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16. Audit-Fiscal Year Ended 6/30/04CITY OF KALISPELL FLATHEAD COUNTY, MONTANA Fiscal Year Ended June 30,, 2004 AUDIT REPORT Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS CITY OF KALISPEIL FLATHEAD COUNTY, MONTANA Fiscal Year Ended June 3, Zoo TABLE of CONTENTS Organization Management Discussion and Analysis -12 Independent Auditor's Report rt 1 - Financial Statements Government -wide Financial Statements Statement of Net Assets 15 Statement of Activities 1 Fund Financial Statements Balance Sheet — Govemmental GovernmentalFunds 1 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 1 Statement of Revenues, Expenditures and Changes in Fund Balance — Governmental Funds 1 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 20 Balance Sheet — Proprietary Funds 21 Statement of Revenues Expenses and Ganges ire Net Assets — Proprietary `rids22 Statement .t o Cash .flaws —Proprietary Fund Types 2 Fiduciary Funds — Statement of Fiduciary Net Assets 2 Notes to .Financial Statement 25-56 Supplemental Information Budgetary Comparison Schedule 57 .budgetary Comparison Schedule — . d ,et -to -GAAP Reconciliation 59 Single Audit Section Schedule of Expenditures o Federal Awards 5 Notes to the Schedule of Expenditures of Federal. Awards Report on Compliance and on Internal Control over Financial Reporting Based on an .AAu it o Financial Statements Performed in Accordance with Government Auditing Standards 61-62 CITY OF KALISPELL FLATHEAD COUNTY, MONTANA BI.,E OF CONTENTS — Continued Report on Compliance with Requirements Applicable to Each Major Program and ter .al Control Over Compliance in Accordance with OMB Circular A-163-64 Scale of Findings and Questioned Costs 65-66 Report on Other Compliance, Financial, and Internal Accounting Control Matters �7- Report on Prior Audit R cow t ions �' CITY OF KAISL FLATHEAD COUNTY, MONTANA ORGANIZATION Fiscal Year Ended June 301 Zoo Pamela B. Kennedy Mayor Kan' Gabriel Robert Hafferman Bob Herron Hank Olsen Chris Kk lski Charles Harball `rank Garner Randy Brodehl .Army Robertson Heidi Ulbricht James Hansz Michael Baker Susan Moyer Rick Wills CITY COUNCIL Ward I Jim Atkinson Ward III Ward. I Randy Kenyon Ward III Ward 11 M. Duane Larson Ward IV Ward 11 Jason Peters Ward IV CITY OFFICIALS City Manager City Attomey Pollee Chief Fire Chief Finance Director City Judfze Public Works Director Parks Director Conununity DevelopmentDirector Deputy Finance officer MANAGEMENT'S DISCUSSION AND ANALYSIS .s management of the City of Kalispell, we offer readers of the City of Ka is e l's financial statements this narrative overview and analysis of the financial activities of the City of Kalispell for the fiscal year ended June 30, 2004. We encourage readers to consider the information presented here in con uDd on with additional information that we have fufished in our letter of transmittal. FINANCIAL HIGHLIGHTS The assets of the 'ty of Kalispell exceeded *ts l'ab'l-ties at the close of the recent fiscal year by $ 1,275,4 o(net assets). Of this amount, $13,212,069 (restricted riet assets) may be used to .meet the government's ongoing obligations to citizens and creditors. As of the close of the current fiscal year, the City of Kal spe l's governmental rands reported combined ending ftmd balances of $8,35 7,3 97, a decrease of $1,810,864 'n compa .son with the prior year. This decrease can be attributed to the $2,545,527 capital outlay expenditure for the Woodland _dark ,aquatic Facility out of the Pool Construction fund. At the end of the current fiscal year, unreserved fund balance for the general fund was $11,134,3301, or 18.2 percent of total general fund expenditures. The City of Ka ispe l's total debt crew ed by $831,190 ding the current fiscal year. This increase can be attributed to the extension of utilities south on Highway 93. For fiscal year 2004, the City of Kalispell revenues for governmental activities (before special items) exceeded expenses by $894,081 (change in net assets). to the Ci place without regard to the corresponding cash transaction. T h. s results m some revenues and expenses being reposed in this statement that will not result in cash flow until a .future fiscal period. Some examples ple of this would be uncollected but earned taxes and earned leave benefits. its. The govcmme t -ode financial statements of the City of Kalispell are segregated to distinguish between functions supported predominantly y by taxes and i ter ovenune . al revenues (govemmental activities) and those that are intended to recover the, majority of their costs through user fees and charges for services (business -type activities). The governmental activities of the City of Kalispell include general government/administration, public safety, public works, culture and recreation, and housing and community ity development. The business -type activities of the City of Kalispell include eater distribution, sewer collection and treatment, solid waste collection, and ambulance service. The o ernme t -ode financial stater ents include, in addition to the p teary government described in the above paragraph, a legally separate parking commission, a legally separate T - city pla r ng office, and a legally separate Business Improvement t District. The financial information of hese component units is reported separately on the Goverment -wide fi wicia statements. Fund Financial Statements The City of Kalispell, like most other govemmental entities, uses Rind accounting. Funds are set up to account for specific activities or objectives of the o er r ent. Funds also aide in ensunn compliance with legal requirements. The City of Kalispell categorizes its funds as either governmental, proprietary, or fiduciary. Governmental funds correspond with the fimetions reported as govef-nmental activities in the ;ovemment-wide financial statements. Goverm-nenta.l fwd financial statements". by focusing on .ear -terra inflows and outflows of spendable le resources, may be more useful in evaluating a government's short-term fiscal health t than the government --wide financial statements, A reconciliation has been prepared to help users more easily compare the gover me ta.l fund balance sheet to the government -wide statement of net assets and -the governmental fund statement of revenues, expenditures, and changes in fund balance to the government -vide statement of activities. These recocitiatio.s can be useful in contrasting, comparing and u .d rsWdin the long-term impact ovemm t -wide statements) of near-term decisions governinetal find statements. The City of Kalispell. maintains numerous individual goveri ment_al funds. The governental fund balance sheet and statement of revenues, expenditures, and changes in .fund balance present information separately only for funds which are considered major. Major funds are determined by a formula which considers the percentage of total governmental assets, liabilities, revenues, and expenditures contained in each individual fund. The City of Kalispell has four major governmental funds; the General Fund (always a major fund), the Community Development loan Revolving (special revenue) Fund,, the Special Improvement Dish 343 (debt service) Fund, and the fool Construction capital prect Fund. All non -major ands are presented as a group. 3 The City of Kalispell adopts an annual appropriated budget for its f mds. A budgetary comparison statement has been provided for the general ftmd and each of the major special revenue funds to demonstrate compliance with this budget.. The City of Kalispell maintains two different types of propr'etary funds. Enterpr'se fa ds are used to report the same f netions presented as business -type activities in the government -wide financial statements. Water, sewer, solid waste, and ambulance make up the City of Kalispe "s ente pr'se funds. The City of Kalispell uses interval service funds to accumulate and alocate .its data processing and health insurance transactions internally among its various functions. Under the old reporting model internal service funds were reported as proprietary funds because they recovered most of their cost through user fees from other funds. Under this new model these funds are eliminated through an allocation process and categorized as either a go erunental or business -type activity. Because both of the City of Kallspel's internal service fin .s benefit govern ental more so than business -type ncti ns, they have been included within the govenunental activities M the government -wide financial statements. Information in the proprietary fund financial statements is of the same type as that provided in the government- v4de Rnancial statements, however, it is more detailed. Individual ftd data is provided for all of the enterpr'se rands. The City of Kalispell maintains two ftds to account for resources .held by the govenun nt for the benefit of outside parties. These fiduciary funds are not reflected i the overrnernt-wide financial statements because the resources are not available to support the City of Kalispell's own programs. The City of Kalispelll must ensure that the assets reported in these funds are used for their intended purpose. The accounting method used for fiduciary fud.s is similar to that used for proprietary fids. Notes to the Financial Statements The it foniiation contained in the government. -wide and fund financial statements is meant to be used ire concurrence with the rotes to the financial statements. The notes present further detail of the data provided by these statements. 4 ANALYZING THE CITY AS A WHOLE As mentioned prior, net assets can be an. important indicator of an entities financial well-being. For the period ending June 30., 200 4, the City of Kalis ell's assets exceeded liabilities by $59,916,777. CITY OF KALISPELL'S NET ASSETS Govemmental € si -type Total activities ctiviti s 2003 2004 2003 20G4 2003 2004 Current and tither assets $15,639,970 $ 13,373,781 $10,655,370 $15,136,500 $26,295,340 $28,510,281 Capital assets -net 18,204,233 22,930,206 27,130,462 29,609,093 45,334,895 52,539,299 Total assets33, 844, 293 36, 303, 987 37,785,832 44, 745, 593 71,630,035 8 ,049,580 . . .. . ..... Long-term.. liabilities outstanding 7,881,285 7,043,049 6,576,284 9,020,540 14,457,549 16,063,589 Other liabifffies 1,933,491 1,568x079 363,653 2,141,602 2,297,144 3,710,581 tai liabilities 9,814,776 8,612,028 6,939,917 11,162,142 16,754,693 19,774,170 'T Net assets - Invested in capital assets, net of related debt 12,489,553 17,437,974 20,819,432 20,828,734 33,308,985 38,266708 l estd ted 8,369,130 8,179,258 258 8,479,545 1,617, 75 16, 839, 6x75 9,796,833 i e t i cted3,1 . . .. ...... . ... . ................... , 744 2,074,727 1,555,938 11,137,342 4,728,882 13,212,069 Total net assets $24,029,427 $27,691,959 $30,845,915 $33,583,451 $54,875,342 $61,275,410 Investment in capital assets (e,g., land, buildings, machinery, and equipment), net of any related debt still outstanding on those assets makes es u % of the City of K lispell's net assets. These capital assets are used to provide s rvlces to the citizens of Kalispell and are not spendable. Wherefore, repayment of the debt related to capital assets must he provided from other sources. Restricted net assets equal $9,796,633 or 17%of total net assets. $1,617,375 of this is restricted n the enter nse funds to remain in compliance with bond agreements. The $8,179,258 restricted in governmental tai activities consist of $533,079 for debt service, $2,784,074 for capital projects, and $4,862,105 for other poses. The remaining balance of unrestricted net assets may be used to meet the City of Ka..l spel 's ongoing obligations to citizens and creditors. At the encs of fiscal year 2004, the City of Kalispell is able to report positive balances in all categories of net assets. Governmental activities. Governmental activities increased the City of Kalis e l's net assets by $27 � l x,275 accounting for d of the i t 's growth total net assets, seta tern reported Of $1,322194, related to the Stream contract buyout and reported in the Stream debt service iia .. accounts for over halfof this .increase. Further explanation of this special item can be found in part W. of the Notes to the Financial Statements. Stream also paid off its loan from the City as part of the agreementwhen they closed the call center. This loan payoff charge for services -UI Q- fund) is the other major contributor to the govemmental activities increase in net assets. 5 Business -ape activities. Business -type activities increased the City of Kalispell's net assets by $.,737,5361, accounting for 5 of the growth in the City's net assets. Chimes for services revenue increased 20% or $1 X27 , 12 1. The City's Water and Sewer fund account for the Mo., $1,o 2, o or % of this increa . This signif�ea t inere se i chanes for services resulted from increased rates', combined with an increase in customer basic and consumption. Infrastructurecont6b ti.o s from developer's in the Water and Sewer funds were $ ,244,080 or another 46% of the increase in net assets Affibuted to business -type activities. CITY OF KALlSPELL'S CHANGE IN NET ASSTS Governmental Business -type Total activities activities 2063 2904 2093 ..2.93 290 Revenues: Program revenues. 1,541,939 1,709,734 1,541,939 1,700,'734_ for services 3,461,936 4,577,743 6,5 6,3 0 7,7 , 469 9,968,286 12,355,212 -Cha.raes Operating grants and contributions 1,538,285 1,046,260 47.091 55,867 1,585,376 1,102,127 Capital grants and contributions 399,966 2,096,954 623,396 1,27+4,080 933,302 3,371, 34 �'++ Genera( revenues: 1,162,224 769,607 1,162,224 w 9, Property^ ,163, ,086,752 #yam #y� T,1 .,922 �yy� w/}�-y yJy ,0 V,F �f2 Ft�3hes Other takes 299,319 373,099 290,319Grants .33 373,€ 99 andntrri utio s not restricted to specific programs 2,036,192 2,075,409 2,036,192 2,976,++09 Other 381,167 242,932 122,487 111,486 503,654 364,+ 18 o a} tam 1,322,194 2,87 ,950 2,971,947 2,874,950 2,971 ,947' Total revenues 12,181,727 13,448,244 7,299,324 9,218,992 19,481,051 22, 7,146 6 General government 1,541,939 1,709,734 1,541,939 1,700,'734_ Public safety 4,922,033 5,223,609 4,922,033 5,223,609 Public works 1,540,717 ,613# 134 1,540,717 1, 13,134 Culture and recreation J/,[ 1,1 €�y081 1, 17,471 1,1 0,081 1 } 17,471 Housing and community development 1,162,224 769,607 1,162,224 w 9, Miscellaneous 261,437 3'' 4,315 261,437 }' ,31 334,315 Interest on long-term debt 534,259 373,099 534,259 .33 373,€ 99 Unallocated depreciation - Water 1,368,745 1,645,714 1,368,745 1,645,714 Serer 2,87 ,950 2,971,947 2,874,950 2,971 ,947' +j Solid waste 93517,419 16,693517,419 Ambulance �j6, 1,233,469 * 1,346,286 1,233,459 1,346,286 Total expenses 11,122,690 11,231,969 5,993,847 6,481,366 17,116,537 17,713,335 Increase in net assets before transfers 1,059,037 2,216,275 1,305,477 2,737,536 2,364,514 4,,953,811 Restatements 1,446,257 1 f446,2 7 Increase in net assets 1,959,037 3,662,532 1,305,477 2,737,535 2,364,514 6,400,668 p Net assets 3e � € € as re t t;+d 22,970,390 2 , 29, 27 29, f 33 36,845,915 52,510,828 4,875,3 Net assets - end 24, 29,427 27169'1 ,969 30.84 ,915 33,633,451 54,875,342 $ 61,275,410 6 ANALYZING THE CITY'S INDIVIDUAL FUNDS Governmental Funds The .focus of the City of Kalispe l's goverru e tal funds is to provide information on near-term inflows, outflows'. vs, and balances of spendable resources (fwd balance). Unreserved fund balance is a useful tool when assessing the net resources a go enime t has available to spend at the end of a fiscal period. At the end of fiscal year 2004, the City of Kalispe l's govemmental funds reported combined endln.g fu d balances of 8,3 5 7,3 97, a decrease of $1,804,103 in comparison with the prior fiscal year. of this amount $ 3-),079 is reserved for debt service and $90,000 is reserved for advances to other funds. Reserved portions of fund balance are not available for inew spending. The general fund is the chief operating .fund of the City of Kalispell. At the end of fiscal year 2004 unreserved fund balance of the general fund was $1,134,330. Unreserved fund balance as a percentage of total fund expenditures can be a good tool to use to measure the liquidity of the general fund. For fiscal year 2004, unreserved fund balance represented 18.2% of total general fund expenditures. The increase in the fund balance of the general fund during fiscal year 2004 was insignifiemt. The Community Dcvelopment Loan .devolving fund is a special revenue fund used to ,sae low interest housing and commercial loans Withi 5000aoe a E300DOW 2000" IWC 0 E.Npetmes aro Pmvarn ftem -dem Aster �Gr f�sca} Yea 21M OP 7th n "I pub, :aft)' pkkb wxks C kK� S *Wn dev "95C wbc* E penses and Program Reverwes - CoverflTma Rub%Yt! t for fmczi year 2004 8 Revenue fxy Sc%tef! - CoverrwmntA A4cxA6-bes fiscal y oaa 003 Gr ar1t5 aavj cora# ftCt ' �F�peiF des for services mit: and cwt 12L% y cw cJ.