Loading...
HomeMy WebLinkAbout1 - Introductory Section CITY OF AUBURN WASHINGTON Comprehensive Annual Fiannacial Report 2002 Fiscal Year January 1,2002 to December 31, 2002 Prepared by Department of Finance Shelley Coleman, Finance Director Auburn Senior Activity Center Dedicated September 10, 2001 CITY OF AUBURN: 2002 CAFR TABLE OF CONTENTS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended December 31,2002 TABLE OF CONTENTS Statement Reference Page I, INTRODUCTORY SECTION Title Page Table of Contents i City Officials 1 Organizational Chart (City and Council Committees) 2 Letter of Transmittal 3 Certificate of Achievement 21 II, FINANCIAL SECTION Auditor's Report 23 COMBINED FINANCIAL STATEMENTS - OVERVIEW (General Purpose Financial Statements) Combined Balance Sheet: All Fund Types and Account Groups 26 Combined Statement of Revenues, Expenditures, and Changes in Fund Balances: All Governmental Fund Types and Expendable Trust Fund 2 30 Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual General and Special Revenue Funds 3 32 Combined Statement of Revenues, Expenses, and Changes in Fund Equity All Proprietary Fund Types and Similar Trust Fund 4 34 Combined Statement of Cash Flows All Proprietary Fund Types and Similar Trust Funds 5 35 Statement of Changes in Net Plan Assets 6 37 Notes to the Financial Statements 7 39 SUPPLEMENTARY DATA (Financial Statements and Schedules of Individual Funds and Account Groups): General Fund: Comparative Balance Sheet 69 Comparative Statement of Revenues, Expenditures, and Changes in Fund Balances 70 Comparative Statements of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual 71 Special Revenue Funds: Combining Balance Sheet 74 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 76 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual 78 Debt Service Funds: Combining Balance Sheet 85 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 86 Page i CITY OF AUBURN: 2002 CAFR TABLE OF CONTENTS Capital Projects Funds: Combining Balance Sheet 87 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 88 Enterprise Funds: Combining Balance Sheet 90 Combining Statement of Revenues, Expenses, and Changes in Fund Equity 92 Combining Statement of Cash Flows 94 Internal Service Funds: Combining Balance Sheet 99 Combining Statement of Revenues, Expenses, and Changes in Fund Equity 100 Combining Statement of Cash Flows 101 Fiduciary Funds: Combining Balance Sheet 104 Expendable Trust Fun - Comparative Statement of Revenues, Expendictures and Changes in Fund Balances 106 Nonexpendable Trust Fund - Combining Statement of Cash Flows 107 Combining Statement of Changes in Assets and Liabilities - All Agency Funds 108 Comparative Statement of Net Plan Assets 109 Comparative Statement of Changes in Net Plan Assets 110 General Fixed Assets Account Group: Comparative Schedule of General Fixed Assets by Sources 111 Schedule of General Fixed Assets by Function 112 Schedule of Changes in General Fixed Assets by Function and Activity 113 III, STATISTICAL SECTION General Governmental Revenues and Expenditures Ten Years' Property Tax Data Ratio of Net General Bonded Debt Computation of Legal Debt Margin Computation of Net Direct and Estimated Overlapping Debt Ten Years' Debt Service to General Expenditures Ratios Ten Years' Utility Revenue Bond Coverages Ten Years' Special Assessment Collections Ten Years' Population and Housing Trends Employment in Auburn Taxable Retail Sales by Sector Principal Taxpayers Ten Years' Building Permits and Construction Values Ten Years' Staffing Levels by Department Police Department Statistics Fire Department Statistics Parks and Recreation Statistics Proprietary Funds-Working Capital Assessed Value by Type Miscellaneous Statistics 1 2 3 4a 4b 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Page ii 116 120 122 123 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 l CITY MAYOR Pete Lewis Jeanne Barber Trish Borden Stacey Brothers Gene Cerino Fred Poe Sue Singer DEPARTMENT HEADS Finance Director City Attorney Parks Director Fire Chief Police Chief Public Works Director Planning Director Director of Human Resources & Risk Management Rich Wagner Shelley Coleman Dan Heid Daryl Faber Bob Johnson Jim Kelly Dennis Dowdy Paul Krauss Brenda Heineman CITY OF AUBURN: 2002 CAFR ORGANIZATION CITIZENS I I I JUDGE MAYOR CITY COUNCIL Patrick Burns Pete Lewis I I [ ADM I N I STRA TIVE PUBLIC [ PUBLIC PUBLIC WORKS SERVICES SERVICES SAFETY Dennis Dowdy I I I I PARKS & PLANNING POLICE FIRE RECREATION Daryl Faber Paul Krauss Jim Kelly Bob Johnson I I FINANCE HUMAN LEGAL Shelley Coleman RESOURCES Dan Heid Brenda Heineman COUNCIL COMMITTEES FINANCE COMMITTEE Fred Poe, Chairperson Trish Borden Gene Cerino MUNICIPAL SERVICES Sue Singer, Chairperson Rich Wagner Stacey Brothers PLANNING & COMMUNITY DEVELOPMENT Trish Borden, Chairperson Sue Singer Stacey Brothers PUBLIC WORKS Rich Wagner, Chairperson Fred Poe Gene Cerino Page 2 lewis, Mayor 25 West Main Street * Auburn WA 98001-4998 * www.cLauburn.we.us * 253-931-3000 June 13, 2003 Mayor, City Council, and Citizens of the City of Auburn: This correspondence transmits to you the City of Auburn's Comprehensive Annual Financial Report (CAFR) for the fiscal year ended December 31, 2002, This transmittal letter provides an overview of the report and the financial condition of the City, It also provides insight into the history of the City and the economic conditions affecting it, and describes the systems and controls employed by the Finance department The report is prepared in accordance with the Revised Code of Washington (RCW) 43,09230, The Comprehensive Annual Financial Report has several significant uses, First, it provides a general overview of the City's finances to the general public and taxpayers, Second, it is referenced by bond buyers and rating to evaluate the City's fiscal stability and creditworthiness, Finally, the CAFR is a series of financial statements that have been audited by the State Auditor's Office and provides assurances that assets are safeguarded and funds are expended as they were legally appropriated in the annual budget I. INTRODUCTION A MANAGEMENT REPRESENTATION, The Auburn Finance department prepared the report and accepts complete responsibility for the accuracy, completeness, and fairness of presentation of the information included, The data is believed to be accurate in all material respects, and it is believed that all significant information necessary for an understanding of the affairs and financial condition of the City has been disclosed, The report has been prepared in conformance with Generally Accepted Accounting Principles (GAAP) and in conformance with financial reporting standards issued by the Governmental Accounting Standards Board (GASB), B, ORGANIZATION OF THE REPORT The report is divided into three sections: the Introductory Section, the Financial Section, and the Statistical Section, The Introductory Section contains the table of contents, a list of the City's principal officials, an organizational chart, this letter of transmittal, and the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers' Association of the United States and Canada for the 2001 CAFR The Financial Section contains the Washington State Auditor's Report, the General Purpose Financial Statements (GPFS), significant notes and schedules, and the combining and individual fund comparative statements and schedules, The GPFS, together with the notes, provide an overview of the City's financial position, operations and cash flow results, The combining and comparative statements and schedules are more detailed and present financial information reported by individual funds as required by law and sound financial management The Statistical Section contains a range of statistical tables and charts that present various financial, economic, social, and demographic data about the City, This information depicts various trends that have affected the fiscal condition of the City over the last 10 year Page 3 AUBURN MORE TliAN YOU IMAGINED CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL C, REPORTING ENTITY The City of Auburn was incorporated in 1891 and currently operates as a non-charter Code City under the laws of the State of Washington, Code City status in Washington provides "home rule" authority to cities, The City has a Mayor/Council form of government, and the Mayor is the administrative head of the city government The City Council is the legislative body for the City, The City administration is composed of eight departments that report to the Mayor, The City is located primarily in southern King County (county seat, Seattle) and a small northeastern portion of Pierce County, They are the two most populous counties in the State of Washington, comprising over 40% of the population, The City is strategically located in relation to the labor and consumer markets of the two largest cities in the area: Seattle in King County and Tacoma in Pierce County, Auburn currently serves approximately 45,000 people within its incorporated limits as well as over 37,000 people in adjacent unincorporated areas, The City began as a small rural community based on agriculture and the railroad, which maintained a significant switching and repair facility in Auburn, The City has grown significantly since World War II, both as a residential community and as a commercial and industrial area, The City has become a significant area for automobile sales and has also developed a significant manufacturing and distribution base with the largest employer being The Boeing Co" which employs over 5,500 people in its Auburn facility, Boeing is a worldwide supplier of aircraft and related products, The City's assessed valuation in 2002, for 2003 property tax collection was $3,928,917,828, The City provides a wide range of services to its residents as well as to the adjacent area, These services include police and fire protection, parks, land use management, development regulation, street construction and maintenance, water services, sanitary sewage collection, storm drainage management, solid waste collection, a general aviation airport, a municipal cemetery and a golf course, The City currently employs approximately 440 people, The City continues to implement the Growth Management Act that was enacted by the Washington State Legislature in 1990 to strengthen local governments' ability to manage growth, The comprehensive plan, adopted by Auburn in 1986, has been amended and updated annually since 1994, The comprehensive plan guides the physical development of the community, Other governmental agencies also provide services to the City of Auburn and the surrounding area, They include the Auburn School District, Green River Community College, King County Metro (a county agency which provides transportation), King County Wastewater Treatment (sewage treatment services), the King County Housing Authority, and the King County Library System, Recently Sound Transit, a new governmental agency, was formed, Sound Transit is responsible for providing light rail transit service in the Puget Sound area from Everett to Olympia, Auburn has been designated as one of the four "First Start" projects for the commuter rail component of the transit plan, The Auburn rail station was completed and began serving the citizens in September 2000, A multi-level parking garage was completed in late 2001, and a sky bridge and commons area will be completed in early 2003, II. ECONOMIC CONDITION A SUMMARY OF LOCAL ECONOMY The economy of the City of Auburn is diversified and has significant strength, Although the economy is reflective of the region in which it is located and subject to regional and national economic cycles, Auburn's diversity and steady growth has protected it substantially from severe cycles, Note the 10-year summaries of general government revenues and assessed valuation set forth as follows: Page 4 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL GENERAL GOVERNMENT REVENUES $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $- 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 TOTAL ASSESSED VALUE (In Thousands) $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Auburn has enjoyed steady residential and industrial growth over the years as development has moved outward from the major cities, The City currently has a growing array of manufacturing facilities, as well as distribution, wholesaling, and retailing operations, Auburn Regional Medical Center, also located in Auburn, serves the local geographic area and is a major trauma center of the northwest The medical center recently opened a new wing adding over 107,000 square feet that includes a state-of-the-art surgery center, Several of Boeing's manufacturing and other facilities are located in the Green River Valley in the cities of Renton, Kent, and Auburn, all of which are within easy commuting distance for City residents, The plant in Auburn is the company's fabrication plant that supplies the commercial air fleet with spare parts, Many of the City's manufacturing jobs (Figure 9: Statistical Section) are at this plant, and the plant furnished 16,91 % of the assessed value of the City (Figure 11: Statistical Section), Boeing recently announced the sale of 137 acres of their Auburn plant, 106 acres in Auburn and 31 additional acres in the surrounding area, as they downsize their presence in the Puget Sound area, In Auburn, Safeway has purchased a large parcel from Boeing and is constructing a food distribution and packaging facility at the site, These facilities are expected to generate 850 family-wage jobs and 800 secondary jobs, Auburn also has a significant retailing base, and in addition to maintaining its downtown core businesses, has attracted significant retailers such as Fred Meyer, Office Max, Men's Wearhouse, Wal-Mart, Sam's Club and Lowes who have constructed major new facilities in Page 5 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL Auburn in recent years, The SuperMall of the Great Northwest, a major destination mall, was completed in 1995, Ancillary mall development is planned, as several prime sites are available for building, Development that has taken place over past years includes a 17-screen movie theater and restaurants, Currently, other businesses are studying the viability of building near the SuperMalL Auburn has also been a center for automobile sales for a number of years, drawing customers from a wide area, In 2002, 44,52% of the retail sales in the City were from automobiles and related products and services, In 2002, the City received $13,326,086 in sales taxes, less than a half of a percent increase over 2001, The following graph depicts annual collections over the past ten years, TOTAL ANNUAL SALES TAX $15,000,000 $5,000,000 $10,000,000 $- ~ ~ ~ ~ ~ ~ ~ & ~ & ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ The overall increase the past year has been dismal when compared to the previous four years that had significant increases ranging from 5,3% to 12,3%, During the past ten years, Auburn has enjoyed sales tax revenue growth annually ranging from 2,1% to 12,3%, Four of the years during this time the City experienced sales tax growth in the double digits, The City is now feeling the effects of a recession coupled with the effects of State law changes on what can be taxed, During the 1996 legislature, the sales tax law was changed to exempt from sales taxes all activities and goods used in the manufacturing process, The City has lost an estimated $6,8 million since the legislation went into effect This law change was significant and these tax dollars will never be recouped as Boeing leaves the Puget Sound area, Losses in sales tax revenue have negatively impacted City revenue, The overall upward trend of the Auburn economy has stalled and it is uncertain when growth is expected to resume, Like most economies, it has been cyclical to some extent, following the general cycles that affect the entire area from Boeing in particular, which has by far the biggest influence on the overall region, The growth cycle started