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HomeMy WebLinkAboutCOM 0734.000 2012-2014 • J Yoshimoto --•--••. Lane Shibata Ntv Chair&Presiding Officer os..� Acting Legislative Auditor ;�d?• {:� ;��, S Le S Council District 2 Business Address 1266 Kamehameha Avenue • ;••• ,. •�., Suite A-8 �fE os•N��''' Hilo,Hawaii 96720 Coutt±v of Aguat OFFICE OF THE LEGISLATIVE AUDITOR 25 Aupuni Street * Hilo,Hawaii 96720 * (808)961-8386 * Fax(808)961-8905 F a website:http:/hawaiicounty.gov e-mail:publiclao(a,co.hawaii.hi.us 'C) March 6, 2014 cy- The Honorable J Yoshimoto, Council Chair and Members of the Hawaii County Council Hawai`i County Council o w 25 Aupuni Street Hilo, Hawaii 96720 Dear Chair Yoshimoto and Councilmembers: Re: Post-Audit Report and Single Audit of Federal Assistance Programs Report for Fiscal Year Ended June 30, 2013 This letter transmits for your review, deliberation, and acceptance the Comprehensive Annual Financial Report for the Fiscal Year July 1, 2012 to June 30, 2013, as prepared by the County of Hawaii Department of Finance, and the Single Audit of Federal Financial Assistance Program for the Fiscal Year July 1, 2012 to June 30, 2013, as prepared by external auditors Accuity LLP. Pursuant to the Hawaii County Charter, section 10-13. Post-audit, which requires that an independent audit of accounts and financial transactions of the county be conducted at least once annually by a certified public accountant or firm of certified public accountants, designated by the Council, who have no personal interest, direct or indirect, in the fiscal affairs of the County. We ask that this request be placed on the Finance Committee's March 31, 2013 agenda. Accuity LLP will be present to answer any questions the Council may have. Appropriate department head(s)or their representative(s)will also be asked to attend the meeting. Please contact me at 961-8494 for any questions. Thank you. Sincerely, /ere-2 tide Age7:371— Lane H. Shibata, CGAP Acting Legislative Auditor LHS/map Enclosures: Nancy Crawford, Department of Finance Comm.No 1 cc w/o enclosures: Cindy Yee, Accuity LLP Ref.To•, Ref.Date...---.11— I • I I OZ `0 aunt' oT Z I OZ ` I cInf I "VOA [POSH aqT J0LI 14.10dON IVIDLIPLITJ rnuu anisua atduwo I kr I ..•i < t .-..1►'�1,.. ':may.. C // ._► • '�, f a.:.- .1 Pr..ill t'..';''-'''..*: _ U . �. i 1. � fi ''•.if 4 tty - _ • I TTIMtH JO T1TS il TT1?A1?H o Aunoj • • 1 I I 1 1 COMPREHENSIVE ANNUAL FINANCIAL REPORT 1 Fiscal Year Ended June 30, 2013 CCCC-23- 1■11/4 vv.✓w fit, N w - ♦- N •�` _ I COUNTY OF HAWAII Hilo, Hawaii William P. Kenoi • Mayor Walter Lau 1 Managing Director Prepared by The Department of Finance Nancy E. Crawford Director of Finance I I ICOUNTY OF HAWAII I Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2013 iTable of Contents Page I INTRODUCTORY SECTION Letter of Transmittal 1 GFOA Certificate of Achievement 8 IOrganization Chart 9 List of Elected Officials 10 IList of Principal Officials 11 FINANCIAL SECTION IReport of Independent Auditors 13 Management's Discussion and Analysis 15 I Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position 28 I Statement of Activities 30 Fund Financial Statements: Balance Sheet-Governmental Funds 32 I Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 33 Statement of Revenues, Expenditures, and Changes in Fund Balances- IGovernmental Funds 34 Reconciliation of the Change in Fund Balances of Governmental 1 Funds to the Statement of Activities 36 Statement of Revenues, Expenditures, and Changes in Fund Balance- Budget and Actual (Budgetary Basis) -General Fund 38 I Statement of Net Position-Proprietary Funds 42 Statement of Revenues,Expenses, and Changes in Fund Net Position- Proprietary Funds 43 IStatement of Cash Flows-Proprietary Funds 44 Statement of Fiduciary Net Position-Fiduciary Funds 45 I Statement of Changes in Fiduciary Net Position-Fiduciary Funds 46 Notes to the Basic Financial Statements 47 Required Supplementary Information 91 I I I I FINANCIAL SECTION (Continued) Page Combining and Individual Nonmajor Fund Statements and Schedules: Combining Balance Sheet-Nonmajor Governmental Funds 94 Combining Statement of Revenues,Expenditures,and Changes in Fund Balances-Nonmajor Governmental Funds 98 II Schedules of Revenues, Expenditures,and Changes in Fund Balances- Budget and Actual(Budgetary Basis): Highway Fund 101 III Sewer Fund 102 Solid Waste Fund 103 Cemetery Fund 104 Parking Meter Fund 105 Vehicle Disposal Fund 106 Bikeway Fund 107 Workforce Investment Act Fund 108 Golf Course Fund 109 Geothermal Relocation and Community Benefits Fund 110 Beautification Fund 111 Hawaii County Housing Agency 112 Park Dedication Fund 113 Combining Statement of Agency Funds Net Position-Agency Funds 114 Combining Statement of Changes in Assets and Liabilities-Agency Funds 116 Combining Statement of Private Purpose Trust Net Position-Private Purpose Trusts 120 Combining Statement of Changes in Net Position-Private Purpose Trusts 121 STATISTICAL SECTION 1 Table 1 -Net Position by Component 123 Table 2-Changes in Net Position 124 Table 3 -Fund Balances,Governmental Funds 126 Table 4- Changes in Fund Balance, Governmental Funds 127 Table 5 -Real Property Assessed Values by Classification and Tax Rates 128 Table 6-Principal Taxpayers 132 Table 7 -Property Tax Levies and Collections 133 Table 8 -Ratios of Outstanding Debt by Type 134 Table 9 =Ratios of General Bonded Debt Outstanding 135 Table 10-Legal Debt Margin Information 136 Table 11 -Demographic and Economic Statistics 137 Table 12-Principal Employers, County of Hawaii 138 Table 13 -Full-Time Equivalent County Government Employees by Function 139 Table 14-Operating Indicators by Function 140 Table 15 -Capital Asset Statistics by Functions 141 I I I 1 1 1 1 INTRODUCTORY SECTION 1 1 1 1 1 1 1 M�v oc M , I William P.Kenoi Nancy E. Crawford Mayor :s ir/. • Director :Rl� .•, ; • ��� Deanna S. Sako •tE Os M� Deputy Director •County of Hawaii Finance Department 25 Aupuni Street, Room 2103 • Hilo,Hawaii 96720 (808)961-8234 • Fax(808)961-8569 December 24, 2013 The Honorable Mayor and Members of the Council County of Hawai`i 25 Aupuni Street Hilo, Hawai`i 96720 We transmit herewith the Comprehensive Annual Financial Report for the County of Hawai`i, State of Hawai`i (the County), for the fiscal year July 1, 2012 to June 30, 2013. 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, 2013 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 1 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. I Hawaii County is an equal opportunity provider and employer. I - 1 - I a 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 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 a 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 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 has an elected mayor and a nine- member council I 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, and Canada through the Kona International Airport. Scheduled freight services are available between the islands by air and sea transport. Communities on the island are linked by a network of State and County maintained streets and highways. The Big Island is the most diversified of the neighbor island economies. As a result it is buffered to some extent when any one industry lags. Although the past few years proved challenging to the island's economy, it appears that the County will continue on its steady but slow road to improved financial health. This favorable outlook is supported by positive trends in the following key areas of the island's economy. For the fourth year in a row,the County's unemployment rate has served as a positive indicator that the island's economy is on a course to recovery. The County's unemployment rate for the current fiscal year (8.3%)was almost a full percent lower than I that of the prior year(9.2%). Tourism—Tourism has always been the major industry on the island. In addition to the mild climate and natural beauty it shares with other areas in the state,the County features the Hawai`i Volcanoes National Park. A popular attraction,the park is the most visited site in the state, with almost 3.7 million visitors in fiscal year 2013 representing an almost I - 2 - 1 1 I 7% increase from the ' o e prior fiscal year. Another indication of the County's slowly I rebounding industry, is the fact that there was also a 7% increase in the total number of visitors to the island from the prior fiscal year. More significantly, spending growth for this sector has been almost constantly increasing since the beginning of 2010. IConstruction —Construction jobs have recovered by one-third of the decline experienced in recent years and private building permits are up 25% in the first part of 2013 compared to the same period the year before. Scientific Research and Development—Due largely to its unique geographic characteristics which has attracted scientists in fields of astronomy, meteorology, I volcanology, and agriculture/aquaculture, the County has benefited economically by the significant investments made in scientific research. According to the First Hawaiian Bank Economic Forecast, Mauna Kea observatories involve 11 facilities with an annual I budget of$75 million to support 527 county-based staff. Astronomy continues to be a major factor in the success of the County's economy with an estimated nearly 500 new jobs opening up through 2023 to meet the needs of the current observatories and the 1 creation of new jobs with the development of the Thirty Meter Telescope (TMT) by the TMT Observatory Corporation. Permits have been issued for the TMT but a final appeal has been lodged with the courts. Once construction begins, it is anticipated that the Iconstruction and equipment costs will be $1.2 billion and the TMT will have an annual operational budget of$27 million. IMajor Initiatives IFor the Year During the year, the County focused on construction projects relating to housing, sanitation and public safety, and other issues affecting the quality of life in the County. IPublic Safety—On November 17, 2012, the Hawaii Police Department gained accreditation by the Commission on Accreditation for Law Enforcement Agencies I (CALEA) for the first time. Housing—Construction on Na Kahua Hale 0 Ulu Wini ("Ulu Wini", formerly known as I Kaloko Housing Program) located in North Kona continued through fiscal year 2013. During the year, 36 units were constructed with the remaining 20 slated for completion next fiscal year. Ulu Wini provides transitional (short-term, less than two years) and I permanent rental housing for families with children earning below 50% of the County's adjusted median income, with preference for those impacted by homelessness. Entire build-out of the site will include 96 two-bedroom units, a community center complete I with meeting room administrative offices, a laundry facility and kitchen, an employment training facility, a playground and a wastewater treatment plant. Families engaged at Ulu Wini will be provided either transitional or rental housing, case management, mail and I computer access, and an array of on-site support services including employment and life skills training, mental health services, counseling and childcare. I I - 3 - I Following the completion of Kamakoa Nui's four model homes in the prior fiscal year, sales began strong with the first five homes sold before the end of fiscal year 2013. Kamakoa Nui is a master planned community in Waikoloa. The first phase of development includes the construction of 91 homes. The project is intended to serve the local work force population with affordable homes for purchase near the largest employer on the Big Island, the Kohala Coast hotels. For the Future Public Safety Securing funding for the South Kona Police Station continues to remain a goal of the Hawaii Police Department along with planning for a new station in the Puna District to replace the soon to be retired Keaau Police Station. I The Police Department has also begun the process of procuring a modernized and fully integrated Computer Aided Dispatch(CAD) and Records Management System(RMS)to better serve the community. Additionally,the Police Department is one of several County Departments working on modernizing the County's public safety radio system. Public Works—Improvements on Kaiminani Road are focused on reconstructing the I roadway, retaining walls, and drainage. 80% of the $10 million construction cost is paid by the Federal Highways Administration and was completed on November 30, 2013. The first phase of Kona's $7.8 million Laaloa Avenue Extension project is taking place. The project includes a 1,900-foot connector road that will link Alii Drive with Kuakini Highway. This is the first connector road to be built in decades along Alii Drive. Construction is scheduled for completion in 2014. Planning—The Planning Department's regulatory functions can be measured in terms of I volume and responsiveness. In order to have the ability to measure its responsiveness, the Department is embarking on an effort to invest in the current tracking system to generate performance reports that reflect categories of regulatory functions and parameters. Other Financial Information 1 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. I -4 - 1 Budgetary Control The County maintains budgetary controls to ensure that legal provisions of the annual budget are complied with and that those 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 included in the various fund balance categories based on whether the resources are restricted, committed or assigned 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. Cash Management Cash temporarily idle during the year was invested in savings accounts, money market mutual funds, certificates of deposit, repurchase agreements, and agency notes. The average yield on deposits and investments was .18%. The County's policy is to minimize credit and market risks while maintaining a competitive yield on its portfolio. Accordingly, with the exception of$264,173 held by 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. Financial Highlights As a result of another year of declining property values which negatively impacted real property tax revenues, the County was again faced with the dilemma of balancing its budget. To avoid negatively impacting the local economy, the County worked diligently to lower its operating costs while continuing to service the community and its people rather than raise real property taxes. I - 5 - I I I In an effort to lower its debt service costs,the County issued bonds to refund$52.9 million of various debt instruments, resulting in an estimated savings of approximately $9.5 million in principal and interest payments. The County continued the furloughs and pay reductions for both its HGEA and UPW union employees from the prior year. ,I As part of the strategy for balancing the budget, the County also decided to temporarily forgo the employer contributions relating to the pre-funding of its postemployment I benefits other than pensions that it had fully funded for four of the previous five fiscal years. Other Information Independent Audit The County Charter requires an annual audit by independent certified public accountants. Accuity LLP was selected in accordance with the County Charter and the procurement provisions of the Hawaii Revised Statutes (HRS) and Hawaii Administrative Rules (HAR)to perform the audit. Employee Union Contracts I County employees are members of seven different bargaining units. Three bargaining units have contracts that will expire on June 30, 2015. Three bargaining units have contracts that will expire on June 30, 2017. The one remaining bargaining unit received an interest arbitration decision in November 2013,however, the cost items associated with that decision are currently subject to the approval of all legislative bodies. The County anticipates this cost approval process will conclude on or about the end of the 2014 Legislative session(May 2014). 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 Hawai`i for its Comprehensive Annual Financial Report for the fiscal year ended June 30,2012. This was the twenty-fifth consecutive year that the government has received this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement Program's requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate. 1 I - 6 - 1 1 IAcknowledgments I The preparation of this report 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 I members of the County Council for their interest and support in assuring the continuing sound financial condition of the County of Hawai`i. I NANO CRAWF 0,' O Director of Finance I I I I I I I I 1 I t I I 1 (D Government Finance Officers Association Certificate of Achievement for Excellence in Financial I Reporting I Presented to County of Hawaii Hawaii For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2012 ;kr Aeiettolt., I Executive Director/CEO I - 8 - I 1 County of Hawaii IOrganization Chart ICounty Electorate II County Council I Mayor -I Prosecuting Attorney I I I I County Legislative Office of Management: Clerk Auditor Managing Director i 1 IDepartments under Agencies under Departments under direct supervision of the direct supervision of the commissions and I Managing Director: Managing Director: administrative supervision of the Mayor: I Corporation Counsel Civil Defense Human Resources Finance Office of Aging Police Planning Mass Transit Liquor Control I Environmental Management Office of Housing& Fire Research&Development Community Development Water Supply Public Works (semi-autonomous) I Parks&Recreation Information Technology I I I 1 I I i - 9 - l I County of Hawaii I Elected Officials June 30 2013 I 1 Administrative Officers (Term: 2012-2016) William P. Kenoi` Mayor I Mitchell Roth Prosecuting Attorney County Council (Term: 2012-2014) 1 ty ( ) J Yoshimoto Chair Karen Eoff Vice Chair Brenda Ford Member Greggor Ilagan Member I Dru Mamo Kanuha Member Zendo Kern Member Dennis"Fresh" Onishi Member Valerie Poindexter Member Margaret Wille Member I I I I I I I - 10 - 1 I I I Principal Officials June 30, 2013 I County Clerk Stewart Maeda ILegislative Auditor, Acting Lane Shibata Managing Director Walter Lau IDeputy Managing Director Randy Kurohara Corporation Counsel Lincoln Ashida I Director of Finance Nancy E. Crawford Planning Director Duane Kanuha I Director of Personnel Ronald Takahashi Director of Research and Development Laverne Omori Chief of Police Harry S. Kubojiri IFire Chief Darren Rosario Director of Public Works Warren Lee IDirector of Environmental Management Bobby Jean Leithead-Todd Parks and Recreation Director Clayton Honma I Manager-Chief Engineer, Department of Water Supply Quirino Antonio, Jr. Civil Defense Administrator, Acting Darryl Oliveira I Director of Liquor Control Gerald Takase Mass Transit Administrator Tiffany Kai Executive on Aging Alan Parker IAdministrator, Office of Housing and Community Development Stephen Arnett IDirector of Information Technology, Acting Donald F. Jacobs, Jr. I I I I I - 11 - I 1 I I 1 I This page intentionally left blank. I I I I I I I I 1 I - 12 - I 1 1 1 1 1 FINANCIAL SECTION t 1 1 1 t 1 1 1 1 I • r 4"-Th k fire I � 1LP y CERTIFIED PUBLIC ACCOUN'fAN"IS Report of Independent Auditors I To the Chair and Members of the County Council County of Hawaii Report on the Financial Statements I 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 Hawai'i, State of Hawaii (the"County") as of and for the year ended June 30, I 2013, and the related notes to the financial statements,which collectively comprise the County's basic financial statements as listed in the table of contents. We also have audited each fiduciary fund type of the County as of and for the year ended June 30, 2013, as displayed in the County's basic financial statements. IManagement's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes I the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. I Auditors'Responsibility 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 I 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors'judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's I preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly,we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting I estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for I our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the I 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 as well as each fiduciary fund type of the County, as of June 30, 2013, and the respective changes in financial position, and,where applicable, cash flows thereof and the budgetary comparison for the general fund for I the year then ended in accordance with accounting principles generally accepted in the United States of America. I -_ an ntlep en tlenl member of 999 BISHOP STREET,Sulrr 1900 HONOLULU,HAWAI1 96813 BA KE R T 1 L LY TELEPHONE:808 531 3400 FACSIMILE:808 531 3433 INTERNATIONAL - 13 - 1 1 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and schedule of funding progress for the EUTF information on pages 15 through 25 and 91 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate,operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America,which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements,and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County's basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, fund schedules, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and fund schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and fund schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly,we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards,we have also issued our report dated December 24, 1 2013 on our consideration of the County's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the County's internal control over financial reporting and compliance. Honolulu, Hawaii December 24, 2013 1 - 14 - 1 I 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, 2013. 