-n[tryry43 dk14 LH .F� Proprietary Funds The City of Kalis cii"s proprietary funds financial statements provide the same type o in information found in the ovcmment- wi c financial statements, but in more detail. Unrestricted net assets of all proprietary funds at the end of the fiscal year amounted to 11, 13 7,342. Of this ar. oun, $2,.,352,,754 was attributable to the water fund and $9,281,501 to the sewer. The total growth in net assets of all proprietary funds equaled $2,736,177. The water funds increase in net assets for fiscal year 2004 was $817,944, however, only $132,529 of this was attributable to operations (operating income), The sewer funds net assets increased $1,785287{ with $2 , 0 11 of the -total from operations. Hookup fees, a non-operating revenue of the Water and Sewer funds accounted for 42% or , 135,604 of the proprietary ftmd increase net assets. other factors concerning the finances of the grater and sewer ids have already been addressed in the discussion of the City of Ka is ell's business -type activities. 4MODOO 350004 25000CX� Z 154Q 3 0 Lvpermes aruJ Prv!r:grrt R*v uffl� - Bu-. ane"Pa Ar#uih�Es for f *[;Bk yew 203 sva#er S�'Y�£'F fzx- 14aS#e 4mbLLk non +�SNlty �Y�rerrsr* s �rx� �'o3ra� fievenues - �r�Sarr�Pe h.�ys fir f�s�ak gear 2{34 water 5ewer Salo# wasE� arnbuwxr �e A&_,4y 9 Revenues by Sou-gw n Ns5iwe5; - lPa Ay� for fn --2d year �O 3 ln,,estment raTnings CWg9s SOS 4d�YYi4eS 8695 kv~;j*& W$aLiNe - a;tsrMLsSS4 G Acfi%-*ezfx IiGGaf yeas 2604 GENERAL FUND BUDGETARY HIGHLIGHTS Over the course of the gear, the City of Kalis. ell's general fund budget was revised several. times. The original general fund expenditure budget was increased a total of $401,000 to the final amended budget figure of $6,477,890. The difference between the orig'inal and the final budget was a transfer of funds which had already been designated for construction of the new Fire 1 al to the related capital project fund. Since actual expenditures during the year were $87,748 below the original budget amounts, this amended amount did not drag from the existing fwd balance. CAPITAL ASSETS AND )EBT ADMINISTRATION Capital Assets At the end of 200 4., the City of Kalispell has $52,539,299 invested in a broad range of capital assets, including police and fire equipment., buildings, land, park facilities, garbage collection equipment, t, and water and sewer limes. The City of Kalispell has not yet booked some infrastructure; therefore, the dollar amount related to these assets is not included in the total. These assets, which include streets, will represent a significant increase in the capital assets of the City of Kalispell when Booked. Major capital asset events dr'g the fiscal year 2004 included the following: Over $500,000 worth of new, and upgrades to existing City s1dewal s. Most of this was paid for by a Montana Air and Congestion grant. $15 1 , 8 84 was spent t to replace City Halls' HVAC system.. Streetscape projects cost $559,541. The new aquatic facility/skateboard park cost for fiscal year 2004 was $2,545,527. Improvements ents to the Kalispell Youth Athletic Complex donated to the City totaled nearly ,000�'oo. Mer than `Frail ISTEA project additions totaled 192,866 mostly grant dollars. Three police patrol cars were added at a total cost of $56,895. An open bay equipment storage Facility was completed at the City shop complex valued at $1371265 - Two 37,2YTwo new water mains were put In service at a cost to the City of $321,000. Mains valued at $3031,977 were contributed to the City by developer's. The city replaced fire hydrants at a total cost of $1.01,115. Developer" s contributed $42,959 worth of new fire hydrants, and the cost associated with putting them into service. The water deet continued a radio read meter project. The goal is to replace all the non radio read meters by 2005. These new radio read meters are more accurate and only have to be driven by for their co sum tton reading to he taker. Total cost of this project for fiscal year 2004 was $306,61.8. The City also 'Installed r e v maters valued at $214,358 that were not part of the radio read project. Sanitary sewer mains and lift stations contributed by developer's totaled $612,53 1, Storm water collection mains and pump stations contributed by developer's totaled $284,366. Equipment was replaced at the Waste Water Treatment Plant equaling $90,000. 10 CITY OF KALISPELL'S CAPITAL ASSETS (NET OF DEPRECIATION) Governmental Business -type Total activities activities 2003 2004 2003 2004 2003 2004 Land $ 2,193,522 $ x1932522 $ 238,768 $ 2381768 $ 2,432,290 $ 2,432,290 B ildin s$ 8,783,045 8,125,748 219,806 203,918 $ 7,002.851 8$330,866 .... ...... Improvements not buildings $ 6,191,373 10,849,457 6,191,373 10$849$457 Machiney and equipment $ 1,865,781 1,732,926 792,025 679,424 $ 2,657,806 2,412,350 Construction in Progress $ 1,170, 512 27,552 328,814 2$421,930 $ 1,499,125 2,449,482 Source of Sueply.454,806 437!238 $ 454,808 437,238 Pumpi. l a th-y 1,061,264 1,011,541 $ 1,061,264 1t 11,541 Treatment Plant 6,019,942 5,304,442 + 6,019,942 5,304,442 Transmission and Distribution14,402,257 15,511,406 x;14,402,257 15,511,408 General Plant888,580 648,442 $ 688,580 846,442 Storm Serer system .. ...... .. . .. .. . . 2,944,402 3,153}986 + 2,944,402 3,153,986 Total $18,204,233 22,930,205 $ 27`,130,464 $29,609,095 $45;334,697 $ 52,539#300 Govem ental activities machinery and equipment incAudes the assets of the City's Data Pressing fund Debt At the end of fiscal year 2004, the City of Kal spell had Iota] long-term debt outstanding of S14,680,969. Of this amount,, $3,475,000 comprises debt backed by the full faith and credit of the go er..r ent and $5,951,391 represents bonds secured solely by s eclf ed revenue sources G.e.., revenue bonds). The remainder consists of $2,037,000 outstanding on a SRF loan for construction of the wastewater treatment plant, another SR' loan for $1,151,748 which financed the extension of sewer lines south on Highway 93, $ 1,3 41,912 of special assessment debt for which. the City of Kalispell is liable in the event of default by the propel owners subject to the assessment, and $493,290 of loans for the purchase of equipment. The City of Kalispell also has debt outstanding on the hooks of $230,628 for the financing of the Courtyard Apartments. 'fh.is debt i's paid for by the rent proceeds attributed to hose apartments. CITY OF KALISPELL'S OUTSTANDING DEBT Governmental Business --tire Total activities activities 2003 2004 2003 2004 2003 2004 General obligation bonds $ 3,675,000 $ 3,475r000 $ 3,675,000 $ 3,475}000 Revenue bonds $ 14903,011 408,379 3,9624353 5,543,012 5,865,364 5,951,391 SRF loans 2,235,000 3,188, 748 2,235,000 3,188, 748 Assessments oats $1. .,49 , 3 1,341, 12 1,496,139 1,341,912 Contract debt/loans $ 543,541 675,319 63,250 48,599 606, 791 723,918 Total $ 7,617,691 5,900,610 $ 6,260,603 81780,359 13x87 83294 $14,680,969 Other obligations of the City ofKalispell include accrued vacation pay and sick leave. More detailed information about the City's long-term liabilities is presented in the rotes -to the financial statements. .'CONOM C FACTORS AND NEXT YEAR'S BUDGETS AND RATES Flathead County's unemployment rate (unadjusted) stood at 5.4% as ofJune of 2004, which is an improvement from the June 2003 rate of 5.8 percent, This is 18% higher than the State' s unemployment rate of 4.6 percent, but compares favorably to the nations rate of 5.8 percent. The employment growth rate for Flathead County has averaged less than I% between .dune 2000 and June 200 4. During this sane period the County's unemployment rate increased from 5.2 to 5.4%. Fi Fathead County and Northwest Montana have been e per*enctng rapid population growth for many years. The City of Ka ispe l's population grew 19.4% between the 1990 and 2000 census, and is estimated to have grown 8.7% from. 2000-2002. Flathead County"s population growth is projected to be 1.5% to 2% per year for the next 10 years. All of hese factors were considered in preparing the City of Kalispe l" s budget for the 2004 fiscal year. Ding fiscal year 200 4, unreserved find balance in the General Fund increased to $1,134,330. The City of Kalispell has appropriated $256,746 of this amount for spending in the 2005 fiscal year budget. It is intended that this use of available fend balance will avoid the need to raise taxes or charges dun'ng the 2005 fiscal year. Water and sever rates were increased 10% and %, respectively, for the 2005 budget year. These rate increases were recoannended by the recently completed rate study conducted by an outside firm and adopted by the City Council. The rates were deemed necessary for the City to finance many current and future water and sever infrastructure and capacity .replacement needs as identified by the recently completed facility plan. Request for Information bis financial report is designed to provide a general overview of the City of Karl spell's finances for all those With an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional financial inforn at o . should be addressed to the City of Kalispell, Finance Director,P.O. Box 99'x, Kalispell, MT S -1 . 12 Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS o U.S. vvv 93 South - Suite 101 Kalispell, MT59901 9901 INDEPE NDENT AUDITOR'S REPORT Mayor and City Council City of Kalispell Flathead County Kalispell, Montana We have audited the accompan' g financial statements of the governmental actiNxides, the business -type activities, each major fund, and the aggregate discretely presented component units and remaining fund information of Cite of Kalispell, Flathead County, Montana, as of and for the year ended June 30, 2004, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of City of Kalispell management. our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Gonnn Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement..An audit includes examining, on a test basis'. evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation, We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities,, the business-4typeactivities, each major fund, and the aggregate discretely presented component t units and remaining; fund M'formation o the City of Kalispell, Flathead County, Montana, as of June 30, 2004, and the respective charges M financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Audi n Standards, we have also issued our report dated February 2 , 2005, on our consideration of the City of Kalispel 's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. That report is an integra.i part o a audit performed in accordance with Government Auditing Standards and should be .read in conjunction with this report in considering the results of oura edit. The manages ent's discussion and analysis and budgetary comparison orf ation o pages 2 through 12 and 57 tough 58., are not a required part of the basic financial statements but are supplementary for ation required by accounting principles generally accepted n the United -13- Robert K Deimbig, CPA - Kien M. Downey, CPA States of Amerlea. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. Ilowever, we did not audit the information and express no opinion On it. Our audit was conducted for the purpose of forming opinions o the financial statements that collectively comprise the City's basic .nancia statements. The accompanying schedule of expenditures of federalawards is presented for purposes of additional analysis as required by U. S. Office of Management and Budget Circular A- 13 3, A Uditsf States, Local Governments, and Non -Profit Organizations, and is also not a required part of the basic financial statements o City of Kalispell, Flathead County, Montana.. The schedule of expenditures of federal awards have been s he e ted to the auditing procedures applied in the audit of the basic financial statements and, in our opinion., are fairly stated in all material respects in relation to the basic financial statements taken as a whole. CPQ February 25, 2005 -1- ASL FS Current Assets Cash and investments Taxes/Assessments receivable, net Accounts receivable Internal balances Current portion of i terfund receivables Due from other governments Current porion of loans receivable Inventories "'repaid rtes Due from others Total Current Assets, Noncurrent Assets Cash and in -vestments Inter`ud receivable Long terra portion of loan r Livable Deferred assessment receivable Capital assets Depreciable, Net Capital assets - Land Capital assets - Construction in progress Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Accounts parable ,accrued payroll Due to others Int rfund payable Compensatedabsences Lon g --term Liabilities - Tax iner ment bond Long-term -tear capital liabilities Other current liabilities Total Current Liabilities 1 oncuaent _Liabilities Int.crfu d parable Deferred revenue Compensated absences Long-term -term iabiiitie - Tax increment bond Long-term capital liabilities 'fatal Noncurrent ,Liabilities Total Liabilities NET AT Invested in capital assets, net of related debt I estrictcd for capital projects Restricted far debt s nllce Restricted for other purposes Unrestricted Total Net Assets See accompanying Dotes to the Financial Statements City of Kalispell, ll, Flathead County, Montana Statement of Net Assets June 30, 2004 ri vernrnent Component Units Governmental Business -type TriCity Downtown Parking Activities Activities Totatllan q!i g ..11. D, Commission 7,781,289 $ 11,055,921 $ 18,837,210 163,233 10,030 s 37,078 529,485 611656 591,141 - -- - -- 598,152 598,152 9,797 41,202 (41,202) - - - 20,000 - 20,000 - 1,171,617 1,632, 899 .". 2,834,5 l 6 - 3,196 - 33,196 - - 211,699 y 211,699 211,6 _ y 61,681 - 61,681 1,100 19,901 - 19,901 - - - 9,658,371 13x51 9,125 23,177,496 S 163,233 10.000 47,975 327,385 1,617,375 ` 1,944,760 $ - - - 70,000 - 70,0€30 - - 1,959,392 1,959,392 � � - 1,358,63 1,358,633 - 1,358,633 - 20,709,132 26,939,100 47,648,232 16,044 31,S66 2,193,522 248,063 2,441,585 - 27,552 2,421,930 2,449,482 - - 26,645,616 31,226,468 57,872,084 S 6,044 S 31,566 36,303,987 44,745,593 81,043,580 179x 77 10,000 79,541 535,0€31 335,015 $ 870,016 8,444 - 14,010 185,491 47,444 232,935 8,165 1,696 229,865 1,727,965 1,957, 830 - - - 20,000 20,000 57,602 11,178 68,780 - - - 58,096 - 58,096 361,760 896,916 1,258,676 W - 141,164 - 141,164 9,876 $ 1,563,979 3,038,518 4,607,497 S 16,609 S 25,582 - 70,000 $ 70,000 s- 880,003 - 880,x300 - - 62,294 170,181 852,475 49,429 5,714 350,283 -- 350,283 - - 5,13€3,472 7,883,44-3 13,013,915 - 7,043,049 8,123,624 15,166,673 49,429- .. 5,714 - 8,61 2,02 $ 11,162,142 19,774,170 �t.►" 663,038 $ 31,296 17,4_37,974 20,828,734 39,266,708 16,044 31,566 2,784,074 519,89 3,303,967 - - 533,079 1,097,482 1,63D,561 61 W 4,862,105 - 4,862,105 2,074,727 11,137,342 13,212,069 97,195 10,000 ____16,679 27,691,959 33,583,451 61,275,410 113,239 10,000 48.245 City of Kalispell, Flaffiead County, Momm Statement of Activities lar the Fiscal Year Ended June 30, 2004 Net (Expenses) Revenues and Clean gts in Net Assets Program Revenkies Primazy GGvernmEnt Units Operating Capital Pwiswess- Charges for Grants and Grants and Governmental type TriCity DolvntowkA Parli-ing Expens sm-yices Contributions Contributions Activide Itefivit 'I'atalHIMiSsion P I C -0 p6mary GDvernment: GUMC MrrLtIlt S: Geneml ciovemment $ 1,700,734 $ 412r126 $ 1,864,632 S (123'976) S {123,976) $ $ Public Safety 5,223,609 883,704 879,988 144,215 (3,315,702) (3,315,702) PL&hc Works 1,611,134 112U, 196 - 409,8$5 4,947 -1 CLIltim, mid R1 -creation 1,217,471 473,456 22,757 177,154 {544,104) (544,104) 769,607 1,342,673 81,015 - 654,081 654,091 MISC. 334,315 - - (334,315) (314,315) I)ebt Service Expense - lnti!rest 373,099 257,598 62,500 23,068 14$'4S7 10,057 Tdal Govimm,Mal Adwities $ 11,731,609 S 4,577,743 $ 1,046,260 2,0,96,954 $ (3,511 () $ - $ -{Is 1110 12} $ $ Mma S I,b45,714 $ 2,097,794 $ - 347,183 S S 799,253 S 799,253 $ $ S sewm 2,971,947 3,738,027 926,897 1,692,977 1,692,!177 S 0 Ii d W ze 517,419 579.894 62,475 62,475 Ambulmlo-' 1,346,286 .................... . . . 1,361,764 55,867 - 71,345 71,145 Tota] business -type activities $ 61481,366 $ 7,777,469 $ 55,8,57 S 1,274,080 $ 2,626,050 $ 2,626,450 $ S Total Primary Government $ 17,713,335 12,355,212 S I 1021M $ 3,171,63 4 . . ........ . ... . S 511,0 12) S 2,626,050 S (884,962) S S 'MCity Planning S 379,217 393,624 S $ 14,407 $ Downtown B.1 D. - - 10,000 10,000 Flafkzhig M,662 126,700 - 23,039 To(al Component Units 5 482,979 $ 520,324 $ S S$ ........... .... . ... . . .. 