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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 30,2009. 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$526.6 million (net assets). This amount includes$43.1 million in unrestricted net assets,an increase of $15.1 million from the prior year. • The County's total net assets increased by$12 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$243.6 million,a decrease of$11.0 million from the prior year. Approximately 21 percent of this total amount, $50.6 million, is available for spending at the County's discretion(unreserved fund balance). • At the end of the current fiscal year,unreserved fund balance for the general fund was$44.6 million,or 18.3 percent of total general fund expenditures. 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 arc 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 arc intended to recover all or a significant portion of their costs through user 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, - 13 -