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 $767.0 million (net position). This amount includes $2.9 million in unrestricted net position, a decrease of $36.9 million from the prior year. • The County's total net position increased by$84.0 million during the fiscal year. • As of the close of the current fiscal year,the County's governmental funds reported combined ending fund balances of$195.3 million, an increase of$48.9 million from the prior year. Approximately 42 percent of this total amount, $82.0 million, is available for spending at the County's discretion(unrestricted fund balance). • At the end of the current fiscal year, unrestricted fund balance for the general fund was $45.6 million, or 21 percent of total general fund expenditures. rOVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the County's basic financial statements. The County's basic financial statements comprise three components: (1) Government-wide financial statements, (2)Fund financial statements,and(3)Notes to the basic financial statements. This report also contains both required and 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 position presents information on all of the County's assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position 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 position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods, such as revenues pertaining to uncollected taxes and expenses pertaining to earned but unused vacation and sick leave. Both of the government-wide financial statements distinguish functions of the County that are I 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, - 15 - 1 sanitation and general government. The business-type activities of the County include rental g g � tY housing for senior citizens and families. The government-wide financial statements include not only the County itself(known as the primary government), but also the Department of Water Supply, a legally separate entity that the County is financially accountable for. Financial information for this component unit is reported separately from the financial information presented for the primary government itself. Fund Financial Statements The fund financial statements are designed to report information about groupings of related accounts which are used to maintain control over resources that have been segregated for specific activities or objectives. The County, like other state and local governments,uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the County can be divided into the following three categories: governmental funds, proprietary funds,and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements— i.e.,most of the County's basic services are reported in governmental funds. These 1 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 funds balance sheet and the governmental funds statement of revenues,expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. I 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 funds balance sheet and in the governmental funds 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 located in the basic financial statements,whereas the budgetary comparison schedules for the nonmajor special revenue funds are presented elsewhere in this report. Proprietary funds. Proprietary funds are generally used to account for services for which I 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 I - 16 - 1 I IIIare 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 Ithe 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 I parties outside the County. The private-purpose trusts 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. I The accounting used for fiduciary funds is much like that used for proprietary funds. Notes to the Basic Financial Statements I 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 IIn addition to the basic financial statements and accompanying notes,this report also presents certain required supplementary information, which is presented immediately following the notes I to the basic financial statements. The combining statements referred to earlier in connection with nonmajor governmental funds and budgetary comparison schedules for the nonmajor special revenue funds are presented immediately following the required supplementary information. IGOVERNMENT-WIDE FINANCIAL ANALYSIS Condensed Statement of Net Position June 30,2013 and 2012 Primary Government I Governmental Activities Business-type Activities Total 2013 2012 2013 2012 2013 2012 Assets: Current and other assets $ 253,214,295 $ 252,075,426 $ 1,111,875 $1,036,087 $ 254,326,170 $ 253,111,513 I Capital assets,net 1,009,857,355 917,249,344 1,611,888 1,167,154 1,011,469,243 918,416,498 Total assets 1,263,071,650 1,169,324,770 2,723,763 2,203,241 1,265,795,413 1,171,528,011 Liabilities: I Long-term liabilities outstanding 461,905,296 438,814,811 1,296,633 851,306 463,201,929 439,666,117 Other liabilities 35,506,628 48,424,315 66,685 395,021 35,573,313 48,819,336 I Total liabilities 497,411,924 487,239,126 1,363,318 1,246,327 498,775,242 488,485,453 Net position: Net investment in capital assets 699,326,156 594,384,524 315,255 315,848 699,641,411 594,700,372 Restricted 64,437,707 48,360,223 185,148 64,437,707 48,545,371 Unrestricted 1,895,863 39,340,897 1,045,190 455,918 2,941,053 39,796,815 Total net position $ 765,659,726 $ 682,085,644 $1,360,445 $956,914 $767,020,171 $683,042,558 I I I - 17 - I Analysis of Net Position As noted earlier,net position may serve over time as a useful indicator of a government's I financial position. In the case of the County,assets exceeded liabilities by$767.0 million at the close of the most recent fiscal year. By far the largest portion of the County's net position(91 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 position(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 all three categories of net position, both for the government as a whole, as well as for its separate I governmental and business-type activities. The County's net position increased by$84.0 million during the current fiscal year,which was $8.3 million more than the increase during last fiscal year. Capital grants and contributions increased by approximately$20.8 million relating mostly due to increases related to highways and streets with reductions in those related to sanitation. The increase was offset and reduced by a decrease in real property taxes of approximately$9.1 million. The County's net capital assets increased by$93.1 million due to the large amount of capital improvement projects done by the County during the current fiscal year and infrastructure related assets that were contributed. See further discussion of the increase in capital assets on page 23. The County's long-term liabilities outstanding increased by$23.5 million(5 percent)due 1 primarily to the increases resulting from the County's decision to forgo the employer contributions relating to the pre-funding of its postemployment benefits other than pensions and the issuance of new bonds. These increases were offset by principal payments on the General I Obligation Bonds and the State Revolving Fund loans from the prior year. See further discussion of the increase in long-term debt outstanding on page 24. I 1 I 1 - 18 - 1 I ICondensed Statement of Activities For the Fiscal Years Ended June 30,2013 and 2012 IPrimary Government Governmental Activities Business-type Activities Total 2013 2012 2013 2012 2013 2012 I Revenues: Program revenues: Charges for services $ 34,930,495 $ 34,875,798 $ 432,057 $ 393,464 $ 35,362,552 $ 35,269,262 I Operating grants and contributions 44,410,353 45,767,655 123,800 131,227 44,534,153 45,898,882 Capital grants and contributions 107,584,670 86,754,033 107,584,670 86,754,033 General revenues: Property taxes 200,775,779 209,894,427 - - 200,775,779 209,894,427 Other taxes 28,206,334 29,255,027 - - 28,206,334 29,255,027 Grants and contributions,unrestricted 17,750,132 19,074,105 17,750,132 19,074,105 Investment earnings(loss) (81,020) 230,804 1,416 5,641 (79,604) 236,445 I Other 2,320,838 1,773,258 342,275 - 2,663,113 1,773,258 Total revenues 435,897,581 427,625,107 899,548 530,332 436,797,129 428,155,439 Expenses: I General government 55,616,102 56,115,599 - - 55,616,102 56,115,599 Public safety 151,975,049 152,288,979 151,975,049 152,288,979 Highways and streets 42,219,903 42,462,299 - - 42,219,903 42,462,299 Health,education and welfare 28,001,020 28,127,691 496,017 517,052 28,497,037 28,644,743 I Culture and recreation 22,121,336 23,412,948 - - 22,121,336 23,412,948 Sanitation 38,505,086 35,049,546 38,505,086 35,049,546 Interest on long-term debt 13,885,003 14,519,382 - - 13,885,003 14,519,382 ITotal expenses 352,323,499 351,976,444 496,017 517,052 352,819,516 352,493,496 Increase in net position 83,574,082 75,648,663 403,531 13,280 83,977,613 75,661,943 Net position at beginning of year 682,085,644 606,436,981 956,914 943,634 683,042,558 607,380,615 INet position at end of year $765,659,726 $682,085,644 $ 1,360,445 $ 956,914 $767,020,171 $683,042,558 Analysis of Changes in Net Position IGovernmental activities. Governmental activities increased the County's net position by $83.6 million or basically all of the total growth in net position of the County. ITotal revenues increased by$8.3 million(2 percent). The combined total revenues for both the Operating and Capital grants and contributions also increased by approximately $19.5 million, I which related mostly to increases in highways and streets projects being netted with decreases in sanitation. This overall increase in grants and contributions revenue was offset by decreases in the other revenue sources. The most significant decrease of$9.1 million was in real property I taxes, which was due to a slight decline in the value of net taxable real property as evidenced in the accompanying statistical tables but is an improvement as compared to the decrease of$15.2 million experienced in the prior year. ITotal expenses increased by only $347,055 (less than 0.5 percent). I I I - 19 - 1 Expenses Program and Pro ram Revenues—Governmental Activities Year Ended June 30,2013 1 $160,000,000 $140,000,000 I $120,000,000 , En.enses •Pro:ram revenues fig u $100,000,000 - $80,000,000 1,r $60,000,000 - r" $40,000,000 , $20,000,000 I ti� ce c c e.5'‘ tie ee \<a '$) �.o ae° °,¢co J�4' a°a��c age ce�cea Saga Neccc b* a I e<a\oo Q Baas ``° eac \o�Co CP Vie*`' aJ`a J�' " C., e a`r \c�ec �e 1 Revenue by Source e— Governmental Activities Year Ended June 30,2013 Other, $2,320,838 Charges for services, Investment loss, B $(81,020) $34,930,495 Grants and contributions not restricted to specific ',,,,As- programs, $17,750,132 Operating grants and I contributions, Other taxes, $28,206,334 � $44,410,353 Ir 7 x 3 Sy. Property taxes, $200,775,779 Capital grants and contributions, $107,584,670 I I I I - 20 - 1 1 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(43 percent), followed by general government(16 percent) and highways and streets(12 percent). General revenues such as property and other taxes are not shown by program, but are effectively used to support program activities countywide. For governmental activities overall,without regard to programs, property taxes are the largest single source of funds(46 percent),followed by capital grants and contributions (25 percent)and operating grants and contributions(10 percent). Business-type activities. Business-type activities increased the County's net position by $403,531 versus an increase of only$13,280 in the prior year. Expenses for health, education and welfare account for all of the$496,017 of expenses. Charges for services were $432,057, operating grants and contributions were$123,800 and investment earnings were $1,416. Other income of$342,275 was recognized due to the forgiveness of a lease payable,which accounts for substantially all of the $369,000 increase in overall revenues. Expenses decreased$21,035 (4 percent)mostly due to decreases in general and administration expenses of$33,839. FINANCIAL ANALYSIS OF THE COUNTY'S FUNDS I As noted earlier, the County uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. ' Governmental funds. The focus of the County's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the County's financing requirements. In particular, unrestricted 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$195.3 million, an increase of$48.9 million in comparison with prior year. Approximately 42 percent of this total amount($82.0 million)constitutes unrestricted fund balance. The unrestricted portion of the fund balance is comprised of(1)$41.6 million in committed fund balance, (2) $31.7 million in assigned fund balance and(3) $8.7 million in unassigned fund balance. The remainder of the fund balance is divided between$3.5 million in nonspendable fund balance for inventory and$109.8 million in restricted fund balance. Approximately 84%of the restricted fund balance is due to restrictions relating to highways, streets and abandoned vehicles ($48.3 million), public safety radio system upgrade ($25.0 million), and debt service($19.1 million). The general fund is the chief operating fund of the County. At the end of the current fiscal year, unrestricted fund balance of the general fund was $45.6 million,while total fund balance increased to $53.9 million. As a measure of the general fund's liquidity, it may be useful to compare both unrestricted fund balance and total fund balance to total fund expenditures. Unrestricted fund balance represents 21 percent of total general fund expenditures,while total ' fund balance represents 24 percent of that same amount. The fund balance of the County's general fund increased by$5.2 million during the current fiscal year as compared to an increase of$4.1 million in the prior year. Key factors in this slight increase ($1.1 million)over last year's increase are as follows: I I - 21 - I • A decrease of$8.4 million(15 percent) in transfers out to other funds,with the largest reductions in the transfers to the debt service funds($6.0 million)and to the Solid Waste Fund($2.4 million). 1 • The positive impact of the decrease in transfers out was mitigated by a decrease of$7.0 million(3 percent)in real property taxes,which was mostly due to lower collections resulting from the slight decline in the value of net taxable real property as evidenced in the accompanying statistical tables. The fund balance of the County's capital projects fund increased by$53.5 million during the current fiscal year. The increase is primarily due to the combined total of the fund's main revenue sources of long-term debt financing,which consists of bond proceeds($50.5 million), premiums on the issuance of bonds($10.1 million)and state revolving fund loan proceeds($5.0 million); intergovernmental revenue($11.2 million); settlement contributions ($12.5 million)and transfers in($3.5 million)being greater than capital and debt service expenditures($39.5 million) for the current fiscal year. The debt service funds consist of the Bond Redemption Fund and the Interest Fund. These funds have combined total fund balances of$19.1 million, all of which is restricted for the payment of debt service. The net decrease in the combined fund balances during the current year in the debt service funds was $7.0 million(27 percent). Proprietary funds. The County's proprietary funds provide the same type of information found I in the government-wide financial statements,but in more detail. Unrestricted net position of the Kulaimano Elderly Housing Project(Kulaimano)at the end of the year amounted to $761,021, and$284,169 for the Ouli Ekahi Affordable Housing Project(Ouli Ekahi). The total net position for Kulaimano increased by$643 and the net position for Ouli Ekahi increased by$402,888. Other factors concerning the finances of these two funds have already been addressed in the discussion of the County's business-type activities. 1 GENERAL FUND BUDGETARY HIGHLIGHTS Differences between the original budget and the final amended budget were primarily the result of a$6.7 million increase in appropriations, most of which(60 percent) is due to increases in the appropriations for capital outlays. Differences between the final budget and the actual(budgetary basis)resulted in $242,000 more revenues than expected and$21.8 million less expenditures than appropriated. This is primarily due to the following factors: • The positive variances in real property and public service company taxes of$3.7 million was negated by an almost equal negative variance in intergovernmental revenues for both the federal and state grants of$3.3 million. • $5.5 million of the unspent appropriations is related to salaries and wages. The variance is due primarily to unfilled vacancies and continued efforts by each department to control payroll costs during the budget year due to the tough economic conditions facing the County. The following functions are responsible for the majority of the variance: public safety($3.5 million), general government($1.2 million)and culture and recreation($0.7 million). I • $2.2 million is due to lower than anticipated payments needing to be made in pension related payments. With each department increasing efforts to control costs, overtime was also closely monitored and the corresponding pension expenditures were not incurred. - 22 - 1 I $3.5 million is due to the fact that the increase in health premiums for employees' was lower • p than originally anticipated. CAPITAL ASSET AND DEBT ADMINISTRATION I Capital assets. The County's investment in capital assets for its governmental and business-type activities as of June 30, 2013 amounts to$1,011 million(net of accumulated depreciation). This I investment in capital assets includes land and improvements,buildings and improvements, equipment, easements, 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 10 1 percent. Major capital asset events during the current fiscal year included the following: I • Construction continued on the Ane Keohokalole Highway; additional construction costs of $1.3 million were capitalized during the fiscal year. I . Construction continued on Na Kahua Hale 0 Ulu Wini Housing Project(formerly known as I Kaloko Housing Program)and related housing employment training facility; construction in progress as of the end of the current fiscal year for both projects increased by$5.6 million to reach a total of$6.7 million, of which the portions relating to the completed phases were Itransferred to Building and Improvements. • Construction continued on the Kalanianaole Sewer Interceptor Line Rehabilitation Phase 2; I construction in progress as of the end of the current fiscal year increased by$5.1 million to reach a total of$5.3 million. • Construction began on two Mamalahoa Highway Earthquake projects(MP 4.4 and 8.9); I construction in progress as of the end of the current fiscal year for both projects had reached $3.9 million, which was transferred to Infrastructure. • Construction began on the Edith Kanakaole Multi-Purpose Stadium Improvements; I construction in progress as of the end of the current fiscal year had reached$3.3 million, which was transferred to Buildings and Improvements. I • Construction began on the Kaiminani Drive Roadway Improvements Phase I; construction in progress as of the end of the current fiscal year had reached $6.1 million. • $68.5 million of dedicated roads were received by the County in the current fiscal year. I • $8.1 million of various other equipment and real property were dedicated and donated to the County in the current fiscal year. 1 I I I I - 23 - I Capital Assets • I (net of depreciation) June 30,2013 and 2012 1 Primary Government Governmental Activities Business-type Activities Total b 2012 2013 2012 2013 2012 Land and improvements $163,565,168 $129,569,750 $ 753,877 $ 753,877 $164,319,045 $130,323,627 Infrastructure assets 274,969,315 246,938,042 - - 274,969,315 246,938,042 Ground and site improvements - - 75,280 67,580 75,280 67,580 Buildings and improvements 476,759,437 455,481,924 754,675 329,730 477,514,112 455,811,654 Easements 3,500,794 3,232,428 - - 3,500,794 3,232,428 Equipment 48,585,309 50,089,791 28,056 15,967 48,613,365 50,105,758 Construction work in progress 42,477,332 31,937,409 - - 42,477,332 31,937,409 I Total $1,009,857,355 $917,249,344 $1,611,888 $1,167,154 $1,011,469,243 $918,416,498 Additional information on the County's capital assets can be found in note 6 to the basic financial statements. I Long-term debt. Long-term debt is primarily comprised of bonds of$313.3 million and State Revolving Fund loans of$20.9 million. At the end of the current fiscal year,the County had total I bonded debt outstanding of$313.3 million. 