853 $ 734,256
Participant Information
Active participants: 172 N/A 172
Retirees, Dependents, and Surviving Spouses: 31 N/A 16
Total 203 N/A 188
The following key assumptions were chosen by the City:
1. Discount/Inflation Rate: 5.19%
2. Expected Long Term Rate of Return on Assets: N/A
3. Healthcare (inflation) and Retiree Contribution Trend Rates: 7% as of July 1, 2010 reduced linearly to 5% by
fiscal year 2015, and remaining at 5% thereafter.
4. Participation Rate: 20% of future retirees are assumed to elect medical coverage. 70% of the future retirees
who elect medical coverage and are married are assumed to elect spousal coverage as well.
5. Marital Assumption: For future retirees, 60% are assumed to be married, and males are assumed to be 3 years
older than females.
6. Amortization method: 30 year open (level dollar).
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the
probability of events far into the future. Examples, as detailed above, include assumptions about future employment,
mortality, and the healthcare cost trend. Actuarially determined amounts are subject to continual revisions as actual results
are compared with past expectations, and new estimates are made about the future. Actuarial calculations reflect a long-term
perspective. The schedule of funding progress, presented as required supplementary information following the notes to the
61
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
financial statements, is designed to present multiyear trend information about whether the actuarial value of plan assets is
increasing or decreasing over time relative to the actuarial liabilities for benefits. The City of Kalispell has elected not to fund
this liability.
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the
employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern
of sharing of benefit costs between the employer and plan members to that point. The methods and assumptions used include
techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value
of assets, consistent with the long-term perspective of the calculations.
H. Amounts Due From and Due To other Governments
On June 30, 2011, the amounts due from other governments consisted of the following:
General Fund
Due from: Amount
State of Montana -License Fee $ 200
Flathead County -Taxes 37,911
Sub Total $ 38,111
Special Revenue Funds
Due from:
Amount
MDOT-Grants
$ 7,813
MDOT-Court Grant
$ 20,315
Flathead County -Taxes
$ 252,561
U.S. Dept. of H. U. D.
$ 83,505
U.S. Dept. of the Interior
$ 5,677
Flathead County Sheriff Dept.
$ 29,423
U.S. Dept. of Energy
$ 6,796
State of Montana-DPHHS
$ 600
U.S Dept. of Homeland Sec.
$ 100,187
EPA
$ 36,205
U.S. Dept. of Justice -Grants
$ 48,623
U.S. Dept. of Agriculture -Grants
$ 5,932
Sub Total
$ 597,637
Debt Service Funds
Due from: Amount
Flathead County -Taxes $ 143,917
Capital Project Funds
Due from: Amount
U.S. DOT $ 15,200
U.S. Dept. of Homeland Sec. $ 196,757
Sub Total $ 211,957
Total Governmental Funds $ 991,622
Enterprise Funds
Due from: Amount
Flathead County -Taxes 188,113
MT DEQ $ 2,668
Total Business -type Funds $ 190,781
Total City of Kalispell $ 1,182,403
62
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
I. Restricted Cash/Investments
The following restricted cash/investments were held as of June 30, 2011. These amounts are reported within the
cash/investment account on the Combined Balance Sheet.
Business -type Activities
Water Bond Reserve (includes SRF & BOI)
Plant Investment/impact Fees (1)
Sewer Operating Reserve (2)
Bond Contingency
Plant Investment/Impact Fees (sanitary) (1)
Plant Investment/impact Fees (treatment plant) (1)
Plant Investment/impact Fees (storm) (1)
Treatment Plant Replacement (3)
Total business -type activities restricted cash/investments
Governmental Activities
Impact Fees Capital
Urban Forestry Developers (4)
Debt Service Bond Reserve
Total governmental activities restricted cash/investments
Total restricted cash/investments
1-Jul-10
Additions
Subtractions
30-Jun-11
$ 515,449
$ -
$ -
$ 515,449
778,005
241,443
(571,094)
448,354
213,000
(23,000)
190,000
1,371,162
1,371,162
1,623,691
162,254
(33,028)
1,752,917
447,048
176,340
(225,000)
398,388
454,668
118,861
573,529
328,970
418,133
(82,507)
664,596
5,731,993
1,117,031
(934,629)
5,914,395
294,605 120,470 (116,273) 298,802
101,513 (3,679) 97,834
500,400 (10,450) 489,950
896,518 120,470 (130,402) 886,586
$ 6,628,511 $ 1,237,501 $ (1,065,031) $ 6,800,981
(1) Plant investment/impact fee cash. Montana State legislation regulating impact fees to fiend capital improvements, MCA
7-6-1601 through 7-6-1604 (see 7-6-1603 below related to expending impact fees), became effective April 19, 2005 and
sets forth the procedures and requirements for the imposition of impact fees by local governments. On October 16, 2006,
by ordinance no. 1587, the Kalispell City Council authorized and established the procedure and imposition of impact fees
to fund capital improvements related to additional capacity (growth).
