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Home My WebLink AboutCOM 0654.000 2002-20044•�NSY a� y,K Al, KONISIII Coun(y Clerk JAY MENDE..� Uapva), t burin CIcrk -OF County of Hawai `i Office of the County Clerk 2) Aupuni S'ireel Hilo, Hawaii 96,,20 '!Telephone: (808) 961-82-55 (accirnile: (808) 961-8912 June 15, 2004 r0: Council Members FROM: Constance Kirin . Legislative Auditor RE: Post -Audit Report of the County of Hawai'i Fiscal Year Ended June 30, 2003 CONSTANCE R. KIRIU Legeslatire Awin... For your review, deliberation, and acceptance, I am submitting the post -audit Financial Audit Report at the Couniv of Hawai't for the Fiscal Year Ended June 30, 2003, and Management Letter dated March 19, 2004, 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. This year's Management Letter contains findings and recommendations related to: • Unauthorized User Access • Collection of Receivables The auditors will be present at the Finance Committee meeting on July 22, 2004, 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 free to contact Rodney Oshiro should you require further information. Enclosures cc: Ralph Kanetoku, KPMG LLP (The post—audit Financial Audit Report and the Management Letter dated March 19, 2004, as prepared by KPMG LLP are on file in the Office of the County Clerk) X14 Comm. No. Ip�� Y_ Hawai'i County it an Equal Opportunity Provider and Employer Ref. To: Ref. Date ��N4 COUNTY OF HAWAII Financial Audit Report for the Fiscal Year Ended June 30, 2003 Dote County covwl County of Hawai `i Office of the County Clerk 15 Aupuni Street Hilo, llawai'i 96710 Telephone- (808) 961-8386 Facsimile: (808) 961-8571 Foreword CONSTANCE R. KIRIU Legislative Auditor This financial audit report is the result of the audit of the basic financial statements of the County of Hawaii, State of Hawaii (County), for the fiscal year ended June 30, 2003. The audit was conducted by KPMG LLP, certified public accountants. The audit was performed in accordance with auditing standards generally accepted in the United States of America adopted by the membership of the American Institute of Certified Public Accountants. In addition, the audit was governed by the "Specifications for a Financial Post - Audit and Systems and Procedures Examination of the County of Hawai`i," issued by our office. This report is divided into two sections. Section I, "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 of the County's financial statements for the fiscal year ended June 30, 2003. 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 II, "Comprehensive Annual Financial Report" for the fiscal year ended June 30, 2003, displays the basic financial statements and schedules of the County, the auditors' report as to the fairness of presentation of the basic financial statements and also includes statistical information. We wish to express our sincere appreciation for the cooperation and assistance extended by the management and staff of the various departments during the audit. Constance R. Kiriu Legislative Auditor County of Hawaii AL KONISHI we County Clerk JAY MENDE Uepury County Clerk County of Hawai `i Office of the County Clerk 15 Aupuni Street Hilo, llawai'i 96710 Telephone- (808) 961-8386 Facsimile: (808) 961-8571 Foreword CONSTANCE R. KIRIU Legislative Auditor This financial audit report is the result of the audit of the basic financial statements of the County of Hawaii, State of Hawaii (County), for the fiscal year ended June 30, 2003. The audit was conducted by KPMG LLP, certified public accountants. The audit was performed in accordance with auditing standards generally accepted in the United States of America adopted by the membership of the American Institute of Certified Public Accountants. In addition, the audit was governed by the "Specifications for a Financial Post - Audit and Systems and Procedures Examination of the County of Hawai`i," issued by our office. This report is divided into two sections. Section I, "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 of the County's financial statements for the fiscal year ended June 30, 2003. 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 II, "Comprehensive Annual Financial Report" for the fiscal year ended June 30, 2003, displays the basic financial statements and schedules of the County, the auditors' report as to the fairness of presentation of the basic financial statements and also includes statistical information. We wish to express our sincere appreciation for the cooperation and assistance extended by the management and staff of the various departments during the audit. Constance R. Kiriu Legislative Auditor County of Hawaii COUNTY OF HAWAPI Financial Audit Report For the Fiscal Year ended June 30, 2003 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 Agencies SECTION II — COMPREHENSIVE ANNUAL FINANCIAL REPORT Introductory Section Financial Section Statistical Sections Page 10 III SECTION I - MANAGEMENT LETTER COUNTY OF HAWAII STATE OF HAWAII Management Letter For the Fiscal Year ended June 30, 2003 Table of Contents Management Letter CURRENT YEAR FINDINGS AND RECOMMENDATIONS Unauthorized User Access Collection of Receivables STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS General Fund Financial Situation Solid Waste Fund Deficiency Software Implementation Inventories Abandoned Vehicles Page 2 3 5 6 7 8 9 KPMG LLP P0. Box 4150 Honolulu, HI 96812-4150 PRIVATE, & CONFIDENTIAL To the Members of the County Council of Hawaii County of Hawaii Hilo, Hawaii: Telephone 808 531 7286 Fax 808 541 9321 March 19, 2004 We have audited the basic financial statements of the County of Hawaii. State of Hawaii (the County), for the year ended June 30, 2003, and have issued our report thereon dated March 19, 2004. 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 19, 2004. In planning and performing our audit of the County'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 does not provide assurance on internal control. We have not considered intemal control since the date of our report. During our audit, we noted certain matters involving internal control and other 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 March 7, 2003. The status of prior year findings and recommendations is also presented. A number of recommendations 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 are designed primarily to enable us to form an opinion on the basic financial statements, and therefore 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 Council and the County Administration, and is not intended to be and should not be used by anyone other than these specified parties. We would like to take this opportunity to express our appreciation for the courtesy and assistance extended to us by the personnel of the County of Hawaii during the course of our audit. Should you wish to discuss any of the matters contained herein, we will be pleased to meet with you at your convenience. Very truly yours, i�PMC, LCP Ion mPMG LLG a 115 Lmuetl �mbJpy Pdnners0ip, is ��a U 5 emperinm of KPMG,nt �oral,aSwiss cooOe�aLve COUNTY OF HAWAPI STATE OF HAWAII Current Year Findings and Recommendations For the Fiscal Year ended June 30, 2003 UNAUTHORIZED USER ACCESS Proper account management is the foundation for strong system security. Without a formal process for reviewing the appropriateness of user account access by department heads, the County is exposed to an increased risk of account misuse by active and terminated employees. We noted that the listing of users authorized to access the County's various information systems is not reviewed for appropriateness and updated by County Department Heads. Maintaining an updated list of authorized users facilitates the County's efforts to ensure that terminated and/or unauthorized users are denied access to its information databases. In addition, during our review of the County's real property tax Windows network, we noted that the account lockout feature is not being utilized. An account lockout setting allows administrators to control the number of unsuccessful logins that may occur before a user is denied access. By not utilizing this setting, an unauthorized user is allowed to indefinitely guess a user's password until they gain access to the Windows network. Recommendation We recommend that department heads periodically review the listing of users authorized to access the County's various information systems. Department heads should work with the Department of Data Systems to ensure the integrity and accuracy of the listing. We also recommend that the County utilize the account lockout setting for its real property tax Windows network. Use of this setting will allow system administrators to detect if an attack is occurring and help prevent unauthorized access into the system. The account lockout settings should be set to lock a user out after three unsuccessful attempts. Users who are locked out should continue to be denied access to the system until an authorized system administrator resets his/her password. (Continued) • • COUNTY OF HAWAII STATE OF HAWAII Current Year Findings and Recommendations For the Fiscal Year ended lune 30, 2003 COLLECTION OF RECEIVABLES The 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, an ordinance was passed requiring residential haulers to be current on their accounts prior to claiming a residential hauler's tax credit. In addition, new provisions were added to contracts for trash removal services requiring that all contractors pay past due tipping fees before any payments are made to the contractor. Further, the Department of Environmental Management is continuing to work with the Department of Finance to develop comprehensive policies and procedures for collecting County receivables. Despite the improvements made in the current fiscal year, sewer and landfill receivables outstanding for more than 60 days still account for a significant portion of the respective receivable balance as follows: Landfill 2003 2002 Amount Percentage of Amount Percentage of outstanding total outstanding total Current $ 285,822 28% $ 248,852 22% 31 — 60 days 180,054 18% 259,456 23% 61 — 90 days 178,004 18% 87,384 8% 90 + days 356,348 36% 555,215 47% $ 1,000,228 100% $ 1,150,907 100% 90+day 36% 61 — 90 days 18% rent 60 days 1 Qom 90 + days 47% 3 Current 61 — 90 days 8% 31 — 60 days 23% (Continued) Sewer Current 31 — 60 days 61 — 90 days 90 + days 90 + days 51% COUNTY OF HAWAII STATE OF HAWAII Current Year Findings and Recommendations For the Fiscal Year ended June 30, 2003 2003 Amount outstanding $ 894,076 160,015 60,473 Percentage of total Amount outstanding $ 822,232 220,919 81,686 1,033,447 2002 Percentage of 38% 10% 4% $ 2,272,734 100% $ 1,158,284 1 VUI/O Recommendation Zurrent 39% Jays 61 — 90 days 7% 3% 90 + days 48% urrent 38% . ,ys 61 — 90 days J 10% 4% 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; and when to deny service, take legal action, 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. 4 COUNTY OF HAWAPI STATE OF HAWAPI Status of Prior Year Findings and Recommendations Year ended June 30, 2003 GENERAL FUND FINANCIAL SITUATION Observation Over the past five fiscal years, the County's General Fund incurred 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 dramatically decreased. 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 was as follows: We further noted that debt service payments and contributions to the Employees' Retirement System of the State of Hawaii steadily increased over the past three fiscal years. The amount of debt service payments and pension contributions for the period June 30, 2000 through 2004 was as follows: Deficiency of Pension Fiscal revenues and Debt service contributions Total other sources $ 16,382,259 $ 2,105,000 $ over Unreserved 17,162,659 expenditures generalfund Fiscal year and other uses balance 1997-1998 2002 —2003 $ 4,933,844 $ 16,911,530 1998 —1999 23,495,810 4,003,978 12,933,610 1999 —2000 7,394,700 5,730,207 16,100,985 2000 —2001 9,730,672 8,310,689 2001 —2002 57445,785 3,831,680 We further noted that debt service payments and contributions to the Employees' Retirement System of the State of Hawaii steadily increased over the past three fiscal years. The amount of debt service payments and pension contributions for the period June 30, 2000 through 2004 was as follows: In anticipation of these increased expenditures, the County increased real property tax rates effective July 1, 2002 and increased the minimum amount of real property tax paid from $25 to $100 per year. Recommendation We recommended that the County administration and Comity 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. 5 (Continued) Pension Fiscal year Debt service contributions Total 1999 —2000 $ 16,382,259 $ 2,105,000 $ 18,487,259 2000 —2001 17,162,659 129,000 17,291,659 2001-2002 17,702,155 7,434,500 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 increased real property tax rates effective July 1, 2002 and increased the minimum amount of real property tax paid from $25 to $100 per year. Recommendation We recommended that the County administration and Comity 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. 5 (Continued) COUNTY OF HAWAII STATE OF HAWAI`1 Status of Prior Year Findings and Recommendations Year ended June 30, 2003 Status The County administration and County Council have continued to work together to improve the County's financial position. The combination of increased tax revenues and other fees. and maintaining General Fund expenses consistent with the previous fiscal year have resulted in a favorable outcome for the year ended June 30, 2003, as indicated by: ■ An increase in the General Fund fund balance of $5.3 million from $3.8 million at June 30, 2002 to $9.1 million at June 30, 2003; and ■ An excess of $5.7 million of revenues and other sources over expenditures and other uses at June 30, 2003, compared to a deficit of $5.4 million at June 30, 2002. As the County is well aware of this situation and as steps have been taken to address our prior year recommendation, the comment is no longer applicable. SOLID WASTE FUND DEFICIENCY Observation During our review of the Solid Waste Fund, we noted that there was a significant deficiency of expenditures over revenues over the past five fiscal years. One of the factors contributing to this deficiency was the relatively low landfill tipping fees charged by the County, which were one of the lowest in the State of Hawaii. Due to the Solid Waste Fund's inability to recover its costs, the County's General Fund provided an annual subsidy to the Solid Waste Fund to help cover unreimbursed expenditures. Recommendation We recommended that the County evaluate the level of annual General Fund subsidies to the Solid Waste Fund, including the amount of landfill tipping fees charged to landfill users. 6 (Continued) 2001 —2002 2000— 2001 1999— 2000 1998— 1999 1997— 1998 Revenues $ 3,292,570 $ 3,291,798 $ 3,208,658 $ 2,995,312 $ 2,748,238 Expenditures (9.639,529) (9,210,639) (9,226,982) (9.401,253) (8,925503) Deficiency $ (6,346,959) $ (5,918,841) $ (6,018,324) $ (6,405,941) $ (6,177,265) One of the factors contributing to this deficiency was the relatively low landfill tipping fees charged by the County, which were one of the lowest in the State of Hawaii. Due to the Solid Waste Fund's inability to recover its costs, the County's General Fund provided an annual subsidy to the Solid Waste Fund to help cover unreimbursed expenditures. Recommendation We recommended that the County evaluate the level of annual General Fund subsidies to the Solid Waste Fund, including the amount of landfill tipping fees charged to landfill users. 