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 bonded debt increased by$31.5 million(11.2 percent)during the current fiscal I year due to the issuance of new bonds totaling$50.5 million,which were offset by regularly scheduled principal payments. I At the end of the fiscal year,the County maintained its"AA-"rating from Standard&Poor's and Fitch and"Aa2"rating from Moody's for general obligation debt. , State statutes limit the amount of general obligation debt the County may issue up 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 $3.5 billion,which is in excess II of the County's outstanding general obligation debt. Currently the County's outstanding debt represents 9 percent of our debt limitation. Additional information on the County's long-term debt can be found in note 10 to the basic I financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES I • The unemployment rate for the County for the current fiscal year is at 8.3 percent,which III represents almost a full percent decline from last year's rate for the same period of 9.2 percent. • The number of visitors to the County for the current fiscal year was approximately 1.5 1 million,which represents an approximately 7 percent increase from the previous year's count of 1.4 million. More importantly,visitors have been increasing their spending almost constantly since the beginning of 2010 and the spending growth for this sector has been even stronger than the actual arrivals. • Astronomy continues to be a major factor in the success of the County's economy with an estimated nearly 500 new jobs opening up through 2023 to meet the needs of the -24 - 1 I Icurrent observatories and the creation of new jobs with the development of the Thirty Meter Telescope (TMT)by the TMT Observatory Corporation. Permits have been issued I for the TMT but a final appeal has been lodged with the courts. Once construction begins, it is anticipated that the construction and equipment costs will be $1.2 billion and the TMT will have an annual operational budget of$27 million. According to the First I Hawaiian Bank Economic Forecast,Mauna Kea observatories involve 11 facilities with an annual budget of$75 million to support 527 county-based staff. • The outlook for the construction industry based on building permits seems to be I improving despite a few challenges that remain in the areas of the rising cost of materials and the workforce availability. Construction jobs have recovered by one-third of the decline experienced in recent years and private building permits are up 25% in the first Ipart of 2013 compared to the same period the year before. Several large construction projects are on the horizon for each side of the island. The west side of the island saw the initial breaking ground on the$20 million Palamaui I campus construction project for the Hawaii Community College and several substantial highway projects,which include includes the Hawaii Community College and the widening of the Queen Kaahumanu Highway($75 million)and Phase III of the Saddle I Road($32 million). The east side includes the Mohouli Senior Housing Project($30 million)and the Route 130 widening(expected to be $150 million). These factors were considered in preparing the County's budget for the 2014 fiscal year. At the end of the current fiscal year, unrestricted fund balance in the general fund was $45.6 million. The County has appropriated$21.7 million of this amount for spending in the 2014 Ifiscal year budget and it is included in the assigned portion of the fund balance. REQUESTS FOR INFORMATION IThis 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 Hawai`i, 25 Aupuni Street, Suite 2103,Hilo,Hawai`i 96720. I I I I I I - 25 - 1 1 1 I 1 I This page intentionally left blank. 1 I 1 I 1 1 1 1 1 - 26 - I ' BASIC FINANCIAL STATEMENTS 1 1 ' -z7 - I COUNTY OF HAWAII I Statement of Net Position June 30,2013 I Primary Government Governmental Business-type Component Activities Activities Total Unit Assets Current assets: Cash and cash equivalents(notes 3 and 14) $ 37,444,459 $ 810,157 $ 38,254,616 $ 29,430,095 Restricted cash and cash equivalents(note 3) 36,916,644 39,448 36,956,092 - I Investments(notes 3 and 14) 11,854,523 - 11,854,523 - Restricted investments(note 3) 45,759,190 - 45,759,190 - Receivables,net(note 4) 46,219,906 4,979 46,224,885 7,528,043 Receivable from improvement district (notes 4 and 10) 64,014 - 64,014 - Internal balances(note 5) (29,954) 29,954 - - , Inventories 3,492,464 - 3,492,464 1,225,218 Prepaid expenses - 1,501 1,501 170,541 Real estate held for sale 1,208,129 - 1,208,129 - Other 904,578 - 904,578 - III Total current assets 183,833,953 886,039 184,719,992 38,353,897 Investments(note 3) 34,918,751 199,430 35,118,181 - 1 Restricted investments(note 3) 33,179,660 - 33,179,660 - Restricted cash and cash equivalents(note 3) - 26,406 26,406 2,574,396 , Receivable from improvement district,excluding current portion(notes 4 and 10) 1,281,931 - 1,281,931 - Deferred charges - - - 3,137,633 Capital assets(notes 6, 8 and 14): Utility plant in service,net - - - 255,152,015 Infrastructure assets,net 274,969,315 - 274,969,315 - Ground and site improvements,net - 75,280 75,280 - Buildings and improvements,net 476,759,437 754,675 477,514,112 - Equipment,net 48,585,309 28,056 48,613,365 - I Easements,net 3,500,794 - 3,500,794 - Construction work in progress 42,477,332 - 42,477,332 11,708,146 Land and improvements 163,565,168 753,877 164,319,045 4,528,502 Total capital assets,net 1,009,857,355 1,611,888 1,011,469,243 271,388,663 1 Total noncurrent assets 1,079,237,697 1,837,724 1,081,075,421 277,100,692 Total assets 1,263,071,650 2,723,763 1,265,795,413 315,454,589 1 (Continued) 1 I -28- 1 I ICOUNTY OF HAWAII Statement of Net Position I June 30,2013 (Concluded) Primary Government I Governmental Business-type Component Activities Activities Total Unit I Liabilities Current liabilities: Accounts payable and accrued liabilities $ 14,986,633 $ 49,289 $ 15,035,922 $ 2,769,640 I Accrued payroll 7,653,546 - 7,653,546 1,020,654 Deferred revenue(note 7) 3,440,011 1,605 3,441,616 - Interest due on long-term debt 6,119,459 15,791 6,135,250 1,029,460 Bonds and loans payable, current portion net (notes 10 and 14) 18,854,249 40,571 18,894,820 2,556,320 Compensated absences,current portion(note 10) 7,540,581 - 7,540,581 403,222 I Claims and judgments,current portion (notes 10, 12 and 14) 2,608,535 - 2,608,535 51,227 Capital leases,current portion(notes 8 and 10) 1,335,930 - 1,335,930 - I Landfill costs payable,current portion (notes 9 and 10) 193,821 - 193,821 - Customers'deposits - - - 589,539 I Other 3,306,979 - 3,306,979 - Total current liabilities 66,039,744 107,256 66,147,000 8,420,062 Noncurrent liabilities: I Bonds and loans payable,net (notes 10 and 14) 334,703,553 1,256,062 335,959,615 51,123,708 Compensated absences(note 10) 24,624,529 - 24,624,529 1,147,631 I Claims and judgments(notes 10, 12 and 14) 9,795,927 - 9,795,927 177,773 Capital leases(notes 8 and 10) 2,296,490 2,296,490 - Landfill costs payable(notes 9 and 10) 21,791,179 - 21,791,179 - ' Deferred revenue - - 1,583,953- Customers'deposits 16,459,048 Other(note 13) 38,160,502 - 38,160,502 - I Total noncurrent liabilities 431,372,180 1,256,062 432,628,242 70,492,113 Total liabilities 497,411,924 1,363,318 498,775,242 78,912,175 I Net Position Net investment in capital assets 699,326,156 315,255 699,641,411 220,283,031 Restricted for: I Capital projects 22,760,127 - 22,760,127 - Debt service(note 10) 19,126,622 19,126,622 Highways,streets and abandoned vehicles 14,838,441 - 14,838,441 - I Public access open space 4,192,817 - 4,192,817 - Other 3,519,700 3,519,700 Unrestricted 1,895,863 1,045,190 2,941,053 16,259,383 ITotal net position $ 765,659,726 $ 1,360,445 $ 767,020,171 $236,542,414 See accompanying notes to the basic financial statements. I -29- 1 COUNTY OF HAWAII I Statement of Activities For the Fiscal Year Ended June 30,2013 1 Program Revenues Operating Capital Charges for Grants and Grants and Functions/Proerams Expenses Services Contributions Contributions Primary government: 1 Governmental activities: General government $ 55,616,102 $ 1,695,152 $ 1,983,060 $ 5,217,111 Public safety 151,975,049 5,117,102 19,664,648 25 Highways and streets 42,219,903 10,159,443 2,073,483 97,316,020 Health,education and welfare 28,001,020 570,312 19,562,429 3,194,290 Culture and recreation 22,121,336 1,794,553 59,213 640,400 Sanitation 38,505,086 15,593,933 1,067,520 1,216,824 Interest on long-term debt 13,885,003 - - - Total governmental activities 352,323,499 34,930,495 44,410,353 107,584,670 Business-type activities: Health,education and welfare 496,017 432,057 123,800 - Total primary government $ 352,819,516 $ 35,362,552 $ 44,534,153 $ 107,584,670 Component unit: Water(note 14) $ 51,575,668 $ 48,406,240 $ - $ 15,226,253 General revenues: Taxes: Property taxes,levied for general purposes 1 Public service company taxes Public utility franchise taxes Fuel taxes 1 Grants and contributions not restricted to specific programs Investment earnings(loss) Other Total general revenues Change in net position Net position,beginning of year Net position,end of year See accompanying notes to the basic financial statements. I 1 -30 - I I I I Net(Expense)Revenue and Changes in Net Position I Primary Government Governmental Business-type Component Activities Activities Total Unit I I $ (46,720,779) $ - $(46,720,779) $ - - (127,193,274) - 67,329,043 - 67,329,043 - I (4,673,989) - (4,673,989) - (19,627,170) (19,627,170)- (20,626,809) (20,626,809) - (13,885,003) - (13,885,003) - I (165,397,981) - (165,397,981) - r - 59,840 59,840 - (165,397,981) 59,840 (165,338,141) - I - - - 12,056,825 I I 200,775,779 - 200,775,779 - 10,766,021 10,766,021 11,087,369 - 11,087,369 - 1 6,352,944 - 6,352,944 - 17,750,132 17,750,132 (81,020) 1,416 (79,604) 231,984 I 2,320,838 342,275 2,663,113 - 248,972,063 343,691 249,315,754 231,984 83,574,082 403,531 83,977,613 12,288,809 I682,085,644 956,914 683,042,558 224,253,605 $ 765,659,726 $ 1,360,445 $767,020,171 $ 236,542,414 1 I I I -31 - I COUNTY OF HAWAII Governmental Funds Balance Sheet June 30,2013 I Other Total Capital Governmental Governmental General Projects Funds Funds Assets Cash and cash equivalents(note 3) $ 9,791,443 $26,619,537 $ 37,950,123 $ 74,361,103 Investments(note 3) 43,304,841 59,679,192 22,728,091 125,712,124 Receivables,net(note 4) 24,361,511 911,667 2,774,122 28,047,300 Due from other governmental funds(note 5) 1,093,757 725,732 241,289 2,060,778 Due from other nongovernmental funds(note 5) - - 1,350 1,350 I Receivables from other governments(note 4) 10,768,812 5,688,423 1,715,371 18,172,606 Inventories 3,492,464 - - 3,492,464 Real estate held for sale - 1,208,129 - 1,208,129 I Other 307,135 - 597,443 904,578 Total assets 193.119.963 i 94,832,480 $ 66,907 789 $251940,432 Liabilities and Fund Balances , Liabilities: Accounts payable $ 2,457,715 $ 9,604,872 $ 2,924,046 $ 14,986,633 Accrued payroll 6,637,658 - 1,015,888 7,653,546 Due to other governmental funds(note 5) 548,747 1,001,980 510,051 2,060,778 , Due to other nongovernmental funds(note 5) 31,304 - - 31,304 Deferred revenue(note 7) 26,936,536 852,988 2,879,294 30,668,818 111 Other 2,559,396 302,450 445,133 3,306,979 Total liabilities 39,171,356 11,762,290 7,774,412 58,708,058 Fund balances: Nonspendable: Inventory 3,492,464 - - 3,492,464 I Restricted for: Debt service(note 10) - - 19,126,622 19,126,622 Highways,streets and abandoned vehicles - 33,504,647 14,838,441 48,343,088 Public access open space 4,192,817 - - 4,192,817 Public safety radio system upgrade - 25,000,000 - 25,000,000 Other 671,088 9,568,558 2,848,612 13,088,258 Committed to: Budget stabilization 5,016,857 - - 5,016,857 Disaster and emergencies 5,076,587 - - 5,076,587 Lower Puna area - 4,176,671 4,176,671 I Rental assistance and subsidy - - 2,037,622 2,037,622 Sanitation - - 12,021,732 12,021,732 Self insurance 1,252,921 - - 1,252,921 Highways,streets and abandoned vehicles - 946,490 2,696,777 3,643,267 Parks and recreational projects - 1,866,699 84,809 1,951,508 Zoning change impact mitigation(fair share) - 2,624,050 - 2,624,050 I Other 719,163 2,645,626 402,091 3,766,880 Assigned to: Subsequent year's budget 21,650,000 - - 21,650,000 Other 3,182,390 6,914,320 - 10,096,710 Unassigned 8,694,320 - - 8,694,320 Total fund balances 53,948,607 83,070,390 58,233,377 195,252,374 111 Total liabilities and fund balances 1.22.11262§.2 $94.832.680 S-411.017-112 $253.960.432 See accompanying notes to the basic financial statements. -32- I I COUNTY OF HAWAII Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position June 30,2013 ' Total fund balances-governmental funds $ 195,252,374 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not fmancial resources and therefore are not reported in the funds. These assets consist of: Land and improvements 163,565,168 Infrastructure assets,net 274,969,315 Buildings and improvements,net 476,759,437 Equipment,net 48,585,309 Easements,net 3,500,794 Construction work in progress 42,477,332 ' Total capital assets 1,009,857,355 Some of the County's revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures and therefore are deferred(unearned)in the funds. (note 7) 27,228,807 Some liabilities are not due and payable in the current period and therefore are not reported in the funds. Those liabilities consist of: ' Bonds and loans payable,net of receivable from improvement district (352,211,857) Interest on long-term debt (6,119 459) Capital leases (3 632 420) Compensated absences (32,165,110) Claims and judgments (12,404,462) ' Landfill costs payable (21,985,000) Other Postemployment Benefit Obligation(OPEB) (38,160,502) Total long-term liabilities (466,678,810) Net position of governmental activities $765,659,726 See accompanying notes to the basic financial statements. I -33 - I COUNTY OF HAWAII Governmental Funds Statement of Revenues,Expenditures,and Changes in Fund Balances I For the Fiscal Year Ended June 30,2013 Other Total I Capital Governmental Governmental General Projects Funds Funds Revenues I Property taxes $201,200,542 $ - $ - $201,200,542 Public service company taxes 10,766,021 - - 10,766,021 Fuel taxes - - 6,352,944 6,352,944 I Public utility franchise taxes - - 11,087,369 11,087,369 Licenses and permits 6,392,990 - 9,598,257 15,991,247 Intergovernmental 50,421,639 11,156,209 18,333,691 79,911,539 I Charges for services 2,782,119 - 14,273,236 17,055,355 Investment earnings(losses) (338,974) (281,305) 2,353 (617,926) Settlement contributions - 12,500,000 - 12,500,000 Other 2,470,808 578,192 1,349,757 4,398,757 Total revenues 273,695,145 23,953,096 60,997,607 358,645,848 Expenditures I Current: General government 33,334,811 - 24,890 33,359,701 Public safety 100,962,048 - 5,922,594 106,884,642 Highways and streets 2,756,175 - 15,167,091 17,923,266 Health,education and welfare 7,293,799 - 16,904,896 24,198,695 I Culture and recreation 15,473,939 - 862,797 16,336,736 Sanitation 870,428 - 29,801,393 30,671,821 Pension and retirement contributions(note 13) 25,737,117 - 4,079,470 29,816,587 I Employees'health insurance 23,909,503 - 2,101,864 26,011,367 Other 2,172,038 - 819,487 2,991,525 Debt service: 111 Principal 413,716 - 25,303,992 25,717,708 Interest 41,116 - 14,303,986 14,345,102 ICapital outlay 9,108,584 39,456,179 - 48,564,763 Total expenditures 222,073,274 39,456,179 115,292,460 376,821,913 Excess(deficiency)of revenues I over(under)expenditures 51,621,871 (15,503,083) (54,294,853) (18,176,065) (Continued) I I I -34- I I COUNTY OF HAWAII Governmental Funds I Statement of Revenues,Expenditures,and Changes in Fund Balances For the Fiscal Year Ended June 30,2013 (Concluded) Other Total Capital Governmental Governmental IGeneral Projects Funds Funds Other Financing Sources(Uses) Sale of assets $ 1,046 $ - $ - $ 1,046 I Increase in capital leases(notes 8 and 10) 1,306,791 1,306,791 State Revolving Fund loans(note 10) - 4,991,351 - 4,991,351 Issuance of bonds(note 10) - 50,480,049 - 50,480,049 IPremium on bonds(note 10) 5,871,519 10,092,820 1,605,461 17,569,800 Refunding bonds(note 10) 39,480,000 - 8,029,843 47,509,843 Payment to refunded bond escrow I agent(note 10) (45,351,519) - - (45,351,519) Retirement of refunded debt(note 10) - (9,635,304) (9,635,304) Transfers in(note 5) - 3,460,483 47,895,968 51,356,451 ITransfers out(note 5) (47,895,968) - (3,460,483) (51,356,451) Total other financing sources(uses) (46,588,131) 69,024,703 44,435,485 66,872,057 I Net change in fund balances 5,033,740 53,521,620 (9,859,368) 48,695,992 Fund balances at beginning of year 48,726,954 29,548,770 68,092,745 146,368,469 Increase in reserve for inventories 187,913 - - 187,913 IFund balances at end of year $ 53,948,607 $ 83,070,390 $58,233,377 $195,252,374 See accompanying notes to the basic financial statements. I I I I I I I I -35 - COUNTY OF HAWAII I Reconciliation of the Change in Fund Balances of Governmental Funds to the Statement of Activities For the Fiscal Year Ended June 30,2013 Net change in fund balances-total governmental funds $ 48,695,992 I 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 51,569,008 Dedicated and contributed property 76,587,171 Depreciation expense and loss on disposals (35,548,168) Excess of capital outlay over depreciation expense 92,608,011 Borrowings provide current financial resources to governmental funds; however, issuing debt increases long-term liabilities in the statement of net position. In the current period,proceeds were received from: General obligation bonds,net of refunding (45,073,574) Premium on bond issuance (17,569,800) Deferred amount on refunding of bonds 682,146 State Revolving Fund loans,net of refunding (4,991,351) Capital leases (1,306,791) Total debt proceeds (68,259,370) 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 position. In the current year,these amounts consist of: Bond principal retirement,net of refunding 12,080,025 State Revolving Fund loan repayments/forgiveness 13,159,694 Capital lease payments 1,477,989 Total long-term debt repayment 26,717,708 Because some revenues will not be collected for several months after the County's fiscal year end,they are not considered "available"revenues and , are"deferred" in the governmental funds. Unearned revenues decreased by this amount this year. (301,574) (Continued) i -36- ' I ICOUNTY OF HAWAII Reconciliation of the Change in Fund Balances of Governmental Funds to the Statement of Activities For the Fiscal Year Ended June 30,2013 I (Concluded) Some items reported in the statement of activities do not involve current financial resources and therefore are not reported as expenditures in Igovernmental funds. These activities are: Increase in inventories $ 187,913 I Increase in Other Postemployment Benefit Obligation(OPEB) (15,820,170) Decrease in compensated absences 415,469 Increase in claims and judgments (1,957,355) I Increase in landfill closure/postclosure care costs (561,000) Amortization of premium from bond issuance 2,207,148 Amortization of deferred amount on refunding of bonds (277,496) I Net increase in accrued interest (81,194) Net additional expenses (15,886,685) I Change in net position of governmental activities $ 83,574,082 See accompanying notes to the basic financial statements. I I I I I I I I -37- I COUNTY OF HAWAII I General Fund Statement of Revenues,Expenditures,and Changes in Fund Balance- I Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2013 I Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) Revenues: Taxes and assessments: Property taxes $ 198,300,000 $ 198,590,000 $201,200,542 $ 2,610,542 I Public service company taxes 9,377,600 9,627,600 10,766,021 1,138,421 Total taxes and assessments 207,677,600 208,217,600 211,966,563 3,748,963 Licenses and permits: I Nonbusiness licenses and permits 2,879,200 2,879,200 3,755,144 875,944 Business licenses 1,522,102 1,522,102 1,090,342 (431,760) Street use 1,510,000 1,510,000 1,547,504 37,504 I Total licenses and permits 5,911,302 5,911,302 6,392,990 481,688 Intergovernmental: I Federal: Programs for the aged 2,013,996 2,013,996 1,372,809 (641,187) Community development block grants - 2,500,000 2,500,000 - HOME program grant - 1,050,279 1,050,279 - Law enforcement 2,285,050 2,633,107 1,484,359 (1,148,748) Other 3,265,838 3,833,328 3,458,118 (375,210) I Total federal 7,564,884 12,030,710 9,865,565 (2,165,145) State: State General Fund-Act 185, SLH 1990 17,298,000 17,298,000 17,298,000 - Emergency medical services 14,358,592 14,358,592 14,358,592 - IOther 5,930,857 7,275,959 6,131,710 (1,144,249) Total State 37,587,449 38,932,551 37,788,302 (1,144,249) Total intergovernmental revenue 45,152,333 50,963,261 47,653,867 (3,309,394) Charges for services: General government 5,372,021 5,372,021 4,842,578 (529,443) Culture and recreation 1,159,400 1,159,400 965,450 (193,950) I Highways and streets 824,000 824,000 694,821 (129,179) Public safety 112,123 112,123 114,788 2,665 Total charges for services 7,467,544 7,467,544 6,617,637 (849,907) I Fines and forfeitures 1,388,600 1,388,600 1,425,268 36,668 Rents 186,080 186,080 167,031 (19,049) (Continued) I -38 - I I ICOUNTY OF HAWAII General Fund II Statement of Revenues,Expenditures,and Changes in Fund Balance- Budget and Actual(Budgetary Basis) I For the Fiscal Year Ended June 30,2013 Actual Variance Original Final (Budgetary Positive I Budget Budget Basis) (Negative) Revenues(continued): Interest and penalties $ 100,000 $ 100,000 $ 352,948 $ 252,948 IMiscellaneous 5,132,589 5,207,589 5,108,145 (99,444) Total revenues 273,016,048 279,441,976 