5 - 1 14,407 $ 10,000 5 23,038 General Revenues propevt taxes for genera] purpose's $ 3,445,385 S $ 3,445,385 $ 5 Gramand mitlemenm not res(rictud to specific prograrn3 2,075,409 2,075,409 Invutraent carvings 242,532 111,486 354,418 1,725 370 Special Items - Stream contract buyout - 1,322,194 - 1,I22.194 -... Total general revenues, special hems and lmsfefs 3 7,085,921) S 111,486 S 7,397,4003 S 1,725 S $ 370 Chang;- in Net Assets S 3,514,909 $2,737,536 $ .... 6,312,444 $ 16,132 $ 10,000 . $ 23,409 Net Assets - Beginning $ 24,029,427 $ 3D,845,915 S 54,975,342 $ 97,107 1 - 24,837 Rcsiatemunts 97,624 87,624 - Net Assets - Beginning - Rcswcd $ 24,117,051 $ 30,845,915 $ 54,962,966 S 97,107 S - S 24,837 M,t Agsats - Endiq S 27,091,959 $ 33.593,451 S b1,275.410 S 113,239 S 10,000 3 48245 St�C accampanying Netes to the Financial Statvment& City of Kalispell, Montana Balance Sleet overnmental Funds June 30, 2004 ..IABILITIE Current Liabilities: Acc;ounts Payable Community $ 86,933 $ - $ Other Tatal General Development ent SID Pool Governmental overnn;ental Fund an Rev. 185,491. 343 Construction Funds Funds ASSETS - 8,917 8,91.7 Due to other governments 22,021 3,774 Lumex t Assets: 200 144,451 59,420 229,81 Deferred kevenue 232,110 Cash and investanents 854,361 $ 813,931 $ 80,689 $ 364,278 S 5,484,430 ,2,487#214 7,597,689 Taxes Receivable - nd 232,110 - 1,827,782 782 - 200 - x677 297,37 5 869,390 529,485 tirrent porEion of interfund receivable 20,000 - m m - 20,000 Due From Steatc,Ftderal 550 - De1izrre€1 Revenue - Deferred Assess Amts _ - _ - 190,131 1,260,647 190,681 Du 6'om County 378,637 - $ 1.9,473 Total Long -tem$ Liabilities ' - 430,985 - 529,1();1 Due From Board of Investment 151,835 - $ �9y7,98 37,30Q6 $ 1,358,633 Total Liabilities - 528,818 151,835 C rrimt portion of loans receivable 930 28,914 215,677 $ 967,376 $ 3,432 FUNDES i�}TyD� i +&NY ; 33,196 Pi-epaid expenses 2,500 - 59,181 61,681 Due from other funds 6,797 71,121 8,91.5 Due from others 1,504 - $ - - $ 19,401 $ 19,901 Total � stent assets $ 1,649,2243 $ 842,765 S 100,168 S 364,278 $ 6,486,056 9,442,48' Noncurrent a5sets-_ �1 4 - 90,000 pP�1'-'yiyyy j'j[ }'� Unreserved LJi i.leser ed r 4�A� 5..4 131_ st-ricted cash $ S - $ - $ 327,385 S 327,385 Intorfund receivables 70,000 LL - LL - - - 1,134,334 70,000 De err-�d assessmonts receivable - - 723,224 1,260,647 - - - 97,986 5,593,032 1,358,633 Loans mccivabl 33,928 1,708,241 - - - R 2.17,223 148,601 1,959,392 Total noncwTent assets 1433,928 $ 1,708,241 Debt Service ids 1,260, 47 $ - $ 642,594 $ 3,715,41€ Total Assets 1,753,148 $ 2,551,0€ 6 1,36€3,81 5 S 364,2.78 $ 7,129,650 ..........-.-.rte 723,224 13,15'x,897 ..IABILITIE Current Liabilities: Acc;ounts Payable 115,770 $ 86,933 $ - $ 71,226 256,450 531,.379 Accnied P4,yroll 158,917 - _ 26,574 185,491. Due to other funds - - R - 8,917 8,91.7 Due to other governments 22,021 3,774 200 144,451 59,420 229,81 Deferred kevenue 232,110 1,73"x,075 ,,,,,,,,,,,,,,,W., -� -� � .........21 ,518,029 ,2,487#214 Total et$,r�'eI3t liabilities �. $ 5211y1 1,827,782 782 200 $ x677 869,390 $ 3,441,867..... Long- enn Li_ab_i1ities. De1izrre€1 Revenue - Deferred Assess Amts - - 1,260,647 $ 1,35 ,i31 Total Long -tem$ Liabilities Q* - S - $ 1,260,647 $ - $ �9y7,98 37,30Q6 $ 1,358,633 Total Liabilities S 528,818 $ 1,827,782 $ 1,2600947 215,677 $ 967,376 $ 4,8011.5430 FUNDES i�}TyD� i +&NY ; Reserved fbr• Dela Service $ -� y $ 99,38 $ 433,111 $ 533,079 dvan}ce Advances {/} 90,000 ,. - 4 - 90,000 pP�1'-'yiyyy j'j[ }'� Unreserved LJi i.leser ed r 4�A� 5..4 131_ GeneTal Fuad 1,134,33€3 w LL LL - 1,134,334 Spec#a1 revenue Ends 723,224 - - 5,593,032 6,316,256 Capital projects fund - R 148,601 135,131 283,732 Debt Service ids - - - - - Total fund balances $ 1,224,330 $ 723,224 S 99,969 1.48,601 6,1< 1,274 $ ..............8,.357,397 Total liabilittiQs and f€irid balances $ 1,753,148 $ 2,551,006 S 3,360,815 $ 364,278 $ 7,128,650 $ 13,157,897 See ac om panying Notes to the p-1 nmiciA S€ atements City of Kalispell, Flathead County, Montana. Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets June 30,, 2004 Total fund balances - governmental funds Capital assets used in govemmental activities are not financial resources and therefore are not reported as assets in go emmental funds Property taxes receivable will be collected this year, but are not available soon enough to pay for the current .period's expenditures!, and therefore are deferred in the funds. Internal service fund are used by management to: account for the costs of providing employees medical insurance, and 2 aceo ilt for data processing (computer supplies and services). The govemmental portion ofthe intom l service funds are included with governmental activities Long-term liabilities are not due and payable in the current er od and therefore are not reported as liabilities in the funds Total net assets - governmental activities See accompanying Notes to the Financial Statements -18- 8,357,39' 22,9_)O 1206 2,965,847 79,0 16 (5,644,507) 27,191,959 C ity of Kal is pelt, Montana Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Fiscal Yeas Ended June 30, 200 Revenues: '`axes and Assessments Licenses and Permils Intergovernmental Charges for Services Fines and Forfeitures Miscellaneous Investment }amings Total Revenues E iitur s General Govemment Public Safety PubliGWork's Culture and Recreation Housing and Community Development Miscellaneous Capital Outlay Debt Service Total Expenditure Excess (Deficiency) of Revenues Over (Under) Expenditures Other .Financing Sources Ws „ TtansCers In Transfers Out Proceeds LTD Special Item -- Stream contract buyout Total other financing sources (rises) Net Change in Fund Balances Fund Balance Begi-nning of year Restat mcnts Fund Balance End of year See accompanying Notes to the Financial Statements community Other Total General Development SID Pool Governmental £governmental Fund Loan Rev. 343 Construction Funds Fit nds 2,244,771 16{x,376 y 3,103,874 5,5 39,021 134,583 - - w 292,130 426,713 2,593,221 868 - - 1-541,222 4,135,311 720,295 - - - 283,345 1,003,640 443,646 V - - 4-43,646 63,.02 - w 632,276 695,778 28,929 183,401 14,268 935,654 1,162,252 6,228 947 4.1,181,6 184,269 160,376 $ 14268 6,788,501 13,376,361 ! - 142,503 S 1,324,180 3,709,528 1,441,129 5,150,657 339,4.5 - 1,175,501 5,246 1,515,246 748,777 - - 322,729 1,071,506 - 3,681 w 764,357 768,038 1, 320 - Y 332,995 3 34,315 234,802 104,073 - 2,545,527 1,458,520 4,342,922 29,370 - 171,490 - 2,012,528 2,213,388 6,245,219 S 107754 171,490 2,545,527 S 7.651,262 16,720,252 -----1 .272 76,515 (11,114) 2,31,25 (861,761) S...............(3,343,391) - w 793,111 S 7.93, l 1 (104,923) - y (688,1.89) (793,1 t2 1.51,836 m 65,759 217,595 _ m ....,.......1..,3.22,.1..94 _ 1,322,1 X34 46,913 - 1,492,875 1,539,788 30,641 S 76,515 (11,114) (2,531,259) 631,114 S (1,8 4,103) 1,200,450 S 646,739 111,082 2,679,860 5,531,160 S 10,168,261 (6,761) - - - - (6,761) 1,2.24,330 723:224 99,968 $ 148,601 6,16.1,274 8,357,397 City of Kalispell, Flathead County, Montana Reconciliation of the Statement of Revenues, Expcnditures, and Changes in Fund Balances of Govcrnment l Funds o the Statement of Activities For the Fiscal Year Ended June 30, 2004 Amounts reported for governrnental activties In the statement o activities are different because: Net charge in fund balances -total governmental funds $ (1,804JO3) Governmental funds report capital outlays as expenditures. 3,567,648 However in the statement of activities, the cost of those assets s allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. Revenues In the statement of activities that do not provide (2,416,317 current financial resources are not reported as revenues in the 1,164,632 -funds. Some expenses reported in the statement of activities do not 47,868 require the use of current financial resources and therefore are not reported as expenditures in goveriu-nental funds. Long-term debt proceeds provide current financial resources to (217.,595) governmental funds, but issuing debt increases song -term liabilities in the statement of riet assets. Repayment of long-term debt principal is an expenditure in the 11840,289 governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. Internal service funds are used by management to charge the 3 3 , 8 5 3 costs of certain activities to individual funds. The net revenue (expense) of the internal service funds is reported with the governmental activities. Change in net assets - statement of activities 2,2 .6,275 See accompanying Notes to the Financial Statements -- City of Kalispell, tladie-ad County, Montana Statement of Net Assets Proprietary Funds ,lune 3, 2004 See accompanying Notes to the Finaricxal Statemtmts -21- Governmental Business -Type Activities Activities Internal Service Water Sewer Ambulance Solid Waste Totals Funds ASSETS w ummt Assets: Casli and investments 2,500,094 S 8,212,586 34,448 $ 308,793 S 11,055,921 S 183,600 Takes Receivable - net - 17,891 - 43,765 61,656 Accounts Receivable - net 130,543 176,071 291,538 - 598,152 Due FTOzn other govemmCnts 373,246 1,200,645 - 59,007 1,632,899 - 1nventode.5 211,693 - - - 211.,693 4 'rotal current assets 3,215,582 916077194 S 325,986 S 41.1,50 $ 13,560.327... 183,600 Noncurrent assets: Restricted cash 406,837 $ 1,170,443 40,095 $ 1,617,375 - Capital Assets Land - {p 24$,06 245,063 o1k stTuction in progress 827,421 1,594,509 - 2,421,930 - Depreciable capital assets 15,496,258 30,851,125 395,240 1,132,860 47,875,483 320,631 Less AccuTnulated Depreciation (4785,833) � (15,308,:81) (294,228) (547,941) (20,336,3831 .2, 3,274) Total noncurrent assets 11,944,683 18,555,759 $ .....101,012 625,014 $ 31,226,468 ........... 67,357 Total Assets $ 15,160,265... 2.8,162,953.... � 426,995 1,036,579 ... $ 44,786.795 $ 250,957 LIABILITIES tment Liabilities-, Accounts Payable $ 205,093 $ 120,82. 6,160 $ 2,940 S 335,015 4,622 Accnted Paye- ll 13,148 17,393 9,941 6,962 47,444 Dine to others 604,143 1,123,822 - - 1,727,365 - InteFfund payable - - 20,000 - 20,000 Compensated absences 3,297 234 1,477 6,170 11,178 Capital liabilities 297,056 573,316 - 26,544 896,916 - Esti atcd liability for claims - - - - - 141,164 .. Total cwTetit liabilities 1,122 737 $ 1,935,587 37,578 S 42,61.6 $ x,038,518 $ 145,786 oncM ent Llabihties_ Inttrfu nd payable - $ 70,0€0 4 70,000 $ - Compensated absences 37,147 63,422 37,903 31,709 170,181 - apilal liabilities 3487,523 4,342 831 - 53,089 7,983,443 - Total Noncurrent Liabilities 3,524, 70 S 41406%253 $ 107,903 S 84,798 8,123,624 S - Tetal Liabilities $ 4,647,407....S 6,241,840S 145,481 127,414 S _...1.1.>.1.' ,..1.42....14 7 786T y -Net Assets'. Invested in capital assets, net of related debt 7,753,267 S 12,469,169 S 1011,012 S 50 ,286 S 2(�,829,734 S 67,357 Rosh i.cted Net Assets 406,837 1,170,443 - 40,095 1,617,375 Uiirestriaed +e -t Assets 2,352,754 8,281,501 180,505 3€3,784 11.,178,544 37,814 Total net assets $ 11,512,858 S 2-1,921,113 $ 281,517 $ 909,165 S 33,624,653 $ 105,171. Adjustment to reflect ��e consolidation o 'menial service d activities related to enterprise finds_41,202) of assets of business -type activities � 33,593,451 ................................................ See accompanying Notes to the Finaricxal Statemtmts -21- City o Kalispell, Flathead County, Montana Statement of Revenues, Expenses, and Changes in Net Assets Proprietary Funds For the Year Ended ,lune 30, 2004 -- Governmental Busiae-ss-Type activities Activities Internal Service 'Nater Sewer ,Ambulance Solid Waste Totals Funds 3'atl ICYrlli5: hare for services $ 1,616,831 S 2,719,663 S 1,361T 87 575,357 S 6,273,338.- Miscellaneous 36,164 150 277 464 37,055 2 Inteimal Services _ m - 1,588,304 ,304 Special Assessments � .� 7, �1 4,073 331,474 In eirgove r#i-C�eintf`i. l ^�� 55,867 - 55,867 {}�jf�- 30,}. 00 Total Operating Revenues 1,652,995 3,047,214 $ 1,417,6.1 S 5 79, 894 $ 6,697,734 $ 1,618,547 Operating xnses. Personal services 548,946 $ � ! 10,147 p 550,887 Q' � p S 3L } 4O p ,135,528 S 5,001 Supplies 33,888 62,813 20,378 29,689 146,168 12,569 Purchased services 286,152 622,312 65,951 14,992 989,407 1,500,166 Fixed Cbarges 144,689 179,855 51,621 71,904 448,069 23,036 Loss/bad debt expenses 19,912 27,649 605,011 - 652,572 - epreciation 435,757 1,201,870 51,355 74,941 1,763,923 43,937 Building materials 51,222 9,557 - - 60,779 Total operating epens s 1,520,466 ,814, 03 $ 1,345,203 S 517,174 S 6,197,046 $ 1,584,709 Operating Income (lass) S 132,529 S 233,011 72,428 62,320 $ 500,688 $ 33,838 Y`IiJn grafi .t 14 a 1F 4#4 - ex ses p Interest and investmentrevenue renue 17,156 S 91,417 249 S 2,614 1.11,486 S 1,374 I t rgovern mental revenue e W 30,000 - 4 30,400 - ookups 444,790 690,814 Y 1,135,604 Debt Service interest expense. .......(..1..3,.7.1.4. (.1..56,902) (2,421) .............(2,644).. (285,681) - Total nonoperating revenue (expenses) $ 338,232 655,379 $ (2,172) $ 3) $ 991,409 $ 1,374 Net income (loss) before contributions and transfers 470,761 $ 888,390 -...7.0..,2.5.6-. $ 62,690 $ 1,492,097 $ 35,212 Capital Contributions S.................347,183......_S 896,897 $ - $ - $ 1,244,080 $ - hange in net assets $ 817,944 $ 1,785,287 $ 70,256 $ 62,690 $ 2,736,177 35,212 Total net assets - beginning of year $ 9,694,914 $ 20,135,826 $ 211,261 S 846,47.5 $ 311,9$8,476 S 69,959 Total net assets - end of year $ 10,512,858 21,921 113 S 281,517 $ 909,165 S 33,624,653 105,171 Adjustment to reflect the con so Iodation of i nte rnaI service fund activities related to enterprise Funds. 1,359 Chanoe in net assets of business -type activities $ 67,25 3,665 See accompanying Notes to the Financial Statements -- Goverill"e tt l Activities Internal (1,523,382) 95,165 Cash Flows From Capital and Related Financing City of Kalispell, Flathead County, Montana Statement of Cash Flows .Aetivitis: Proprietary Funds For the Year Ended June 30, 2004 Acquisition and Comtruction of CapitaJ Assets (711,387) S (579,934) (27,247) Water Sewer Ambulance Solid Waste (3'7,63€1) Proceeds-Bonds/Leans ds/Lea Fund Fund Fund Fund Touts Cash flows from Operating Ac itivies. 1,683,297 ` Principal Paid on Debt Service (123,926) (502x769) Cash Received From Customers S 1,545,969 S 2,726,946 732,030 S (653,239) 5,004,945 Cash . eeerved From As se ssments - 325,151 ` 588,930 914,081 Cash Pa-ymcnts to Supplier's for Goods & Services (613,985) (859,783) (135,541) (116, 584) (1,724,793) Cash Payments to Employees .for Services (557,996) (706#640) (568,720) (324,797) (23158,143) Cash From Other Operating Revcnu 7'128 4,39 1..... 567144 4614 158,127 Net Cash Provided by Operating Activities 471,.216 S 1,491,065 S 83,913 S 148,023 S 2,194,217 Cash. Flows from Noncapital Financing Activities: 'rrreipal pard on Loan from mineral .Fund 1.,177,0152 (51 ,790) S (25,00€1) - (25, 000) +r Internat .paid on Loan from Greerad Fund 601,825 S (37,630) (3,521) (3,521) Net Cash Provided by Non capital Financing Activities ` $ � (2 ,521)S ' S (28,521) Goverill"e tt l Activities Internal (1,523,382) 95,165 Cash Flows From Capital and Related Financing .Aetivitis: Acquisition and Comtruction of CapitaJ Assets (711,387) S (579,934) (27,247) SS (1,318,568) (3'7,63€1) Proceeds-Bonds/Leans ds/Lea 1,683,297 - 1,683,297 ` Principal Paid on Debt Service (123,926) (502x769) (26,545) (653,239) - .t rest Paid on Debt Seavice (123,714) (156,902) (2,645) . (283,261) Cash Received From Hookups 446,376 ",814 1,137,190 Capital contributed by Tax Increment/Other Gov't 6A6 30,000 - ' 36,406 Y Net Cash Used for Capita1 and Related Ffitancing Activities 1.,177,0152 (51 ,790) S (27,247) S (29,190) S 601,825 S (37,630) Cash. lbws From Invcsting Activities- InWrost on Investments S 17,156 S 91,468 S 2.49 2,613 S 111,.4` 86 17374 l rc e of Sidewalk and Curb Warrants - (13,758) ` - (13,759) 6 Rodemption of Sidewalk and Curb Warrants - 39,998 ` ` 39898 Net Cash Used to Investing Activities 17x 156 117,608 S 249 S 2P613 S 137,626 S 1,374 Net 1n rcase in Cash and Cash Eq .ivalcnb S 1,665,424 S .1,€ 89,883 S 28,394 S 121,446 S 2,905,147 S .58,909 Cash and Cash Equivalents at Ails 1, 2003 1,241,507 8,293,146 6,054 227? 442 9,76 8,149 124,691 Cash and CashEqu� alentsatJnnc30,2€04 S 2,906,931 S 9,383,029 34,448 S 348,898 S 1.2,673,296 S 193,600 Reconciliation of Operating Tncome to Net Cash Provided by Operating A tivitie s : Operating Income S 132,529 S 233,01. S 72,428 62,720 500,68' S 33,838 Adjustments to Reconcile Operating Income to Net Cash .Pr vided by Operating Activities. Depreciation 4351-757 17201,8701 51,355 74,94.1 1,763,923 43,937 13ad Debt Expense/Lass on DLsposa1 20,275 2 ! x 6149 605,01.1. 