Loading...
HomeMy WebLinkAboutCOM 0207.000 2002-2004N1V Of 44 AL KONISHI County Clerk JAY MENDE �: ' • • "S Deputy Cnunlp Clerk County of Hawai'i Office of the County Clerk 25 Aupuni Street thlo, Hawaii 96-20 1,lephone: 008) 961-8255 racsimile_ (808) 961-8912 April 1 I, 2003 TO: Council Members FROM: Constance Kirin L..,L L— Legislative Auditor RE: Post -Audit Report of the County of Hawai'i Fiscal Year Ended June 30, 2002 CONSTANCE R. KIRIU Legfsladve Auditor For your review, deliberation, and acceptance, I am submitting the post -audit Financia( Audit Report of dee Counh• of Hawaii for the Ft seal Year Ended June 30, 2002, and Management Letter dated March 7, 2003, as prepared by KPMG LLP. The Report and Management Letter satisfy the requirement of Section 10-13, Hawai'i County Charter, relating to the responsibility of the County Council to conduct an annual independent audit of the accounts and other evidences of financial transactions of the County and of every county agency and executive agency. KPMG, LLP has issued an unqualified opinion, which opined that the Financial Audit Report is presented fairly in all material respects. Also included is the new reporting format, as required by the Governmental Accounting Standards Board (GASB 34). This year's Management Letter contains findings and recommendations related to: • Collection of Receivables (Sewer and Landfill) • General Fund Financial Situation • Solid Waste Fund Deficiency • Software Implementation • Inventories • Abandoned Vehicles The auditors will be present at the Finance Committee meeting on May 6, 2003, to answer any questions you may have. Appropriate department heads or their representatives will also be asked to attend the meeting. In the meantime, please feel I}ee to contact Rodney Oshiro should you require further information. Enclosures cc: Ralph Kanetoku, KPMG LLP Reid Gushiken, KPMG LLP (ATTACH1,4ENTS FILED IN THE OFFICE OF THE COUNTY CLEJK) 07 Comm. No.�_ Ref. Toa FG Ref. Dote APR j 1 703 COUNTY OF HAWAII Financial Audit Report for the Fiscal Year Ended June 30, 2002 C - aLO7 IF -C- AL KONISIII ( .„.aa (/, , A JAl NII'.Nlll Urpnm Tvmn l lark CONn. Of HQwai'i Office of the County Clerk 2 , Slreel H17o. l /mrm'f 96720 1,kph nm N081961-3i,Y6 Pncvmule (308)961-5?” Foreword CONS t ANCE R. KIRIU Leg,,1w e-_I...Glo, This financial audit report is the result of the audit of the basic financial statements of the County of Hawaii. State of l lawai'i (County). for the fiscal year ended June 30, 2002. The audit was conducted by KPMG LIT. certified public accountants_ 1 he audit was performed in accordance with auditing standards generally accepted in the IJutted States of America adopted by the membership of the American Institute of Certified Public Accountants. In addition. the audit was governed by the "Specifications lot a Financial Post - Audit and Systems and Procedures I xamination of the County of Hawai' i," issued by our otlice. This report is divided into two sections. Section 1, "Compliance and Internal Control Over Financial Reporting," includes the auditors' findings and recommendations based upon their consideration of the County's internal control in connection with their audit ofthe C'ountv's financial statements for the fiscal year ended June 30, 2002. It is our practice to request agencies to submit their comments on the auditors' findings and recommendations and to indicate what action has been or will be taken. Section Il, "Comprehensiv e Annual Financial Report" for the fiscal year ended June 30, 2002. displays the basic financial statements and schedules of the CountN, the auditors' report as to the fairness of presentation of the basic financial statements and also includes statistical information. N'e Nish to express our sincere appreciation for the cooperation and assistance extended by the management and staff 01'111C various departments during the audit. Constance R. Kirin Legislatiec Auditor Countv of Hawaii COUNTY OF HAWAII Financial Audit Report For the Fiscal Year ended June 30, 2002 Table of Contents SECTION I— MANAGEMENT LETTER Management Letter Current Year Findings and Recommendations Status of Prior Year Findings and Recommendations Comments by the Affected Agenciea SECTION tI — COMPREHENSIVE ANNUAL FINANCIAL REPORT Introductory Section Financial Section Statimical Sections Page 16 SECTION I - MANAGEMENT LE'T'TER COUNTY OF HAWAPI STATE OF HAWAPI Management Letter For the Fiscal Year ended June 30, 2002 Table of Contents Page Management Letter I CURRENT YEAR FINDINGS ANI) RECOMMENDATIONS Collection of Receivables 2 General Fund Financial Situation Solid Waste Fund Deficiency SOttWare ImPlcmentation Inventories Abandoned Vehicles STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS Driter's License Fee Collections Timeliness of Federal Grant Reimbursement Requests Treasury Petty Cash Fund Contract Monitoring Information 'technology Strategic Plan Collection of Receivuble, Risk Management Pmcc.s NCR Go%emnient Reposing Model 3 4 S 6 7 8 x 9 10 II 12 14 PO Bo, 4P0 Honolulu, H. 96812,1150 March 7, 2003 PRIVATE & CONFIDENTIAL To the Members of the County Council of Hawaii C'ounh of Hawaii Ililo, Hawaii We have audited the basic financial statements of the County of Hawaii, State of Hawaii (Count)), for the year ended June 30. 2002, and have issued our report thereon dated March 7, 2003. We have also audited the County's compliance with requirements applicable to its federal financial assistance programs and have issued our report thereon dated March 7, 2003. In planning and performing our audit of the C'ounh's basic financial statements, we considered internal control in order to determine our auditing procedures for the purpose of expressing our opinion on the basic financial statements. An audit does not include examining the effectiveness of internal control and docs not provide assurance on internal control. We have not considered internal control since the date of our report. During our audit. we noted certain matters involving internal control and ofhcr operational matters that are presented for your consideration. These comments and recommendations, all of which have been discussed with the appropriate members of management, are intended to improve internal control or result in other operating efficiencies_ We have also reviewed the disposition of the recommendations made in the previous year's report dated October 26, 2001. 'fhe status of prior veal findings and recommendations is also presented- A number of recomnncndations were adopted as suggested or in modified form. Other recommendations were not implemented and those which we felt merited reconsideration have been modified where necessary and restated in the current year findings and recommendations section. Our audit procedures arc designed primarily to enable its to form an opinion on the basic financial statements, and lherclorc may not bring to light all weaknesses in internal control policies or procedures that may exist We aim, however, to use our knowledge of the County's organization gained during our work to make comments and suggestions that we hope will be useful to you. This report is intended solely for the information and use of the County Administration and the County Council, and is not intended to be and should not be used by anyone other than these specified parties. We would like to lake thi, opportmilhto express our appreciation for the courtesy and assistance extended to us b}' the personnel of the Counh of I lawai`t during the course of our audit Should cou wish to discuss am of -the masers contniued herein, we will be pleased to meet with v01A at your convenience. Ven' vuly yours. COUNTY OF RAWAFI STATE OF HAWAII Current Year Findings and Recommendations For the Fiscal Year ended June 30, 2002 CURRENT YEAR FINDINGS AND RECOMMENDATIONS COLLECTION OF RECEIVABLES Timely collection of wastewater (sewer) and solid waste (landfill) receivables continues to be a problem for the Department of Environmental Management. To address this issue, the County formed an accounts receivable collections committee in 2002, consisting of accounting personnel from the Department of Environmental Management, the Department of Public Works, the Department of Finance, and an attorney from the Office of Corporation Counsel. Despite the efforts of this committee, sewer and landfill receivables outstanding for more than 60 days still account for a significant portion of the respective receivable balances as follows: 2002 90 + days 47% Current 61 — 90 days 8% 2001 Percentage of Amount Percentage of outstanding Landfill total Current $ 248,852 31 — 60 days 259,456 61 — 90 days 87,384 90 + days 555,215 10% $ 1,150,907 90 + days 47% Current 61 — 90 days 8% 2001 Percentage of Amount Percentage of total outstanding total 22% $ 242,733 22% 23% 235,406 21% 8% 116,387 10% 47% 523,194 47% 100% $ 1,117,720 100% 1 — 60 days 23% 90 + days 47% Current 61 — 90 days 10% I — 60 days 21% We again found that the County's application of collection policies is not consistent between the two types of charges. For sewer receivables, the County assesses a one-time penalty equal to 10% of the balance delinquent over 60 days. For landfill receivables, the County assesses interest equal to 18% of the balance delinquent over 60 days until the balance is repaid. However in practice, we noted that landfill accounts receivables for commercial haulers are only charged interest after 90 days. The commercial haulers hold the position that interest 2 (Continued) COUNTY OF HAWAPI STATE, OF HAWAII ('urrent Year Findings and Recommendations For the Fiscal fear ended June 30, 2002 charges begin atter 90 days which is consistent with recent practice.'The County is in the process of developing comprehensive policies and procedures ba collection ofall County receivables. The server receivable delinquency problem can also he attributed to the County -s inability to discontinue sewer services to citizens and business with outstanding accounts. Without a means to refuse sewer services to the Public, the County is unable to expedite the pavment of delinquent balances. The landfill receivable delinquent}ptoblcm can also be attributed to the Department of Environmental Management's credit extension policies We again noted that the Solid Waste Division of the Department of Environmental Management ectends credit to all citizens and businesses regardless of credit history. Landfill use is only refused when an outstanding receivable balance exceeds 90 days. Recommendation We recommend that the Department of Environmental Management continue to work with the Department of Finance to develop comprehensive policies and procedures for collecting County receivables. The policies and procedures should address all aspects pertaining to revenue generation and collection, including extension of credit: when and how much interest to charge; when to discontinue service; and when to write accounts off and offer payment plans. These policies should be formally communicated to the public and be strictly enforced by the County. GENERAL FUND FINANCIAL SITUATION Over the past five years, the County's General Fund has incm-red substantial deficiencies in the amount of revenues and other sources received over expenditures and other uses. As a result, the County's unreserved General Fund balance has dramatically decreased over the past five fiscal years from $16.9 million at June 30, 1998 to $3.8 million at June 30, 2002. The County's deficiency of revenues and other sources over expenditures and other uses and corresponding unreserved general fund balance for each of the previous five fiscal years is as follows (Continued) Deficiency of revenues and other sources over Unreserved expenditures generalfund Fiscal year and other uses balance 1997- 1998 $ 4,933,844 16,911.530 1998 1999 -1,003,978 12,933,610 1999 - 2000 5,730,207 16,100,985 2000- 2001 9,730,672 8,310,689 2001 - 2002 5.445,785 3,831,680 (Continued) COUNTY OF HAWAII STATE OF HAWAP7 Current Year Findings and Recommendations For the Fiscal )'car ended June 30, 2002 We further noted that debt service payments and contributions to the Employees' Retirement System of the State of HaNari (Retirement System) have steadily increased since June 30, 2000. This increase is primarily due to the issuance of $30 million in 1999 and $15 million in 2001 in general obligation bonds for capital improvements and changes in the determination of the County's pension contributions. The amount of debt service payments and pension contributions for the period June 30, 2000 through 2004 is as follows: In anticipation of these increased expenditures, the County's administration and the County Council have taken the following steps to address the County's financial situation: fhe County Council approved a resolution to increase real property lax rates, effective July I, 2002. The County anticipates the increase to generate an additional $7.4 million annually. 'File County Council approved an ordinance to increase the minimum real property tax from $25 to $100 per year, effective January 8, 2002, The County anticipates this increase to generate an additional $2.1 million annually. Recommendation We recommend that the County admini,tmtion and County Council continue to work together to improve the County's financial position and ensure that the County is able to provide necessary services while meeting its financial obligations, including debt service payments and pension contributions. SOLID WASTE FUND DEFICIENCY During our review of the Solid Waste Fund, we noted that there has been a significant deficiency of expenditures over revenues over the past five fiscal years as follows: 2001-2002 2000-2001 1999-2000 Pension 1997-1998 Fiscal year Debt service contributions Total 1999 —2000 (9,210,639) $ 16,382,259 $ 2,105,000 $ 18,487,259 2000— 2001 17,162,659 129,000 17,291,659 2001-2002 17,702,155 7,434,400 25,136,655 2002-2003 19,285,510 4,210,300 23,495,810 2003--2004 18.865,216 7,394,700 26,259,916 In anticipation of these increased expenditures, the County's administration and the County Council have taken the following steps to address the County's financial situation: fhe County Council approved a resolution to increase real property lax rates, effective July I, 2002. The County anticipates the increase to generate an additional $7.4 million annually. 'File County Council approved an ordinance to increase the minimum real property tax from $25 to $100 per year, effective January 8, 2002, The County anticipates this increase to generate an additional $2.1 million annually. Recommendation We recommend that the County admini,tmtion and County Council continue to work together to improve the County's financial position and ensure that the County is able to provide necessary services while meeting its financial obligations, including debt service payments and pension contributions. SOLID WASTE FUND DEFICIENCY During our review of the Solid Waste Fund, we noted that there has been a significant deficiency of expenditures over revenues over the past five fiscal years as follows: 2001-2002 2000-2001 1999-2000 1998-1999 1997-1998 Revenues $ ;,292,570 $ .3?91,798 $ 3,208,658 $ 2,995312 $ 2,748,238 1?.xpenditures (9,639529) (9,210,639) (9,326.982) (9,401,253) (8,925,503) Deficicncv $ (6.346,9;9) $ (5,918,8.11) $ (6,018,324) $ (6,4115,941) $ (6,177,265) (Continued) COUNTY OF HAWAI`1 STATE OF HAWAI`l Current Year Findings and Recommendations For the Fiscal Year ended June 30, 2002 One of the factors contributing to this deficiency is the relatively low landfill tipping lees charged by the County. Based on our discussions with the Department of Environmental Management and review of their statistical studies, we noted that the Countv is charging one of the lowest tipping fees in the State of Hawaii. The total tipping fees charged by the St<ac's various counties during the fiscal year ended June 30, 2002 are as follows. Tipping fee (perton) City and County of I I01101nlu $ 72 C'oun % of Kauai 56 Counh of Maui 43 County of Hawaii 35 Due to the Solid Waste Fund's inability to recover its costs, the County's General Fund has provided an annual subsidy to the Solid Waste Fund to help cover unreimbursed expenditures. This subsidy has historically covered approximately 65%ofthe Sol d Waste Fund's program expenditures. Recommendation We recommend that the County evaluate the level of annual General Fund sub,idies to the Solid Waste Fund, including the amount of landfill tipping fees charged to landfill users. SOFTW.4RELMPLEMENT4TION The County intends to install a comprehensive financial management sollware package by December 31, 2003. The County expects to select the software and award the contract to an outside vendor by July I, 2003 to implement this new system. 'I County has assembled a committee known as the Financial Resource Enterprise Software for Hawaii County tFRT S14) for this project to over the implementation of the new system. FRESH is comprised of 14 C'ounly employees with representatives from each of the County's affected departments (Civil Service. Accounts, Purchasing. Budget, Data Systems, Police, Public Works, Parks & Recreation, etc.). We noted that only three employees from the Department of Data Systems have been assigned to assist in the implementation project. Based on the magnitude and scope of the County's planned system upgrade, combined with the limited nwnber of per,onnel resources assigned to the project, we believe that the County's timetable for implementation ma} be ovcrh aggressive Without allocating the appropriate amount of time and resources, the County could experience unftneseen project delays and improper installation. Although a committee has been assembled to monitor the implementation process, a project manager has not been selected to oversee the process- A designated project manager with the requisite experience in sy,tem imp lamentations would enhance the County's eflonts to successfully complete this project The project manager would be responsible and hold accountable for meeting project milestones and ensuring that the overall implementation process remains on track (( ontinued) COUNTY OF HAWAII STATE OF HAWAI`l Current Year Findings and Recommendations For the Fiscal Year ended June 30, 2002 Recommendation We recommend that FRESH, along with the Department of Data Systems, appoint a project manager to oversee the software implementation process. This project manager should have the appropriate level of authority and should be ultimately responsible for completing the system implementation on time and on budget. Once appointed, the project manager should define the Comity's timetable for implementation and assess the adequacy of the resources allocated to this project. INVENTORIES During our review of the County's inventory, we noted that there was a lack of adequate segregation of duties at several of the County's Inventory storerooms. We noted that the respective inventory supervisor at the two Public Works divisions (Traffic Lights and Buildings & Construction and Inspection) and at the Police Department is responsible for replenishing, receiving, and distributing inventory items to County personnel. We also noted that this same individual is also responsible for performing the year-end physical inventory count for financial reporting purposes. The custodial and record-keeping functions over the maintenance of inventory should be separated and performed by different individuals to improve the safeguarding and monitoring of inventory and minimize the potential for misappropriation of inventory assets. In addition, we also noted that inventory records are not consistently maintained on a perpetual basis. We were informed by County personnel that perpetual records are only maintained for certain police items such as police uniforms, badges, and visor liuhts. We were further informed that the Countv's current Wang system does not have a module to track inventory balances on a perpetual basis. Maintaining a perpetual imcntory listing provides management with a means to monitor inventory levels and to detect any inventory shortages in a timely manner. A perpetual inventory listing will also ensure that inventory levels are maintained at optimum levels and prevent the County from over/Under purchasing inventory items_ Recommendation We recommend that periodic, unannounced inventory counts be performed by an employee other than the respective department's inventory supervisor_ Additionally, the County should ensure that the new computer system contains a module for inventory that will enable inventory supervisors to maintain perpetual records of their department's inventory balances. (Continued) COUNTY OF H AWAPI STATE OFIIAWAI'l Current Year Findings and Recommendations For the Fiscal Ycar ended .lune 30, 2002 ABANDONED VEHICLES We noted that the number of abandoned vehicles and related vehicle disposal costs has increased over the past three fiscal -)cars as follows: Number of abandoned Vehicle vehicles towed disposal cost 2002 912 $ 58,0-I5 2001 640 55,7'7 2000 630 We were informed by County personnel that the normal process for reporting and removing an abandoned vehicle takes three to four weeks. Upon identification of an abandoned vehicle, a police officer posts a notice of removal on the car. If there iv no response within 24-48 hours, the officer will prepare and file an abandoned vehicle report. After filing the report, a towing company is contacted and the vehicle is taken to the impound or the scrap metal recovery yard, depending on the condition of the vehicle. Although the amount charged by the towing company varies from vehicle to vehicle, we were informed that, on average, the County incurs a charge of approximately $70 per vehicle. On lop of the cost of vehicle disposal, tltc processing of paperwork associated wnh the removal of an abandoned vehicle is both tedious and time consuming for the County's police officers. Additionally, because of the typical 3- to 4 -week lag hemeen the lime an abandoned vehicle is initially reported and the time the vehicle is taken to the impound the vehicle could be leaking harmful chemicals into the environment and is an eyesore to residents Of the community. Recommendation We recommend that the County evaluate the amount of penalties imposed on residents who are caught abandoning their vehicles in unauthorized locations. In an effort to reduce the number of abandoned vehicles and related costs, the County should consider offering a nominal payment to people NNho bring their vehicles to the impound or scrap metal recovery yard This may provide an incentive to those individuals Who would otherwise abandon their vehicle. Although this would represent an additional charge to the County, it would be more than offset by reduced vehicle disposal costs. COUNTY OF HA W A I `I STATE. OF HAWAII Status of Prior Year Findings and kecommendatiuns Year ended June 30, 2002 STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS DRIVER'S LICENSE FEF.' COLLECTIONS Obsenation During our review of the driver's license fee collections procedures at the South Hilo location of the Police Department, we noted that there werc no internal control procedures to detect the unauthorized issuance of permits and licenses. Employees reconciled the applications, scoring sheets, receipts, and cash at the end of the workday- However, these amounts were not reconciled to the permits and licenses issued by the computer system for that respective day. We were informed that the daily reconciling procedures were the same at all eight licensing locations. We were also informed by Police Department personnel that between July and December 2000, the Police Department identified approximately 90 instances of possible unauthorized issuance of permits and licenses at the Kona site. Recommendation We recommended that the 6,unty assign an employee, independent of the permit and license issuance and the cash collection functions, to reconcile the previous day's permits and licenses issued by the computer system, applications, scoring sheets, receipts, and cash. Status File supervising driver's license examiner conducts- periodic audits of the South Hilo driver's license office. As the County is well aware of this situation and as efforts have been made to implement the recommendation, the comment is no longer applicable. TIMELINESS OF FEDERAL GRANT REIMBURSF_'MENT REQUESTS Observation During our review of a federal award program, the Formula Grants for Other Than Urbanized Areas, we noted that reimbursement requests made to the grantor, the State Department of Transportation, were not prepared in a timely manner. Por reimbursement type -mint" the County most initially expend its own funds and then request reimbursement From the grantor on a quarterly basis. During fiscal year 2001, the County purchased five buses amounting to $IA million. of which $1.', million was reimbursable by the grantor. the buses werc invoiced and paid Ior on December d, "_20110 and Jamrhn 11. 