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HomeMy WebLinkAbout2005 CAFR Part 1 COMPREHENSIVE ANNUAL FINANCIAL REPORT Fiscal Year Ended June 30, 2005 Q..�vvv vv ��YV VV NA M� OF �� COUNTY OF HAWAII Hilo, Hawaii Harry Kim Mayor Dixie Kaetsu Managing Director Prepared by The Department of Finance William Takaba Director of Finance COUNTY OF HAWAII Comprehensive Annual Financial Report For the Fiscal Year Ended June 30,2005 Table of Contents Page INTRODUCTORY SECTION Letter of Transmittal 1 GFOA Certificate of Achievement 7 Organization Chart 8 List of Elected Officials 9 List of Principal Officials 10 FINANCIAL SECTION Independent Auditors'Report 11 Management's Discussion and Analysis 13 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets 24 Statement of Activities 26 Fund Financial Statements: Balance Sheet-Governmental Funds 28 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 29 Statement of Revenues,Expenditures,and Changes in Fund Balances- Governmental Funds 30 Reconciliation of the Change in Fund Balances of Governmental Funds to the Statement of Activities 32 Statement of Revenues,Expenditures and Changes in Fund Balance- Budget and Actual(Budgetary Basis)-General Fund 34 Statement of Revenues,Expenditures and Changes in Fund Balance- Budget and Actual(Budgetary Basis)-Sewer Fund 38 Statement of Net Assets-Proprietary Funds 39 Statement of Revenues,Expenditures,and Changes in Fund Net Assets- Proprietary Funds 40 Statement of Cash Flows-Proprietary Funds 41 Statement of Fiduciary Net Assets-Fiduciary Funds 42 Statement of Changes in Fiduciary Net Assets-Fiduciary Funds 43 Notes to the Basic Financial Statements 44 FINANCIAL SECTION (Continued) Page Combining and Individual Nonmajor Fund Statements and Schedules: Combining Balance Sheet-Nonmajor Governmental Funds 82 Combining Statement of Revenues,Expenditures,and Changes in Fund Balances-Nonmajor Governmental Funds 86 Schedules of Revenues,Expenditures,and Changes in Fund Balances- Budget and Actual(Budgetary Basis): Highway Fund 89 Solid Waste Fund 90 Cemetery Fund 91 Parking Meter Fund 92 Vehicle Disposal Fund 93 Bikeway Fund 94 Workforce Investment Act Fund 95 Golf Course Fund 96 Geothermal Relocation Revolving Fund 97 Beautification Fund 98 Hawaii County Housing Agency 99 Park Dedication Fund 100 Combining Balance Sheet-Agency Funds 102 Combining Statement of Changes in Assets and Liabilities-Agency Funds 104 Combining Statement of Net Assets-Private Purpose Trusts 108 Combining Statement of Changes in Net Assets-Private Purpose Trusts 109 STATISTICAL SECTION Table 1 -Government-Wide Revenues 111 Table 2-Government-Wide Expenses by Function 112 Chart 1 -General Governmental Revenues and Expenditures Comparison 113 Table 3-General Governmental Expenditures by Function 114 Chart 2-General Governmental Expenditures by Function 115 Table 4-General Governmental Revenues by Source 116 Chart 3 -General Governmental Revenues by Source 117 Table 4a-General Governmental Tax Revenues by Source 118 Table 5-Property Tax Levies and Collections 119 Table 6-Assessed and Estimated Actual Value of Taxable Real Property 120 Table 7-Real Property Assessed Values by Classification and Tax Rates 121 Chart 4-Assessed Value of Real Property 125 Table 8-Principal Taxpayers 126 Table 9-Computation of Legal Debt Margin 127 Table 10-Ratio of Net Bonded Debt to Assessed Value and Net Bonded Debt Per Capita 128 Table 11 -Ratio of Annual Debt Service Expenditures for General Obligation Bonded Debt to Total General Governmental Expenditures 129 Table 12-Demographic Statistics 130 Table 13 -Property Value,Construction and Bank Deposits 131 Table 14-Miscellaneous Statistical Data 132 INTRODUCTORY SECTION Kim OF Harry William Takaba Mayor Director Nancy E.Crawford Deputy Director County of Hawaii Finance Department 25 Aupuni Stree; Room 118 • Hilo,Hawaii 96720 (808)961-8234 • Fax(808)961-8248 March 22,2006 The Honorable Mayor and Members of the Council County of Hawaii 25 Aupuni Street Hilo,Hawaii 96720 We transmit herewith the Comprehensive Annual Financial Report for the County of Hawaii, State of Hawaii,for the fiscal year July 1,2004 to June 30,2005. This report was prepared by the County's Department of Finance. The accuracy of the financial statements and the completeness and fairness of their presentation are the responsibility of the County government. We believe the enclosed data are complete and accurate in all material respects and are reported in a manner designed to present fairly the financial position and results of operations of the various funds of the County. All disclosures necessary to convey the maximum understanding of the County's financial activities have been included. Management's discussion and analysis is also included to aid users of the financial statements. This report presents the financial position of the County of Hawaii at June 30,2005 and results of operations for the fiscal year then ended. The report is divided into three sections: • The Introductory Section includes this transmittal letter,a Certificate of Achievement for Excellence in Financial Reporting,the County of Hawai`i's organization chart and lists of elected and principal officials. • The Financial Section contains management's discussion and analysis,the basic financial statements,related notes,the combining and individual fund budgetary financial statements, and the independent auditors'report. • The Statistical Section includes selected financial and demographic information,generally presented on a multi-year basis. This report includes all funds of the County of Hawaii,including its component unit,the Department of Water Supply,established by the County Charter as a semi-autonomous body of - 1 - the County government. This component unit is included in the County's reporting entity because of its financial relationship with the County. The County provides the full range of municipal services. These include police and fire protection;emergency medical care;public prosecutor;culture and recreation; sanitation; social services;water;planning and zoning;construction and maintenance of highways,streets and infrastructure;real property assessment and tax collection;and general administrative services. However,the County does not provide such other traditional services as public education, hospitals and courts. These services are provided by the State government. The County of Hawaii consists of the island of Hawaii,4,028 square miles in size. It is twice as large as the combined area of all the other inhabited islands in the Hawaiian Archipelago. Since there is no other local or municipal government within the County,there are no overlapping taxes and no overlapping debt. The County of Hawaii has an elected mayor and a nine-member council Economic Condition and Outlook The island of Hawaii,commonly known as the Big Island,is located 214 miles from Honolulu, the state capital;2,200 miles from the west coast of the continental United States;and 4,000 miles from Japan. The city of Hilo on the east side of the island serves as the county seat as well as the transportation and financial center for the Big Island. Hilo's infrastructure includes Hilo Harbor,a deep-water port,and Hilo International Airport,which is capable of handling fully- loaded wide-bodied aircraft. Kailua-Kona and South Kohala,major tourist destination areas on the west side of the Big Island,are served by flights from the United States mainland,Japan and Canada through the Kona International Airport. Scheduled freight services are available between the islands by air and sea transport. Communities on the island are linked by a network of State and County maintained streets and highways. The Big Island is the most diversified of the neighbor island economies. As a result it is buffered when any one industry lags. Currently,the Big Island is enjoying its best economic times in recent years. The west side growth is fueled by surging visitors numbers and record construction activity,while the east side economic activity is led by the University of Hawaii at Hilo and other government construction projects. Dr. Leroy Laney,economics consultant to First Hawaiian Bank,summarized the Big Island economy as"hitting on all cylinders". Continued increasing population has contributed to a growing labor force that numbered 82,300 in September 2005. The expanding economy has matched the growth in available work force and unemployment continues to follow a downward trend,with an average 3.4 percent for 2005. Total and per capita personal income have been steadily increasing. Tourism— Tourism is the major industry on the island. In addition to the mild climate and natural beauty it shares with other areas in the state,the County features the Hawaii Volcanoes National Park. A popular attraction,the park is the most visited site in the state,handling over 2 million visitors annually. -2- Total visitors to Hawaii increased slightly compared to the prior year,with 1,278,713 arrivals in 2004. A developing source for bringing tourists to the island of Hawaii is the cruise ship industry. Over 300,000 cruise ship visitors are expected in 2005. Scientific Research and Development— Due largely to its unique geographic characteristics which has attracted scientists in fields of astronomy,meteorology,volcanology, and agriculture/aquaculture, Hawaii County has benefited economically by the significant investments made in scientific