6 (Continued) COUNTY OF HAWAII STATE OF HAWAII Status of Prior Year Findings and Recommendations Year ended June 30, 2003 Status The Department of Environmental Management performed an evaluation of the General Fund subsidies to the Solid Waste Fund and proposed landfill tipping fee increases over the next five years. The increases are expected to reduce the General Fund subsidies by 50% within five years. The proposed increases were passed by the County Council and were put into effect in July 2003- As the prior year recommendation has been implemented, the comment is no longer applicable. SOFTWARE IMPLEMENTATION Observation During our review of the County's plan to install a new financial management software package, we noted that only three employees from the Data Systems Department were assigned to assist in the implementation. Based on the magnitude and scope of the planned system upgrade, combined with the limited number of dedicated personnel assigned to the project, we felt that the County's timetable for implementation was overly aggressive. Further, despite assembling the Financial Resource Enterprise Software for Hawaii County (FRESH) committee to monitor the implementation process, the County did not select a project manager to oversee the process. Recommendation We recommended that FRESH, along with the Data Systems Department, appoint a project manager to oversee the software implementation process. We further recommended that the project manager have the appropriate level of authority and be ultimately responsible for completing the systems implementation on time and on budget. In addition, we recommended that the newly appointed project manager define the County's timetable for implementation and assess the adequacy of the resources allocated to the project. Status The Department of Data Systems assigned the Data Systems Manager to be the project manager. To date, the project manager has worked closely with the FRESH committee to define a timetable for implementation and assess the adequacy of the resources allocated to the project. In addition, the project manager assisted with the drafting of the request for proposal and reviewed all proposals submitted by potential vendors. As the prior year recommendation has been implemented, the comment is no longer applicable. (Continued) COUNTY OF HAWAII STATE OF HAWAII Status of Prior Year Findingos and Recommendations Year ended June 30, 2003 INVENTORIES Observation 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 inventory supervisor at the two Public Works divisions (Traffic and Building) and at the Police Department was responsible for replenishing, receiving, and distributing inventory items to County personnel. The inventory supervisor was also responsible for performing the year-end physical inventory count for financial reporting purposes. We also noted that inventory records were not consistently maintained on a perpetual basis. Based on discussions with County personnel, we noted that perpetual records were only maintained for certain police items and the current Wang system did not have a module to track inventory balances on a perpetual basis. Recommendation We recommended that periodic, unannounced inventory counts be performed by an employee other than the respective department's inventory supervisor. Additionally, we recommended that the County ensure that the new computer system contained a module for inventory that will enable inventory supervisors to maintain perpetual records of their department's inventory balances. Status 'The Department of Public Works and the Police Department have plans to implement periodic inventory count procedures during the fiscal year ending June 30, 2004. Additionally, the Police Department had their current fiscal year inventory count performed by an individual who does not have access to the storeroom. Further, we were informed that the County's new financial management sofhvare package will include an inventory module that will allow departments to establish and maintain perpetual inventory records. As efforts have been made to implement the recommendation, the comment is no longer applicable. 8 (Continued) COUNTY OF HAWAII STATE OF HAWAII Status of Prior Year Findings and Recommendations Year ended June 30. 2003 ABANDONED VEHICLES Observation We noted that the number of abandoned vehicles and related vehicle disposal costs increased over the past three fiscal years. During 2002, the normal process for reporting and removing an abandoned vehicle took three to four weeks and costs the County approximately $70 per vehicle. Further, we noted that the processing of paperwork associated with the removal of an abandoned vehicle was both tedious and time consuming for the County's police officers. Recommendation We recommended that the County evaluate the amount of penalties imposed on residents who were caught abandoning their vehicles in unauthorized locations. In an effort to reduce the number of abandoned vehicles and related costs, we also recommended that the County consider offering a nominal payment to people to bring their vehicles to the impound or scrap metal recovery yard. This would provide an incentive to those individuals who would otherwise abandon their vehicle. Status The Department of Environmental Management has worked with its abandoned vehicle task force to improve the process for dealing with abandoned vehicles. The Department has clarified the distinction between abandoned and derelict vehicles for the County's police officers. This resulted in time and monetary savings as derelict vehicles do not require a site inspection prior to removal. Additionally, effective June 2003, the annual vehicle registration fee was increased. This provided added revenues to cover disposal costs. Based on the progress made to date, the comment is no longer applicable. lv Harty Kim Mayor County of Hawaii DATA SYSTEMS DEPARTMENT 25 Aupuni Sueet, Room 102 . Hilo, Hawaii 9672011252 (808) 961-8207 • Fax (808) 961-8453 May 26, 2004 To: Connie Kiriu, Legislative Auditor From: Clayton Yugawa, Director of Data Systems' RE: Response to the Preliminary Draft Ma I received your request for comment to your Management letter for 2003, regarding Unauthorized User Access. Clayton K. Yugawa Director Unauthorized User Access: Data Systems Department conducts an annual review of all computer users. A list of User IDs is distributed to all Depts/Agencies for verification and updating. User IDs that are no longer valid are disabled and removed from the system. Although the annual user review was a good way to authenticate the validity of a user, Data Systems will be requesting the Departments and Civil Service to provide immediate notification of personnel changes within the County. Upon notification, Data Systems Administrators will disable or remove the user's ability to login to the County network. Going forward, the implementation of the FRESH Payroll/Human Resources application in December 2004, will provide for automatic, immediate notification to the Data Systems Administrators of personnel movement or termination. Password Lockout Feature: The Account Lockout feature will be implemented on both networks. This feature will lockout a user from signing on to the County Network, after (3) unsuccessful password attempts. The user will be denied further access into the system until a Data Systems Administrator resets the users' password. Additionally, all passwords will have a (120) day expiration period, where users will be required to change their passwords on a regular basis. Please feel free to call me for further questions or comments. Hawaii County is an Equal Opportunity Provider and Employer °Ntv or h�4 Harry Kim Mayor C�uuttf of �ttfuttii DEPARTMENT OF ENVIRONMENTAL MANAGEMENT 25 Aupuni Street, Room 210 • Hilo, Hawaii 967204252 (808) 961-8083 • Fax (808) 961-8086 MEMORANDUM DATE May 18, 2004 TO Constance Kiriu, Legislativ. itor FROM Barbara Bell, Director SUBJECT : FY2003 Preliminary Draft Management Letter OFFC - C i H B1rEGWrFI Director 04 MAY 25 Aft 7: 2 ) We have reviewed the FY2003 draft Management Letter concerning the Collection of Receivables and concur with the audit recommendations. We are continuing to work with the Department of Finance to develop comprehensive policies and procedures for collecting County receivables. As the auditors have noted, improvements have been made and we are continuing to see improvements beyond the period of this audit. Our collection of solid waste (landfill) receivables has shown significant improvement with amounts outstanding over 90 days being reduced from 47% of the total receivables for FY2002 to 36% at the end of FY2003. We are continuing our efforts to tighten up the collections of our landfill tipping fees and the amounts outstanding over 90 days are now less than 30% of the total solid waste receivables. To aide in the collection of sewer fees, we are working with members of the County Council and Corporation Counsel to draft an ordinance which would make the property owner responsible for the sewer bills. Because we are unable to discontinue sewer services for delinquent accounts, collections on those accounts pose a greater challenge. Sewer fees are currently billed to the Water Supply account holder, which is often a lessor or a renter. By making the property owner responsible, we would then be able to place a lien on the property for past due sewer charges. Hawaii County is an equal opportunity provider and employer. SECTION I1- COMPREHENSIVE ANNUAL FINANCIAL REPORT COMPREHENSIVE ANNUAL FINANCIAL REPORT Fiscal Year Ended June 30, 2003 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, 2003 Table of Contents FINANCIAL SECTION Independent Auditors' Report Page INTRODUCTORY SECTION 13 Letter of Transmittal 1 GFOA Certificate of Achievement 7 Organization Chart 8 List of Elected Officials 9 List of Principal Officials 10 FINANCIAL SECTION Independent Auditors' Report 11 Management's Discussion and Analysis 13 Basic Financial Statements: Govemment-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 Statement 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 Table 1 - Government -Wide Revenues Page Combining and Individual Fund Statements and Schedules: 102 Combining Balance Sheet - Nonmajor Governmental Funds 78 Combining Statement of Revenues, Expenditures, and Changes in Fund 104 Balances (Deficit) - Nonmajor Governmental Funds 82 Schedules of Revenues, Expenditures, and Changes in Fund Balances (Deficit) - 106 Budget and Actual (Budgetary Basis): 107 Highway Fund 85 Sewer Fund 86 Solid Waste Fund 87 Cemetery Fund 88 Parking Meter Fund 89 Vehicle Disposal Fund 90 Bikeway Fund 91 Workforce Investment Act Fund 92 Golf Course Fund 93 Geothermal Relocation Revolving Fund 94 Beautification Fund 95 Hawaii County Housing Agency 96 Park Dedication Fund 97 Combining Balance Sheet - Agency Funds 98 STATISTICAL SECTION Table 1 - Government -Wide Revenues 101 Table 2 - Government -Wide Expenses by Function 102 Chart 1 - General Governmental Revenues and Expenditures Comparison 103 Table 3 - General Governmental Expenditures by Function 104 Chart 2 - General Governmental Expenditures by Function 105 Table 4 - General Governmental Revenues by Source 106 Chart 3 - General Governmental Revenues by Source 107 Table 4a - General Governmental Tax Revenues by Source 108 Table 5 - Property Tax Levies and Collections 109 Table 6 - Assessed and Estimated Actual Value of Taxable Real Property 110 Table 7 - Real Property Assessed Values by Classification and Tax Rates 111 Chart 4 - Assessed Value of Real Property 115 Table 8 - Principal Taxpayers 116 Table 9 - Computation of Legal Debt Margin 117 Table 10 - Ratio of Net Bonded Debt to Assessed Value and Net Bonded Debt Per Capita 118 Table 11 - Ratio of Annual Debt Service Expenditures for General Obligation Bonded Debt to Total General Governmental Expenditures 119 Table 12 - Demographic Statistics 120 Table 13 - Property Value, Construction and Bank Deposits 121 Table 14 - Miscellaneous Statistical Data 122 INTRODUCTORY SECTION Harry Kim Mayor March 19, 2004 County of Hawaii Finance Department 25 Aupum Street, Room 118 • Hilo, Hawaii 96720 (808)961-8234 • Fax(808)961-8248 The Honorable Mayor and Members of the Council County of Hawaii 25 Aupuni Street Hilo, Hawai'i 96720 William Takaba Director Nancy F. Crawford Depot Due, w, We transmit herewith the Comprehensive Annual Financial Report for the County of Hawai'i, State of Hawai'i, for the fiscal year July 1, 2002 to June 30, 2003. This report was prepared by the County's Department of Finance. The accuracy of the financial statements and the completeness and fairness of their presentation are the responsibility of the County government. We believe the enclosed data are complete and accurate in all material respects and are reported in a manner designed to present fairly the financial position and results of operations of the various funds of the County. All disclosures necessary to convey the maximum understanding of the County's financial activities have been included. Management's discussion and analysis is also included to aid users of the financial statements. This report presents the financial position of the County of Hawai'i at June 30, 2003 and results of operations for the fiscal year then ended. The report is divided into three sections: • The Introductory Section includes this transmittal letter, a Certificate of Achievement for Excellence in Financial Reporting, the County of Hawai'i's organization chart and lists of elected and principal officials. The Financial Section contains management's discussion and analysis, the basic financial statements, related notes, the combining and individual fund budgetary financial statements, and the independent auditors' report. • The Statistical Section includes selected financial and demographic information, generally presented on a multi-year basis. This report includes all funds of the County of Hawai'i, including its component unit, the Department of Water Supply, established by the County Charter as a semi -autonomous body of -I- the County government. This component unit is included in the County's reporting entity because of its financial relationship with the County. The County provides the full range of municipal services. These include police and fire protection; emergency medical care; public prosecutor; culture and recreation; sanitation; social services; water; planning and zoning; construction and maintenance of highways, streets and infrastructure; real property assessment and tax collection; and general administrative services. However, the County does not provide such other traditional services as public education, hospitals and courts. These services are provided by the State government. The County of Hawaii consists of the island of Hawaii, 4,028 square miles in size. It is twice as large as the combined area of all the other inhabited islands in the Hawaiian Archipelago. Since there is no other local or municipal government within the County, there are no overlapping taxes and no overlapping debt. The County of Hawaii has an elected mayor and a nine -member council. Economic Condition and Outlook The island of Hawaii, commonly known as the Big Island, is located 214 miles from Honolulu, the state capital; 2,200 miles from the west coast of the continental United States; and 4,000 miles from Japan. The city of Hilo on the east side of the island serves as the county seat as well as the transportation and financial center for the Big Island. Hilo's infrastructure includes Hilo Harbor, a deep -water port, and Hilo International Airport, which is capable of handling fully - loaded wide-bodied aircraft. Kailua-Kona and South Kohala, major tourist destination areas on the west side of the Big Island, are served by flights from the United States mainland, Japan and Canada through the Kona International Airport. Scheduled freight services are available between the islands by air and sea transport. Communities on the island are linked by a network of State and County maintained streets and highways. 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 increasing 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 and low interest rates have stimulated construction and real estate sales island - 0 wide. The Big Island's economy has been on an upward trend in recent years, and has been the job growth leader in the State. 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 positive, based on increasing construction and real estate sales, and steady tourist activity. 