in the mid-1970's as Boeing recovered from a devastating downward trend when an employment reduction of up to 75% was necessary, Economic growth was dramatic through the early 1980's when it slowed putting a serious strain on City operations, which had been expanded considerably during that period, Once again, after the September 11th terrorists' attacks, Boeing announced staff reductions company-wide, Since then, Boeing has reduced approximately 40% of the jobs in Auburn with more reductions expected in 2003, The Boeing downsizing operation may lead to a new economic growth cycle in Auburn as the plant and surrounding vacated land open up development opportunities for other businesses, In addition to Safeway relocating to the site, there are several other businesses negotiating with Boeing to take over existing facilities and move their operations to Auburn, Another factor strengthening the local economy was the completion of Emerald Downs in the summer of 1996, a major thoroughbred horseracing facility in Auburn, to replace Longacres - the area's former racing facility located in Renton, Washington, The addition of the Thoroughbred Breeders Association headquarters was completed in 1998, Emerald Downs also provides facilities for meetings, banquets and seminars, Another major gambling facility on the Page 6 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL Muckleshoot Indian Reservation, which abuts Auburn, opened in 1995, In 1999, and again in 2001, the facility was expanded for additional gambling and entertainment The most recent expansion included a 24-hour family restaurant The tribe also plans to open the White River Amphitheater, a 25,000 seat outdoor facility in June of 2003, The total impact of this facility on the City is not known at this time but it is anticipated there will be an increased demand for public safety, and the transportation impact will be large as the main arterial accessing this site goes directly through the City, The economy has generally been strong since the late 1980's although recessionary conditions did prevail in 1991, 1992 and again, now, in 2001 and 2002, The City has been operated conservatively and has been able to maintain high levels of service without tax increases or significant erosion of surplus, Since the mid-1980's the area's economy has enjoyed considerable diversification, reducing past dependence on Boeing, At one time, Boeing had accounted for close to 50% of the assessment base, Despite the economic cycles, the City has continually focused on enhancement of the quality of life in the community, In recent years, through strategically placed bond issues and conservative operations, parks have been expanded, streets improved, commercial and residential sidewalks have been upgraded, and buildings advantageously renovated to house a new senior center and parks department In 1997, the voters elected to annex to the King County Library System, The System completed construction of a new library in the City early in 2000, The City has contributed $4 million towards the project with general obligation bonds, In 2001, the City completed construction of a new Senior Center at the Les Gove Park campus, The campus hosts the Library, White River Museum, Parks and Recreation department and Senior Center, B, MAJOR INDUSTRIES, Figure 11 of the Statistical Section lists the twelve largest taxpayers in the City, As noted above, Boeing is the largest by a very substantial margin, The other eleven listed represent a diversified range of moderate-sized economic activities, illustrating the diversified character of the economy, These firms include health, retail services, utilities, transportation and development In addition to the largest companies, firms located in the community include several recently developed transportation and distribution firms, a boat manufacturing company, several food processing plants, and machine shops, C, FUTURE ECONOMIC OUTLOOK, The outlook for 2003 and beyond is guarded, The general economy in the country and the region has been slow, Boeing had been steadily increasing employment in Auburn over the past several years, however, over the past two years the company has had to streamline costs and employment levels have decreased as a result The long-term future of the aircraft business is expected to diminish as Boeing restructures their business plan and moves operations from the Puget Sound area, In 2001 Boeing moved the corporate headquarters from their long-time Seattle location to Chicago, The company is further dissatisfied with the inability of the State to solve transportation issues in the area, As a positive note, Auburn has encountered unprecedented development that will make the local economy less dependent on Boeing, Significant projects are listed below: Safeway purchased the 137 acres from the Boeing site in 2002, and is planning the construction of a food distribution and packaging center, This project and business is expected to generate over 1,650 new jobs in Auburn, Fritz Companies completed a 137,000 square foot warehouse building in 2002, and are looking for additional warehousing space in Auburn, Page 7 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL Auburn Regional Medical Center completed a 107,000 square foot addition and is planning further development in the downtown core area, The Market at Lake Tapps was completed in 2002, This retail shopping center houses the City's second Top Food and Drug, a Starbucks, UPS store, and professional services to name a few, The City issued 421 residential permits in 2002 for new construction, remodels, and rehabs, In addition, 434 commercial and industrial permits were issued for new projects and renovations, The local tax base is expected to continue growing each year, but it is uncertain whether growth will increase enough to cover existing labor contracts and the cost of living, In November 2001 the citizens of the State voted in initiative 747, which limits the increase in property taxes to the lesser of 1 % or the rate of inflation, With declines in sales tax growth and a slowing of new housing starts, Auburn may have to limit programs unless reserve funds are available, It is anticipated reserves will be used first to support existing programs, Presently, the City will budget cautiously until the amount and timing of revenues becomes evident III. MAJOR INITIATIVES The Comprehensive Annual Financial Report (CAFR) has many purposes, It represents clearly the financial health of the City, An independent reviewer also audits it, so it also speaks to the City's financial management The CAFR should also illustrate where the expenditures were made and how they accomplished the significant priorities as established annually by the City Council, In October of 2002, the Mayor and City Council held an extensive goal-setting session to review and define the City's capital and program goals for the next fifteen years, Beginning in the spring of 2003, the Council will hold an annual budget workshop to identify which goals should be included for the subsequent years, The goals and objectives are designed to be specific, measurable and realistic, Individual department heads are responsible for the development of detailed work plans and the accomplishment of the goals, These work plans thus become the basis for the departmental budgets for the coming year, Throughout the year, department heads report regularly to the Mayor concerning the status of their assigned goals, At mid-year, department heads prepare formal reports on the progress towards completion of their assigned goals, Any changes in strategy to accomplish these goals are addressed at this time, At year-end, department heads make another full report to the Mayor and Council concerning the year-end status of their department's assigned goals, The City's Vision Statement along with the Mission Statement reflecting Auburn's current economic development conditions are set forth below: AUBURN'S VISION FOR THE FUTURE: As a city of regional significance, proud