research. The total astronomy related capital investment on Mauna Kea exceeds$600 million and combined annual budgets are about$60 million. The Hawaiian Volcano Observatory in Hawaii Volcanoes National Park and the National Energy Laboratory of Hawaii Authority at Keahole,Kona are also major contributors to international research and the local economy. Agriculture— Forestry,nut and fruit orchards,and floral and vegetable farms have successfully replaced lands where sugar once grew. Demand for Kona coffee is improving and macadamia nut prices have been rising. Papaya remains the largest orchard crop. Agriculture makes a substantial contribution to the County's economy and produces a variety of goods for export as well as for local consumption. Major Initiatives For the Year During the year,the County focused on public works,public safety,planning,and other issues affecting the quality of life in the County. Public Works—The$35 million Puainako Street Extension was completed and opened during the year. Construction of intersection curb cuts and facilities upgrades to meet Americans with Disabilities Act(ADA)requirements is an on-going project. Construction began on the Kawailani Street bridge and various road projects. Preliminary work on several West Hawaii road projects continued. Public Safety—The Police Department has a dedicated Ice Task Force to work exclusively on fighting crystal methamphetamine("Ice")in our communities. The department also has expanded its efforts in the targeting of illicit drug trafficking with a Drug Interdiction Task Force (DITF). This DITF is responsible for investigating drug smuggling through the airports and other venues. These officers who are Federally deputized to investigate,identify, and apprehend individuals and organizations involved in the smuggling of illicit drugs into the County of Hawai'i. Planning—The revised General Plan was passed by the County Council during the fiscal year. Real Property Taxes—During the fiscal year,the County Council approved significant changes to the real property tax laws. The changes offer relief for homeowners faced with rapidly increasing property values by limiting the increase in the market value of properties in the homeowners class to not more than 3%per tax year;by shortening the dedication period for non- -3 - speculative residential use;and,by creating an additional exemption of 20%of a property's assessed value for properties eligible for the home exemption. Additionally,major changes were made to the agricultural sections of the tax code to clarify definitions,include homesite valuation and modify the dedication program. For the Future Public Safety—Expansion and upgrade of Fire and Police facilities around the island are being planned and site selection is in process. Public Works —The County is working on developing a West Hawaii Civic Center. This facility will improve access to government for the Kona residents. Additionally,the County is working on several major road projects to enhance traffic in West Hawaii. Environmental Management—As the Hilo landfill approaches full capacity,the County will be looking at solid waste technology alternatives to divert waste from the Hilo landfill to enable the County to close that facility. It is anticipated that a request for proposals will be issued in the next year. The County is also working closely with the State Department of Health to extend the life of the Hilo landfill. Health,Education and Welfare—The Office of Aging is very excited about its plans to establish an Aging and Disability Resource Center,a one-stop shop for services for our seniors and disabled population. The federal government's Centers for Medicare and Medicaid Services and Administration on Aging have approved the County Office of Aging's grant application for the establishment of Aging and Disability Resource Centers in the State of Hawai'i. The one- stop shop on Hawai'i Island will provide a single,coordinated system of information and access for all persons seeking long-term support. The estimated opening date is in early 2007. Other Financial Information Internal Control The management of the County is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the County are protected from loss,theft or misuse and to ensure that adequate accounting data are compiled to allow for preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable,but not absolute,assurance that these objectives are met. The concept of reasonable assurance recognizes that(1)the cost of a control should not exceed the benefits likely to be derived; and(2)the valuation of costs and benefits requires estimates and judgments by management. Budgetary Control The County maintains budgetary controls to ensure that legal provisions of the annual budget are complied with and that expenditures do not exceed budgeted amounts. -4- Activities of the general fund and special revenue funds are included in the annual appropriated operating budget. Project-length financial plans are adopted for the capital projects fund. Budgetary control is established at the department level. Formal budgetary integration is employed as a management control device for the general fund, special revenue funds, and the capital projects fund. Budgetary control for the debt service fund is achieved through general obligation bond indenture provisions. The basis of accounting used for the budgets of the general and special revenue funds differs from generally accepted accounting principles. Intergovernmental revenues are recognized when awarded by the granting agency,encumbrances and unexpended allotments are treated as expenditures for purposes of determining legal compliance with the annual budget,all leases are treated as operating leases,and accounts payable are not accrued. The County also maintains an encumbrance accounting system as one technique of accomplishing budgetary control. Encumbrances outstanding at fiscal year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because they will be honored during the following year. As demonstrated by the statements and schedules included in the financial section of this report,the County continues to meet its responsibility for sound financial management. Pension Plan All full-time employees of the County participate in the Employees'Retirement System of the State of Hawaii, a cost-sharing,multiple-employer defined benefit public employee retirement system. Cash Management Cash temporarily idle during the year was invested in demand deposits,certificates of deposit and repurchase agreements. The average yield on investment was 1.84%. The County's policy is to minimize credit and market risks while maintaining a competitive yield on its portfolio. Accordingly,with the exception of$320,147 held by bond paying agents and a rental management agent,deposits were either insured by federal depository insurance, collateralized, or secured by irrevocable letters of credit. All collateral on deposit was held for safe keeping with a County-designated agent in the County's name. Risk Management The County maintains insurance coverage for privately owned police vehicles as well as for other purposes. The County is substantially self-insured for its vehicles as well as for all other perils including workers'compensation and general liability. -5 - Other Information Independent Audit The Hawaii County Charter requires an annual audit by independent certified public accountants. KPMG LLP was selected by the County Council to perform the audit. Employee Union Contracts County employees are members of seven different bargaining units. All of the bargaining units have contracts that run through June 30,2007. Certificate of Achievement The Government Finance Officers Association of the United States and Canada(GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the County of Hawaii for its Comprehensive Annual Financial Report for the fiscal year ended June 30,2004. This was the seventeenth consecutive year that the government 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 our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement Program's requirements,and we are submitting it to the GFOA to determine its eligibility for another certificate. Acknowledgments The preparation of this report on a timely basis was made possible by the efficient and dedicated services of the entire staff of the Department of Finance and fiscal personnel in other departments. I am grateful for their help in preparing this report. I also thank the Mayor and the members of the County Council for their interest and support in assuring the continuing sound financial condition of the County of Hawaii. WILLIAM TAKABA Director of Finance -6- Certificate of Achievement for Excellence in Financial Reporting Presented to County of Hawaii For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30,2004 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. t President */f, 441-�9 Ae-o Executive Director -7- County of Hawaii Organization Chart County Electorate County Council Mayor Prosecuting Attorney County Clerk Office of Management: Managing Director Departments and agencies Agencies under Departments under under direct supervision administrative supervision commissions and of the Mayor and/or of the Mayor: administrative supervision Managing Director: of the Mayor: Corporation Counsel Civil Defense Civil Service Finance Office of Aging Police Planning Mass Transportation