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 increased five percent to 1,243,313 during 2002 driven by an increase in domestic visitors. A developing source for bringing tourists to the island of Hawaii is the cruise ship industry. There were 229,668 foreign cruise ship visitors in 2002, and additional cruise ships will be coming on line in the future. For 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 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 available for occupancy during the year. Construction continued on the Mohouli Street Extension, Puainako Street Extension and the Keaukaha Gymnasium Complex. Preparation for several West Hawaii road projects continued. Public Safety — In 2002, police eradicated 79,774 marijuana plants and seized 39 pounds of processed marijuana, .84 pounds of heroin, 5.69 pounds of cocaine, and 2.69 pounds of crystal methamphetamine, resulting in 597 arrests. Construction of a new East Hawaii Detention Facility provided space to hold pre -arraignment detainees. -3- General Plan — The proposed revised General Plan remains with the County Council for consideration. Emphasis in many proposed amendments was on preserving ocean access for the public and appropriate shoreline setbacks. Technology — Expansion of the County's computer network continued throughout the year. Geographic information systems continue to be developed, with an emphasis on emergency mitigation and planning. Information on roads and parcels were also digitized. For the Future Public Safety — The Mayor has declared a war on ice (crystal methamphetamine). The County is aggressively seeking state and federal funds to assist in several initiatives related to drug prevention, prosecution and treatment. Public Works — The County is working on developing a West Hawaii Civic Center. This facility will improve access to government for the Kona residents. Additionally, the County will be working on several major road projects to enhance traffic in West Hawaii. Environmental Management — As the Hilo landfill approaches full capacity, the County will be looking at solid waste technology alternatives to divert waste from the Hilo landfill to enable the County to close that facility. Real Property Taxes — The County will continue work on updating the real property tax code in an effort to ensure fairness to all taxpayers. Focus will be on agricultural property and taxpayer exemptions. 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 1.84%. The County's policy is to minimize credit and market risks while maintaining a competitive yield on its portfolio. Accordingly, with the exception of $60,339 held by bond paying agents and a rental management agent, deposits were either insured by federal depository insurance, collateralized, or secured by irrevocable letters of credit. All collateral on deposit was held for safe keeping with a County -designated agent in the County's name. Risk Management The County maintains insurance coverage for privately owned police vehicles as well as for other purposes. The County is substantially self-insured for its vehicles as well as for all other perils including workers' compensation and general liability. -5- Other Information Independent Audit The Hawaii County Charter requires an annual audit by independent certified public accountants. KPMG LLP was selected by the County Council to perform the audit. Employee Union Contracts County employees are members of seven different bargaining units. All of the bargaining units have contracts that run through June 30, 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, 2002. This was the fifteeth 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. "VVI WILLIAM TIKKABA Director of Finance iom 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, 2002 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Govemment 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. AGE OFF" i�moinrts` \v F AND to President coavounox�y^ �o SEPAL/o`` Executive Director -7- County Council I 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 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: 2002-2004) James Y. Arakaki Chair J. Curtis Tyler, III Vice Chair Aaron S.Y. Chung Member Leningrad Elarionoff Member Fred C. Holschuh, M.D. Member Bob Jacobson Member Bobby Jean Leithead-Todd Member Joe Reynolds Member Gary Safarik Member Principal Officials June 30, 2003 County Clerk Al Konishi Legislative Auditor Connie Kiriu Managing Director Dixie Kaetsu Deputy Managing Director Peter L. Hendricks Corporation Counsel Lincoln Ashida Director of Finance William Takaba Planning Director Christopher Yuen Director of Personnel Michael R. Ben Director of Research and Development Jane Testa Chief of Police Lawrence K. Mahuna Fire Chief Darryl Oliveira Director of Public Works Bruce McClure Director of Environmental Management Barbara Bell Director of Parks and Recreation Patricia Engelhard Manager, Department of Water Supply Milton Pavao Civil Defense Administrator Troy M. Kindred Director of Liquor Control Janice A. Pakele Transit Operations Administrator Thomas Brown Executive on Aging Alan Parker Administrator, Office of Housing and Community Development Edwin S. Taira -10- FINANCIAL SECTION PWkQ P 0. Box 4150 Honolulu, HI 96812-4150 Independent Auditors' Report To the Chair and Members of the County Council County of Hawaii State of Hawaii: We have audited the accompanying financial statements of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the County of Hawaii, State of Hawaii (County), as of and for the year ended June 30, 2003, 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 fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the County as of June 30, 2003, 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. 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 19, 2004 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, the combining and individual nonmajor fund financial statements, and the statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements have been subjected to the auditing procedures applied in the audit of basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and the statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. Honolulu, Hawaii March 19, 2004 _12_ MANAGEMENT'S DISCUSSION AND ANALYSIS This section of the County of Hawai`i's (the County) Comprehensive Annual Financial Report presents a narrative overview and analysis of the financial activities of the County for the fiscal year ended June 30, 2003. 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 $349.4 million (net assets). • The government's total net assets increased by $28.8 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 $128.2 million, a increase of $40.1 million from the prior year. Approximately 49 percent of this total amount, $62.4 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 $9.1 million, or seven percent of total general fund expenditures. • The County's total long-term liabilities increased by $27.6 million (twelve percent) during the current fiscal year. The key factor in this increase was the issuance of $36.3 million in bonds for the primary government. OVERVIEW OF THE BASIC 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. 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 govemment-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 Supplementary Information In addition to the basic financial statements and accompanying notes, this report also presents supplementary information, including the combining statements referred to earlier in connection with nonmajor governmental funds and agency funds, and budget comparison statements for the special revenue funds. This supplementary information is presented immediately following the notes to the basic financial statements. Assets: Current and other assets Capital assets Total assets Liabilities: Long-term liabilities outstanding GOVERNMENT -WIDE FINANCIAL ANALYSIS Net Assets June 30, 2003 Primary Government Governmental Activities Business -type Activities Total 2003 2002 2003 2002 2003 2002 $ 160,532,791 $ 122,937,693 $ 1,224,494 $ 1,117,277 $ 161,757,285 $ 124,054,970 472,362,315 453,773,723 1,418,527 1,449,252 473,780,842 455,222,975 $ 632,895,106 $ 576.71:,416 $ 2,643,021 $ 2,566,529 $ 635,538,127 $ 579,277,945 261,148,974 233,484,372 1,084,667 1,101,772 262,233,641 234,586,144 Other liabilities 23,729,775 24,026,677 167,605 88,417 23,897,380 24,115,094 Total liabilities $284,878,749 $257,511,049 $1,252.272 $1,190,189 $286,131,021 $258,701,238 Net assets: Invested in capital assets, net of related debt 333,571,558 316,909,229 333,860 347,480 333,905,418 317,256,709 Restricted 27,577,754 22,122,090 180,782 179,028 27,758,536 22,301,118 Unrestricted (deficit) (13,132,955) (19,830,952) 876,107 849,832 (12,256,848) (18,981,120) Total net assets $ 348,016,357 $ 319,200,367 $ 1,390,749 $ 1,376,340 $ 349,407,106 $ 320,576.707 - 15 - Analysis of Net Assets As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the County, assets exceeded liabilities by $349,407,106 at the close of the most recent fiscal year. By far the largest portion of the County's net assets (96 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 (8 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 $12,256,848 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 $28,830,399 during the current fiscal year. Approximately $16,000,000 of the increase is due to increases in real property tax valuations and collections. The remaining increase represents the degree to which increases in ongoing revenues have outstripped similar increases in ongoing expenses. -16- Changes in Net Assets For the Fiscal Year Ended June 30, 2003 Expenses: Primary Government Governmental Activities Business -type Activities Total 36,461,949 37,796,311 2003 2002 2003 2002 2003 2002 Revenues: Highways and streets 15,512,957 22,627,472 - - 15,512,957 Program revenues. Health, education and welfare 20,205,386 17,854,112 450,343 455,936 20.655,729 Charges for services $ 24,767,147 S 23,725,325 S 304,671 S 279,369 S 25,071,818 $ 24,004,694 Operating grants and contributions 31.544,494 27,198,314 147,997 147,582 31,692,491 27.345,896 Capital grants and contributions 19,064,821 27,871,495 - - 19,064,821 27.871.495 General revenues Total expenses 193,445,468 196,302.096 450,343 455,936 193,895,811 Property taxes 109.151.524 94.197,060 - - 109,151.524 94,197.060 Othertaxes 17,223,550 16,523.087 - - 17.223.550 16.523.087 Grants and contributions, unrestricted 13,931.403 13,501,900 - - 13,931.403 13501,966 Investment earnings 1,936,635 3,568,210 12,084 19,064 1948,719 3,587.274 Miscellaneous 4,641,884 1,582,980 - - 4,641,884 1,582,980 Total revenues 222,261,458 208,168,437 464,752 446,015 222,726,210 208,614,452 Expenses: General government 36,461,949 37,796,311 - - 36,461,949 37,796,311 Public safety 77,131,374 75,709,394 - - 77,131,374 75,709394 Highways and streets 15,512,957 22,627,472 - - 15,512,957 22,627,472 Health, education and welfare 20,205,386 17,854,112 450,343 455,936 20.655,729 18.310,048 Culture and recreation 16,430,590 14,903,986 - - 16,430,590 14,903,986 Sanitation 19,022,213 18,641,654 - - 19,022,213 18,641,654 Interest on long-term debt 8,680,999 8,769,167 - - 8,680,999 8,769,167 Total expenses 193,445,468 196,302.096 450,343 455,936 193,895,811 196,758,032 Increase (decrease)in net assets before transfers 28,815,990 11,866,341 14,409 (9,921) 28,830,399 11.856,420 Transfers out - (838,445) - - - (838,445) Increase (decrease)in net assets 28,815.990 11,027,896 7409 (9,921) 28,830,399 11,017.975 Net assets at beginning of year 319,200.367 308,172,471 1,376,340 1,386.261 320,576,707 309,558,732 Net assets at end of year S 348.016,357 S 319,200,367 $ 1,390,749 S 1,376.340 $ 349,407.106 $ 320,576.707 Analysis of Changes in Net Assets Governmental activities. Governmental activities increased the County's net assets by $28,815,990 or primarily all of the total growth in net assets of the County. The County's property taxes increased by $14,954,464 (16 percent) during the year. Most of this increase is attributable to the increase in assessed values. Total expenses decreased by $2,856,628. This decrease was primarily due to a decrease of $7,114,515 in expenditures related to highways and streets. In the current year, much of the highway and street expenses were for new roads that were capitalized in infrastructure. The decrease in highway and street expenses was partially offset by an increase in health, education and welfare expenses of $2,345,681 due to a higher need for housing related and job training assistance. For the most part, other fluctuations in expenses closely paralleled inflation and growth in demand for services. -17- 90,000,000 80,000.000 70.000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 Expenses and Program Revenues - Governmental Activities Year Ended June 30, 2003 General Public safety Highways and Health, Culture and Sanitation Interest on government streets education and recreation long-term debt welfare Revenues by Source - Governmental Activities Year Ended June 30, 2003 Grants and contribution drhiRstment earnings restricted to specific 1% programs 6% Other taxes 8% Pr( 49% Miscellaneous 2% Charges for services 11% iperating grants and contributions 14% Capital grants and contributions 9% 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 (40 percent), followed by general government (19 percent) and health, education and welfare (10 percent). General revenues such as property and other taxes are not shown by program, but are effectively used to support program activities countywide. For governmental activities overall, without regard to programs, property taxes are the largest single source of funds (49 percent). followed by operating grants and contributions (14 percent) and charges for services (1 I percent). Business -type activities. Business -type activities increased the County's net assets by $14,409. Expenses for health, education and welfare account for all of the $450,343 of expenses. Charges for services were $304,671, operating grants and contributions were $147,997 and investment earnings were $12,084. 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. Govenrntental 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 $128,173,566, an increase of $40,063,814 in comparison with the prior year. Approximately 49 percent of these total fund balances ($62,396,914) constitute 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 as follows: 1) to liquidate contracts and purchase orders for last fiscal year ($29,208,721), 2) to pay debt service ($12,175,863), or 3) for a variety of other restricted purposes ($24,392,068). The general fund is the chief operating fund of the County. At the end of the current fiscal year, unreserved fund balance of the general fund was $9,093,877, while total fund balance reached $16,156,505. 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 seven percent of total general fund expenditures, while total fund balance represents twelve percent of that same amount. The fund balance of the County's general fund increased by $6,607,815 during the current fiscal year. Key factors in this increase are as follows: • An increase of $16,279,312 (17 percent) in property tax revenue due to increasing property values and collection efforts on past due taxes. A decrease of $1,685,092 (46 percent) in investment earnings due to a declining investment market. • A decrease of $3,399,089 (36 percent) in pension and retirement contributions due to the retirement system payment rates changing. -19- An increase of $2,125,217 (11 percent) in general government expenditures due to increases in election expenditures due to the primary, general and special elections held during the fiscal year, increases in building maintenance expenditures and the addition of a new product development program. An increase of $2,409,079 (4 percent) in public safety expenditures due primarily to increases in expenditures for police. Increases were noted in many of the grant -funded programs as well as in salaries and wages due to overtime pay. For the most part, other fluctuations in expenses closely paralleled inflation and growth in demand for services. The debt service funds have combined total fund balances of $12,175,863, 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 $212,319 (2 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 $877,787, and those for Ouli Ekahi Affordable Housing Project (Ouli Ekahi) amounted to ($1,680). The total growth in net assets for Kulaimano was $33,266, while the net assets for Ouli Ekahi decreased by $18,857. 