2001, respectively. howevcr reimbursement was not requested until Mav 7, 2001. (Cominucd) COUNTY OF HAWAII STATE OF HAWAI'l Status of Prior Year Findings and Recommendation, Year ended June 30, 2002 Recommendation We recommended that the County request reimbursement from grantors under reimbursement type grants in a timely manner. Status Reimbursement requests have been sell, to the State Department of 77ansportation within IR days following the end of each quarter. As such, ,he comment is no longer applicable. TREASURY PETTY CASH FUND Observation During our review of the petty cash fund at the Ircasury Division of the Department of Finance (Treasury Division), we noted that the petty cash Lund internal controls could have been improved and that the petty cash fund balance could have been reduced. The 'I Division's petty cash custodian maintained a petty cash fund in an amount of $20,000, which was used for cash purchases of less than $50 and emergency per diem advances that may exceed that amount .Approximately half of the fund was maintained in a petty cash non- interest bearing checking account - We found that reconciliations of petty cash halances were not periodically reviewed by an employee independent of the custodial limction. The petty cash custodian performed both the custodial and reconciliation functions. We also noted that the petty cash was kept in a locked drawer at the custodian', desk during the day, however, the key to the drawer was not secure At night, the petty cash was kept in a locked vault_ We observed the year- end petty cash fiord count at the I reason Ditision, noting that all fiords were properly accounted for at June 30, 2001. Additionally, we were infonnrd that the average daily balance of petty cash was approximately $13,000, which was split between cash on hand and the checking account. Considering that the average dollar amount of weekly transactions was between $4,000 and $5,000 with a high of $6,500 and that the delay in replenishment was approximateh 2 to 3 days, it appeared that the petty cash balance could have been reduced. Recommendation We recommended that the County perform periodic independent reviews of the daily counts of the Treasury Division's petty cash fiord and maintain the petty cash fund in a locked drawer with the key properly secured. Additionalh. we recommended that the County evaluate its petty cash activities to determine whether a reduction in pelt,, cash balance, was warranted. (('ontinued) COUNTY OF 11AWAl'1 STATE OF HAWAPI Status of Prior Year Findings and Recomrnendations Year ended June 30, 2002 Status The Treasury Division has addressed all recommendations. Independent periodic reviews of the daily petty cash counts are now performed and the key for the locked drawer is kept in a secure location. Further, the petty cash fund was reduced by $5,000.'1 he comment is no longer applicable. CONTRACT MONITORING Observation During our review of an agreement with a vendor to provide animal control services for the County, we noted that the County could have improved upon its procedures to monitor costs and activities associated with this contract. During fiscal year 2001, the County reimbursed this vendor $650,000 for costs incurred to fulfill the agreement. This vendor also collected and remitted to the County animal registration and impoundment fees amounting to $27,228 and $7,870, respectively, during fiscal year 2001. We found that the County had adequate internal controls over animal registration fees to ensure that it received all registration fees due to the County. However, the County could have improved its internal controls to (1) enure the propriety of cost reimbursements requested by the vendor and (2) ensure that the County collected all impoundment fees due to the Count-. Procedures consisted solely of reviews h- Count- employees of a listing of expenses submitted by the vendr o. Given the large amount of cosi reimbursements paid to the vendor and the C'ouniv's controls over the collection of impoundment fees, the County should consider increasing its contract monitoring efforts. This could be achieved by performing procedures similar to the federal government's monitoring procedures over its grant recipients. The federal government subjects recipients of federal awards that expend $300,000 or more in a fiscal year to audit procedures on certain intemal control and compliance requirements (i.e., allowability of costs, reporting requirements, etc.). Recommendalicn We recommended that the County perform periodic reviews of the vendor's operations, focusing on the reasonableness of the controls over cost reimbursements, expenses reimbursed by the County, and on collection procedures over the impoundment fees. Alternatively, we recommended that the County consider including a provision in the contract requiring that the vendor conduct an annual independent audit. The County could then obtain and review the audit report as well as the management letter as part of its contract monitoring process. Status A request for proposal was issued in Mar( -h'002_ which included the requiremenr that an independent financial audit or review he conducted at least ever) other }car. As the County is well aware of this situation and as efforts have been made to improve comract monitoring, the comment i, no longer applicable. 10 (ConCGnucd) COUNTY OF HAWAN STATE OF HA W A 1` 1 Status of prior Year Findings and Recommendations Year ended June 30, 2002 INFORMA770N TECHNOLOGY STRATF,GIC PLAN Obsenation During our review of the County's information technology (IT) processes, we noted that there was no formally documented IT strategy or long-range plans to support the achievement of its missions and goals The strategic plan should have included comprehensive disaster recovery and business continuity plans. Recommendation We recommended that management establish a strategic planning process to detelop a formal I F strategic plan. The IT strategic plan should have included the following elements: long-range objectives, architecture, and a resource analysis. In addition, we recommended that the County develop a comprehensive business continuity plan that provides for the timely and systematic recovery of business operations, update the plan on a periodic basis to reflect changes in the I F environment and business processes, and that all aspects of the disaster recovery and business continuity plans be periodically tested. Status 'File County is currently in the process of conducting strategic planning sessions to lay the foundation of a formal I strategic plan. The present disaster recovery and business continuity plans are in place, however, we were informed that the plans need to be updated to include the detailed recovery plans for the County's Local Area Network and Wide Area Nctwork. As the County is well aware of this situation and has established an agenda for both plans, the comment will not be included as a current year finding. C'OLLEC'TION OF RECEI VARLE.S Observation Sewer and landfill receivables outstanding for more than 60 days accounted for a significant portion of the respective receivable balances The Department of Environmental Management utilized a collection agency to pursue accounts less than $1,000. Ilowescr, no data was compiled to monitor and evaluate the effectiveness of the collection agency's collection efforts. We also found that the application of collection policies was not consistent between the two Upes of charges. Additionally. the Solid Waste Division of the Department of Fnvironmental Management extended credit to all citizens and businesses regardless of credit history. Recommendation We recommended that the Department of Itnvironmental Management's management perform the following procedures to monitor and evaluate the results of the collection agencv's activities as reported by the agency: I. Periodic comparison of file ratio of actual collections by the collection agenev, as a percemage of total accounts turned over to the agency. '_. periodic comparison of the ratio of accounts that will not he collecfible, as it percentage of total accounts tumed occr to the collection agency'. (Continued) COUNTY OF HA W AI' 1 STATE OF HAWAPI Status of Prior Year Findings and Recommendations Year ended June 30, 2002 In addition, we recommended that the Department of Environmental Management continue to work with the Department of Finance to desclop comprehensive policies and procedures for collecting County receivables that should address the extension of credit; when and how much interest to charge; and when to deny service, take legal action, write accounts off, and to offer payment plans. Status The County formed an accounts receivable collections committee in 2002 consisting of accounting personnel from the Department of Environmental Management, Department of Public Works, Department of Finance, and an attorney from the Office of the Corporation Counsel. Sewer and landfill began performing monthly procedures to monitor and evaluate the results on the collection agency's activities. Further, a procedure Has implemented whereby the Office of Corporation Counsel would be the initial agency pursuing collection of delinquent accounts. If no payment was received after the initial contact, the accounts would then be referred to the collection agency. Despite the improvements noted in the County's monitoring of its collection agency, we noted that inconsistencies still existed in the COUmy'S collection policies and procedures. Pn addition, timely collection of sewer and landfill receivables continues to be a problem. As such, the comment is still applicable. Refer to the current year's findings and recommendations. RISK M INACEMENT PROCESS Workers' ('ompensalion Reriem o/ Open C hums Observation During our review of the risk management process, we noted that the Workers' Compensation Unit, Health & Safety Division of the Department of Civil Service (Workers' Compensation Unit), was limited in its ability to review open workers' compensation claims clue to a lack of resources - At June 30, 2001, there were "799 open �Norkers' compensation claims dating back to 1970, which gave rise to a liabilih amounting to $8,090,267. We noted that $2,798,339 in workers' compensation claim payments were made during fiscal -ear 2001 for the current and prior year claims. During fiscal }'ear 2001, County employees filed 187 new, workers' compensation claims. I fie County paid approximately $293,784 on these new claims, and U of these claims were closed by the end of the fiscal year. Information regarding the number and amount of workers' compensation settlements and claims closed during the fiscal year was not compiled by the Workers' Compensation lJnit. Recommendation We recommended that the CountN implement procedures to ensure that all open claims were reviewed periodicalh as a means to minimize costs to the C'ouiM. Our recommendation included prioritising open claims for review based on various chamneristiu such as the amount of the claim liability. the number of years open, and the hpe of injury. We also recommended that the County consider the costs and benefits of hiring additional 12 (( ontinued) COUNTY OF HAWAH STATE OF HAWAH Status of Prior Year Findings and Recommendations Year ended June 30, 2002 personnel with experience in handling workers' compensation claims and/or contracting third -party adjusters to review open claims. Status The County has contracted wilt the Healthcare Financial Group to develop a policies and procedures manual to assist the County's workers' compensation staff process claims. Additionally, ;approximately 350 open claims have been transferred to the State of Hawaii Department of Human Resource Development Workers' Compensation Division for their assistance. Based on the progress made to date, the comment is no longer applicable. Compi/cation curd AnulJ sic r faccideni SiIaislics Observation During our review of the risk management process, we noted that the Health & Safety Division of the Office of Civil Service (Health & Safety Division) did not compile and/or analyze statistics on the type, frequency, and amount of claims relating to personal injury and property damage. Based on discussions with the Health & .Safety Division employees, such information was not compiled because the division lacked the necessary staffto efficiently utilize available information and resources. Recommendation We recommended that the Health & Safety Division analyze available statistics. and with the assistance of the affected departments, formulate policies and procedures to mitigate these situations. Status A safety committee was established to review existing practices and rules; recommend safety training; review County accident and equipment damage reports and recommend corrective action; and review County safety inspection reports. Further, the County has arranged for an external audit of the Workers' Compensation Branch. As steps have been taken to address our prior year recommendation, the comment is no longer applicable. II (Continued) COUNTY OF 11AWAVI STATE OF HAWAH 'status of Prior Year Findings and Recommendations Year ended June 30, 2002 NEW GOVERNMENT REPORTING 211ODEL Observation Changes in thr (amernmew Rrporling B?nelel After }cars of stud) and consideration of the needs of users of government financial statements, the Governmental Accounting Suutdards Board (GAS13) issued its new reporting model in June 1999. The new model dramatically changed the presentation of governments' external financial statements. In the GASB's view, the objective of the new model was to enhance the clarity and usefulness of government financial statements to the citizenry, oversight bodies.. investors_ and creditors. It has substantially affected the County's financial data accumulation and financial statement presentation processes. Some of the key aspects of the changes follow: d9unagement's Disrnss6m and Analysis (MDA21) — A comprehensive MD&A is now required to be included as required supplementary information. The MMA introduce; the Countv's basic financial statements by presenting an analysis of the government's financial performance for the year and its financial position al year-end. The MD&A is prepared in addition to the transmittal letter currently required for Government Finance Officers Association (GFOA) award candidates, such as the County. C,ovennnera-lfidr Roporting - The County is now required to report financial operations and net assets, not onk at the fluid perspective for governmental activities, but at the government -wide level as well. 'I his Icvcl distinguishes bckVLCu government and business type activities. All information at the government - w ide ler cl is reported using the economic resources ineasurcment focus and accrual basis of accounting, as enterprise finds do under tie current model. Fiduciary activities are excluded from the government -wide level of reporting Genctal government capital assets, including infrastructure, and long-term liabilities of the government need io he reported with all other governmental assets and liabilities. Statement o{ Activilirs Governments arc now be required to use a "net program cost" format for the government -wide statements instead of a traditional operating statement. This new format groups revenues and expenses by functional categories (such as public safety, public works, etc.) The purpose of the new statement is to inform readers about the cost of specific functions and the extent to which they are financed with program revenues or general reVemleS of the government. Depreciation expense is now reflected as it cost in the statement of activilies. Gllrasiruriln'e Reporting Historically, the County has not been required to record infrastructure assets in its financial statements. 1 ander the new standard, the County must report major general infrastructure assets that were acquired in liscal years ending aftar June 30, 1980, or that received major renovation, restorations, or intprovcments during that period. The slandard provides several alternatives for Bete mining historical co,t of inGasnuclurc assets. I I (( ontinued) COUNTY OF IJAWAPI STATE OF HAWAII Status of Prior Year Findings and Recommendations Year ended .lune 30, 2002 Fund Level Rrporling— Fund level financial statements are still required and provide intonnation about the County's fund types, including fiduciary funds. General capital assets and general long-term liabilities are only reported at the government -wide level. Fund level reporting continues to focus on fiscal accountabilit)' and reflects the flows and balances of current financial resources. The modified accrual basis of accounting continues to be used at the fund level, except for proprietary and fiduciary funds which continue reporting based on economic resources and the accrual method of accounting. A reconciliation between the fund and the govermuent-wide statements is required on the face of the fund statements. Finally, proprietary fund cash flows statements must be presented using the direct method. PreseWafion of 6adgelart Gyormation - the standard requires budgetary statements for the general fund and certain other governmental funds as required Applementary information. The original adopted budget of the County as Bell as the final revised budget must be presented. Actual results on it budgetary basis need to be reconciled to the GAAP (gencially accepted accounting principles) basis on the fitce of statements. The effective date of the new pronouncement required implementation by the County for the fiscal year ended June 30 2002. Recommendation We recommended that the C'ou ity continue its efforts to implement the new pronouncement. Status flee Accounts Division has continued with implementation procedures. the basic financial statements for the fiscal }'ear ending June 30, 2002, are presented in the new model format and will include all required information. As the County has taken the necessary steps to ensure compliance with the new pronouncement, the comment is no longer applicable. 15 Abandoned Vehicles. This is an island -wide problem and of great community concern. The Department has just established it task force of interested citizens, a represcinian c I}om the community police officers, one councilmember, the Mayor's office, as well as our abandoned kehicle coordinator and Department Director. 'Thc mission is to make the program work more efficiently. The first priority is to analyze the existing prnces, looking for any possible stremulining. The second priority is to analyze the incenlikcs for residents, including it bounty program lot legal vchicles delivered to one o[ the scrap metal yards. d. Solid Waste Fund deficiencies. At this time a bill is on the next agenda at Finance Comnnuce to raise the commercial landfill tipping fee by $10/ycar for the next 5 years. The Department has N orked with private hauling companies, mid done CxtenrllVC outreach in the community in an effort to Bike this much needed boost to the Solid Waste Fund's baLmce. ]'Ile Department goal is to reduce the general fund subsidy to 50°6 N illi m the tit 5 Vcars. This increase, Ifnpproved, ,hould accomplish that goal. Barbar. Beit Im1lru� nRrm Decor O � M rrn L G-) C) Ip CTolmfu of '-Jttfunii N pi -i� DEPAR"FMENTOFENVIRONMENTAL MANAGEMENT ?5 lupuni strrn. Ronin ZOS • Hllo, Noe aii '16720.A252 BUS) 961-NOBJ r Fay (fl ON] 961-8086 —' _ N •. T� c —'1 it c� MEMORANDUM UATE Januan25, 2003 'TO Connie Kltln, LegiYJill i re Audi FROM Barbani Bell. Din clur SUBJECT Fy 2003 1'rclmnn.vy t roll Management Leiter We have revieNed the subject draft and hake the following comments: In general, Nc concur With the recontmaulations being made. �. Collection of Receivables. Receivable collections \kill be consolidalcd between the Solid Waste and Wastewater divisions. This Will aid the establishment of uniform policies and procedures for all accounting matters, including accounts receivable The Environmental Management C'onunission, advisory to the Deparnncnt, has suggested investigating the possibilities of denying water Sen ice to delinquent customers. Abandoned Vehicles. This is an island -wide problem and of great community concern. The Department has just established it task force of interested citizens, a represcinian c I}om the community police officers, one councilmember, the Mayor's office, as well as our abandoned kehicle coordinator and Department Director. 'Thc mission is to make the program work more efficiently. The first priority is to analyze the existing prnces, looking for any possible stremulining. The second priority is to analyze the incenlikcs for residents, including it bounty program lot legal vchicles delivered to one o[ the scrap metal yards. d. Solid Waste Fund deficiencies. At this time a bill is on the next agenda at Finance Comnnuce to raise the commercial landfill tipping fee by $10/ycar for the next 5 years. The Department has N orked with private hauling companies, mid done CxtenrllVC outreach in the community in an effort to Bike this much needed boost to the Solid Waste Fund's baLmce. ]'Ile Department goal is to reduce the general fund subsidy to 50°6 N illi m the tit 5 Vcars. This increase, Ifnpproved, ,hould accomplish that goal. YYY O! y, Ilan} Km, OFFIC_ INE William Takabu iC I D'n',o, Nancy H. Crawford 03 JAN 22 AH 11:32 Dq..o n„...,., County of Hawaii Finance Department 25 nupuni buoc�, [Loom I IS . Ihlo, klmvau 96720 (808)'1,,1-8234 . Fa, (808)961-82IS MEMORANDUM DATE: January 21, 2003 TO: Constance Kiriu Legislative Auditor FROM: William Takaba Director of Finance RE: FY 2002 Management Letter Comments General Fund Financial Situation We share the concern of the auditors that increasing costs have eroded the unreserved general fund balance. The tax increases approved last year provided funds for another year of status quo budget. We continue to strive to meet the challenge of providing necessary, services by reviewing the real property tax system, fees charged for services and ways to reduce expenditures. We also intend to balance the need for capital project expenditures with a conservative debt strategy that will stay well within legal and prudent limits. We concur with the recommendation and look forward to working with the County Council to ensure that we are able to continue providing necessary services to the public. Inventories We agree the duty of performing periodic inventory counts should be performed by someone other than the employees responsible for receiving and dispensing inventory items. The larger departments that have significant inventories will be able to provide the segregation of duties using their own resources Legislative Auditor January 21, 2003 Page 2 As noted by the auditors, our current software system will not support perpetual inventory record management. It is our intention to acquire that capability as part of the new FRESH fiscal software project. Once we have perpetual inventory systems in place, it will be possible to perform the suggested unannounced inventory counts. While the Department of Finance does not have the manpower to conduct such inventory counts, we will be happy to assist departments in establishing a spot check procedure. The Police Department has responded that they will be changing their inventory management procedures. Please see attached memo. �'' Harry Kim .V.'•.�' ,,, Clayton K Yugawa .t4o�os Dlreclor • O W rTi ryOI M� b Cq -Il County of Hawaii N _ St7 DATA SYSTEMS DEPARTMENT a 25 Automi Street, Room 102 • Hilo, Hawaii 967204252 nJ (808) 961-8207 • Paz (808) 961-8453' r January 21, 2003 To: Constance Kiriu, Legislative Auditor �. From: Clayton Yugawa, Director of Data Systems RE: Response -Software Implementation Concerns. I received your memo, dated January 6, 2003 regarding the auditors' concern with the FRESH Software implementation. I agree with the stated concerns of the memo. G.A. Rock from Data Systems Department has been recently named as the Project Manager for the FRESH implementation. To address the concern regarding personnel resources from our department, we will make available two Analysts from the Applications Branch (software) and two Analysts in the PC Branch (hardware) in addition to the three employees already assigned to this project. Please keep in mind that although Data Systems Department will be working closely with the Finance Department in the design and implementation of FRESH, it is the Finance Department that will have the ultimate authority in this project. Please feel free to call me should there be any questions or concerns. CC Nancy Crawford, Deputy Director -Finance Deanna Sako, Controller -Accounts Division Han- Kim IGn of may,, •.' J County of Hawaii POLICE DEPARTMENT 399 Krpmlarj Street . [fill), HUWeil 96729-3998 (808) 915-3311 • F.. (808)961 8861) January 8, 2003 TO:--Wil"NCE TAKABA, DIRECTOR OF FINANCE l� FROM EK. MAH�UNA, POLICE CHIEF Lawrence K. Niahuna ruL,e Cher/ Harry S. Kubujiri l)epup l'ohre o"'f n p- JAN 1 4 2Q FILE: n SUBJECT 2002 PRELIMINARY DRAFT MANAGEMENT LETTER This is In response to a memorandum from Constance Kiriu dated January 6, 2003, on the auditor's findings of our department's inventory. It has been an oversight these past years to have the same person who handles the storeroom conduct the yearly physical inventory. We are taking corrective action by having someone from our Administrative Services Section who does not have access to the storeroom conduct the physical inventory. With the present Wang computer system and in anticipation of a new County computer system which will include an inventory module, it is not feasible at this time to develop a computer program for the department's inventory. The department is anticipating using the inventory module on the new County computer system. ni OFFICE i )' iN-:= LEGlSLI(,r,'-. ^ITC; DEPARTMENT OF PUBLIC WORKS COUNTY OF HAWfQI0JAN 22 PH 4: 27 HILO, HAWAII DATE: January 13, 2003 To: CONNIF KIRIU, Lrlislative Auditor Thru: I3RUCI: C McC'LURI'.. Director of Public Works c� From: CASEY K YANAGII IAR raffle Division Chief SUBJECT: FY 2002 I'REIANIINARY DRAFT NIANAGENIENT LETTER Thank you for Jllowine us to comment on the recent audit by KPMG, I.I.P. concerning the subject matter. Our Divikion is in the stages to hire an inventory clerk to help its with our extensive traffic inventor, and custodial and record-keeping functions. The Coonty'S new computer system will a1So help us to maintain this inventory. periodic and unannounced inventory counts will be performed by it non -divisional employee We thank you again lot Ming this to our attention. We will use IhiS audit tcport to justify the additional staffing needed in our Division If there are any questions concernine this matter, yon maV contact nie at X-3321. Copy DPW -TRF �wr o M1♦4 o y, HI srry him �' I IFI Ifnrur JPN22 PP1 4:27 Clunntg of �fizcfuxii DEPARTMENT OF PUBLIC WORKS Aupuni Center 101 Vauahi slreel. Suite 7 -I ii I., I U,,an 06720 4224 (808) 961-8321 Fax (80S) 961-8630 Memorandum January 22, 2003 TO: CONNIE KIRIU, Legislative Auditor THRU: BRUCE C. McCLURE, Director of Public Works 0 FROM: RIAPYY. JIKAWA, Acting Building Division Chief Bruce l'. McClure Dirennr SUBJECT: FY 2002 PRELIMINARY DRAFT MANAGEMENT LEITER Thank you for allowing us to comment on the recent audit conducted by KPMG, LLP, concerning the subject matter It is highly recommended that custodial and record keeping functions over the maintenance of inventory be separated and performed by different personnel. However, with the inability to hire new personnel it makes it difficult to have the two functions performed by different personnel. We will try to perform unannounced inventory counts by non - divisional personnel We thank you for bringing this matter to our attention. Should you have any other suggestions that will improve our system of inventory, it will be greatly appreciated. Copy DPW -BLDG COMPREHENSIVE ANNUAL FINANCIAL REPORT Fiscal Year Ended June 30, 2002 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, 2002 Table of Contents FINANCIAL SECTION Independent Auditors' Report 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 - Govemmental Funds 30 Reconciliation of the Change in Fund Balances of Governmental Funds to the Statement of Activities 32 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) - General Fund 34 Statement of Net Assets - Proprietary Funds 38 Statement of Revenues, Expenditures, and Changes in Fund Net Assets - Proprietary Funds 39 Statement of Cash Flows - Proprietary Funds 40 Statement of Fiduciary Net Assets - Fiduciary Funds 41 Statement of Changes in Fiduciary Net Assets - Fiduciary Funds 42 Notes to the Basic Financial Statements 43 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 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 - Govemmental Funds 30 Reconciliation of the Change in Fund Balances of Governmental Funds to the Statement of Activities 32 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) - General Fund 34 Statement of Net Assets - Proprietary Funds 38 Statement of Revenues, Expenditures, and Changes in Fund Net Assets - Proprietary Funds 39 Statement of Cash Flows - Proprietary Funds 40 Statement of Fiduciary Net Assets - Fiduciary Funds 41 Statement of Changes in Fiduciary Net Assets - Fiduciary Funds 42 Notes to the Basic Financial Statements 43 FINANCIAL SECTION (Continued) STATISTICAL SECTION Chart 1 - General Governmental Revenues and Expenditures Comparison Page Combining and Individual Fund Statements and Schedules: 102 Combining Balance Sheet - Nonmajor Governmental Funds 80 Combining Statement of Revenues, Expenditures, and Changes in Fund 104 Balances (Deficit) - Nonmajor Governmental Funds 84 Schedules of Revenues, Expenditures, and Changes in Fund Balances (Deficit) - 106 Budget and Actual (Budgetary Basis): 107 Highway Fund 87 Sewer Fund 88 Solid Waste Fund 89 Cemetery Fund 90 Parking Meter Fund 91 Vehicle Disposal Fund 92 Bikeway Fund 93 Workforce Investment Act Fund 94 Golf Course Fund 95 Geothermal Relocation Revolving Fund 96 Beautification Fund 97 Hawaii County Housing Agency 98 Park Dedication Fund 99 STATISTICAL SECTION Chart 1 - General Governmental Revenues and Expenditures Comparison 101 Table 1 - General Governmental Expenditures by Function 102 Chart 2 - General Governmental Expenditures by Function 103 Table 2 - General Governmental Revenues by Source 104 Chart 3 - General Governmental Revenues by Source 105 Table 2a - General Governmental Tax Revenues by Source 106 Table 3 - Property Tax Levies and Collections 107 Table 4 - Assessed and Estimated Actual Value of Taxable Real Property 108 Table 5 - Real Property Assessed Values by Classification and Tax Rates 109 Chart 4 - Assessed Value of Real Property 113 Table 6 - Principal Taxpayers 114 Table 7 - Computation of Legal Debt Margin 115 Table 8 - Ratio of Net Bonded Debt to Assessed Value and Net Bonded Debt Per Capita 116 Table 9 - Ratio of Annual Debt Service Expenditures for General Obligation Bonded Debt to Total General Governmental Expenditures 117 Table 10 - Demographic Statistics 118 Table 11 - Property Value, Construction and Bank Deposits 119 Table 12 - Miscellaneous Statistical Data 120 INTRODUCTORY SECTION Harry Kim Mayor March 7. 