Liquor Control Environmental Management Housing&Community Fire Research&Development Development Water Supply Public Works (semi-autonomous) Parks&Recreation Data Systems - 8 - County of Hawaii Elected Officials Administrative Officers (Term: 2004-2008) Harry Kim Mayor Jay T. Kimura Prosecuting Attorney County Council (Term: 2004-2006) Stacy K. Higa Chair Virginia Isbell Vice Chair James Y.Arakaki Member Pete Hoffmann Member Fred C. Holschuh, M.D. Member Donald Ikeda Member Bob Jacobson Member K. Angel Pilago Member Gary Safarik Member -9- Principal Officials June 30,2005 County Clerk Connie Kiriu Legislative Auditor Vacant Managing Director Dixie Kaetsu Deputy Managing Director Peter L. Hendricks Corporation Counsel Lincoln Ashida Director of Finance William Takaba Planning Director Christopher Yuen Director of Personnel Michael R. Ben Director of Research and Development Jane Testa Chief of Police Lawrence K. Mahuna Fire Chief Darryl Oliveira Director of Public Works Bruce McClure Director of Environmental Management Barbara Bell Director of Parks and Recreation Patricia Engelhard Manager,Department of Water Supply Milton Pavao Civil Defense Administrator Troy M. Kindred Director of Liquor Control Janice A. Pakele Transit Operations Administrator Thomas Brown Executive on Aging Alan Parker Administrator, Office of Housing and Community Development Edwin S. Taira - 10- FINANCIAL SECTION f KPMG LLP PO Box 4150 Honolulu,HI 96812-4150 Independent Auditors'Report To the Chair and Members of the County Council County of Hawaii State of Hawaii: We have audited the accompanying financial statements of the governmental activities,the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the County of Hawaii, State of Hawaii(the County)as of and for the year ended June 30, 2005,which collectively comprise the County's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the County's 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 Government 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the County's internal control over financial reporting.Accordingly,we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and the 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 respective financial position of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the County as of June 30, 2005, and the respective changes in financial position and, where applicable, cash flows, thereof,and the respective budgetary comparisons for the general fund and the sewer fund for the year then ended in conformity with U.S.generally accepted accounting principles. —11- KPMG LLP,a U.S.limited liability partnership,is the U.S. member firm of KPMG Intemational,a Swiss cooperative. In accordance with Government Auditing Standards,we have also issued a report dated March 22,2006 on our consideration of the County's internal control over financial reporting and on our tests of its compliance with certain provisions of laws,regulations,contracts,and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The management's discussion and analysis on pages 13 through 22 is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. 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.However,we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County's basic financial statements. The introductory section,the combining and individual nonmajor fund financial statements, and the statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements have been subjected to the auditing procedures applied in the audit of 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. The introductory section and the statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly,we express no opinion on them. Honolulu,Hawaii March 22,2006 —12— MANAGEMENT'S DISCUSSION AND ANALYSIS This section of the County of Hawai`i's(the County)Comprehensive Annual Financial Report presents a narrative overview and analysis of the financial activities of the County for the fiscal year ended June 30,2005. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal. FINANCIAL HIGHLIGHTS • The assets of the County exceeded its liabilities at the end of the fiscal year by$396.2 million (net assets). • The government's total net assets increased by$31.5 million during the fiscal year. • As of the close of the current fiscal year,the County's governmental funds reported combined ending fund balances of$174.1 million,an increase of$40.0 million from the prior year. Approximately 57 percent of this total amount,$99.1 million,is available for spending at the government's discretion(unreserved fund balance). • At the end of the current fiscal year,unreserved fund balance for the general fund was$15.7 million,or 10 percent of total general fund expenditures. • The County's total long-term liabilities increased by$32.4 million(13 percent)during the current fiscal year. The key factors in this increase were the net new debt($35.4 million)and the net increase in claims and judgments($6.6 million)offset by normal principal reductions. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the County's basic financial statements. The County's basic financial statements comprise three components: (1) Government-wide financial statements,(2)Fund financial statements,and(3)Notes to the basic financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the County's finances,in a manner similar to a private-sector business. The statement of net assets presents information on all of the County's assets and liabilities, with the difference between the two reported as net assets. Over time,increases or decreases in net assets may serve as a useful indicator of whether or not the financial position of the County is improving or deteriorating. The statement of activities presents information showing how the County's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs,regardless of the timing of related cash flows. Thus,revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods,such as revenues pertaining to uncollected taxes and expenses pertaining to earned but unused vacation and sick leave. Both of the government-wide financial statements distinguish functions of the County that are principally supported by taxes and intergovernmental revenues(governmental activities)from other functions that are intended to recover all or a significant portion of their costs through user - 13 - fees and charges(business-type activities). The governmental activities of the County include public safety,highways and streets,health,education and welfare,culture and recreation, sanitation and general government. The business-type activities of the County include rental housing for senior citizens and families. The government-wide financial statements include not only the County itself(known as the primary government),but also the Department of Water Supply,a legally separate entity that the County is financially accountable for. Financial information for this component unit is reported separately from the financial information presented for the primary government itself. Fund Financial Statements The fund financial statements are designed to report information about groupings of related accounts which are used to maintain control over resources that have been segregated for specific activities or objectives. The County,like other state and local governments,uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the County can be divided into the following three categories: governmental funds, proprietary funds,and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements— i.e.,most of the County's basic services are reported in governmental funds. These statements,however,focus on(1)how cash and other financial assets can readily be converted to available resources and(2)the balances left at year-end that are available for spending. Such information may be useful in determining what financial resources are available in the near future to finance the County's programs. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so,readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues,expenditures,and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The County maintains several individual governmental funds organized according to their type(general,special revenue,debt service,and capital projects). Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues,expenditures,and changes in fund balances for the general fund,sewer fund and capital projects fund,which are considered to be major funds. Data from the remaining governmental funds are combined into a single,aggregated presentation. Individual fund data for each of the non-major governmental funds is provided in the form of combining statements elsewhere in this report. The County adopts an annual appropriated budget for its general fund and special revenue funds. A budgetary comparison statement has been provided for these funds to demonstrate compliance with this budget. The budgetary comparison statement for the general fund and sewer fund is located in the basic financial statements,whereas the budgetary comparison statements for the nonmajor special revenue funds are presented elsewhere in this report. Proprietary funds. Proprietary funds are generally used to account for services for which the County charges outside customers. Proprietary funds provide the same type of - 14- information as shown in the government-wide financial statements,only in more detail. The County maintains only one type of proprietary funds,enterprise funds. Enterprise funds are used to report the same functions presented as business-type activities in the government- wide financial statements. The County uses enterprise funds to account for the operations of the Kulaimano Elderly Housing Project and the Ouli Ekahi Affordable Housing Project. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the County. The Geothermal Asset Fund, Shippers' Wharf Trust Fund and the agency funds are reported under the fiduciary funds. Since the resources of these funds are not available to support the County's own programs,they are not reflected in the government-wide financial statements. The accounting used for fiduciary funds is much like that used for proprietary funds. Notes to the Basic Financial Statements The notes to the basic financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Other Supplementary Information In addition to the basic financial statements and accompanying notes,this report also presents supplementary information,including the combining statements referred to earlier in connection with nonmajor governmental funds and budget comparison statements for the nonmajor special revenue funds. This supplementary information is presented immediately following the notes to the basic financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net Assets June 30,2005 Primary Government Governmental Activities Business-type Activities Total 2005 2004 2005 2004 2005 2004 Assets: Current and other assets $202,715,246 $155,434,993 $1,339,425 $1,281,768 $204,054,671 $156,716,761 Capital assets 497,287,738 475,741,526 1,367,085 1,390,359 498,654,823 477,131,885 Total assets $700,002,984 $631,176,519 $2,706,510 $2,672,127 $702,709,494 $633,848,646 Liabilities: Long-term liabilities outstanding 286,831,687 254,407,321 1,041,285 1,065,417 287,872,972 255,472,738 Other liabilities 18,300,401 13,384,344 306,296 227,282 18,606,697 13,611,626 Total liabilities $305,132,088 $267,791,665 $1,347,581 $1,292,699 $306,479,669 $269,084,364 Net assets: Invested in capital assets,net of related debt 364,662,377 336,435,768 325,800 324,942 364,988,177 336,760,710 Restricted 41,950,262 37,333,730 182,167 180,782 42,132,429 37,514,512 Unrestricted(deficit) (11,741,743) (10,384,644) 850,962 873,704 (10,890,781) (9,510,940) Total net assets $394,870,896 $363,384,854 $1,358,929 $1,379,428 _1396,229,825 $364,764,282 - 15 - Analysis of Net Assets As noted earlier,net assets may serve over time as a useful indicator of a government's financial position. In the case of the County,assets exceeded liabilities by$396,229,825 at the close of the most recent fiscal year. By far the largest portion of the County's net assets(92 percent)reflects its investment in capital assets(e.g., land,buildings,infrastructure,and equipment),less any related debt used to acquire those assets that is still outstanding. The County uses these capital assets to provide services to citizens;consequently,these assets are not available for future spending. Although the County's investment in its capital assets is reported net of related debt,it should be noted that the resources needed to repay this debt must be provided from other sources,since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the County's net assets(11 percent)represents resources that are subject to external restrictions on how they may be used. At the end of the current fiscal year,the County is able to report positive balances in two of three categories of net assets,both for the government as a whole,as well as for its separate governmental and business-type activities. The negative balance in unrestricted net assets of $10,890,781 results primarily from the additional long-term liabilities placed on the books to be in compliance with GASB Statement No.34. The government's net assets increased by$31,465,543 during the current fiscal year. Approximately$9.9 million of the increase is due to increases in real property tax valuations and collections. The remaining increase represents the degree to which increases in ongoing revenues have outstripped similar increases in ongoing expenses. The government's current and other assets increased by$47,337,910 during the current fiscal year. Approximately$42.2 million of the increase is due to an increase in cash and cash equivalents. The government's capital assets increased by$21,522,938 due to the large amount of capital improvement projects done by the County during the current fiscal year. See further discussion of the increase in capital assets on page 21. The government's long-term liabilities outstanding increased by$32,400,234 due to the new general obligation bond issues during the current year. See further discussion of the increase in long-term liabilities outstanding on page 22. The government's other liabilities increased by$4,995,071 due to an increase in interest payable ($0.5 million)and the increase in unearned revenue relating to intergovernmental grants($2.3 million). - 16- Changes in Net Assets For the Fiscal Year Ended June 30,2005 Primary Government Governmental Activities Business-type Activities Total 2005 2004 2005 2004 2005 2004 Revenues: Program revenues: Charges for services $ 35,377,514 $ 29,188,014 $ 314,971 $ 303,047 $ 35,692,485 $ 29,491,061 Operating grants and contributions 36,370,993 33,327,191 135,829 143,769 36,506,822 33,470,960 Capital grants and contributions 26,221,627 9,668,981 - - 26,221,627 9,668,981 General revenues: Property taxes 129,775,410 119,864,237 129,775,410 119,864,237 Other taxes 19,948,903 18,257,939 19,948,903 18,257,939 Grants and contributions,unrestricted 16,734,850 15,251,443 16,734,850 15,251,443 Investment earnings 2,957,188 1,729,531 13,580 8,006 2,970,768 1,737,537 Miscellaneous 3,657,794 4,825,259 - - 3,657,794 4,825,259 Total revenues 271,044,279 232,112,595 464,380 454,822 271,508,659 232,567,417 Expenses: General government 51,262,329 40,085,357 - 51,262,329 40,085,357 Public safety 94,422,057 90,434,696 - 94,422,057 90,434,696 Highways and streets 20,857,341 17,563,608 - 20,857,341 17,563,608 Health,education and welfare 21,503,635 23,041,963 484,879 466,143 21,988,514 23,508,106 Culture and recreation 16,124,457 15,979,854 - - 16,124,457 15,979,854 Sanitation 26,669,660 20,084,654 26,669,660 20,084,654 Interest on long-term debt 8,718,758 9,553,966 - 8,718,758 9,553,966 Total expenses 239,558,237 216,744,098 484,879 466,143 240,043,116 217,210,241 Increase(decrease)in net assets 31,486,042 15,368,497 (20,499) (11,321) 31,465,543 15,357,176 Net assets at beginning of year 363,384,854 348,016,357 1,379,428 1,390,749 364,764,282 349,407,106 Net assets at end of year $394,870,896 $363,384,854 $ 1,358,929 $ 1,379,428 $396,229,825 $364,764,282 Analysis of Changes in Net Assets Governmental activities. Governmental activities increased the County's net assets by $31,486,042 or primarily all of the total growth in net assets of the County. The County's property taxes increased by$9,911,173(eight percent)during the year. Most of this increase is attributable to the increase in assessed values. Capital grants and contributions increased by$16,552,646(171 percent)due to an increase in donated roads received during the fiscal year($5.5 million)with the remaining increase being from increased federal funding provided for two bridges and various highway projects. Total expenses increased by$22,814,139. This increase was primarily due to an increase of $11,176,972 in expenditures related to general government. Part of the increase is related in an increase in claims and judgments($6.6 million)while the remainder of the increase is the result of negotiated pay raises and related benefits. Much of the increase in all areas is due to the increased cost of employee benefits,particularly employee retirement and health insurance costs. For the most part,other fluctuations in expenses closely paralleled inflation and growth in demand for services. - 17- Expenses and Program Revenues-Governmental Activities Year Ended June 30,2005 100,000,000 1 �f � ,tW 90,000,000 s 2i, ' �Expenses 80,000,000 t p Program revenues IF, 70,000,000 .