MCA 7-6-1603 states that "the collection and expenditure of impact fees must be reasonably related to the benefits
accruing to the development paying the impact fees..."
(2) Operating reserve cash is restricted according to bond agreement (third party).
(3) Treatment plant replacement cash is restricted by an agreement with Flathead County Water District (third party).
(4) Urban forestry receives cash from developers to be used to plant trees in new city developments (third party).
J. Restatements
During the current fiscal year, the following adjustments relating to prior years' transactions were made to fund balance and
retained earnings accounts.
Fund
Governmental Funds
Governmental Funds
Total Statement of Activities - Gov'tal Funds
Airport Fund
Total Proprietary funds/Business-type activities
Amount Reason
$ 899,936 Retroactive implementation of infrastructure
$ (476,270) OPEB-Health Insurance - GASB #45
$ 423,666
$ (9,650) Expense of a prior period
$ (9,650)
63
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
K. Joint Ventures
Joint ventures are independently constituted entities generally created by two or more governments for a specific purpose
which are subject to joint control, in which the participating governments retain 1) an ongoing financial interest or 2) an
ongoing financial responsibility.
1. City -County Health Department
The City -County Health Department is operated under an interlocal agreement between Flathead County and the City of
Kalispell. The Department operates under the supervision and control of the City -County Health Board. The Board consists
of seven members, six of whom are appointed by the Board of County Commissioners. The Department is financed, in
addition to revenue generated by providing health services, by the City and the County levying an identical mill levy, up to 5
mills, in order that all property within the City of Kalispell and all property in Flathead County outside the City limits are
taxed equally. The operation is accounted for in the City Health Fund and is included in the general purpose financial
statements of Flathead County within the Special Revenue Fund.
2. Courtyard Apartments/Community Action Partners
The City entered into an agreement with Northwest Montana Human Resources (now Community Action Partners) for a joint
venture construction project of the Courtyard Apartments. The City owns 16 units of the apartment complex built with Home
Grant and CDBG funds. NWMHR has built 16 units also. The agreement provides for the management of the housing
complex for low income housing. All operations and maintenance of the housing complex are managed by Northwest
Montana Human Resources. NWMHR maintains a trust fund in the City's name to record the revenues and expenses of the
housing complex. The debt payments on the mortgage are paid from the proceeds of the rents by NWMHR. The principal
balance is recorded on the City's books in the Government -wide financial statements. The original amount of the loan was
$271,000. The balance as of June 30, 2011 is $181,543.
3. 911 Dispatch Center
The 911 Dispatch Center is operated under an interlocal agreement between Flathead County, the City of Columbia Falls, the
City of Whitefish, and the City of Kalispell. The Center operates under the supervision and control of the Flathead
Emergency Communications Center Board. The Board consists of six members, the Flathead County Sheriff, a County
Commissioner chosen by the Board of County Commissioners, the County Attorney or other elected County officer, and an
elected official or designee from each of the cities of Kalispell, Whitefish, and Columbia Falls. The Department is financed
by funds received by all members from the State (9-1-1 fees) pursuant to Section 10-4-302, M.C.A. Any additional operating
funds needed will be shared proportionally by all members. Under the supervision of the Board, the Director shall hire and
direct staff to carry out the responsibilities of the County's Office of Emergency Services and the Flathead County Fire
Service Area.