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 ($7,889,952 increase in appropriations) and can be briefly summarized as follows: • $7,547,350 in increases due to the appropriations for capital and operating grants and contributions. • $163,000 in increases due to the appropriation of higher than expected fund balance to be used in the year's operations. Differences between the final budget and the actual (budgetary basis) resulted in $2,090,498 less revenues than expected and $9,493,659 less expenditures than appropriated. This is primarily due to the following factors: • $2,802,555 favorable variance in taxes and assessments revenue resulting from collections being more than expected. • $3,683,323 unfavorable variance in intergovernmental revenue, including $1,141,004 shortfall in transient accommodations tax and $1,264,514 in other state grants and funding. • $1,240,385 unfavorable variance in interest and penalties revenue as a result of a declining investment market. • $2,429,137 favorable variance in general government expenditures caused by an overall effort by each department to hold the line on expenditures. -20- • $4,476,973 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. • $719,342 favorable variance resulting from health fund, primarily due to a refund of premiums due to a positive experience factor on our medical and other insurance plans. 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, 2003 amounts to $473,780,842 (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 four 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 $10,468,118. • Construction continued on the Puainako Street extension; construction in progress as of the end of the current fiscal year had reached $24,820,051. • Construction continued on the East Hawaii Police Detention Facility; construction in progress as of the end of the current fiscal year had reached $4,243,960. • Construction continued on the Keaukaha Gymnasium Complex; construction in progress as of the end of the current fiscal year had reached $4,216,563. • Various sewer system additions and improvements were completed at a cost of $5,881,858. Capital Assets (net of depreciation) 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 $165,607,000. This entire amount was comprised of general obligation bonds which are backed by the full faith and credit of the County. The County's total bond and loan debt increased by $26,100,909 (15 percent) during the current fiscal year. The key factor in this increase was $36,310,000 in general obligation bonds issued during the current fiscal year. -21- Primary Government Governmental Activities Business -type Activities Total 2003 2002 2003 2002 2003 2002 Land S 19,311,280 $ 19,160,848 S 753,877 S 753,877 S 20.065,157 $ 19,914,725 Infrastructure assets 146,767,836 146,731,963 - - 146,767,836 146,731.963 Ground and site improvements - - 101,370 105,124 101,370 105,124 Buildings and improvements 216,218,341 210,264,869 551,263 575,879 216,769,604 210,840,748 Equipment 25,536,905 25,900,571 12,017 14,372 25,548,922 25,914,943 Construction work in progress 64,527,953 51,715,472 64,527,953 51,715,472 Total $ 472,362,315 $ 453,773,723 $ 1,418,527 $ 1,449,252 $ 473,780,842 $ 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 $165,607,000. This entire amount was comprised of general obligation bonds which are backed by the full faith and credit of the County. The County's total bond and loan debt increased by $26,100,909 (15 percent) during the current fiscal year. The key factor in this increase was $36,310,000 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 $1,753,555,676, which is in excess of the County's outstanding general obligation debt. Currently the County's outstanding debt represents 10.7 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 7.3 percent, which is up from a rate of 6.9 percent a year ago. The number of visitors to the County for the most recent calendar year was 1,243,313, up slightly from the previous year's count of 1,183,005. Both of these factors were considered in preparing the County's budget for the 2004 fiscal year. At the end of the current fiscal year, unreserved fund balance in the general fund was $9,093,877. The County has appropriated $1,000,000 of this amount for spending in the 2004 fiscal year budget. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the County's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Director of Finance, County of Hawaii, 25 Aupuni Street, Room 118, Hilo, Hawaii 96720. _22_ BASIC FINANCIAL STATEMENTS 23- COUNTY OF HAWAII Statement of Net Assets Assets Current Assets: Cash and cash equivalents (notes 3 and 14) Restricted cash and cash equivalents (note 3) Investments (notes 3 and 14) Receivables, net (notes 4 and 14) Internal balances Inventories Prepaid expenses Other Total current assets Investments (note 3) Restricted cash and cash equivalents (note 3) Restricted investments (note 14) Loans receivable, excluding current portion (note 14) Deferred charges Capital assets (notes 6, 8 and 14): Utility plant in service, net Infrastructure assets, net Ground and site improvements, net Buildings and improvements, net Equipment, net Construction work in progress Land Total capital assets Total assets June 30, 2003 Primary Government Governmental Business -type A Air;.,; r;ne Tm, l $ 95,141,181 $ 253,350 $ 95,394,531 118,854 28,517 147,371 28,851,013 700,000 29,551,013 27,526,409 48,743 27,575,152 2,700 (2,700) - 3,289,027 - 3,289,027 - 1,273 1,273 1,091,703 - 1,091,703 156,020, 887 1,029,183 15 7,050,070 4,511,904 - 4,511,904 - 195,311 195,311 146,767,836 - 146,767,836 - 101,370 101,370 216,218,341 551,263 216,769,604 25,536,905 12,017 25,548,922 64,527,953 - 64,527,953 19,311,280 753,877 20,065,157 472,362,315 1,418,527 473,780,842 632,895,106 2,643,021 635,538,127 -24- Component Unit $ 25,089,460 7,867,862 3,349,946 827,733 13,487 37,148,488 10,063,565 708,680 5,119,046 151,635,545 22,358,842 545,000 174,539,387 227, 579,166 (Continued) COUNTY OF HAWAII Statement of Net Assets Liabilities Current Liabilities: Warrants payable Accounts payable Deferred 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 14) Compensated absences (note 10) Claims and judgments (notes 10, 12 and 14) 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 14) Compensated absences (note 10) Claims and judgments (notes 10, 12 and 14) 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, 2003 Primary Government Governmental Business -type Activities Activities Total $ 8,898,446 $ 14,977 $ 8,913,423 4,223,213 149,951 4,373,164 5,362,435 2,677 5,365,112 2,377,905 - 2,377,905 2,867,776 11,055,121 5,197,828 3,693,226 1,013,277 128,839 186,232,174 14,521,058 14,880,105 2,280,185 22,147,161 2,867,776 18,574 11,073,695 - 5,197,828 - 3,693,226 - 1,013,277 - 128,839 1,066,093 187,298,267 - 14,521,058 - 14,880,105 - 2,280,185 - 22,147,161 (Concluded) Component Unit 1,5 54,494 265,054 813,240 1,190,000 526,613 54,000 18,446,708 1,423,807 187,000 - - - 10,063,565 284,878,749 1,252,272 286,131,021 34,524,481 333,571,558 333,860 333,905,418 158,017,287 15,401,891 - 15,401,891 12,175,863 180,782 12,356,645 - (13,132,955) 876,107 (12,256,848) 35,037,398 S 348,016,357 $ 1,390,749 $349,407,106 $ 193,054,685 -25- COUNTY OF HAWAII Statement of Activities For the Fiscal Year Ended June 30, 2003 Functions/Programs 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 14) Program Revenues 4,349,355 Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions $ 36,461,949 $ 1,911,070 $ 2,014,471 $ 4,039,083 77,131,374 4,349,355 12,541,681 3,667 15,512,957 5,324,908 466,435 14,881,038 20,205,386 991,725 15,807,614 - 16,430,590 1,593,620 714,293 42,675 19,022,213 10,596,469 - 98,358 8,680,999 - - - 193,445,468 24,767,147 31,544,494 19,064,821 450,343 304,671 147,997 $ 193,895,811 $ 25,071,818 $ 31,692,491 $ 19,064,821 $ 31,150,434 $ 29,218,763 $ $ 21,412,318 General revenues: Taxes: Property taxes, levied for general purposes Public service company taxes Franchise taxes Fuel taxes Grants and contributions not restricted to specific programs Investment earnings Miscellaneous Total general revenues Change in net assets Net assets, beginning of year Net assets, end of year See accompanying notes to the basic financial statements. -26- Net (Expense) Revenue and Changes in Net Assets Primary Government Governmental Business -type Component Activities Activities Total Unit $ (28,497,325) $ - $ (28,497,325) $ (60,236,671) - (60,236,671) 5,159,424 - 5,159,424 (3,406,047) - (3,406,047) (14,080,002) - (14,080,002) (8,327,386) - (8,327,386) (8,680,999) - (8,680,999) (118,069,006) - (118,069,006) 2,325 2,325 (118,069,006) 2,325 (118,066,681) 19,480,647 109,151,524 - 109,151,524 - 5,063,897 - 5,063,897 - 4,816,565 - 4,816,565 - 7,343,088 - 7,343,088 - 13,931,403 - 13,931,403 - 1,936,635 12,084 1,948,719 515,203 4,641,884 - 4,641,884 - 146,884,996 12,084 146,897,080 515,203 28,815,990 14,409 28,830,399 19,995,850 319,200,367 1,376,340 320,576,707 173,058,835 $ 348,016,357 $ 1,390,749 $349,407,106 $193,054,685 -27- COUNTY OF HAWAII Governmental Funds Balance Sheet June 30, 2003 Liabilities and Fund Balances Liabilities: Warrants payable $ 5,119,535 $ 2,259,143 Other Total Accounts payable 1,511,098 Capital Governmental Governmental Due to other governmental funds (note 5) General Projects Funds Funds Assets 11,711,428 3,417,518 2,261,731 17,390,677 Cash and cash equivalents (note 3) $11,505,112 $51,819,830 $31,816,239 $ 95,141,181 Investments (note 3) 3,444,692 23,337,852 6,580,373 33,362,917 Receivables, net (note 4) 9,805,705 2,685.682 2,222,537 14.713,924 Due from other governmental funds (note 5) 1,905.036 20,255 183,074 2,108,365 Due from other nongovernmental funds (note 5) - - 2,700 2.700 Receivables from other governments (note 4) 5,210,290 6,705,078 897,117 12,812,485 Restricted cash with escrow (note 3) 117,435 1,419 - 118.854 Inventories 3,289,027 - - 3,289,027 Other 786,994 - 304,711 1,091,705 Total assets $36,064,291 $84,570.116 $42,006,751 $ 162.641,158 Liabilities and Fund Balances Liabilities: Warrants payable $ 5,119,535 $ 2,259,143 $ 1,519,768 $ 8,898,446 Accounts payable 1,511,098 1,114,303 1,597,812 4,223,213 Due to other governmental funds (note 5) 101,360 585,823 1,421,182 2,108,365 Deferred revenue (note 7) 11,711,428 3,417,518 2,261,731 17,390,677 Other 1,464,365 1,438 381,088 1,846,891 Total liabilities 19,907,786 7,378,225 7,181,581 34,467,592 Fund balances: Reserved for: Encumbrances 2,980,286 17,915,513 8,312,922 29,208,721 Inventories 3,289,027 - - 3,289,027 Taxicab investigations 53,070 - 53,070 Liquor control 611,475 - - 611,475 Unexpended allotments - 20,309,726 - 20,309,726 UPW deferred compensation 128,770 - - 128,770 Debt service - - 12,175,863 12,175,863 Unreserved, reported in: General fund 9,093,877 - - 9,093,877 Special revenue funds - - 14,336,385 14,336,385 Capital projects funds 38,966,652 - 38,966,652 Total fund balances 16,156,505 77,191,891 34,825,170 128,173,566 Total liabilities and fund balances $36,064,291 $84,570,116 $41006,751 $162.641,158 See accompanying notes to the basic financial statements IME COUNTY OF HAWAII Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets June 30, 2003 Total fund balances - governmental funds S 128,173,566 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 19,311,280 Infrastructure assets, net 146,767,836 Buildings and improvements, net 216,218,341 Equipment, net 25.536,905 Construction work in progress 64,527,953 Total capital assets (18,573,331) 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 (197,287,295) Accrued interest on bonds (2,377,905) Bond premium, net (1,020,887) Capital leases (3,293,462) Compensated absences (19,718,886) Claims and judgments (18,573,331) Landfill closure/postclosure costs (22,276,000) Total long-term liabilities Net assets of governmental activities See accompanying notes to the basic financial statements. -29- 472,362,315 12,028,242 (264,547,766) S 348,016,357 COUNTY OF HAWAII Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances For the Fiscal Year Ended lune 30, 2003 Revenues Property tax Public service company tax Fuel tax Public utility franchise tax Licenses and permits Intergovernmental Charges for services Investment earnings Miscellaneous Total revenues Expenditures Current: General government Public safety Highways and streets Sanitation Health, education and welfare Culture and recreation Pension and retirement contributions (note 13) Employees' health insurance Miscellaneous Debt service: Principal Interest Capital outlay Total expenditures Excess (deficiency) of revenues over expenditures General S 109,990,854 S 5,063,897 5,198,842 35,203,772 3,000,165 2,001,740 1,894,361 162,353,631 Other Total Capital Governmental Governmental Projects Funds Funds - S - 15,022,307 2 3,258,738 18,281,047 7,343,088 4,816,565 4,062,018 14,977,017 10,481,010 64,250 1,026,039 42,769,987 S 109,990,854 5,063,897 7,343,088 4,816,565 9,260.860 65,203,096 13,481,175 2,065,992 6,179,138 223,404,665 22,317,071 - - 22,317,071 61,329,123 - 3,337,621 64,666,744 1,654,420 - 7,020,996 8,675,416 262,788 - 16,365,716 16,628,504 5,202,028 - 13,664,478 18,866,506 12,281,123 - 804,436 13,085,559 6,160,100 - 1,765,853 7,925,953 11,679,436 - 1,078,588 12,758,024 4,205,242 - 1,424,139 5,629,381 588,894 68,506 11,142,888 11,800,288 103,091 - 8,366,262 8,469,353 3,867,614 29,084,795 - 32,952,409 129,650,930 29,153,301 64,970,977 223,775,208 32,702,701 (10,872,254) (22,200,990) (370,543) -30- (Continued) COUNTY OF HAWAII Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances For the Fiscal Year Ended June 30, 2003 General Other Financing Sources (Uses), including transfers Other Capital Governmental Projects Funds Sale of assets $ 9,182 S Capital leases 66,507 - Sale of bonds - 37,261,904 State Revolving Fund loans (2,802,761) 853,405 Transfers in (note 5) 39,477,635 2,802,761 Transfers out (note 5) (27,127,297) (12,471) Total other financing sources (uses) (27,051,608) 40,905,599 Net change in fund balances 5,651,093 30,033,345 Fund balance at beginning of year 9,548,690 47,158,546 Increase in reserve for inventories 956,722 Fund balance at end of year S 16,156,505 S 77,191,891 See accompanying notes to the basic financial statements. -31- (Concluded) Total Governmental Funds S - S 9,182 1,286,637 1,353,144 - 37,261,904 - 853,405 27,139,768 29,942,529 (2,802,761) (29,942,529) 25,623,644 39,477,635 3,422,654 39,107,092 31,402,516 88,109,752 - 956,722 S 34,825,170 S 128,173,566 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, 2003 Net change in fund balances - total governmental funds 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 34,943,286 Depreciation expense and loss on disposals (16,354,694) S 39,107.092 Excess of capital outlay over depreciation expense 18,588,592 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 (36,310,000) Premium on bond issuance (951,905) State revolving fund loans (853,404) Capital lease obligations (1,353,144) Total debt proceeds (39,468,453) 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 8,872,500 SRF loan repayment 2,172,892 Capital lease payments 754,895 Total long-term debt repayment 11,800,287 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 decreased by this amount this year. (1,008.265) (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, 2003 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 Decrease 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- S 956,722 (856,560) 138,221 (230,000) 28,813 (240,459) (Concluded) (203,263) $ 28,815,990 COUNTY OF HAWAII