of its small town heritage as well as the diversity of its people and neighborhoods, Auburn offers an opportunity for people of all ages to enjoy life, CITY OF AUBURN MISSION STA TEMENT: To provide a service-oriented government that meets the needs of our citizens and business community through efficient and professional management with responsive and accessible leadership, These statements are a guiding force in the accomplishment of City-wide goals and objectives as described in this section, Major 2002 initiatives, whether ongoing or completed, are organized below, under the structure used for development of the 2002 City-wide goals, Page 8 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL A ASSURE PUBLIC SAFETY FOR CITIZENS OF AUBURN During 2002, the Police department maintained National Accreditation, To maintain this accreditation, the Police department had to comply with a set of standards established for police agencies by a national committee, The department will continue to comply with these standards and be monitored for such compliance, The department continued the Community Policing Program through training and education, The department continued community education by providing special training to landlords and tenants on evictions for narcotics activity; DARE classes to all public elementary schools; and continued the Auburn Citizen's Police Academy, Other projects, to list a few, included: the creation of the Crime Scene Response Team; negotiation of a long-term contract with Yakima Department of Corrections for jail and hospital services for Auburn inmates; completion of the new Spillman reporting system; continuation of police services to Muckleshoot Tribal members within the City limits; and formed and trained a team of officers to dismantle and secure methamphetamine labs, The Fire department provides services designed to protect the lives and property of the inhabitants of the City from the adverse effects of fires, sudden medical emergencies or exposure to dangerous conditions created by either man or nature, The Fire department is responsible for that part of the fire prevention and investigation, emergency medical services, hazardous material response, disaster services and public fire prevention activities, During 2002, the Fire department upgraded fire engines to 5-inch supply hoses, replaced aging defibrillators; performed field disaster drills; implemented Sunpro fire and EMS information system; and completed studies for fire station locations and the City emergency operations plan, B, CONTINUE TO PROVIDE BASIC GOVERNMENT SERVICES General government functions are provided and administered in the General, Special Revenue, Debt Service, and Capital Projects funds, These funds share general revenue sources and include basic government services: public safety, parks and recreation, planning and zoning, municipal court, street maintenance and construction, and associated administrative and support services, Accomplishments in 2002 included: completed the construction of the 3rd Street Southwest and 277th Street traffic corridors with rail crossings; initiated planned neighborhood improvement programs within constraints of the budget; initiated discussions between various governmental agencies to add capacity to Highway 167, a major regional traffic corridor; redeveloped the City website with information to make City departments more accessible to the public; and developed an ordinance updating Criminal Codes, Penalties, Code Enforcement, Nuisance Abatement, and Fireworks, Parks and recreation programs focused on providing a variety of facilities and programs for residents of all ages and interests, The department works closely with the Auburn School District, Green River Community College and other cultural and youth serving agencies in Auburn, to provide facilities and services to citizens, The youth athletic program was expanded to include volleyball leagues and, with the completion of the new Senior Center in 2001, more senior programs and services in 2002, Other services provided for citizens include the continuation of essential human service programs, continued enhancement of the complex accounting and public safety systems, and explored options for online services to City of Auburn citizens, Page 9 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL C, ENCOURAGE APPROPRIATE AND ECONOMICALLY SOUND DEVELOPMENT AND ASSURE THE INFRASTRUCTURE NECESSARY FOR ITS SUPPORT The City implemented an interlocal agreement with King County establishing potential annexation area boundaries, Other interlocal coordination resulted in finalization of a water inter-tie and franchise agreement with the City of Bonney Lake, and finalized a "take and pay" agreement with Water District 111 and the Covington Water District The City continued negotiations with the Muckleshoot Indian Tribe to resolve issues for sewer service to City trust properties and provided a comprehensive sanitary sewer update to King County for the Lea Hill service area, Several major utility improvements are currently under construction or were completed in 2002 that will or have upgraded and extended existing facilities, Improvements include, but are not limited to: completing construction of the Corrosion Control Treatment facilities; finalizing the adoption of the Comprehensive Drainage Plan; continued the Sanitary Sewer Replacement program; and procured land for future pump and supply stations, The City's Comprehensive Transportation Plan continued to be a priority of the Public Works department, and the Six-Year Street Plan was updated for 2002, Two large Fast Corridor grade separation projects, 3rd Street Southwest and 277th Street, were completed on time and within budget during 2002, The City began collecting transportation impact fees mid-2001 on projects that impact existing infrastructure, Fees will be used on projects that will mitigate the impact of growth on the transportation system, The Six-Year Capital Facility Plan was developed in 1998, Generally, the plan reflects the proposed new capacity, replacement, and rehabilitation of capital facilities and financing for six years (1998 - 2003), This plan takes into account general planning goals and policies, as well as land use infrastructure requirements, identified in longer range planning documents, The plan was updated in the 1999 and 2000 budgeting process with no significant changes noted in the 2001 budget process, The plan is in the process of being updated in 2003 with the mid-year budget amendment D, IMPROVE QUALITY OF LIFE FOR AUBURN CITIZENS The City continues to plan and develop park and recreation facilities, The Parks department moved to a renovated building, the former Senior Center in Les Gove park campus, The administration and registration is now centrally located among other Park amenities such as the new Senior Center, the newly renovated White River Museum, the new library, the YMCA and a central city park complete with play ground, activity center and walking trails, The Auburn golf course improved holes 5 and 6 and enlarged the maintenance facility, This past year, the Auburn airport updated the Airport Master Plan, completed roof repairs on several hangar buildings, and leased the remaining land for private airport development E, PROVIDE SOUND ADMINISTRATION OF ALL CITY PROGRAMS AND AFFAIRS In 2001 the City's Finance department again worked to receive the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officer's Association (this award has been received every year since 1987), All funds have been undergoing monitoring by the Finance department for problems and inconsistencies, The record of excellent bond ratings, audits, and reports continued to be a priority in 2002, Page 10 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL IV. FINANCIAL INFORMATION A FINANCIAL STRUCTURE AND CONTROLS Financial and budget controls in the City of Auburn are derived from and are an integral part of the accounting system, which is based on the fund structure, A fund is a fiscal