652,935 - Cha nge in Assets and 1- abilities, Decrease (Increase) in. Accounts l eecivablw (10,261) 11, 524 (629,458) - (628,1.95) Decrease (Increase) in Assessments receivable (2,250) ' 9,500 7,250 Decrease (Increase) in inventor (101,884) - - ` (101.8 4) - Increase (Decrease) in Accounts Payable 3,950 15,754 2,41€1 646 22,760 602 Increase (Decrease) in Compemated Absences (9,150) 3,507 (17,833) 216 (23,260) Dec in E stimatcd LiabiIity for Claims ................................................. - ..,,..J.. ' - ... ..., - ....,.....W --tip t6)799 Net Cash Provid d by Operating Activities s 471,216 S 1,491x[ 65 83,91.3 1.48,023 S 2,. 94,217 S 95,165 Mote: W ater Fund non cash developers' contributions were $34'7,183. Sewer/ torrn developers' contributions were 5896,897. Disclosure of Accounting Policy, For putposes of the statement of cash Mows, the Enterpidsc Funds consider all highly liquid investments (includi g ,restt`zcted assets) wadi a maturity of three months or less when purchased to be cm9h e(pAvalents. See ac,-com a Rying Notes to the Financial. Statements City of Kalispell, Flathead Counter, Mo.a.a Fiduciary Funds Statement of Fi u i ry Net Assets June; , 2004 A.c Funds .ASSETS Cash and short-term investments 597,822 Total assets 597,822 LIABILTHES Warrants payable Total liabilities 597,822 597.,822 See accompanying Notes to they Financial Statements -4- CITY of KALIS'PELL, FLATHEAD COUNTY, MONTANA NOTES To FINANCIAL STATEMENTS JUNE 30, 2004 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City complies with generally accepted accounting principles (GAAP). GAAP incudes all relevant Governmental accounting Standards Board GAS. pronouncements. In the overm.ent-wide financial statements and the fund financial statements for the proprietary funds, Financial Accounting Standards Boar. (FASB) pronouncements and Accounting Principles Board (APB) opinions issued on or before November 301, 989, have been applied unless those pronouncements conflict with or contradict GASB pronouncements, in which case GASB prevails. For enterprise finds 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. Financial Reporting Primary Government The City of Kalispell is a political subdivision of the State of Montana governed by a elected Mayor and Council duly elected by the registered voters of the City. The City utilizes the City Manager form of govermnent. The City is considered a primary overr e .t because it is a general purpose local govermnent. Further, it meets the following criteria: a) It has a separately elected governing body t is legally separate ars c It is fiscally independent from the State and other local govermnerits. The accompanying nancial statements present the primary govemme t. 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 govemm.ent and the financial benefit or burden derived by the primary government from a secondary government. Component Un As required by generally accepted accounting principles, these financial statements present the City of Kalispell and its component nt .its. Component units are entities with a signi cant operational or financial relatio .s .ip with the City, as described above. The Cities' three discretely presented component units, the Kalispell Parking Commission, Tri City alarming, and the Downtown Business Improvement District are legally separate organizations of the City, but the .pity is financially accountable. The component units are reported in a separate column to emphasize that they are legally separate from the City. TY of KAUSPELL1, FLATHEAD C Nf y',, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 30,, 2004 Kalispell Parkin - Cor unissio. The Ka. is eii 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 i to do to provide for funding the cost of maintaining,, o eratin,, repairing, and improving Special Parking Maintenance DIstrict #2 and Resol tion1 o , a Resolution declaring the geed for a Par Ing Commission to function in the City o 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 presidents who operate businesses within the district, The Parking Commission opened their doors on February I st 1994. The City transferred $53,000 in Fiscal 1994 to the district as start up moneys no further City funds 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 n ciai statements. Tri Citi Planniag s On July 1, 2001 the `tri City Planning Office was created by interlocal aerreement between the el ies of Kalispell, Whitefish, and Columbia Falls. The purpose of the Tri City Planning office is to coordinate all lard use planning, review and approve subdivisions and zoning and enforcement as they retate to the cities, namely to Provide long range and current land use planning services, The Tri City Piing Board is made P of the City Managers, representing the Mayor and City Council, of the three cities. The City of Kalispell serves as the administrative agent at the pleasure of the Board. The employees are paid through the City of Kalispell payroll system and are included in its health program. Cost of operating the office is split between the cities, proportionate to their expected benefit. Some costs of operating are recovered through. Planning fees. Downtown Bu.s.iness roverr�er district On May 17,, 2004, by resolution 4891A,, the City created the Downtown Business Improvement .district. The purpose of which appears 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 2d Avmue west between Center Street and 4th Street South. Publicly owned property and owner occupied single funis dwellings are exempt from the assessments related to the District, Basis of Presentation, Measurement Focus and Basis of Accounting Govern Financial Statements The goverment -wide financial statements Le., the statement of net assets and the statement of charges in net assets) report information on all of the nonfiduciary activities of the primary govemment and its component units. For the most Part, the erect o inter and activity has been removed from these statements. Govemmental activities, which normally are supported by taxes and inter over mental revenues, are reported separately frombusiness-type activities, which rely to a significant extent on tees and charges .dor support. kewlse, the primary goveriuuent is reported separately from certal ally separate component- units for which the primary ov rnr� ent is financially -- FLATHEAD COUNTY, MONTANA CITY OF KALISPELL) NOTES TO FINANCIAL STATEMENTS .DUNE o, Zoo accountable, Eliminations have been made to minimize the double -courting of business -type activities. The statement of activities demonstrates thedegree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific tinction or segment. The generalover .ment function o the City includes expenses which are, in essence, indirect expenses of other functions. The City has chosen not to allocate these indirect expenses. Program revenues include I charges to customers or applicants who purchase, use, or directly benefit from goods, services,, or privileges provided by a given function or segment and grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other iters not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government -vide financial statements. Major individual govemmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Measurement Focus and Basis of Accounting The government -wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar iters 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. Fund Financial Statements Basis senta i Fund financial statements of the reporting City are organized into funds, each of which is considered to be separate accounting entities. Each fund is accounted for by providing a separate set of self -balancing accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management t 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 i's 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 remaiDing funds are aggregated and reported in a single column as non. -major funds. A fund is considered major if it is the primary operating fund of the City or meets the -27- ITT of KALI S Ef, , F1',ATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE r 2004 following critena: a. Total assets, liabilities, revenues, or expenditures/expenses oto that Individual ovemmental or enterprise rise 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 ex end.1t res/expenses of that individual governmental or enterprise funds are at least percent of the corresponding total for all governmental and enterprise funds combined.. Measurement Toc s and Basis ofAccounting Governmental funds are used to account for the City's general govemment activities. Governmental fund types use the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual bases o accounting, revenues are recognized when susceptible to accrual. i.., when they are 4;'r easnrable and available" "Measurable" means the amount of the transaction can b determined and "available"' means collectible within the c rre t 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 unmatured interest on general long- term debt which is recognized when due, and certain com erisated abscnces 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, arMd 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. `axes 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 -hen the qualifying expenditures have been incurred and all other grant requirements have been met. Ma F4 ands: The City reports the following major governmental tal funds: The General Fund is always a m' or fund. This s the City's primary o rti ng fund and it accounts for all financial al resources of the City except those required to be accounted for in other funds. -28- CITY of KALISPELL,, FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE , 2004 The Commanity 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. SIS] 343 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 r constr ct wmyvk ew Drive. The Pool Construction Fund is used to account for revenues cmd expenses associated with the construction of the City" s new aquatic facility and skate park at Woodland Park. Proprietary Funds: All proprietary funds are accounted for using the accrual basis of accounting. These funds account for operations that are primarily financed user charges. The economic resource focus concerns determining costs as a means of maintairu*ng the capital investment and management en.t control. Revenues are recognized when earned and expenses are recognized when incurred. Allocations of costs, such as depreciation, are recorded in proprietary funds. Proprietary funds distinguish operating revenues and expenses ftorn 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 ers for sales and services. operating expenses for enterprise funds include the cost of sates and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as anon -operating revenues and expenses. When both restricted aDd unrestricted resources are available for use, it is the City's policy to use restricted resources first, thea unrestricted resources as they are needed. Major un s: The City reports the following major proprietary funds: The Fater 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. The Ambulance Fund accounts for the activities of the City's Ambulance service. Fiduciary funds account for assets held by the govemment in a trustee capacity or as ars agent on behalf of odes . The agency fund is custodial in nature and cues 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. CITY OF KALISPELL, FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE , 2004 Private -sector standards of accounting and financial reporting g issued prior to December 1, 1989, generally are followed in both the government -wide and proprietary fund finaincial statements to the extent that those standards do not conflict with or contradict guidance of the Govenune .tal Accounting Standards Board. Governments also have the option of following subsequent private -sector guidance for their business -type activities and enterprise farads, subject to this same limitation. The City has elected not to follow subsequent private -sector guidance. As a general rale the effect of i .terfund activity has been eliminated from the govem ent-wide financial statements, and the internal service funds have been absorbed pro -ratably into goverrnental-type and business -type activities on the emme t --gide 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. Budgets Budget Process An annual appropriated operating budget is adopted each fiscal year for the general fund, special revenue funds, debt service funds and capital project fids 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 fi ds, by department. The final budget is legally enacted by the City Council, on the second Monday in August after holding public hearings as required by State statutes. 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 unantic-1 ated 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, All material budget amendments and transfers during FY 2004 are described below-. Increased the appropriations ire the Westside TIF special revenue fund in the amount of $3)29,927 for costs associated with the Tele`ech project. -- CITY OF KALISPELL, FLATHEAD COUNTY, MONTANA NOTES To FINANCIAL STATEMENTS UNE 3 o, 2004 Increased the appropriations in the Westside TIF debt service fund in the amount of l ,770,026 for costs related to the pay down of the Stream debt and the reduction of the bond reserve. Increased the appropriations In the fool Construction fund in the amount of $73,193 to appropriate all remaining funds. Increased appropriations in the Ambulance fund in the amount of $44,300 for unanticipated overtime expense. .assets, Liabilities, and Net Assets or Equity . Cash, Cash Equivalents, and Investments The City's cash and cash equivalents are considered to he cash on hand, demand and time deposits, bidders bonds, bonds and warrants,, and investments with the State of Montana's short-term investment pool (STIP). 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 cast, 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 f-Lmds consider all funds including restricted assets) .held in the City's cash management pool to e cash equivalents. 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 interf and recelvahles/payables Le., the current portion of interfi nd loans) or advances to/from other funds i.e.,the non-current portion of interf nd loans). All other outstanding balances between funds are reported as due tom other funds. Advances between finds are offset by a fund balance reserve account in applicable o e.mmental funds to indicate they are not available for appropriation and are not expendable available financial resources. Property tax levies are set on or before the second Monday In August, 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 3 1. 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 3 1. 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 CITY OF KALISPELL, FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 30� 200 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 hese accounts. A reserve for estimated uncollectible accounts receivable is maintained for the Water Fund, Sewer Fund and the Ambulance Fund. The reserve balances are as follows for June 30,, Zoo: Water $ 7.,831 Sewer $ 13!1572 Ambulance $ 229,000 . Inventories and Prepaid Items Inventories for materials and supplies for govemmental fund types are expended at the time of purchase. Enterprise Fund Inventory of materials and supplies are valued at cost and theFirst-In First -out (FIFO) method is utilized. Certain payments to vendors reflect cosh applicable to fixture accounting periods and are recorded as prepaid items. . Restricted assets Certain proceeds of the City's enterprise fund revenue bonds, as well as certain resources set aside for their prepayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. men 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 govenunent-wide financial statements. Capital assets are defined by the govermnent. as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. All of the City's public domain or in.frastnictu.re capital assets have not yet been recorded in the City's financial statements. Public domain or infra -structure assets can include roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, lighting systems and similar assets that are immovable and of vale only to the governmental entity. The City of Kalispell has until fiscal year 2007 to retroactively report infrastructure assets. -32- CITY of KALISPELL, FLATHEAD COUNTY, MONTANA NOTES To FINANCIAL STATEMENTS JUNE 30, 2004 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 capital 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 proprietary funds 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 Machinery, vehicles and equipment 5-20 years Water and sewer lines, pump stations 10-50 years . Compensated Absences It is the City's policy and state lav 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 tines their annual accumulation of vacation, but no more than 90 days into 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 coli of the Statement of Net Assets. 