„ 60,000,000 50,000,000 r 40,000,000 30,000,000 a 1 a �VZ 20,000,000 - 10,000,000 „ W General Public safety Highways and Health, Culture and Sanitation Interest on government streets education and recreation long-term debt welfare Revenues by Source-Governmental Activities Year Ended June 30,2005 Investment earnings 1% Miscellaneous 1% Grants and contributions not restricted to specific programs Charges for services 6% 13% Other taxes 7% Operating grants and contributions f;a 13% Capital grants and contributions 10% Property taxes 49% Ig ' The charts above illustrate the County's governmental expenses and revenues by function,and its revenues by source. As shown,public safety is the largest function in expense(39 percent), followed by general government(21 percent)and sanitation(11 percent). General revenues such as property and other taxes are not shown by program,but are effectively used to support program activities countywide. For governmental activities overall,without regard to programs, property taxes are the largest single source of funds(49 percent),followed by operating grants and contributions(13 percent)and charges for services(13 percent). Business-type activities. Business-type activities decreased the County's net assets by$20,499. Expenses for health,education and welfare account for all of the$484,879 of expenses. Charges for services were$314,971,operating grants and contributions were$135,829 and investment earnings were$13,580. FINANCIAL ANALYSIS OF THE COUNTY'S FUNDS As noted earlier,the County uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the County's governmental funds is to provide information on near-term inflows,outflows,and balances of spendable resources. Such information is useful in assessing the County's financing requirements. In particular,unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year,the County's governmental funds reported combined ending fund balances of$174,140,118,an increase of$39,980,125 in comparison with prior year. Approximately 57 percent of this total amount($99,105,482)constitutes unreserved fund balance, which is available for spending at the government's discretion. The remainder of the fund balance is reserved to indicate that it is not available for new spending because it has already been committed 1)to liquidate contracts and purchase orders for last fiscal year($31,171,171),2)to pay debt service($15,041,758),or 3)for a variety of other restricted purposes($28,821,707). The general fund is the chief operating fand of the County. At the end of the current fiscal year, unreserved fund balance of the general hand was$15,664,272,while total fund balance reached $23,978,072. As a measure of the general fund's liquidity,it may be useful to compare both unreserved fund balance and total fund balance to total fund expenditures. Unreserved fund balance represents 10 percent of total general fund expenditures,while total fund balance represents 15 percent of that same amount. The fund balance of the County's general fund increased by$4,254,864 during the current fiscal year. Key factors in this increase are as follows: • An increase of$9,219,043(eight percent)in property tax revenue due to increasing property values and collection efforts on past due taxes. • An increase of$6,390,001 (17 percent)in intergovernmental revenue due to an increase in transient accommodations tax proceeds($1.5 million)and emergency medical services proceeds($1.3 million)from the stake and increased federal grant revenue related to transit and homeland security,as well as many other programs. - 19- • An increase of$2,751,437(30 percent)in pension and retirement system contributions and an increase of$1,744,787(13 percent) in employees'health insurance. Both benefit programs continued their upward trend. • An increase of$6,626,366(10 percent)in public safety expenditures due primarily to increases in expenditures for police 32.1 million),fire($3.0 million)and civil defense($1.1 million). Increases were noted in many of the grant-funded programs as well as in salaries and wages due to negotiated pay increases. • An increase of$3,079,977(101 percent)in capital outlay due primarily to CDBG and HOME grant programs for capital improvements($2.4 million). The debt service funds, included in other governmental funds,have combined total fund balances of$15,041,758,all of which is reserved for the payment of debt service. The net increase in the combined fund balances during the current year in the debt service funds was$1,372,228(10 percent). Proprietary funds. The County's proprietary funds provide the same type of information found in the government-wide financial statements,but in more detail. Unrestricted net assets of the Kulaimano Elderly Housing Project(Kulaimano)at the end of the year amounted to$872,706,and those for Ouli Ekahi Affordable Housing Project(Ouli Ekahi) amounted to($21,744). The net assets for Kulaimano decreased by$8,179 and the net assets for Ouli Ekahi decreased by$12,320. Other factors concerning the finances of these two funds have already been addressed in the discussion of the County's business-type activities. GENERAL FUND BUDGETARY HIGHLIGHTS Differences between the original budget and the final amended budget were primarily the result of a$11,738,569 increase in appropriations and a$6,465,322 increase in transfers out and can be briefly summarized as follows: • $6,552,905 in increases due to the appropriation of higher than expected fund balance to be used in the year's operations. • $11,421,635 in increases due to the appropriations for capital and operating grants and contributions. Differences between the final budget and the actual(budgetary basis)resulted in$1,605,762 more revenues than expected and$10,995,917 less expenditures than appropriated. This is primarily due to the following factors: • $1,282,072 favorable variance in taxes and assessments revenue resulting from collections being more than expected. • $1,723,131 favorable variance in interest and penalties revenue resulting from higher earnings on cash and investments than expected. • $1,765,558 unfavorable variance in intergovernmental revenue,including$1,468,972 in federal grants and$296,586 in state grants. • $2,734,266 favorable variance in general government expenditures caused by an overall effort by each department to hold the line on expenditures. -20- • $3,458,267 favorable variance in public safety expenditures primarily created by vacant positions in the police and fire departments as well as an increased effort to control costs during the budget year. • $3,156,906 favorable variance in miscellaneous expenditures,due primarily to lower than expected costs relating to such accounts as claims and judgments. CAPITAL ASSET AND DEBT ADMINISTRATION Capital assets. The County's investment in capital assets for its governmental and business-type activities as of June 30,2005 amounts to $498,654,823(net of accumulated depreciation). This investment in capital assets includes land,buildings and improvements,equipment,and infrastructure assets,which consists of primarily roads and bridges. The total increase in the County's investment in capital assets for the current fiscal year was five percent. Major capital asset events during the current fiscal year included the following: • Construction continued on the Puainako Street extension;construction in progress as of the end of the current fiscal year had reached$34,661,860. • Construction continued on the Kamuela Senior Housing Project;construction in progress as of the end of the current fiscal year had reached$3,654,551. • Construction began on Hoolulu Accessibility Improvements;construction in progress as of the end of the current fiscal year had reached$2,474,132. • Construction began on Kawailani Street Bridge;construction in progress as of the end of the current fiscal year had reached$6,890,727. • Construction began on Kinoole Street Corridor Improvements;construction in progress as of the end of the current fiscal year had reached$1,155,157. • Construction began on Kilauea Avenue Corridor Improvements;construction in progress as of the end of the current fiscal year had reached$1,132,611. • Construction began on Scotty White Bridge;construction in progress as of the end of the current fiscal year had reached$1,2£+1,796. Capital Assets (net of depreciation) Primary Government Governmental Activities Business-type Activities Total 2005 2004 2005 2004 2005 2004 Land $ 19,560,139 $ 19,610,464 $ 753,877 $ 753,877 $ 20,314,616 $ 20,364,341 Infrastructure assets 156,145,061 150,650,636 - - 156,145,061 150,650,636 Ground and site improvements - - 93,861 97,616 93,861 97,616 Buildings and improvements 216,853,2143 218,742,753 502,034 526,649 217,355,477 219,269,402 Equipment 28,603,125 26,535,175 17,313 12,217 28,620,638 26,547,392 Construction work in progress 76,125,170 60,202,498 76,125,170 60,202,498 Total $497,287,138 $475,741,526 $1,367,085 $1,390,359 $498,654,823 $477,131,885 Additional information on the County's capital assets can be found in note 6 to the basic financial statements. -21 - Long-term debt. At the end of the current fiscal year,the County had total bonded debt outstanding of$182,158,285. This entire amount was comprised of general obligation bonds which are backed by the full faith and credit of the County. The County's total bond debt increased by$24,249,985(15 percent)during the current fiscal year. The key factors in this increase were new debt($33.9 million)and normal principal reduction. The County maintains an"A"rating from Standard&Poor's and an"Al"rating from Moody's for general obligation debt. State statutes limit the amount of general obligation debt the County may issue to 15 percent of the total assessed value of all county real property as established for tax purposes on the last tax assessment rolls. The current debt limitation for the County is$2,180,093,969,which is in excess of the County's outstanding general obligation debt. Currently the County's outstanding debt represents nine percent of our debt limitation. Additional information on the County's long-term debt can be found in note 10 to the basic financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES • The unemployment rate for the County is 3.3 percent,which is down from a rate of 5.1 percent a year ago. • The number of visitors to the County for the most recent calendar year was 1,278,713,up six percent from the previous year's count of 1,208,022. Both of these factors were considered in preparing the County's budget for the 2006 fiscal year. At the end of the current fiscal year,unreserved fund balance in the general fund was $15,664,272. The County has appropriated$8,779,460 of this amount for spending in the 2006 fiscal year budget. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the County'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 information should be addressed to the Director of Finance,County of Hawaii,25 Aupuni Street,Room 118,Hilo,Hawaii 96720. -22- BASIC FINANCIAL STATEMENTS -23 - COUNTY OF HAWAII Statement of Net Assets June 30,2005 Primary Government Governmental Business-type Component Activities Activities Total Unit Assets Current Assets: Cash and cash equivalents(notes 3 and 14) $ 151,029,229 $ 368,857 $ 151,398,086 $ 17,930,436 Restricted cash and cash equivalents(note 3) 320,147 29,540 349,687 - Investments(notes 3 and 14) 14,745,079 700,000 15,445,079 9,450,094 Receivables,net(note 4) 26,746,300 48,388 26,794,688 3,852,764 Internal balances(note 5) 5,400 (5,400) - - Inventories 2,139,447 - 2,139,447 1,093,462 Prepaid expenses - 1,287 1,287 752,922 Other 1,088,623 - 1,088,623 - Total current assets 196,074,225 1,142,672 197,216,897 33,079,678 Investments(note 3) 2,753,528 - 2,753,528 - Restricted cash and cash equivalents(note 3) - 196,753 196,753 - Restricted investments(notes 3 and 14) - - - 11,914,168 Loans receivable,excluding current portion - - - 682,979 Receivable from improvement district(note 4) 3,887,493 - 3,887,493 - Deferred charges - - - 7,106,983 Capital assets(notes 6, 8 and 14): Utility plant in service,net - - - 145,737,496 Infrastructure assets,net 156,145,061 - 156,145,061 - Ground and site improvements,net - 93,861 93,861 - Buildings and improvements,net 216,853,443 502,034 217,355,477 - Equipment,net 28,603,325 17,313 28,620,638 - Construction work in progress 76,125,170 - 76,125,170 40,640,738 Land 19,560,739 753,877 20,314,616 787,657 Total capital assets,net 497,287,738 1,367,085 498,654,823 187,165,891 Total noncurrent assets 503,928,759 1,563,838 505,492,597 206,870,021 Total assets 700,002,984 2,706,510 702,709,494 239,949,699 (Continued) -24- COUNTY OF HAWAII Statement of Net Assets June 30,2005 (Concluded) Primary Government Governmental Business-type Component Activities Activities Total Unit Liabilities Current Liabilities: Accounts payable and accrued liabilities $ 4,775,165 $ 302,866 $ 5,078,031 $ 2,456,701 Unearned revenue(note 7) 7,186,683 3,430 7,190,113 - Interest due on long-term debt 3,209,881 - 3,209,881 283,375 Customers'deposits for service connections - - - 701,170 Other 3,128,672 - 3,128,672 - Total current liabilities 18,300,401 306,296 18,606,697 3,441,246 Noncurrent liabilities: Due within one year: Bonds and loans payable,net (notes 10 and 14) 12,882,126 21,899 12,904,025 1,091,000 Compensated absences(note 10) 5,783,235 - 5,783,235 1,333,831 Claims and judgments(notes 10, 12 and 14) 5,270,695 - 5,270,695 61,000 Capital leases(notes 8 and 10) 1,118,589 - 1,118,589 - Landfill costs payable(notes 9 and 10) 149,610 - 149,610 - Due in more than one year: Bonds and loans payable,net (notes 10 and 14) 199,289,089 1,019,386 200,308,475 16,472,062 Compensated absences(note 10) 16,790,020 - 16,790,020 807,865 Claims and judgments(notes 10, 12 and 14) 21,331,594 - 21,331,594 211,000 Capital leases(notes 8 and 10) 2,524,339 - 2,524,339 - Landfill costs payable(notes 9 and 10) 21,692,390 - 21,692,390 - Customers'deposits payable from restricted assets - - - 11,914,168 Total noncurrent liabilities 286,831,687 1,041,285 287,872,972 31,890,926 Total liabilities 305,132,088 1,347,581 306,479,669 35,332,172 Net Assets(Deficit) Invested in capital assets,net of related debt 364,662,377 325,800 364,988,177 170,201,794 Restricted for: Capital projects 26,908,504 - 26,908,504 - Debt service 15,041,758 182,167 15,223,925 - Unrestricted (11,741,743) 850,962 (10,890,781) 34,415,733 Total net assets $394,870,896 $ 1,358,929 $ 396,229,825 $204,617,527 See accompanying notes to the basic financial statements, -25 - COUNTY OF HAWAII Statement of Activities For the Fiscal Year Ended June 30,2005 Program Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Primary government: Governmental activities: General government $ 51,262,329 $ 3,227,420 $ 2,404,814 $ 5,760,067 Public safety 94,422,057 6,262,259 16,668,122 187,971 Highways and streets 20,857,341 7,629,139 248,433 20,265,443 Health,education and welfare 21,503,635 1,272,091 16,055,203 - Culture and recreation 16,124,457 1,521,127 311,311 8,146 Sanitation 26,669,660 15,465,478 683,110 - Interest on long-term debt _ 8,718,758 - - - Total governmental activities 239,558,237 35,377,514 36,370,993 26,221,627 Business-type activities: Health,education and welfare 484,879 314,971 135,829 - Total primary government $ 240,043,116 $ 35,692,485 $ 36,506,822 $ 26,221,627 Component unit: Water(note 14) $ 35,848,662 $ 31,945,689 $ - $ 11,612,284 General revenues: Taxes: Property taxes,levied for general purposes Public service company taxes Franchise taxes Fuel taxes Grants and contributions not restricted to specific programs Investment earnings Miscellaneous Total general revenues Change in net assets Net assets,beginning of year Net assets,end of year See accompanying notes to the basic financial statements. -26- Net(Expense)Revenue and Changes in Net Assets Primary Government _ Governmental Business-type Component Activities Activities Total Unit $ (39,870,028) $ - $ (39,870,028) $ - (71,303,705) - (71,303,705) - 7,285,674 - 7,285,674 - (4,176,341) - (4,176,34-1) - (14,283,873) - (14,283,873) - (10,521,072) - (10,521,072) - (8,718,758) - (8,718,758) - (141,588,103) - (141,588,103) - (34,079) (34,07!) - (141,588,103) (34,079) (141,622,18) - - - - 7,709,311 129,775,410 - 129,775,410 - 6,351,273 - 6,351,273 - 6,016,890 - 6,016,890 - 7,580,740 - 7,580,740 - 16,734,850 - 16,734,850 - 2,957,188 13,580 2,970,768 766,318 3,657,794 - 3,657,794 - 173,074,145 13,580 173,087,72:5 766,318 31,486,042 (20,499) 31,465,543 8,475,629 363,384,854 1,379,428 364,764,282 196,141,898 $ 394,870,896 $ 1,358,929 $396,229,82.5 $204,617,527 -27- COUNTY OF HAWAII Governmental Funds Balance Sheet June 30,2005 Other Total Sewer Capital Governmental Governmental General Fund Projects Funds Funds Assets Cash and cash equivalents(note 3) $ 17,061,244 $ 8,333,847 $ 90,541,902 $35,092,236 $151,029,229 Investments(note 3) 4,309,169 - 10,000,000 3,189,438 17,498,607 Receivables,net(note 4) 6,490,197 2,177,474 829,000 929,444 10,426,115 Due from other governmental funds(note 5) 1,304,107 75,800 196,984 134,131 1,711,022 Due from other nongovernmental funds(note 5) - 5,400 - - 5,400 Receivables from other governments(note 4) 6,238,297 - 9,658,347 423,541 16,320,185 Restricted cash with escrow(note 3) 320,147 - - - 320,147 Inventories 2,139,447 - - - 2,139,447 Other 447,077 - - 641,546 1,088,623 Total assets 38 309 685 $10,592,521 $ 111,226,233 $40,410,336 $200,538,775 Liabilities and Fund Balances Liabilities: Accounts payable $ 1,648,426 $ 618,503 $ 1,148,176 $ 1,360,060 $ 4,775,165 Due to other governmental funds(note 5) 1861866 165,761 21,583 1,336,812 1,711,022 Unearned revenue(note 7) 9,795,726 2,177,474 3,846,681 963,916 16,783,797 Other 2,7001595 47,443 - 380,635 3,128,673 Total liabilities 14,331.613 3,009,181 5,016,440 4,041,423 26,398,657 Fund balances: Reserved for: Encumbrances 5,378;176 2,064,210 15,408,227 8,320,558 31,171,171 Inventories 2,139;447 - - - 2,139,447 Taxicab investigations 59.300 - - - 59,300 Liquor control 736,877 - - - 736,877 Unexpended allotments - 25,886,083 - 25,886,083 Debt service - - - 15,041,758 15,041,758 Unreserved,reported in: General fund 15,664.272 - - - 15,664,272 Special revenue funds - 5,519,130 - 13,006,597 18,525,727 Capital projects funds = - 64,915,483 - 64,915,483 Total fund balances 23,978.072 7,583,340 106,209,793 36,368,913 174,140,118 Total liabilities and fund balances $38,3091,685 $ 10,592,521 $ 111,226,233 $40,410,336 $200,538,775 See accompanying notes to the basic financial statements. -28 - COUNTY OF HAWAII Reconciliation of the Governmental]Funds Balance Sheet to the Statement of Net Assets June 30,2005 Total fund balances-governmental funds $174,140,118 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land 19,560,739 Infrastructure assets,net 156,145,061 Buildings and improvements,net 216,853,443 Equipment,net 28,603,325 Construction work in progress 76,125,170 Total capital assets 497,287,738 Some of the County's revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures and therefore are deferred(unearned)in the funds. 