and accounting entity with a self-balancing set of accounts segregated within the City's accounting system for the purpose of budgeting and accounting for a specific function, In 2002, the City had 31 separate funds, In addition, Account Groups are used to establish control over and account for the City's general fixed assets and debt During the 2003 budget process, in 2002, the fund structure was changed for the 2003 reporting year to comply with new GASB 34 reporting requirement The Special Parks and Recreation Trust fund was reclassified as a special revenue fund and the Cemetery Endowed Care fund was reclassified as a permanent fund, The City uses the same system of funds and accounts for budgeting, financial control and reporting, The City's funds are divided into three broad categories: Governmental, Proprietary, and Fiduciary, Governmental funds include General, Special Revenue, Debt Service, and Capital Projects funds, These funds support general governmental functions of the City, and are supported mainly by tax revenues, The financial statements for General Governmental funds are prepared on a modified accrual basis, Revenues are recognized when measurable and available to finance current expenditures, Expenditures are recognized when goods and services are received and liabilities are due and payable, Proprietary funds are used to account for activities that are expected to be self-supporting, Enterprise funds, a type of Proprietary fund, are used to account for the financial transactions of the City's utilities and for the operation of the Municipal Airport, Golf Course, and Cemetery, Internal Service funds, another type of Proprietary fund, are used to account for the financial transactions of the Equipment Rental fund and the Insurance fund, Proprietary funds are self-supporting from revenue derived specifically to support those services, and no tax revenues are used to subsidize their operations, The financial statements for these funds are prepared on an accrual basis, Revenues are recognized when earned and expenses are recognized when incurred, All funds are accounted for in accordance with GAAP, Fiduciary funds account for various trust obligations of the City, These funds include an Expendable Trust, a Non-Expendable Trust, a Pension Trust, and one agency fund, Non- Expendable Trust and Pension funds are accounted for in essentially the same manner as Proprietary funds, The Expendable Trust fund is accounted for in essentially the same manner as Governmental funds, Agency funds are custodial in nature and do not measure the results of operations, In addition to forming the basis for the accounting system, funds also provide legal budgetary control over City expenditures, The City Council approves appropriations for all budgeted funds prior to January 1 st of each year, The various department and division directors are responsible for monitoring individual budgets on a departmental or project basis, The Mayor may reallocate resources within a fund, The accounting system of the City involves numerous financial and administrative controls that ensure the safeguarding of assets and the reliability of financial reports, This system is designed to provide assurance that transactions are executed in accordance with management authorization and recorded in accordance with GAAP, and that there exists accountability of and control over the assets and obligations of the City, Page 11 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL In addition to budgetary control at the fund level, revenue and expenditure data are maintained by project, organization, program, and object code, This accounting and reporting is in compliance with the Budgeting, Accounting and Reporting System (BARS) prescribed by the Office of the State Auditor and is in accordance with Washington State law, State law also provides for annual independent audits by the State Auditor and requires timely submission of annual financial reports, B, GENERAL GOVERNMENTAL FUNCTIONS (General fund) As discussed earlier, continuing economic growth that began in 1987 and continued through 2000, has generated sufficient revenues for the City's General fund to keep pace with increasing service demands, and also to accumulate a surplus, During 2001 and 2002, the economy had stalled as the nation and the region slipped into recession and war, The City is cautiously monitoring the situation and limiting new program growth, 2003 revenues may have to be revised if they fail to meet original estimates, The 2002 ending General fund balance of $15,676,552 was down 9,1% from $17,279,327 at the end of 2001, The decrease was due primarily to the decline in business and occupation taxes and the residual effect of the slow economy, reducing interest income, The Capital Improvement Project fund reflected a lease purchase of 160 parking stalls of a downtown transit parking garage and 14,000 square feet of first floor retail space for $2 million; the initial debt service payment of $702,065 was paid in 2002, In 2002 $680,895 was paid on land acquisition for a futu re fire station, GENERAL FUND SUMMARY REVENUES: PROPERTY TAXES $ 11,198,840 $ 11,673,805 314% $ 474,965 $ 11,016,171 $ 657,634 SALES TAXES 12,725,000 13,568,518 36,5% 843,518 13,467,184 101,334 OTHER TAXES 6,008,300 6,053,394 16,3% 45,094 8,329,322 (2,275,928) INTERGOVERNMENTAL 1,828,925 2,046,809 5,5% 217,884 2,059,441 (12,632) LICENSES, PERMITS & OTHERS 3,726,150 3,829,502 10,3% 103,352 4,348,012 (518,510) TOTAL REVENUES 3:',46/, 21:' 3/, 1 (2,026 1 uu. U% 1,664,613 3>1,220, 130 (2,046, 102J EXPENDITURES: CURRENT BY TYPE OF SERVICE SECURITY OF PERSONS & PROPERTY 23,051,220 21 ,438,580 59,2% 1,612,640 20,388,855 1,049,725 CUL TURE AND RECREATION 4,446,145 3,668,703 10,1% 777,442 3,574,639 94,064 GENERAL GOVERNMENT 6,503,425 5,342,269 14,8% 1,161,156 4,480,244 862,025 ENGINEERING AND PLANNING 4,733,320 3,559,962 9,8% 1,173,358 3,291,268 268,694 TRANSPORTATION 1,867,300 1,716,086 4.7% 151,214 1,501,268 214,818 MENTAL & PHYSICAL HEALTH 503,800 490,999 14% 12,801 420,440 70,559 TOTAL EXPENDITURES 41, 10:',210 36, 21 ö,:'>I>I 100,0% 4,6t1t1,611 33,ö:'6,t14 2,:':'>I,tl6:' OTHER FINANCING SOURCES (USES) SALE OF FIXED ASSETS 3,570 3,570 3,570 TRANSFERS IN 833,080 848,941 15,861 797,783 51,158 TRANSFERS OUT (3,461,915) (3,400,715) (4,267,254) 866,539 FUND BALANCES AT BEGINNING OF YEAR 17,279,327 17,279,327 15,288,352 1,990,975 RESIDUAL EQUITY TRANSFER IN(OUT) (10,000) (10,000) (102,970) 92,970 FUND BALANCES AT END OF YEAR $ 9,U22,4>1/ $ 1:',6(ö,:':'2 :¡; ö, 6:'4, U:.:. $ 1 (,2/9,32/ $ (1 ,6U2, tI :'J Total tax revenues fell in 2002, decreasing 4,6% overall from 2001, Sales tax increased nearly 1 % over 2001 and property tax revenues increased 6,0%, The property tax increase is attributed to the substantial growth in new construction, Utility tax receipts decreased 42% in 2002 from 2001 receipts, In 2001, the City received unprecedented utility taxes on electrical energy sales when prices were high during the "shortage", Utility taxes on energy are expected to fall back into line with revenues received in previous years, as 2001 was an anomaly, 2002 Page 12 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL intergovernmental revenue remained constant with no significant change from the previous year, Building permit revenue continues to fall for the second successive year, Revenues were $150,000 (14%) and $100,000 (6%) lower in 2002 and 2001 respectively, This category fluctuates dramatically with the economic environment, however there are several large projects planned in 2003 that should positively affect these revenues, General fund expenditures increased approximately 7,6% in 2002 over 2001 with the largest dollar increases being in Security of Persons and Property, The increase is attributed to increases in labor contracts, retirements, increases in long-term care insurance premiums and escalating jail service costs, Culture and Recreation remained fairly constant in 2002, with increases in salaries, part- time help, utilities (water), and insurance, General Government increased 192%, The increases were due to the GIS mapping project, costs associated with the Endangered Species Act, and technological improvements, Engineering and planning costs increased 85% as vacant positions in engineering were filled for the entire year, and insurance costs rose based on past experience, Human services costs increased 6% as spending follows increases/decreases in General fund expenses, As will be noted when reviewing the combining balance sheets, activity in the Special Revenue funds varies widely between funds and between years due to their unique fiscal roles, The City Street fund is an accounting tool to account for state-shared gas tax revenues for City street maintenance and development in a manner required by State law, All receipts in this fund are transferred to the General fund for use, leaving no fund balance, The Housing and Community Development fund accounts for grant funds and since all expenditures are reimbursed by grant funds, no balance normally exists in this fund, Fund balances in Special Revenue funds decreased by $209,565 from 2001 to 2002, In the largest funds, the fund balance in the Arterial Street fund decreased $341,829 and the Cumulative Reserve fund increased $94,862, Operating transfers from the General fund, Mitigation fund, and the Capital Projects fund infused $1,069,047 of capital into the Arterial Street fund to assist in the construction of the 3rd Street Southwest and 277th Street projects, Activity in the Debt Service funds was minimal in 2002 and involved approximately $550,488 of scheduled principal and interest payments on existing debt Debt Service funds include the LID Guarantee fund, a reserve fund established to provide additional security for LIDs, The LID Guarantee fund had a balance of $1,801,839 at the end of 2002, up from $1,781,236 at the beginning of the year, This increase was due to interest earnings in the fund during the year, The City is reviewing the balances in this fund and will reduce the balance to an adequate level in 2003, Some LID delinquencies do exist, and the LID Guarantee fund has adequate reserves at this time to cover any short falls, Revenue to the Capital Projects fund included interest, real estate excise tax, and revenue from intergovernmental funding for capital projects, and services, The ending fund balance of $14,932,648 consists primarily of the Capital Improvements Projects fund balance of $14,894,342, The Capital Improvement Projects fund contains the funding for various park projects, fire vehicles, computer equipment, downtown revitalization, retail space at the transit center, and other capital projects not yet determined, The work and funding on these projects occurs over a number of years, C, PROPRIETARY AND FIDUCIARY OPERATIONS The fiscal condition of the City's Proprietary funds continues to be generally sound, Working capital and fund equities increased in most funds during 2002, and all funds, except the Airport fund, retained sufficient fund balances or working capital to meet their needs, Water and Sewer service rates increased on January 1, 2002 based upon a cost-of-service study updated in 1999, The pass-through rate to the county (King County Metro) increased on January 1, 2002, for regional sewage treatment Page 13 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL Enterprise Funds As with the City's Proprietary funds as a whole, the overall fiscal condition of the City's Enterprise funds is generally sound, The fiscal position of the City's utilities generally improved, Please note the summary below, The Water fund accounts for the City's water distribution system, The fund's working capital increased during 2002 due to the issuance of revenue bonds late in 1999 and the subsequent spend down on those bonds in 2000 and 2001, The 1999 revenue bond proceeds were used for the water resource program, pressure zone service area adjustments, corrosion control facilities and new pump stations, At the end of 2001 , the 1999 revenue bond proceeds had been spent on various capital projects, The retained earnings balance decreased significantly as the City changed accounting policy on the treatment of expenses made for the water resource program, Over a period of six or more years, $4,000,000 has been spent to study aquifers in efforts to obtain more water rights from the State, These costs had been accounted for as a work-in- process for several years, As of this date, it is uncertain whether the City will be successful in obtaining more water rights and the large balance in work-in-process skewed the financial statements, The Sewer fund accounts for the City's Sanitary Sewage Utility, The bulk of this fund's revenue and expense consists of pass-through to King County Metro, the local regional treatment facility, During 1997, the Sewer fund sold a pump station and some collection and distribution facilities to Metro and recognized a net gain on the transaction of $1,060,688, During 1999, the City updated a cost of service study and increased rates January 1, 2000 and 2001 ensuring revenues remain adequate to cover the cost of operations and scheduled improvements, Working capital increased 245% over 2002, There are limited capital improvement projects planned in 2003 that will hold working capital constant 2002 ENTERPRISE FUND SUMMARY OPERATING REVENUES $ 6,612,987 $ 9,938,897 $ 2,896,932 $ 7,871,703 $ 740,228 $ 593,681 $ 1,063,926 $ 29,718,354 OPERATING EXPENSES 4,859,354 9,384,798 2,250,212 7,693,841 889,312 656,595 952,012 26,686,124 OPERATING INCOME (LOSS) 1,753,633 554,099 646,720 177,862 (149,084) (62,914) 111,914 3,032,230 NONOPERA TI NG REVENUES (EXPENSES) (636,404) 145,274 (154,242) 88,618 (40,129) 50,903 10,178 (535,802) NET INCOME (LOSS) 1,117,229 699,373 492,478 266,480 (189,213) (12,011) 122,092 2,496,428 % OF REVENUE 16.89% 7.04% 17.00% 3.39% -25.56% -2.02% 11.48% 8.40% RETAINED EARNINGS 12/31/01 16,793 6,014,257 11,135,457 3,731,352 20,146 462,270 1,998,557 23,378,832 RETAINED EARNINGS 12/31/02 1,172,858 6,713,630 11,572,657 3,997,832 (169,067) 450,259 2,120,649 25,858,818 % INCREASE 6884.21 % 11.63% 3.93% 7.14% -939.21 % -2.60% 6.11% 10.61% WORKING CAPITAL 12/31/01 3,425,896 7,295,015 4,740,436 3,497,723 357,869 340,948 166,064 19,823,951 WORKING CAPITAL 12/31/02 5,402,400 9,081,381 4,496,806 3,675,899 180,825 335,524 316,305 23,489,140 % INCREASE 57.69% 24.49% -5.14% 5.09% -49.47% -1.59% 90.47% 18.49% FUND EQUITY 12/31/01 38,425,837 35,906,938 29,506,920 3,731,352 6,500,884 1,201,439 4,277,249 119,550,619 FUND EQUITY 12/31/02 40,877,440 39,390,571 30,733,188 3,997,832 6,311,671 1,189,428 4,399,341 126,899,471 % INCREASE 6.38% 9.70% 4.16% 7.14% -2.91% -1.00% 2.85% 6.15% Page 14 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL The Storm Drainage fund accounts for the City's storm water management program, The objective of this fund is to implement improvements in accordance with the Storm Water Drainage Plan as expeditiously as possible, In 2002, this fund continued to increase its retained earnings and equity, Working capital decreased 5,1% from 2001, Net Income as a percentage of revenues is high due to scheduled capital improvements to be funded from rates, During 2001, the Water, Sewer and Storm Drainage funds received developer contributions in the form of facility extensions and improvements in the amounts of $2,733,245, $1,077,903, and $425,571 respectively, New connections contributions for Water, Sewer, and Storm Drainage were $336,907, $715,975 and $300,128 respectively, The Solid Waste fund accounts for the activity of the City's solid waste collection system, In 1992, the utility began a major change in its operation with focus on reducing the waste stream by increasing recycling of waste material, Initially, this shift caused the utility to experience a significant drop in retained earnings and equity, As the new rates associated with the system stabilized, retained earnings has also stabilized, Since the utility has very little City capital investment, equity