General Fund Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2003 Revenues: Taxes and assessments: Real property taxes Public service company taxes Total taxes and assessments Licenses and permits: Nonbusiness licenses and permits Business licenses Street use Total licenses and permits Intergovernmental: Federal: Programs for the aged Community development block grants Civil defense Law enforcement Other Total federal State: State General Fund - Act 185, SLH 1990 Emergency medical services Other Child support enforcement Total State Total intergovernmental revenue Charges for current services: General government Culture and recreation Highways and streets Public safety Total charges for current services Fines and forfeitures Rents -34- (Continued) Variance Original Final Favorable Budget Budget Actual (Unfavorable) $107,037,196 $107,037,196 $109,990,854 $ 2,953,658 5,215,000 5,215,000 5,063,897 (151,103) 112,252,196 112,252,196 115,054,751 2,802,555 2,772,219 2,912,219 3,239,184 326,965 1,061,423 1,061,423 887,676 (173.747) 992,150 992,150 1,071,982 79,832 4,825,792 4,965,792 5,198,842 233,050 1,316,223 1,501,627 1,471,329 (30,298) -- 2,685,000 2,685,000 116,000 116,000 86,048 (29,952) 1,884,000 3,291,112 2,513,671 (777,441) 1,012,798 3,780,368 3,340,254 (440,114) 4,329,021 11,374,107 10,096,302 (1,277,805) 14,892,000 14,892,000 13,750,996 (1,141,004) 8,352,822 8,352,822 8,251,006 (101,816) 4,328,157 4,800,277 3,662,050 (1,138,227) 923,696 923,696 899,225 (24,471) 28,496,675 28,968,795 26,563,277 (2,405,518) 32,825,696 40,342,902 36,659,579 (3,683,323) 1,977,371 1,977,371 1,755,237 (222,134) 687,050 687,050 695,872 8,822 580,000 580,000 530,696 (49,304) 25,000 25,000 18,360 (6,640) 3,269,421 3,269,421 3,000,165 (269,256) 907,500 907,500 385,748 (521,752) 33,600 33,600 59,698 26,098 -34- (Continued) COUNTY OF HAWAII General Fund Statement 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, 2003 Variance Original Final Favorable Budget Budget Actual (Unfavorable) $ 3,200,000 $ 3,200,000 $ 1,959,615 $ (1.240.385) 3,197,204 3,266,950 3,829,465 562.515 160,511.409 168,238,361 166,147,863 (2,090,498) 5,580,108 5,695,529 5,381,122 314.407 2,048,358 2,048,358 1,828,152 220,206 2,758,307 2,826,706 2,538,971 287.735 2,567,984 2,431,735 2,190,426 241,309 2,826,404 2,826,404 2,267,703 558,701 1,749,643 1,837,043 1,722,593 114,450 1,745,969 1,883,087 1,823,922 59,165 963,694 1,045, 805 1,003,241 42,564 1,268,490 1,360,265 1,234,946 125,319 1,297,145 1,360,845 1,214,223 146,622 632,752 642,752 565,130 77,622 848,893 848,893 848,355 538 614,302 814,302 573,803 240,499 24,902,049 25,621,724 23,192,587 2,429,137 35,054,154 36,343,503 33,939,854 2,403,649 19,841,221 19,883,021 19,110,341 772,680 5,422,309 5,827,975 4,761,151 1,066,824 1,598,904 1,633,749 1,597,124 36,625 1,049,023 1,049,023 870,217 178,806 153,939 181,420 181,420 -- 441.550 1,543,797 1,533,294 10,503 817,700 817,700 809,814 7,886 64,378,800 67,280,188 62,803,215 4,476,973 1,234,352 1,524,352 1,521,527 2,825 -35- (Continued) COUNTY OF HAWAII General Fund Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2003 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 Variance Original Final Favorable Budget Budget Actual (Unfavorable) $ 247,111 $ 247,111 $ 242,062 $ 5,049 1,601,901 1,741,039 1,498,360 242,679 2,750,184 2,815,292 2,638,192 177,100 55,000 55,000 52,378 2,622 900,000 900,000 900,000 -- 245,402 245,402 225,694 19,708 102,942 102,942 102,942 -- 5,655,429 5,859,675 5,417,566 442,109 179,508 4,995,857 1,964,841 2,828,683 688,884 689,518 487,369 334,394 89,874 593,554 12,852,482 6,693,980 179,508 5,126,006 1,972,241 2,955,783 683,584 689,518 487,369 334,394 89,874 595,554 13,113,831 6,739,580 12, 241,729 12,241, 729 4,927,000 4,634,048 164,397 5,086,976 39,030 1,932,207 40,034 2,717,219 238,564 673,810 9,774 608,624 80,894 483,994 3,375 258,719 75,675 71,598 18,276 491,169 104,385 12,488,713 625,118 6,630,932 11,522,387 3,949,590 Total current 133,132,932 137,262,238 127,768,579 Capital Outlay: Community Development Block grants (HUD): CDBG2002 -- 15,102 15,102 CDBG 2003 2,685,000 2,685,000 Total Community Development Block Grants (HUD) 2,700,102 2,700,102 -36- 108,648 719,342 684,458 9,493,659 (Continued) COUNTY OF HAWAII General Fund Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2003 Expenditures (continued): Capital Outlay (continued): HOME Program Total capital outlay Total expenditures Excess of revenues over expenditures Other financing sources (uses): Transfers in: Golf Course Fund Total transfers in Transfers out: Solid Waste Fund Golf Course Fund Debt Service Fund Total transfers out Total other financing uses Excess (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) $ $ 1,060,544 $ 1,060,544 $ -- 3,760,646 3,760,646 133,132,932 141,022,884 131,529,225 9.493,659 27,378,477 27,215,477 34,618,638 7,403,161 135,868 135,868 -- 135,868 135,868 135,868 135,868 (7,462,104) (7,462,104) (7,462,104) -- (143,804) (143,804) (143,804) (143,804) -- (21,544,042) (21,544,042) (21,421,924) 122,118 (29,149,950) (29,149,950) (29,027,832) 122,118 (29.014,082) (29,014.082) (29,027,832) 122.118 (1,635,605) (1,798,605) 5,590,806 7,389,411 9,548,690 9,548,690 9,548,690 -- $ 7,913,085 $ 7,750,085 $ 15,139,496 $7,389,411 - 37 - COUNTY OF HAWAII Proprietary Funds Statement of Net Assets June 30, 2003 Assets Current assets: Cash and cash equivalents (note 3) Restricted 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 in capital assets, net of related debt Restricted for debt service Unrestricted Total net assets See accompanying notes to the basic financial statements. Business -type Activities - Enterprise Funds Kulaimano Ouli Ekahi Elderly Affordable Housing Housing Project Project Totals $ 192,861 $ 60,339 $ 253,200 9,598 18,919 28,517 700,000 - 700,000 50 100 150 4,001 44,742 48,743 1,273 - 1,273 907,783 124,100 1,031, 883 180,782 14,529 195,311 511,000 503,877 1,014,877 1,225,393 - 1,225,393 (821,743) - (821,743) 914,650 503,877 1,418,527 1,095,432 518,406 1,613,838 2,003,215 642,506 2,645,721 14,977 - 14,977 1,490 113,598 115,088 2,700 - 2,700 - 7,729 7,729 9,598 17,536 27,134 1,231 1,446 2,677 18,574 - 18,574 48,570 140,309 188,879 1,066,093 - 1,066,093 1,114,663 140,309 1,254,972 (170,017) 503,877 333,860 180,782 - 180,782 877,787 (1,680) 876,107 $ 888,552 $ 502,197 $ 1,390,749 COUNTY OF HAWAII Proprietary Funds Statement of Revenues, Expenses, and Changes in Fund Net Assets For the Fiscal Year Ended June 30, 2003 Operating expenses Utilities Business -type Activities - 23,033 53,288 General and administration Enterprise Funds 83,992 141,641 Kulaimano Ouli Ekahi 38,865 68,511 Elderly Affordable 76,226 76,226 Housing Housing - 33,785 Project Project Totals Operating revenues: 373,451 Operating income (loss) 98,197 Rental receipts from tenants $ 99,274 $ 200,361 $ 299,635 Rental subsidy from federal government - HUD 147,997 - 147,997 Laundry receipts 2,261 - 2,261 Miscellaneous - 2,775 2,775 Total operating revenues 249,532 203,136 452,668 Operating expenses Utilities 30,255 23,033 53,288 General and administration 57,649 83,992 141,641 Maintenance and repairs 29,646 38,865 68,511 Lease expense - 76,226 76,226 Depreciation (note 6) 33,785 - 33,785 Total operating expenses 151,335 222,116 373,451 Operating income (loss) 98,197 (18,980) 79,217 Nonoperating revenues (expenses) Investment income 11,961 123 12,084 Interest expense (76,807) - (76,807) Loss on disposal of capital assets (85) (85) Total nonoperating revenue (expenses) (64,931) 123 (64,808) Change in net assets 33,266 (18,857) 14,409 Total net assets - beginning 855,286 521,054 1,376,340 Total net assets - ending $ 888,552 $ 502,197 $ 1,390,749 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, 2003 Business -type Activities - Enterprise Funds Kulaimano Ouli Ekahi Elderly Affordable Housing Housing Project Project Totals Cash Flows from Operating Activities Receipts from tenants $ 101.823 S 199,574 $ 301397 Receipts from federal government - HUD 147,997 - 147.997 Payments to suppliers for goods and services (114,043) (146,986) (261,029) Net cash provided by operating activities 135,777 52,588 188,365 Cash Flows from Capital and Related Financing Activities 12,308 144 Principal paid on notes payable (17,105) - (17,105) Interest paid on notes payable (76,807) - (76,807) Purchase of capital assets (3,145) - (3,145) Net cash used in capital and related financing activities (97,057) - (97,057) Cash Flows from Investing Activities Purchase of investments (2,100,000) (2,100,000) Proceeds from maturities of investments 2,100,000 2,100,000 Interest on investments 12,308 144 12,452 Net cash provided by (used in) investing activities 12,308 144 12,452 Net increase (decrease) in cash and cash equivalents 51,028 52,732 103,760 Cash and cash equivalents at beginning of year 332,263 41,155 373,418 Cash and cash equivalents at end of year S 383,291 $ 93,887 $ 477,178 Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss) $ 98,197 $ (18,980) $ 79,217 Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation expense 33,785 33,785 Change in assets and liabilities: Receivables (559) (6,586) (7,145) Prepaid expenses 620 - 620 Accounts and other payables 3,208 77,322 80,530 Unearned income 526 832 1,358 Net cash provided by operating activities $ 135,777 $ 52,588 $ 188,365 See accompanying notes to the basic financial statements. COUNTY OF HAWAII Fiduciary Funds Statement of Fiduciary Net Assets June 30, 2003 Private - Purpose Agency Assets Cash and cash equivalents (note 3) $ 1,404,047 $ 3,708,388 Investments (note 3) - 340,107 Receivables: Due from other agency funds - 12,112 Other receivables - 39,202 Total receivables - 51,314 Restricted cash and cash equivalents (note 3) - 637,000 Total assets 1,404,047 4,736,809 Liabilities Warrants payable $ $ 1,709,465 Due to other agency funds 12,112 Accrued liabilities 1,219,139 Advances payable 125,513 Assets held for benefit of improvement districts 1,670,580 Total liabilities 4,736,809 Net Assets Held in trust for other parties 1,404,047 Total net assets $ 1,404,047 $ 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, 2003 See accompanying notes to the basic financial statements. 42- Private - Purpose Trusts Additions Contributions: Puna Geothermal Venture $ 50,000 Investment earnings: Interest 20,984 Total additions 70,984 Deductions Administrative expenses: Monitoring and related expenses 2,013 Total deductions 2,013 Change in net assets 68,971 Net assets - beginning of year 1,335,076 Net assets - end of year S 1,404,047 See accompanying notes to the basic financial statements. 42- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 The accounting policies of the County of Hawai' i (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. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Financial Reporting Entity The County has implemented Governmental Accounting Standards Board Statement No. 14, The Financial Reporting Entity, (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- .K�I�l�lf Il`L�]�I:i�Pl:�fl Notes to the Basic Financial Statements June 30, 2003 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 14 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. Basic Financial Statements The basic financial statements include both government -wide (based on the County as a whole) and 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. The govemment-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 revenues. 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. SLE COUNTY OF HAWAII Notes to the Basic Financial Statements June 30. 2003 The fund financial statements' emphasis 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 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 parry (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. Government -wide and fund financial statements — The government -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 -45- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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 government -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. 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: Xulaimano 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. AO COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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 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 -47- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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 arise 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 include: (a) accumulated compensated absences and claims and judgments which 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 for 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 Procedures. 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. COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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-eaming investment contracts (repurchase agreements) that have remaining maturities at the time of purchase of one year or less, as well as nonparticipating interest-eaming investment contracts (time certificates of deposit and repurchase agreements). Both categories of investments are stated at amortized cost (see Note 3). 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, 2003 of $611,475 are reflected as a reserve of general fund balance. COUNTY OF HAWAII Notes to the Basic Financial Statements June 30. 2003 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: 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. -50- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 Compensated Absences Employees hired on or before July 1, 2001 eats vacation credit at the rate of one and three- quarter working days for each month of service. Employees hired after July 1, 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, 2003 are expected to be liquidated with future expendable resources. 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, 2003 totaled $48,158,000 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 twenty-seven years from July 1, 2002. The County's policy is to fund its actuarially determined required contribution annually (see note 13). -51- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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 liabilities, 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. 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 - 52 - COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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 2002-2003 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 $7.9 million in the general fund and $4.0 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. 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 of the County's general fund from a GAAP basis to a budgetary basis at June 30, 2003: Ending fund balance — GAAP basis $16,156,505 Encumbrance adjustments: Beginning encumbrances and unexpended allotments 2,660,588 Ending encumbrances and unexpended allotments (2,980,286) Other adjustments (697.311) Ending fund balance — Non -GAAP budgetary basis 15.139.496 -53- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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 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 $95,737,213 and investments of $34,062,917 are included in the accompanying government -wide financial statements at June 30, 2003. The fiduciary funds financial statements include cash and cash equivalents of $5,749,435 and investments of $340,107 at June 30, 2003. 