279,684,449 242,473 IExpenditures: Current: General government: 111 Finance 9,833,353 9,904,648 8,884,850 1,019,798 General government building 4,948,692 4,821,192 4,446,301 374,891 Legislative 3,100,704 3,131,357 2,995,006 136,351 IAutomotive equipment 5,743,679 5,740,079 4,948,719 791,360 Law 2,532,561 2,532,561 2,229,181 303,380 Research and development 2,951,619 3,071,619 2,774,527 297,092 IPlanning and zoning 2,847,535 2,847,535 2,667,137 180,398 Mayor's office 1,276,657 1,321,764 1,173,120 148,644 Engineering 1,237,009 1,237,009 1,160,370 76,639 I Information technology 1,631,339 1,631,339 1,534,174 97,165 Human resources 1,707,354 1,707,354 1,627,266 80,088 Public works administration 1,215,174 1,218,774 1,162,601 56,173 I Elections 868,879 873,104 837,035 36,069 Legislative auditor 786,484 786,484 599,394 187,090 Total general government 40,681,039 40,824,819 37,039,681 3,785,138 IPublic safety: Police department 53,948,484 54,280,705 50,565,735 3,714,970 I Fire department 37,382,687 37,662,304 35,935,154 1,727,150 Prosecuting attorney 7,830,753 8,169,766 6,579,553 1,590,213 Protective inspection 1,964,771 2,092,271 1,834,010 258,261 I Liquor control 1,469,102 1,721,402 1,557,798 306,550 163,604 Flood control 309,000 309,000 2,450 Civil defense agency 1,231,059 1,354,511 955,193 399,318 I Animal control 1,982,500 1,982,500 1,870,000 112,500 Total public safety 106,118,356 107,572,459 99,603,993 7,968,466 Highways and streets: I Mass transit 3,300,812 3,300,812 3,174,806 126,006 (Continued) I -39- I COUNTY OF HAWAII 1 General Fund Statement of Revenues,Expenditures,and Changes in Fund Balance- I Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2013 I Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) I Expenditures(continued): Current(continued): I Health,education and welfare: Elderly activities $ 3,353,637 $ 3,354,637 $ 3,076,479 $ 278,158 Office of aging 2,323,947 3,225,872 2,435,632 790,240 I Education 58,500 58,500 48,690 9,810 Social programs 1,500,000 1,500,000 1,455,250 44,750 Cemeteries 348,944 323,944 292,016 31,928 Physical examination 133,825 133,825 128,355 5,470 I Total health,education and welfare 7,718,853 8,596,778 7,436,422 1,160,356 Culture and recreation: I Community music 271,886 240,386 198,212 42,174 Organized recreation: Maintenance 7,129,510 7,236,510 6,865,167 371,343 Recreation 2,468,345 2,520,334 2,385,206 135,128 Aquatics 2,260,033 2,236,033 2,107,883 128,150 Hoolulu park complex 902,602 906,602 888,845 17,757 I Administration 1,518,575 1,432,575 1,315,943 116,632 Children's zoo 638,232 640,232 629,640 10,592 Summer/Intersession 502,045 502,045 335,989 166,056 I Culture and arts 230,833 232,333 198,727 33,606 Elderly activities administration 499,285 500,285 433,270 67,015 Total culture and recreation 16,421,346 16,447,335 15,358,882 1,088,453 I Sanitation: Environmental management 1,006,997 1,006,997 872,536 134,461 1 Pension and retirement contributions 27,396,238 27,396,238 25,174,814 2,221,424 Employees'health insurance 27,405,000 27,405,000 23,912,049 3,492,951 I Other postemployment benefits 30,000 30,000 15,833 14,167 Other 4,250,000 3,861,152 2,021,046 1,840,106 Total current 234,328,641 236,441,590 214,610,062 21,831,528 1 (Continued) I I -40- I I ICOUNTY OF HAWAII General Fund Statement of Revenues,Expenditures,and Changes in Fund Balance- Budget and Actual(Budgetary Basis) I For the Fiscal Year Ended June 30,2013 (Concluded) Actual Variance I Original Final (Budgetary Positive Budget Budget Basis) (Negative) I Expenditures(continued): Capital Outlay: Community Development Block grants(HUD) $ $ 2,575,000 $ 2,575,000 $ - HOME Program - 1,050,279 1,050,279 - Other - 400,000 400,000 - ' Total capital outlay - 4,025,279 4,025,279 - Total expenditures 234,328,641 240,466,869 218,635,341 21,831,528 IExcess of revenues over expenditures 38,687,407 38,975,107 61,049,108 22,074,001 Other financing sources(uses): I Transfers out: Housing Fund (838,384) (838,384) (838,384) - Solid Waste Fund (15,736,944) (15,736,944) (15,736,944) - I Golf Course Fund (299,000) (299,000) (299,000) Sewer Connection Loan Fund (100,000) (100,000) (100,000) - Disaster/Emergency Fund (250,000) (250,000) (250,000) - II Public Access,Open Space,and Natural Resources Preservation Fund (3,966,000) (4,256,000) (4,024,011) 231,989 Public Access,Open Space,and Natural I Resources Preservation Maintenance Fund - (250,000) (220,960) 29,040 Budget Stabilization Fund (250,000) (250,000) (250,000) - Debt Service Fund (35,250,229) (35,250,229) (35,250,229) - Total transfers out (56,690,557) (57,230,557) (56,969,528) 261,029 Total other financing uses (56,690,557) (57,230,557) (56,969,528) 261,029 I Excess(deficiency)of revenues and other sources over(under)expenditures and other uses (18,003,150) (18,255,450) 4,079,580 22,335,030 IFund balance at beginning of year 48,726,954 48,726,954 48,726,954 - Fund balance at end of year $ 30,723,804 $ 30,471,504 $ 52,806,534 $22,335,030 See accompanying notes to the basic financial statements. I I -41 - I COUNTY OF HAWAII Proprietary Funds Statement of Net Position June 30,2013 Business-type Activities- Enterprise Funds Kulaimano Ouli Ekahi Elderly Affordable Housing Housing Project Project Total Assets Current assets: Cash and cash equivalents(note 3) $ 550,325 $ 259,682 $ 810,007 Restricted cash and cash equivalents(note 3) 12,334 27,114 39,448 Imprest fund(note 3) 50 100 150 Receivables,net(note 4) 310 4,669 4,979 Internal balances,net(note 5) 29,954 - 29,954 Prepaid expenses 1,501 - 1,501 I Total current assets 594,474 291,565 886,039 Noncurrent assets: Restricted cash and cash equivalents(note 3) - 26,406 26,406 Investments(note 3) 199,430 - 199,430 Capital assets(note 6): Land and site improvements 511,000 515,727 1,026,727 Buildings and equipment 1,241,333 469,635 1,710,968 Less accumulated depreciation (1,115,825) (9,982) (1,125,807) Total capital assets 636,508 975,380 1,611,888 Total noncurrent assets 835,938 1,001,786 1,837,724 1 Total assets 1,430,412 1,293,351 2,723,763 Liabilities ii- Current liabilities: Accounts payable 3,526 - 3,526 Due to developer - 7,729 7,729 Security deposits payable from restricted assets 12,334 25,700 38,034 Deferred revenue(note 7) 1,232 373 1,605 Interest payable 15,791 - 15,791 Notes payable,current portion(note 10) 24,071 16,500 40,571 Total current liabilities 56,954 50,302 107,256 Noncurrent liabilities: Notes payable(note 10) 811,037 445,025 1,256,062 Il Total liabilities 867,991 495,327 1,363,318 Net Position Net investment in capital assets (198,600) 513,855 315,255 Unrestricted 761,021 284,169 1,045,190 Total net position $ 562,421 $ 798,024 $ 1,360,445 See accompanying notes to the basic financial statements. I 1 -42- I I ICOUNTY OF HAWAII Proprietary Funds IStatement of Revenues,Expenses,and Changes in Fund Net Position For the Fiscal Year Ended June 30,2013 I Business-type Activities- Enterprise Funds Kulaimano Ouli Ekahi I Elderly Affordable Housing Housing Project Project Total IOperating revenues: Rental receipts from tenants $ 121,731 $ 303,067 $ 424,798 Rental subsidy from federal government-HUD 123,800 - 123,800 I Laundry receipts 3,454 - 3,454 Other 3,805 3,805 Total operating revenues 248,985 306,872 555,857 I Operating expenses: Utilities 39,957 84,082 124,039 I General and administration 77,049 85,613 162,662 Maintenance and repairs 43,947 66,590 110,537 Depreciation(note 6) 34,422 9,982 44,404 I Total operating expenses 195,375 246,267 441,642 Operating income 53,610 60,605 114,215 Nonoperating revenues(expenses): I Investment income 1,408 - 8 1,416 Interest expense (54,375) (54,375) Other income - 342,275 342,275 ITotal nonoperating revenues(expenses) (52,967) 342,283 289,316 Change in net position 643 402,888 403,531 Net position,beginning of year 561,778 395,136 956,914 INet position,end of year $ 562,421 $ 798,024 $ 1,360,445 ISee accompanying notes to the basic financial statements. I I I I I -43 - 1 COUNTY OF HAWAII i Proprietary Funds Statement of Cash Flows For the Fiscal Year Ended June 30,2013 Business-type Activities- Enterprise Funds Kulaimano Ouli Ekahi Elderly Affordable Housing Housing III Project Project Total Cash Flows from Operating Activities Receipts from tenants $ 125,842 $ 305,761 $ 431,603 Receipts from federal government-HUD 123,800 - 123,800 Payments to suppliers for goods and services (160,738) (237,901) (398,639) Net cash provided by operating activities 88,904 67,860 156,764 Cash Flows from Capital and Related Financing Activities Principal paid on notes payable (20,182) (16,905) (37,087) Issuance of bonds 831,124 - 831,124 Retirement of refunded debt (831,124) - (831,124) Interest paid on notes payable (34,600) - (34,600) Purchase of capital assets (7,653) (3,055) (10,708) Other payments (31,304) - (31,304) Net cash used in capital and related financing activities (93,739) (19,960) (113,699) Cash Flows from Investing Activities Purchase of investments (200,000) - (200,000) Proceeds from maturities of investments 400,000 - 400,000 Interest on investments 3,058 8 3,066 Net cash provided by investing activities 203,058 8 203,066 Net increase in cash and cash equivalents 198,223 47,908 246,131 Cash and cash equivalents at beginning of year(including restricted cash and cash equivalents) 364,486 265,394 629,880 Cash and cash equivalents at end of year(including restricted cash and cash equivalents) $ 562,709 $ 313,302 $ 876,011 Reconciliation of Operating Income to Net Cash 1 Provided by Operating Activities Operating income $ 53,610 $ 60,605 $ 114,215 Adjustments to reconcile operating income to net cash 1 provided by operating activities: Depreciation expense 34,422 9,982 44,404 Change in assets and liabilities: Receivables,net 667 (790) (123) Prepaid expenses 120 - 120 Accounts and other payables 309 (316) (7) Deferred revenue (224) (1,621) (1,845) Net cash provided by operating activities $ 88,904 $ 67,860 $ 156,764 Supplemental disclosure of cash flow information-Interest paid $ 34,600 $ - $ 34,600 Noncash investing,capital and financing activities: 1 Net decrease in fair value of investments $ 570 $ - $ 570 Acquisition of housing project in exchange for assumption of debt $ - $ 478,430 $ 478,430 I See accompanying notes to the basic financial statements. -44- I ICOUNTY OF HAWAII Fiduciary Funds IStatement of Fiduciary Net Position June 30,2013 IPrivate- Purpose Agency Trusts Funds IAssets Cash and cash equivalents(note 3) $ 1,741,254 $ 3,094,097 I Investments(note 3) 3,030,761 189,525 Receivables: Due from other agency funds - 2,542 Other receivables 463 72,500 ITotal receivables 463 75,042 Total assets 4,772,478 $ 3,358,664 1 Liabilities Due to other agency funds - 2,542 I Accrued liabilities - 2,699,304 Advances payable 239,724 Assets held for the benefit of improvement districts - 417,094 ITotal liabilities - $ 3,358,664 Net Position I Held in trust for other parties 4,772,478 Total net position $ 4,772,478 ISee accompanying notes to the basic financial statements. I I I I I I I -45 - I COUNTY OF HAWAII I Fiduciary Funds Statement of Changes in Fiduciary Net Position I For the Fiscal Year Ended June 30,2013 Private- I Purpose Trusts Additions Contributions: Puna Geothermal Venture $ 50,000 Investment earnings: Net increase in fair value of investments 29,967 Dividends 55,825 Interest 2,100 Total additions 137,892 Deductions Grant payments 290,734 Total deductions 290,734 Change in net position (152,842) Net position,beginning of year 4,925,320 Net position,end of year $ 4,772,478 See accompanying notes to the basic financial statements. I I I I I I I -46- 1 COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2013 I The accounting policies of the County of Hawai`i(the County) conform to U.S. 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(CAFR). 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Financial Reporting Entity The County has implemented Governmental Accounting Standards Board Statement No. 14, 1 The Financial Reporting Entity(GASB Statement No. 14), Statement No. 39,Determining Whether Certain Organizations Are Component Units(GASB Statement No. 39)and Statement No. 61, The Financial Reporting Entity. Omnibus, an amendment of GASB Statements No. 14 and 34(GASB Statement No. 61). All organizations, activities or functions that meet the criteria in GASB Statement No. 14,No. 39 and No. 61 for inclusion in the reporting entity are included in 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 Hawai`i(the 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, as amended by GASB Statement No. 61, defines component units as legally separate organizations for which the elected officials of the primary government are financially accountable or for which the primary government may determine,through exercise of management's professional judgment,that the inclusion of an organization that does not meet the financial accountability criteria is necessary in order to prevent the reporting entity's financial statements from being misleading. "Financial accountability" is the level of accountability that exists if a primary government appoints a voting majority of an organization's governing board or if the organization is fiscally dependent on the primary government 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) 1 The primary government is legally entitled to or can otherwise access the organization's - 47 - I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2013 I 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. As required by GAAP as set forth in GASB Statement No. 14,No. 39 and No. 61,these basic financial statements present the County of Hawai`i(the primary government)and its component unit,the Department of Water Supply(the Department). 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, 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 I 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 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, Hawai`i 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 position,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 government-wide statement of activities reflects both the gross and net costs per functional category(general government,public safety,highways and streets,etc.)which are otherwise being supported by general government revenues(property taxes,certain intergovernmental revenues, etc.). The statement of activities reduces gross expenses (including depreciation)by related program revenues,operating and capital grants. The program revenues must be directly associated with the function(general government,public safety,highways and streets,etc.)or a business-type activity. The operating grants include operating-specific and discretionary(either operating or capital)grants while the capital -48 - 1 I ICOUNTY OF HAWAII Notes to the Basic Financial Statements IJune 30, 2013 grants column reflects capital-specific grants. The net cost(by function or business-type Iactivity) is normally covered by general revenues. The government-wide focus is more on the sustainability of the County as an entity and the I change in aggregate financial position resulting from the activities of the fiscal period. 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 Icolumn. 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 I 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 I the governmental fund statements are presented on a different measurement focus and basis of accounting than the government-wide statements' governmental activities column, a reconciliation is presented on the page following each statement,which briefly explains the I adjustments necessary to transform the fund based financial statements into the governmental activities column of the government-wide presentation. I 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 party(private parties, state government, etc.)and cannot be used to address activities or I obligations of the government,these funds are not incorporated into the government-wide statements. I Government-wide and fund financial statements—The government-wide financial statements (i.e.,the statement of net position and the statement of changes in net position) report information on all of the nonfiduciary activities of the primary government and its I component unit. 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 I 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. 1 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 1 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 I I - 49 - I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2013 - 1 segment. Taxes and other items not included among program revenues are reported instead as general revenues. I Separate financial statements are provided for governmental funds,proprietary funds, and fiduciary funds,even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund fmancial statements. Activities in funds-The financial transactions of the County are recorded in individual I 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. I GASB Statement No. 34,Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, 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: I 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 fmancial resources to be used for the acquisition or construction of major general government capital facilities and infrastructure(other than those financed by proprietary funds and trust funds)when separate project centers are needed to control costs. The County reports the following major proprietary funds: Kulaimano Elderly Housing Project-Used to account for the operation of a rental I 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 I single-family affordable rental housing project located in Waimea. I - 50 - 1 COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2013 The County reports the following fiduciary funds: Private-Purpose Trust Funds—Used to account for funds received from geothermal developers to mitigate the effects of geothermal energy development. Also used to account for investment income on funds received from import businesses at the port of Hilo and the related expenditures to promote health and safety on the Island of Hawaii. 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. 18 Fund • Improvement District Revolving 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 • Business Improvement District 1-Kailua Basis of Accounting 1 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(one year for intergovernmental revenues)to be used to pay liabilities of the current period. I - 51 - I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2013 I Licenses and permits,charges for current services, fines and forfeitures, penalties and miscellaneous revenues are recorded as revenues when received in cash because they are generally not measurable until actually received. Real property taxes and 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,monies 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 unearned revenue in its fund financial statements(see Note 7). Unearned 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 unearned 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. I The County applies all applicable GASB pronouncements, including the adoption of GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB (Financial Accounting Standards Board) and AICPA (American Institute of Certified Public Accountants)Pronouncements. Encumbrances The general, special revenue, and capital projects funds follow encumbrance accounting under which purchase orders, contracts and other commitments are recorded as an obligation 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 included in the respective fund balance categories as appropriate and do not constitute expenditures or liabilities because the commitments will be honored during the subsequent year. t - 52 - 1 I ICOUNTY OF HAWAII Notes to the Basic Financial Statements IJune 30, 2013 I Cash and Investments ICash 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 ICounty. Investments consist of certificates of deposit, repurchase agreements, and securities with I original maturities exceeding three months. These include participating investment contracts (U.S. government sponsored agency issues and negotiable certificates of deposit) as well as nonparticipating investment contracts(time certificates of deposit and repurchase agreements). Both categories of investments are stated at fair value(see Note 3). Valuations Iof investments in government sponsored enterprises such as Federal National Mortgage Association(Fannie Mae)and Federal Home Loan Mortgage Corporation(Freddie Mac) are based on quoted market rates. Valuations of certificates of deposits are based on cost, which I approximate fair market value, as they almost invariably are held to maturity. Investments also consist of equity securities in the fiduciary fund financial statements. These investments are stated at fair value based on closing quoted prices. IReal Property Taxes I The County's real property taxes are levied on 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. I 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 prior to the application of Iexemptions or preferential assessments. Inventories IInventories 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. I Liquor Control I Section 281 of the Hawai`i 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, 2013 of$671,088 are reflected as a restriction of general fund balance. I I - 53 - I COUNTY OF HAWAII I Notes to the Basic Financial Statements June 30, 2013 I I 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 County as assets with an initial, individual cost of more than $1,000 and an estimated useful life in excess of one year. 