7. Coag - Term Obligations In thegovernment-wide financial statements, and proprietary fund types in the end financial statements, lona-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, or proprietary fund type statement of net assets. Bond premiums and d1sco nts, as well as issuance costs, are deferred and amortized over the .fife of the bonds using; the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. 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 o the debt issued is reported as ober 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. CITY OF KALISP LL,, FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 30, 200 NOTE 2. RECONCILIATION of GOVERNMENT -WIDE AND FUND FINANCIAL STATEMENTS A. Explanation of certain differences between the governmental fund balance sheet and the government -wide statement of net assets The governmental fond balance sheet includes a reconciliation between f and balance total governmental funds and net assets — governmental activities as reported in the government -wide statement of net assets. One element of that reconciliation explains that "long-term liabilities, including bonds payable, are not clue and payable in the current period and therefore are not reported in the funds". The details of this $6,640,507 difference are as follows: G. o. Bond payable 3,475M00 SID Bonds payable 1 ,341 ,913 Loans 15083,198 Compensated Absences 738� Net adjustment to reduce fund balance — total govenunental funds to arrive at net assets - ;overnmental activities $............62640t,507 B. Explanation of certain differences between the governmental fund statement o mvenues, expenditures, and changes in fund balances and the govern ment-wid e statement of activities The govemmental fund statement of revenges, expenditures, and changes in fund balances includes a reconciliation between net changes in fund balances — total governmental funds and changes in net assets of governmental activities as reported in the govem er t- wide statement of activities. one element of that reconciliation explains that "Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense". The details of this $3,567,649 difference are as follows: Capital outlay $ 4,3421)922 Depreciation expense (775t274) Net adjustment to increase net changes in fund balances — total ;ovemmental funds to arrive at changes in net assets of govenimental activities 3p567.,649 -- CITY of KALI SPELL, FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL S' Ear N S JUNE o� 200 Another element of that reconciliation states that "the issuance of long-term debt e.., bonds, leases) provides current financial resources to govern -mental funds, while the repayment of the principal of long-term debt consumes es the current financial resources of goverr mental meads. Neither transaction, however, has any effect on net assets'". The details of this $1,,622,694 difference are as follows: Debt issued or incurred: Capital lease financing $ (203,836 Sidewalk and Curb bond proceeds (13,759) Principal al re ayments: G. o. Debt $ 120!M0 SID debt 1501M0 Capital lease debt 11 562,304 Sidewalk and. Curb debt Net adjustment to increase net changes in fund balances — total governmental funds to arrive at changes in net assets of governmental activities 122 694 NOTE I STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Excess of expenditures over appropriations $ (217,595) $_ 1.1840,289 For the year ended June 30, 2004, expenditures exceeded appropriations in the Facilities Administration . and Parks and Recreation departments of the General Fund by $8,226 and 16,0371, respectively, and in the Aquatics Facility and ISTEA special revenue funds by $26,595 and 2,8861) respectively. These ovcrex enditures were funded by available fund balance in the case of the General Fund and Aquatic Facility.. and by greater than anticipated revenues in the case of the ISTEA fund, B. Deficit Fund Balances The following Funds had deficit fund balances at June 30, 20044 ecial Revenue Funds: Aquatic Facility Debt Service Funds: G. 0. Bond 167775 1994 Sidewalk. & Curb $ 921 1997 Sidewalk & Curb $ 517 2002 Sidewalk & Curb $ 628 Capital I ro'ect Funds: S & C Construction 6,797 CITY of KALISPEL , FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 30,2004 The deficits in the debt service funds and the capital project fund were caused by a short- fall in anticipated revenue. The deficit in the G.O. Bond fund will be eliminated as tax payments are received. The deficits in -the Sidewalk and Curb funds will be eliminated as delinquent assessments are collected. The Sidewalk & Curb Construction fund deficit will be eliminated through the sale of bonds. NOTE 4. 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 discal agent deposits; investments in the State Short -Terms. Investment Pool (STIP); repurchase agreements; U.S. government treasury bills, rotes bonds, and other treasury obligations such as state and local goverment series; general obligations of certain agencies of the 'United States such as Federal Horne Loan Bank; and U.S. govemiment security more market funds if the fund meets certain conditions. Total City's (primary govermnental and component units) composition of cash, deposits and investments at fair value as of June 30, 2004, are as follows: Cash on hand 1 850 Cash in ants Demand Deposits 390,404 Time Deposits 41 1549 Bidders Bonds 4 Bonds/Warrants 3 19 I STIP M76503 U.S. Govem ent Securities _ Total 1,4590.103 .Interest rates range from 1% to % and maturity dates range from 6 months to five years. Deposits At year end, the carrying amount of the City's deposits was $4'3' 1,953. All deposits were covered by Federal Depository Insurance or were covered by securities held by the pledging financial institutions trust department or agent in the City's nm e. Montana statues require that the City obtain securities for the uninsured portion of the deposits as follows: 1. Securities equal to 0% of such deposits if the institution in which the deposits are jade has a net worth to total assets ratio of % or more, or 2. Securities equal 100% of the uninsured deposits if the institution in which the deposits are made has a net worth to total assets ratio of less than %. Mate statues do not specify in whose -- CITY of KALISPELLI FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 3 , Zoo custody or name the collateral is to be held. The amount of collateral held for the City deposits at June 30 20, equaled or exceeded the amount required by State statutes. Categorized Disk Statutes authorize the City to invest in the State Short -Terre Investment Fool (STIP); repurchase agreements; registered warrants of the County or of municipalities or school districts located in the county; U.S. govemment treasury bills, notes, bonds and other treasury obligations such as state and local govemment series; general obligations o certain agencies of the United. States such as Federal Home Loan Bark; and U.S. government security money market funds if the fund meets certain conditions. These investments are in addition to the demand, time,, credit union, and savings deposits, which are included in deposits above. The City investments are categorized below to give an indication of the level of risk assumed by the City at June 30, 2004. Statement No. 3 of the Goverrxnental Accounting Standards Board requires govemment entities to categorize investments held at year end to give an indication of the level of risk assumed by the entity. The City has no Category 2 or 3 investments which refer to uninsured or unregistered securities (higher risk). Category 1 includes investments that are insured or registered or for which the securities are held by the City or its agent in the City's name (lover risk.). The City's category 1 investments and those not subject to tate or ation. as of June 30, 2004 are shown below: Category....1 'warrants Goverrunent Securities Not subj'ect to eatejat � State Shorn -Term Investment Pool Bidders Bonds Total Investments Carr'n Value Market value 31,913 31,913 ,000 000 , M17651803 1 .3765, 803 35 358 21,1 56,300 $21.15 Governmental Accounting Standards Board (GASB) Technical Bulletin No. -1 requires govenunental entities Participating in an investment pool to disclose certain types of securities held in the pool. As noted above, the City invests in the State Short - Tern Investment Pool managed by the State of Montana. This pool contains two types o investments required to be disclosed', which are Asset-backed Securities and Variable .ate(Floating .ate) securities. Amounts (unaudited) invested by STIP in each type as of June 30, 2004, were as follows: _3- %. Asset-backed 940X -31L210 64 Variable rate 504,991,'31 3 Other Securities *000 1 Tota 1 # 79� 12,941 1 o _3- CITY OF KALISPELL, FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE o, Zoo Amounts t invested by the City in STIP may be redeemed at any date at the carrying value on that date. Audited financial statements for the State of Montana's Board of Investments are available at 555 Fuller Ave. 1n Helena,, Mt. B. Interfund Receivables and Payables The composition of interf-Lmd balances as of June 30, 200 4,, were as follows; Due to/from other funds: Receivable Fund P4yable Fund Amount PUIPOSJe General — Major Dover=ental S & C const. 1) $ 6,797 Loan — Short-term SID Revolving 1 994 S & C 1) 921 Loan — Short -tern SID Revolving 1) 1997 S & C 1) 571 Loan — Short-term SID Revolving .) 2002 S & C 1 628 Loan — Short-term Tota. Police Resource 1) $__ 8,917. operating 1 Non -major Govemmental Funds Advances to/from other funds Receivable Fund General Fund Major Governmental C. operating Transfers Payablefund Ambulance — Major Business -type Due within Amount one year PWose $=90 000 20 000 Long-term Loan The following is an analysis of operating transfers in and out dun'ng fiscal year 2004 - From To Amount Purpose General Fund Police Resource 1 $ I30 Operating General Fund Drug Enforcement 1) 2-00 Operating General Fund Universal 1 11,5000 Operating General Fund 2 FEMA 1 131,707 Operating General Fund 2) Police Resource 1) 126 operating W stT (debt s rv)(1) W st 'IF (spec. rev,) 1) 6501000 Operating MA.CI i) Gas Tax ) 6,o 19 Operating Parks in lieu 1) ISTA i) 32, 170 Mata General Fund ) Fire Station Const. 1) 40,000 Capital Improvement Tota $ 793.,J......... 1 Non -major Governmental Fund Major Governmental Fund CITY OF �.�, FLAVA.. COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 30� 2004 D. Capital assets Capital asset activity for the year ended June 30, 2004 was as follows: Governmental Activities: Capital assets not beingdepreciated: Land Construction in Progress Total capital assets not being depreciated Capital assets being depreciated: Buildings Improvements other than Buildings Machinery and Equipment Total capital assets being depreciated Less accumulated depreciation for: Buildings Improvements other than Buildings Machinery and Equipment Total accumulated depreciation. Total capital assets being depreciated, net City capital assets net Internal Service Funds Data Processing —Equipment Less accumulated depreciation Net Component Unit Tri -City Plann.in. - Equipment Less Accumulated Depreciation Total Balance Balance Jul 1_} - 003 Additions Deductions June 30 2004 3081)204 37,630 $ (25,203) 2,193,522 $ $ - 2J9 3 wr ......1.t.219 490 73.664 (Lj9L93 27552 $: :� n1 19121 2 1.074 9,962,636 1,3652,39 1. $ 51J1 fiI5,027 ,o 7,225,926 4,890,05' - 12,11 5,983 3586,485 108,067 2448 3 462 104 20 775 047$6,6511 1 $... X232,448) $ 273 114 (312455282) (308,688) j90 (3,488,280) 1,034,553) 1,.973) - (15266,526) (IJ 52 ,5 - I! y 9 (20 &901 - 16,359 1 f 9533 (5983,826) $A749,562 $ 1 04 3 3 14791,2214 $ }900195+.-+ $___(j0399 99 641 775 Balance Balance .duly .1,..2003 additions Deductions June 30} 2004 3081)204 37,630 $ (25,203) $ 320,630 (234}540(43,937.)2 203 (253,274 73.664 __=(k,3j0QM �N67. 51,110 $ 51J1 (29 379) (568 7) _�N�� 21�jj_ � N�w m �..YY _..m T ,�` -- - 6044 CITY OF KALISPELL,, FLATHEAD COUNTY, MONTANA NOTES To FINANCIAL STATEMENTS ,DUNE 30, 2004 Balance Business -type Activities: July i 2003 additions Deductions Capital assets not being depreciated: Laid 221,5513 26,550 Construction in progress 344,762 .....2,0 7}7,1.6 Total capital assets not being depreciated �T 566,275 $...... ,103..7 1. Capital assets being depreciated: Buildings Machinery and Equipment Source of Supply Vamping Plant Treatment Plant Transmission and Distribution General Plant Storm Sewer System. Total capital assets being depreciated Less accumulated depreciation for: Buildings Machinery and Equipment Source of Supply Pumping Pant Treatment Plant Transmission and Distribution General Plant Ston Sewer System Total accumulated depreciation Total capital assets, being depreciated, net City capital assets net Component Unit .harking Commission - Equipment Less Accumulated Depreciation Total 31,731 i ,724,216 3 1,247 76 7, 83 8 - 1,9 1. >977 767,838 14,71j85 89'998 201579 859 1,579,394 11)65350 10 13 7,042 .. 26M '31139n643 $_45.876 533 $...2}1..7.7,.324 $ (9&,925) $ (15,888) (9323191.) (143,849) - 767,838 (630,713) (49.,723) (8,696,912) (779,895) (6,174.)908) (483,912) (972,757) (159,1'8) (..I.,497a.795) 11391 i � 1„�9 3,1 347 $f 1..,763.,924) Balance June ._.. -� 248,063 .............2.142. -- ,9M 993 - $ 316,731 (37,445} 11) � 1 - 767,838 - 1,69115977 (7_),993) 1.4,7325859 (669936) 221092153 (8,060) 11771 ,99 .41765,691 �� 8434 47,867.,423 - 12,813) 371445 1,03 8,595) - (32757 14) - (6805436) ,390 (9,428,417) 54,053 (6,604,767) 81 I i 12 3,87 5 ..�..j.. 1 1.706) 147948 �2 8 j23 (38,486) 261939 i o $_27J30!)461 4� f V $.__A38,486): $2�� Balance Balance July 1, 2003 Additions June 3.0,...2004 -- 491873 29,587 791460 539 355 894) ---- 831.mv..v(23232.)............... z 31 CITY of K LISP LL, FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004 Depreciation was charged to `unctions/programs of the p6mary government as follows: Governmental activities: General government $ 3 77,03 9 Public Safety 158,964 Public Works 94590 Culture and Recreation 142,125 Community Development ��.� X_._56 Total 775.2'4 Business -type activities: Water 43575$ Sewer 1 120 15870 Ambulance 51,355 Solid Waste 74,941 Total 1 763 924 The depreciation on the capital assets held by the City"s internal service funds are charged to the various functionsand business -type activities based on their usage of those assets. E. .g -Term Debt Changes in Long -Term Debt Liabilities — During the year ended Jure 30, 2004, -the following changes occurred in liabilities reported in long-term debt: In prior years, the general ffind was used to liquidate compensated absences and claims and judgments. -41- Balance Balance Due within ,duly 1, 2003 Additions Reductions June 30 2004 one year G.O. Bond 3106755000 $ - (200,000) $ 3,475, 00 $ 1301000 Revenue Bonds 1,. 5 865,364 2,631,245 (2,545,21.) 5,9511)39. 633 � 126 SRF Loan. — WW 2 2,235'100 1 � 151,748 (198,000) 3,1 8,748 206,000 Assessments 1 1,496,140 13,758 (1 675986) 1,341,91.2 86,853 ContractDebt/Loans 1,2 6061)790 2031)838 (86,709) 723,919 260,7}3 Compensated Absences (1,2,_1 1 03618 84 6,693(6TI-1M6 � " 'Z'99 J8069 Total $1� 1 $4.007.2.70265 052 657 368 1 3L5,5552 1 reported in long-term debt account group reported in enterprise funds reported in component units In prior years, the general ffind was used to liquidate compensated absences and claims and judgments. -41- CITY OF K LISPEL , FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004 General Obligation Bonds — The City issues general obligation bonds to provide funds 1`or 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 3 0, 2004 were as follows: Origination Interest Due Principal ua Balance Purpose Date Rate TermDate Purpose r t Paym nt June 3 0 . 