2003 County of Hawaii Finance Department 25 Aupuni Street, Room 118 • Hilo, Hawaii 96720 (808)961-8234 • Fax(808)961-8248 The Honorable Mayor and Members of the Council County of Hawai'i 25 Aupuni Street Hilo, Hawaii 96720 William Takaba Director Nancy E. Crawford Deputy Director We transmit herewith the Comprehensive Annual Financial Report for the County of Hawaii, State of Hawaii, for the fiscal year July 1, 2001 to June 30, 2002. 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 and account groups of the County. All disclosures necessary to convey the maximum understanding of the County's financial activities have been included. This report presents the financial position of the County of Hawaii at June 30, 2002 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 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 the County government. This component unit is included in the County's reporting entity because of its financial relationship with the County. -1- 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, 4,038 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. In recent years, the County's economy has faced several major challenges as it has evolved from primarily an agriculture -based economy to a more diversified economy. Since 1990, the County has seen the closing of three sugar plantations, taking some 64,000 acres of land out of sugar cane production. Over 1,500 sugar -related jobs were lost as a result of these closures. The movement to a tourist -based and more diversified economy has encountered its own unique challenges such as attracting more eastbound visitors and finding alternative crops to take the place of sugar cane. Despite these challenges, there are notable reasons for optimism concerning the County's economy. First, the Big Island is receiving direct flights from Japan and the U.S. mainland, and cruise ship visitors are expected to increase rapidly. Due to the smaller tourist market relative to Oahu and Maui, the addition of cruise ship visitors is having a more dramatic impact on Big Island tourism. Secondly, diversified agriculture is helping to offset the elimination of the sugar industry, creating jobs for hundreds of displaced sugar workers. Finally, construction of upscale residential houses and condominiums in the North Kona and South Kohala districts continues to remain strong. The Big Island's economy has been on an upward trend in recent years, and has been the job growth leader in the State. -2- The Big Island economy, being less dependent on tourism, was, of the four counties of the State, the least affected by the recent slump in tourism. The latest First Hawaiian Bank economic forecast characterizes the short-term economic outlook for the Big Island as "solid and dependable." Tourism — 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. Total visitors to Hawaii fell seven percent to 1,183,005 during 2001. A developing source for bringing tourists to the island of Hawaii is the cruise ship industry. There were 71,425 cruise ship visitors in 2001, up from 42,409 in 2000. First quarter 2002 foreign ship visitor figures are up 28 percent compared to the same period in 2001. Scientific Research and Development — Due largely to its unique geographic characteristics which has attracted scientists in fields of astronomy, meteorology, volcanology, and agriculture/aquaculture, the Big Island has benefited economically by the significant investments made in scientific research. Agriculture — The mild climate in the County is conducive to agricultural production. 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 the public safety, planning, and other issues affecting the quality of life in the County. Public Works — The $7 million renovation of the Aupuni Center county office facility was continued during the year. In addition, construction continued on the Mohouli Street Extension and Puainako Street Extension. Public Safety — In 2001, police eradicated 80,474 marijuana plants and seized 39 pounds of processed marijuana, 6.96 pounds of heroin, 1.48 pounds of cocaine, and 13.73 pounds of crystal methamphetamine, resulting in 902 arrests. General Plan — The proposed revised General Plan was presented to the County Council for consideration. Emphasis in many proposed amendments was on preserving ocean access for the public and appropriate shoreline setbacks. Technology — The County's computer network was expanded throughout the year. A number of County departments relocated to the new Aupuni Center complex this year. A fast Ethernet network with a fiber backbone and a LAN server at Aupuni Center to accommodate the 3- relocation. Connectivity to the new Aupuni Center complex and the County Building was established using state-of-the-art wireless technology. New Accounting Pronouncements — The County was required to implement Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements — and Management's Discussion and Analysis —for State and Local Governments, GASB Statement No. 37, Basic Financial Statements — and Management's Discussion and Analysis —for State and Local Governments: Omnibus, GASB Statement No. 38, Certain Financial Statement Note Disclosures, and Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements, during fiscal year 2002. These accounting pronouncements resulted in significant changes to the County's basic financial statements. Lava Viewing Program — In order to provide a safe viewing area for residents and visitors alike, the County developed a Lava Viewing Program to provide public access to the lava flows in a controlled setting, while the lava was flowing outside of the National Park. For the Future Public Works — The County is working on developing a West Hawaii Civic Center. This facility will improve access to government for the Kona residents. 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. The County will be working on several major road projects to enhance traffic in West Hawaii. Real Property Taxes — The County will continue work on updating the real property tax code in an effort to ensure fairness to all taxpayers. In addition, the County plans to be more aggressive in its collection of real property tax delinquencies. 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. 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 3.42%. The County's policy is to minimize credit and market risks while maintaining a competitive yield on its portfolio. Accordingly, with the exception of $8,848 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. -5- 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. 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, 2003. 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, 2001. This was the fourteenth 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, whose contents conform to program standards. 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. or"�`_� WILLIAM TAKABA Director of Finance 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, 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. ED C� � UIY EIEO SLA � President cow MON s v� SEAL pati V CMNAGO '/( Executive Director -7- County Council County Clerk Departments and agencies under direct supervision of the Mayor and/or Managing Director: Corporation Counsel Finance Planning Environmental Management Research & Development Public Works Parks & Recreation Data Systems County of Hawaii Organization Chart County Electorate Mayor 'i Prosecuting Attorney Office of Management: Managing Director Agencies under administrative supervision of the Mayor: Civil Defense Office of Aging Mass Transportation Housing & Community Development M Departments under commissions and administrative supervision of the Mayor: Civil Service Police Liquor Control Fire Water Supply (semi -autonomous) County of Hawaii Elected Officials Administrative Officers (Term: 2000-2004) Harry Kim Mayor Jay T. Kimura Prosecuting Attorney County Council (Term: 2000-2002) James Y. Arakaki Chair J. Curtis Tyler, III Vice Chair Aaron S.Y. Chung Member Leningrad Elarianoff Member Julie Jacobson Member Bobby Jean Leithead-Todd Member Nancy Pisicchio Member Gary Safarik Member Dominic Yagong Member -9- Principal Officials June 30, 2002 County Clerk Al Konishi Legislative Auditor Connie Kiriu Managing Director Dixie Kaetsu Deputy Managing Director Peter Young 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 James Correa Fire Chief Darryl Oliveira Director of Public Works Dennis Lee Acting Director of Environmental Management Galen Kuba Director of Parks and Recreation Patricia Engelhard Manager, Department of Water Supply Milton Pavao Civil Defense Administrator William G. Davis 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 /A P 0. Box 4150 Honolulu, HI 96812-4150 Independent Auditors' Report To the Chair and Members of the Countv 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 (County), as of and for the year ended June 30, 2002, 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present lairly, in all material respects, the 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, 2002, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the general fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in note I to the basic financial statements. the County adopted Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements - and Management's Discussion and .Inalttas - for Slate and Local Governments, GASB Statement No. 37, Basic Financial Statements - (Incl .tlanagentent s Discussion and Analvsis - for Stu[e and Local Governments. Omnibus, GASB Statement No. 38, Certain Financial Siuiement Note Disclosures, and Interpretation No. 6, Recognition and Measurement o/ C'crtain Liabilities and Expenditures in Governmental Fund Financial Statements, effectiveJuh 1.2001. 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 accounting principles generally accepted in the United States of America. 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. In accordance with Government Auditing Standards, we have also issued a report dated March 7, 2003 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 grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. 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, combining and individual nonmajor fund financial statements, and 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 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. K�>w(G LL -P Honolulu, Hawaii March 7, 2003 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, 2002. 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 $320.6 million (net assets). • The government's total net assets increased by $11.0 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 $88.1 million, a decrease of $1.2 million from the prior year. Approximately 43 percent of this total amount, $37.7 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 $3.8 million, or three percent of total general fund expenditures. • The County's total long-term liabilities increased by $12.4 million (six percent) during the current fiscal year. The key factor in this increase was the issuance of $15.1 million in bonds for the primary government. 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. 13 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 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 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 is 14 located in the basic financial statements, whereas the budgetary comparison statements for the 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 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 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 Suoolementary 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 special revenue funds. This supplementary information is presented immediately following the notes to the basic financial statements. GOVERNMENT -WIDE FINANCIAL ANALYSIS This is the first year that the County has presented its basic financial statements under the new reporting model required by the Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements — and Management's Discussion and Analysis —for State and Local Governments. Because this report model changes significantly both the recording and presentation of financial data, the County has not restated prior fiscal years for the purposes of providing comparative information for the management's discussion and analysis. In future years when prior -year information is available a comparative analysis of government -wide data will be included in this report. 15 Net Assets June 30, 2002 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 $320,576,707 at the close of the most recent fiscal year. By far the largest portion of the County's net assets (99 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 (7 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 $18,981,120 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 $11,017,975 during the current fiscal year. Approximately $5,108,000 the increase is due to the new Public Service Company tax that was implemented during the current fiscal year. The remaining increase represents the degree to which increases in ongoing revenues have outstripped similar increases in ongoing expenses. IM Primary Government Governmental Business -type activities activities Total Assets: Current and other assets $122,937,693 $1,117,277 $124,054,970 Capital assets 453,773,723 1,449,252 455,222,975 Total assets 576,711,416 2,566,529 579,277,945 Liabilities: Long-term liabilities outstanding 24,026,677 88,417 24,115,094 Other liabilities 233,484,372 1,101,772 234,586,144 Total liabilities 257,511,049 1,190,189 258,701,238 Net assets: Invested in capital assets, net of related debt 316,909,229 347,480 317,256,709 Restricted 22,122,090 179,028 22,301,118 Unrestricted (deficit) (19,830,952) 849,832_ (18,981,120) Total net assets $319.200 367 $1,376,340 $320.576,707 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 $320,576,707 at the close of the most recent fiscal year. By far the largest portion of the County's net assets (99 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 (7 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 $18,981,120 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 $11,017,975 during the current fiscal year. Approximately $5,108,000 the increase is due to the new Public Service Company tax that was implemented during the current fiscal year. The remaining increase represents the degree to which increases in ongoing revenues have outstripped similar increases in ongoing expenses. IM Changes in Net Assets For the Fiscal Year Ended June 30, 2002 Expenses: General government Primary Government Governmental Business -type 75,709,394 activities activities Total Revenues: 22,627,472 Health, education and welfare 17,854,112 Program revenues: 18,310,048 Culture and recreation 14,903,986 Charges for services $ 23,725,325 $ 279,369 $ 24,004,694 Operating grants and contributions 27,198,314 147,582 27,345,896 Capital grants and contributions 27,871,495 - 27,871,495 General revenues: 196,758,032 Increase in net assets before transfers 11,866,341 Property taxes 94,197,060 - 94,197,060 Other taxes 16,523,087 - 16,523,087 Grants and contributions, unrestricted 13,501,966 - 13,501,966 Investment earnings 3,568,210 19,064 3,587,274 Miscellaneous 1,582,980 1,582,980 Total revenues 208,168,437 446,015 208,614,452 Expenses: General government 37,796,311 37,796,311 Public safety 75,709,394 75,709,394 Highways and streets 22,627,472 - 22,627,472 Health, education and welfare 17,854,112 455,936 18,310,048 Culture and recreation 14,903,986 - 14,903,986 Sanitation 18,641,654 18,641,654 Interest on long-term debt 8,769,167 8,769,167 Total expenses 196,302,096 455,936 196,758,032 Increase in net assets before transfers 11,866,341 (9,921) 11,856,420 Transfers out (838,445) (838,445) Increase in net assets 11,027,896 (9,921) 11,017,975 Net assets at beginning of year 308,172,471 1,386,261 309,558,732 Net assets at end of year $ 319.200.367 LU $320.576.707 Analysis of Changes in Net Assets Governmental activities. Governmental activities increased the County's net assets by $11,027,896 or primarily all of the total growth in net assets of the County. The County's property taxes increased by $10,344,873 (12 percent) during the year. Most of this increase is attributable to the increase in assessed values. For the most part, increases in expenses closely paralleled inflation and growth in the demand for services. 17 0 Expenses and Program Revenues - Governmental Activities 80,000,000 70,000,000 ■ Expenses 0 Program revenues 60,000,000 50,000,000 — 40,000,000 30,000,000 20,000,000 10,000,000 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 Miscellaneous Investment earnings 1% Grants and contributions not 2% restricted to specific 6% Other taxes 8% — Prop 18 perating grants and contributions 13% ;apital grants and contributions 13% 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 (19 percent) and highways and streets (12 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 (46 percent), followed by capital grants and contributions (13 percent) and operating grants and contributions (13 percent). As with the statement of net assets and the statement of activities, because the GASB Statement No. 34 reporting model significantly changes the form of financial data, the County has not restated prior fiscal year revenue and expenditure information. Year to year comparisons will be included in future reports. Business -type activities. Business -type activities decreased the County's net assets by $9,921. Expenses for health, education and welfare account for all of the $455,936 of expenses. Charges for services were $279,369, operating grants and contributions were $147,582 and investment earnings were $19,064. 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 $88,109,752, a decrease of $1,200,674 in comparison with prior year. Approximately 43 percent of this total amount ($37,681,170) 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 ($22,410,915), 2) to pay debt service ($11,963.544), or 3) for a variety of other restricted purposes ($16,054,123). The general fund is the chief operating fund of the County. At the end of the current fiscal year, unreserved fiord balance of the general fund was $3,831,680, while total fund balance reached $9,548,690. 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 three percent of total general fund expenditures, while total fund balance represents eight percent of that same amount. The fund balance of the County's general fund decreased by $5,266,143 during the current fiscal year. Key factors in this decrease are as follows: • A decrease of $2,721.721 (42 percent) in investment earnings due to a declining investment market. 19 An increase of $6,507,211 (213 percent) in pension and retirement contributions due to the retirement system payments returning to normal after previous reductions had been granted by the State legislature. An increase of $1,348,923 (14 percent) in health fund contributions due to increasing health insurance rates. The debt service funds have combined total fund balances of $11,963,544, 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 $1,260,085 (12 percent). Proprietaryfunds. 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 $832,655, and those for Ouli Ekahi Affordable Housing Project (Ouli Ekahi) amounted to $17,177. The total growth in net assets for Kulaimano was $22,795, while the net assets for Ouli Ekahi decreased by $32,716. 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 relatively minor ($2,742,075 increase in appropriations) and can be briefly summarized as follows: • $5,106,303 reduction in appropriations due to the declines in revenues experienced by a reduction in tourism caused by the September 11, 2001 attacks and lower than expected fund balance to be used in the year's operations. • $7.511,279 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 $4,944,518 less revenues than expected and $6,413,150 less expenditures than appropriated. This is primarily due to the following factors: • $1,535,531 unfavorable variance in taxes and assessments revenue resulting from collections being less than expected. • $1.693,017 unfavorable variance in interest and penalties revenue as a result of a declining investment market. • $1,656,675 favorable variance in general government expenditures caused by an overall effort by each department to hold the line on expenditures in what was anticipated to be a difficult budget year due to the September 11, 2001 attacks and the related effects on tourism in the County and the State. • $2,783,557 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. 20 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, 2002 amounts to $455,222,975 (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 six percent. Major capital asset events during the current fiscal year included the following: • Construction continued on the Mohouli Street extension; construction in progress as of the end of the current fiscal year had reached $9,917,117. • Construction continued on Aupuni Center, the new county building in Hilo; construction in progress as of the end of the current fiscal year had reached $9,236,557. • Construction continued on the Puainako Street extension; construction in progress as of the end of the current fiscal year had reached $10,596,169. • Various sewer system additions and improvements were completed at a cost of $8,739,025. • Various park improvements were completed at a cost of $4,067,169. Capital Assets (net of depreciation) ary Government Long-term debt. At the end of the current fiscal year, the County had total bonded debt outstanding of $138,169,500. 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 debt increased by $7,657,000 (6 percent) during the current fiscal year. The key factor in this increase was $15.075,000 in general obligation bonds issued during the current fiscal year. 21 Governmental Business -type activities activities Total Land $ 19,160,848 $753,877 $ 19,914,725 Infrastructure assets 146,731,963 - 146,731,963 Ground and site improvements - 105,124 105,124 Buildings and improvements 210,264,869 575,879 210,840,748 Equipment 25,900,571 14,372 25,914,943 Construction work in progress 51,715,472 51,715,472 Total 453.773.723 V 4� $455,222,975_ Additional information on the County's capital assets can be found in note 6 to the basic financial statements. Long-term debt. At the end of the current fiscal year, the County had total bonded debt outstanding of $138,169,500. 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 debt increased by $7,657,000 (6 percent) during the current fiscal year. The key factor in this increase was $15.075,000 in general obligation bonds issued during the current fiscal year. 21 The County maintains an "A" rating from Standard & Poor's and an "AT' 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 $1,660,698,908, which is in excess of the County's outstanding general obligation debt. Currently the County's outstanding debt represents eight 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 6.9 percent, which is up slightly from a rate of 6.6 percent a year ago. • The number of visitors to the County for the most recent calendar year was 1,183,005, down slightly from the previous year's count of 1,267,965. All of these factors were considered in preparing the County's budget for the 2003 fiscal year. At the end of the current fiscal year, unreserved fund balance in the general fund was $3,831,680. The County has appropriated $1,000,000 of this amount for spending in the 2003 fiscal year budget. Even with the use of this available fund balance, it was still necessary to increase the real property tax rates for the 2003 fiscal year. This was the first tax rate increase for the County in many years. 