L. County Provided Services
The City of Kalispell is provided various financial services by Flathead County. The County serves as cashier and treasurer
for the City for tax assessment collections and other revenues received by the County which are subject to distribution to the
various taxing jurisdictions located in the County. The collections made by the County on behalf of the City are accounted
for in an agency fund in the City's name and are periodically remitted to the City by the County Treasurer. The County
charges the City for fees associated with City Special Assessments.
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
M. Disk Management
The City faces a considerable number of risks of loss, including a) damage to and loss of property and contents, b) employee
torts, c) professional liability, i.e., errors and omissions, d) environmental damage, e) workers' compensation, i.e. employee
injuries, and f) medical insurance costs of employees. A variety of methods are used to provide insurance for these risks.
Commercial policies, transferring all risks of loss, except for relatively small deductible amounts are purchased for property
and content damage and professional liabilities. The City participates in two statewide public risk pools operated by the
Montana Municipal Insurance Authority, for workers' compensation and for tort liability coverage. Employee medical
insurance is provided through a state-wide health insurance pool administered by MMIA. Given the lack of coverage
available, the City has no coverage for potential losses from environmental damages.
Effective July 1, 1987 The City of Kalispell joined with other Montana cities to form the Montana Municipal Insurance
Authority, a self-insurance pool offering Worker's Compensation and Liability Coverage. Both public entity risk pools
currently operate as common risk management and insurance programs for the member governments. The liability limits for
damages in tort action are $750,000 per claim and $1.5 million per occurrence with an $11,250 deductible per occurrence.
State tort law limits the City's liability to $1.5 million. The city pays an annual premium for its employee injury insurance
coverage, which is allocated to the employer funds based on total salaries and wages. The agreements for formation of the
pools provide that they will be self-sustaining through member premiums. The tort liability plan and workers' compensation
program issued bonds in the amount of $4.41 million and $7.610 million, respectively, to immediately finance the necessary
insurance reserves. All members signed a contingent note for a pro rata share of this liability in case operating revenue was
insufficient to cover the debt service. The City's share is $201,445 for liability and $281,715 for Workers' Compensation to
finance the necessary insurance reserves. Based on the plan's current financial position, the City doesn't expect to make any
payment on these notes. Separate financial statements are available from the Montana Municipal Insurance Authority.
On October 1, 2004, Kalispell signed a 5 year agreement with many other Montana Cities, and through the Montana
Municipal Insurance Authority, to create a state wide health insurance pool. The City pays the total monthly premium for
employees who only choose to cover themselves. For employees who choose to cover additional dependents, the City pays a
percentage of the extra costs.
N. Pending Litigation
The following is a list of litigation pending against the City and the amount of damages claimed by the Plaintiff. The City
Attorney has made no evaluation as to the outcome of each case. The City has liability insurance that may cover all or part of
the damages. Accordingly, no provision has been made in the financial statements for these contingent liabilities.
Damages
Loss
Litigant
Requested
Potential*
Status
Sandry
$ 200,000
Possible
District Court
Olson
$ 1,000
Possible
Justice Court
Talmage
>$10,000
Possible
District Court
Kruckenberg
<$10,000
None
District Court
Morkin
Unspecified
Possible
District Court
Parker
Specific Performance
None
District Court
Todd
Unspecified
Possible
District Court
Rimrock Claims
Unspecified
Possible
MMIA
Wagner
Unspecified
Possible
District Court
65
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
O. Loans Receivable
Community Development Loan Revolving
The City entered into a community development program, which includes funding from a community development block
grant, to make available to eligible applicants (low -to -moderate income residents), a loan for at least one-half of the required
rehabilitation cost. These funds from the City, together with loans from the First Federal Savings Bank (now Glacier Bank) of
Montana, the lender, must provide the total funds required for the purchase and rehabilitation of the housing unit. At the time
the bank loans are closed with the borrower, the proceeds of the City's loan will be deposited into the borrower's construction
account at First Federal. The City's loan is secured by the property, and filed in a third lien position. Repayment of the City
loan will not begin until 30 days after the Lender's loan (second lien) for construction of the unit has been paid off. The City's
loan is interest free until such time as repayment begins. The maximum amount of a private lender loan cannot exceed
$20,000 per property with a ten-year pay back.