20 04 Aquatic Facility 4/15/02 2-4. yrs °f � 2022 $3P675 000 varies,_ . Special Assessment Debt — Special assessment bonds are secured by a lien on the assessed properties. The pn'mary source of .repayment is the assessments levied against the benefiting properties. However, the City is liable, to an extent, for repayment of hese special assessment bonds. The City is a t o i ed 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. Revenue Bonds — Revenue bonds are directly related to and expected to be paid from the proprietary fund. The 2000 Westside Tax Increment bonds are accounted for in governmental activities. Issue Interest Final Bonds Balance Purpose Origination Interest Term :due Principal Annual Balance Purpose Date Rate Terra Date Amount Pgyment June 30, 2004 SID 341 9/1/95 6.06% 15 yrs 2011 1001,000 varies 3 5 000 SID 342 11/1/956,34% 1,840.000 15 yrs 2011 209100 varies 35,000 SID 343 ! 2Ff 3.6-5.5% 0 yrs 2021 1, 4��-� t,� 00 1996 & C �� t 2 / 8.5% � yrs 2005 12,148 varies 1, 18 1997 S & C 2003 eater 8.0% yrs 2f� 6 ,572^ varies 15072 1998 S .r& % j{ %f9 10/1/99 1 1 1 ! J f F # �f S/ �j 8 yrs ani V V l � � { varies h 1999 S & C fY % 1! 11 .� yrs 2008 /6 1, J 9 varies 884 2000 S & C 1/2/01 9.5% 8 yrs 2009 2,. 15 varies L447 2001 S & C 1/2/02 . % 8 yrs 2010 1■209 varies 907 2002 S & C 112/03 4.25% 8 yrs 2011 13,'64 varies �, 3 2003 S C t! f 0 a0 o r 2012 , 3 varies3758 y Total Special sses .r e t . a ds $1,945,322 $ R3 y i LR L Revenue Bonds — Revenue bonds are directly related to and expected to be paid from the proprietary fund. The 2000 Westside Tax Increment bonds are accounted for in governmental activities. Issue Interest Final Bonds Balance Purpose Date Rate Term Matur f ssued June 302 2004 2001 Water 6/01 4.00% 20 yrs 2021 ,000 6791)000 2000 Solid Waste -11/01 4.75% 5 yrs 2006 15V65 79,633 2004 Water Refunding 5104 2.50-4.85% 20 yrs 2024 1,840.000 1 }840,000 2004 Water 5/04 2.70-3,85% 10 yrs 2015 372921 372,921 2002 Sewer WWTP 4102 3. 5 1 % 9 yrs 2011 2,355,000 1, 05,5000 2000 Westside TIF 3100 6.21% 10 yrs 2010 2,,00 ,3'79 2003 eater 1/03 2. % 10 yrs 2013 9077500 876,458 Total Revenue Bonds $ 8rt895.686 5 ,951.. 91 -42- CITY OF KALIS ELL, FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 0 � 2004 Sianificant Provisions of the Series 2000 Westside Urban Renewal Tax Increment Bond Reserve Account — The City shall keep in the reserve account an amount equal to the maximum imum am unt of principal and interest due on all outstanding bonds of the Westside Tax Increment District in the current or any future fiscal year. O' Rond Max Principal and Debt Due in any future fiscal year $ 82-5569 City's .Reserve 821569 2004 Water Refunding Bond Issue On May 15, 2004, the City issued $1,840,000 of Water System Revenue and Refunding Bonds with an average interest rate of 4.3percent to refund $590,000 of outstanding 1996 Series bonds with an average interest rate of 5.6percent. As a result, the 1996 Series bonds are considered to be defeased and the liability for those bonds has been removed from the Nater Fund, The effect `ect o this refunding was a reduction in debt service payments over the next 8 years of $181,182, and an economic gain(difference beteen the present values of the old and new debt service payments o $169,337. .Significant .provisions of the Water System Revenue Bonds Debt Service Account - Monthly an amount equal to not less than 116 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 301, 200 41, as all debt service payments were made as of the end of the fiscal year, leaving no accrued interest or pncipal balance. Reserve Account - The City shall beep 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. 2001 issue (maximum principal/interest due in fiscal year) $ �p000 Other bona issues 10% of original issue) 0.8_19.3 8. Total Reserve Requirement $364,938 Reserve balance 6/30/04 99* o Property Insurance - The City will cause all buildings, properties, fixtures, and equipment to be kept insured in am unt s that are ordinarily carried. Liability Insurance - The City will carry insurance agai .nst liability of the City and its employees. -- CITY of KALISPELL., FLATHEAD CoUNY7 MONTANA. NOTES TO FINANCIAL STATEMENTS JUNE 3 0 7 2004 Rates and Charges — mates 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 revenue in excess of such current expenses, equal to 25 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 $15616,831 Misc. Revenue 36:2164 Total Operating Revenue 652,995 Less: operating Expense (before depreciation) $ ,0842709 Available for Debt Service $ 5 6.,6 Maximum Debt Service $ 4311761 Coverage FY04 132% Sewer Revenue Bonds Ordinances and Required Information Debt Service Account - Monthly an amount equal to not less than 116 of the interest due within the next six months and 1112 of the principal to become due within the next twelve months shall be credited to the debt seirvice account. The debt service account was ,sero as of June 30, 2004,1 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 nt e ual 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. 10% of the original principal was the lesser of the two options for the 02 bond resulting In reserve requirement o $3,0 s o Jane 30, 2004, the debt service reserve account contains $650,550. Rates and Charges —.dates 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 Coverai2e Sever Service Charges $2i7l9fi63 Misc. Revenue 150 Total operating Revenue $2,719n813 Less: operating Expense (before depreciation) $1,482-09 Available for Debt Service $1 237,204 Maximum Debt Service $ 369,148 Coverage Y04 335% Operating Reserve .Account The City shall maintain an operating :Reserve equal to one month's operating expenses_ The term operating expenses shall mean current expenses, paid or accrued, or operation, maintenance and current repair of the system and its facilities, and shall include administrative expenses of the city relating solely to the system, premiums 'for insurance on the properties, labor and the cost of materials and -4- CITY OF KALISPELL, FLATHEAD C tNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE o, 2004 supplies used for current operation and for maintenance, and charges for the accumulation of appropriate reserve for current expenses which are not recurrent monthly but may reasonably he expected to be incurred in accordance with sound accounting practices. Such expenses shall not include any allowance for depreciation or renewals or replacements of capital assets of the system and shall not include any portion of the salaries and wages paid to any officer or employee of the City, except such portion as shall represent reasonable compensation for the performance of duties necessary to the operation of the system.. The operating reserve account balance at .lune 30, 2004 was $1281000. Audited Financial Statements - The City shall, within 120 clays after the close of each fiscal year, cause to be prepared and supply to the original purchaser or purchasers of bonds issued hereunder and the bank or banks designated as agent for the payment of principal of and interest thereon a financial report with respect to the system of such fiscal year as prepared by an independent certified public accountant. The City is not in compliance with this requirement. Sig.nificantProvisions of the 2001 Solid Waste Revenue Bonds Debt Service account - Monthly an amount equal to not less than I of the interest clue within the next six months and 1 12 of the principal to become due within the next helve months shall he credited to the debt service account. The debt service account balance at June 30, 200 4,, was $241,095, which exceeded the requires mount. of $20,400. 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. 10% of the original principal was the lesser of the two options resulting in a reserve requirement of $ 15,927. As of June o, 20, the debt service reserve account contains $16,000. Rates and Charges Net revenues will be at least equal to 125% of the maximum amount of principal and interest payable in any subsequent fiscal year. 15% of maximum requirement '3 5,41 Net revenues $137{661 State Revolving Fund Loan — In November 1991, the City entered 'into an agreement with the Mate Revolving Fund (SRF) to borrow funds to partially finance the construction of a wastewater treatment plant facility. T"his obligation is to be repaid from the operating income of the sewer fund. In .'Yo, the City entered into another SRF agreement to borrow funds to finance the extension of sewer liras south of the City o. Highway 93. Origination Fiscal Year 1992 Fiscal Year Zoo Total SRF Loans I'ur oe Sewer �--- Sly Sewer - SRF Interest Amount Outstanding Rate Term Borrowed June 3.0.1.200 A. .00% 20 yrs 3913425 $ yrs 11 0 $ 5.06 $ -1,1%5740 l�i�� I,II� CITY OF KA ISPELL, FLATHEAD COUNTY", MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 3, 2004 Loans/Contracted Debt Original Origination Interest Due Principal Balance Pur ose Date Rate Term Date Amount June..3.0.12004 Board of Housing 3/1/95 6.0% 30 yrs 2/l/05 2 ,000 230,628 B0I: Road Grader 2/25/00 2.85 yrs 2/15/07 122,3 82 56,777 BOT: Fire Truck 2/15/00 2.85% 5 yrs 2115/05 8703 M927 B01: Booms. Truck/Leaf Lo er 1126101 185% 5 yrs 2115/06 88 9 0 3 8, 08 B01: PIU/Aerator 5116103 2.85% 5 yrs 8/15/08- 40,888 37,059 B I: Bldg/Plow Trucks 5/16/03 2.85% 5 yrs 15108 99,390 90,083 BOL City Hall HVAC 7116/04 2.70% 0 yrs 2115114 151 .836 151,836 B01: Streets Building 5116103 2.75% 5 yrs 8115/08 522000 5�0 Total Goverment Fund Ty $ 914,049 $. 67 Enterprise Funds BOL John Deere Loader 3110100 2.85% 7 yrs 2115/07 $ 103,000 48J99 Total Loans $1017049 $ 72=3 917 BI — 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 North West Human Resources. Compensated Absences Payable — compensated absences payable, which represent vacation, sick leave and compensatory time earned by employees, and is payable upon termination, were as follows: Governmental Activities 739,896 Tri -City Planning- Component Unit 49,429 Business -type Activities 11,359 Parking Commission — Component Unit 5.714 Total 976398 -- CITY OF KALISPELL,, FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS NE 30, 2004 Reguirements to amortize debt The ainnual requirements to amortize all long-term debt outstanding, excluding compensated absences payable, able, a of June 30, 2004, were as follows: Advanced Refunding of Long-term Debt (Year of Refunding) On May 15, 2004, the City issued $ ,840,000 in revenue bonds with an average interest rate of 3.24% to advance ce ref m $670,,000 of outstanding revenue bonds with an average interest rate of 5.5%. The net proceeds of $1,828,500 after payment of underwriter fees, insurance,, and other issuance costs totaling $11,500 plus an additional amount of $176,516 of the revenue bond sinking fund monies were used to purchase U.S. Government securities. Those securities were deposited in an irrevocable trust with an escrow agent of provide for all future debt service payments on the 1996 revenue bonds. As a..res lt., the 1996 revenue bonds are considered to be defeased and the liability for those bonds has been removed from the Water Fuad. Although the advance refunding resulted in recognition of ars accounting loss of $29,726 for the fiscal year ended June 3, 2004, the County in effect reduced its aggregate debt service payments by approximately $36,041 over the next 10 years and obtained an economic gain (difference between the present values of the old and new debt payments) o $26,452. -4- Special Special G.O. G-0. Assessment Assessment For Fiscal Bonds Bends Bonds Bonds Year Ended Principal Interest Principal Interest 2005 130,000 $ 160,475 137,108 $ 62,962 2006 135,000 154,463 7%612 5%,554 2007 1405000 148j3 88 119.3 112 54,3 92 2008 145,000 142,088 1181900 49,572 2009 155,000 135,563 108,680 44,453 2010-2014 880,000 569,970 438,500 1561)563 2015-201 1,1W'000 355,250 340,000 58,000 2020-20.4 7 7&645 TotalLZL 9 2$=45 SRF Loans & SRF Loans Continued: Contracted Contracted Revenue Revenue For Fiscal Loans Debt Loans Debt Bonds Bonds Year Ended Princ. Interest 1'H al Interest Total 2005 3 8%127 $ 145,049 $ 659j674 218,150 17,902!545 2006 3823335 135,423 692,979 2075177 1,846,543 2007 3755987 120,947 588,876 1831)073 11)730j775 2008 .53,525 106.1774 57j41 15 1,94' 1,645,272 2009 345j013 92,845 597,873 139,483 1,118,910 2€10}2014 11)390,595 2621536 1,752,872 390,412 5,841,448 201 -2019 473,870 90,220 584,646 185,978 3,17,94 2020}2024 202 214 17,322 497,000 64.088 1 649 269 Total $ 12; 6. �N _ 97'1* 1 1616 $5 95 L3 540.303 . �� X26 Advanced Refunding of Long-term Debt (Year of Refunding) On May 15, 2004, the City issued $ ,840,000 in revenue bonds with an average interest rate of 3.24% to advance ce ref m $670,,000 of outstanding revenue bonds with an average interest rate of 5.5%. The net proceeds of $1,828,500 after payment of underwriter fees, insurance,, and other issuance costs totaling $11,500 plus an additional amount of $176,516 of the revenue bond sinking fund monies were used to purchase U.S. Government securities. Those securities were deposited in an irrevocable trust with an escrow agent of provide for all future debt service payments on the 1996 revenue bonds. As a..res lt., the 1996 revenue bonds are considered to be defeased and the liability for those bonds has been removed from the Water Fuad. Although the advance refunding resulted in recognition of ars accounting loss of $29,726 for the fiscal year ended June 3, 2004, the County in effect reduced its aggregate debt service payments by approximately $36,041 over the next 10 years and obtained an economic gain (difference between the present values of the old and new debt payments) o $26,452. -4- CITY OF KALISPEL , FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 3 � 2004 F. State -Nide Retirement Plans Substantially all full-time City employees are eligible for one of three retirement plans: Montana 'lie Employees' Retirement System (PERS); Municipal Police Officer's Retirement System M ORS : and the Firefighters' Unified Retirement System URS . 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 o $6,710,353 for FY04, of which $5,907,740 is covered y PERS, MORS, or FURS. Component ponent payroll covered PERS was X43,088 for the Parking Commission, and $211,430 for Tri City Planning, Contribution rates for the plans are required and determined by State law. The contribution rates, expressed as a percentage of cove -red payroll for the fiscal year ended June 30, Zoo, were: .HERS MORS FURS Employee 6.9% % 10.7% Employer 6.8% 14,41% 14-36% State 0.1% 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 inancial statements and required supplementary information for all three plans. That report may e 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, 2002, 2003 and 2004, as listed below, were equal to the required contributions for each year, PARKING TRI -CITY ERS MPORS FURS COMMISSION PLANNfNG 2002 212,574 179,112 136,878 3,239 i2,1o3 2003 20 , i 1 � 13 ,� �, 3 x,30 5 oo $ 219,461 184,19 $ 163,934 2,656 14,377 CITY OF KALIS EL , FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 30, Zoo G. Post Employment Health Insurance Benerits Terminated employees may remain on the City's health insurance plan for up to 1 months if they pay the monthly premiums. This benefit is required under federal C.o. .R,A. law. Retirees may remain on the City's health plan as long as they wish, provided they pay the monthly premiums. State law requires the City to provide this benefit. No cost can be estimated for the above benefits, although there is the probability that there are higher medical costs for retirees which would result in additional costs to the insurance program. There are no other post -employment benefits provided by the City. ff. Amounts Due From and Due To other Governments The amounts due from and due to other ;overmnents consisted of the following: General Fund: Due from Mate of Montana 550 Due from Flathead County 3 78fi3 Due from Montana Board of investments 151,835 Total $.......531.022 Special Revenue Funds: Due from Flathead County $ 349,928 Due to others $ 200 Due from Mate of Montana 1 due to 1ue gyros flue ��1 I 1 5,5 Due from Department of Justice .2_ 644 Due to Flathead County 48, 597 Total $540.059 -zmm Due to Contractors �- Retainage 165,235 Tota $-a29-1865 Debt Service 'urns. Due from Flathead County xN 10053 Enterprise Funds: Due from m Flathead County $ 107,905 Due to Montana DOT $1, 718,744 Due from Board of Investment 3 72921 Due to Contractors -- Retainage - __..V,22 Due from DNRC 1,15 ,748 Total $1727 ; 965 Due from others 325 Total $ 9�9 -49- CITY OF KALISPELL, FLATHEAD COUNTY,, MONTANA NOTES TO FINANCIAL STATEMENTS J UNE 30� 200 I. Restricted Cash/Investments The following restricted cash/investments were held as of Jure 30,1 200 4. These amounts are reported within the noncurrent cash/investment account. Business -tune Activities Water Bond Reserve (includes SRF & BOT) ,o Sinking and Interest 6,987 Sever Operating Reserve 1281P00 Bond Contingency 650,550 Evergreen SRF Bond Reserve 391 103 Garbage Bond Reserve 1600 Sinking & Interest 2,0 Govemmental Act v1tl s Westside TIF Bond Reserve 327.285. Total $—.12944,.760 J. Restatements During the current fiscal year, the following adjustments relating to prior years' transactions were made to fund balance and - retained earrings accounts, Fund Amount Reason for Adjustment General $ (6,761) Owed to Crime victims Fund fiscal year Zoo Statement of Activities o'X0 Paid but not booked fiscal year 2003 Statement of Activities 14,385 Adjust prior year long-term debt 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 whichthe participating overnments retain 1 a ongoing �.nancial interest or 2 an ongo'ing 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 ea.lt . Board. The Board consist 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 mil 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 i included in the basic financial statements of Flathead County within the Special Revenue Fund -50- CITY OF KALISPELL., FLATHEAD COUNTY, MONTANA. NOTES To FINANCIAL STATEMENTS JUNE 30, 2004 2. Courtyard Apartments/Northwest Montana Human Resources The City entered into an agreement with Northwest Montana Ruyan Resources for a joint venture construction project of the Courtyard Apartments. The City owns 16 units of the apartment complex built with Home Grant and CDGB funds. NWMHR has built 16 units also. The agreement provides for the management ement of the lousing complex for low income lousing. 