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 I materially extend the life of the asset are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. I 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 and enterprise fund are depreciated using the straight-line method over the following estimated useful lives of the assets: Assets Years 1 Infrastructure 20 to 100 years Buildings and improvements 50 to 100 years Ground and site improvements 20 to 50 years Equipment 5 to 40 years Easements Dependent on terms of easement agreement Long-term Obligations The County reports long-term debt of governmental funds at face value on the government- I wide statement of net position. Certain other governmental fund obligations not expected to be financed with current available resources are also reported on the government-wide statement of net position. Long-term debt and other obligations financed by the proprietary funds are reported as liabilities in those funds. Compensated Absences I Employees earn vacation credit at the rate of one and three-quarter working days for each month 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 I - 54 - 1 I ICOUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2013 I an employee can accumulate. Both compensatory time off and vacation credits are converted to pay upon termination of employment. A liability for these amounts is reported in the governmental funds only if they have matured, I for example, as a result of employee resignations and retirements. All vacation and compensatory time off pay is accrued in the government-wide statement of net position along with the estimated liability for social security and Medicare taxes and employers' retirement contributions on those amounts. 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;therefore there is no related I liability. However, a County employee who retires or leaves government service in good standing with 60 days or more of unused sick leave is entitled to additional service credit in the Employees' Retirement System of the State of Hawai`i. Accumulated sick leave at 1 June 30, 2013 totaled $65,452,000 for the primary government. Leases ILeases 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 I capital asset additions at their estimated fair 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. IIRetirement Plan Contributions I The County's contribution to the Employees' Retirement System of the State of Hawai`i includes the normal cost plus the level annual payment required to amortize the unfunded actuarial accrued liability. The County's policy is to fund its required contribution annually I (see Note 13). Operating Revenues and Expenses IRevenues 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 I the proprietary funds are fees charged to residents for rent and rental subsidies received from the federal government. I 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 Inonoperating revenues and expenses. I - 55 - I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30 2013 I 1 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. Fund Balances When both restricted and unrestricted fund balances are available for use, it is the County's policy to use restricted fund balance first,then unrestricted fund balance. Furthermore, committed fund balances are reduced first, followed by assigned amounts, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of those unrestricted fund balance classifications can be used. The County reports the following classifications: Nonspendable Fund Balance—Nonspendable fund balances are amounts that cannot be spent because they are either not in spendable form,or, for legal or contractual reasons, must be kept intact. The County has inventory included in their nonspendable fund balance. Restricted Fund Balance—Constraints placed on the use of these resources are either externally imposed by creditors(such as through debt covenants), grantors,contributors or other governments or are imposed by law(under the Hawaii Revised Statutes or County of Hawaii Charter). Committed Fund Balance—Committed Fund Balances are amounts that can only be used for specific purposes as a result of constraints imposed by the County Council via ordinances and the County Code. The committed fund balance of the General Fund 1 includes the portion of fund balance committed to budget stabilization. The budget stabilization portion is authorized under County Code §2-19 to §2-223 and additions are made via the County budget or subsequent budget amendments. The fund balance may only be used when there is a reduction in budgeted revenue and the director of finance determines that such use is necessary to prevent a reduction in the level of public services. Assigned Fund Balance—Assigned fund balances are amounts that are constrained by the County's intent as determined by the Mayor but are neither restricted nor committed. The County's only assigned fund balances are in the General Fund and Capital Projects Fund and the majority consists of the portion of fund balance that is intended to balance the subsequent year's budget. 1 - 56 - 1 I ICOUNTY OF HAWAII Notes to the Basic Financial Statements IJune 30,2013 I Unassigned Fund Balance—This is the residual classification of the General Fund and Ithe Capital Projects Fund. Net Position IWhen both restricted and unrestricted net position are available for use, it is the County's policy to use restricted net position first, and then unrestricted net position. INew Accounting Pronouncements In November 2010, GASB issued Statement No. 60,Accounting and Financial Reporting for IService Concession Arrangements. The objective of this Statement is to improve financial reporting by addressing issues related to service concession arrangements. The requirements of this Statement were effective for financial statements for periods beginning after December 1 15, 2011 and did not have an impact on the County's financials for the year ending June 30, 2013. I In December 2010, GASB issued Statement No. 61, The Financial Reporting Entity: Omnibus, an amendment of GASB Statements No. 14 and 34 amending the requirements of Statement No. 14, The Financial Reporting Entity,and Statement No. 34,Basic Financial I Statements -and Management's Discussion and Analysis—for State and Local Governments. This Statement improves the financial reporting for governmental entities,which is comprised of the primary government and related entities(component units). The Statement amends the I criteria for inclusion of component units in the financial reporting entity. The provisions of this statement were effective for the County for periods beginning after June 15, 2012 and did not have an impact on the County's financials for the year ending June 30, 2013. IIn December 2010, GASB issued Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB (Financial Accounting I Standards Board) and AICPA (American Institute of Certified Public Accountants) Pronouncements. This Statement will make it easier for preparers of state and local government financial statements to find relevant authoritative guidance from one single source. The provisions for this Statement were effective for the County for periods beginning Iafter December 15, 2011 and did not have an impact on the County's financials for the year ending June 30, 2013. I In June 2011, GASB issued Statement No. 63,Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. This Statement provides financial reporting guidance for deferred outflows of resources, deferred inflows of resources, I and net position. The provisions for this Statement were effective for the County for periods beginning after December 15, 2011. The County implemented this Statement in fiscal year ended June 30, 2013. I I - 57 - I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2013 1 1 In March 2012, GASB issued Statement No. 65,Items Previously Reported as Assets and Liabilities. The objective of this Statement is to clarify the appropriate reporting of deferred outflows and deferred inflows of resources to ensure consistency in financial reporting. The provisions for this Statement are effective for the County for periods beginning after December 15, 2012. The County has not yet determined the effect this Statement will have on its financial statements. In March 2012, GASB issued Statement No. 66, Technical Corrections—2012. The objective of this Statement is to enhance usefulness of financial reports by resolving conflicting accounting and financial reporting guidance that could diminish the consistency of financial reporting. The provisions for this Statement are effective for the County for periods beginning after December 15, 2012. The County has not yet determined the effect this Statement will have on its financial statements. In June 2012, GASB issued Statement No. 68,Accounting and Financial Reporting for I Pensions. The Statement revises and establishes new financial reporting requirements for most governments that provide their employees with pension benefits. The requirements for this Statement are effective for the County for periods beginning after June 15, 2014. The County has not yet determined the effect this Statement will have on its financial statements. In January 2013, GASB issued Statement No. 69,Government Combinations and Disposals of Government Operations. The objective of this Statement is to improve financial reporting by addressing accounting and financial reporting for government combinations and disposals of government operations. The requirements for this Statement are effective for the County for periods beginning after December 15, 2013. The County has not yet determined the effect this Statement will have on its financial statements. In April 2013, GASB issued Statement No. 70,Accounting and Financial Reporting for Nonexchange Financial Guarantees. The requirements of this Statement will enhance comparability of financial statements among governments by requiring consistent reporting by those governments that extend nonexchange financial guarantees and by those governments that receive nonexchange financial guarantees. The requirements for this Statement are effective for the County for periods beginning after June 15,2013. The County has not yet determined the effect this Statement will have on its financial statements. In November 2013,GASB issued Statement No. 71,Pension Transition for Contributions Made Subsequent to the Measurement Date. The objective of this Statement is to improve accounting and financial reporting by addressing an issue in Statement No. 68,Accounting and Financial Reporting for Pensions,concerning transition provisions related to certain pension contributions made to defined benefit pension plans prior to implementation of that Statement by employers and nonemployer contributing entities. The requirements for this Statement are effective for the County for periods beginning after June 15,2014. The County has not yet determined the effect this Statement will have on its financial statements. 1 - 58 - I t COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2013 I 2. STEWARDSHIP,COMPLIANCE AND ACCOUNTABILITY Annual Budget 1 The County follows these procedures in establishing its operating and capital budgets: • On or before March 1,the Mayor submits to the County Council proposed operating and capital projects budgets for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures for the general fund and special revenue funds, and the means of financing them. A project-length budget is submitted to the County Council for the capital projects fund. • The Mayor submits to the County Council amendments to the proposed operating and capital budgets within ten working days after the close of the state legislature,but not later than May 5. • The County Council conducts public hearings on the proposed operating and capital budgets after March 1 but prior to the first reading on the budget bills,which must be after May 5. • On or before June 30,the County Council adopts the budgets. The legal level of budgetary control is the department level because the Mayor can transfer funds from any unencumbered appropriation to another within a department or agency without County Council approval. During the year,the budget may be amended by action of the County 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 2012-2013 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 $6.7 million in the general fund and$2.4 million in the special revenue funds. Legally adopted budgets include the General Fund, Highway Fund, Sewer Fund, Solid Waste Fund, Cemetery Fund, Parking Meter Fund, Vehicle Disposal Fund, Bikeway Fund, Workforce Investment Act Fund, Golf Course Fund, Geothermal Relocation and Community Benefits Fund, Beautification Fund, Hawaii County Housing Agency Fund and Park Dedication Fund. • 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. I - 59 - I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30 2013 I I • 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)for the 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. I 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, 2013: Ending fund balance—GAAP basis $53,948,607 Encumbrance adjustments: Beginning encumbrances and unexpended allotments 3,837,693 Ending encumbrances and unexpended allotments (3,182,390) Other adjustments (1,797,376) Ending fund balance-Non-GAAP budgetary basis $52,806,534 I 3. CASH AND INVESTMENTS The Director of Finance is responsible for the safekeeping of all monies paid to the County. The Director of Finance invests any monies of the County which in the Director's judgment are in excess of the amounts necessary for meeting the day-to-day operating needs of the County. Under Section 46-50 of the Hawaii Revised Statutes, legally authorized investments include obligations of or guaranteed by the U.S. government, obligations of the State, federally insured savings and checking accounts,time certificates of deposit, and repurchase agreements with federally insured financial institutions. 1 I 1 - 60 - 1 I ICOUNTY OF HAWAII Notes to the Basic Financial Statements 1 June 30, 2013 I Cash IThe County maintains a number of checking and savings accounts for various funds and with various financial institutions. Bank deposits are under the custody of the Director of Finance. I For financial statement reporting purposes, cash and short-term investments consist of cash and money market accounts. Cash and short-term investments also include repurchase agreements, certificates of deposit, and government sponsored securities with original Imaturities of three months or less. The carrying amount of the County's deposits(cash,time certificates of deposit, and money I market accounts) as of June 30,2013 was $155,705,150 for the primary government and $4,835,351 for the fiduciary funds. Information relating to bank balance, insurance and collateral of cash deposits is determined II on a county-wide basis. Total bank balances of deposits for the primary government and fiduciary funds amounted to $170,335,603 at June 30, 2013. Of that amount, $170,071,430 represents bank balances covered by federal deposit insurance or by collateral held by the I County's fiscal agents in the name of the County. The remaining bank balances of$264,173 represent deposits held by a management agent and were uncollateralized. Accordingly,these deposits were exposed to custodial credit risk. Custodial credit risk is the risk that in the I event of a bank failure,the County's deposits may not be returned to it. For checking accounts,time certificates of deposit, and repurchase agreements,the County requires, in accordance with State statutes,that the depository banks pledge collateral based on the I available bank balances to limit its exposure to custodial credit risk. All securities pledged as collateral are held by the County's fiscal agents in the name of the County. The County also requires that no more than 60%of the County's total funds available for deposit may be Ideposited in any one financial institution, in accordance with State statutes. Investments IThe County holds investments both for its own benefit and on behalf of some of the fiduciary funds. The County's investments of funds not required for immediate payments are I predominately comprised of government sponsored securities(equivalent to the rating in U.S. Treasuries),repurchase agreements and certificates of deposit,while the fiduciary funds also hold equity securities. I I I I - 61 - I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30 2013 I I The County's investments and maturities at June 30,2013 are as follows: Maturity(in years) Fair Value Less than 1 1 —5 Investments—Primary Government: Certificates of deposit $ 80,508,706 $ 57,613,713 $22,894,993 Government sponsored securities 45,402,848 -- 45,402,848 $ 125,911,554 $ 57,613,713 $68,297,841 I Investments—Fiduciary Funds: Government sponsored securities $ 1,741,343 $ -- $ 1,741,343 Equity securities $ 1,289,418 Investments—Agency Funds: Government sponsored securities $ 189,525 $ -- $ 189,525 Interest Rate Risk: The County minimizes its exposure to interest rate risk by limiting the maturities of investments to five years or less in compliance with state statute. The County's policy is to hold investments until maturity and does not engage in trading for capital gains. Credit Risk: The County's investment portfolio consists of U.S. government or agency obligations,time certificates of deposit and repurchase agreements. These investments are either insured by the FDIC, secured by collateral or carry a credit rating equivalent to U.S. Treasuries. Custodial Risk: Custodial risk is the risk of loss from the failure of the counterparty,which is defined as any entity that obtained an investment on behalf of the County. All of the County's deposits including repurchase agreements are secured by collateral which is kept by a third party custodian. Broker-dealers utilized by the County are members of the Securities Investor Protection Corporation,and all investment securities are held in the County's name. I Concentration of Credit Risk: State law limits deposits to no more than 60% of the total in any one depository. The County seeks to further diversify its portfolio by purchasing from different issuers, by purchasing different types of investments and by purchasing investments at different maturities. The County also purchases its investments from a number of banks and broker-dealers both located locally and on the mainland. As of June 30,2013, I investments were distributed as follows: Central Pacific Bank,38.3%; FTN Financial, 15.8%; Multi Bank Securities, 14.0%; Stifel Nicolaus, 9.7%; First Hawaiian Bank, 6.5%; Raymond James, 4.8%; Bank of Hawaii, 3.9%; Hawaii National Bank,3.5%; Territorial Savings Bank, 3.5%. 