is almost entirely in current assets, cash and customer accounts receivable, In 2001, the utility successfully renegotiated the refuse service contract to include curbside recycling, which began on January 1, 2002, The Airport fund continued to operate in a deficit The airport completed an update to the master plan and installed a new global positioning system for pilot guidance and safety, Hangar roofs and doors construction, and rebuilding after a small fire to the administration building caused a decrease in working capital and net income during 2002, The interest on the debt was $95,291 in 2002, The Cemetery fund posted an operating loss again in 2002, Several large improvements to the cemetery were finalized in 1999, Increased depreciation, supply costs and salaries contributed to the net loss, The recent improvements increased the inventory of niches and sites that will provide revenue in the coming years, However, a new Veteran's cemetery opened in 2000 and municipal cemeteries in the area, including Auburn, have seen a decline in lot and niche sales, The Golf Course experienced an increase in revenue during 2002, Many of the improvements over the past several years make the course more playable during the wet season, Working capital increased in 2002, ENTERPRISE FUND EQUITY 1993 - 2002 45,000,000 15,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 10,000,000 5,000,000 Water Sewer Storm Drainage Solid Waste Airport Cemetery Golf Course Page 15 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL Internal Service Funds The Insurance fund is managed as a part of the City's long-term risk management program (please see below), The fund balance was $2,902,440 at the end of 2002, and the City's goal is to maintain this fund in excess of $2,000,000, No contributions were made to the fund during the year, The Equipment Rental fund accounts for the purchase, maintenance, and replacement of most of the City's vehicular equipment During 1997, the City decided to add fire engines to the inventory as new ones were acquired, The fund posted a net loss of $394,244 in 2002 but is in sound condition, Working capital decreased by $191,911 during the year to $3,671,788, An analysis of the fund reserves for replacement was conducted and using a revised replacement formula, replacement funding should be complete over four years, and rental rates have been increased for the 2003 budget Fiduciary Funds Fund equity decreased in the Non-Expendable and Expendable Fiduciary funds as a whole during 2002, from $4,854,100 to $4,806,828, The decrease is primarily from expenses of the Fire Pension fund, The Cemetery Endowed Care fund reserves funds for capital development purposes and to maintain the cemetery after it can no longer generate revenue by selling new graves and related services, The Fire Relief and Pension fund is a remnant of an independent Fire Pension fund previously operated by the City, Fire pensions are now part of a State system, and this fund provides supplementary benefits to firefighters who were enrolled (before 1970) in the prior City system, Please refer to Note 9c, D, DEBT ADMINISTRATION, Debt typically incurred by the City consists of the following types: general obligation, revenue bonds, special assessments, leases, and employee leave benefits, At year-end 2002, the City had General Obligation debt of $7,402,000; Utility Bonds and Public Works' Trust Fund loans totaled $18,016,039; Special Assessments (LIDs) totaled $548,904; Capital Lease totaled $1,367,108, and Employee Leave Benefits totaled $2,952,078, Note 10 is a summary of the City's long-term debt In 2002, the City received $641,250 in a Public Works' Trust Fund Loan to be used for the water reservoir protective coating project All such loans are due in equal annual installments over 20 years at interest rates of 5% and 1 %, Washington State law provides a maximum debt limit for general obligations, A City may incur debts equal to 15% of the City's assessed valuation without a vote of the people; and debts for general government equal to 2,5% of the assessed value with a vote of the people, An additional 2,5% may be incurred to finance water, sewer, and parks projects, also with a vote of the people, As of December 31, 2002 the City had $8,769,108 of general obligation debt Figures 3 through 6 in the Statistical Section present additional data relating to the City's debt capacity, The City retains an independent financial advisor, who does no underwriting, for all significant debt issues, E, CASH MANAGEMENT The City invests in U,S, Treasury and Agency Issues, Prime Bankers Acceptances, Time Deposits, and Repurchase Agreements, Investment policies and procedures established by the Mayor require the City to establish a trustee to take delivery of all investment transactions at time of payment The City has contracted with the Bank of New York to provide delivery versus payment trustee services on all investments, The State of Washington maintains an investment Page 16 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL pool to provide economies of scale in investing to smaller- and medium-sized cities in the State, The City uses this service very extensively whenever interest rates in the pool are better than could be otherwise realized with independent investments, Conversely, City investments are not made through the pool whenever earnings in the pool are less than what may be earned independently, Comparative earnings are evaluated daily by the City investment staff in accordance with the City investment policies, The pool operates under the same legal restrictions that apply to all municipalities in the State and, consequently, uses the same instruments as listed above, The State also takes delivery of all investment transactions, The City has adopted a comprehensive investment policy statement to guide City investment practices, These policies are closely patterned after the recommendations in Investinq Public Funds published by the Government Finance Officer's Association (GFOA), Investments are restricted to less than three years in order to maintain liquidity on all investments in all funds, yet enable the City to take advantage of the yield curve, Fiduciary funds, which involve long-term reserves and require minimal liquidity, are invested for longer time periods, The City undertakes repurchase agreements only with financial institutions that offer the City full protection in the event of default, by providing the delivery of the underlying security to the City, During 1997, the City received the Certification of Excellence Award from the Municipal Treasurers' Association of the United States and Canada on this policy, The City's investments at December 2002 totaled $72 million, The City earned an average yield of 1 ,79%, earning $2,965,019 in investment income during 2002, F, RISK MANAGEMENT, 1, Types and Level of Risk Assumed The City participates in the Washington Cities' Insurance Authority (an insurance pool of over 80 cities), The City actively pursues risk reduction in the operation of its programs, The City purchases, with employee participation, most of its health insurance for its employees through commercial policies administered by the Association of Washington Cities, Employees represented by the Teamsters Union, have insurance through the Teamsters organization, The City participates in the Washington State Workers' Compensation program, In order to keep its long-term options open, and to provide for any uninsured losses that might occur, the City has elected to build an insurance reserve (the Insurance fund), The Insurance fund supplements various insurance coverages maintained by the City, This fund is also used to self-insure some limited exposures, the most significant of which is accidental loss to City-owned vehicles, 2, Risk Control Policies The Washington Cities' Insurance Authority not only provides a sharing of risk by pooling of losses, it also provides an extensive array of professional services in risk management The pool