In addition, when an owner -occupant is unable to afford a private lender loan at the pre -determined interest rate agreed to by
the City and lender, he or she may qualify for City financing. The City may provide a direct loan of up to $25,000 with a
varying interest rate (as low as zero percent) or with a longer amortization period (maximum of fifteen years) or a deferred
loan to be repaid simultaneously, at a later date, with a balloon payment, or to be released at the end of ten years.
The City has $51,300 recorded as housing rehab loans receivable as of June 30, 2011 in the Community Development Loan
Revolving Fund. The above mentioned loans are offset with deferred revenue accounts. Uncollected receivables in
governmental fiords are offset with deferred revenue accounts as explained in the "basis of accounting".
Other loans receivable of the Community Development Loan Revolving Fund:
A 15 year loan at 5% to Flathead Health and Fitness in November 2004.
Original Loan amount $ 74,250
June 30, 2011 balance $ 49,513
Community Development Block Grant Economic Development Program
In fiscal year 2007, the City entered into a community development program with funding from a community development block
grant economic development program. Eligibility for these low interest loans is tied to the creation of jobs within Kalispell with a
percentage of the jobs created to be filled by low and moderate -income persons.
The following loan has been made by the City using the economic development program funds:
A 15 year loan at 6.5% to Distinctive Countertops in July 2006.
Original Loan amount $ 25,000
June 30, 2011 balance $ 23,285
A 15 year loan at 5% to Distinctive Countertops in October 2006.
Original Loan amount $ 288,619
June 30, 2011 balance $ 271,893
A 7 year loan at 7% to the Kalispell Hotel (Hilton) in July 2007.
Original Loan amount $ 150,000
June 30, 2011 balance $ 75,275
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
A15 year loan at 6% to AGAPE Home Care in May 2009.
Original Loan amount $ 42,500
June 30, 2011 balance $ 38,619
Rural Development Loan Revolving
On May 5, 2003, the City Council passed Resolution No. 4780 establishing an Economic Development Revolving Loan Fund
(ED RLF) for small business retention and expansion. The resolution also created an Economic Development Loan Review
Committee to process all applications for assistance. Additionally, on August 16, 2004 and again on November 6, 2006, the
City Council, by Resolution No. 4929 and 5158, respectively, authorized the City Manager to enter into loan agreements with
the United States Department of Agriculture, Rural Development office, in the amount of $520,000 and $750,000. These
monies will be used to assist in the retention and expansion of small business, which may stimulate economic development
activity by assisting the private sector where a funding gap exists and alternative sources of public and private financing are
not adequate.
The following loans have been made by the City using the Rural Development funds:
A 15 year loan at 5% to Flathead Health and Fitness in November 2004.
Original Loan amount $ 90,750
June 30, 2011 balance $ 58,849
A 7 year loan at 6.25% to Little Caesar's in March 2006.
Original Loan amount $ 37,500
June 30, 2011 balance $ 8,346
A 15 year loan at 6.5% to Distinctive Countertops in July 2006.
Original Loan amount $ 150,000
June 30, 2011 balance $ 139,462
A 10 year loan at 7% to Crossroads Realty in June 2007.
Original Loan amount $ 150,000
June 30, 2011 balance $ 129,396
A 7 year loan at 7% to the Kalispell Hotel (Hilton) in July 2007.
Original Loan amount $ 150,000
June 30, 2011 balance $ 75,275
A 7 year loan at 7% to Unfinished Furniture Creations in April 2006.
Original Loan amount $ 50,000
June 30, 2011 balance $ 7,200
*The balance of this loan $35,425 was forgiven. The defaulting parties (Bott/Thomas) agreed and signed
promissory notes for $5000 each.
UDAG
The following loan was made by the City using Urban Development Assistance Grant (UDAG) funds:
A 20 year redevelopment loan at 5% with Big Sky Manor in August 1999.
Original Loan amount $ 124,000
June 30, 2011 balance $ 66,347
67
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
P. City Court Contracts Receivable
Contracts receivable of the City Court, because of the uncertainty regarding when and if they will be collected, are no longer
booked as an asset on the balance sheet of the General Fund. These receivables, at June 30, 2011, amounted to $1,962,209.