1 - 62 - i I ICOUNTY OF HAWAII Notes to the Basic Financial Statements IJune 30, 2013 1 Restricted Cash and Cash Equivalents and Investments I Cash and cash equivalents and investments classified as restricted assets for the primary rY government at June 30, 2013 amounted to $115,921,348. IConstruction related contributions restricted to various capital improvement projects and fuel tax funds received are recorded as restricted assets in the Capital Projects Fund. Such funds Itotaled $75,092,166 at June 30, 2013. Cash and investments in the Bond Redemption Fund and the Interest Fund are restricted to IIIdebt service related payments and amounted to $19,418,552. Cash in the Highway Fund,Bikeway Fund and Beautification Fund are restricted to costs incurred relating to highways and streets and the beautification of such items and amounted to I $16,717,909. The restricted cash in the General Fund was comprised of cash restricted to costs incurred to I administer the liquor commission and cash restricted to the acquisition of lands or property entitlements for public outdoor recreation and education. Such amounts totaled$671,088 and $3,955,779,respectively. ITenant 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 Iamounted to $12,334 and$27,114, respectively, at June 30, 2013. An operating reserve fund was established by the Ouli Ekahi Affordable Housing Project I pursuant to an agreement with the Hawaii Housing Finance and Development Corporation, who are the holders of the project's note. This restricted reserve amounted to $26,406 at June 30, 2013. I I I I I I - 63 - l COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2013 1 I 4. RECEIVABLES Receivables as of June 30, 2013, for the County's individual major funds and other funds in I' the aggregate, including the applicable allowances for uncollectible accounts, are as follows: Governmental activities: Capital Other General Projects Governmental Fund Fund Funds Total Real property taxes $25,213,665 $ -- $ -- $25,213,665 Accounts receivable: Sewer -- -- 2,218,373 2,218,373 Solid waste -- -- 2,280,764 2,280,764 Capital projects -- 911,667 -- 911,667 Intergovernmental 10,768,812 5,688,423 1,715,371 18,172,606 Gross receivables 35,982,477 6,600,090 6,214,508 48,797,075 Less: allowance for uncollectibles (852,154) -- (1,725,015) (2,577,169) 1 Net total receivables $35,130,323 $6,600,090 $4,489,493 $46,219,906 During fiscal year 2005,the County issued$3,887,493 in general obligation bonds on behalf of Improvement District No. 18,an agency fund. On February 12, 2013 bonds were issued to refund the outstanding principal balance of$1,345,945 for the Improvement District. At June 30,2013,the outstanding balance of$1,345,945 is reflected in the government-wide statement of net position as a receivable(see Note 10). Business-type activities: Enterprise Funds Accounts receivable: Rent $4,810 Other 169 Gross receivables 4,979 Less: allowance for uncollectibles -- Net total receivables $ 4,979 1 I - 64 - 1 I ICOUNTY OF HAWAII Notes to the Basic Financial Statements IJune 30, 2013 I 5. INTERFUND RECEIVABLES AND PAYABLES IInterfund receivables and payables consist of the following at June 30, 2013: Receivable Fund Payable Fund Amount I General fund Capital projects fund $ 870,680 Other governmental funds 223,077 1,093,757 ICapital projects fund General fund 456,714 Other governmental funds 269,018 725,732 IOther governmental funds General fund 92,033 Capital projects fund 131,300 1 Other governmental funds 17,956 241,289 Total $2,060,778 IOther governmental funds Enterprise funds $1,350 Enterprise funds General Fund $31,304 IThe 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 Ipayment between funds are made. Transfers for the fiscal year ended June 30, 2013 consisted of the following: I Transfers out: Other General Governmental I Fund Funds Total Transfers in: I Capital Projects Fund $ -- $3,460,483 $ 3,460,483 Other governmental funds 47,895,968 47,895,968 $47,895,968 $3,460,483 $51,356,451 I 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 other governmental funds have made transfers to the capital Iprojects fund for the construction of various projects. I I - 65 - I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2013 I 6. CAPITAL ASSETS Capital asset activity for the year ended June 30,2013 for the County was as follows: I Balance Balance July 1, Retirements/ June 30, 2012 Additions Transfers 2013 Governmental activities: Capital assets not being depreciated: I Land and improvements $ 129,569,750 $ 33,995,418 $ -- $ 163,565,168 1 Easements 3,012,778 414,800 -- 3,427,578 Construction work in progress 31,937,409 38,704,214 (28,164,291) 42,477,332 Total capital assets not being depreciated 164,519,937 73,114,432 (28,164,291) 209,470,078 Capital assets being depreciated: I Buildings and improvements 527,813,137 30,391,984 (1,243,351) 556,961,770 Equipment 120,305,392 6,301,956 (1,522,455) 125,084,893 Easements 439,300 -- -- 439,300 Infrastructure 430,483,939 46,512,098 -- 476,996,037 Total capital assets being depreciated 1,079,041,768 83,206,038 (2,765,806) 1,159,482,000 Less accumulated depreciation for: i Buildings and improvements (72,331,213) (7,939,154) 68,034 (80,202,333) Equipment (70,215,601) (7,632,077) 1,348,094 (76,499,584) Easements (219,650) (146,434) -- (366,084) Infrastructure (183,545,897) (18,480,825) -- (202,026,722) Total accumulated depreciation (326,312,361) (34,198,490) 1,416,128 (359,094,723) Total capital assets I being depreciated, net 752,729,407 49,007,548 (1,349,678) 800,387,277 Governmental activities capital assets,net $917,249,344 $122,121,980 ($29,513,969) $1,009,857,355 - 66 - I I ICOUNTY OF HAWAII Notes to the Basic Financial Statements IJune 30, 2013 1 Balance Balance I July 1, Retirements/ June 30, 2012 Additions Transfers 2013 Business-type activities: ICapital assets not being depreciated: Land $ 753,877 $ -- $ -- $ 753,877 Capital assets being depreciated: Buildings and I improvements 1,136,008 457,179 -- 1,593,187 Ground and site improvements 261,000 11,850 -- 272,850 I Equipment 103,024 20,109 (5,352) 117,781 Total capital assets being depreciated 1,500,032 489,138 (5,352) 1,983,818 I Buildings and improvements (806,278) (32,234) -- (838,512) Ground and site I improvements (193,420) (4,150) -- 5 352 (197,570) Equipment (87,057) (8,020) , (89,725) Total accumulated I depreciation (1,086,755) (44,404) 5,352 (1,125,807) Total capital assets being depreciated, Inet 413,277 444,734 -- 858,011 Business-type I activities capital assets,net $1,167,154 $444,734 $ -- $1,611,888 The County received $12.5 million as a partial settlement from a developer that did not I complete the required infrastructure for their development. The funds are to be used by the County to construct the roadway that was initially required of the developer. As of June 30, 2013, approximately$160,000 was expended and capitalized. I I I - 67 - I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2013 I Depreciation expense was charged to functions/programs of the primary government as follows: I Governmental activities: General government $ 2,974 208 Public safety 2,950,175 Highways and streets 19,888,722 Sanitation 4,851,858 Health, education and welfare 1,817,852 Culture and recreation 1,715,675 Total depreciation expense—governmental activities $34,198,490 Business-type activities: 1 Kulaimano Elderly Housing Project $34,422 Ouli Ekahi Affordable Housing Project 9,982 Total depreciation expense—business-type activities 44,404 I 7. DEFERRED REVENUE: Deferred revenue consists of the following at June 30,2013: Governmental activities: Capital Other Total General Projects Governmental Governmental Fund Fund Funds Funds Real property taxes $24,881,442 $ -- $ -- $ 24,881,442 Liquor control revenue 198,310 -- -- 198,310 Sewer revenue -- -- 1,351,064 1,351,064 Housing revenue -- -- 93,174 93,174 Solid waste revenue -- -- 1,435,056 1,435,056 Intergovernmental 1,856,784 852,988 -- 2,709,772 1 Total presented in fund financial statements 26,936,536 852,988 2,879,294 30,668,818 Less adjustments for accrual of revenues (24,361,511) -- (2,867,296) (27,228,807) Total government- I wide financial statements $ 2,575,025 $ 852,988 $ 11,998 $ 3,440,011 I I - 68 - 1 I ICOUNTY OF HAWAII Notes to the Basic Financial Statements IJune 30, 2013 I Business-type activities: I Enterprise Funds Unearned rental income $1,605 1 8. LEASES The County leases machinery and equipment under noncancellable leases expiring at various dates through February 2018. These capital leases are financed from the resources of various funds. I The estimated value of the leased machinery and equipment at the inception of the capital leases and accumulated depreciation, amounting to $6,697,301 and$1,609,301, respectively, and the related present value of the remaining obligations under the capital leases amounting Ito $3,632,420 at June 30, 2013 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 2029. Expenditures for such operating leases were I $1,847,541 for the fiscal year ended June 30, 2013. The future minimum payments under capital and operating leases at June 30, 2013 are as Ifollows: Capital Operating I Leases Leases Year Ending June 30: 2014 $1,409,426 $1,473,506 2015 1,105,824 1,305,269 1 2016 719,390 1,251,840 2017 405,355 966,758 2018 135,432 899,477 I 2019—2023 -- 1,342,570 2024-2028 135,883 2029-2030 -- 16,422 I Total minimum lease payments 3,775,427 $7,391,725 Less amount representing interest (143,007) IObligations under capital leases $3,632,420 9. SOLID WASTE LANDFILL CLOSURE AND POSTCLOSURE CARE COSTS IHilo 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 Imaintain the sites for thirty years after the facility is closed. Although the closure and I - 69 - I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2013 1 I 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 position. The amount recognized each year is based on the landfill capacity used as of the statement of net position date. At June 30, 2013,the County recognized a liability of $13,711,000, based on the use of 93%of the estimated capacity of the landfill. During the fiscal year ended June 30,2013,there were no expenditures incurred for the closure of the landfill. The remaining$1,019,000 in estimated cost of closure and postclosure care will be recognized as the remaining estimated capacity is used. The estimated remaining useful life of the landfill is approximately two years. These amounts are based on what it would cost to perform the required closure and postclosure care in 2013. Actual costs at that time may be higher due to inflation,changes in technology, or changes in regulations. Landfill capacity estimates are based on volumes going into the landfill subsequent to the last available engineer's calculation. The volumes going into the landfill do not account for I decomposition, settlement, and corrosion;therefore the estimates are revised when new engineering calculations,based on aerial photos and surveys, are available. 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$16,300,000,based on what it would cost to perform the required closure and postclosure care in 2013. Actual costs may be higher due to inflation,changes in technology, or changes in regulations. Through t June 30, 2013, $8,026,000 was spent on closure and postclosure care of the landfill. The remaining estimated liability of$8,274,000 is included in the government-wide statement of net position. During the year ended June 30,2013, $328,000 was spent on closure of the landfill. 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 Hawai`i. The present contract calls for County employees to perform the daily operations of the landfill, and for the private I 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 - 70 - I ICOUNTY OF HAWAII Notes to the Basic Financial Statements IJune 30, 2013 I remediation, closure or postclosure care. Accordingly,no liability for this landfill is included Iin the County's financial statements. Financial Assurance For fiscal year 2013,the County has provided for financial resources I that will be available to provide for closure, postclosure care and remediation or containment of environmental hazards at the above landfills, except Pu'uanahulu. The Environmental Protection Agency's financial assurance rules include a local government financial test I consisting of a financial component, a public notice component, and a recordkeeping component. Local governments 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. I10. LONG-TERM DEBT IGeneral 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 the Iprimary government, component unit activities(see Note 14)and an improvement district. The following is a summary of general obligation bond transactions reported in the governmental activities section of the government-wide statement of net position for the ICounty for the fiscal year ended June 30, 2013: Bonds Issue Bond Balance Bond Balance Due Within Authorized Amount July 1,2012 Issues Retirements June 30,2013 One Year I1993 Ref&PI $86,770,000 $ 5,945,000 $ ($ 5,945,000) $ $ 2003 Series A 36,310,000 27,070,000 -- (25,275,000) 1,795,000 1,795,000 2004 Series A 30,000,000 23,990,000 -- (21,100,000) 2,890,000 1,410,000 I 2004 Ref Series B 19,545,000 8,870,000 (2,055,000) 6,815,000 2,160,000 2004 Ref Series C 5,050,140 1,678,768 (539,604) 1,139,164 558,052 2004 PI Series A 2,776,400 1,952,523 -- (1,952,523) -- -- 2004 PI Series B 920,000 838,003 -- (838,003) -- -- II 2006 Series A 25,000,000 20,797,500 (972,500) 19,825,000 1,022,500 2007 Series A 85,000,000 73,570,000 (3,200,000) 70,370,000 3,360,000 2007 Series B 20,820,000 15,470,000 (1,925,000) 13,545,000 2,000,000 2007 Series C 10,787,388 9,991,704 -- (828,294) 9,163,410 860,904 I 2008 Series A 50,000,000 46,600,000 (1,810,000) 44,790,000 1,885,000 2010 Series A 26,493,750 26,493,750 26,493,750 2010 Series B 18,506,250 18,506,250 18,506,250 2013 Series A 58,509,892 -- 58,509,892 -- 58,509,892 1,660,929 2013 Series B 21,010,000 -- 21,010,000 -- 21,010,000 -_ III 2013 Series C 18,470,000 18,470,000 18,470,000 515,968,820 281,773,498 97,989,892 (66,440,924) 313,322,466 16,712,385 Add unamortized premium 25,152,930 5,579,965 17,569,800 (2,207,148) 20,942,617 1,453,119 I Less deferred amount on refunding (3,510,905) (1,184,914) (682,146) 277,496 (1,589,564) (306,272) $537,610,845 $286,168,549 $114,877,546 ($68,370,576) $332,675,519 $17,859,232 I I - 71 - I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2013 1 1 The 2010 Series B bonds were issued as bonds designated as"Recovery Zone Economic Development Bonds"under the American Recovery and Reinvestment Act of 2009. The County will receive a cash subsidy payment from the United States Treasury equal to 45% of the interest payable on the Series B bonds. General obligation bonds payable reported in the governmental activities section on the 1 government-wide statement of net position at June 30,2013 are comprised of the following individual issues: Public improvement(PI)and/or refunding bonds: 2003 Series A at 2.5%to 5.125%, due through 2013 $ 1,795,000 2004 Series A at 3.25%to 5.25%, due through 2014 2,890,000 2004 Refunding Series B at 3.5%to 5.0%,due through 2015 6,815,000 2004 Refunding Series C at 3.25%to 3.7%, due through 2014 1,139,164 2006 Series A at 4.0%to 5.0%,due through 2026 19,825,000 2007 Series A at 4.0%to 5.0%,due through 2027 70,370,000 2007 Series B at 3.75%to 5.0%,due through 2018 13,545,000 2007 Series C at 4.0%to 5.0%,due through 2021 9,163,410 1 2008 Series A at 4.0%to 6.0%,due through 2028 44,790,000 2010 Series A at 1.7%to 5.0%,due through 2030 26,493,750 2010 Series B at 3.335%to 6.1%, due through 2030 18,506,250 2013 Series A at 2.0%to 5.0%,due through 2033 58,509,892 2013 Series B at 3.0%to 5.0%,due through 2024 21,010,000 2013 Series C at 4.0%to 5.0%,due through 2025 18,470,000 1 Total general obligation bonds payable $313,322,466 Annual debt service requirements to maturity for the above general obligation bonds are as I follows: Governmental Activities Fiscal year ending June 30: Principal Interest 2014 $ 16,712,385 $ 14,551,304 2015 19,396,450 13,558,978 2016 19,640,854 12,676,441 2017 18,052,456 11,811,628 2018 18,937,148 10,918,429 2019—2023 96,093,588 41,713,484 2024—2028 91,965,835 19,591,208 2029—2033 32,523,750 3,443,954 Total $313,322,466 $128,265,426 - 72 - 1 I ICOUNTY OF HAWAII Notes to the Basic Financial Statements IJune 30, 2013 I Refunded Bonds 1 2013 Series A In fiscal year 2013,the County issued a mixture of refunding bonds, $8,029,843 and new bonds, $50,480,049 as the 2013 Series A general obligation bond issue. The refunding bonds have a true interest cost of 1.567% and were issued to current refund the I $8,029,843 of loans from the State Water Pollution Control Revolving Fund(SRF)and general obligation bonds previously issued on behalf of Improvement District No. 18. I The County's total debt service requirements over the next seventeen years will decrease by $1,704,150 as a result of the refunding, and the net economic gain(difference between the present values on the old and new debt)after taking into account all allocable costs of Iissuance of the bonds was $1,516,044. 2013 Series B Also, in fiscal year 2013,the County issued $21,010,000 in refunding bonds as I the 2013 Series B general obligation bond issue. The refunding bonds have a true interest cost of 1.639% and were issued to advance refund$23,550,000 of the total callable bonds outstanding of the 2003 Series A general obligation bond issue. IThe bonds refunded bore interest at rates ranging from 3.000%to 5.000%. The par amount of $21,010,000 plus a premium of$3,216,926,minus $107,916 in underwriting fees, insurance and other issuance costs resulted in net proceeds of$24,119,010. The net proceeds were used I to purchase U.S. government securities, which were deposited in an irrevocable trust administered by an escrow agent and provided full payment on the outstanding 2003 Series A refunded bonds on July 15, 2013. The bonds were considered defeased and are not included Iin the government-wide statement of net position. The County's total debt service requirements over the next eleven years will decrease by I $4,483,238 as a result of the refunding, and the net economic gain(difference between the present values on the old and new debt)after taking into account all allocable costs of issuance of the bonds was $4,063,240. 1 2013 Series C Also, in fiscal year 2013,the County issued $18,470,000 in refunding bonds as the 2013 Series C general obligation bond issue. The refunding bonds have a true interest cost of 1.827% and were issued to advance refund the $19,760,000 of callable bonds 1 outstanding of the 2004 Series A general obligation bond issue. The bonds refunded bore interest at rates ranging from 4.000%to 5.000%. The par amount of I $18,470,000 plus a premium of$2,863,307,minus $100,798 in underwriting fees, insurance and other issuance costs resulted in net proceeds of$21,232,509. The net proceeds were used to purchase U.S. government securities,which were deposited in an irrevocable trust I administered by an escrow agent and will provide full payment on the outstanding 2004 Series A refunded bonds on July 15, 2014. The bonds were considered defeased and are not included in the government-wide statement of net position. I I - 73 - I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2013 1 1 The County's total debt service requirements over the next twelve years will decrease by $3,321,784 as a result of the refunding, and the net present value savings was $2,998,797. As of June 30,2013, bonds and loans outstanding considered defeased amounted to $43,310,000. I Bond Premiums At June 30, 2013, total unamortized bond premiums were$20,942,617,which are being 1 amortized over the remaining life of the respective bond issues. Bonds Authorized and Unissued I The County Council has authorized the issuance of$296.1 million in general obligation bonds to finance specified capital improvement projects. At June 30,2013, $151.1 million was not yet issued. Subsequent Events On July 24, 2013,the County Council authorized the issuance of $1,169,000 in general obligation bonds for the County to finance specified capital improvement projects. On September 19, 2013 these bonds were issued for Improvement District No. 19. The Improvement District 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. General Obligation Bond Anticipation Notes , The following is a summary of general obligation bond anticipation note transactions for the County for the fiscal year ended June 30,2013: 1 Issue Balance Balance Authorized Amount July 1,2012 Issues Retirements June 30,2013 2012 Series B R-4 $ 10,000,000 $ 10,000,000 $ -- $ 10,000,000 $ -- 2012 Series B R-5 15,000,000 15,000,000 -- 15,000,000 -- 2012 Series B R-6 8.000.000 8,000,000 -- 8,000.000 -- $33,000,000 $33,000,000 $ -- $33,000,000 $ -- State Revolving Fund Loans I 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 1 to provide low-interest, long-term loans and other fmancial assistance to the four counties in the state to finance construction of wastewater projects. The County has eight projects approved for funding with these loans. I - 74 - I ICOUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2013 I The schedule below shows the County's SRF transactions for the fiscal year ended June 30, I 2013: Loans Approved Loan Balance Retirements Loan Balance Due Within Authorized Amount July 1,2012 Additions /Forgiveness June 30,2013 One Year I Hilo WWTP $12,724,311 $ 805,882 $ ($ 805,882) $ $ Waiakea Mill 1,300,000 162,007 (80,004) 82,003 82,003 Waiakea Houselots 459,321 29,209 -- (29,209) -- -- ' W House - -- -- Houselots II 5,024,266 2,158,941 (2,158,941) Ainako A&B 2,239,174 337,417 (337,417) Kalanianaole 1,499,944 340,851 -- (340,851) -- -- Kalanianaole RH 1,615,980 1,119,567 -- (1,119,567) -- -_ I Alii Drive A&B 3,210,243 418,345 (418,345) Alii Drive C&D 3,780,000 793,877 (793,877) Alii Drive E&F 2,112,654 563,171 -- (563,171) -- -- Waiaha Bay 3,697,893 819,045 -- (819,045) -- ' Kealakehe 1,300,071 161,712 (79,858) 81,854 81,854 Holualoa Bay 3,080,000 888,566 (888,566) Paukaa CCS 2,143,448 898,384 -- (898,384) -- -- Cesspool I Conversion 8,363,773 6,390,266 (426,092) 5,964,174 428,156 Pahoehoe 2,817,760 1,484,497 (1,484,497) -- HonokaaLCC 4,811,709 2,776,904 670,009 (203,385) 3,243,528 86,151 Queen l Liliuokalani 10,186,277 8,901,985 -- (712,603) 8,189,382 238,239 Kalanianaole 8,621,409 4,321,342 (1,000,000) 3,321,342 78,614 $78,988,233 $29,050,626 $4,991,351 ($13,159,694) $20,882,283 $ 995,017 IThe loans bear interest at 0.50%to 2.50%, exclusive of a 0.25%to 1.0% loan fee, and require payments through fiscal year 2032. IDebt service to maturity for disbursements to date on these projects are as follows: Governmental Activities I Fiscal year ending June 30: Principal Interest 2014 $ 995,017 $ 113,581 2015 1,244,959 146,819 I 2016 1,251,145 137,516 2017 1,257,495 128,034 2018 1,263,750 118,631 I 2019-2023 6,414,280 449,860 2024-2028 5,888,281 209,172 2029-2032 2,567,356 37,831 ITotal $20,882,283 $1,341,444 I I _ 75 _ 1 COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2013 1 1 Other General Long-Term Obligations The following is a summary of other general long-term obligations transactions for the fiscal , year ended June 30,2013: Balance Balance Due Within July 1,2012 Additions* Payments June 30,2013 One Year Governmental activities: Compensated absences $32,580,579 $10,062,763 ($10,478,232) $32,165,110 $7,540,581 , Claims and judgments (see Note 12) 10,447,107 4,450,044 (2,492,689) 12,404,462 2,608,535 Capital leases 