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. -54- GASB Statement No. 3 Statement of net assets caption: Total Deposits Investments Cash and cash equivalents $100,483,146 $54,136,636 $46,346,510 Imprest and change funds 23,820 Total unrestricted cash and cash equivalents 100,506,966 Restricted assets: Cash and cash equivalents — current 784,371 784,371 Cash and cash equivalents — noncurrent 195,311 195,311 Total cash and cash equivalents 101,486,648 Investments — current 29,891,120 19,565.315 10,325,805 Investments — noncurrent 4.51 1.904 4.51 1.904 Total cash, cash equivalents and investments 135,889,672 Less imprest and change funds (23 820) Classifications per GASB Statement No. 3 $135.865 852 $74 681 633 $61.184.219 Govemment- Fiduciary Funds Statement of net assets caption: Total Wide Statements Statements Cash and cash equivalents $100,483,146 $ 95,370,711 $5,112,435 Imprest and change funds 23.820 23,820 -- Total unrestricted cash and cash equivalents 100,506,966 95,394,531 5,112,435 Restricted assets: Cash and cash equivalents — current 784,371 147,371 637,000 Cash and cash equivalents — noncurrent 195.311 195,311 -- Total cash and cash equivalents 101,486,648 95,737,213 5,749,435 Investments — current 29,891,120 29,551,013 340,107 Investments—noncurrent 4.511.904 4,511,904 Total cash, cash equivalents and investments 135,889,672 129,800,130 6,089,542 Less imprest and change funds (23.820) (23.820) -- Classifications per basic financial statements $135.865.852 $129 776 310 $5592 -54- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 The County maintains a cash and investment pool that is used by the general fund, all special revenue funds except the Housing Agency and Park Dedication Fund, the capital projects fund, the payroll clearance fund, and three other agency funds. The following summarizes this pool at June 30, 2003: General fund $ 12,998,698 Special revenue funds 19,653,808 Capital projects fund 75,157,682 Fiduciary funds 2,614,911 Total pooled cash and investments $110.425.099 Interest earned is credited to the general fund unless otherwise designated by statute. Deposits At June 30, 2003, the carrying amount of the County's deposits was $74,681,633 (including $979,682 reported in restricted assets) and the bank balance was $75,299,957. Of the bank balance, $800,000 was covered by federal depository insurance; $74,439,618 was covered by collateral held by the County's agent in the County's name, in accordance with State statutes; and $60,339 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, 2003, investments reported as $61,184,219 (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. - 55 - COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 Restricted Cash and Cash Equivalents and Investments Cash and cash equivalents and investments classified as restricted assets amounted to $979,682 at June 30, 2003 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 $1,419 at June 30, 2003. 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, 2003 was $117,435. 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 $9,598 and $18,919, respectively, at June 30, 2003. Restricted amounts set aside by the Kulaimano Elderly Housing Project under its loan agreement with the Farmers Home Administration totaled $180,782 at June 30, 2003. 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 $14,529 at June 30, 2003. The Improvement District No. 17 Fund has restricted $637,000 as a bond reserve at June 30, 2003 to comply with the requirements of its Kaloko Subdivision bond issuance. -56- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30. 2003 4. RECEIVABLES Receivables as of June 30, 2003, 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: Receivables: Real property taxes Accounts receivable: Sewer Solid waste Capital Projects Intergovernmental Gross receivables Less: allowance for uncollectibles Net total receivables Business -type activities: Receivables: Accounts receivable: Rent Other Gross receivables Less: allowance for uncollectibles Net total receivables Capital Nonmajor General Projects Governmental Fund Fund Funds Total $9,805,705 $ 2,685,682 5,210,290 6,705,078 15,015,995 9,390,760 Enterprise Funds $42,177 6,566 48,743 -57- $ $ 9,805,705 2,567,214 2,567,214 992,683 992,683 2,685,682 897,117 12,812,485 4,457,014 28,863,769 (1,337,360) (1,337,360) $3.119.654 $27.526.409 COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 5. INTERFUND RECEIVABLES AND PAYABLES Interfund receivables and payables consist of the following at June 30, 2003: Receivable Fund General fund Capital projects fund Other governmental funds Total Other governmental funds Payable Fund Amount Capital projects fund $ 490,862 Other governmental funds 1,414,175 1,905,036 General 20,255 Other governmental funds -- 20,255 General 81,105 Capital projects fund 94,961 Other governmental funds 7,008 I1: Enterprise funds &2,M 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, 2003 consisted of the following: Transfers out: General Fund Transfers in: Capital projects fund $ -- Non major governmental funds 27,127,297 $27.127.297 Capital Nonmajor Projects Governmental Fund Funds Total $ -- $2,802,761 $ 2,802,761 12,471 27,139,768 $12 2.802.761 $29.942.529 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. ME COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 6. CAPITAL ASSETS Capital asset activity for the year ended June 30, 2003 for the County was as follows: -59- Balance Balance June 30, June 30, 2002 Additions Retirements 2003 Governmental activities: Capital assets not being depreciated: Land $ 19,160,848 $ 150,432 $ -- $ 19,311,280 Construction in progress 51.715.472 21,382.737 (8,570,2561 64.527,953 Total capital assets not being depreciated 70.876,320 21.533.169 (8,570,256) 83,839,233 Capital assets being depreciated: Buildings and improvements 248,055,045 9,253,540 (8,762) 257,299,823 Machinery and equipment 58,997,131 4,455,058 (2,082,173) 61,370,016 Infrastructure 211,855,898 8,271,775 220.127,673 Total capital assets being depreciated 518.908,074 21,980.373 (2,090,935) 538.797.512 Less accumulated depreciation for: Buildings and improvements (37,790,176) (3,299,488) 8,182 (41,081,482) Machinery and equipment (33,096,560) (4,359,858) 1,623,307 (35,833,111) Infrastructure (65.123.935) (8,235.902) (73.359.837) Total accumulated depreciation (136,010.671) (15,895,248) 1,631,489 (150.274,430) Total capital assets, being depreciated, net 382,897,403 6,085,125 (459.446) 388.523.082 Governmental activities capital assets, net 1453,773,723 27 ($9.029.7021 $472.362.315 -59- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 Balance June 30, Additions Retirements 2003 $ $ $ 753,877 1,136,008 261,000 3,145 (3.032) 89,385 3,145 (3,032) 1,486,393 (24,616) Balance (3,754) June 30, (5,415) 2002 Business -type activities: 2,947 (821,743) 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 89,272 Total capital assets being depreciated 1,486,280 Less accumulated depreciation for: Buildings (560,129) Ground and site improvements (155,876) Furnishings and equipment (74,9001 Total accumulated depreciation (790,905) Total capital assets, being depreciated, net 695,375 Business -type activities capital assets, net $ Balance June 30, Additions Retirements 2003 $ $ $ 753,877 1,136,008 261,000 3,145 (3.032) 89,385 3,145 (3,032) 1,486,393 (24,616) (584,745) (3,754) (159,630) (5,415) 2,947 (77,368) (33,785) 2,947 (821,743) (30,640 1 (85) 664,650 COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities General government $ 1,583,534 Public safety 1,544,442 Highways and streets 8,879,172 Sanitation 2,781,710 Health, education and welfare 172,592 Culture and recreation 933,798 Total depreciation expense — governmental activities $15.895.248 Business -type activities: Kulaimano Elderly Housing Project $33,785 Total depreciation expense — business -type activities $2$ 7. DEFERRED REVENUE Deferred revenue consists of the following at June 30, 2003: 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 -61- Capital Other Total General Projects Governmental Governmental Enterprise Fund Fund Funds Funds Funds $10,007,821 $ $ $10,007,821 $ 172,950 172,950 1,580,888 1,580,888 641,649 641,649 1,530,657 3,417,518 39,194 4,987,369 2.677 11,711,428 3,417,518 2,261,731 17,390,677 2,677 9,805,705 2,222,537 12,028,242 $ 1.905.723 $3.417.518 S _39,19 Kk77 -61- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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 and accumulated depreciation, amounting to $5,452,388 and $1,547,086, respectively, and the related present value of the remaining obligations under the capital leases amounting to $3,293,462 at June 30, 2003 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 $436,629 for the fiscal year ended June 30, 2003. The future minimum obligations under capital and operating leases at June 30, 2003 are as follows: Obligations under capital leases -62- Governmental Activities - Capital Operating Leases Leases Year Ending June 30: 2004 $ 1,140,497 $462,681 2005 992,001 473,354 2006 616,739 136,688 2007 437,892 36,349 2008 310,565 9,342 2009-2013 78,841 1,805 2014-2018 1,800 2019-2023 720 Total minimum lease payments 3,576,535 $1 L Less amount representing interest (283,073) Obligations under capital leases -62- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 9. SOLID WASTE LANDFILL CLOSURE AND POSTCLOSURE CARE COSTS Hilo Landfill 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, 2003, the County recognized a liability of $13,533,000, based on the use of 98% of the estimated capacity of the landfill. During the fiscal year ended June 30, 2003, $41,700 was spent on closure of the landfill. The remaining $257,666 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 2003. 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 filed for an extension which was approved by the state until permitted capacity is reached. 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. 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 2003. Actual costs may be higher due to inflation, changes in technology, or changes in regulations. Through June 30, 2003, $6,507,385 was spent on closure and postclosure care of the landfill. The remaining estimated liability of $8,743,000 is included in the government -wide statement of net assets. During the year ended June 30, 2003, a total of $104,798 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 -63- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 remediation, closure or postclosure care. Accordingly, no liability for this landfill is included in the County's financial statements. FinanciaiAssurance For fiscal year 2003, 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 14). The following is a summary of general obligation bond transactions reported in the govemment-wide statement of net assets for the County for the fiscal year ended June 30, 2003: Bonds Issue Bond Balance Bond Balance Authorized Amount June 30 2002 Issues Retirements June 30, 2003 1977 Series $ 500,000 S 241,000 $ -- IS 19,000) S 222,000 1989 Refunding 4,025,000 450,000 (450,000) — 1993 Ref & PI 86,770,000 50,710,000 -- (3,505,000) 47,205,000 1996 Series 30,000,000 25,340,000 -- (1,315,000) 24,025,000 1996 Series B 787,500 619,000 -- (33,000) 586,000 1997 Series 4,000,000 3,324,500 -- (155,500) 3,169,000 1999 Series 30,000,000 30,000,000 -- (1,125,000) 28,875,000 1999 Refunding 18,940,000 12,410,000 -- (2,270,000) 10,140,000 2001 Series A 23,000,000 15,000,000 -- -- 15,000,000 2001 Series A PI 1,800,000 75,000 -- -- 75,000 2003 Series A 36.310 000 $236132500 36,310.00 $138.169500 $36.310.000 ($8.672.5001 36.310,000 $165.607.000 a ME Due within one Year S 20,000 3,680,000 1,375,000 34,500 163,000 1,175,000 2,365,000 59,700 COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 General obligation bonds payable reported on the government -wide statement of net assets at June 30, 2003 are comprised of the following individual issues: Public improvement and/or refunding bonds: 1977 Series A at 5.0%, due through 2012 $ 222,000 1993 Refunding & PI at 5.2% to 5.6%, due through 2013 47,205,000 1996 Series A at 4.5% to 5.2%, due through 2016 24,025,000 1996 Series B at 4.5%, due through 2016 586,000 1997 Series A at 4.875%, due through 2017 3,169,000 1999 Series A at 4.7% to 6.0%, due through 2019 28,875,000 1999 Refunding at 4.5% to 4.875%, due through 2007 10,140,000 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 2003 Series A at 2.0% to 5.125%, due through 2024 36,310.000 Total general obligation bonds payable Annual debt service requirements to maturity for the above general obligation bonds are as follows: Fiscal year ending June 30: 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 2024 Total Bonds Authorized and Unissued Governmental Activities Principal Interest $ 8,872,200 $ 7,972,757 9,822,148 7,926,769 10,297,413 7,448,644 12,236,739 6,911,452 9,985,826 6,323,171 57,916,022 23,528,113 33,780,131 10,45 7,230 19,696,521 2,996,308 3.000.000 75.000 .1 W111 -maw, 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. At June 30, 2003, 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. The remaining amount was drawn down in November 2003. -65- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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, 2003: Loans Approved Loan Balance $1,100,352 2,240,947 Loan Balance Due within Authorized Amount lune 30.2002 Additions Retirements June 30 2003 one Year Hilo W WTP $12,724,311 $ 7,859,017 $ -- ($ 629,554) $ 7,229,463 $ 645,292 Waiakea Mill 1,300,000 862,203 -- (62,499) 799,704 64,061 Waiakea Hshs 459,321 284,851 -- (22,818) 262,033 23,389 Waiakea Hslts II 5,024,266 4,207,359 422,466 (211,365) 4,418,460 225,829 Ainako A&B 2,239,174 1,525,603 -- (107,739) 1,417,864 110,446 Kalamanaole 1,499,944 1,142,557 -- (69,796) 1,072,761 71,919 Alii Drive A&B 3,210,243 1,987,774 185,829 (143,354) 2,030,249 158,615 Alit Drive C&D 3,780,000 2,775,284 -- (180.371) 2,594.913 184,107 Alii Drive E&F 2,112,654 1,704,228 -- (99,340) 1,604,888 102.362 Waiaha Bay 3,697,893 2,765,696 -- (171,383) 2,594,313 176,180 Kealakehe 1,300,071 860,633 -- (62,386) 798,247 63.944 Holualoa Bay 3,080,000 2,481,752 -- (138,701) 2,343,051 142,921 Paukaa CCS 2,143,448 1,910,466 37,067 (93,031) 1,854,502 96,384 Pahoehoe 2,817,760 2,632,358 139,536 (112,047) 2,659,847 117,472 Cty WW Fac 68.506 $45 457 591 -- $32 999 781 68.506 $853,404 (68.5061 ($2.172.8901 -- $31-680295 -- $2.182 921 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: 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 Governmental Activities Principal Interest $ 2,182,921 $1,100,352 2,240,947 1,037,901 2,298,779 975,528 2,358,175 911,476 2,419,075 845,800 13,067,140 3,176,523 6,109,877 890,478 1,003,381 46,548 . .:1 ' ' `: .la COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 Other General Long-term Obligations The following is a summary of other general long-term obligations transactions for the fiscal year ended June 30, 2003: Governmental activities: Compensated absences Claims and judgments (see Note 12) Capital lease obligations (see Note 8) Landfill closure costs (see Note 9) Total Balance Deductions Balance June 30, 2002 Additions & Payments June 30, 2003 Due within one year $18,862,326 $ 7,659,888 ($ 6,803,328) $19,718,886 $ 5,197,828 18,711,552 4,765,332 (4,903,553) 18,573,331 3,693,226 2,695,213 1,353,144 (754,895) 3,293,462 1,013,277 22,046,000 376,498 (146,498) 22,276,000 128,839 Fund Balances - Debt Service Funds The fund balance in the debt service funds at June 30, 2003 includes $12,099,097 which is available for principal payments on general obligation bonds and $76,766 which is reserved for the payment of interest on the bonds. 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 $1,084,667 at June 30, 2003. 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: 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 2024-2027 Business-tvne Activities Principal Interest $ 18,574 $ 75,322 19,934 73,978 21,375 72,537 22,921 70,991 24,578 69,334 152,251 317,309 215,835 253,725 305,973 163,587 303.226 41.429 Total $1.084667 $1.138.2 L2 -67- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 Special Assessment Bonds 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 7375%. Total special assessment bonds payable were $6,115,000 at June 30, 2003. 