monitors the City's management practices and damage claims, The City follows the guidelines provided by the pool in an effort to minimize risk exposure in the day-to-day operations of the City's programs, The City also maintains an extensive employee safety program managed by the Human Resources department G, FUTURE FISCAL ISSUES AND CONSIDERATIONS As a part of the City's approach to managing its future, the City integrates its budget process with its comprehensive planning process, which is intended to reduce the adverse fiscal impact of inappropriately designed and located development In 1990, the legislature passed a Growth Management Act that requires cities to integrate their financial planning of public facilities with Page 17 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL their land use management programs, Many of these requirements are similar to current City practice, and the City is in the process of implementing these requirements, In that respect, the City's budgeting process is based on financial policies directed at conserving fiscal resources while supporting programmatic strategies, Budget recommendations reflect a long-range analysis of fiscal trends, These policies and practices have not only averted serious funding problems in the past, particularly in the recent recession years of 1991 and 1992, but have maintained the General fund on a firm financial basis and allowed carefully planned enhancements in services, The City is currently in stable financial condition, All funds contain adequate balances, and the City's debt is manageable, The General and Cumulative Reserve funds contain satisfactory balances, a significant Insurance fund has been set aside for contingencies, and the Equipment Rental fund is adequate for vehicle replacement The Proprietary and Fiduciary funds are generally in satisfactory condition and have adequate balances for their purposes, The Water fund is under some economic pressure due to an aggressive capital program to meet federal and state requirements, Rates were increased during 1996, 1998, 2000, 2001, and in 2002, All rate increases were applied as a result of a cost-of-service study, A cost-of-service study was updated for the Sewer Utility and rates increased in January 2000, 2001, and 2002 to ensure the ongoing operational health of the fund, The City completed a cost-of-service study for the Storm Drainage Utility in 1999 and new rates went into effect late 2000 and again in 2001, Conservative budgeting and fiscal practices are still very much in order for the future, Although Auburn is experiencing significant growth at the present time, perhaps unprecedented, the need for accompanying services and facilities will be considerable, The SuperMall generates annually approximately $1,5 million, with a possibility of as much as $3 million, of additional General fund revenues, Other development will generate relatively less, and projected needs for services and infrastructure including police, fire, and emergency response are considerable, SuperMall sales tax revenues have offset sales tax revenue decreases from enacted sales tax exemptions designed to encourage manufacturing in Washington State, Impacts from this legislation are under continued monitoring by the Finance department at this time, Washington State legislators enacted additional sales tax exemptions for machinery and equipment used in research and development in 1997, and repairing or retooling of machinery used in manufacturing in 1996, Washington State voters approved an initiative in the fall of 2001 to limit property taxes to the lesser of 1 % or inflation, The impact of this initiative is exponential with the impact in 2002 being $100,000 and reaching an annual amount of $1,2 million in seven years, This initiative will impact the City if economic growth does not continue at the same pace as previous years, The cost of doing business, and labor contracts are anticipated to continue growing annually in excess of 1 %, It is anticipated that the General fund operating budget will not be fiscally constrained in 2003, The region remains in recession and the City will need to balance current budgets, In March of 1999, the National Marine Fisheries Service listed Puget Sound salmon runs as threatened, The City is obligated to respond to the Environmental Protection Agency (EPA) regarding salmon habitat and how to best mitigate the effects of development and other factors impacting the salmon runs, At this time, the cost to the City for mitigation, if any, is unknown, It is anticipated that development will take longer and will be more costly, Also, compliance with EPA is absolute for the City to receive state and federal grants, To summarize, revenue increases from development and an expanding economy must be monitored carefully in relation to the economic trends in the region as well as the country as a whole, Services must be increased carefully as the need develops and balanced carefully against available resources, Adequate reserves have been maintained to-date and it is likely to be utilized to some extent in the near future to offset recent downturns in economic Page 18 CITY OF AUBURN: 2002 CAFR LETTER OF TRANSMITTAL circumstances, Additional tax capacity is available to the City, however, it must be used very cautiously and only for significant expansions in levels of service that bring value to the City, and justify generation of sufficient revenue for repayment V. OTHER RELEVANT INFORMATION A INDEPENDENT AUDIT State law requires an annual audit of all City books of accounts and financial records by the Office of the State Auditor, which is headed by an independently elected State official, the State Auditor, The Auditor has broad legal authority to inquire into all financial and legal compliance matters and such audits are considered equal to audits by certified public accounting firms, The 2002 financial audit of the City now has been completed and was conducted in conformance with Generally Accepted Auditing Standards, The financial statements of all City funds and account groups have been included in this audit The City has been given an unqualified opinion for 2002, Please see the Auditor's Report, The State Auditor's Office also audits the City's administration of its federal grants under the single audit concept B, AWARDS The Government Finance Officer's Association of the United States and Canada (GFOA) awarded a Certificate of Achievement of Excellence in Financial Reporting to the City of Auburn for its comprehensive annual financial report for the fiscal year ended December 31 , 2001, This was the thirteenth consecutive year that the City has achieved this prestigious award, In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report, This report must satisfy both generally accepted accounting principles and applicable legal requirements, A Certificate of Achievement is valid for a period of one year only, We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program's requirement and we are submitting it to the GFOA to determine its eligibility for another certificate, C, ACKNOWLEDGMENTS Preparation of this report could not have been accomplished without the professional, efficient, and dedicated staff of the Finance department and various other City employees who assisted in its production, Further appreciation is extended to the Mayor and City Council for their encouragement, interest, and support in conducting the financial affairs of the City in a sound and progressive manner, The assistance of the auditors from the Office of the State Auditor is also greatly appreciated, Respectfully submitted, ~~ Shelley R Coleman Finance Director Page 19 Page 20 I~ CITY OF AUBURN: 2002 CAFR CERTIFICATE OF ACHIEVEMENT Certificate of Achievelllent for Excellence in Financial Reporting Presented to City of Auburn, Washington For its Comprehensive Annual Financial Report for the Fiscal Year Ended December 31, 2001 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. ~&/& ., President ~/~ Executive Director Page 21