Q. Wastewater Treatment Plant agreement with Evergreen
The City of Kalispell entered into an Interlocal Agreement with the Evergreen Sewer District ##1 for treatment of sewage from
the district at the City's plant. The Evergreen district sewer went into operation in July 1994. The City bills Evergreen
monthly for debt service at 12% of the principle and interest due for the plant. The City also bills for maintenance and
operation and replacement costs per the agreement based on metered flows. Evergreen Sewer District has an equity interest in
the replacement account carried on the City's books. The balance of the account as of June 30, 2011 is $664,596 of which
Evergreen's interest is $194,045.
R. Long Term Loans Receivable
Communitv Develoument Loan RevolvinLy
Hampstead Partners
In August of 2002, the City of Kalispell entered into two (2) notes receivable agreements with 2nd Avenue West Partners, L.P.
(Hampstead Partners) for property on 2nd Avenue West in Kalispell. The property consists of a 40-unit low-income apartment
complex known as 2nd Avenue West Independent Living Center. As stipulated in the agreement, this property is restricted as
low income housing, and shall remain as such for a period of thirty-five years.
One of these notes is for $480,000, and bears interest at 1% per annum. The second of these notes is for $400,000, and bears
interest at 4.81% per annum. These loans mature on February 28, 2032. Payments of interest on the note are due on or
before the last day of the taxable year, to the extent there is surplus cash, as defined by the note. Unpaid interest shall accrue
until paid, but not compound on the first loan. Payments of principal are not required until the maturity date of the loans. The
notes are secured by a deed of trust on the property. Accrued interest as of June 30, 2011, is $42,855, and $194,142,
respectively.
S. Special Item
City of Kalispell v. Owl Corporation, et al.
Background
The City of Kalispell (City) and Owl Corporation (OWL) entered into a Latecomers Agreement for Reimbursement for
Municipal Water and Sewer System Extension on August 10, 2005. The purpose was to construct and extend municipal water
and sewage conveyance facilities to property owned and being developed by OWL, as well as to serve other properties in the
service vicinity of the new extensions. OWL, as the developer, financed and paid for the design and construction of the
extensions. At the request of the City, the extensions were sized to serve other properties in that service vicinity as well. The
City, in consideration of this over sizing, agreed to collect an agreed upon contribution from the "latecomers" to reimburse
OWL for its investment.
Dispute
OWL filed a lawsuit against the City related to the terms of the agreement and specifically, whether properties requiring fire
flows over 1000 gallons per minute, are required to pay the calculated latecomer's fee for fire flow, regardless of whether or
not the fire flow capacity of that portion of the conveyance system has already been paid by a previous latecomer.
68
CITY OF KALISPELL
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011
Settlement Agreement
On February 7, 2011, at a regular meeting of the City Council, said Council accepted the terms of a settlement agreement
regarding the dispute with Owl Corporation. The essence of the settlement agreement is that the City paid the balance of
amounts due to Owl Corp. (approx. $312,000) on the water utility portion of the latecomer's agreement. The City will then
step into the position of Owl Corp. and will be reimbursed for this investment on the same terms as Owl Corp. would have
been under the latecomer's agreement. The settlement resulted in a special item of $312,736 being reported for the water
fund on the proprietary fund statement of revenues, expenses, and changes in net assets and on the government -wide statement
of activities for business -type activities.
T. Subsequent Events
Courtyard Apartments
On June 20, 2011, by resolution 5501, the Kalispell City Council gave notice of their intent to convey ownership of its 16
units of the Courtyard Apartments to Northwest Montana Human Resources, Inc., DBA Community Action Partners. On
October 20, 2011, the City of Kalispell closed on the sale of the Courtyard Apartments to Community Action Partners. The
sale resulted in neither a gain nor a loss. However, a prior period adjustment for unrecorded expenditures of $38,355 was
recorded. For more information on the Courtyard Apartments refer to note K. Joint Ventures.
West Side TIF District
On September 6, 2011, by resolution 5527, the Kalispell City Council directed the Kalispell Planning Board to review the
possibility of expanding the boundaries and extending the Life of the West Side TIF district which sunsets in 2012. Resolution
5527 found that an area of blight exists contiguous to the boundaries of the West Side Urban Renewal District and that
rehabilitation, redevelopment or a combination thereof, within such area is necessary in the interest of the public health,
safety, morals or welfare of the residents of the City of Kalispell.