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. The following is a summary of special assessment bond transactions for Improvement District No. 17, Kaloko Subdivision, for the fiscal year ended June 30, 2003: Balance at June 30, 2002 $6,370,000 Deductions (255,000) Balance at June 30, 2003 6.115.000 The following is a summary of the annual maturities for the special assessment bonds: Year ending June 30: Principal Interest 2004 $ 505,000 $ 450,981 2005 540,000 413,738 2006 580,000 373,912 2007 620,000 331,138 2008 670,000 285,412 2009-2012 3,200,000 611,387 Total $ 1QQ $2.466.56 11. COMMITMENTS AND CONTINGENCIES Contractual commitments — Contractual commitments for capital projects, expenses, and supplies at June 30, 2003, 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. ME COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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. 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 $3.7 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 $7.7 million, with another $4 million of federal funding anticipated through community development block grants over the next 4 years. COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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 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, 2003, the amount of this liability was $18,573,331. This is the County's best estimate based on available information. Changes in the reported liability since June 30, 2001 are given below. *Net of new claims liability and old claims resolved at less than previous estimate. -70- General Workers' Total Liabili Compensation Liabili Balance at June 30, 2001 $6,490,159 $ 8,090,267 $14,580,426 Incurred claims (including IBNR)* 814,867 7,378,913 8,193,780 Claim payments6( 03,350) (3,459,304) (4,062,654) Balance at June 30, 2002 $6,701,676 $12,009,876 $18,711,552 Incurred claims (including IBNR)* 1,204,921 3,560,411 4,765,332 Claim payments (1,236,086) (3,667,467) (4,903.553) Balance at June 30, 2003 $6.670.511 11.902.820 $18.573.331 *Net of new claims liability and old claims resolved at less than previous estimate. -70- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 13. EMPLOYEE BENEFIT PLANS Pension Plan Plait 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 Hawai i Revised Statutes (HRS) and is governed by a Board of Trustees. All contributions, benefits 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 2V2% 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 -71- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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 foi the fiscal years ended June 30, 2001, 2002 and 2003 were $129,000, $7,434,500 and $4,212,000, respectively, equal to the required contributions for each year. 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 1,096 former employees who have retired with at least ten years of credited service and are receiving the full benefit. An additional three 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, 2003, the County's contribution to the Health Fund for retired employees totaled $5.8 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 _72_ COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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 GASB 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. 14. 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, while all money market funds are considered investments. The amount of $25,089,460 shown on the government -wide statement of net assets as cash and cash equivalents consists of the balance in checking accounts of $862,790, money market funds of $1,653,607 and time certificates of deposits of $22,573,063. Deposits and Investments At June 30, 2003, the carrying amount of the Department's deposits was $39,735,853 and the bank balance was $40,342,103. The entire bank balance was covered by collateral held by the County's agent in the County's name in accordance with state statutes. At June 30, 2003, money market funds of $3,285,034 (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 $10,063,565 at June 30, 2003. At June 30, 2003, investments reported as $17,931,427 (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. - 73 - COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 Loans Receivable At June 30, 2003, loans receivable from various community associations for water system improvements were as follows: Paauilo Camp Community Association $305,000 Paauhau Village Community Association 308,297 Ookala Community Association 108,320 Total X72MIZ 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: 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, 2003 were as follows: Utility plant in service $257,158,227 Less: accumulated depreciation (105,522,682) 151,635,545 Land and rights 545,000 Construction in progress 22,358,842 Net capital assets -74- 161611hf t SYS] M 0 /_\td/_\ I Notes to the Basic Financial Statements June 30, 2003 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 $16,794,600 at June 30, 2003. General obligation bonds payable issued on behalf of the Department and other long-term debt at June 30, 2003 are comprised of the following: Public improvement bonds 1981 Series A at 5.0%, due through 2016 $ 436,000 1993 Series A at 5.05% to 5.6%, due through 2013 6,635,000 1998 Series A at 4.5%, due through 2033 723,600 2001 Series A at 4.0% to 5.5%, due through 2021 8,000,000 Total public improvement bonds 15,794,600 Public improvement refunding bonds: 1989 Series at 6.8% to 6.95%, due through 2005 1,000,000 State revolving fund loan, interest at 1.01% to 1.37%, due through 2022 2,842,108 Total $19.636.708 At June 30, 2003, future principal payments for long-term debt are scheduled as follows: Fiscal year ending June 30 2004 $ 1,190,000 2005 1,514,000 2006 1,053,000 2007 1,104,000 2008 1,156,000 2009-2013 6,635,000 2014-2018 3,441,000 2019-2023 3,099,000 2024 —2028 250,000 2029 —2033 194.708 -75- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2003 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 $21,412,318 of contributions in aid of construction as nonoperating revenues for the fiscal year ended June 30, 2003. Commitments and Contingent Liabilities Claims and judgments — The Department is self-insured for workers' compensation and other perils. The liability at June 30, 2003 for workers' compensation claims of $241,000 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 $9,478,000 at June 30. 2003. -76- 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 INVESTMENT 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. This page intentionally left blank. -77- COUNTY OF HAWAII Nonmajor Governmental Funds Combining Balance Sheet June 30, 2003 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 Liabilities: Warrants payable Accounts payable Due to other governmental funds Deferred revenue Accrued liabilities Total liabilities Fund balances: Reserved for: Encumbrances Debt service Unreserved: Total fund balances Total liabilities and fund balances Highway Sewer Waste Cemetery Meter Fund Fund Fund Fund Fund $7,782,206 $7,510,017 $1,492,502 $ 31,575 $ 77,328 100 250 4,583 - - 30,352 144,586 18,475 7,519 - 2,700 - 1,580,888 641,649 - 23,919 194,312 144,586 1,625,982 878,415 - - $7,926,792 $9,136,099 $2,371,167 $ 31,575 $ 77,328 $ 228,719 $ 151,407 $ 552,893 $ - $ - 192,997 93,682 795,964 - - 413,823 232,609 332,220 - - - 1,580,888 680,843 - - 242 12,225 - 835,781 2,070,811 2,361,920 2,419,740 1,133,309 - 4,671,271 5,931,979 9,247 31,575 77,328 7,091,011 7,065,288 9,247 31,575 77,328 $7,926,792 $9,136,099 $2,371,167 $ 31,575 $ 77,328 $ 664,310 Special Revenue Funds Vehicle Workforce Golf Geothermal Beauti- Park Disposal Bikeway Investment Course Relocation fication Housing Dedication Fund Fund Act Fund Fund Rev.Fund Fund Agency Fund $ 664,310 $309,164 $ $ 102,880 $1,130,935 $ 552,891 $2,872,582 $ 60,820 - - - - 3,185,620 - 2,000 100 862,182 - - 23 12,471 - 7,794 78,686 - - - 862,182 7,817 - 78,686 12,471 $ 664,310 $309,164 $ 862,182 $ 112,697 $1,130,935 $ 552,891 $6,136,988 $ 73,291 $ 113,777 $ - $ 215,156 $ 31,594 $ - $ 428 $ 134,325 $ - 117,017 - 350,797 1,419 - 684 45,252 7,261 1,317 296,229 42,754 - 94,969 - 14,621 238,055 1,317 862,182 75,767 - 1,112 289,167 114,308 1,356 - - 1,058,243 137,296 3,448,670 311,947 306,491 36,930 72,692 414,483 2,399,151 73,291 426,255 307,847 - 36,930 1,130,935 551,779 5,847,821 73,291 $ 664,310 $309,164 $ 862,182 $ 112,697 $1,130,935 $ 552,891 $6,136,988 $ 73,291 (Continued) 79- COUNTY OF HAWAII Nonmajor Governmental Funds Combining Balance Sheet June 30, 2003 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 Liabilities: Warrants payable Accounts payable Due to other governmental funds Deferred revenue Accrued liabilities Total liabilities Fund balances: Reserved for: Encumbrances Debt service Unreserved: Total fund balances Total liabilities and fund balances See accompanying independent auditors' report. (Concluded) Debt Service Funds Total Bond Nonmajor Interest Redemption Governmental Fund Fund Funds $ 179,737 $ 9,046,842 $ 31,813,789 - 3,394,753 6,580,373 - 2,450 8,312,922 76,766 12,099,097 12,175,863 - - 14,336,385 76,766 12,099,097 34,825,170 $ 179,737 $ 12,441,595 $ 42,006,751 SEIM - 4,583 - - 892,534 - - 183,074 - - 2,700 - - 2,222,537 - - 304,711 - - 3,610,139 $ 179,737 $ 12,441,595 $ 42,006,751 $ 28,971 $ 62,498 $ 1,519,768 - - 1,597,812 1,421,182 - - 2,261,731 74,000 280,000 381,088 102,971 342,498 7,181,581 8,312,922 76,766 12,099,097 12,175,863 - - 14,336,385 76,766 12,099,097 34,825,170 $ 179,737 $ 12,441,595 $ 42,006,751 SEIM This page intentionally left blank. M*M COUNTY OF HAWAII Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (Deficit) For the Fiscal Year Ended June 30, 2003 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 balances (deficit) at beginning of year Fund balances at end of year Special Revenue Funds 3,337,621 Solid 6,965,792 Parking Highway Sewer Waste Cemetery Meter Fund Fund Fund Fund Fund $ 7,343,088 $ $ $ $ 4,816,565 - - 34,079 12,186,668 3,224,947 12,787,259 - - 3,973,133 466,435 (8,702,895) 16,250 10,958 666,364 - - 6,167,583 3,405,907 10,958 308,766 1,494 12,093 16,250 - 16,159,801 6,169,077 4,084,364 16,250 10,958 3,337,621 6,965,792 - - - 3,938,947 11,760,799 766,629 281,198 291,568 - - 576,049 170,457 249,863 - - 540,577 591,623 284,949 - - - - 166,001 - - - - 34,079 12,186,668 4,982,225 12,787,259 - - 3,973,133 1,186,852 (8,702,895) 16,250 10,958 (2,785,426) (2,785,426) - 1,187,707 1,186, 852 5,903,304 5,878,436 $ 7,091,011 $7,065,288 I" 7,462,104 1,286,637 8,748,741 - - 45,846 16,250 10,958 (36,599) 15,325 66,370 S 9,247 $ 31,575 $ 77,328 Snecial Revenue Funds Vehicle 1,752 Workforce Golf Geothermal Beauti- - Park Disposal Bikeway Investment Course Relocation fication Housing Dedication Fund Fund Act Fund Fund Rev.Fund Fund Agency Fund $ $ $ $ $ $ $ $ 659,512 35,046 - 142,513 - - - 3,486,777 - - 10,357,441 - 896,562 - - 63,134 1,116 - - - 70 38,570 - 648,796 659,512 35,046 3,486,777 896,632 38,570 142,513 11,069,371 1,116 - 1,752 53,452 665,970 - - - - - 3,486,777 - - - 10,177,701 - - 804,436 - - - 6,191 - 81,272 - - 338,995 4,933 - 77,286 - - - - - 6,990 - - 677,094 1,752 3,486,777 969,984 - 53,452 10,516,696 (17,582) 33,294 - (73,352) 38,570 89,061 552,675 1,116 (17,582) 33,294 443,837 274,553 $426,255 $307,847 $ 143,804 12,471 -(17,335) 143,804 - (4,864) _ 70,452 38,570 89,061 552,675 (3,748) (33,522 ) 1,092,365 462,718 5,295,146 77,039 $ 36,930 $ 1,130,935 $551,779 $5,847,821 $ 73,291_ (Continued) COUNTY OF HAWAII Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances (Deficit) For the Fiscal Year Ended June 30, 2003 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 balances (deficit) at beginning of year Fund balances at end of year See accompanying independent auditors' report. (Concluded) Debt Service Funds Total Bond Nonmajor Interest Redemption Governmental $ $ $ 7,343,088 4,816,565 4,062,018 14,977,017 10,481,010 64,250 1,026,039 42,769,987 - 3,337,621 - - 7,020,996 - - 16,365,716 - - 13,664,478 - - 804,436 - - 1,765,853 - - 1,078,588 - - 1,424,139 - 10,976,887 11,142,888 8,332,183 - 8,366,262 8,332,183 10,976,887 64,970,977 8,3( 32,183) (10,976,887) (22,200,990) 8,371,027 11,150,362 27,139,768 - - 1,286,637 - - (2,802,761) 8,371,027 11,150,362 25,623,644 38,844 173,475 3,422,654 37,922 11,925,622 31,402,516 $ 76,766 $12,099,097 $34,825,170 101z 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, 2003 Original Final Budget Budget Revenues: Taxes: Fuel tax $ 6,453,226 $ 6,453,226 Public utility franchise tax 4,990,000 4,990,000 Total taxes 11,443,226 Licenses and permits - motor vehicle weight taxes 2,900,000 Intergovernmental 269.381 Charges for current services 150,000 Miscellaneous 43,819 Total revenues Expenditures: Public safety - traffic engineering Highways and streets Pension and retirement contributions Health fund Miscellaneous Total expenditures Excess (deficiency) 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. 14,806,426 3,973,992 9,185,667 1,071,135 550,000 810,000 15,590,794 11,443,226 2.900,000 269,381 150,000 43,819 14,806,426 3,973,992 9,185,667 978,135 583,000 870,000 15,590,794 Actual $ 7,343,088 4,816,565 12,159,653 3,224,947 320,718 175,064 133,702 16,014,084 3,351,395 8,042,148 766,629 576,049 414,241 13,150,462 (784,368) (784,368) 2,863,622 (2,785,426) (2,785,426) (2,785,426) Variance Favorable (Unfavorable) $ 889,862 (173,435) 716,427 324,947 51,337 25,064 89,883 1,207.658 622,597 1,143,519 211,506 6,951 455,759 2,440,332 3,647,990 (3,569,794) (3,569,794) 78,196 3,647,990 5,903,304 5,903,304 5,903,304 $ 2,333,510 $ 2,333,510 $ 5,981,500 ME $3,647,990 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, 2003 Revenues: Charges for current services - sewer fees Miscellaneous Original Final Budget Budget Actual $5,806,842 $5,806,842 $6,167,583 100 100 1,494 Variance Favorable (Unfavorable) $ 360,741 1 394 Total revenues 5,806,942 5,806,942 6,169,077 362,135 Expenditures: Sanitation 4,753,366 4,753,366 4,264,477 488,889 Pension and retirement contributions 290,335 312,007 281,198 30.809 Health fund 307,962 286,290 170,457 115,833 Miscellaneous 1,433,810 2,533,810 303,531 2,230,279 Total expenditures 6,785,473 7,885,473 5,019,663 2,865,810 Excess (deficiency) of revenues over expenditures (978,531) (2,078,531) 1,149,414 3,227,945 Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. 5,878,436 5,878,436 5,878,436 $4,899,905 $3,799,905 $7,027,850 W 1'Z $3,227,945 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, 2003 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 Excess of revenues and other sources over expenditures Fund deficit at beginning of year Fund balance at end of year See accompanying independent auditors' report. Variance Original Final Favorable Budget Budge Actual (Unfavorable) $ 641,000 $ 748,000 3,182,000 3,182,000 3,823,000 3,930,000 10,486,104 377,000 242,000 180,000 11,285,104 (7,462,104) 10,566,404 291,620 249,880 284,200 11,392,104 (7,462,104) $ 748,000 $ -- 3,405,907 223,907 12,093 12,093 4,166,000 236,000 10,563,500 2,904 291,568 52 249,863 17 284,171 29 11,389,102 3,002 (7,223,102) 239,002 7,462,104 7,462,104 7,462,104 -- -- -- 239,002 239,002 (36,599) (36,599) (36,599) -- 36,599) ($ 36,599) $ 202,403 $ 239,002 IMe CIM- �VIi] MI\MM Cemetery Fund Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) For the Fiscal Year Ended June 30, 2003 See accompanying independent auditors' report. WE Original Variance and Final Favorable Budget Actual (Unfavorable) Revenues - miscellaneous - sale of cemetery plots $16,000 $16,250 $ 250 Expenditures - health, education and welfare 16,000 -- 16,000 Excess of revenues over expenditures -- 16,250 16,250 Fund balance at beginning of year 15,325 15,325 -- Fund balance at end of year $15,325 $31,575 $16,250 See accompanying independent auditors' report. WE 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, 2003 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. Original Variance and Final Favorable Budget Actual (Unfavorable) $ -- $10,958 $10,958 66.370 66.370 -- $66,370 $77,328 $10,958 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, 2003 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 Excess of revenues over expenditures Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. m Original and Final Budget Actual $548,000 $659,512 100 -- ,. 