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. As of June o, 2004 the equity in the fund was $40,964. 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 governmental activities column. The ori mal amount of the loan was $271 NO. The balance as of June 30, 2004 is $230,628. 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 distfibution 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 fand 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. M. Risk Management The City faces a considerable number of risks of loss including a damage to and .loss of property and contents, 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 arnounts 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 privately administered, self-insured plan. Given the lack of coverage available, the City las no coverage for potential losses from environmental da -mages. 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 "w'orker's Compensation and Liability Coverage. Both public entity risk pools currently operate as common risk management and insurance programs for the member go erunents. The liability limits for damages in tort action are $750,000 per claim and $1.5 million per occurrence with a $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 corkers~ compensation -51- CITY of KA4 ISPELL FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE moo, 2004 program issued bonds in the amount o 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 'o cover the debt service. The City's share i $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 hake any payment on these .notes. Separate financial statements are available from the Montana Municipal Insurance Authority. In October 1993, the City established an internal service fund for the City's self-insured health insurance plan. The .plan is administered by Blue Cross/Blue Shield of Montana. The City pays premiums recommended by BC/BS into the City Health fund. The claims are submitted weekly by CS and paid out of this fund. The city pays the total monthly premium for employees who only choose to cover themselves. For employees who choose to cover additional dependent dependents the City pays a percentage of the extra cosh. Vision is optional and paid by the employee. A `stop -loss" policy has been purchased to cover any claims that exceed $75,000 per individual or aggregate claims o 115% of claims projected by C S. Claims Payable, June 3)o, 2003 $ 124,519 Clads Incurred 1 A61)784 Claims Paid 1 ,4'01 I ,39 Claims Payable, June 30, 2004 $ 141.1 64 The City estimates the liability for claims payable based on prior year's history W information. N. Pending Litigation The hollowing is a list of litigation pending against the City and the amount of damages claimed by the Plaintiff. The City Attorney has blade no evaluation as to the outcome of each case. The City has liability insurance that may cover all or part of to damages. Accordingly, no provision has been made in the financial statements for hese contingent liabilities. The City eliminates the liability for claims payable based on prior years' history information. -52- Damages Loss Req ested Potential Stasis NuPac v. City of Kalispell $70,000 Remote Not Stated Olson v. C $ 13000 Possible Justice Court Glick v. City $3,0009000 Remote MMI Cameron - . City Unknown :Possible MMIA Burgers v. City, et a . 'Unknown emot Federal Court Kruckenberg v. City Unknown Unknown District Court West North fir. Cit Unknown Unknown .District Court Harper v. Cit $ PO Remote MMI Talmadge i� City Unknown Not Stated Not Stated Gelinas v.JoneslCityUnknown Not Stated Not Stated The City eliminates the liability for claims payable based on prior years' history information. -52- CITY OF KALISPELL, FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUN o, Zoo o. Loans Receivable The City entered into a community development program, which includes funding from a community development block grant, to male 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 Joan 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 ill 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 o a private lender loan cannot exceed $20,000 per property with a tem -year pay back. In addition, when an owner -occupant is unable to afford a private lender loan at thepre- 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 $1,737,074 recorded as loans receivable as of June 30, 2004 in the Community Development Loan Revolving Fund. The above mentioned loans are offset with deferred revenue accounts on the governmental funds Balance Sheet. Uncollected receivables in govermnntal funds are offset with deferred revenue accounts as explained in the "basis of accounting". The following loans were made by the City using Urban Development Assistance grant (UDAG) funds: A 20 year redevelopment loan at % with Big Sky Manor in .august 1999. Original Loan amount $ 124,000 June 30, 2004 balance $ 1041641 .A 20 year redevelopment loan at % with United Way in January 2000. Original Loan amount $ 133,500 June 30, 2004 balance $ 116,01 A 10 year loan with Stream, Inc. at I I% as part of the package to bring Stream. Jobs to Kalispell. The interest earnings are to be split with 5.6% committed to the debt service fund to pay off the Stream Bonds. The remaining 5.9 interest and the principal will be returned to the UDAG fund. Original Loan amount $ 1,000,000 June o, 2004 balance $ o -53- CITY of KALISPELL, FLATHEAD COUNTY, MONTANA. NOTES To FINANCIAL STATEMENTS JUNE 30, 2004 P. City Court Contracts Receivable Contracts receivable of the City Court, because of the uncertainty .regarding when and i they will be collected, will no longer be booked as an asset on the balance sheet of the General Fund. These receivables, at June 30, 2004, amounted to $383,306. Q. Wastewater Tr t Plant agreement with Evergreen The City of Kalispell entered into an Interlocal .Agreement with the Evergreen Serer 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 2% 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 Serer District, has an equity interest in the replacement account earned on the City's books. The balance of the account as of June 30, 2004 is $2,5285854 o which Evergreen's interest is $519,89"). The City of Kalispell has sole responsibility for the use of these funds. R. Gateway West Mall Flathead County Economic Development Authority, Flathead County and the City o Kalispell entered into an inter -local agreement to purchase 59,000 00 s t are feet of the Gateway West Mali for $2.5 million and sign a ten. -year lease with Stream International, Ltd.. The City of Kalispell agreed to acquire the property by issuing a $2.5 million tax increment urban renewal bond. The City then conveyed the property to the Authority a ",tenants In common The County through the Authority became vested witb a undivided 37% interest in the property with the City vested with the remaining 3% interest. As a result of this conveyance, the Authority recognized its portion ofthe building and the related debt on their books. The .Authority is responsible for the operation maintenance of the property during the term of the initial ten-year lease. The Authority is also responsible for the carrying o .property insurance against the property. The City has agreed to reimburse the .Authority for its proportionate share of these costs. The Authority has agreed to levy up to two mills or $156,000 for the term of the bond, and has pledged $125,000 o the .revenue generated each year to be remitted to the City o Kalispell in two equal installments o: ' $62,500 that will be used toward the retirement o the tax increment bond. The authority shall also set up and contribute $31,0 to a building reserve fund each year of the lease. The reserve will be used for any repair`' or construction work deemed necessary in maintaining the property. The City issued the tax increment bonds in its name and agrees to be punctual in all debt payments, and will keep all proper records and meet all necessary requirements of the bond resolution. The City shall also set up and contribute $5,000 to a building reserve fund for each year of the lease. The reserve will be used for any repair or construction work deemed necessary in maintaining the property. The Authority shall manage this -5- I � �� CITY of K L S E COUNTY. NOTES TO FINANCIALSTATEMENTS JOE 30, 2004 building reserve. The City has pledged the following revenues towards the repayment of the $2.5 million bored; I Half of the interest revenues generated from a million dollar loan to Stream ($38,000 per year). 2. An annual user fee that will be paid by Stream to the City equal to the amount of Stream's Montana corporate license tax obligation. 3. Tax increment .money generated from the Westside Tax Increment District until the City reaches their share of the debt payment or $214,350. . The .Authority's annual contribution o $125,000. The County has agreed that it will approve the Authority's levy for an ad valorem property tax of up to two mills on all taxable property in the County, until the tax increment bond is paid. Within 180 days of the payment in fall of the Bond, either the authority or the City may give notice to each other of intent to purchase the property. The purchase price to be paid will be equal to the total debt service paid by the other party. The Authority has the first option of buying the property from the City. If neither the Authority nor the City want to purchase the property outright, then the City has granted American Capital a right of First refusal to purchase the property. The proceeds from the sale of the property shall be distributed based on the equity interest each entity holds. In August of 2003, Stream International closed their computer support call center in the Gateway West Mail building, and subsequently bought out the remaining portion of their o year contract with the City, In .February of 2004 the City entered into an agreement with TeleTech Holdings, Inc. TeleTech which will operate a Cali -in Center, similar to Stream's operation, entered into a lease structured similar to Stream's. Rent abatement is fled to jobs created and maintained and pay. TeleTech will also pay the guaranteed minimum tax payment o $140. 000/year. This ensures that the City will be able to meet its portion of the debt obligation related to the Gateway guest Mall building. CITY of KALISPELL, FLATHEAD COUNTY, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 301 2004 S. Special Items The City reports a special item in the Governmental Activities(Funds). 1n August of Zoo, Stream International closed their computer support call center in the Gateway West Mall building, and subsequently bought out the remaining portion of their 10 year contract with. the City. This buyout included paying the City rent on the remaining life of the contract (approx. 6.5 years). Rent revenue was recognized (fund 31 88) through the time of the buyout. The remaining $1,322,194 of the buyout was a "significant transaction within the control of management, infrequent in occurrence, and therefore considered a special item. This special item is reported separately at the bottom of the general revenues section on the Statement of Activities and after other financing sources and uses on the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances. T. Subsequent Events riC l n * The City of Whitefish has announced its intentions to establish their own planning office in the near future. This will end their partnership with the City's of Kalispell and Columbia Falls In the TriCity Planning office. Emj2lojee Health Cove r The City of Kalispell ceased its self funded employee health insurance plan on June 30, 200 4. From July 1 through September 30, 2004,the City provided employees with a fully funded plan through Blue Cross/Blue Shield. on October 1, 200 4, 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 issued a sewerage system revenue bond in the amount of $1,543,000 in September, 200 4. The proceeds will be used to install approximately 2.13 miles of sewer main piping, 39 manholes, 1 pumping station", 1.73 miles of sewer force main piping, 1 sewage pumping station and appurtenant along 'U . S , Highway 93 South. The bond has a 20 year term with a maturity date of July, 2004. The interest rate is 3.75 for the life of the loan. The City issued a water System Revenue Bond in the amount of $490,000 In October, 200 4. The proceeds will be used to acquire, install, and construct various improvements to the water system including replacing residential water .meters and installation of fire .hydrants. Total costs of the project is expected to be $554,257. The excess of this cost over the proceeds will be paid by the City water Fund. The bond has a ten-year tern with a maturity date of August 15, 2014. The Bond rate is variable over the life of the loan. The initial interest rate is 2.70%. This rate is adjusted annually to match the Board of Investment Rate. The City purchased two parcels of .hand for the City Airport in September, 200 4. The purchase price of $55 )0,000 matches the FAA approved appraisal. The funds used to make the purchase were provided from an FAA Grant. -- REQUIRED SUPPLEMENTAL INFORMATION Budgetary Fund Balance, July 1, 2003 `faxes and Assessments Licenses and Permits hitergovemineotal Charges for Services Fines and Forfeitures Miscellaneous Investment Earningl TransfQrs Tai Proceeds LTD Proceeds sale of Fixed Assets Transfers from other districts Amounts available for appropriation Charges to Appropriations utflows General Govemment Public Safety Pub] io 'Works Culture and Rccrcation Housing and Community Developmcnt Miseellancous Debt Sei-viCe Capital outlay Tra asfe,rs {Dui} Total Charges to appropriations Excess (Dexiciency) of resouroes (inflows) over Charges to appropriations (outflows) Restateri mts Budgt!tary Fund Balance - June 30, 2004 $ 7,482,628 S 7,616,775 $ 7,581,233 $ 35,542 $'783,325 $ 791,061 S 830,978 S 39,917 $ 1,236,4D9 City of Kalisp0l, Flathead County, Montana BUDGETARY COMPARISON SCHEDULE June 30, 2004 General Fund Community Deveiolment Loan Revolving 99,965 $ w - $ - - ACTUAL 3,779,158 3,709,528 ACTUAL - - 354,193 354,193 AMOUNTS VARIANCE - - AMOUNTS VARIANCE BUDGETFD AMOUNTS (.BUDGETARY WITH FINAL BUDGETED AMOUNTS (BUDGETARY WITH FINAL ORIG,......NAL FTNAL ...:............. B�! . �,_.. ��......._ate, �i. 