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, 2002 (Continued) -24- Primary Government Governmental Business -type Component Activities Activities Total Unit Assets Current Assets: Cash and cash equivalents (notes 3 and 15) $ 34,637,561 $ 152,906 $ 34,790,467 $ 25,216,214 Restricted cash with escrow (note 3) 290,641 - 290,641 - Investments (notes 3 and 15) 49,347,017 700,000 50,047,017 4,666,507 Receivables, net (note 4) 32,345,773 41,966 32,387,739 2,887,870 Internal balances 4,253 - 4,253 - Due from fiduciary funds 5,151 5,151 - Inventories 2,332,305 - 2,332,305 815,705 Prepaid expenses - 1,893 1,893 18,037 Other 1,089,620 - 1,089,620 - Total current assets 120,052,321 896,765 120,949,086 33,604,333 Investments (note 3) 2,885,372 - 2,885,372 - Restricted cash and cash equivalents (note 3) - 220,512 220,512 - Restricted investments (note 15) - - - 9,959,787 Loans receivable, excluding current portion (note 15) - - - 720,647 Deferred charges - - - 5,165,413 Capital assets (notes 6, 8 and 15): Utility plant in service, net - - - 137,328,314 Infrastructure assets, net 146,731,963 - 146,731,963 - Ground and site improvements, net - 105,124 105,124 - Buildings and improvements, net 210,264,869 575,879 210,840,748 - Equipment, net 25,900,571 14,372 25,914,943 - Construction work in progress 51,715,472 - 51,715,472 18,325,555 Land 19,160,848 753,877 19,914,725 545,000 Total capital assets 453,773,723 1,449,252 455,222,975 156,198,869 Total assets 576,711,416 2,566,529 579,277,945 205,649,049 (Continued) -24- COUNTY OF HAWAII Statement of Net Assets Liabilities Current Liabilities: Warrants payable Accounts payable Internal balances Unearned revenue (note 7) Interest due on long-term debt Customers' deposits for service connections Other Noncurrent liabilities: Due within one year: Bonds and loans payable (notes 10 and 15) Compensated absences (note 10) Claims and judgements (notes 10 and 12) Capital leases (notes 8 and 10) Landfill costs payable (notes 9 and 10) Due in more than one year: Bonds and loans payable (notes 10 and 15) Compensated absences (note 10) Claims and judgements (notes 10 and 12) Capital leases (notes 8 and 10) Landfill costs payable (notes 9 and 10) Customers' deposits payable from restricted assets Total liabilities Net Assets Invested in capital assets, net of related debt Restricted for: Capital projects Debt service Unrestricted Total net assets See accompanying notes to the basic financial statements. June 30, 2002 (Concluded) Primary Government Governmental Business -type Component Activities Activities Total Unit $ 7,409,675 $ 12,506 $ 7,422,181 $ 6,024,054 70,3.39 6,094,393 1,318,812 - 4,253 4,253 - 5,897,021 1,319 5,898,340 - 2,137,446 - 2,137,446 256,522 - - 385,891 2,558,481 2,558,481 - 10,960,396 17,337 10.977,733 1,011,000 4,963,758 - 4,963,758 497,317 4,261,535 - 4,261,535 75,830 727,796 - 727,796 - 119,003 - 119,003 - 160,208,885 1,084,435 161,293,320 17,477,284 13,898,568 - 13,898,568 1,344,601 14,450,017 - 14,450,017 263,170 1,967,417 - 1,967,417 - 21,926,997 - 21,926,997 - - - 9,959,787 257,511,049 1,190,189 258,701,238 32,590,214 316,909,229 347,480 317,256,709 143,720,608 10,158,546 - 10,158,546 11,963,544 179,028 12,142,572 - (19,830,952) 849,832 (18,981,120) 29,338,227 $ 319,200,367 $ 1376,340 $320,576,707 $ 173,058,835 25- COUNTY OF HAWAII Statement of Activities For the Fiscal Year Ended June 30, 2002 Functions/Proerams Primary government: Governmental activities: General government Public safety Highways and streets Health, education and welfare Culture and recreation Sanitation Interest on long-term debt Total governmental activities Business -type activities: Health, education and welfare Total primary government Component unit: Water (note 15) Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions $ 37,796,311 $ 2,173,770 $ 1,699,716 $ 3,868,328 75,709,394 3,927,495 12,643,928 1.147,141 22,627,472 4,422,416 1,107,913 21,483,660 17,854,112 865,365 11,290,782 - 14,903,986 1,366,370 455,975 1,286,050 18,641,654 10,969,909 - 86,316 8,769,167 - - - 196,302,096 23,725,325 27,198,314 27,871,495 455,936 279,369 147,582 $ 196,758,032 $ 24,004,694 $ 27,345,896 $ 27,871,495 $ 27,856,380 $ 27,412,741 $ $ 8,402,084 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 Transfers out (note 5) Change in net assets Net assets, beginning of year, as restated (note 14) 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 $ (30,054,497) $ - $ (30,054,497) $ (57,990,830) - (57,990,830) 4,386,517 - 4,386,517 (5,697,965) - (5,697,965) (11,795,591) - (11,795,591) (7,585,429) - (7,585,429) (8,769,167) 8,769,167 (117,506,962) - (117,506,962) (28,985) (28,985) (117,506,962) (28,985) (117,535,947) 7,958,445 94,197,060 - 94,197,060 - 5,108,291 - 5,108,291 - 4,992,959 - 4,992,959 - 6,421,837 - 6,421,837 - 13,501,966 - 13,501,966 - 3,568,210 19,064 3,587,274 694,161 1,582,980 - 1,582,980 - 129.373,303 19,064 129,392.367 694,161 (838,445) - (838.445) 11,027,896 (9,921) 11,017,975 8,652,606 308,172,471 1,386,261 309,558,732 164,406,229 $ 319,200,367 $ 1,376,340 $320,576,707 $173,058,835 -27- COUNTY OF HAWAII Governmental Funds Balance Sheet June 30, 2002 Liabilities and Fund Balances Liabilities: Warrants payable $ 2,748,627 Capital Other Total Accounts payable 1,553,377 Projects Governmental Governmental Employee costs payable General Fund Funds Funds Assets 472,088 343,094 1,424,140 2,239,322 Cash and cash equivalents (note 3) $ 6,396,811 $ 4,984,986 $ 23,255,764 $ 34,637,561 Investments (note 3) 3,439,445 37,030,367 11,762,577 52,232,389 Receivables, net (note 4) 10,643,752 - 2,391,469 13,035,221 Due from other governmental funds (note 5) 1,223,435 645,312 370,575 2,239,322 Due from other nongovernmental funds (note 5) 8,110 - 4,253 12,363 Receivables from other governments (note 4) 4,446,187 14,280,779 583,586 19,310,552 Restricted cash with escrow (note 3) 289,224 1,417 - 290,641 Inventories 2,332,305 - - 2,332,305 Other 684,784 - 404,837 1,089,621 Total assets $ 29,464,053 $56,942,861 $ 38,773,061 $ 125,179,975 Liabilities and Fund Balances Liabilities: Warrants payable $ 2,748,627 $ 3,316,164 $ 1,344,884 $ 7,409,675 Accounts payable 1,553,377 2,598,383 1,461,606 5,613,366 Employee costs payable 357,175 - 16,476 373,651 Due to other governmental funds (note 5) 472,088 343,094 1,424,140 2,239,322 Due to other nongovernmental funds (note 5) 849 - 2,110 2,959 Payable to other governments 37,037 - - 37,037 Deferred revenue (note 7) 12,723,844 3,525,288 2,684,393 18,933,525 Other 2,022,366 1,386 436,936 2,460,688 Total liabilities 19,915,363 9,784,315 7,370,545 37,070,223 Fund balances: Reserved for: Encumbrances 2,660,588 12,981,534 6,768,793 22,410,915 Inventories 2,332,305 - - 2,332,305 Taxicab investigations 60,790 - 60,790 Liquor control 595,423 - - 595,423 Unexpended allotments - 12,997,701 - 12,997,701 UPW deferred compensation 67,904 - - 67,904 Debt service - - 11,963,544 11,963,544 Unreserved, reported in: General fund 3,831,680 - - 3,831,680 Special revenue funds - - 12,670,179 12,670,179 Capital projects funds - 21,179,311 - 21,179,311 Total fund balances 9,548,690 47,158,546 31,402,516 88,109,752 Total liabilities and fund balances $29,464,053 $56,942,861 $38,773,061 $125,179,975 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, 2002 Total fund balances - governmental funds $ 88,109,752 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 19,160,848 Infrastructure assets, net 146,731,963 Buildings and improvements, net 210,264,869 Equipment, net 25,900,571 Construction work in progress 51,715,472 Total capital assets 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 in the funds. 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 (171,169,281) Accrued interest on bonds (2,137,446) Bond premium, net (97,794) Capital leases (2,695,213) Compensated absences (18,862,326) Claims and judgments (18,711,552) Landfill closure/postclosure costs (22,046,000) Total long-term liabilities Net assets of governmental activities See accompanying notes to the basic financial statements. -29- 453,773,723 13,036,504 (235,719,612) $ 319,200,367 County of Hawaii Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances For the Fiscal Year Ended June 30, 2002 Expenditures Current: General government 20,191,854 - Capital Other Total 58,920,044 - 2,950,040 Projects Governmental Governmental 6,808,251 General Fund Funds Funds Revenues Health, education and welfare 5,114,072 - 11,611,499 16,725,571 Property tax $93,711,542 $ S $ 93,711,542 Public service company tax 5,108,291 (note 13) 5,108,291 Fuel tax - Employees' health insurance 6,421,837 6.421,837 Public utility franchise tax - 3,837,052 - 4,992,959 4,992,959 Licenses and permits 4,047,299 3,733,282 7.780,581 Intergovernmental 34,202,001 24,003,160 10,713,183 68,918,344 Charges for services 3,097,629 - 8,591,497 11,689,126 Investment earnings 3,686,832 7 113,859 3,800,698 Miscellaneous 1,786,560 278,386 970,287 1035,233 Total revenues 145,640,154 24,281,553 35,536,904 205,458,611 Expenditures Current: General government 20,191,854 - - 20,191,854 Public safety 58,920,044 - 2,950,040 61,870,084 Highways and streets 1,568,057 - 6,808,251 8,376,308 Sanitation 153,707 - 14,634,865 14,788,572 Health, education and welfare 5,114,072 - 11,611,499 16,725,571 Culture and recreation 11,321,602 - 805,162 12,126,764 Pension and retirement contributions (note 13) 9,559,189 - 1,459,692 11,018,881 Employees' health insurance 11,133,747 - 1,063,905 12,197,652 Miscellaneous 3,837,052 - 1,493,150 5,330,202 Debt service: Principal 546,031 - 9,479,459 10,025,490 Interest 134,332 - 8,333,056 8,467,388 Capital outlay 4,021,943 37,558,463 - 41,580,406 Total expenditures 126,501,630 37,558,463 58,639,079 222,699,172 Excess (deficiency) of revenues over expenditures 19,138,524 (13,276,910) (23,102,175) (17,240,561) (Continued) -30- County of Hawaii Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances For the Fiscal Year Ended June 30, 2002 (Concluded) See accompanying notes to the basic financial statements -31- Capital Other Total Projects Governmental Governmental General Fund Funds Funds Other Financing Sources (Uses), including transfers Sale of assets $ 14,800 $ $ - $ 14,800 Capital leases 158,464 771,622 930,086 Sale of bonds - 15,175,302 - 15,175,302 State Revolving Fund loans - 578,502 - 578,502 Transfers in 635,868 3,492,404 25,400,775 29,529,047 Transfers out (25,393,441) (7,334) (4,966,717) (30,367,492) Total other financing sources (uses) (24,584,309) 19,238,874 21,205,680 15,860,245 Net change in fund balances (5,445,785) 5,961,964 (1,896,495) (1,380,316) Fund balance at beginning of year 14,814,833 41,196,582 33,299,011 89,310,426 Increase in reserve for inventories _ 179,642 - - 179,642 Fund balance at end of year $ 9,548,690 $47,158,546 $ 31,402,516 $ 88,109,752 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, 2002 Net change in fund balances - total governmental funds $ (1,380,316) 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 38,566,987 Depreciation expense and loss on disposals (14,755,174) Excess of capital outlay over depreciation expense 23,811,813 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 (15,075,000) Premium on bond issuance (100,302) State revolving fund loans (578,502) Capital lease obligations (930,086) Total debt proceeds (16,683,890) 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 of: Bond principal retirement 7,418,000 SRF loan repayment 1,972,749 Capital lease payments 634,741 Total long-term debt repayment 10,025,490 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. Deferred revenues increased by this amount this year. 1,210,116 (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, 2002 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: Increase in inventory Increase in compensated absences Increase in claims and judgments Increase in landfill closure/postclosure care costs Amortization of premium from bond issuance Net increase in accrued interest Net additional expenditures Change in net assets of governmental activities See accompanying notes to the basic financial statements. -33- $ 179,642 (1,546,054) (4,131,126) (156,000) 2,508 (304,287) (Concluded) (5,955,317) $ 11,027,896 COUNTY OF HAWAII General Fund Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 (Continued) -34- Variance Original Final Favorable Budget Budget Actual (Unfavorable) Revenues: Taxes and assessments: Real property taxes $96,566,000 $94,925,364 $91711,542 $(1,213,822) Public service company taxes 4,143,000 5,430,000 5,108,291 (321,709) Total taxes and assessments 100,709,000 100,355,364 98,819,833 (1,535,531) Licenses and permits: Nonbusiness licenses and permits 2,664,035 2,991,635 2,813,984 (177,651) Business licenses 1,004,884 1,004,884 815,609 (189,275) Street use 331,000 331,000 417,706 86,706 Total licenses and permits 3,999,919 4,327,519 4,047,299 (280,220) Intergovernmental: Federal: Programs for the aged 1,155,355 1,160,806 1,232,964 72,158 Community development block grants 0 2,304,000 2,304.000 Civil defense 114,000 114,000 126,900 12,900 Law enforcement 1,499,258 3,437,406 1933,008 (504,398) Other 1,256,823 4,376,676 4,266,404 (110,272) Total federal 4,025,436 11,392,888 10,863,276 (529,612) State: State General Fund - Act 185, SLH 1990 16,557,000 12,964,000 13,335,667 371,667 Emergency medical services 8,540,000 8,540,000 8,073,989 (466,011) Other 3,339,814 3,385,667 3,244,397 (141,270) Child support enforcement 951,641 951,641 860,073 (91,568) Total State 29,388,455 25,841,308 25,514,126 (327,182) Total intergovernmental revenue 33,413,891 37,234,196 36,377,402 (856,794) Charges for current services: General government 1,836,580 1,870,023 1,907,085 37,062 Culture and recreation 566,050 575,550 625,549 49,999 Highways and streets 545,400 545,400 547,480 2,080 Public safety 19,000 19,000 17,515 (1,485) Total charges for current services 2,967,030 3,009,973 3,097,629 87,656 Fines and forfeitures 727,700 727,700 346,818 (380,882) Rents 137,600 137,600 15,069 (122,531) (Continued) -34- COUNTY OF HAWAII General Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) Revenues (continued): Interest and penalties Miscellaneous Total revenues Expenditures: Current: General government: Finance Automotive equipment General government building Legislative Law Planning and zoning Research and development Mayor's office Engineering Personnel services Chief engineer Data Systems Elections Total general government Public safety: Police department Fire department Prosecuting attorney Protective inspection Liquor control Flood control Civil defense agency Humane Society Total public safety Highways and streets: Mass transit For the Fiscal Year Ended June 30, 2002 5,274,412 5,081,871 4,902,999 Variance Original Final 1,761,855 Favorable Budget Budget Actual (Unfavorable) 2,427,855 $ 5,300,000 $ 5,300,000 $ 3,606,983 $ (1,693,017) 2,890,227 3,666,946 3,503,747 (163,199) 150,145,367 154,759,298 149,814,780 (4,944,518) 5,274,412 5,081,871 4,902,999 178,872 1,945,573 1,871,806 1,761,855 109,951 2,951,180 2,554,001 2,362,606 191,395 2,427,855 2,277,168 1096,176 180,992 2,859,750 2,631,100 2,287,552 343,548 1,792,099 1,701,828 1,615,575 86,253 1,176,105 1,131,105 963,349 167,756 1,005,900 928,665 905,366 23,299 1,248,953 1,167,051 1,046,216 120,835 1,173,268 1,085,251 1,052,331 32,920 643,448 574,195 501,727 72,468 850,881 726,583 697,253 29,330 578,630 571,255 452,199 119,056 23,928,054 22,301,879 20,645,204 1,656,675 32,700,750 34,490,732 33,262,347 1,228,385 18,704,779 18,447,182 17,639,320 807,862 4,959,267 5,177,773 4,644,888 532,885 1,572,675 1,523,281 1,510,912 12,369 1,149,784 1,149,784 963,457 186,327 153,939 143,174 141,481 1,693 525,852 718,252 704,216 14,036 788,605 788,605 788,605 -- 60,555,651 62,438,783 59,655,226 2,783,557 1,249,228 2,279,669 2247,220 32,449 -35- (Continued) COUNTY OF HAWAII General Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 Expenditures (continued): Current (continued): Sanitation: Environmental management Health, education and welfare: Office of Aging Elderly Activities Education Social programs Cemeteries Physical examination Total health, education and welfare Culture and recreation: Community music Organized recreation: Maintenance Recreation Aquatics Hoolulu Park complex Administration Children's zoo Summer/Intersession Culture and arts Elderly activities administration Total culture and recreation Pension and retirement contributions Health fund Miscellaneous Total current Original Budget Final Budget Actual Variance Favorable (Unfavorable) $ 201444 $ 173,473 $ 173,473 $ -- 1,900,162 1,854,051 1,725,459 128,592 1,334,699 1,314,938 1,297,051 17,887 2,636,603 2,646,859 2,520,265 126,594 55,000 55,000 30,466 24,534 900,000 900,000 900,000 -- 231,624 232,405 226,586 5,819 102,942 102,942 102,942 -- 5,260,868 5,252,144 5,077,310 174,834 12,337,065 12,057,777 11,338,633 719,144 166,632 168,772 165,682 3,090 4,812,804 4,714,786 4,620,938 93,848 1,900,162 1,854,051 1,725,459 128,592 2,691,247 2,702,143 2,513,387 188,756 661,834 657,834 653,016 4,818 588,662 555,562 503,457 52,105 470,987 410,532 390,373 20,159 324,394 324,394 205,724 118,670 117,890 75,070 74,898 172 602,453 594,633 485,699 108,934 12,337,065 12,057,777 11,338,633 719,144 10,139,406 10,139,406 9,888,530 250,876 10, 837,656 11,014,046 10,998,280 15,766 4,865,000 4,152,796 3,372,947 779,849 129,375,372 129,809,973 123,396,823 6,413,150 Capital Outlay: Community Development Block grants (HUD): CDBG 2000 CDBG 2001 CDBG 2002 Total Community Development Block Grants (HUD) 36- 33,170 33,170 37,278 37,278 2,312,400 2,312,400 2,382,848 2.382,848 (Continued) COUNTY OF HAWAII General Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 Expenditures (continued): Capital Outlay (continued): HOME Program Community Facility Disaster Assistance Total capital outlay Total expenditures Excess of revenues over expenditures Other financing sources (uses): Transfers in: Golf Course Fund Housing Agency Total transfers in Transfers out: Solid Waste Fund Golf Course Fund Debt Service Fund Total transfers out Total other financing uses Deficiency of revenues and other sources over expenditures and other uses Fund balance at beginning of year Fund balance at end of year See accompanying notes to the basic financial statements. Original Final Budget Budget Actual (Concluded) Variance Favorable (Unfavorable) $ $ 993,809 $ 993,809 $ 747,500 747,500 4,124,157 4,124,157 -- 129,375,372 133,934,130 127,520,980 6,413,150 20,769,995 20,825,168 22,293,800 1,468,632 135,868 135,868 135,868 -- 0 500,000 500,000 135,868 635,868 635,868 (7,387,761) (6,200,666) (6,200,666) (276,053) (230,534) (230,534) -- (21,376,147) (20,792,078) (20,697,174) 94,904 (29,039,961) (27,223,278) (27,128,374) 94,904 (28,904,093) (26,587,410) (26,492,506) 94,904 (8,134,098) (5,762,242) (4,198,706) 1,563,536 14,814,833 14,814,833 14,814,833 -- $ 6,680,735 $9,052,591 $10,616,127 $1,563,536 -37- County of Hawaii Proprietary Funds Statement of Net Assets June 30, 2002 Assets Current assets: Cash and cash equivalents (note 3) Investments (note 3) Imprest fund (note 3) Receivables (note 4) Prepaid expenses Total current assets Noncurrent assets: Restricted cash and cash equivalents (note 3) Capital assets (note 6): Land and site improvements Buildings and equipment Less accumulated depreciation Total capital assets Total noncurrent assets Total assets Liabilities Current liabilities: Warrants payable Accounts payable Internal balances (note 5) Due to developer Security deposits payable from restricted assets Deferred revenue (note 7) Notes payable, current portion (note 10) Total current liabilities Noncurrent liabilities: Notes payable (note 10) Total liabilities Net Assets Invested to capital assets, net of related debt Restricted for debt service Unrestricted Total net assets See accompanying notes to the basic financial statements. -38- Business -type Activities- Enterorise Funds Kulaimano Ouli Ekahi Elderly Affordable Housing Housing Project Project Totals $ 143,908 $ 8,848 $ 152,756 700,000 - 700,000 50 100 150 3,789 38,177 41,966 1,893 - 1,893 849,640 47,125 896,765 188,305 32,207 220,512 511,000 503,877 1,014,877 1,225,280 - 1,225,280 (790,905) (790,905) 945,375 503,877 1,449,252 1,133,680 536,084 1,669,764 1,983,320 583,209 2,566,529 11,410 1,096 12,506 617 37,372 37,989 4,253 - 4,253 - 7,729 7,729 9,277 15,344 24,621 705 614 1.319 17,337 - 17.337 43,599 62,155 105,754 1,084,435 - 1,084,435 1,128,034 62,155 1,190.189 (156,397) 503,877 347,480 179,028 - 179,028 832,655 17,177 849.832 $ 855,286 S 521,054 $ 1,376.340 County of Hawaii Proprietary Funds Statement of Revenues, Expenses, and Changes in Fund Net Assets For the Fiscal Year Ended June 30, 2002 See accompanying notes to the basic financial statements. -39- Business -type Activities - Enterprise Funds Kulaimano Ouli Ekahi Elderly Affordable Housing Housing Project Project Totals Operating revenues: Rental receipts from tenants $ 81,803 $ 191,979 $ 273,782 Rental subsidy from federal government - HUD 147,582 - 147,582 Laundry receipts 1,857 - 1,857 Miscellaneous - 3,730 3,730 Total operating revenues 231,242 195,709 426,951 Operating expenses: Utilities 28,630 27,492 56,122 General and administration 58,605 85,388 143,993 Maintenance and repairs 28,064 39,588 67,652 Lease expense - 76,226 76,226 Depreciation (note 6) 33,911 - 33,911 Total operating expenses 149,210 228,694 377,904 Operating income (loss) 82,032 (32,985) 49,047 Nonoperating revenues (expenses): Investment income 18,795 269 19,064 Interest expense (77,730) - (77,730) Loss on disposal of capital assets (302) (302) Total nonoperating revenue (expenses) (59,237) 269 (58,968) Change in net assets 22,795 (32,716) (9,921) Total net assets - beginning 832,491 553,770 1,386,261 Total net assets - ending $ 855,286 $ 521,054 $ 1,376,340 See accompanying notes to the basic financial statements. -39- County of Hawaii Proprietary Funds Statement of Cash Flows For the Fiscal Year Ended June 30, 2002 See accompanying notes to the basic financial statements -40- Business -type Activities - Enterprise Funds Kulaimano Ouli Ekahi Elderly Affordable Housing Housing Project _ Project Totals Cash Flows from Operating Activities Receipts from tenants $ 84,676 $ 175,062 $ 259,738 Receipts from federal government - HUD 147,582 - 147,582 Payments to suppliers for goods and services (116,341) (190,226) (306,567) Net cash provided by (used in) operating activities 115,917 (15,164) 100,753 Cash Flows from Capital and Related Financing Activities Principal paid on notes payable (16,182) (16,182) Interest paid on notes payable (77,730) (77,730) Purchase of capital assets (4,116) (4,116) Net cash used in capital and related financing activities 98,028) 98,028) Cash Flows from Investing Activities Purchase of investments (1,900,000) (1,900,000) Proceeds from maturities of investments 1,700,000 - 1,700,000 Interest on investments 19,366 310 19,676 Net cash provided by (used in) investing activities (180,634) 310 (180,324) Net decrease in cash and cash equivalents (162,745) (14,854) (177,599) Cash and cash equivalents at beginning of year 495,008 56,009 551,017 Cash and cash equivalents at end of year $ 332,263 $ 41,155 $ 373,418 Reconciliation of operating income (loss) to net cash provided by (used in) operating activities Operating income (loss) $ 82,032 $ (32,985) $ 49,047 Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation expense 33,911 33,911 Change in assets and liabilities: Receivables (218) (16,568) (16,786) Prepaid expenses (28) - (28) Accounts and other payables (20) 35.728 35,708 Unearned income 240 (1,339) (1,099) Net cash provided by (used in) operating activities $ 115,917 $ (15,164) $ 100,753 See accompanying notes to the basic financial statements -40- County of Hawaii Fiduciary Funds Statement of Fiduciary Net Assets June 30, 2002 Private - Purpose Agency Trusts Funds Assets Cash and cash equivalents (note 3) $ - $ 4,027,214 Investments (note 3) 1,335,076 334,750 Receivables: Due from other agency funds - 1,512 Other receivables 70 Total receivables 1,582 Restricted cash and cash equivalents (note 3) - 637,000 Total assets 1,335,076 5,000,546 Liabilities Warrants payable $ $ 2,253,541 Due to other agency funds 1,512 Payable to primary government (note 5) 5,151 Accrued liabilities 1,082,353 Advances payable 119,336 Assets held for benefit of improvement districts 1,538,653 Total liabilities - 5,000,546 Net Assets Held in trust for other parties 1,335,076 - Total net assets $ 1,335,076 $ See accompanying notes to the basic financial statements. -41- County of Hawaii Fiduciary Funds Statement of Changes in Fiduciary Net Assets For the Fiscal Year Ended June 30, 2002 Private - Purpose Trusts Additions Contributions: Puna Geothermal Venture $ 50,000 Investment earnings: Interest 33,948 Total additions 83,948 Net assets - beginning of year 1,251,128 Net assets - end of year $ 1,335,076 See accompanying notes to the basic financial statements. 42- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 The accounting policies of the County of Hawaii (County) conform to generally accepted accounting principles (GAAP) as applicable to local governmental units. The following notes to the basic financial statements are an integral part of the County's Comprehensive Annual Financial Report. I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Financial Reporting Entity The County has implemented Governmental Accounting Standards Board Statement No. 14, The Financial Reporting Entitv, (GASB Statement No. 14). No organizations, activities or functions that meet the criteria in GASB Statement No. 14 for inclusion in the reporting entity are excluded from the County's basic financial statements. Primary Government The County operates under the Mayor -Council form of government under a charter that became effective on January 2, 1969, and was amended in 1979, 1982, 1990 and 2000. The County's operations are organized by the following functions: general government; public safety; highways and streets; sanitation; health, education and welfare; culture and recreation; pension and retirement contributions; health fund; miscellaneous: capital outlay; and debt service. The State of Hawaii (State) assumes full responsibility for several major functions usually performed by local governments, including education, welfare, health and judicial functions. There are no separate city, county or township governments nor any school districts, special districts, authorities or public corporations with overlapping authority. GASB Statement No. 14 defines component units as legally separate organizations for which the elected officials of the primary government are financially accountable. "Financial accountability" is the level of accountability that exists if a primary government appoints a voting majority of an organization's governing board and is either able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government. A primary government has the ability to impose its will on an organization if it can significantly influence the programs, projects, activities or level of services performed or provided by the organization. An organization has a financial benefit or burden relationship with the primary government if any one of three conditions exist: (1) The primary government is legally entitled to or can otherwise access the organization's resources; (2) The primary government is legally obligated or has otherwise assumed the obligation to finance the deficits of, or provide financial support to, the organization; or (3) The primary government is obligated in some manner for the debt of the organization. -43- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 As required by GAAP as set forth in GASB Statement No. 14, these basic financial statements present the County of Hawaii (the primary government) and its component unit, the Department of Water Supply. This component unit is included in the County's reporting entity because of its financial relationship with the County. Discretely Presented Component Unit The component unit column in the basic financial statements includes the financial data of the Department of Water Supply (Department), a legally independent agency of the County that is accounted for as an enterprise fund. It is reported in a separate column to emphasize that it is legally separate from the County. The members of the Water Commission, the governing body of the Department, are appointed by the Mayor of the County and confirmed by the County Council. The Department is granted corporate powers by state statute and the County Charter. Although the County does not have the authority to approve or modify the Department's operational and capital budgets, the County has issued bonds on the Department's behalf that are general obligations of the County. Because the County is obligated to repay these bonds in the event of default by the Department, the County is financially accountable for the debts of the Department. See Note 16 for required component unit disclosures for the Department. Complete financial statements of the Department can be obtained from the Department of Water Supply, 345 Kekuanaoa Street, Suite 20, Hilo, Hawaii 96720. The GASB issued Statement No. 34, Basic Financial Statements — and Management's Discussion and Analysis —for State and Local Governments, GASB Statement No. 37, Basic Financial Statements — and Management's Discussion and Analysis —for State and Local Governments. Omnibus, GASB Statement No. 38, Certain Financial Statement Note Disclosures, and Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements. These pronouncements establish new financial reporting requirements and a new financial reporting model for state and local governments. The County adopted these pronouncements effective July 1, 2001 (see note 14). The following describes the more significant changes for the County. Basic Financial Statements The basic financial statements include both government -wide (based on the County as a whole) and fund financial statements. While the previous model emphasized fund types (the total of all funds of a particular type), in the new reporting model the focus is on either the County as a whole or major individual funds (within the fund financial statements). Both the government -wide and fund financial statements (within the basic financial statements) categorize primary activities as either governmental or business type. In the government - wide Statement of Net Assets, both the governmental and business -type activities columns (a) are presented on a consolidated basis by column, (b) and are reflected, on a full accrual, economic resource basis, which incorporates long-term assets and receivables as well as long-term debt and obligations. -44- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 The government -wide Statement of Activities reflects both the gross and net costs per functional category (general government, public safety, highways and streets, etc.) which are otherwise being supported by general government revenues (property taxes, certain intergovernmental revenues, etc.). The Statement of Activities reduces gross expenses (including depreciation) by related program revenues, operating and capital grants. The program revenues must be directly associated with the function (general government, public safety, highways and streets, etc.) or a business -type activity. The operating grants include operating -specific and discretionary (either operating or capital) grants while the capital grants column reflects capital -specific grants. The net cost (by function or business -type activity) is normally covered by general revenue. Historically, the previous reporting model did not summarize or present net cost by function or activity. The government -wide focus is more on the sustainability of the County as an entity and the change in aggregate financial position resulting from the activities of the fiscal period. The fund financial statements are, in substance, very similar to the financial statements presented in the previous model. Emphasis here is on the major funds in either the governmental or business -type categories. Nonmajor funds (by category) are summarized into a single column. The governmental funds in the fund financial statements are presented on a current financial resource and modified accrual basis of accounting. This is the manner in which these funds are normally budgeted. This presentation is deemed most appropriate to (a) demonstrate legal and covenant compliance, (b) demonstrate the source and use of liquid resources, and (c) demonstrate how the County's actual experience conforms to the budget fiscal plan. Since the governmental fund statements are presented on a different measurement focus and basis of accounting than the government -wide statements' governmental column, a reconciliation is presented on the page following each statement, which briefly explains the adjustments necessary to transform the fund based financial statements into the governmental column of the government -wide presentation. The County's fiduciary funds (which have been redefined and narrowed in scope) are presented in the fund financial statements by type (private purpose and agency). Since by definition these assets are being held for the benefit of a third party (private parties, state government, etc.) and cannot by used to address activities or obligations of the government, these funds are not incorporated into the government -wide statements. The focus of the new reporting model is on the County as a whole and the fund financial statements. The focus of the Fund Financial Statements is on the major individual funds of the governmental and business -type categories, as well as the fiduciary funds (by category), and the component units. Each presentation provides valuable information that can be 45- COUNTY OF HAWAPI Notes to the Basic Financial Statements June 30, 2002 analyzed and compared (between years and between governments) to enhance the usefulness of the information. Government -wide and fund financial statements — The govemment-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the primary government and its component unit. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business -type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include (a) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government -wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. The new reporting model eliminates the presentation of Account Groups, but provides for these records to be maintained and incorporates the information into the Governmental column in the govemment-wide Statement of Net Assets. Activities in funds — The financial transactions of the County are recorded in individual funds. Each fund is accounted for by providing a separate set of self -balancing accounts that comprises its assets, liabilities, reserves, fund equity, revenues and expenditures/ expenses. The various funds are reported by generic classification within the financial statements. GASB Statement No. 34 sets forth minimum criteria (percentage of the assets, liabilities, revenues or expenditures/expenses of either fund category or the governmental and enterprise combined) for the determination of major funds. The nonmajor funds are combined in a column in the fund financial statements and detailed in the combining section. -46- COUNTY OF HAWAPI Notes to the Basic Financial Statements June 30, 2002 The County reports the following major governmental funds: General Fund - The general fund is the general operating fund of the County. It is used to account for all activities of the general government, except those required to be accounted for in other funds. Capital Projects Fund — Used to account for the costs of constructing County capital improvements financed with general obligation bond proceeds, federal and state grants, and general and special revenue fund revenues. The capital projects fund is used to account for financial resources to be used for the acquisition or construction of major general government capital facilities and infrastructure (other than those financed by proprietary funds and trust funds) when separate project centers are needed to control costs. The County reports the following major proprietary funds: Kulaimano Elderly Housing Project — Used to account for the operation of a rental housing project for low-income senior citizens located north of Hilo. Ouli Ekahi Affordable Housing Project — Used to account for the operation of a 33 - unit single-family affordable rental housing project located in Waimea. The County reports the following fiduciary funds: Private purpose Trust Fund — Used to account for funds received from geothermal developers to mitigate the effects of geothermal energy development. Agency Funds — Used to account for assets held by the County for other governmental units and individuals. The agency funds are custodial in nature and do not involve measurement of results of operations. The County has the following agency funds: • State Weight Tax Fund • Improvement District No. 17 • Improvement District Revolving Fund • Improvement District Bond and Interest Redemption Fund • Performance and Refundable Deposits Fund • Payroll Clearance Fund • Flexible Spending Account • Lapsed Warrants Fund • Non -Profit License Plates Fund • Organ and Tissue Education Fund -47- COUNTY OF HAWAPI Notes to the Basic Financial Statements June 30, 2002 Basis of Accounting Basis of accounting refers to the period in which revenues and expenditures (or expenses) are recognized in the accounts and reported in the basic financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. The Government -wide Financial Statements and the Proprietary, Fiduciary and Component Unit Fund Financial Statements are presented on an accrual basis of accounting. The Governmental Funds in the Fund Financial Statements are presented on a modified accrual basis. Accrual Basis - Revenues are recognized when earned and expenses are recognized when the related obligation is incurred. Modified Accrual Basis - Revenues are recorded when susceptible to accrual (that is, both measurable and available). "Measurable" means the amounts are determinable. "Available" means the amounts are collectible within the current period or soon enough thereafter (within 60 days) to be used to pay liabilities of the current period. Licenses and permits, charges for current services, fines and forfeitures, penalties and miscellaneous revenues are recorded as revenues when received in cash because they are generally not measurable until actually received. State Revolving Fund loan proceeds are considered available when collected. In applying the susceptible to accrual concept to intergovernmental revenues, the legal and contractual requirements of the numerous individual programs are used as guidance. There are essentially two types of these revenues. In one, monies must be expended on the specific purpose or project before any amounts will be paid to the County; therefore, revenues are recognized based upon the expenditures recorded. Most construction grants and many operating grants fall into this category. In the other, moneys are virtually unrestricted as to purpose of expenditure and are usually revocable only for failure to comply with prescribed compliance requirements. These resources are reflected as revenues at the time of receipt or earlier if the susceptible to accrual criteria are met. The County reports deferred revenue in its fund financial statements (see Note 7). Deferred revenues anse when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period. In subsequent periods, when both revenue recognition criteria are met, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. Expenditures are recognized under the modified accrual basis of accounting in the accounting period in which the fund liability is incurred. Exceptions to this general rule 9" COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 include: (a) accumulated compensated absences and claims and judgments which are included in the general long-term debt account group and are recognized as expenditures when paid; (b) liabilities related to municipal solid waste landfill closure and postclosure care costs; and (c) principal and interest on general long-term debt which are recognized as expenditures when due. In accordance with GASB Statement No. 20, Accounting and Financial Reporting fbr Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the County applies all applicable GASB pronouncements as well as the following pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements; Financial Accounting Standards Board statements and interpretations, Accounting Principles Board opinions, and Accounting Research Bulletins of the Committee on Accounting Porcedures. Encumbrances The general, special revenue, and capital projects follow encumbrance accounting under which purchase orders, contracts and other commitments are recorded as a reserve of fund balance and provide authority for the carryover of appropriations to the subsequent year in order to complete these transactions. Encumbrances outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be honored during the subsequent year. Unexpended Allotments Allotment accounting is employed in the general and capital projects funds to reserve appropriations to complete capital projects that were funded during a given fiscal period Unexpended allotments represent reserves of capital projects appropriations that are available to complete such projects in future fiscal periods. Cash and Investments Cash and cash equivalents include cash on hand, amounts in demand deposits and short- term investments with a maturity date of three months or less from the date acquired by the County. Investments consist of time certificates of deposit at financial institutions and bank repurchase agreements with original maturities exceeding three months. Included are participating interest-earning investment contracts (repurchase agreements) that have remaining maturities at the time of purchase of one year or less, as well as nonparticipating interest-earning investment contracts (time certificates of deposit and repurchase agreements). Both categories of investments are stated at amortized cost (see Note 3). -49- COUNTY OF HAWAI'I Notes to the Basic Financial Statements June 30, 2002 Real Property Taxes The County's real property taxes are levied July 1 each year on assessed valuation as of January 1. The taxes become a lien on the property assessed as of the levy date. Taxes are due and payable in two equal annual installments on August 20 and February 20. Accordingly, real property taxes receivable as of June 30 are delinquent. Each delinquent installment bears interest at 1% per month and penalties of up to 10% of the amount due. Assessments are based on 100% of estimated fair market values. Inventories Inventories consist of materials and supplies and are reported as expenditures at the time of purchase (purchase method). Police and fire department inventories are stated using the first in, first out (FIFO) method. Other inventories are stated at average cost. Liquor Control Section 281 of the Hawaii Revised Statutes requires that liquor license revenues collected be used only for costs and expenses directly relating to operational and administrative costs actually incurred by the liquor commission collecting such fees. The unexpended fees at June 30, 2002 of $595,423 are reflected as a reserve of general fund balance (See Note 12). Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, lighting systems, and similar items), are reported in the applicable governmental or business -type activities columns in the government -wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $1,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the life of the asset are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business - type activities is included as part of the capitalized value of the assets constructed. Capital assets of the primary government is depreciated using the straight line method over the following estimated useful lives of the assets: -50- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 Assets Years Infrastructure 20 to 100 years Buildings and improvements 50 to 100 years Equipment 5 to 40 years Depreciation is recorded in one enterprise fund, the Kulaimano Elderly Housing Project. It is computed using the straight-line method over the following estimated useful lives of the assets: Buildings 50 years Furnishings and equipment 5 to 10 years Ground and site improvements 20 to 50 years Long-term Obligations The County reports long-term debt of governmental funds at face value on the government - wide statement of net assets. Certain other governmental fund obligations not expected to be financed with current available resources are also reported on the government -wide statement of net assets. Long-term debt and other obligations financed by the proprietary funds are reported as liabilities in those funds. Compensated Absences Employees hired on or before July 1, 2001 earn vacation credit at the rate of one and three- quarter working days for each month of service. Employees hired after July I, 2001 or later, earn vacation credit at a graduated scale depending on their years of service. Up to ninety days of vacation leave credits can be accumulated per employee. In addition, employees who work overtime can elect to take compensatory time off instead of overtime pay. The time off is earned at the rate of one and a half hours for each hour of overtime worked. There is no statutory limit to the amount of compensatory time off an employee can accumulate. Both compensatory time off and vacation credits are converted to pay upon termination of employment. The amounts expected to be liquidated with expendable available resources are accrued in the appropriate funds and the amounts payable from future resources are recorded in the government -wide statement of net assets along with the estimated liability for FICA taxes and employers' retirement contributions on those amounts. All accumulated unpaid vacation and compensatory time off at June 30, 2002 are expected to be liquidated with future expendable resources. 51- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 Sick leave accumulates without limit. Sick leave can be taken only in the event of illness and is not convertible to pay upon termination of employment. Accumulated sick leave at June 30, 2002 totaled $47,190,000 for the primary government. Leases Leases transferring substantially all of the risks and benefits of ownership are recorded as capital leases; other leases are operating leases (see Note 8). Capital leases are recorded as capital asset additions at their estimated fair market value at the inception of the lease and the related present value of the future minimum lease obligations is recorded as long-term debt. Operating lease expenditures and expenses are recognized when the lease obligation is paid. Retirement Plan Contributions The County's contribution to the Employees' Retirement System of the State of Hawaii is based upon an actuarial computation and includes the normal cost plus the level annual payment required to amortize the unfunded actuarial accrued liability over a remaining period of fifteen years from July 1, 2001. The County's policy is to fund its actuarially determined required contribution annually. Operating Revenues and Expenses Revenues and expenses are distinguished between operating and nonoperating items for the proprietary funds. Operating revenues generally result from providing services in connection with the proprietary funds' principal ongoing operations. The principal operating revenues of the proprietary funds are fees charged to residents for rent and rental subsidies received from the federal government. Operating expenses include the costs associated with providing housing for tenants, such as utilities, lease rent, and maintenance and repairs; administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting these definitions are reported as nonoperating revenues and expenses. Use of Estimates The preparation of the basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and other debits and liabilities and other credits, as well as disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues, expenditures, and other financing sources and uses during the reporting period. Actual results could differ from those estimates. -52- COUNTY OF HAWAI'I Notes to the Basic Financial Statements June 30, 2002 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Annual Budget The County follows these procedures in establishing its operating and capital budgets: • On or before March 1, the Mayor submits to the County Council proposed operating and capital projects budgets for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures for the general fund and special revenue funds, and the means of financing them. A project -length budget is submitted to the County Council for the capital projects fund. • The Mayor submits to the County Council amendments to the proposed operating and capital budgets within ten working days after the close of the state legislature, but not later than May 5. • The County Council conducts public hearings on the proposed operating and capital budgets after March 1 but prior to the first reading on the budget bills, which must be after May 5. • On or before June 30, the County Council adopts the budgets. The legal level of budgetary control is the department level because the Mayor can transfer funds from any unencumbered appropriation to another within a department or agency without Council approval. During the year, the budget may be amended by action of the Council, except for appropriations required by law and appropriations for debt service, which may not be decreased or deleted. Supplemental appropriations were made during the 2001-2002 fiscal year to recognize revenue from .sources not anticipated at the time of the original budget and to establish the authorization for such funds to be expended. Such supplemental appropriations totaled $2.7 million in the general fund and $7.6 million in the special revenue funds. Appropriations for the operating budget lapse at the end of the fiscal year to the extent that they have not been expended or encumbered. Appropriations for capital expenditures that are not encumbered lapse at the end of two fiscal years following the fiscal year that the appropriation was made. Formal budgetary integration is employed as a management control device during the year for the general fund, special revenue funds, and capital projects fund. Formal budgetary integration is not employed for debt service funds because effective budgetary control is alternatively achieved through general obligation bond indenture provisions. -53- COUNTY OF HAWAI'I Notes to the Basic Financial Statements June 30, 2002 The accompanying statement of revenues, expenditures and changes in fund balances - budget and actual (budgetary basis) - general fund presents a comparison of the legally adopted budget with actual data on a budgetary basis. Accounting principles applied for purposes of developing data on a budgetary basis differ significantly from those used to present financial statements in conformity with GAAP. On the budgetary basis, intergovernmental revenues are recognized when awarded by the granting agency, encumbrances and unexpended allotments are treated as expenditures, accounts payable are not accrued, and all leases are treated as operating leases. In preparing the financial statements on a GAAP basis, accounts payable are accrued and treated as a reduction of encumbrances for balance sheet presentation. Budget to GAAP Reconciliation The following is a summary of the adjustments necessary to convert fund balances from a GAAP basis to a budgetary basis at June 30, 2002: Deficit Fund Balances At June 30, 2002, the Solid Waste Fund and the Golf Course Fund, special revenue funds, had fund deficits of $36,599 and $33,522, respectively. It is anticipated that future revenues from these funds will eliminate these deficits. 3. CASH AND INVESTMENTS Bank time certificates of deposit (TCDs), repurchase agreements (repos) and money market funds with original maturities of three months or less are considered cash and cash equivalents for purposes of balance sheet classification, while TCDs, repos and money market funds with original maturities exceeding three months are considered investments. However, for purposes of the disclosures required by GASB Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse -54- General Fund Ending fund balance - GAAP basis $9,548,690 Encumbrance adjustments: Beginning encumbrances and unexpended allotments 3,668,382 Ending encumbrances and unexpended allotments (2,660,588) Other adjustments 59,643 Ending fund balance - Non -GAAP budgetary basis $10.616.117 Deficit Fund Balances At June 30, 2002, the Solid Waste Fund and the Golf Course Fund, special revenue funds, had fund deficits of $36,599 and $33,522, respectively. It is anticipated that future revenues from these funds will eliminate these deficits. 