548,200 659,512 Variance Favorable (Unfavorable) $111.512 (100) (100) 111,312 530,440 469,403 61,037 12,760 6,191 6,569 5,000 4,933 67 548,200 480,527 67,673 -- 178,985 178,985 443,837 443,837 -- $443,837 $622,822 $178,985 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, 2003 Revenues - licenses and permits - bicycle tax Expenditures - highways and streets Excess (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) $ 30,000 $ 35,046 $ 5,046 180,000 3,108 176,892 (150,000) 31,938 181,938 274,553 274,553 -- $124,553 $306,491 $181,938 -91 - 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, 2003 Revenues - intergovernmental - federal grants Expenditures - health, education & welfare Excess of revenues over expenditures Fund balance at beginning of year Fund balance at end of year See accompanying independent auditors' report. Original Final Budget Budget Actual $ -- $2,645,574 $2,990,055 Variance Favorable (Unfavorable) $344.481 2,645,574 2,639,258 6,316 -- 350,797 350,797 $ -- $ $ 350,797 $350,797 -92- 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, 2003 See accompanying independent auditors' report. -93- Variance Original Final Favorable Budget Budget Actual (Unfavorable) Revenues: Charges for services $1,041,524 $1,041,524 $896,562 ($144,962) Miscellaneous -- 70 70 Total revenues 1,041,524 1,041,524 896,632 (144,892) Expenditures: Culture and recreation 852,957 852,957 803,528 49.429 Pension and retirement contributions 98,003 98,003 81,272 16,731 Health fund 82,500 82,500 77,286 5,214 Miscellaneous 16,000 16,000 7,800 8,200 Total expenditures 1,049,460 1,049,460 969,886 79,574 Deficiency of revenues over expenditures (7,936) (7,936) (73,254) (65,318) Other financing sources (uses): Transfers in - General Fund 143,804 143,804 143,804 -- Transfers out- General Fund (135,868) (135,868) -- 135,868 Total other financing sources 7,936 7,936 143,804 135,868 Excess of revenues and other sources over expenditures and other uses -- -- 70,550 70,550 Fund deficit at beginning of year (33,522) (33,522) (33,522) -- Fund balance (deficit) at end of year ($ 33,522) ($ 33,522) $ 37,028 $ 70,550 See accompanying independent auditors' report. -93- 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, 2003 Revenues - miscellaneous - geothermal royalties Expenditures - general government 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) $ 150,000 $ 38,570 ($111,430) 150,000 150,000 -- (111,430) (111,430) 1,092,365 1,092,365 $1,092,365 $ 980,935 ($111,430) 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, 2003 Variance Original Final Favorable Budget Budget Actual (Unfavorable) Revenues - licenses and permits - highway beautification $115,000 $115,000 $142,513 $27,513 Expenditures - highways and streets 200,000 200,000 162,994 37,006 Deficiency of revenues over expenditures (85,000) (85,000) (20,481) 64,519 Fund balance at beginning of year 462,718 462,718 462,718 -- Fund balance at end of year $377,718 $377,718 $442,237 $64,519 See accompanying independent auditors' report -95- 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, 2003 Revenues: Intergovernmental - Federal grants - HUD - Voucher program 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 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) $10,636,100 $10,636,100 $10,346,992 $(289,108) 15,510 15,510 63,134 47,624 -- -- 375,000 375,000 -- 273,796 273,796 10,651,610 10,651,610 11,058,922 407,312 10,522,334 10,618,530 10,591,660 26,870 296,600 296,600 236,361 60,239 126,700 126,700 102,633 24,067 10,945,634 11,041,830 10,930,654 111,176 (294,024) (390,220) 128,268 518,488 5,295,146 5,295,146 5,295,146 -- $ 5,001,122 $ 4,904,926 $ 5,423,414 $518,488 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, 2003 See accompanying independent auditors' report. -97- Variance Original Final Favorable Budget Budget Actual (Unfavorable) Revenues -interest $ $ $ 1,116 S 1,116 Expenditures - culture and recreation -- Excess of revenues over expenditures 1,116 1,116 Other financing sources (uses): Transfers in - Capital Projects Fund 12,471 12,471 Transfers out- Capital Projects Fund (17,335) (17,335) Total other financing uses (17,335) (4,864) 12,471 Deficiency of revenues and other sources over expenditures and other uses -- (17,335) (3,748) 13,587 Fund balance at beginning of year 77,039 77,039 77,039 -- Fund balance at end of year $77,039 $59,704 $73,291 $13,587 See accompanying independent auditors' report. -97- Assets Cash and investments: Cash and cash equivalents Investments Total cash and investments Due from other agency funds Other receivables Restricted assets - cash and cash equivalents Total assets Liabilities Warrants payable Due to other agency funds Accrued liabilities Customer advances and deposits Assets held for the benefit of COUNTY OF HAWAII Agency Funds Combining Balance Sheet June 30, 2003 Performance State Improvement Improvement and Weight District District Refundable Payroll Tax No. 17 Revolving Deposits Clearance $634,083 $ 693,883 $ -- $154,782 $1,979,943 -- -- 340,107 -- -- 634,083 693,883 340,107 154,782 1,979,943 31,339 -- 637,000 -- -- $665,422 $1,330,883 $340,107 $154,782 $1,979,943 $665,422 $ 410 $ $ 20,457 $1,022,284 -- -- 1,400 10,712 7,412 946,947 125,513 -- improvement districts -- 1,330,473 340,107 -- Total liabilities $665,422 $1,330,883 $340,107 $154,782 $1,979,943 See accompanying independent auditors' report. aW-2 Flexible Lapsed Spending Warrants Account Fund $219,106 $25,706 219,106 25,706 12,112 7,856 Non -Profit License Organ & Plates Tissue Educ. Fund Fund Totals $550 $335 $3,708,388 340,107 550 335 4,048,495 12,112 7 39,202 637,000 $219,106 $45,674 $550 $342 $4,736,809 $550 $342 $1,709,465 12,112 219,106 45,674 1,219,139 125,513 1,670,580 $219,106 $45,674 $550 $342 $4,736,809 This page intentionally left blank. - 100- STATISTICAL SECTION (UNAUDITED) COUNTY OF HAWAII Government -Wide Revenues Last Two Fiscal Years (Values in Thousands) -101- Table 1 Non specific Interest and Operating Capital Fiscal Charges for Grants and Grants and Year Services Contributions Contributions Taxes $1,583 $208,614 2002 $24,005 $27,346 $27,871 $110,720 2003 25,072 31,692 19,065 126,375 -101- Table 1 Non specific Interest and Grants and Investment Contributions Income Other Total $13,502 $3,587 $1,583 $208,614 13,931 1,949 4,642 222,726 COUNTY OF HAWAII Government -Wide Expenses by Function Last Two Fiscal Years (Values in Thousands) Governmental activities: General government Public safety Highways and streets Health, education and welfare Culture and recreation Sanitation Interest on long-term debt Business -type activities: Health, education and welfare Total -102- Table 2 2003 2002 $ 36,462 $ 37,796 77,132 75,710 15,513 22,627 20,205 17,854 16,431 14,904 19,022 18,642 8,681 8,769 450 456 $ 193,896 $ 196,758 Chart I COUNTY OF HAWAII General Governmental Revenues and Expenditures Comparison Last Ten Fiscal Years (In Thousands) $250,000 $200,000 $150,000 $100,000 $50,000 9'� 9a9� 5 9G9� 19oo 9899 9'� 001 1�ti ry03 Note: In fiscal year 2002, the Housing Agency and the Park Dedication Fund became special revenue funds. -]03- Z V M M N M 7 M U O 69 ^ ^ G v N W N rl 7 00 7 O 00 M N N r 0 00 r� O N 0 DA v� � y us C O\ M R h 00 N^ M N V ill Vt V1 N W N O\ O � A a> O M r h� W o0 N W N ^ M O r r M 7 [� M oo O 7 ..• � V vt �n vi �, O N N N M V � T O b O b Ori N O\ O M b0 k K o0 D � o0 .A• AI c b m r 7 �D �O r� O o0 V M M N M 7 M U O 69 ^ ^ r o0 o0 N O N -104- O z G v N W N rl 7 00 7 O N O M N O 0 DA v� � y C � A a> O M r h� W o0 V1 00 00 N v r v [� .� O` O\ O N N N M V � T O b O b Ori N O\ O M b0 k K o0 D � o0 o0 c o0 o0 x � �n oo O M vi vl O r 7 �a C vl vi vi vi vi �n Vi �D �O L1. V] v3 r o0 o0 N O N -104- O z I I I I COUNTY OF HAWAII General Governmental Expenditures by Function Last Ten Fiscal Years (In Thousands) 1993 9Q 1990. 95 1995,96 1996,9 199 96 1996,00' VQP 01 16P10'L 2662p3 Note: In fiscal year 2002, the Housing Agency and Park Dedication Fund became special revenue funds. -]05- Chart 2 Table 4 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. - 106 - Licenses Charges Interest Fiscal Taxes and and Inter- for and Year Assessments Permits Governmental Services Penalties Other Total 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 2003 127,215 9,261 50,181 13,481 2,066 2,920 205,124 * 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. - 106 - Table 4a COUNTY OF HAWAII General Governmental Tax Revenues by Source* Last Ten Fiscal Years (Values in Thousands) Public Real Service Fiscal Property Company Fuel Franchise Year Tax Tax Tax Tax Total 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 2003 109,991 5,064 7,343 4,817 127,215 * Includes General, Special Revenue and Debt Service Funds. Note: The Public Service Company Tax began in fiscal year 2002. wl � G w> 0 0 0 0 0 0 o a a y N O U a o U O o0 k A v t°+l 000 0�0 � O r vri N O r U U ao G m m m r oo ao 00 0 C O� O� Or0 � ONi S T N b U -- M 01 M 00 00 M r V M D\ D\ D\ 00 00 00 0o ao � O H9 .- o � N ° O C � C O O O O O O O O O J O O y M O 00 D\ O N vi 7 V 7 r lc �o 0o of r o m` o U oo a, rn m o0 00 00 0o a N O b O h r V O �O vi o0 Q\ � A U T� c Q? U L V o 0 0 0 0 0 0 o a a a o U O o0 k A v t°+l 000 0�0 � O r vri N O r U ao m m m m r oo ao 00 0 D\ D\ D\ 00 00 00 0o ao � O H9 .- w. W -109- Table 6 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. - 110 - Ratio of Real Property Total Assessed to Fiscal Assessed Estimated Total Estimated Year Value Actual Value Actual Value 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, 083,3 84 10,083,384 100% 2002 11,071,326 11,071,326 100% 2003 11,690,371 11,690,371 100% Notes: There is no personal property tax in Hawaii. Assessment ratios are uniform statewide. - 110 - Q :f O N vt N �O M y r v r r N M vt N N V o0 M �D r o0 r b O ,-• oo h .N. N M N r� vt V M D 00 vt r 0V M r M Vl 00 0o O O O O C O C C vi o0 vt 7 vi v1 U D` N N M O r o0 N C' M N 7 O' � O NV r o0 00 N p 69 fH 0 0 0 0 0 0 0 V oc C 0 0 0 0 0 0� V 00 Vl �O Vl O M N u9 69 69 fA 0 00 �D N v� oo r oo rn r M o0 o M r oo M— o 00 � a b9 a a` -111- 0 0 0 0 0 0 0 0 r oo M O oc O vii D\ N r M 't �D 69 � 69 a rn y Q N N M^ 00 r r^ vi O O O r N 0 G\ L 0. 00 Q Q oo r Q r M o0 �D Q 0 0 0 0 0 0 0 7 op 0 0 0 0 0 0 0 ss ^ Q^ Q O\ 00 M N Q Q N 00 vi DA Q r N M �D 01 00 M N 00 r M Vl N T N 69 00 O O O O O O O Q ss ^ 000rv��oMQMo 0 ON N V� .N• M O N r M N D\ CO M f+l N O ^ ^ N N O Fn � 0 0 0 0 0 0 0 0 DD C O O O O O C� ss ^ r, -+ O W r V1 W Vlr1 r a r h N r �--� Qi h V' M M 00 r N Q N r M N r U 69 69 69 Ni 69 69 0 0 0 0 0 0 0 0 �n 0 0 0 0 0 0 0 0 vi 0 0 0 0 0 0 0 0 vi Vl V1 Vl V1 Vl Vl V1 Vl Q V1 Vl V1 V1 V1 Vl V1 Vl Q Vl Vl V1 Vl Vl V1 Vl V1 Q 69 69 69 M N v v O M a b^ 0\ �+ O N D\ r 00 W Q N M Q O O =^ M r^ vi O Ni O O M r O` O\ O N N M oo �6 oo Q r 00 M M Q 00 a O\ ^ M N O N r Vl 00 00 O N M O ^ N M O\ ^ 00 ^^ O^ b9 69 fA a o, - 112- a � v nFn. 0 N L ^ T R r O O\ Vl M Vl M C N O O W vi DA b M 7 D` r D\ N W O ^ op O D\ o 0 0 0 0 0 o v 000000000 ooNora^o0o r rnooi "'hvv�irnmlc 69 00 00 00 00 00 00 0o ao C 0s o roo�o vo�o� a; N m m ^ rn M 69 � 69 T O O D vl 00 0o V M O r 0 �O 00 �O 00 r M Vl M N P N DO 7 00 M O�0 ON ONO O N M O oo M O N O 00 N N Q\ 00000000�n v?0000000q 000000000v rM�ovrnrnvro a, r vt a\ 00 u1 N V O\ N 7 h M r 0 V1 O 00 0 r o vio o; v; r"v ri c� r Vl b9 00000000., vi v-. �n vi in vi vi vi v 0o m o0 0o ao 00 m oo � 00 M N OO N r 0 V 00 N lD O\ lO O W M Vl M 69 � - 113- W r vi N D\ N O\ O N 7 Vl N R 00 V N O O ^ ^ N N O b9 � 0 0 0 0 0 0 0 0 �?0000000v 000000000 v V 00 O\ O\ O Y V 7 0 M ^ ^ V1 69 00000000v� 0o ao 00 00 00 00 00 0o v ss .r+ n r v�1 OHO lO N Vni V W � V 69 A A c �o Y N d N N V N^ C w �i > O C N Q S -0'= S b00 O N r v � F a A X F b w O m r ,nvrnhry-- r� �D M r M 00 M N N N O — 69 6'f 00000000,., ,.,0000000v 00000a000a N O 00 QD N M V1 O �I- 00 0o i0 D, oo O N h O 0 0 0 0 0 0 0 0 00 00 00 00 0o ao 00 0o v ds V1 O M i{ O �O V1 N O h 7 oo c a, O M V 69 N O N — v� o6 N N M Q\ T C N r r N D\ r V 00 m M 69 —000?000?�000?� O N N M N v1 N O— M 00 00 00 00 00 00 0o v-� da,a,C, a, of h O m of 0 P � O N N r O M c h— oo -- r Ro O O N W z $14, $12, $10, $8, $6, $4, $2, COUNTY OF HAWAII Assessed Value of Real Property Last Ten Years (In Thousands) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 -115- 1994 115- Chan 4 Table 8 COUNTY OF HAWAII Principal Taxpayers June 30, 2003 Note: Gross valuation at January 1, 2002: - 116 - $1,596,174,300 10.2% $14,266,522,103 Percentage 2002 of Total Assessed Assessed Taxoaver Business Valuation Valuation BP Bishop Estate Trustees Land trust $428,030,800 2.7% Mauna Kea Development Corp. Hotels/Dev. 238,141,700 1.5% WB Kukio Resorts LLC Developer 190,704,200 1.2% Global Resort Partners Hotel 156,732,600 1.0% Liliuokalani Trust Estate Land trust 143,313,700 0.9% FHR (ML) Hotel Holdings LLC Hotel 128,678,600 0.8% Mauna Lam Resort Inc. Hotels/Dev. 102,923,900 0.7% 1250 Oceanside Partners Developer 78,528,600 0.5% Kaupulehu Makai Venture Hotels/Dev, 74,396,800 0.5% RWH Inc. Hotel 54,723,400 0.4% Note: Gross valuation at January 1, 2002: - 116 - $1,596,174,300 10.2% $14,266,522,103 COUNTY OF HAWAII Computation of Legal Debt Margin June 30, 2003 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 $182,401,600 State Revolving Fund loans 31,680,293 Other debt 1,084,667 215,166, 560 Bonds maturing in current fiscal year 9,929,100 SRF loan principal maturing in current fiscal year 2,182,921 Bonds reimbursable by DWS 15,737,700 27,849,721 Total amount of debt applicable to debt limit Legal debt margin Table 9 $11,690,371,170 1,753,555,676 187,316,839 $1,566,238,837 (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. - 117 - I z o� v N A q o o J o o 0 0 ? v N IT M, M C O O � m N C N N o0 vl N V •--. M �O �D O 1 D v O vi c .o o u C � W � v A � v a C N r M r r r r N M O N V N CJ vi lc M cl v G! 00 OD u C � Q 00 �O �D .--. M D\ N �O O .--� r N tdm O O M^ M^ N n � v O M O 00 Vi 00 P N N O V] O c y r �D o0 vi O r M� C C N u O a � � y vl D\ D\ D\ O O O O Q m U iz Table 11 COUNTY OF HAWAII Ratio of Annual Debt Service Expenditures For General Obligation Bonded Debt To Total General Governmental Expenditures Last Ten Fiscal Years - 119 - Ratio of Debt Total Total Service to General Fiscal Debt General Governmental Year Principal Interest Service Expenditures Expenditures 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% 2003 10,976,887 8,332,183 19,309,070 194,621,907 9.9% - 119 - Table 12 COUNTY OF HAWAII Demographic Statistics Last Ten Fiscal Years Fiscal Per Capita School Unemployment Year Population Income Enrollment Rate A 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** 9.9% 1997 141,848 18,495 30,599 10.2% 1998 143,135 19,383 30,715 9.6% 1999 142,390 19,972 30.926 8.7% 2000 148,677 * 20,991 30,193 6.7% 2001 152,083 21,986 29,792 6.8% 2002 154,794 N/A 29,785 5.7% (A) Calendar year. Sources: * 2000 Census (all other population figures as estimated by U.S. Census Bureau, Federal -State Cooperative Program for Population Estimates). ** Public school enrollment only. Other data from County Department of Research and Development. -120- M = o .0 p �D N r 0 vt N Mi vl N r D o0 O N �O o0 M D D r ❑ oMO � T O _ V � � � � m a C A � U Ay v O N r O N D\ N N b � z A M 00 00 M vl r M _ G N O N N M M O Z `fl O 0 v N a\ r 0 0 00 O+ M O r N r M O Vl V r N_ M 7v0 vMi V r v1 4\ O vii M � o0 00 00 00 00 00 00` oo rn y � O 1+ � ip N N N D` r 0 V1 00 OV P P,I� O 00 vi O o0 D\ O � � r h b b a0 O vl O O V M M M M M M 7 V M V � - 121 - Table 14 Miscellaneous Statistical Data June 30, 2003 Date first charter adopted June 1968 Form of government Mayor/Council Area in square miles 4,028 Miles of streets (County only) 903 Number of street lights 8,823 Fire protection Number of stations 19 Number of fire fighters and officers (exclusive of volunteer fire fighters) 277 Police protection: Number of stations 8 Number of substations 3 Number of police officers 373 County water service: Number of consumers 37,162 Average consumption in gallons per day 25,112,000 Miles of water lines 1,885 Miles of sanitary sewers (County only) 53 Number of building permits issued: Building permits 4,250 Electrical permits 3,999 Plumbing permits 2,954 Sign permits 59 Recreation and culture: Number of parks 118 Number of gyms and recreation centers 38 -122-