9,597,115 Some liabilities are not due and payable in the current period and therefore are not reported in the funds. Those liabilities consist of: Bonds and loans payable,net (208,283,722) Accrued interest on bonds (3,209,881) Capital leases (3,642,928) Compensated absences (22,573,255) Claims and judgments (26,602,289) Landfill closure/postclosure costs (21,842,000) Total long-term liabilities (286,154,075) Net assets of governmental activities $394,870,896 See accompanying notes to the basic financial statements. -29- COUNTY OF HAWAII Governmental Funds Statement of Revenues, Expenditures,and Changes in Fund Balances For the Fiscal Year Ended June 30,2005 Other Total Sewer Capital Governmental Governmental General Fund Projects Funds Funds Revenues Property tax $131,087,099 $ - $ - $ - $131,087,099 Public service company tax 6,351,273 - - - 6,351,273 Fuel tax - - - 7,580,740 7,580,740 Public utility franchise tax - - - 6,016,890 6,016,890 Licenses and permits 7,305,129 - - 7,136,954 14,442,083 Intergovernmental 43,82.4,406 - 14,962,084 14,585,053 73,371,543 Charges for services 4,22.2,289 5,929,961 - 7,996,482 18,148,732 Investment earnings 3,02.2,382 - 81,744 3,104,126 Miscellaneous 1,565,986 8,903 1,457,776 1,417,815 4,450,480 Total revenues 197,378,564 5,938,864 16,419,860 44,815,678 264,552,966 Expenditures Current: General government 26,18 2,748 - - - 26,182,748 Public safety 72,596,189 - - 3,808,166 76,404,355 Highways and streets 2,012,485 - - 7,774,983 9,787,468 Sanitation 722,221 4,348,471 - 16,811,941 21,882,633 Health,education and welfare 5,299,063 - - 14,571,058 19,870,121 Culture and recreation 13,206,761 - - 775,141 13,981,902 Pension and retirement contributions(note 13) 11,902,147 349,158 - 1,953,101 14,204,406 Employees'health insurance 14,869,722 190,248 - 1,107,925 16,167,895 Miscellaneous 4,118,043 1,155,127 - 859,775 6,132,945 Debt service: Principal 700,786 - - 12,449,195 13,149,981 Interest 66,280 - - 9,467,510 9,533,790 Capital outlay 6,125,869 - 26,689,667 - 32,815,536 Total expenditures 157,802,314 6,043,004 26,689,667 69,578,795 260,113,780 Excess(deficiency)of revenues over expenditures 39,576,250 (104,140) (10,269,807) (24,763,117) 4,439,186 (Continued) -30 - COUNTY OF HAWAII Governmental Funds Statement of Revenues,Expenditures,and Changes in Fund Balances For the Fiscal Year Ended June 30,2005 (Concluded) Other Total Sewer Capital Governmental Governmental General Fund Projects Funds Funds Other Financing Sources(Uses),including transfers Sale of assets $ 1,48:5,446 $ - $ - $ - $ 1,485,446 Capital leases(note 10) 2813,387 - - 1,080,541 1,368,928 State Revolving Fund loans(note 10) - - 1,504,078 - 1,504,078 Sale of bonds(note 10) - - 30,000,000 - 30,000,000 Premium on bonds(note 10) 1,41,3,651 - 1,606,219 - 3,024,870 Refunding bonds(note 10) 24,59:5,140 - - - 24,595,140 Refunding bonds issuance costs (note 10) (1219,089) - - - (129,089) Payment to refunded bond escrow agent(note 10) (25,884,702) - - - (25,884,702) Transfers in(note 5) - - 8,058,103 34,061,322 42,119,425 Transfers out(note 5) (36,671,487) - - (5,447,938) (42,119,425) Total other financing sources(uses) (34,897,654) - 41,168,400 29,693,925 35,964,671 Net change in fund balances 4,678,596 (104,140) 30,898,593 4,930,808 40,403,857 Fund balance at beginning of year 19,723,208 7,687,480 75,311,200 31,438,105 134,159,993 Decrease in reserve for inventories (423,732) - - - (423,732) Fund balance at end of year $ 23,978,072 $7,583,340 $106,209,793 $ 36,368,913 $174,140,118 See accompanying notes to the basic financial statements. -31 - COUNTY OF HAWAII Reconciliation of the Change in Fund Balances of Governmental Funds to the Statement of Activities For the Fiscal Year Ended June 30,2005 Net change in fund balances-total governmental funds $ 40,403,857 Amounts reported for governmental activities in the statement of activities are different because: Capital outlays are reported as expenditures in governmental funds. However,in the statement of activities,the cost of capital assets is allocated over their estimated useful lives as depreciation expense. In the current period,these amounts are: Capital outlay 39,489,806 Depreciation expense and loss on disposals (17,943,594) Excess of capital outlay over depreciation expense 21,546,212 Borrowings provide current financial resources to governmental funds; however, issuing debt increases long-term liabilities in the statement of net assets. In the current period,proceeds were received from: General obligation bonds (30,000,000) Premium on bond issuance (1,606,219) Deferred amount on refunding of bonds 1,294,002 SRF loan obligations (1,504,078) Capital lease obligations (1,368,928) Total debt proceeds (33,185,223) Repayment of long-term debt is reported as an expenditure in governmental funds,but the repayment reduces long-term liabilities in the statement of net assets. In the current year,these amounts consist o£ Bond principal retirement 9,637,508 SRF loan repayment 2,240,947 Capital lease payments 1,273,085 Total long-term debt repayment 13,151,540 Because some revenues will not be collected for several months after the County's fiscal year end,they are not considered"available"revenues and are"deferred" in the governmental funds. Unearned revenues decreased by this amount this year. (994,827) (Continued) -32- COUNTY OF HAWAII Reconciliation of the Change.in Fund Balances of Governmental Funds to the Statement of Activities For the Fiscal Year Ended June 30,2005 (Concluded) Some items reported in the statement of activities do not involve current financial resources and therefore are not reported as expenditures in governmental funds. These activities are: Decrease in inventory $ (423,732) Increase in compensated absences (1,630,967) Increase in claims and judgments (6,573,289) Increase in landfill closure/postclosure care costs (327,000) Amortization of premium from bond issuance 92,766 Amortization of deferred amount on refunding of bonds (64,700) Net increase in accrued interest (508,595) Net additional expenditures (9,435 517) Change in net assets of governmental activities $ 31,486,042 See accompanying notes to the basic financial statements. -33 - COUNTY OF HAWAII General Fund Statement of Revenues,E:Kpenditures and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2005 Variance Original Final Favorable Budget Budget Actual (Unfavorable) Revenues: Taxes and assessments: Real property taxes $ 131,036,300 $ 131,036,300 $ 131,087,099 $ 50,799 Public service company taxes _ 5,120,000 5,120,000 6,351,273 1,231,273 Total taxes and assessments _136,156,300 136,156,300 137,438,372 1,282,072 Licenses and permits: Nonbusiness licenses and permits 3,668,484 3,712,608 4,728,035 1,015,427 Business licenses 1,151,775 1,151,775 1,040,927 (110,848) Street use 1,420,000 1,420,000 1,536,167 116,167 Total licenses and permits _ 6,240,259 6,284,383 7,305,129 1,020,746 Intergovernmental: Federal: Programs for the aged 1,811,801 1,835,301 1,405,013 (430,288) Community development block grants - 2,672,100 2,672,100 - HOME program grant - 1,036,554 1,036,554 - Civil defense 118,000 118,000 172,655 54,655 Law enforcement 1,519,600 1,859,097 1,054,854 (804,243) Other 1,284,343 7,860,907 7,571,811 (289,096) Total federal _ 4,733,744 15,381,959 13,912,987 (1,468,972) State: State General Fund-Act 185, SLH 1990 15,506,000 15,506,000 16,417,336 911,336 Emergency medical services 9,862,620 9,862,620 9,980,724 118,104 Other 3,974,204 4,747,624 3,344,726 (1,402,898) Child support enforcement 942,979 942,979 1,019,851 76,872 Total State _ 30,285,803 31,059,223 30,762,637 (296,586) Total intergovernmental revenue _ 35,019,547 46,441,182 44,675,624 (1,765,558) Charges for current services: General government 2,403,571 2,403,571 2,782,698 379,127 Culture and recreation 814,125 814,125 764,736 (49,389) Highways and streets 582,000 582,000 527,453 (54,547) Public safety _ 146,784 146,784 147,402 618 Total charges for current services _ 3,946,480 3,946,480 4,222,289 275,809 Fines and forfeitures _ 1,322,500 1,322,500 647,327 (675,173) Rents _ 51,800 51,800 51,738 (62) (Continued) - 34- COUNTY OF HAWAII General Fund Statement of Revenues,Expenditures and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2005 Variance Original Final Favorable Budget Budget Actual (Unfavorable) Revenues(continued): Interest and penalties $ 1,250,000 $ 1,250,000 $ 2,973,131 $ 1,723,131 Miscellaneous _ 5,353,519 5,515,295 5,260,092 (255,203) Total revenues 189,340,405 200,967,940 202,573,702 1,605,762 Expenditures: Current: General government: Finance 6,732,240 7,020,502 6,262,769 757,733 General government building 2,765,744 2,775,356 2,762,853 12,503 Law 2,906,846 2,906,846 2,705,894 200,952 Planning and zoning 1,982,622 2,866,622 2,701,712 164,910 Legislative 3,855,022 2,762,388 2,550,741 211,647 Automotive equipment 2,048,604 2,452,249 2,438,313 13,936 Research and development 1,797,582 2,094,864 1,702,274 392,590 Mayor's office 1,133,216 1,829,236 1,327,007 502,229 Personnel services 1,345,282 1,427,392 1,300,368 127,024 Engineering 1,564,368 1,510,897 1,274,758 236,139 Data Systems 881,296 881,296 850,104 31,192 Chief engineer 761,009 737,625 735,578 2,047 Elections _ 583,654 583,654 502,290 81,364 Total general government _ 28,357,485 29,848,927 27,114,661 2,734,266 Public safety: Police department 39,089,777 38,535,901 37,442,348 1,093,553 Fire department 25,228,987 25,898,113 25,233,212 664,901 Prosecuting attorney 5,866,468 6,559,362 5,170,613 1,388,749 Protective inspection 1,751,201 1,957,512 1,954,424 3,088 Liquor control 1,119,275 1,142,725 938,531 204,194 Flood control 153,939 273,529 273,529 - Civil defense agency 513,832 2,228,357 2,124,575 103,782 Humane Society _ 954,215 954,215 954,215 - Total public safety 74,677,694 77,549,714 74,091,447 3,458,267 Highways and streets: Mass transit 1,821,843 4,254,266 4,250,058 4,208 (Continued) - 35 - COUNTY OF HAWAII General Fund Statement of Revenues,Expenditures and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2005 Variance Original Final Favorable Budget Budget Actual (Unfavorable) Expenditures(continued): Current(continued): Sanitation: Environmental management $ 796,714 $ 801,201 $ 723,390 $ 77,811 Health,education and welfare: Office of Aging 1,848,907 1,861,692 1,248,557 613,135 Elderly Activities 2,919,719 2,988,219 2,693,817 294,402 Education 55,000 55,000 47,416 7,584 Social programs 726,000 726,000 726,000 - Cemeteries 273,632 260,632 249,768 10,864 Physical examination _ 102,942 102,942 102,942 - Total health,education and welfare 