3. CASH AND INVESTMENTS Bank time certificates of deposit (TCDs), repurchase agreements (repos) and money market funds with original maturities of three months or less are considered cash and cash equivalents for purposes of balance sheet classification, while TCDs, repos and money market funds with original maturities exceeding three months are considered investments. However, for purposes of the disclosures required by GASB Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse -54- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 Repurchase Agreements, (GASB Statement No. 3) all bank TCDs are considered deposits and all repos and money market funds are considered investments. Cash and cash equivalents of $35,301,620 and investments of $52,932,389 are included In the accompanying govemment-wide financial statements at June 30, 2002. The fiduciary funds financial statements include cash and cash equivalents of $4,664,214 and investments of $1,669,826 at June 30, 2002. The following table summarizes cash and cash equivalents and investments according to statement of net assets captions, and indicates how these amounts are distributed between deposits and investments for GASB Statement No. 3 disclosure purposes. Government- Fiduciary Funds Statement of net assets caption: Total GASB Statement No. 3 Statement of net assets caption: Total Deposits Investments Cash and cash equivalents $38,794,011 $31,214,998 $7,579,013 Imprest and change funds 23.670 38,817,681 34,790,467 Total unrestricted cash and cash equivalents 38,817,681 Restricted assets: Cash and cash equivalents — current 927,641 290,641 Cash and cash equivalents — current 927,641 927,641 220,512 Cash and cash equivalents — noncurrent 220.512 220,512 35,301,620 Total cash and cash equivalents 39,965,834 51,716,843 50,047,017 Investments—current 51,716,843 41158,914 10,457,929 Investments — noncurrent 2.885,372 94,568,049 2.885.372 Total cash, cash equivalents and investments 94,568,049 (23,6701(23,670) Less imprest and change funds (23.6701 594.554379 888 210 339 Classifications per GASB Statement No. 3 $94 554 379 $23,622 065 $24222.314 Government- Fiduciary Funds Statement of net assets caption: Total Wide Statements Statements Cash and cash equivalents $38,794,011 $34,766,797 $4,027,214 Imprest and change funds 23.670 _2! 3.6701 -- Total unrestricted cash and cash equivalents 38,817,681 34,790,467 4,027,214 Restricted assets: Cash and cash equivalents — current 927,641 290,641 637,000 Cash and cash equivalents — noncurrent 220.512 220,512 Total cash and cash equivalents 39,965,834 35,301,620 4,664,214 Investments—current 51,716,843 50,047,017 1,669,826 Investments— noncurrent 2,885,372 2,885,372 -- Total cash, cash equivalents and investments 94,568,049 88,234,009 6,334,040 Less imprest and change funds (23,6701(23,670) Classifications per GASB Statement No. 3 594.554379 888 210 339 55 - COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 The County maintains a cash and investment pool that is used by the general fund, all special revenue funds except the Housing Agency, one capital projects fund, the payroll clearance fund, and three other agency funds. The following summarizes this pool at June 30, 2002: General fund $ 7,325,741 Special revenue funds 17,397,526 Capital projects fund 42,015,353 Fiduciary funds 3,116,946 Total pooled cash and investments $69.855.566 Interest earned is credited to the general fund unless otherwise designated by statute. Deposits At June 30, 2002, the carrying amount of the County's deposits was $73,622,065 (including $1,148,153 reported in restricted assets) and the bank balance was $76,220,705. Of the bank balance, $800,000 was covered by federal depository insurance; $75,411,857 was covered by collateral held by the County's agent in the County's name, in accordance with State statutes; and $8,848 held by a management agent was uncollateralized. Investments The Hawaii Revised Statutes authorize the County to invest in obligations of the U.S. Treasury, agencies and instrumentalities, time certificates of deposit, bank repurchase agreements and bonds of any improvement district of any county of the State, provided the investments are due to mature not more than three years from the date of investment. Investments are classified into three categories of custodial credit risk: (1) insured or registered, or securities held by the County or its agent in the County's name; or (2) uninsured and unregistered, with securities held by the counterparty's trust department or agent in the County's name; or (3) uninsured and unregistered, with securities held by the counterparty in the County's name, or by the counterparty's trust department or agent but not in the County's name At June 30, 2002, investments reported as $20,922,314 (which approximates fair value) held for the County at banks and trust companies were classified as category 1. These investments are comprised of bank repurchase agreements and money market funds. A repurchase agreement is an agreement in which a governmental entity transfers cash to a broker-dealer or financial institution: the broker-dealer or the financial institution transfers securities to the entity and promises to repay the cash plus interest in exchange for the same securities. -56- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 Restricted Cash and Cash Equivalents and Investments Cash and cash equivalents and investments classified as restricted assets amounted to $1,148,153 at June 30, 2002 consist of the following: The County deposited its share of the cost of the Alenaio Stream Flood Control Project into an escrow account which amounted to $1,417 at June 30, 2002. The Army Corps of Engineers is authorized to draw on these funds as needed during the course of the construction project. The County entered into a capital lease to purchase a new real property tax computer system. Upon execution of the lease documents, the leasing company deposited into an escrow account in the County's name the full lease proceeds. As progress billings are received for the new system, the County will authorize withdrawals from this escrow account to pay the bills. The balance in this account at June 30, 2002 was $289,224. Tenant security deposits received by the County for the Kulaimano Elderly Housing Project and the Ouli Ekahi Affordable Housing Project are recorded as restricted assets, Such funds amounted to $9,277 and $17,800, respectively, at June 30, 2002. Restricted amounts set aside by the Kulaimano Elderly Housing Project under its loan agreement with the Farmers Home Administration totaled $179,028 at June 30, 2002. This amount is restricted for debt service, or for other purposes with prior approval from the Farmers Home Administration. An operating reserve fund was established by the Ouli Ekahi Affordable Housing Project pursuant to an agreement with the developer of the project. This restricted reserve amounted to $14,407 at June 30, 2002. The Improvement. District No. 17 Fund has restricted $637,000 as a bond reserve at June 30, 2002 to comply with the requirements of its Kaloko Subdivision bond issuance. -57- COUNTY OF HAWAI'I Notes to the Basic Financial Statements June 30, 2002 4. RECEIVABLES Receivables as of June 30, 2002, for the County's individual major funds and nonmajor funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: Governmental activities: Capital Nonmajor General Projects Governmental Fund Fund Funds Receivables Real property taxes $10,643,752 $ Accounts receivable: Receivables: 19,310,552 Sewer 33,830,685 Rent Solid waste Other 2,977 Intergovernmental 4,446,187 14,280,779 Gross receivables 15,089,939 14,280,779 Less: allowance for $41.966 uncollectibles Net total receivables $15.089.939 $14.280.779 Business -type activities: 5. INTERFUND RECEIVABLES AND PAYABLES Total $ $10,643,752 2,725,475 Enterprise 1,150,906 Funds Receivables: 19,310,552 Accounts receivable: 33,830,685 Rent $38,989 Other 2,977 Gross receivables 41,966 Less: allowance for uncollectibles Net total receivables $41.966 5. INTERFUND RECEIVABLES AND PAYABLES Total $ $10,643,752 2,725,475 2,725,475 1,150,906 1,150,906 583,586 19,310,552 4,459,967 33,830,685 (1,484,912) (1,484,912) $2,975,055 32.345,773 Interfund receivables and payables consist of the following at June 30, 2002: COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 Receivable Fund General fund Capital projects fund Other governmental funds Total Fiduciary funds Other governmental funds General fund Payable Fund Amount Capital projects fund $ 251,635 Other governmental funds 971.800 1,223.435 General 431,798 Other governmental funds 213,514 645.312 General 40,290 Capital projects fund 91,459 Other governmental funds 238,826 370,575 $2,2319=,3-22 General fund $ 849 Other governmental funds 2.110 Fund Fund $Z Enterprise funds $42,53 Fiduciary funds $8,110 _ The above interfund balances result from the time lag between the dates that interfund goods and services are provided or reimbursable expenditures occur, transactions are recorded, and payment between funds are made. Transfers for the fiscal year ended June 30, 2002 consisted of the following: Transfer in: General fund Capital projects fund Non major governmental funds Fiduciary funds Transfer out: Capital Nonmajor General Projects Governmental Fund Fund Funds $ $ 25,393,441 7,334 $25,393,441 $7.334 $ 635,868 3,492,404 838,445 717 Total $635,868 3,492,404 25,400,775 838.445 S3-0,3492 The interfund transfers noted above include transfers from the general fund to provide support for various County programs and to provide resources for the payment of debt services. In addition, some of the nonmajor governmental funds have made transfers to the Capital Projects fund for the construction of various projects. -59- COUNTY OF HAWAFI Notes to the Basic Financial Statements June 30, 2002 6. CAPITAL ASSETS Capital asset activity for the year ended June 30, 2002 for the County was as follows: Balance Balance July 1, June 30, 2001 Additions Retirements 2002 Governmental activities: Capital assets not being depreciated: Land $ 18,841,399 $ 319,599 ($ 150) $ 19,160,848 Construction in progress 43,214,895 25,636,3481( 7,135 7,� 51,715,472 Total capital assets not being depreciated 62,056,294 25,955,9471( 7,135 921 70,876,320 Capital assets being depreciated: Buildings and improvements 235,262,051 12,806,194 (13.200) 248,055,045 Machinery and equipment 55,787,816 5,584,510 (2375.195) 58,997,131 Infrastructure 200,499,791 11,356,107 211,855,898 Total capital assets being depreciated 491.549,658 29,746.811 (2,388.395) 518,908,074 Less accumulated depreciation for: Buildings and improvements (34,678,051) (3,112,125) -- (37,790,176) Machinery and equipment (31,150,887) (4,085,744) 2,140,071 (33,096,560) Infrastructure (57,815,104) (7,308,831) (65,123,935) Total accumulated depreciation (123,644,042) (14,506,700) 2,140 071 (136,010 671) Total capital assets, being depreciated, net 367,905 616 15,240,111 (248,324 382,897,403 Governmental activities capital assets, net $429.961.910 $41.196.058 $17.384.24 $453.77 _2J COUNTY OF HAWAPI Notes to the Basic Financial Statements June 30, 2002 Balance June 30, Additions Retirements 2002 $ - $ _ 753,87 1,136,008 261,000 4,117 (4,890) 89,272 4,117 (4.890) 1,486,280 (24,615) Balance (3,755) July 1, (5,541) 2001 Business -type activities: (33,911) Capital assets not being depreciated: Land $753,877 Capital assets being depreciated: Buildings 1,136,008 Ground and site improvements 261,000 Furnishings and equipment 90,045 Total capital assets being depreciated 1,487,053 Less accumulated depreciation for: Buildings (535,514) Ground and site improvements (152,121) Furnishings and equipment X73,9461 Total accumulated depreciation (761,581) Total capital assets, being depreciated, net 725,472 Business -type activities capital assets, net R,47 Balance June 30, Additions Retirements 2002 $ - $ _ 753,87 1,136,008 261,000 4,117 (4,890) 89,272 4,117 (4.890) 1,486,280 (24,615) (560,129) (3,755) (155,876) (5,541) 4,587 (74,900) (33,911) 4,587 (790,905) (29,794) f3O3) 695,375 ($29.7941 -61- 53031 44 2 COUNTY OF HAWAPI Notes to the Basic Financial Statements June 30, 2002 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities General government $ 1,341,393 Public safety 1,566,886 Highways and streets 7,900,122 Sanitation 2,584,689 Health, education and welfare 169,993 Culture and recreation 943,617 Total depreciation expense — governmental activities 14 506.7QQ Business -type activities: Kulaimano Elderly Housing Project $33,911 Total depreciation expense — business -type activities $33,911 7. DEFERRED REVENUE Deferred revenue consists of the following at June 30, 2002: Real property taxes Liquor control revenue Sewer revenue Solid waste revenue Intergovernmental Unearned rental income Total presented in fund financial statements Less adjustments for accrual of revenues Total government - wide financial statements -62- Capital Other Total General Projects Governmental Governmental Enterprise Fund Fund Funds Funds Funds $11,394,322 $ $ $11,394,322 $ 164,065 164,065 1,757,173 1,757,173 634,296 634,296 1,165,457 3,525,288 292,924 4,983,669 _ 1,319 12,723,844 3,525,288 2,684,393 18,933,525 1,319 10,645,035 2,391,46 9 13,036,504 S_ S 2`I 21 $1 19 -62- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 8. LEASES The County leases machinery and equipment under noncancellable leases expiring at various dates through November 2009 which meet the criteria for capitalization. These capital leases are financed from general fund resources. The estimated value of the leased machinery and equipment at the inception of the capital leases net of accumulated depreciation, amounting to $4,099,244 and $1,093,813, respectively, and the related present value of the remaining obligations under the capital leases amounting to $2,695,213 at June 30, 2002 are included in capital assets and long-term debt, respectively. The County also leases land, office facilities and other equipment under noncancellable operating leases expiring through July 2020. Expenditures for such operating leases were $466,786 for the fiscal year ended June 30, 2002. The future minimum obligations under capital and operating leases at June 30, 2002 are as follows: Obligations under capital leases -63- Governmental Activities - Capital Operating Leases Leases Year Ending June 30: 2003 $ 862,820 $184,773 2004 855,800 176,970 2005 700,389 180,829 2006 325,127 136,688 2007 146,280 36,349 2008-2012 126,538 10,786 2013 -2017 1,801 2018-2021 1.080 Total minimum lease payments 3,016,955 72 .7 Less amount representing interest32( 1.742) Obligations under capital leases -63- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 9. SOLID WASTE LANDFILL CLOSURE AND POSTCLOSURE CARE COSTS Hilo Landfall The County owns and operates a landfill located in the city of Hilo. State and federal laws require the County to place covers on certain landfill sites and to monitor and maintain the sites for thirty years after the facility is closed. Although the closure and postclosure care costs will be paid near and after the date that the landfill stops accepting waste, the County recognizes a portion of the closure and postclosure care costs in each operating period. The liability for these costs is included in the government -wide statement of net assets. The amount recognized each year is based on the landfill capacity used as of the balance sheet date. At June 30, 2002, the County recognized a liability of $13,199,000, based on the use of 96% of the estimated capacity of the landfill. During the fiscal year ended June 30, 2002, nothing was spent on closure of the landfill. The remaining $633,366 in estimated cost of closure and postclosure care will be recognized as the remaining estimated capacity is used. These amounts are based on what it would cost to perform the required closure and postclosure care in 2002. Actual costs at that time may be higher due to inflation, changes in technology, or changes in regulations. The County's permit to operate the landfill expired October 9, 1998. The County has filed for an extension which is pending approval by the state. In accordance with state statute, the County is allowed to continue operations provided that the County acts consistently with the permit previously granted and the extension application, plans, specifications and all other information contained therein. The County expects the extension to be granted. Kealakehe In October 1993, the County closed its Kealakehe landfill in Kona. Under state and federal requirements, the County would have to monitor and maintain this site for ten years from the closure date. However, the County anticipates monitoring and maintaining the site for thirty years because there is presently a subterranean fire which requires active management. The estimated cost of closure and postclosure is $15,250,000, based on what it would cost to perform the required closure and postclosure care in 2002. Actual costs may be higher due to inflation, changes in technology, or changes in regulations. Through June 30, 2002, $6,403,000 was spent on closure and postclosure care of the landfill. The remaining estimated liability of $8,847,000 is included in the govemment-wide statement of net assets. During the year ended June 30, 2002, a total of S 160,672 was spent on this landfill. This amount was for the management of the subterranean fire. The County is providing financial assurance for postclosure care and remediation through self insurance as explained below. Pu'uanahulu In May 1993, the County contracted with a private company to construct and operate a new landfill on County land at Pu'uanahulu in West Hawaii. The present contract calls for County employees to perform the daily operations of the landfill, and for the private company to retain the overall management as well as perform all construction work on the landfill cells. Under the terms of the contract, the County has no responsibility for COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 remediation, closure or postclosure care. Accordingly, no liability for this landfill is included in the County's financial statements. Financial Assurance For fiscal year 2002, the County has provided for financial resources that will be available to provide for closure, postclosure care and remediation or containment of environmental hazards at the above landfills. The Environmental Protection Agency's financial assurance rules include a local government financial test consisting of a financial component, a public notice component, and a recordkeeping component. Local goverments are required to satisfy each of the three components to pass the annual test. Management believes that the County has satisfied each of the components of the local government financial assurance requirements. 10. LONG-TERM DEBT General Obligation Bonds The County issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. These bonds have been issued by the County for both primary government and component unit activities (see Note 15). The following is a summary of general obligation bond transactions reported in the government -wide statement of net assets for the County for the fiscal year ended June 30, 2002: Bonds payable at July 1, 2001 $130,512,500 Bonds issued 15,075,000 Bonds retired (7,415,000) Bonds payable at June 30, 2002 IU- 1 9.50 65 - COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 General obligation bonds payable reported on the government -wide statement of net assets at June 30, 2002 are comprised of the following individual issues: Public improvement and/or refunding bonds: 1977 Series A at 5.0%, due through 2012 $ 241,000 1989 Refunding at 6.85% to 6.95%, due through 2004 450,000 1993 Refunding & PI at 5.13% to 5.6%, due through 2013 50,710,000 1996 Series A at 4.5% to 5.2%, due through 2016 25,340,000 1996 Series B at 4.5%, due through 2016 619,000 1997 Series A at 4.875%, due through 2017 3,324,500 1999 Series A at 4.375% to 6.0%, due through 2019 30,000,000 1999 Refunding at 4.375% to 4.875%, due through 2007 12,410,000 2001 Series A at 4.0% to 5.5%, due through 2021 15,000,000 2001 Series A Public Impr at 4.875%, due through 2021 75,000 Total general obligation bonds payable $138.164.500 Annual debt service requirements to maturity for the above general obligation bonds are as follows: Fiscal year ending June 30: 2003 2004 2005 2006 2007 2008-2012 2013-2017 2018-2022 Total Bonds Authorized and Unissued Governmental Activities_ Principal Interest $ 8,872,500 $ 7,195,613 8,872,200 6,779,238 9,822,148 10,297,413 10,796,739 47,371,283 31,468,087 10,669.130 ' 11 6,329,494 5,851,369 5,328,577 19,074,465 7,046,140 1,173,658 The County Council has authorized the issuance of $1.8 million in general obligation bonds to finance a portion of the cost of constructing a police prearraignment detention facility. These bonds were sold to the United States Department of Agriculture under its Federal Consolidated Farm and Rural Development Act loan program. Al June 30, 2002, these authorized bonds were issued, however, of this amount $75,000 has been drawn down and the remaining $1,725,000 has yet to be drawn down. COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 State Revolving Fund Loans The County has obtained loans to assist in financing mandated wastewater projects from the State Water Pollution Control Revolving Fund (SRF). The purpose of this revolving fund is to provide low-interest, long-term loans and other financial assistance to the four counties in the state to finance construction of wastewater projects. The County has fourteen projects approved for funding with these loans. The schedule below shows the County's SRF transactions for the fiscal year ended June 30, 2002: Loans Approved Loan Balance Loan Balance Authorized Amount July 1, 2001 Additions Retirements June 30, 2002 Hilo WWTP $12,724,311 $ 8,473,216 $ ($614,199) $ 7,859,017 Waiakea Mill 1,300,000 923,177 (60,974) 862,203 Waiakea Hslts 459,321 307,113 (22,262) 284,851 Waiakea Hslts II 5,024,266 4,408,062 (200,703) 4,207,359 Ainako A&B 2,374,000 1,621,540 9,461 (105,398) 1,525,603 Kalanianaole 1,499,944 1,210,291 (67,734) 1,142,557 Alii Drive A&B 3,210,243 2,125,778 (138,004) 1,987,774 Alii Drive C&D 3,780,000 2,951,997 (176,713) 2,775,284 Alii Drive E&F 2,112,654 1,793,221 (88,993) 1,704,228 Waiaha Bay 3,697,893 2,927,745 4,265 (166,314) 2,765,696 Kealakehe 1,300,071 921,496 (60,863) 860,633 Holualoa Bay 3,080,000 2,616,357 (134,605) 2,481,752 Paukaa CCS 2,143,448 2,000,587 (90,121) 1,910,466 Pahoehoe _ 2,940,750 2,113,448 564,776 (45,866) 2,632,358 $45.646.901 $34.394.028 $578,502 1.972.749 $ 99 781 -67- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 The loans bear interest at 2.06% to 3.02%, exclusive of a 1.00% loan fee, and require payments through fiscal year 2021. Debt service to maturity for disbursements to date on these projects are as follows: Fiscal year ending June 30: 2003 2004 2005 2006 2007 2008-2012 2013-2017 2018-2021 Total Other General Long-term Obligations Governmental Activities Principal Interest $ 2,087,896 $1,129,501 2,141,688 1,072,090 2,197,070 1,012,570 2,253,727 951,665 2,311,918 889,120 12,487,049 3,448,795 7,999,624 1,278,501 1,520,809 92,573 $32.999.781 $9, 74 1 The following is a summary of other general long-term obligations transactions for the fiscal year ended June 30, 2002: Governmental activities: Compensated absences Claims and judgments (see Note 12) Capital lease obligations (see Note 8) Landfill closure costs (see Note 9) Total Balance July 12001 Additions $17,316,272 $ 8,431,880 Deductions Balance Due within & Payments June 30, 2002 one year $(6,885,826) $18,862,326 $4,963,758 14,580,426 8,193,780 (4,062,654) 2,399,868 930,086 (634,741) 21.890.000 317.000 Fund Balances - Debt Service Funds 18,711,552 4,261,535 2,695,213 770,805 (161,000) 22,046,000 ($11.744.2211 $62.315.091 119.003 R 1 101 The fund balance in the debt service funds at June 30, 2002 includes $11,925,622 which is available for principal payments on general obligation bonds and $37,922 which is reserved for the payment of interest on the bonds. KIT -10 COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 Enterprise Fund Notes Payable The Kulaimano Elderly Housing Project is indebted to the U.S. Department of Agriculture, Farmers Home Administration on two notes payable with balances aggregating $1,101,772 at June 30, 2002. The notes, which mature in September 2029, are repayable in monthly installments of $7,826 including interest and are collateralized by substantially all of the project's property and equipment. Although the stated annual rate of interest on the notes is 9%, such rate is reduced to 7% for as long as the Project has a U.S. Department of Housing and Urban Development Section 8 Housing Assistance Payment contract in effect for all or part of the units within the Project. Fiscal year ending June 30: 2003 2004 2005 2006 2007 2008-2012 2013 -2017 2018-2022 2023 -2027 Total Special Assessment Bonds Business-tvne Activities Principal 1 17 Interest $ 17,337 $ 76,575 18,591 75,322 19,934 73,978 21,375 72,537 22,921 70,991 141,987 327,573 201,284 268,276 285,345 184,214 372.998 65.320 $1,214,78) The County has outstanding special assessment bonds for one improvement district. In 1991, the County issued $14 million of special assessment bonds for Improvement District No. 17, Kaloko Subdivision, to finance a roadway and water system. In 2001, the County refunded the remaining bonds outstanding of $6,370,000. The bonds mature annually through 2011 and bear interest at 7.375%. Total special assessment bonds payable were $6,370,000 at June 30, 2002. These are not general obligation bonds and the County is not obligated in any manner for the repayment of these bonds. The bonds are secured by a first lien on the land benefited by the improvements, and are to be repaid from the annual assessments levied against the owners of the land. The County acts as an agent for the property owners within the improvement districts to collect assessments receivable, forward payments to bond -paying agents at appropriate dates and, if required, administer foreclosure proceedings. Accordingly, these bonds are not reflected on the County's government -wide statement of net assets. OR COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 The following is a summary of special assessment bond transactions for Improvement District No. 17, Kaloko Subdivision, for the fiscal year ended June 30, 2002: Balance at July 1, 2001 $10,760,000 Deductions (4,390,000) Balance at June 30, 2002 $ 6.370,000 The following is a summary of the annual maturities for the special assessment bonds: Year ending June 30: Principal Interest 2003 S 255,000 $ 313,192 2004 505,000 450,981 2005 540,000 413,738 2006 580,000 373,912 2007 620,000 331,138 2008-2012 3,870,000 896.800 Total $6,370.000 779 761 11. COMMITMENTS AND CONTINGENCIES Contractual commitments — Contractual commitments for capital projects, expenses, and supplies at June 30, 2002, except in the enterprise funds, are reflected in the balance sheets as fund balance reserved for encumbrances. Contractual commitments for the enterprise funds were immaterial. Intergovernmental revenues — The County has received federal and state grants for specific purposes that are subject to review and audit by grantor agencies. Such audits could lead to requests for reimbursement to the grantor agency for expenditures disallowed under terms of the grant. In the opinion of management of the County, disallowed costs, if any, would not be material. Claims — Numerous claims and lawsuits have been filed against the County in the normal course of its operations. A liability for probable losses is included on the government -wide statement of net assets (see Note 12). Although the outcome of the various claims and lawsuits is not presently determinable, in the opinion of the County's attorneys, the resolution of such matters will not have a material adverse affect on the financial condition of the County. Managed process for public competition — The 1998 session of the state legislature passed a bill mandating that a multi jurisdictional committee be formed to establish policies and procedures to implement a managed process for public competition in the procurement of services by the state and the four counties. The purpose of this process is to determine -70- COUNTY OF HAWAPI Notes to the Basic Financial Statements June 30, 2002 whether a particular service can be provided more effectively, efficiently and economically by a public agency or a private enterprise. There are several bills pending consideration in the current session of the legislature which may mandate the managed competition process. The County is currently awaiting implementation guidance from the State. A managed process for public competition may require cost accounting capability that the County does not presently have. The cost to the County to develop a system to provide the necessary data cannot be determined until the legislature acts on the recommendations of the multi - jurisdictional committee and adopts policies and procedures. Also, the fiscal impact of the managed process itself cannot be determined at this time. ADA compliance —The County has entered into two stipulated agreements approved by the federal court to implement provisions of the Americans with Disabilities Act. With respect to the first stipulated agreement relating to curb cuts, the County, with the help of a consultant, surveyed 669 intersections, then ranked them in order of priority. A transition plan, along with a funding commitment, was approved by the County Council. The total cost of all curb cuts was estimated to be $6.2 million. The cost of the first phase of the plan was $3 million, to be used in high priority areas such as government facilities, schools, and hospitals. The remaining cost will cover curb cuts at parks and in low-density single family residential areas. All corrective action was to be completed by July 2005, with an estimated 682 ramps to be completed. Funding allocated so far for this effort is $2 million. Since the proposed timetable proved to be too ambitious, the parties amended the agreement to require contracting by July 2005, rather than completion by that date. The second stipulated agreement relates to the Department of Parks and Recreation (the Parks Department). The agreement required the Parks Department to establish practices, policies and procedures regarding its programs, and prepare a transition plan by the middle of the year 2000. The self-evaluation and transition plan for programs, practices and procedures has been completed and approved by the County Council. The cost impact of implementation is not material because the necessary modifications are primarily procedural. This is an ongoing effort. The second part of this stipulated agreement is the reevaluation of all County facilities, which was completed and accepted by the County Council on June 30, 2000. Approximately 240 County facilities were surveyed as part of this effort. The tentative completion date of all necessary repairs and renovations is 12 years from the date the County Council accepted the self-evaluation. The original estimated cost of the facilities repairs was $14.8 million, which will be spent over the 12 year period. Funding allocated so far for facilities repairs is $4 million, with another $4 million of federal funding anticipated through community development block grants over the next 5 years. 