'ET ORIGINAL FINAL BASIS-} See. .Note, A - GET S 1,059,542 S 1,193,589 $ 1,200,454 $ 6,761 $ 638,973 $ 646,709 S 646,709 $ - 2,220,125 2,220,125 2,244,771 24,646 - - - - 115,848 115,848 134,583 18,735 - - - 2,675,151 2,675,151 2,593,221 (81,9361) - - - - 691,348 692,348 720,295 27,947 - - 868 868 440,000 440,000 443,646 3,646 - - - - 58,614 57,614 63,512 5,888 - - - - 74,000 70,000 28,929 (41,071) 144,352 144,352 183,401 39,049 152,000 152,004 151,836 (164) - - - - $ 7,482,628 S 7,616,775 $ 7,581,233 $ 35,542 $'783,325 $ 791,061 S 830,978 S 39,917 $ 1,236,4D9 $ 1,281,6142 S 1,181,677 $ 99,965 $ w - $ - - 3,785,088 3,779,158 3,709,528 69,530 - - - - 354,193 354,193 339,745 14,448 - - - 731,950 686,717 748,777 (62,060) - - - - - - - - 125,100 77,100 3,681 73,419 2,655 2,655 1,320 1,335 - - - - 33,289 33,289 29,370 3,919 - - - 225,500 231,430 234,802 (3,372) 75,004 123,000 1.04,073 18,927 69,806 108,806 104,923 3,883 - - _ w S 6,437,890 S 6,477,890 S 6,350,142 S 127,718 $ 200,100 $ 204,140 S 107,7511 $ 92,346 S 1,231,091 S 723,224 S 1,224,334 $ 723,224 City of Kalispell, Flathead County, Montana BUDGETARY "AR PAI I ON SCHEDULE BUTDGE "-T -[GAAP RECONCILIATION Note A. - Explanation of differences between budgetary inflows and outflows and GAAP Revenues s and Expenditures Community I3evelop ent General ving Loan Revolving Fund Fund Sources/Inflows of resources �j j� f�} f{] Actual arnounts (budgetary basis) "available for appropriation" from the budgetary oornpari ion schedule f} y} f , 1,233 J�}� f4 j� 8 , 7 The fund balance at tho beginning of the year is a budgetaTy resource but is not a current year revenue for financial reporting purposes_ (1,200,450) (646,709) Proceeds from long terms debt are inflows of budgetary resource but are not revenues for f mmcial reporting Purposes (151,836) - Total revenues as reported on the statement of revenues, expenditures and changes in fund balanc s- oe 1 ntal funds. 6,2.28,947 184,269 Uses/Outflows of resources Acetal -amounts (Wadget ry basis) "tota hapgzs to apppopTiations" from the budgetary co mpari o hedule S 6,350,142 S t 071754 Transfers to other fonds are outflows of budgetary resomces but are not expetiditures for financial Teportin purposes_ (104,923) Total expenditures as repotted on the statement of revenues, expenditures, and c h ange l -n fund balances - goernrnntal fronds 6,245,219 107,754 SINGLE AUDIT SECTION federal GrantorlPass»Through CraFiitorfPrograrn Title U.S. Department of ;.lousing and Urban ftyeLqpment Pa.yse,d lhrov h Me A46nf ana Departnient ofCorlamerce' Community Deveiopmcnt Block Grant Community Development Rlack CTant Community Development Block Grant Total U.S, Department of Housing and Urban Develnpinent U.S...i1„e,, artment of Justieg Dire: cr: Community Oriented Policing SP-Mces - la School Awards Community Oriented Policing Services - In School Awards iariiversal Grant i`bmtnumty Originted Policing Services - Block Grant Prlsscd fhrough Flathead (7611my: Dmg Control 5ysteni3 {want - Formula Grant Pay sed through brie Montana Row -d of Crimi�, Control: EUDL National Conference Total U.S. Department of Justice U.B. 13epartment of Trt'Sn5j1UCt�tk611 Pussefl through the Is bnta w Dopar tmen't rlf Transportation: Highway Planning and Constmc:tion - Community Transportalon Enhancemem Prograrn Highway Planning acid Construction - Motltaiia Air and Congestion nitiativc HIS way Traffic Safety - Kalispell Ocrupent Protection Highway T'taffic Safety - .Kalispell Occupont Protection Tout U.S. Department of Transportation `j U.S. De sartntettt of Fnvirogmenta[ Quglity � r3irect, DEQ Grant U S. Department. of Homeland securi Direct: FEMA Grant FEMA Grant Total U.S. Department of Homeland Security Total Federal Finaocial Assistance N)A = Not Applicable of Not Available (a) }`jtctudts a reslateniti; of the beginning blance $2,247 City of Kalispell, Flathead County, Montana Schedule of Expenditures or Federal Awards For Fiscal Year Ended June 30, 2444 Federal Pass4hrough Program or Beginning Ending (FDA Grantor's Award 13alaenre Federal Matchf(ither Federnl MatchlOther Balauce Number Number Amount July 1, 2003 Ftevenrte Revenue Ex end":tures Exlrenclituzes .fun 30, 21104 14.228 M2001-SG300117 $ 428,400 $ - $ 64,531 $ $ 64,531 $ 14.228 MT-CD]3G-01HR-02 $ 500,000 - 15,615 - 15,615 - 14.228 h4T-CDF. G-02 $ 20,000 00 - 20 000 _ $ $ 1001146 $ - $ 100,146 $ - $ - 1.6,710 1999SHWX0664 S 125,000 S 1,796 S 40,400 13,o3 q S 41,196 13,089 S 16.710 2001SHLVX0464 $ 125,000 - 48,532 126 48,832 €26 16.710 2003 TMWX0313 $ 75,006 _ 22.,540 16,000 22.,€386 16,040 414 16.710 01-K07,81299 $ 20,500 - 20,500 -- 2[3,504 - - 16.727 IIIA N/A 5,021 42,929 22,000 41,359 22,000 6,591 16.127 L71-UlDI-5455% $ 3,975 - 3,975 - 3,9„15 - 5 6 817 5 1736 $ 51,215 S 178,348 $ 51,215 $ 7,005 20.205 S'fI'E6799(23) $ 197,074 $ (1,401) $ 177,154 $ 32,170 $ 177,154 $ 15,732 $ 15,037 217.205 CN46799(24) $ 605,314 68,483 409,885 - 405,885 €18,483 - 20.600 2004-01-48-08 & 2004-13-01-08 $ 21,000 - 9,839 9,839 - 20.600 02-03-07-06 $ 7,400 - 9 996 - 9 996 - $ _ _670$2 $ 6 $74 S•..•.•••••••..•.••.••_32,170 646,374 $ 9415 15037 68-808 RPG -02-0079 $ 10,000 $ - S 4 $ - $ 10,1304 $ - $ 83.554 EMW•2002-FG-06515 S 101,432 $ 10,552 $ 74,747 $ - $ 74,747 $ 10,552 (a) $ 53-554 EMW-20M-FG-02256 S 117,3(311 - 48,+968 13,033 48,968 4,897 8,136 10,532 123,715 �_. 13,033 123,715 15,449 9136 $ 84,45.1.... $ 1019471 $ �, 96,418 5 1,019,283 $ 150,979 $ 30,178 CITY OF KA SPELL FLATHEAD COUNTY, MONTANA ANA NOTES TO THE SCHEDULE of EXPENDITURES of FEDERAL AWARDS Fiscal Year Ended June 30, 2004 Basis ref Presentation The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of City of Kalispell, Flathead County, Montana, and is presented on the modified accrual basis of accounting. The Information in this schedule is presented in accordance with the requirements of OMB Circular A- 13 3 � Audits of States, Local Governments, and .mon-profit Organizations. erefor � some amounts presented in this schedule may differ from amounts presented in, or used in preparation of, the basic financial statements. -- Denning, Downey & Associates, P. C. CERTIFIED PUBLICACCDUNTANTS 1740 US Ilwy 93 South - Suite 101 Kalispell, MT 59901 REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT of FINANCIAL STATEMENTS PERFORMED N A CC0RDANCE WITH GO VERNMENT A UDITING STA NDA RS Mayor and City Council City of Kalispell Flathead. County Kalispell, Montana We have audited the govemmental activities, the business -type activities, each major fund, and the aggregate discretely presented component units and remaining fund information of City of Kalispell, Flathead County, Montana, as of and for the year ended June 30, 2004, which collectively comprise the City of Kalispell"s basic financial statements and have issued our report thereon dated February 25, 2005. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable t financial audits contained in Government . uditing Standards, issued by the Comptroller General of the United States. CQjqjplianqg As part of obtaining reasonable assurance about whether the City of Kalispell"s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions o laws, regulations, contracts and grants, noncompliance with which could have direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, aceordin ly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Internal Control over Financial Reporting In planning and performing our audit, we considered the City of Kalispell's internal control over financial reporting in order to determine our auditi.g procedures for the pose of expressing our opinion on the financial statements and .not to provide assurance on the internal control over financial reporting. However, we noted certain natters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve natters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect the City of Kalispell" s ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. A reportable condition is described in the accompanying schedule of findings and questioned costs as item 04-1. �i- . Robert K, Denning, CPA • Kim M. Downey, CPA A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements 4 in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. our consideration of the internal control over financial reporting would not necessarily disclose all matters in the intemal control that might be reportable conditions and,, accordingly, would not necessarily disclose all reportable conditions that are also considered to e material weaknesses. However,, we do not consider the reportable condition described above to be a material weakness. This report is intended solely for the information and use of the Mayor and City Council, management, the Montana Department of Administration, and Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these ecied parties. February Zs, Zoos -62- Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOIIIVTANTS 1740 U.S. Hwy 93,5outh M Suite 101 Kalispell, MT 5990.1 REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Mayor and City Council City of Kalispell Flathead County Kalispell, Montana Com iance We have audited the compliance of City of Kalispell, Flathead County, Montana, with the types of compliance requirements described in the U.S. office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 200 4. The City's major federal programs are identified in the summary of auditor's results section of the accompar ym' g schedule of findings and questioned costs. Compliance with the requirements or laves, regulations) contracts, and grants applicable to each of its major federal programs is the responsibility of the City's management. our responsibility is to express an opinion of the City's compliance based on our audit. We conducted our audit of compliance i accordance with auditing standards generally accepted in the United States of America,- the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments and ,mon-Profit Organizations. Those standards and OMB Circular -133 require that we plan and perform the audit to obtain reasonable assurance about whether the noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An auditcludes e arni ., on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal deterimination on the City" s compliance with those requirements. In our opinion, the City complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 200 4. .internal Control Over Financial Reporting The management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to Federal programs. In planning and performing our audit, we considered the City"s internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing an opinion on compliance and to test and report on k1ternal control over compliance in accordance with OMB Circular A-133. -3- r K Denning, CPA - Kim. M. Downey, CPA We noted certain matters involving control over compliance and its operation that we consider to be reportable conditions. reportable conditions involve matters corning to our attention relating to significant deficiencies in the design or operation of the internal control over compliance that, in ourudgJment, could adversely affect tree City's ability to administer a rna or federal program in accordance with the applicable requirements of raves, regulations, contracts and grants. Reportable conditions are described in the accompanying schedule of findings and questioned costs as item 04.2. A material weakness is a condition in which the design or operation of one or more of the internal control components goes not reduce to a relatively low lever the risk that noncompliance with the applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timety period by emp oyees in the normal course of performing their assigned functions. our consideration of the internal control over compliance would not necessarily disclose all ratters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. Of the reportable conditions described the accompanying Schedule of Findings and Questioned Costs'. we believe item 04-2 to be a material weakness. This report is intended for the information of the Mayor and City Council, management, others with the organization, the Montana Department of Administration, and federal a vard�ng agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. CPnS,Pc. February 25, 2005 -- CITY OF KALISPEL FLATHEAD COUNTY, MONTANA SCHEDULE OF FINDINGS AND QUESTIONED COSTS Fiscal Year Ended June 30, 2004 Section I — Summary Of Auditor's Results Financial S a m a s Type of auditor's report issued Unqualified Internal control over financial reporting: Material weakness es identified? No Reportable condition(s) identified not considered to be material weaknesses Yes Noncompliance material to financial statements noted? No Federalwards Internal control over major programs: Material weakness es identified? Yes Reportable condition(s) identified not considered to be material weaknesses Ione Reported Type of auditor's report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section .5 10(a)? Yes Identification of major programs: CFD►. Number Name of Federal Program or Cluster 20,205 Highway Planning and Construction Dollar threshold used to distinguish between Type A and Type B programs: $. 300,000 Auditee qualified as low --risk: aditee Yes -65- SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Section 1 — Financial Statement Figs 04-1 Managerial Review of Journal vouchers Condition: Monthly accrualjoumal entries are not reviewed by a manager/supervisor. Criteria: .A proper system of internal controls requires all Journal entries including accruals to be reviewed by a supervisor or manager. Effect: J proper interna) co .trot procedures. Recommendation: The City Manager or Finance Manager should review all the joumal entries. Section III - e .eral Award F s and Questioned Costs 04-2 MAOI Grant Not on Federal Schedule Federal Program: CF A. Title. CA Number: Federal Award Number: Federal .Agency: Pass-through Entity: Montana Air and Congestion Initiative .highway Planning and Construction 20.205 CM 6 '99(24) U.S. Department of Transportation. Montana Department of Transportation Condition: The City received a Montana Air and Congestion Initiative grant, through the Montana Department of Transportation during fiscal year 2004. The City did not record this grant on its Schedule le o Expenditures of Federal Awards for fiscal year 2004. Criteria.: ,All Federal grants should be recorded on the Schedule of Expenditures of Federal Awards. Effect; Federal expenditures were understated by $409,885 on the Schedule, This has been corrected for the audit. report. Cause: Lack of care taken when preparing the Schedule. cornmen d a ion: Carefully review all revenue cedes when preparing Schedule in the future. -- kenning, Do wn eY &Associates, P. C. CERTIFIED PUBLIC ACCDUIV7'ANTS 1740 US. Hwy 93 South- Suite 101 Kalispell, ,rte' 59901 REPORT ON OTHER COMPLIANCE, FINANCIAL, AND INTERNAL ACCOUNTING CONTROL MATTERS Mayor and City Council City of Kalispell Flathead County Kalispell, Montana Immaterial instances of noncompliance along with finding relating to financial or accounting matters, as well as our recor=e dations, are presented below. Also, other matters involving the internal control structure and its operation that are not considered to be reportable conditions under standards established by the American Institute of Certified Public Accountants are disclosed below for your information, along with our recommendations for improvement ent where applicable. 04-3 Exceeding Bud2et Authority Condition: The City exceeded its budget authority in the following f ads; Aquatic Facility ---- Noy. -major Special Revenue Fund by $26,595; ISTEA Grant — Non -major Special Revenue Fund by $2,886. Criteria: Section 7-6-4005(l), MCA, states, "'Local government officials may not make disbursement or expenditure or incur an obligation in excess of the total appropriations for a fund."" Effect Non-compliance with State Statutes. Cause: Lack of proper internal control procedures. Recommendation: The City should limit expenditures to the amount appropriated. -67- Roben K Denning, CPA - Kim M. Downey, CP 04-4 FICAS Medicare Tax Condition: The City improperly calculated the FICA and Medicare tax during fiscal year 200 4. Criteria: Non-taxable deductions rust be considered when computing FICA and Medicare tax, Effect: FICA. and Medicare Tax amounts 'were overstated, which resulted in the employees paying more in taxes thea required. The City adjusted the error fiscal year 200 5, and the employees were reimbursed for the amounts they overpaid in taxes. Cause: The payroll clerk did not subtract the non-taxable deductions for, gross earnings before computing FICA and Medicare tax. Recommendation: Compute FICA and Medicare on taxable earnings taking into account the non-taxable deductions. Ensure payroll tax calculations are reviewed and approved by a supervisor. CPQ �, P�. February 25, zoos -68- Roberl K Denning, CPA • Kiri M. Downey, CPA Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS 1740 U.S.y 93 South - Suite 101 Kalispell, MT 59901 .E REPORT ON PRIOR AUDIT REPORT RECOMMENDATIONS Mayor and City Council City of Kalispell Flathead County Kalispell, Montana The prior audit report contained one recommendation. The action taken is as follows: Recommendation City Court awt . I 116r February 25, 200 Action Taken Implemented lik� C ion s Vic. _9_ Robert K Denning, CPA - Kim H. Downey, CPA