5,926,200 5,994,485 5,068,500 925,985 Culture and recreation: Community music 182,134 166,134 163,817 2,317 Organized recreation: Maintenance 5,401,304 5,494,599 5,464,834 29,765 Recreation 2,040,977 2,099,977 2,010,756 89,221 Aquatics 2,795,075 2,791,285 2,501,060 290,225 Hoolulu Park complex 718,656 722,566 709,097 13,469 Administration 649,959 729,064 714,231 14,833 Children's zoo 493,935 497,935 462,117 35,818 Summer/Intersession 383,365 363,365 320,441 42,924 Culture and arts 124,506 137,806 118,804 19,002 Elderly activities administration 621,048 582,158 514,310 67,848 Total culture and recreation 13,410,959 13,584,889 12,979,467 605,422 Pension and retirement contributions _ 12,552,295 12,552,295 12,519,243 33,052 Health fund _ 14,568,159 14,869,723 14,869,723 - Miscellaneous 6,351,416 5,962,266 2,805,360 3,156,906 Total current 158,462,765 165,417,766 154,421,849 10,995,917 (Continued) -36- COUNTY OF HAWAII General Fund Statement of Revenues,Expenditures and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2005 (Concluded) Variance Original Final Favorable Budget Budget Actual (Unfavorable) Expenditures(continued): Capital Outlay: Community Development Block grants(HUD) $ - $ 2,762,545 $ 2,762,545 $ - CFDA Program - 919,138 919,138 - HOME Program - 1,101,885 1,101,885 - Total capital outlay - 4,783,568 4,783,568 - Total expenditures _158,462,765 170,201,334 159,205,417 10,995,917 Excess of revenues over expenditures _ 30,877,640 30,766,606 43,368,285 12,601,679 Other financing uses: Transfers out: Capital Projects Fund - (2,610,165) (2,610,165) - Housing Fund - (700,000) (700,000) - Solid Waste Fund (9,907,851) (10,332,212) (10,332,212) - Golf Course Fund (161,804) (161,804) (161,804) - Highway Fund - (221,102) (221,102) - Self Insurance Fund - (2,500,000) (2,500,000) - Disaster/Emergency Fund (100,000) (100,000) (100,000) - Improvement District 18 Fund - (9,694) (9,694) - Debt Service Fund _(24,921,138) (24,921,138) (24,785,683) 135,455 Total transfers out _(35,090,793) (41,556,115) (41,420,660) 135,455 Total other financing uses _(35,090,793) (41,556,115) (41,420,660) 135,455 Excess(deficiency)of revenues and other sources over expenditures and other uses (4,213,153) (10,789,509) 1,947,625 12,737,134 Fund balance at beginning of year 19,723,208 19,723,208 19,723,208 - Fund balance at end of year $ 15,510,055 $ 8,933,699 $ 21,670,833 $ 12,737,134 See accompanying notes to the basic financial statements. - 37 - COUNTY OF HAWAII Sewer Fund Schedule of Revenues,Expenditures and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2005 Variance Original Final Favorable Budget Budget Actual (Unfavorable) Revenues: Charges for current services-sewer fees $ 6,370,188 $ 6,370,188 $ 5,929,961 $ (440,227) Miscellaneous 100 100 8,903 8,803 Total revenues 6,370,288 6,370,288 5,938,864 (431,424) Expenditures: Sanitation 5,220,660 5,220,660 4,602,646 618,014 Pension and retirement contributions 358,374 358,374 349,158 9,216 Health fund 194,378 194,378 190,248 4,130 Miscellaneous 1,790,085 1,790,085 491,063 1,299,022 Total expenditures 7,563,497 7,563,497 5,633,115 1,930,382 Excess(deficiency)of revenues over expenditures (1,193,209) (1,193,209) 305,749 1,498,958 Fund balance at beginning of year 7,687,480 7,687,480 7,687,480 - Fund balance at end of year $ 6,494,271 $ 6,494,271 $ 7,993,229 $ 1,498,958 See accompanying notes to the basic financial statements. - 38 - COUNTY OF HAWAII Proprietary Funds Statement of Net Assets June 30,2005 Business-type Activities- Enterprise Funds Kulaimano Ouli Ekahi Elderly Affordable Housing Housing Project Project Totals Assets Current assets: Cash and cash equivalents(note 3) $ 173,290 $ 195,417 $ 368,707 Restricted cash and cash equivalents(note 3) 9,290 20,250 29,540 Investments(note 3) 700,000 - 700,000 Imprest fund(note 3) 50 100 150 Receivables(note 4) 5,932 42,456 48,388 Prepaid expenses 1,287 - 1,287 Total current assets 889,849 258,223 1,148,072 Noncurrent assets: Restricted cash and cash equivalents(note 3) 182,123 14,630 196,753 Capital assets(note 6): Land and site improvements 511,000 503,877 1,014,877 Buildings and equipment 1,229,340 - 1,229,340 Less accumulated depreciation (877,132) - (877,132) Total capital assets 863,208 503,877 1,367,085 Total noncurrent assets 1,045,331 518,507 1,563,838 Total assets 1,935,180 776,730 2,711,910 Liabilities Current liabilities: Accounts payable 942 266,049 266,991 Internal balances(note 5) 5,400 - 5,400 Due to developer - 7,729 7,729 Security deposits payable from restricted assets 9,290 18,856 28,146 Deferred revenue(note 7) 1,467 1,963 3,430 Notes payable,current portion(note 10) 21,899 - 21,899 Total current liabilities 38,998 294,597 333,595 Noncurrent liabilities: Notes payable(note 10) 1,019,386 - 1,019,386 Total liabilities 1,058,384 294,597 1,352,981 Net Assets Invested in capital assets,net of related debt (178,077) 503,877 325,800 Restricted for debt service 182,167 - 182,167 Unrestricted 872,706 (21,744) 850,962 Total net assets $ 876,796 $ 482,133 $ 1,358,929 See accompanying notes to the basic financial statements. -39- COUNTY OF HAWAII Piroprietary Funds Statement of Revenues,Expenses,and Changes in Fund Net Assets For the Fiscal Year Ended June 30,2005 Business-type Activities- Enterprise Funds Kulaimano Ouli Ekahi Elderly Affordable Housing Housing Project Project Totals Operating revenues: Rental receipts from tenants $ 91,552 $ 219,082 $ 310,634 Rental subsidy from federal government-HUD 135,829 - 135,829 Laundry receipts 1,931 - 1,931 Miscellaneous - 2,406 2,406 Total operating revenues 229,312 221,488 450,800 Operating expenses: Utilities 31,848 21,019 52,867 General and administration 81,857 96,289 178,146 Maintenance and repairs 33,211 40,325 73,536 Lease expense - 76,226 76,226 Depreciation(note 6) 34,095 - 34,095 Total operating expenses 181,011 233,859 414,870 Operating income(loss) 48,301 (12,371) 35,930 Nonoperating revenues(expenses): Investment income 13,529 51 13,580 Interest expense (69,780) - (69,780) Loss on disposal of assets (229) - (229) Total nonoperating revenue(expenses) (56,480)' 51 (56,429) Change in net assets (8,179) (12,320) (20,499) Total net assets-beginning 884,975 494,453 1,379,428 Total net assets-ending $ 876,796 $ 482,133 $ 1,358,929 See accompanying notes to the basic financial statements. -40- COUNTY OF HAWAII Proprietary Funds Statement of Cash Flows For the Fiscal Year Ended June 30,2005 Business-type Activities- Enterprise Funds Kulaimano Ouli Ekahi Elderly Affordable Housing Housing Project Project Totals Cash Flows from Operating Activities Receipts from tenants $ 96,195 $ 223,690 $ 319,885 Receipts from federal government-HUD 135,829 - 135,829 Payments to suppliers for goods and services (144,222) (157,634) (301,856) Net cash provided by operating activities 87,802 66,056 153,858 Cash Flows from Capital and Related Financing Activities Principal paid on notes payable (24,132) - (24,132) Interest paid on notes payable (69,781) - (69,781) Purchase of capital assets (11,050) - (11,050) Net cash used in capital and related finani;ing activities (104,963) - (104,963) Cash Flows from Investing Activities Purchase of investments (1,400,000) - (1,400,000) Proceeds from maturities of investments 1,400,000 - 1,400,000 Interest on investments 13,689 61 13,750 Net cash provided by investing activities 13,689 61 13,750 Net increase(decrease)in cash and cash equivalents (3,472) 66,117 62,645 Cash and cash equivalents at beginning of year 368,225 164,280 532,505 Cash and cash equivalents at end of year $ 364,753 $ 230,397 $ 595,150 Reconciliation of operating income(loss)to net cash provided by operating activities Operating income(loss) $ 48,301 $ (12,371) $ 35,930 Adjustments to reconcile operating income(loss)to net cash provided by operating activities: Depreciation expense 34,095 - 34,095 Change in assets and liabilities: Receivables 1,209 896 2,105 Prepaid expenses 14 - 14 Accounts and other payables 3,287 77,545 80,832 Unearned income 896 (14) 882 Net cash provided by operating activities $ 87,802 $ 66,056 $ 153,858 See accompanying notes to the basic financial statements. -41 - COUNTY OF HAWAII Fiduciary Funds Statement of Fiduciary Net Assets June 30,2005 Private- Purpose Agency Trusts Funds Assets Cash and cash equivalents(note 3) $ 3,186,718 $ 3,253,439 Investments(note 3) 974,418 - Receivables: Due from other agency funds - 3,141 Other receivables 4,102 30,038 Total receivables 4,102 33,179 Restricted cash and cash equivalents(note 3) - 637,000 Total assets 4,165,238 3,923,618 Liabilities Due to other agency funds - 3,141 Accrued liabilities - 1,684,598 Advances payable - 193,230 Assets held for benefit of improvement districts - 2,042,649 Total liabilities - 3,923,618 Net Assets Held in trust for other parties 4,165,238 - Total net assets $ 4,165,238 $ - See accompanying notes to the basic financial statements. -42- COUNTY OF HAWAII Fiduciary Funds Statement of Changes in Fiduciary Net Assets For the Fiscal Year Ended June 30,2005 Private- Purpose Trusts Additions Contributions: Puna Geothermal Venlure $ 50,000 Investment earnings: Net decrease in fair value of investments (22,307) Dividends 44,600 Interest 78,622 Total additions 150,915 Deductions Appraisal fees 1,902 Grants awarded 16,957 Total deductions 18,859 Change in net assets 132,056 Net assets-beginning of year 4,033,182 Net assets-end of year $ 4,165,238 See accompanying notes to the basic financial statements. -43 -