12. RISK MANAGEMENT The County is exposed to various risks of losses related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The -71- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 County maintains fire and commercial multiple peril insurance on County facilities, flood insurance on selected structures, medical malpractice insurance for emergency medical technicians, general liability insurance for water safety officers, aviation liability for helicopter operations, automobile coverage on transit buses, and no-fault insurance coverage for privately owned police vehicles. There was no reduction in insurance coverage during the year from coverage in the prior year. During the past three fiscal years, the amount of settlements in cases covered by insurance have not exceeded the insurance coverage. The County is substantially self-insured for its vehicles as well as for all other perils including workers' compensation and general liability. Liabilities are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported (IBNR). Claim liabilities, including IBNR, are based on the estimated ultimate cost of settling the claims, and include incremental costs for the hiring of special counsel and expert witnesses. Claims liabilities are estimated by a case-by-case review of all claims and the application of historical experience to outstanding claims. Estimates of IBNR are based on historical experience. The liability for claims and judgments is reported on the government -wide statement of net assets. At June 30, 2002, the amount of this liability was $18,711,552. This is the County's best estimate based on available information. Changes in the reported liability since July 1, 2000 are given below. Balance at July 1, 2000 Incurred claims (including IBNR)* Claim payments Balance at June 30, 2001 Incurred claims (including IBNR)* Claim payments Balance at June 30, 2002 General Workers' Total Liabili Compensation Liabili $4,672,848 $ 7,257,826 $11,930,674 2,910,380 3,630,781 6,541,161 (1,093,069) (2,798,340) (3,891,409) 6,490,159 8,090,267 14,580,426 814,867 7,378,913 8,193,780 (603,350) (3,459,304) (4,062,654) 7 1 $12,009.87 _71,5L *Net of new claims liability and old claims resolved at less than previous estimate. 13. EMPLOYEE BENEFIT PLANS Pension Plan Plan description All full-time employees of the County participate in the Employees' Retirement System of the State of Hawaii system), a cost-sharing multiple -employer defined benefit pension plan. The System was established by Chapter 88 of the Hawaii Revised Statutes (HRS) and is governed by a Board of Trustees. All contributions, benefits -72- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 and eligibility requirements are established by Chapter 88, HRS, and can be amended by legislative action. The System regards the County, including its component unit, as one employer. Therefore, separate information for the primary government and its component unit is not available. All information given below on the pension plan is for the reporting entity as a whole, including both the primary government and its component unit. All of the County's full-time employees are eligible to participate in the System. The System consists of a contributory retirement plan and a noncontributory retirement plan. Eligible employees, in service and a member of the existing contributory plan on June 30, 1984, were given an option to remain in the existing plan or join the noncontributory plan, effective January 1, 1985. All new eligible employees hired after June 30, 1984 generally become members of the noncontributory plan. Both plans provide death and disability benefits and a cost of living adjustment. In the contributory plan, employees generally may elect normal retirement at age 55 with 5 or 10 years of credited service or elect early retirement at any age with 25 years of credited service. Such employees are generally entitled to retirement benefits, payable monthly for life, of 2% or 21/, % of their average final salary, as defined, for each year of credited service with certain limitations. Benefits fully vest on reaching five years of service; retirement benefits are reduced for early retirement. In the noncontributory plan, employees may elect normal retirement at age 62 with 10 years of credited service or at age 55 with 30 years of credited service, or elect early retirement at age 55 with 20 years of credited service. Such employees are entitled to retirement benefits, payable monthly for life, of 1.25% of their average final salary, as defined, for each year of credited service. Benefits fully vest on reaching ten years of service; retirement benefits are reduced for early retirement. The System issues a Comprehensive Annual Financial Report that may be obtained by writing to the Employees' Retirement System of the State of Hawaii, 201 Merchant Street, Suite 1400, Honolulu, Hawaii 96813. Funding policy All funding requirements are established by Chapter 88, HRS, and can be amended by the state legislature. Covered contributory plan employees are required to contribute 7.8% or 12.2% of their salary to the plan; the County is required to contribute the remaining amounts necessary to pay contributory plan benefits when due. The County is also required to contribute all amounts necessary to pay noncontributory benefits when due. The County's contribution requirements are actuarially determined based on actuarial assumptions established by Chapter 88, HRS. The County's contributions to the System for the fiscal years ended June 30, 2000, 2001 and 2002 were $2,105.000, $129,000, and $7,434,500, respectively, equal to the required contributions for each year. -73- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 Post -Retirement Benefits In addition to providing the pension benefits described above, the County is required by state statute to contribute to the Hawaii Public Employees Health Fund (Health Fund), a statewide program which provides health and group life insurance for all retired and active County employees, their dependents and their beneficiaries. The state and other counties also participate in the fund. For employees hired prior to July 1, 1996 who retire with at least ten years of credited service, the County is required to pay 100% of the premiums of the medical, adult dental, prescription drug, vision, and group life insurance plans elected by the retiree. For employees hired prior to July 1, 1996 who retire with less than ten years of credited service, the County is required to pay half of the monthly premium cost of the above plans. For employees hired July 1, 1996 or after, the amount of the premium cost the County is required to pay varies depending on the employee's years of service at the time of retirement. Currently, the County has 1,029 former employees who have retired with at least ten years of credited service and are receiving the full benefit. An additional four employees have retired with less than ten years of service and have half of their medical premiums paid by the County. For each retiree and retiree's spouse eligible for Medicare, the County also pays $50.00 per month as reimbursement of their Medicare premiums. The County's contribution is recorded as an expenditure when paid. The amount of the contribution is limited by state statute to the actual cost of benefit coverage. During the fiscal year ended June 30, 2002, the County's contribution to the Health Fund for retired employees totaled $5.4 million. Deferred Compensation Plan County employees are permitted to participate in a deferred compensation plan of the State of Hawaii, adopted pursuant to Internal Revenue Code (IRC) section 457. The plan permits eligible employees to defer a portion of their salary until future years by contributing to a fund managed by a plan administrator. The deferred compensation amounts are not available to employees until termination, retirement, death, or unforeseeable emergency. All plan assets are held in a trust fund to protect them from claims of general creditors and from diversion to any uses other than paying benefits to participants and beneficiaries. The County has no responsibility for loss due to the investment or failure of investment of funds and assets in the plans, but does have the duty of due care that would be required of an ordinary prudent investor. Therefore, in accordance with GASH Statement No. 32, Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans, deferred compensation plan assets are not reported in the accompanying basic Financial statements. -74- COUNTY OF HAWAI'I Notes to the Basic Financial Statements June 30, 2002 14. ACCOUNTING RESTATEMENTS Effective July 1, 2001, the County adopted GASB Statement No. 34, Basic Financial Statements — and Management's Discussion and Analysis —for State and Local Governments. The capital asset and accumulated depreciation balances at July 1, 2001 were restated to reflect capital assets and record accumulated depreciation in accordance with the adoption of GASB Statement No. 34. The long-term debt balances at July 1, 2001 were restated to reflect long-term debt on the statement of net assets in accordance with the adoption of GASB Statement No. 34. The receivable balances at July 1, 2001 were restated to record revenues and receivables in accordance with the adoption of GASB Statement No. 34. The interest payable balance was restated to record interest payable in accordance with the adoption of GASB Statement No. 34. The following table shows beginning net assets restated for the effects of implementation of GASB Statement No. 34 and change in accounting policy: 15. COMPONENT UNIT DISCLOSURES Cash and Investments For purposes of the financial statements, the Department of Water Supply (the Department) considers all highly liquid investments with original maturities of three months or less to be cash equivalents. However, for the required GASB Statement No. 3 disclosures, all bank TCDs are considered deposits. The amount of $25,216,214 shown on the government -wide statement of net assets as cash and cash equivalents consists of the balance in checking accounts of $1,716,214 and time certificates of deposits of $23,500,000. Deposits and Investments At June 30, 2002, the carrying amount of the Department's deposits was $33,787.177 and the bank balance was $33,092,736. The entire bank balance was covered by collateral held by the County's agent in the County's name in accordance -75- Governmental Activities Fund balance as previously reported at July 1, 2001 $ 89,310,426 GASB Statement No. 34 adjustments: Net capital assets (note 6) 429,961,910 Long term debt (note 10) (221,093,094) Accrual of revenue receivables 11,826,388 Accrual of interest payable (1,833,159) Net assets as of July 1, 2001, as restated471 SaN 15. COMPONENT UNIT DISCLOSURES Cash and Investments For purposes of the financial statements, the Department of Water Supply (the Department) considers all highly liquid investments with original maturities of three months or less to be cash equivalents. However, for the required GASB Statement No. 3 disclosures, all bank TCDs are considered deposits. The amount of $25,216,214 shown on the government -wide statement of net assets as cash and cash equivalents consists of the balance in checking accounts of $1,716,214 and time certificates of deposits of $23,500,000. Deposits and Investments At June 30, 2002, the carrying amount of the Department's deposits was $33,787.177 and the bank balance was $33,092,736. The entire bank balance was covered by collateral held by the County's agent in the County's name in accordance -75- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 with state statutes. At June 30, 2002, money market funds of $6,041,483 (which approximates fair value) held for the Department by the County at a trust company were insured or registered, or were collateralized by securities held by the County or its agent in the County's name. The deposits and investments include cash received by the Department that is refundable or restricted as to use, and is recorded as a restricted asset. Such funds amounted to $9,959,787 at June 30, 2002. At June 30, 2002, investments reported as $14,626,294 (which approximates fair value) held for the County at banks and trust companies were classified as category 1. These investments are comprised of bank repurchase agreements and money market funds. A repurchase agreement is an agreement in which a governmental entity transfers cash to a broker-dealer or financial institution; the broker-dealer or the financial institution transfers securities to the entity and promises to repay the cash plus interest in exchange for the same securities. Loans Receivable At June 30, 2002, loans receivable from various community associations for water system improvements were as follows: Paauilo Camp Community Association $309,800 Paauhau Village Community Association 313,180 Ookala Community Association 110,036 Total $733116 Capital Assets The Department began operations as of January 1, 1950. At that date, the utility plant in service was transferred to the Department from the County at the cost of the utility plant assets acquired by the County for its water system from January 1, 1924 to December 31, 1949, less accumulated depreciation. Acquisitions prior to 1924 and acquisitions by gift or grant prior to 1950 are not included in utility plant. Additions to utility plant since January 1, 1950 are stated at original cost and include contributions by governmental agencies, private subdividers and customers at their cost or estimated cost. Construction costs include amounts for contract work, engineering supervision and other direct and indirect costs. Construction period interest is capitalized on utility plan constructed with tax-exempt debt. Depreciation on the Department utility plant assets in service is computed using the straight- line method over the estimated useful lives of the assets as follows: -76- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 Structures and improvements 40 to 50 years Machinery and equipment 5 to 20 years Water systems 10 to 40 years The capital assets of the Department at June 30, 2002 were as follows: Utility plant in service $233,813,250 Less: accumulated depreciation (96,484,9361 137,328,314 Land and rights 545,000 Construction in progress 18.325,555 Net capital assets $156,198,869 Long-term Debt The County has issued general obligation bonds on behalf of the Department. The Department is responsible for the payment of the debt service on these bonds, but the County remains liable because they are general obligations of the County. The Department has recorded a liability for these general obligation bonds, which amounted to $17,769,900 at June 30, 2002. General obligation bonds payable issued on behalf of the Department and other long-term debt at June 30, 2002 are comprised of the following: Public improvement bonds 1981 Series A at 5.0%, due through 2016 $ 460,000 1993 Series A at 5.05% to 5.6%, due through 2013 7,125,000 1998 Series A at 4.5%, due through 2033 734,900 2001 Series A at 4.0% to 5.5%, due through 2021 8.000.000 Total public improvement bonds 16,319,900 Public improvement refunding bonds: 1989 Series at 6.8% to 6.95%, due through 2004 1,450,000 State revolving fund loan, interest at 4.62%, due through 2020 718,384 Total -77- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2002 At June 30, 2002, future principal payments for long-term debt are scheduled as follows: Fiscal year ending June 30 2003 $ 1,011,000 2004 1,093,000 2005 1,418,000 2006 955,000 2007 1,005,000 2008-2012 5,763,000 2013-2017 3,640,000 2018-2022 3,224,000 2023 —2027 150,000 2028 —2032 187,000 2033 42.284 UMMEMEMEMEMEM-M.M.M.BMIME Contributions in Aid of Construction Effective July 1, 2000, the Department adopted GASB Statement No. 33, which requires the Department to recognize contributions in aid of construction as nonoperating revenues. Contributions in aid of construction were previously recognized as contributed capital. The Department recognized $8,402,084 of contributions in aid of construction as nonoperating revenues for the fiscal year ended June 30, 2002. Commitments and Contingent Liabilities Claims and judgments — The Department is self-insured for workers' compensation and other perils. The liability at June 30, 2002 for workers' compensation claims of $339,000 was estimated based on a combination of case-by-case review and the application of historical experience to outstanding claims. Construction contracts — The Department is obligated under construction contracts for the utility plant and other projects. Such commitments approximated $10,027,000 at June 30, 2002. im NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS HIGHWAY FUND -Used to account for the costs of maintaining the County's highways and streets. Financing is provided primarily by fuel, motor vehicle weight and public utility franchise taxes. SEWER FUND - Used to account for costs of operating the County's various sewerage systems. Financing is provided by charges to users for sewer services. SOLID WASTE FUND - Used to accumulate moneys for the operation, maintenance, and administration of the County's solid waste management, collection and disposal systems. Financing is provided by tipping fees at the landfills and by disposal permit fees. CEMETERY FUND - Used to accumulate moneys to guarantee the future maintenance of County cemetery sites. Financing is provided from the sale of burial lots in County cemeteries. PARKING METER FUND - Used to account for the costs of maintaining County on -street and off-street parking areas. Financing is provided by the proceeds from parking meters. VEHICLE DISPOSAL FUND - Used to accumulate moneys for the towing, removal, disposal and recycling of abandoned or discarded automobiles and automobile parts. Financing is provided by annual fees collected with motor vehicle registrations. BIKEWAY FUND - Used to accumulate moneys for the construction of bikeways within the County. Financing is provided by bicycle license fees. WORKFORCE INVES7'ML.NT ACT FUND - Used to account for employment and training services provided to economically disadvantaged adults, dislocated workers and youth. Financing is provided by federal grants. GOLF COURSE FUND - Used to account for the cost of operating the Hilo Municipal Golf Course. Funding is provided from green fees and payments from restaurant and pro shop concessionaires. GEOTHERMAL RELOCATION REVOLVING FUND - Used to account for the County's share of geothermal resource royalties received from the operator of a geothermal power plant located in the County. The funds are earmarked for a geothermal relocation program. BEAUTIFICATION FUND - Used to accumulate moneys for the beautification of highways and disposal of abandoned vehicles within the County. Financing is provided by assessments on vehicle registrations. HAWAII COUNTY HOUSING AGENCY - Used to account for Federal and County moneys used to provide public housing assistance within the County. PARK DEDICATION FUND - Used to account for moneys deposited with the County by subdividers to provide land for parks and playgrounds in subdivisions. DEBT SERVICE FUNDS INTEREST FUND - Used to accumulate moneys for payment of interest on general obligation bonds. Moneys required to service interest maturities are transferred annually from the General Fund. BOND REDEMPTION FUND - Used to accumulate moneys for the payment of general obligation bonds. Moneys required to retire the bonds are transferred from the General Fund one year in advance of maturity. CAPITAL PROJECT'S FUND IMPROVF,MENT DISTRICT NO. 17 - Used to account for the costs of construction of improvements in Improvement District No. 17, Kaloko Subdivision. The improvements were financed with the proceeds of the sale of special assessment bonds. This page intentionally left blank. -79- COUNTY OF HAWAII Nonmajor Governmental Funds Combining Balance Sheet June 30, 2002 Special Revenue Funds Solid Parking Highway Sewer Waste Cemetery Meter Fund Fund Fund Fund Fund Assets Cash and cash equivalents $7,298,229 $6,251,246 $1,401,966 $ 15,325 $ 66,370 Investments - - - - - Imprest fund - 100 250 Receivables: Due from State of Hawaii - - 4,583 Due from federal government - - _ Due from other governmental funds 66,725 75,322 16,846 Due from other nongovernmental funds - 2,086 - Trade, net of allowance for doubtful accounts 1,757,173 634,296 Other - 140 _ 146,141 66,725 1,834,721 801,866 Total assets $7,364,954 $8,086,067 $2,204,082 $ 15,325 $ 66,370 Liabilities and Fund Balances (Deficit) Liabilities: Warrants payable $ 338,655 $ 132,170 $ 588,416 $ - $ - Accounts payable 291,355 106,597 615,409 - - Employee costs payable 6,480 5,112 4,884 - - Due to other governmental funds 679,343 196,170 250,469 - - Due to other nongovernmental funds 100 16 - - - Deferred revenue 145,717 1,757,173 781,503 - - Accrued liabilities - 10,393 _ - - - Totalliabilities 1,461,650 2,207,631 2.240,681 - - Fund balances (deficit): Reserved for: Encumbrances 1,310,229 1,095,871 91,144 - - Debt service - - - - - Unreserved: 4,593,075 4,782,5651( 27,743) 15,325 66,370 Total fund balances (deficit) 5,903,304 5,878,436 _3( 6,599) 15,325 66,370 Total liabilities and fund balances $7,364,954 $8,086,067 $2,204,082 $ 15,325 $ 66,370 Soecial Revenue Funds Vehicle Workforce Golf Geothermal Beauti- Park Disposal Bikeway Investment Course Relocation fication Housing Dedication Fund Fund Act Fund Fund Rev.Fund Fund Agencv Fund $ 522,254 $274,553 $ $ (3.813) $1,092,365 $ 479,031 $1,988,453 $ - - - - - - 3,182,796 69,705 10,071 2,000 299,463 _ 7,334 100 - (Continued) M -e 566,048 12.955 - - 204,348 7,334 2.167 - - 168,492 _ 10,071 79,993 - - - 734,540 10,071 _ 299,463 _ 7,334 $ 522,254 $274,553 $ 734,540 $ 8,258 $1,092,365 $ 479,031 $5,470,812 $ 77,039 $ 67,344 $ - $ 125,456 $ 2,844 $ $ 14,292 S 75,707 $ - 5,433 431,560 1,735 1,066 8,451 5,640 177,524 37,201 955 76,838 - - - - 1,994 - - 12,676 78,417 734,540 41,780 16,313 175,666 310,875 - 414 908,243 27,754 3,024,263 132,962 274,553 _ (33,936) 184,122 434,964 2,270,883 77,039 443,837 274,553 (33,522) 1,092,365 462,718 5,295,146 77,039 $ 522,254 $274,553 $ 734,540 $ 8,258 $1,092,365 $ 479,031 $5,470,812 $ 77,039 (Continued) M -e COUNTY OF HAWAII Nonmajor Governmental Funds Combining Balance Sheet June 30, 2002 Assets Cash and cash equivalents Investments Imprest fund Receivables: Due from State of Hawaii Due from federal government Due from other governmental funds Due from other nongovernmental funds Trade, net of allowance for doubtful accounts Other Total assets Liabilities and Fund Balances (Deficit) Liabilities: Warrants payable Accounts payable Employee costs payable Due to other governmental funds Due to other nongovernmental funds Deferred revenue Accrued liabilities Total liabilities Fund balances (deficit): Reserved for: Encumbrances Debt service Unreserved: Total fund balances (deficit) Total liabilities and fund balances See accompanying independent auditors' report. (Concluded) 2,450 - 4,583 - - 579,003 - - - 370,575 - - - 4,253 - - - 2,391,469 - - - 404.837 - - 3,754,720 $ 116,789 $ 12,260,622 $ $ 38,773,061 $ $ $ $ 1,344,884 1,461,606 16,476 1,424,140 2,110 2,684,393 78,867 335,000 436,936 78,867 335,000 7,370,545 6,768,793 37,922 11,925,622 11,963, 544 - - 12,670,179 37,922 11,925,622 31,402,516 $ 116,789 $ 12,260,622 $ $ 38,773,061 Capital Projects Debt Service Funds Fund Total Bond Improve. Nonmajor Interest Redemption District Governmental Fund Fund No. 17 Funds $ 116,789 $ 3,750,546 $ $ 23,253,314 - 8,510,076 11,762,577 2,450 - 4,583 - - 579,003 - - - 370,575 - - - 4,253 - - - 2,391,469 - - - 404.837 - - 3,754,720 $ 116,789 $ 12,260,622 $ $ 38,773,061 $ $ $ $ 1,344,884 1,461,606 16,476 1,424,140 2,110 2,684,393 78,867 335,000 436,936 78,867 335,000 7,370,545 6,768,793 37,922 11,925,622 11,963, 544 - - 12,670,179 37,922 11,925,622 31,402,516 $ 116,789 $ 12,260,622 $ $ 38,773,061 This page intentionally left blank. -83- County of Hawaii Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (Deficit) For the Fiscal Year Ended June 30, 2002 Revenues Fuel tax Public utility franchise tax Licenses and permits Intergovernmental Charges for services Investment earnings Miscellaneous Total revenues Expenditures Current: Public safety Highways and streets Sanitation Health, education and welfare Culture and recreation Pension and retirement contributions Employees' health insurance Miscellaneous Debt service: Principal Interest Total expenditures Excess (deficiency) of revenues over expenditures Other Financing Sources (Uses) Transfers in Increase in capital leases Transfers out Total other financing sources (uses) Net change in fund balances Fund balance at beginning of year Fund balance (deficit) at end of year Special Revenue Funds 2,950,040 Solid 6,698,779 Parking Highway Sewer Waste Cemetery Meter Fund Fund Fund Fund Fund $ 6,421,837 $ $ $ $ 4,992,959 _ - _ 21,650 - 2,996,934 11,153,740 66,875 - _11,426,157 4,342,367 1,107,913 9,285 352,720 - 4,628,964 3,210,850 12,527 248,881 20,883 _ 10 13,750 - 15,768,524 4,659,132 3,563,580 13,750 12,527 2,950,040 6,698,779 - - - 3,848,442 10,300,791 644,086 233,707 235,804 560,936 163,116 256,781 - 572,316 597,076 ).50,004 66,875 - - 88,710 - _ - _ 21,650 - 4,842,341 11,153,740 66,875 - _11,426,157 4,342,367 (183,209) (7,590,160) (53,125) 12,527 _ 3,412,404 (3,412,404) 929,963 (183,209) 4,973,341 6,061,645 $ 5,903,304 $5,878,436 -84- 6,200,667 771,622 6,972,289 - (617,871) (53,125) 12,527 581,272 68,450 53,843 S (36,599) S 15,325 $ 66,370 Vehicle Workforce Golf Geothermal Beauti- Park Disposal Bikeway Investment Course Relocation fication Housing Dedication Fund Fund Act Fund Fund Rev.Fund Fund Agency Fund $ $ $ $ $ $ $ $ 537,460 64,522 - - - 134,366 - - - 3,244,489 - (500,000) - 5,998,776 - 227 - 738,929 7,334 42,686 - _ - (53,119) (2,515,188) - - 212,018 111,967 1,892 515,837 7,810,334 67,813 5443,837 170,088 $ - $ (33,522) 516,675 - 537,687 64,522 3,244,489 738,929 170,088 134,366 6,627,418 1,892 - 1,987 107,485 485,632 - - _ _ - 3,244,489 - - - 8,367,010 - - 805,162 - - - 4,669 - 65,830 - - 275,596 4,700 - 78,372 - - - - - 6,879 - - (Continued) SM 3,244,489 956,243 495,001 1,987 107,485 8,642,606 - 42,686 62,535 217,314) 170,088 26,8812,0( 15,188) 1,892 - - 230,534 - - 7,334 (135,868) (80,000) (500,000) - - - 94,666 80,000) (500,000) 7,334 42,686 62,535 - (122,648) 170,088 (53,119) (2,515,188) 9,226 401,151 212,018 - 89,126 922,277 515,837 7,810,334 67,813 5443,837 $274,553 $ - $ (33,522) $1,092,365 $462,718 $5,295,146 $ 77,039 (Continued) SM County of Hawaii Nonmajor Governmental Funds 8,1 16,676 10,845,564 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (Deficit) For the Fiscal Year Ended June 30, 2002 Transfers out Capital (Concluded) Projects Net change in fund balances Debt Service Funds Fund Total Bond Improve. Nonmajor Interest Redemption District Governmental Fund Fund No. 17 Funds Revenues Fuel tax Public utility franchise tax Licenses and permits Intergovernmental Charges for services Investment earnings Miscellaneous Total revenues Expenditures Current: Public safety Highways and streets Sanitation Health, education and welfare Culture and recreation Pension and retirement contributions Employees' health insurance Miscellaneous Debt service: Principal Interest Total expenditures Excess (deficiency) of revenues over expenditures $ $ $ $ 6,421,837 - 4,992,959 3,733,282 10,713,183 8,591,497 113,859 970,287 35,536,904 - 2,950,040 - 6,808,251 - 14,634,865 - 11,611,499 - 805,162 - 1,459,692 - 1,063,905 - 1,493,150 - 9,390,749 9,479,459 8,311,406 - 8,333,056 8,311,406 9,390,749 58,639,079 (8,311,406) (9,390,749) (23,102,175) Other Financing Sources (Uses) Transfers in 8,1 16,676 10,845,564 Increase in capital leases - - Transfers out _ Total other financing sources (uses) 8,116,676 10,845,564 Net change in fund balances (194,730) 1,454,815 Fund balance at beginning of year 232,652 10,470,807 Fund balance (deficit) at end of year $ 37,922 $11,925,622 See accompanying independent auditors' report. 25,400,775 - 771,622 (838,445) (4,966,717) (838,445) 21,205,680 (838,445) (1,896,495) 838,445 33.299,011 $ $31,402,516 COUNTY OF HAWAII Highway Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 Revenues: Taxes: Fuel tax Public utility franchise tax Total taxes Licenses and permits - motor vehicle weight taxes Intergovernmental Charges for current services Miscellaneous Total revenues Expenditures: Public safety - traffic engineering Highways and streets Health, education & welfare Pension and retirement contributions Health fund Miscellaneous Total expenditures Excess of revenues over expenditures Other financing uses - transfers out - Capital Projects Fund Excess (deficiency) of revenues over expenditures and other uses Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. (1,882,000) (2,121,316) 457,430 Variance Original Final $ 3,091,341 Favorable Budget Budget Actual (Unfavorable) $ 6,644,000 $ 6,644,000 $ 6,421,837 ($222,163) 4,800,000 4,800,000 4,992,959 192,959 11,444,000 11,444,000 11,414,796 (29,204) 2,900,000 2,900,000 2,996,934 96,934 200,000 200,000 1,107,913 907,913 50,000 50,000 161,388 111,388 52,970 52,970 87,493 34,523 14,646,970 14.646.970 15, 768,524 1,121, 554 3,501,655 3,501,655 2,988,413 513,242 7,512,315 7,560,315 7,146,159 414,156 6,000 6,000 4,985 1,015 750,000 739,063 644,086 94,977 550,000 560,937 560,936 1 940,000 892,000 554,111 337,889 13,259,970 13,259,970 11,898,690 1,361,280 1,387,000 1,387.000 3,869,834 2,482,834 (3,269,000) (3,508,316) (3,412,404) 95,912 (1,882,000) (2,121,316) 457,430 4,973,341 4,973,341 4,973,341 $ 3,091,341 $ 2,852,025 $ 5,430,771 IM. 2,578,746 $2,578,746 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, 2002 Revenues: Charges for current services - sewer fees Miscellaneous Total revenues Expenditures: Sanitation Pension and retirement contributions Health fund Miscellaneous Total expenditures Deficiency of revenues over expenditures Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. Original Variance and Final Favorable Budget Actual (Unfavorable) $5,147,006 $4,628,964 ($ 518,042) 100 20,883 20,783 5,147,106 4,649,847 (497,259) 4,413,442 3,857,157 556,285 271,571 233,707 37,864 286,597 163,116 123,481 1,807,445 880,802 926,643 6,779,055 5,134,782 1,644,273 (1,631,949) (484,935) 1,147,014 6,061,645 6,061,645 -- $4,429,696 $5,576,710 $1,147,014 Im COUNTY OF HAWAII Solid Waste Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 Revenues: Intergovernmental Charges for services - tipping fees Miscellaneous Total revenues Expenditures: Sanitation Pension and retirement contributions Health fund Miscellaneous Total expenditures Deficiency of revenues over expenditures Other financing sources - transfers in - General Fund Deficiency of revenues and other sources over expenditures Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. Original Final -- (365,633) Budget Budget Actual $ 241,000 $ 241,000 $ 271,000 2,965,000 3,215,000 3,210,850 -- -- 10 3,206,000 3,456,000 3,481,860 9,877,761 281,000 235,000 200,000 10,593,761 (7,3 87,761) 9,282,517 242.547 259,453 237,783 10,022,300 (6,566,300) 9,244,580 235,803 256,781 237,783 9,974,947 (6,493,087) Variance Favorable (Unfavorable) $ 30,000 (4,150) 10 25,860 37,937 6,744 2,672 47,353 73,213 7,387,761 6,200,667 6,200,667 -- -- (365,633) (292,420) 73,213 581,272 581,272 581,272 -- $ 581,272 $215,639 $288,852 $73,213 COUNTY OF HAWAII Cemetery Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 Revenues - miscellaneous - sale of cemetery plots Expenditures - health, education and welfare Deficiency of revenues over expenditures Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. Original Budget $11,000 11,000 68,450 $68,450 Variance Final Favorable Budget Actual (Unfavorable) $11,000 $13,750 $ 2,750 77,875 66,875 11,000 (66,875) (53,125) 13,750 68,450 68,450 -- $ 1,575 $15,325 $13,750 COUNTY OF HAWAII Parking Meter Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 Revenues - Charges for current services - highways and streets Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. -91- Original Variance and Final Favorable Budget Actual (Unfavorable) $ -- $12,527 $ 12,527 53,843 53,843 -- $53,843 $66,370 $12,527 COUNTY OF HAWAII Vehicle Disposal Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 Revenues: Licenses and permits - vehicle disposal fee Charges for services - towing charges Miscellaneous Total revenues Expenditures: Sanitation Pension and retirement contributions Health fund Total expenditures Deficiency of revenues over expenditures Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. -92- Variance Original Final Favorable Budget Budgie) Actual (Unfavorable) $519,246 $519,246 $537,460 $18,214 100 100 227 127 100 100 -- (100) 519,446 519,446 537,687 18,241 661,246 661,240 625,738 35,508 9,700 9,499 4,669 4,830 4,500 4,701 4,700 1 675,446 675,446 635,107 40,339 (156,000) (156,000) (97,420) 58,580 401,151 401,151 401,151 -- $245,151 $245,151 $303,731 $58,580 -92- COUNTY OF HAWAII Bikeway Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 Revenues - licenses and permits - bicycle tax Expenditures - highways and streets Excess of revenues over expenditures Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. Original and Final Budget $ 12,500 12,500 212,018 $212,018 93 - Variance Favorable Actual (Unfavorable) $ 64,522 $52,022 -- 12,500 64,522 64,522 212,018 -- $276,540 $64,522 COUNTY OF HAWAII Workforce Investment Act Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 See accompanying independent auditors' report Variance Original Final Favorable Budget Budget Actual (Unfavorable) Revenues -intergovernmental- federal grants $ -- $6,728,357 $6,631,493 $96,864 Expenditures - health, education & welfare 6,728,357 6,631,493 96,864 Fund balance at beginning of year -- -- -- Fund balance at end of year $ -- $ -- $ _- $ -- See accompanying independent auditors' report COUNTY OF HAWAII Golf Course Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 See accompanying independent auditors' report. -95- Variance Original Final Favorable Budget Budget Actual (Unfavorable) Revenues - charges for services $ 832,540 $ 832,540 $ 738,929 ($93,611) Expenditures: Culture and recreation 844,298 844,298 799,420 44,878 Pension and retirement contributions 73,546 70,174 65,830 4,344 Health fund 75,000 78,372 78,372 -- Miscellaneous 16,000 16,000 5,812 10,188 Total expenditures 1,008,844 1,008,844 949,434 59,410 Deficiency of revenues over expenditures (176,304) (176,304) (210,505) (34,201) Other financing sources (uses): Transfers in - General Fund 276,053 230,534 230,534 Transfers out- General Fund (135,868) (135,868) (135,868) Total other financing sources 140,185 94,666 94,666 Deficiency of revenues and other sources over expenditures and other uses (36,119) (81,638) (115,839) (34,201) Fund balance at beginning of year 89,126 89,126 89,126 Fund balance at end of year $ 53,007 $ 7,488 ($26,713) ($34,201) See accompanying independent auditors' report. -95- COUNTY OF HAWAII Geothermal Relocation Revolving Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 Revenues - miscellaneous - geothermal royalties Expenditures - general government Excess of revenues over expenditures Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. Original Variance and Final Favorable Budget Actual (Unfavorable) $150,000 $170,088 $ 20,088 150,000 150,000 -- -- 20,088 20,088 922,277 922,277 -- $922,277 $942,365 $20,088 COUNTY OF HAWAII Beautification Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 Revenues - licenses and permits - highway beautification Expenditures - highways and streets Excess (deficiency) of revenues over expenditures Other financing uses - transfer out - Capital Projects Fund Deficiency of revenues over expenditures and other uses Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. -97- Variance Original Final Favorable Budget Budget Actual (Unfavorable) $115,000 $115,000 $134,366 $ 19,366 116,000 116,000 91,016 24,984 (1,000) (1,000) 43,350 44,350 (80,000) (80,000) -- (1,000) (81,000) (36,650) 44,350 515,837 515,837 515,837 -- $514,837 $434,837 $479,187 $44,350 -97- COUNTY OF HAWAII Hawaii County Housing Agency Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 Revenues: Intergovernmental - Federal grants: Housing preservation grant HUD - Housing assistance HUD - Voucher program Total intergovernmental Interest earned Resale of property Other Total revenues Expenditures: Health, education & welfare Pension and retirement contributions Health Fund Total expenditures Excess (deficiency) of revenues over expenditures Other financing uses - transfer out - General Fund Excess (deficiency) of revenues over expenditures and other uses Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. Variance Original Final Favorable Budget Budget Actual (Unfavorable) $ -- $ 50,000 $ 50,000 $ -- 424,600 424,600 -- (424,600) 7,435,900 8,435,900 5,943,129 (2,492,771) 7,860,500 8,910,500 5,993,129 (2,917,371) 11,460 11,460 111,967 100,507 -- -- 422,258 422,258 -- -- 94,417 94,417 7,871,960 8,921,960 6,621,771 (2,300,189) 7,145,028 8,448,858 8,316,062 206,000 188,000 180,499 80,000 98,000 95,097 7,431,028 8,734,858 8,591,658 440,932 187,102 (1,969,887) 440,932 7,810,334 $8,251,266 I" (500,000) (500,000) (312,898) (2,469,887) 7,810,334 7,810,334 $7,497,436 $5,340,447 132,796 7,501 2,903 143,200 12,156,989) (2,156,989) _L(2,156,989) COUNTY OF HAWAII Park Dedication Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2002 Revenues - interest Expenditures - culture and recreation Excess of revenues over expenditures Other financing sources - transfer in - Capital Projects Fund Excess of revenues and other sources over expenditures Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. IM Original Variance and Final Favorable Budget ,Actual (Unfavorable) $ $1,892 $ 1,892 1,892 1,892 7,334 7,334 9,226 9,226 67,813 67,813 -- $67,813 $77,039 $9,226 This page intentionally left blank. 100- STATISTICAL SECTION (UNAUDITED) Chart 1 COUNTY OF HAWAII General Governmental Revenues and Expenditures Comparison Last Ten Fiscal Years (In Thousands) $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 9� X411 199 110 1�9 1�'9� ti000 100^ Note. In fiscal year 2002, the Housing Agency and the Park Dedication Fund became special revenue funds -101- v F T - 102- W N R M N r O W r e} 00 F b9 V �/1 � Vl vl Yl N 00 N 01 N L 6 ti r �4 � V �O r 00 6 Q v � � P N oO N M Q r r M "t a0 N .G vi �O r O i0 r o0 0o M � 69 ,� C 4� oo r \O r r O C G. 7 � •--• •• � V vt M N M R > U O A N C O r lO lO O y C C U 7 0 V T h M— y O O D\ a0 �O O N N o0 C oou- w' C ' U F v CL U tl _ � _ W q vt .r-. oN0 oro 00 N CK r V r O tV oo r G 1 aR. 16 Ov U O— N N N�-zi C m � u W N r M N^ O a\ r O C N D\ C O � 00 �O l0 �p W OO OA DD U U A t7 69 ❑ T W C A � V1 vi vi vi vi vi v� �C CC.. s�9 Q'. v —m U N C O 6 y o0 o0 0— N O ro L U jp ti R M V h r 00 D\ O-+ N = y 0\ U D1 D\ a O\ O O O O z - 102- .,L * • � Chart 2 $200,OOC $180,OOC $160,OOC $140,OOC $120, 000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 COUNTY OF HAWAII General Governmental Expenditures by Function Last Ten Fiscal Years (In Thousands) 93 9a 95 96 g� 9�gg AO 01 p2 1gg2' �gg3 1ggD1gg6 1gg6' 00 1gP' 0 4 g 2000' 200 Note: In fiscal year 2002, the Housing Agency and Park Dedication Fund became special revenue funds. -103- Table 2 COUNTY OF HAWAII General Governmental Revenues by Source* Last Ten Fiscal Years (Values in Thousands) * Includes General, Special Revenue and Debt Service Funds. Note: In fiscal year 2002, the Housing Agency and the Park Dedication Fund became special revenue funds. -104- Licenses Charges Interest Fiscal Taxes and and Inter- for and Year Assessments Permits Governmental Services Penalties Other Total 1993 $86,964 $4,941 $26,617 $4,555 $3,039 $3,995 $130,111 1994 97,893 5,107 28,581 4,983 3,068 1,676 141,308 1995 100,028 5,788 31,684 5,439 4,205 1,588 148,732 1996 101,755 5,836 33,656 8,032 4,692 2,500 156,471 1997 96,124 6,124 36,016 7,796 5,859 2,009 153,928 1998 97,332 6,351 38,893 8,885 5,881 1,756 159,098 1999 94,645 6,952 35,075 10,148 5,545 3,440 155,805 2000 93,324 7,261 32,572 11,215 5,282 1,883 151,537 2001 95,467 7,412 39,489 12,056 6,409 1,854 162,687 2002 110,235 7,780 44,915 11,689 3,801 2,757 181,177 * Includes General, Special Revenue and Debt Service Funds. Note: In fiscal year 2002, the Housing Agency and the Park Dedication Fund became special revenue funds. -104- Table 2a General Governmental Tax Revenues by Source* Real Fiscal Property Year Tax Last Ten Fiscal Years (Values in Thousands) Public Service Company Fuel Tax Tax Franchise Tax Total 1993 $79,000 $ - $5,349 $2,615 $86,964 1994 89,538 - 5,504 2,851 97,893 1995 91,200 - 5,613 3,215 100,028 1996 92,512 - 5,820 3,423 101,755 1997 86,490 - 5,783 3,851 96,124 1998 87,420 - 5,832 4,080 97,332 1999 84,792 - 5,900 3,953 94,645 2000 83,271 - 6,103 3,950 93,324 2001 84,240 - 6,450 4,777 95,467 2002 93,712 5,108 6,422 4,993 110,235 * Includes General, Special Revenue and Debt Service Funds. Note: The Public Service Company Tax began in fiscal year 2002. -106- u L F -107- v m C T � A L U o 0 0 0 0 0 0 0 0 0 U o V C o r c � O ti 0� oho C ONi T M O C DD O\ cl G Q d M N N 1� M N OA M V M QF U h W o0 00 609 00 h o0 a0 00 FA O y oo h N O M O^ oo � V �O m M X U°" V b9 O M W M V1 U I� 00 Q\ O\ 00 00 Op 00 00 � fA O ^ W W M M M vt M -107- C T � A L U o 0 0 0 0 0 0 0 0 0 o V C O M O C DD O\ cl �D O\ O0 00 M V t- h U h W o0 00 a0 00 h o0 a0 00 FA oo h N O M O^ oo � V �O m M X b9 -107- Table 4 COUNTY OF HAWAII Assessed and Estimated Actual Value of Taxable Real Property Last Ten Fiscal Years (Values in Thousands) Notes: There is no personal property tax in Hawaii. Assessment ratios are uniform statewide. EFIEM Ratio of Real Property Total Assessed to Fiscal Assessed Estimated Total Estimated Year Value Actual Value Actual Value 1993 $9,220,304 $9,220,304 100% 1994 10,812,347 10,812,347 100% 1995 10,618,892 10,618,892 100% 1996 10,611,589 10,611,589 100% 1997 10,279,240 10,279,240 100% 1998 10,156,903 10,156,903 100% 1999 9,929,443 9,929,443 100% 2000 9,882,111 9,882,111 100% 2001 10,083,384 10,083,384 100% 2002 11,071,326 11,071,326 100% Notes: There is no personal property tax in Hawaii. Assessment ratios are uniform statewide. EFIEM N L z� O — N r o0 of cO rl N O O\ y r 00 7 00 OO N O� M V�1 M vl O V1 M N N OM O fH 69 000000000 r O N cl V r� r r N M Vl N N S 00 M � VM1 r O� M r M h o0 69 0 0 0 0 0 0 0 V 000000000 v rn V oo — -- o o r- M oo o� „o v� oo r N o vJ r oo rn� M N r� v x q r oo c -i = of oo M �o M o r o aro — a; o r o 7 0 0 0 0 0 0 0 0 0 0 �' 69 0p 00 60 00 00 W o0 00 r x � � N U DO O\ M 00 .� l0 Vl Vl M W ,p V vl D\ a C �D Cl D\� � M � R N O M 00 N N D\ O b M U V u p � •: M z A Av w C 'O � U EZ:�¢ y U 5¢ U x �p M U U G\ r � - 109 - 00000000 �., eA r N 00 7 00 — M M V O O o0 b N h W r o0 � r M 00 O M r 00 M— O Op N�1�O 0QN 0o0c W 0N0 .--,O Qb QP OQN Y1 P Q h N M iD P .Z Y 00 O O O O O O O Q v3 ^ O O O O O O C O vi 00 C O O O O O O Q 6A ^ 00 O O O O O O O Q 69 �O N Q 1� M Q M h N �O P Q V1^ l� W P M Q V1 P M 00 Q N vt 1p O oc V1 �D V1 O M N -+ O 00 1� Vl 00 V1 � 01 vl N r P vl � M M r 00 N 00 t� h M n 00 DD Q �O 1� P N v'1 00 1� � b vl O P .--.•. Yl Q vl M M �O ^ Q Vl Q M N^ N O Vl ^ M Vl Q M N O N O Q ^ M M Q M N op N + O b9 N 6�9 69 N 0 0 0 0 0 0 0 0 n oo�oo��oo�� Q 00000000 �., oo�oo��oo�ooQ 1� v1 vi P O l� W o0 N h O M O o f� N a0 00 h P iD ^ vl h 0p M M Q 00 P P^ M N Vf � 4y - 11�- 00000000�n 1� � 00 Vl OO N N M A Q^ I M W O m At viMrno�o oo --v rlM �O M r M CO r vi O �O D1 O\ N o6 qT �O r4 6 W ta�+l O\ N V1 r M N 0\ W M M N O^ O O O O O O C O vi h 0 0 0 0 0 0 0 7 00 O O O O O O G V r N V N^ r M N r O\ p N M� M N l0 N^ 00 f.9 V3 h vl Vl Vl V1 Vl vi Vl V W W W 00 OO 00 OO OO V us D` O M^ oO O N r m Off. M o0 r D _W 4 r 0\ .: b 69 �^ a I W N D1 � W vi 01 b M V O\ r Oi N W O 0 O P 00 Ot N M O D\ D1 a0 O N N N O\ 69 EA 00 O O O O O O O V O O N O r D1 ^ O o0 r N O\ Vl Q r O\ V N D\ M JO D\ O\ N vt ^ r N O ^ 1!1 69 v'1 Vl Vl Yl Vl V'1 Vl Vl � 0o ao 00 00 00 00 00 00 7 us D\ N GO Vl M O\ 01 00 b M r N 0�0 N R L 69 � -llt- �O vi ao W� M O r 0 �O o0 �p 00 r M v1 M N T N 00 V 00 M OO N 00 �O N M O oo M O N O o0 00 O O O O O O O V O v1 O D1 V^ r R M 69 0 0 0 0 0 0 0 0 n V'1 Vl Vl V1 V1 V1 vl Vl � 00 00 00 00 00 00 00 00 � .ss U N N V Vl <{ l0 O O N 00 M N o0 N r 0 � o0 fH �^ :J �= .. A -a a a ^ N 01 N Q O O M 69 � 0 0 0 0 0 0 0 0 vi vi O O O O C O O V' 000000000 � v0`i � b V O ONi O vNi vNi b9 00000000�n 060600 w ds _ Vl r v1 00 �O N Vl C' a0 16 16 00 69 0 0 N M O vl M D\ 00 O. Yt r �O M r M 00 M N N N O rl r Vi 69 0 0 0 0 0 0 0 7 000000000v N O 00 00 N M Vl O M 00 00 lc 00 O �n O O lO M �O �O �p N Q` door"vva;h.-;o 00 69 00000000n vi vi vi �, vi vi vi v, v, ao ao 00 0o m m 00 0o v us C\ m P cr O V r 4 $12,000, $10,000, $8,000, $6,000, $4,000, $2,000,1 COUNTY OF HAWAII Assessed Value of Real Property Last Ten Years (In Thousands) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 -113- Chart 4 Table 6 COUNTY OF HAWAII Principal Taxpayers June 30, 2002 $1370,544,869 10.1% Note: Gross valuation at January 1, 2001: $13,554,849,852 - 114 - Percentage 2001 of Total Assessed Assessed Taxoaver Business Valuation Valuation WB Kukio Resorts LLC Developer $302,713,589 2.2% Mauna Kea Development Corp. Developer 192,854,000 1.4% BP Bishop Estate Land trust 164,923,816 1.2% Global Resort Partners Developer 150,000,000 1.1% 1250 Oceanside Partners Developer 141,464,700 1.0% Liliuokalani Trust Estate Land trust 137,061,144 1.0% Kaupulehu Makai Venture Developer 102,243,720 0.8% Mauna Lani Resort Inc. Hotel 65.627,000 0.5% KM Kona Partners Commercial Dev. 61,958,600 0.5% RWH Inc. Hotel 51,698,300 0.4% $1370,544,869 10.1% Note: Gross valuation at January 1, 2001: $13,554,849,852 - 114 - COUNTY OF HAWAII Computation of Legal Debt Margin June 30, 2002 Total assessed value Limitation as set by the Constitution of the State of Hawaii (A) Amount of debt applicable to debt limit: (B) Less: County general obligation bonds $155,939,400 State Revolving Fund loans 32,999,781 Other debt 1,101,772 190,040,953 Bonds maturing in current fiscal year 9,847,800 SRF loan principal maturing in current fiscal year 2,087,896 Bonds reimbursable by DWS 16,794,600 28,730,296 Total amount of debt applicable to debt limit Legal debt margin Table 7 $11,071,326,052 161,310,657 $1,499,388,251 (A) The bonded debt limitation of the County of Hawaii is established at 15% of the total assessed value of all county real property as established for tax purposes on the last tax assessment rolls. (B) The Constitution of the State of Hawaii, as amended in 1978, states that the debt limitation is not applicable to indebtedness incurred under revenue bond statutes; or by a public enterprise when the only security for such indebtedness is the revenues of such enterprise; or of indebtedness incurred under special improvement statutes when the security for such indebtedness is the properties benefited or improved or the assessments thereon; or, under certain conditions, to certain types of general obligation bonds issued by the County or State of Hawaii. - 115 - 116- w ar• � rn rn rn Z U a, �� q y C U v y C C N � C � O U � W � a � v v � v T 7 � v O C � ,� M vi vl �D .-- yi t� 7 �D O L U T ❑ v�O\ m O O O L � m a _ m W 116- Table 9 COUNTY OF HAWAII Ratio of Annual Debt Service Expenditures For General Obligation Bonded Debt To Total General Governmental Expenditures Last Ten Fiscal Years - 117 - Ratio of Debt Total Total Service to General Fiscal Debt General Governmental Year Principal Interest Service Expenditures Expenditures 1993 $3,992,000 $5,936,363 $9,928,363 $123,140,556 8.1% 1994 4,923,187 6,459,361 11,382,548 134,984,061 8.4% 1995 5,335,443 6,245,235 11,580,678 139,831,035 8.3% 1996 5,327,414 6,067,082 11,394,496 140,225,931 8.1% 1997 5,984,439 7,597,939 13,582,378 153,420,338 8.9% 1998 6,422,996 7,724,699 14,147,695 158,376,171 8.9% 1999 7,793,319 7,481,465 15,274,784 156,703,788 9.7% 2000 8,688,267 7,693,992 16,382,259 156,081,429 10.5% 2001 8,903,342 8,259,317 17,162,659 165,470,877 10.4% 2002 9,390,749 8,311,406 17,702,155 185,140,709 9.6% - 117 - Table 10 COUNTY OF HAWAII Demographic Statistics Last Ten Fiscal Years Fiscal Per Capita School Unemployment Year Population Income Enrollment Rate A 1992 131,272 $16,948 28,587 8.100 1993 134,191 17,284 29,433 7.5% 1994 136,284 17,710 30,164 10.8% 1995 138,537 18,521 28,188** 10.2'% 1996 139,726 18,842 30,497** 9.90 1997 141,848 18,970 30,599 10.2 1998 143,135 19,712 30,715 9.60,6 1999 142,390 20,340 30,926 8.7% 2000 148,677 * 20,399 30,193 6.7% 2001 152,083 N/A 29,792 6.90/. (A) Calendar year. Sources: * 2000 Census (all other population figures as estimated by State Department of Planning and Economic Development). ** Public school enrollment only. Other data from County Department of Research and Development. - 118 - G O v M v rn v M �n oo r N �n f� A c 00 N V'1 V Vl O A r M 00 00 M V1 r M o z 0 v N N D\ r 0 0 0o Q\ M O ' O O v� V r h D1 O M 'y N r OO O\ oG lO M N N D\ r o0 0 0 0 0 00 w w= y �v 0 O OA M Qy V M M N vi Vi O o0 vt O o0 a\ O D\ O M V M M M M t"1 M V 7 T a O O >" — — — — — — Table 12 COUNTY OF HAWAII Miscellaneous Statistical Data June 30, 2002 Date first charter adopted June 1968 Form of government Mayor/Council Area in square miles 4,038 Miles of streets (County only) 902 Number of street lights 8,719 Fire protection Number of stations 19 Number of fire fighters and officers (exclusive of volunteer fire fighters) 306 Police protection: Number of stations 8 Number of substations 4 Number of police officers 391 County water service: Number of consumers 36,490 Average consumption in gallons per day 24,452,895 Miles of water lines 1,870 Miles of sanitary sewers (County only) 53 Number of building permits issued: Building perrruts 3,497 Electrical permits 3,349 Plumbing permits 2,696 Sign permits 60 Recreation and culture: Number of parks 118 Number of gyms and recreation centers 38 -120-