111(see Note 8) 3,803,618 1,306,791 (1,477,989) 3,632,420 1,335,930 Landfill costs payable (see Note 9) 21,424,000 888,949 (327,949) 21,985,000 193,821 Other post employment benefit obligation (see Note 13) 22,340,332 29,712,000 (13,891,830) 38,160,502 -- Total $90,595,636 $46,420,547 ($28,668,689) $108,347,494 $11,678,867 1 *Net of new claims liability and existing claims resolved at less than previous estimate. Historically,the County's general fund has been used to liquidate the majority of other long- term liabilities, including the other post employment benefit obligation and the compensated absences since most employees are paid by the general fund. I Fund Balances-Debt Service Funds The fund balance in the debt service funds at June 30,2013 includes $16,732,747,which is 1 reserved for principal payments on general obligation bonds and$2,393,875,which is reserved for the payment of interest on the bonds. Enterprise Fund Notes,Bond and Loan Payable On February 12, 2013,the County issued general obligation bonds on behalf of Kulaimano I Elderly Housing Project(Project)to pay off its two notes payable to the U.S. Department of Agriculture, Farmers Home Administration with principal and interest balances aggregating $835,108. The Project is responsible for the debt service payment related to their portion of , the bonds,which is also secured with the County's general obligation pledge. Because the Project is responsible for only a portion of the total bonds issued, it was decided that the Project would continue to make bond payments equivalent to its previous monthly installment payments of$7,826 on the old notes at 5.547% interest. Under this payment schedule,the Project will make contributions through 2025 of the bonds 2032 maturity date. - 76 - 1 I ICOUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2013 I The following is a summary of the Project's bond payable transactions for the fiscal year 1 ended June 30, 2013: Balance at July 1, 2012 $851,306 Deductions (20,182) IBalance converted to bond payable 831,124 I Add interest payable to bond 3,984 Balance at June 30, 2013 835,108 Less current portion (24,071) Note payable, net of current portion $ 811,037 IThe following is a summary of the annual maturities for the enterprise fund bond payable: Business-type Activities I Fiscal year ending June 30: 2014 Principal Interest $ 24,071 $ 45,095 2015 50,187 42,317 2016 53,043 39,381 2017 56,061 36,278 2018 59,251 32,999 I 2019—2023 350,832 108,885 2024—2026 241,663 13,475 ITotal $835,108 $318,430 On October 29, 2012,the County assumed the loan of its lessee Ouli Ekahi Partnership with I the Hawaii Housing Finance and Development Corporation in the amount of$478,430. The loan is non-interest bearing and matures on February 27, 2041. In exchange,the County assumed ownership of the Ouli Ekahi project which consists of a 33 single family affordable rental housing project. I I I I - 77 - 1 COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2013 ' 1 The following is a summary of enterprise fund loan payable transactions for the fiscal year ended June 30,2013: , Loan assumption $478,430 Deductions (16,905) Balance at June 30,2013 461,525 Less current portion (16,500) Loan payable,net of current portion $ 445,025 The following is a summary of the annual maturities for the enterprise fund loan payable: Business-type Activities Fiscal year ending June 30: Principal 2014 $ 16,500 , 2015 16,500 2016 16,500 2017 16,500 2018 16,500 2019—2023 82,500 2024—2028 82,500 2029—2033 82,500 2034—2038 82,500 2039—2041 49,025 Total $461,525 Special Assessment Bonds , The County has issued general obligation bonds on behalf of Improvement District No. 18 for water improvements(see Note 4). These bonds were then refunded by a portion of the 2013 ' Series A Bonds that were issued. The Improvement District 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 improvement district's share of the refunded bonds matures annually through 2027 and bear interest at the previous rates of 4.375%to 4.75%. Total general obligation bonds payable included in the government-wide statement of net position were$1,345,945 at June 30,2013. , 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. - 78 - ' I ICOUNTY OF HAWAII Notes to the Basic Financial Statements IJune 30, 2013 I The following is a summary of bond transactions for Improvement District No. 18, ICoastview/Wonderview Water Improvements, for the fiscal year ended June 30, 2013: Balance at July 1, 2012 $2,790,526 Deductions (1,444,581) Balance at June 30, 2013 $1,345,945 The following is a summary of the annual maturities for the improvement district general I obligation bonds: Fiscal year ending June 30: Principal Interest I 2014 $ 64,014 $ 69,406 2015 66,993 58,118 2016 70,111 54,929 I 2017 73,373 76,788 51,590 2018 48,096 2019—2023 440,999 182,091 2024—2028 553,667 66,798 Total $1,345,945 $ 531,028 11. COMMITMENTS AND CONTINGENCIES Contractual commitments— Contractual commitments for capital projects, expenses, and I supplies at June 30, 2013, except in the enterprise funds, are reflected in the balance sheets as a part of the respective fund balance categories and are as follows: 1 General fund $ 3,182,390 Capital projects fund 29,304,525 Nonmajor funds 9,520,305 $42,007,220 ' Contractual commitments for the enterprise funds were immaterial. I 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 I the grants. In the opinion of management of the County, disallowed costs, if any,would not be material. I 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 position (see Note 12). Although the outcome of the various claims and lawsuits is not presently determinable, in the opinion of the County's Corporation Counsel, - 79 - 1 COUNTY OF HAWAII I Notes to the Basic Financial Statements June 30 2013 1 the resolution of such matters will not have a material adverse affect on the financial condition of the County. I ADA compliance—The County entered into two stipulated agreements(or Consent Decrees) approved by the federal district court judges to implement provisions of the Americans with Disabilities Act("ADA"). With respect to the first stipulated agreement, filed on October 2, 1997,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 was intended to 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 for this effort is $10.6 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. Pursuant to the April 2005 Stipulation of the Parties and Order of the Court,all curb ramps for 2005 and most curb ramps for 2004 were deferred. In the first phase,construction of curb ramps commenced in , 2000 and ended in 2004,whereby 229 curb ramps were completed. In the second phase, 153 proposed curb ramps were deferred and 161 curb ramps were to be constructed. As of May 21, 2008,there were approximately 204 curb ramps(which included at least 151 of the 161 curb ramps that were required by the amended transition plan) installed in Hilo, Waikoloa and Kona at a total cost of close to $4.8 million. In addition,the Department of Public Works has developed and advertised Procedures for Requesting New Curb Ramps or Modifications to Existing Curb Ramps("Curb Ramp Request")within the County Streets,and the Curb Ramp Request is available on the Department of Public Works web page. On September 20, 2012,the close-out order of the consent decree was filed,thus dismissing the curb ramp case 111 with prejudice, and a copy of"County of Hawaii's Accessibility Design Guidelines and General Policies and Procedures, Curb Ramps within Public Rights-of-Way"(June 2012)was attached as an exhibit to that order. The second stipulated agreement,filed on June 4, 1998,relates to the Department of Parks and Recreation(Parks). The agreement required Parks 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. 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 was 12 years from the date the County Council accepted the self-evaluation. The initial(1997-2000)estimated cost of the facilities repairs was $15.1 million,which would have been spent over the 12-year period. Funding allocated initially for facilities ' - 80 - ' I ICOUNTY OF HAWAII Notes to the Basic Financial Statements IJune 30, 2013 I repairs was $17.5 million,with another$4 million of federal funding anticipated through I community development block grants over the next 2 years. Since 2000, Parks has requested $2 to $3 million a year for the different park facilities' ADA projects. The Department of Public Works has requested an additional $2 million a year for the other County ADA I facilities' project. Because of the substantial hardships predominantly incurred in the funding and cost aspects of the implementation of the Original Transition Plan,the learning curve process, and the timing and scheduling of the different stages of work for each project,the I parties worked on a plan to implement the Transition Plan with the assistance of a federal district court Monitor and an ADA Specialist,to obtain extensions on the initial deadlines for completion that were set in the Original Transition Plan and to establish a Revised Transition Plan to satisfy the requirements of the ADA. The County had spent$42.0 million for the Iconstruction and design fees to complete 50 park facilities(some having multiple ADA work being completed). There are four park facilities where construction has progressed; 29 park facilities that must be completed; and Parks estimated costs for completion is $15.1 million as I of June 30, 2013. On March 23, 2012,the close-out of the consent decree was filed,whereby the Court and parties established a reasonable four year timeline to complete the remaining ADA work by December 31, 2016. In addition,the County's ADA coordinator(Equal I Opportunity Officer)has access to an identifiable account of at least$50,000 to handle requests for reasonable accommodations for County departments; and the procedures for these requests have been finalized and are available on the Human Resources Department's IEqual Opportunity and the ADA web page. 12. RISK MANAGEMENT IThe 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 I County maintains fire and commercial multiple peril insurance on County facilities, flood insurance on selected structures, medical malpractice insurance for emergency medical technicians, aviation liability for helicopter operations, liability coverage on transit buses and privately owned police vehicles, and property damage coverage on County Police fleet Ivehicles. The County maintains Fire and property coverage on several County Housing projects(Kulaimano, Ouli Ekahi, and four model homes at Kamakoa Nui). There was no reduction in insurance coverage during the year from coverage in the prior year. During the I past three fiscal years,the amount of settlements in cases covered by insurance has not exceeded the insurance coverage. The County is substantially self-insured for the majority of its vehicles as well as for all other perils including workers' compensation and general I liability. The liability for claims and judgments is reported on the government-wide statement of net position and the majority will be liquidated from the County's general fund. I 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 Iestimated ultimate cost of settling the claims, and include incremental costs for the hiring of I - 81 - 1 COUNTY OF HAWAII 111 Notes to the Basic Financial Statements June 30 2013 ' 1 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 position. At June 30, 2013,the amount of this liability was$12,404,462. This is the County's best estimate based on available information. Changes in the reported liability since July 1, 2011 are given below. General Workers' Total Liability Compensation Liability Balance at July 1, 2011 $ 1,668,899 $ 9,228,238 $ 10,897,137 Incurred claims (including IBNR)* 598,474 2,551,526 3,150,000 Claim payments (1,302,957) (2,297,073) (3,600,030) Balance at June 30, 2012 $ 964,416 $ 9,482,691 $ 10,447,107 Incurred claims(including IBNR)* 1,625,532 2,824,512 4,450,044 Claim payments (176,129) (2,316,560) (2,492,689) Balance at June 30, 2013 $ 2,413,819 $ 9,990,643 $ 12,404,462 *Net of new claims liability and existing claims resolved at less than previous estimate. , 13. EMPLOYEE BENEFIT PLANS Pension Plan I Plan description All eligible employees of the County are required by Chapter 88 of the Hawaii Revised Statutes(FIRS)to become members of the Employees' Retirement System of the State of Hawai`i(the ERS), a cost-sharing multiple-employer defined benefit pension plan. The ERS provides retirement, survivor, and disability benefits with multiple benefit structures known as the contributory,hybrid, and noncontributory plans. All contributions, benefits, and eligibility requirements are established by Chapter 88,HRS, and can be amended by legislative action. The ERS 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. Employees covered by Social Security on June 30, 1984 were given the option of joining the noncontributory plan or remaining in the contributory plan. All new employees hired after June 30, 1984 and before July 1, 2006,who are covered by Social Security, were generally required to join the noncontributory plan. Qualified employees in the contributory and noncontributory plan were given the option of joining the hybrid plan effective July 1,2006, or remaining in their existing plan. Starting July 1, 2006, all new employees covered by Social Security are required to join the hybrid plan. - 82 - , I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2013 The three plans provide a monthly retirement allowance equal to the benefit multiplier ' percentage(1.25% or 2.00%)multiplied by the average final compensation(AFC)multiplied by years of credited service. The AFC is the average salary earned during the five highest paid years of service, including the payment of salary in lieu of vacation, or three highest paid years of service, excluding the payment of salary in lieu of vacation, if the employee became a member prior to January 1, 1971. The AFC for members hired on or after this date is based on the three highest paid years of service, excluding the payment of salary in lieu of vacation. ' For postretirement increases, every retiree's original retirement allowance is increased by 2.5% on each July 1 following the calendar year of retirement. This cumulative benefit is not compounded and increases each year by 2.5%of the original retirement allowance without a ' ceiling(2.5%of the original retirement allowance the first year, 5.0%the second year, 7.5% the third year, etc.). The following summarizes the three plan provisions relevant to the general employees of the respective plan: Contributory Plan General employees in the contributory plan are required to contribute 7.8%of their salary and are fully vested for benefits upon receiving 5 years of credited service. The County may also make contributions for these members. Under the contributory plan, employees may retire with full benefits at age 55 and 5 years of credited service, or may retire early at any age with at least 25 years of credited service and reduced benefits. The benefit multiplier is 2.0%for employees covered by Social ' Security. Police officers, fire fighters and certain other members that are not covered by Social ' Security contribute 12.2% of their salary and receive a retirement benefit using the benefit multiplier of 2.5% for qualified service, up to a maximum of 80% of AFC. These members may retire at age 55 with 10 years of credited service or at any age with 25 ' years of credited service,provided the last 5 years of credited service is in any of the qualified occupations. ' Hybrid Plan General employees in the hybrid plan are required to contribute 6.0% of their salary and are fully vested for benefits upon receiving 5 years of credited service. The County may also make contributions for these members. Employees may retire with ' full benefits at age 62 and 5 years of credited service or at age 55 and 30 years of credited service, or may retire at age 55 and 20 years of credited service with reduced benefits. The benefit multiplier used to calculate retirement benefits is 2.0%. I - 83 - COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2013 1 Noncontributory Plan General employees in the noncontributory plan are fully vested upon receiving 10 years of credited service. The County is required to make all contributions for these members. Employees may retire with full benefits at age 62 and 10 years of credited service or age 55 and 30 years of credited service or age 55 and 20 years of credited service with reduced benefits. The benefit multiplier used to calculate retirement benefits is 1.25%. The ERS funding policy provides for periodic employer contributions at actuarially determined rates, expressed as a percentage of annual covered payroll, such that the employer contributions, along with employee contributions and an actuarially determined rate of investment return, are adequate to accumulate sufficient assets to pay benefits when due. The funding method used to calculate the total employer contribution required is the entry age normal actuarial cost method. Effective July 1, 2005,employer contribution rates are a fixed percentage of compensation, including the normal cost plus amounts required to pay for the unfunded actuarial accrued liability. Employers contributed 22.00%for police officers and fire fighters, and 15.50%for all other employees. Employer rates are set by statute based on the recommendation of the ERS actuary resulting from an experience study conducted every five years. 1 The required pension contributions by the County for the years ended June 30, 2013,2012, and 2011 were $23,559,710, $21,832,179,and$21,435,798,respectively,which equal the required contributions for each year. Measurement of assets and actuarial valuations are made for the ERS as a whole and are not separately computed for individual participating employers such as the County. , The ERS issues a CAFR that includes financial statements and required supplementary information,which may be obtained by writing to the Employees' Retirement System of the State of Hawai`i, 201 Merchant Street, Suite 1400,Honolulu, Hawai`i 96813. Post-Retirement Benefits In addition to providing pension benefits,the County is required by state statute(FIRS Chapter 87A)to contribute to the Hawaii Employer-Union Health Benefits Trust Fund(the EUTF). The EUTF is an agent, multiple-employer defined benefit plan providing certain 1 healthcare and life insurance benefits to all qualified retirees, active employees,their dependents and their beneficiaries. The EUTF was established on July 1, 2003 to design, provide, and administer medical,prescription drug, dental,vision,chiropractic, dual-coverage medical and prescription drug, and group life benefits. For employees hired prior to July 1, 1996,the County pays the entire monthly healthcare premium for employees retiring with 10 or more years of credited service,and 50%of the monthly premium for employees retiring with fewer than 10 years of credited service. The I - 84 - I 1 ' COUNTY OF HAWAII Notes to the Basic Financial Statements ' June 30, 2013 current(pay-as-you-go)premium costs are paid by the respective funds but the net other ' postemployment benefit obligation is paid by the General Fund. For employees hired after June 30, 1996, and who retire with fewer than 10 years of service, the County makes no contributions. For those retiring with at least 10 years but fewer than 15 years of service,the County pays 50%of the retired employees' monthly Medicare or non- Medicare premium. For employees hired after June 30, 1996, and who retire with at least 15 years but fewer than 25 years of service,the County pays 75% of the retired employees' monthly Medicare or non-Medicare premium. For those retiring with over 25 years of service, the County pays the entire healthcare premium. ' For employees hired after June 30, 2001, and who retire with fewer than 10 years of service, the County makes no contributions. For those retiring with at least 10 years but fewer than 15 years of service,the County pays 50% of the retired employees' monthly Medicare or non- Medicare premium based on the self-plan. For employees hired after June 30, 2001, and who retire with at least 15 years but fewer than 25 years of service,the County pays 75% of the retired employees' monthly Medicare or non-Medicare premium; for those retiring with over 25 years of service,the County pays the entire healthcare premium. For active employees,the employee's contributions are based upon negotiated collective ' bargaining agreements. Employer contributions for employees not covered by collective bargaining agreements and for retirees are prescribed by the HRS. The County's annual other postemployment benefit(OPEB)cost is calculated based on the annual required contribution(ARC)of the employer, which is an amount actuarially determined in accordance with the parameters of Governmental Accounting Standards Board ' Statement No. 45,Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions(GASB Statement No. 45). GASB Statement No. 45 addresses the failure of previous financial reporting practices to measure and recognize the cost of ' OPEB during the periods when employees render the services or to provide relevant information about OPEB obligations and the extent to which progress is being made in funding those obligations. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess)over a period not to exceed thirty(30)years. The current ARC rate is 21.7% of annual covered payroll. I I - 85 - 1 COUNTY OF HAWAII Notes to the Basic Financial Statements June 30 2013 1 1 The following section shows the County's Annual OPEB cost for the year ended June 30, 2013,the amount actually contributed to the plan, and changes in the net OPEB liability: Annual required contribution $29,494,000 Interest on net OPEB obligation 1,564,000 Adjustment to annual required contribution (1,346,000) Annual OPEB Cost 29,712,000 Contributions made 13,891,830 Increase in net OPEB liability 15,820,170 Net OPEB liability-beginning of year 22,340,332 Net OPEB liability-end of year $38,160,502 The above net OPEB liability at the end of the year is included in the Statement of Net Position in the noncurrent other liability amount of$38,160,502. The annual OPEB cost,the percentage of annual OPEB cost contributed to the plan, and the net OPEB (asset) liability for the year ended June 30, 2013 and the preceding two years were as follows: ' Percentage of Annual Net OPEB Fiscal Year OPEB Cost Obligation/ Ended Annual OPEB Cost Contributed (Asset) June 30,2011 $34,913,000 89.1% ($120,768) June 30, 2012 $36,191,000 37.9% $22,340,332 June 30, 2013 $29,712,000 46.8% $38,160,502 I The schedule of funding progress based on the actuarial valuation date of July 1,2011, is as follows: ' Actuarial accrued liability $394,633,000 Actuarial value of plan assets 61,907,000 Unfunded actuarial accrued liability(UAAL) $332,726,000 Funded ratio 16% Covered payroll(active plan members) $130,170,000 UAAL as a percentage of covered payroll 256% I Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples , include assumptions about future employment,mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. 1 - 86 - I COUNTY OF HAWAII Notes to the Basic Financial Statements ' June 30 2013 The schedule of funding progress, presented as required supplementary information following ' the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Projections of benefits for financial reporting purposes are based on the substantive plan(the plan as understood by the employer and plan members) and include the types of benefits ' provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in ' actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the July 1,2011 actuarial valuation,the entry age normal cost actuarial cost method was used. The actuarial assumptions included a 7.0% discount rate, which is based on the County's anticipated funding level, and an annual healthcare cost trend rate of 8.0% initially, reduced by decrements to an ultimate rate of 5.0% after nine years. The assumptions also ' include a 3.5% increase in payroll and a 3.0% inflation rate. The UAAL is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at July 1, 2011 for the UAAL balance varies depending on the date each portion was ' established but is set to not exceed 30 years. The EUTF issues a publicly available financial report that includes financial statements and required supplementary information,which is available on-line at their web-site www.eutf.hawaii.gov or by contacting them at P.O. Box 2121,Honolulu, HI 96805-2121. Deferred Compensation Plan County employees are permitted to participate in a deferred compensation plan of the State of ' Hawai`i, adopted pursuant to Internal Revenue Code(IRC) section 457. The plan permits eligible employees to defer a portion of their salary until future years by contributing to a fund managed by a plan administrator. The deferred compensation amounts are not available to employees until termination, retirement, death, or unforeseeable emergency. All plan assets are held in a trust fund to protect them from claims of general creditors and ' from diversion to any uses other than paying benefits to participants and beneficiaries. The County has no responsibility for loss due to the investment or failure of investment of funds and assets in the plans,but does have the duty of due care that would be required of an ' ordinary prudent investor. Therefore,the deferred compensation plan assets are not reported in the accompanying basic financial statements. ' - 87 - 1 COUNTY OF HAWAII Notes to the Basic Financial Statements June 30 2013 14. COMPONENT UNIT DISCLOSURES Deposits and Investments At June 30, 2013, cash,time certificates of deposit and money market funds of$32,004,491, with bank balances of$32,438,987 were held by the County on behalf of the Department. These balances were fully insured or collateralized with securities held by the County's agent in the County's name. The deposits and investments include cash received by the Department that is restricted as to use and is recorded as a restricted asset. Such funds amounted to $2,574,396 at June 30, 2013. At June 30, 2013,the Department had no investments. 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's 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 30,2013 were as follows: ' Utility plant in service $442,248,055 Less: accumulated depreciation (187,096,040) 255,152,015 Land and rights 4,528,502 Construction work in progress 11,708,146 Net capital assets $271,388,663 1 - 88 - I COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2013 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$40,768,718 at June 30, 2013. General obligation bonds payable issued on behalf of the Department and other long-term debt at June 30, 2013 are comprised of the following: Public improvement bonds: 2004 Series D at 4.5%, due through 2039 $ 232,191 2006 Series A at 4.0%to 5.0%, due through 2026 19,825,000 2008 Series A at 4.125%, due through 2043 140,217 2010 Series A at 3.33%to 6.1%, due through 2030 8,831,250 2010 Series B at 3.33%to 6.1%, due through 2030 6,168,750 Total public improvement bonds 35,197,408 Public improvement refunding bonds: 2004 Series at 2.0%to 5.25%, due through 2015 95,836 2007 Series at 4.0%to 5.0%, due through 2021 4,886,590 Total public improvement refunding bonds 4,982,426 Revolving fund loans: State revolving fund loans, interest up to 1.37%, due through 2030 12,911,310 Total long-term debt 53,091,144 ' Add: Unamortized premium 588,884 Total $53,680,028 1 1 ' - 89 - 1 COUNTY OF HAWAII Notes to the Basic Financial Statements June 30, 2013 1 At June 30,2013, future principal payments for long-term debt are scheduled as follows: Fiscal year ending June 30: 2014 $ 2,556,000 2015 3,287,000 2016 3,348,000 2017 3,456,000 2018 3,576,000 2019—2023 18,474,000 2024—2028 14,872,000 2029—2033 3,367,000 2034—2038 90,000 2039—2043 65,144 Total $53,091,144 Contributions in Aid of Construction The Department recognized$15,226,253 of contributions in aid of construction for the fiscal year ended June 30, 2013. Commitments and Contingent Liabilities Claims and judgments—The Department maintains property, auto liability, and general liability insurance policies. The Department remains self-insured for workers' compensation and other perils. The liability at June 30,2013 for workers' compensation claims of $229,000 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$15,708,000 at I June 30,2013. Post-Retirement Benefits Effective July 1,2007,the Department adopted the provisions of GASB Statement No.45. This statement addresses how state and local governments should account for and report their costs and obligations related to postemployment benefits, healthcare,and other nonpension benefits. The Department's annual required contribution for its postemployment benefit obligation for the year ended June 30,2013 was $1,834,000. The Department made contributions of$1,834,000 during the year ended June 30, 2013 and recorded a postemployment benefit asset of$3,000 at June 30, 2013. 1 - 90 - 1 I ICOUNTY OF HAWAII Required Supplementary Information tJune 30, 2013 I Schedule of Funding Progress for the EUTF I (In thousands) Actuarial I Accrued UAAL as a Actuarial Liability Unfunded Percentage Actuarial Value of (AAL)— AAL Funded Covered of Covered I Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (a) (b) (b-a) (a/b) (c) ((b-a)/c) I July 1, 2007 - $275,828 $275,828 - $127,420 216.5% July 1, 2009 $28,814 $439,225 $410,411 6.6% $133,555 307.3% July 1, 2011 $61,907 $394,633 $332,726 15.7% $130,170 255.6% I I I I I I I I I I - 91 - 1 1 1 1 1 1 This page intentionally left blank. 1 1 I 1 i 1 I 1 1 1 1 - 92 - 1 1 ' 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 sewer 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. 1 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 AND COMMUNITY BENEFITS 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 and to benefit the lower Puna area. 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 FUND ' 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. I I I I I I 1 This page intentionally left blank. I I I 1 1 I I I 1 - 93 - I COUNTY OF HAWAII Nonmajor Governmental Funds Combining Balance Sheet I June 30,2013 1 Special Revenue Funds Solid Parking I Highway Sewer Waste Cemetery Meter Fund Fund Fund Fund Fund Assets Cash and cash equivalents $ 14,771,554 $ 3,961,888 $ 8,228,955 $97,909 $203,787 Investments - - - - - Imprest fund - 400 250 - - Receivables: Due from other governments 119,153 - 1,457,205 - - Due from other governmental funds 44,762 10,764 131,299 - - Due from other nongovernmental funds - 1,350 - - - Trade,net of allowance for doubtful accounts - 1,351,064 1,423,058 - - Other - - 235,626 - - 163,915 1,363,178 3,247,188 - - II Total assets $ 14,935,469 $ 5,325,466 111,476,393 $97,909 $203,787 Liabilities and Fund Balances Liabilities: I Accounts payable $ 1,296,911 $ 247,592 $ 1,219,441 $ - $ - Accrued payroll 415,794 148,796 294,618 - - Due to other governmental funds 301,084 4,984 23,485 - - Deferred revenue - 1,351,064 1,435,056 - - Other 1,903 51,812 3,279 - - Total liabilities 2,015,692 1,804,248 2,975,879 - - . Fund balances: Restricted for: Debt service - - - - - Highways,streets and abandoned vehicles 12,919,777 - - - - Rental assistance and subsidy - - - - - Committed to: Sanitation - 3,521,218 8,500,514 - - Highways,streets and abandoned vehicles - - - - 203,787 Rental assistance and subsidy - - - - - Cemetery - - - 97,909 - Golf course - - - - - Lower Puna area - - - - - Parks and recreational projects - - - - - Total fund balances 12,919,777 3,521,218 8,500,514 97,909 203,787 Total liabilities and fund balances $ 14,935,469 $ 5,325,466 $11,476,393 $97,909 $203,787 1 -94- I I I I Special Revenue Funds I Vehicle Workforce Golf Geothermal Reloc. Beautl- Hawaii County Park Disposal Bikeway Investment Course &Community fication Housing Dedication Fund Fund Act Fund Fund Benefits Fund Fund Agency Fund i $2,525,642 $704,983 $ - $ 339,336 $ 3,955,138 $ 1,241,372 $ 1,741,439 $ 16,376 - - - - - - 3,400,000 68,433 I - - - 2,000 - - 200 - - - 139,013 - - - - - 1,887 _ - - - 52,577 = - 38,993 3,094 221,533 - 98,197 - 1 1,887 - 178,006 3,094 221,533 - 150,774 $2,527,529 $704,983 $ 178,006 $ 344,430 $ 4,176,671 $ 1,241,372 $ 5,292,413 $ 84,809 I $ 25,876 $ 13,903 $ - $ 1,971 $ - $ 13,788 $ 104,564 $ - I 8,663 - - 35,785 - - 112,232 - 178,006 2,492 - - - - - - - 93,174 - 1 - - - - - 96,209 - 34,539 13,903 178,006 40,248 13,788 406,179 - I - _ - _ - - _ - - 691,080 - - - 1,227,584 - - I - - - - - - 2,848,612 -- III 2,492,990 - - - - - _ - - 2,037,622 = - = 304,182 - - - - 4,176,671 - - - - - - - - 84,809 I 2,492,990 691,080 - 304,182 4,176,671 1,227,584 4,886,234 84,809 $2,527,529 $704,983 $ 178,006 $ 344,430 $ 4,176,671 $ 1,241,372 $ 5,292,413 $ 84,809 I (Continued) 1 -95 - I COUNTY OF HAWAII 1 Nonmajor Governmental Funds Combining Balance Sheet I June 30,2013 (Concluded) Debt Service Fund Total Bond Nonmajor Interest Redemption Governmental Fund Fund Funds Assets III Cash and cash equivalents $ 158,894 $ - $ 37,947,273 Investments 2,306,911 16,952,747 22,728,091 Imprest fund - - 2,850 Receivables: Due from other governments - - 1,715 371 Due from other governmental funds - - 241,289 Due from other nongovernmental funds - - 1,350 Trade,net of allowance for doubtful accounts - - 2,774,122 Other - - 597,443 - - 5,329,575 Total assets $2,465,805 $16,952,747 $ 66,007,789 Liabilities and Fund Balances 1 Liabilities: Accounts payable $ - $ - $ 2,924,046 Accrued payroll - - 1,015 888 Due to other governmental funds - - 510,051 Deferred revenue - - 2,879,294 Other 71,930 220,000 445,133 Total liabilities 71,930 220,000 7,774,412 Fund balances: Restricted for: 11 Debt service 2,393,875 16,732,747 19,126,622 Highways,streets and abandoned vehicles - - 14,838,441 Rental assistance and subsidy - - 2,848,612 Committed to: Sanitation - - 12,021,732 Highways,streets and abandoned vehicles - - 2,696,777 Rental assistance and subsidy - - 2,037,622 Cemetery - - 97,909 Golf course - - 304,182 Lower Puna area - - 4,176,671 Parks and recreational projects - - 84,809 Total fund balances 2,393,875 16,732,747 58,233,377 Total liabilities and fund balances $2,465,805 $16,952,747 $ 66,007,789 See accompanying independent auditors'report. -96- 1 I I I 1 r 1 This page intentionally left blank. I I I I I I 1 - 97 - I COUNTY OF HAWAII Nonmajor Governmental Funds Combining Statement of Revenues,Expenditures,and Changes in Fund Balances For the Fiscal Year Ended June 30,2013 1 Special Revenue Funds Solid Parking Highway Sewer Waste Cemetery Meter Fund Fund Fund Fund Fund Revenues Fuel taxes $ 6,352,944 $ - $ - $ - $ - Public utility franchise taxes 11,087,369 - - - - Licenses and permits 7,247,674 - - - - Intergovernmental 574,037 - 1,067,520 - - Charges for services - 6,904,712 6,520,495 - 16,991 Investment earnings(loss) - - - - - Other 393,843 39,189 24,788 6,250 - Total revenues 25,655,867 6,943,901 7,612,803 6,250 16,991 1 Expenditures Current: General Government - - - - - Public safety 5,922,594 - - - - Highways and streets 15,042,939 - - - - Health,education and welfare - - - - - Culture and recreation - - - - - Sanitation - 6,501,040 21,202,184 - - Pension and retirement contributions 1,713,563 604,971 1,132,511 - - Employees'health insurance 946,581 255,873 614,350 - - Other 407,397 132,802 276,216 - - Debt service: Principal - - 1,055,883 - - Interest - - 51,558 - - Total expenditures 24,033,074 7,494,686 24,332,702 - - Excess(deficiency)of revenues over(under)expenditures 1,622,793 (550,785) (16,719,899) 6,250 16,991 Other Financing Sources(Uses) Premium on bonds - - - - - Refunding bonds - _ - - - Refunding bonds issuance costs - - - - - Retirement of refunded debt - - - - - Transfers in - - 15,736,944 - - Transfers out (3,460,483) - - - - Total other fmancing sources(uses) (3,460,483) - 15,736,944 - - Net change in fund balances (1,837,690) (550,785) (982,955) 6,250 16,991 Fund balances at beginning of year 14,757,467 4,072,003 9,483,469 91,659 186,796 Fund balances at end of year $ 12,919,777 $ 3,521,218 $ 8,500,514 $ 97,909 $203,787 II -98 - 1 I I I I Special Revenue Funds Vehicle Workforce Golf Geothermal Reloc. Beauti- Hawaii County Park • Disposal Bikeway Investment Course &Community fication Housing Dedication IFund Fund Act Fund Fund Benefits Fund Fund Agency Fund $ - $ - $ - $ - $ - $ - $ - $ - 2,091,972 84,280 - - - 174,331 - - - 1,611,249 - - - 14,638,166 - _ - 831,038 - - - - - - 4,329 (1,976) - - - 40 761,524 - 124,123 - 2,091,972 84,280 1,611,249 831,078 761,524 174,331 14,766,618 (1,976) 1 - - - - 24,890 - - - II _ 36,403 - - - 87,749 - - - 1,611,249 15,293,647 - - - - 798,251 8,246 56,300 - - I 2,098,169 - - - - - - - 21,104 139,591 467,730 15,199 - - 79,418 - - 190,443 - i - - 3,072 - - - - - - - - - - 8,390 - - - - - 1,501 - 1 2,134,472 36,403 1,611,249 1,020,332 33,136 144,049 15,961,711 - I (42,500) 47,877 - (189,254) 728,388 30,282 (1,195,093) (1,976) - - - - - - - - I -- - - 299,000 - - 838,384 - - 299,000 - - 838,384 - (42,500) 47,877 109,746 728,388 30,282 (356,709) (1,976) 2,535,490 643,203 194,436 3,448,283 1,197,302 5,242,943 86,785 $2,492,990 $ 691,080 $ - $ 304,182 $ 4,176,671 $ 1,227,584 $ 4,886,234 $ 84,809 I (Continued) I - 99- 1 COUNTY OF HAWAII Nonmajor Governmental Funds Combining Statement of Revenues,Expenditures,and Changes in Fund Balances For the Fiscal Year Ended June 30,2013 ' (Concluded) Debt Service Fund Total Bond Nonmajor Interest Redemption Governmental Fund Fund Funds Revenues Fuel taxes $ - $ - $ 6,352,944 Public utility franchise taxes - - 11,087,369 Licenses and permits - - 9,598,257 Intergovernmental 442,719 - 18,333,691 Charges for services - - 14,273,236 Investment earnings(loss) - - 2,353 Other - - 1,349,757 Total revenues 442,719 - 60,997,607 1 Expenditures Current: General Government - - 24,890 Public safety - - 5,922,594 Highways and streets - - 15,167,091 Health,education and welfare - - 16,904,896 Culture and recreation - - 862,797 Sanitation - - 29,801,393 Pension and retirement contributions - - 4,079,470 Employees'health insurance - - 2,101,864 Other - - 819,487 Debt service: Principal - 24,239,719 25,303,992 Interest 14,250,927 - 14,303,986 Total expenditures 14,250,927 24,239,719 115,292,460 Excess(deficiency)of revenues over(under)expenditures (13,808,208) (24,239,719) (54,294,853) Other Financing Sources(Uses) Premium on bonds - 1,650,192 1,650,192 Refunding bonds - 8,029,843 8,029,843 Refunding bonds issuance costs - (44,731) (44,731) Retirement of refunded debt - (9,635,304) (9,635,304) Transfers in 14,063,323 16,958,317 47,895,968 Transfers out - - (3,460,483) i Total other financing sources(uses) 14,063,323 16,958,317 44,435,485 Net change in fund balances 255,115 (7,281,402) (9,859,368) Fund balances at beginning of year 2,138,760 24,014,149 68,092,745 Fund balances at end of year $ 2,393,875 $ 16,732,747 $58,233,377 See accompanying independent auditors'report. - 100- 1 I 1 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 30,2013 Actual Variance Original Final (Budgetary Positive IBudget Budget Basis) (Negative) Revenues: I Taxes: Fuel taxes $ 7,660,000 $7,660,000 $ 6,352,944 $ (1,307,056) Public utility franchise taxes 10,560,000 10,560,000 11,087,369 527,369 I Total taxes 18,220,000 18,220,000 17,440,313 (779,687) Licenses and permits-motor vehicle weight taxes 7,090,000 7,090,000 7,247,674 157,674 Intergovernmental 528,564 578,564 619,884 41,320 I Charges for services 500,000 71,732 500,000 301,371 92,472 (198,629) Other 71,732 20,740 Total revenues 26,410,296 26,460,296 25,701,714 (758,582) IExpenditures: Public safety-traffic engineering 6,624,102 6,659,102 6,240,096 419,006 I' Highways and streets 13,697,698 13,712,698 11,101,066 2,611,632 Highways and streets-mass transit 4,845,250 4,845,250 4,845,250 - Pension and retirement contributions 2,016,000 2,016,000 1,712,503 303,497 1 Employees'health insurance 980,000 980,000 949,483 30,517 Other 1,000,000 1,000,000 (121,137) 1,121,137 Total expenditures 29,163,050 29,213,050 24,727,261 4,485,789 IExcess(deficiency)of revenues over(under) expenditures (2,752,754) (2,752,754) 974,453 3,727,207 I Other financing uses: Transfers out-Capital Projects Fund (3,610,000) (3,610,000) (3,460,483) 149,517 Deficiency of revenues under Iexpenditures and other uses (6,362,754) (6,362,754) (2,486,030) 3,876,724 Fund balance at beginning of year 14,757,467 14,757,467 14,757,467 - IFund balance at end of year $ 8,394,713 $8,394,713 $ 12,271,437 $ 3,876,724 See accompanying independent auditors'report. I I I I - 101 - 1 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 30,2013 Actual Variance Original Final (Budgetary] Positive Budget Budget Basis) (Negative) Revenues: Charges for services-sewer fees $6,966,219 $ 6,966,219 $6,904,712 $ (61,507) Other - - 39,189 39,189 Total revenues 6,966,219 6,966,219 6,943,901 (22,318) I Expenditures: Sanitation 7,107,239 7,107,239 6,618,533 488,706 Pension and retirement contributions 671,471 671,471 603,946 67,525 Employees'health insurance 340,610 340,610 256,735 83,875 Other 1,201,829 1,201,829 34,841 1,166,988 Total expenditures 9,321,149 9,321,149 7,514,055 1,807,094 I Deficiency of revenues under expenditures (2,354,930) (2,354,930) (570,154) 1,784,776 Fund balance at beginning of year 4,072,003 4,072,003 4,072,003 - 1 Fund balance at end of year $ 1,717,073 $ 1,717,073 $ 3,501,849 $ 1,784,776 See accompanying independent auditors'report. I I I I I I I - 102- I ICOUNTY OF HAWAII Solid Waste Fund I Schedule of Revenues,Expenditures,and Changes in Fund Balance- Budget and Actual(Budgetary Basis) IFor the Fiscal Year Ended June 30,2013 Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) I Revenues: Intergovernmental $ 1,049,200 $ 1,049,200 $ 1,014,219 $ (34,981) Charges for services-tipping fees 6,392,400 6,392,400 6,520,495 128,095 I Other - - 24,788 24,788 Total revenues 7,441,600 7,441,600 7,559,502 117,902 I Expenditures: Sanitation 23,130,400 23,092,402 21,797,773 1,294,629 Pension and retirement contributions 1,090,261 1,140,261 1,130,548 9,713 Employees'health insurance 625,000 625,000 614,768 10,232 Other 555,000 542,998 270,208 272,790 Total expenditures 25,400,661 25,400,661 23,813,297 1,587,364 IDeficiency of revenues under expenditures (17,959,061) (17,959,061) (16,253,795) 1,705,266 Other financing sources: ITransfers in-General Fund 15,736,944 15,736,944 15,736,944 - Deficiency of revenues and other sources under expenditures (2,222,117) (2,222,117) (516,851) 1,705,266 IFund balance at beginning of year 9,483,469 9,483,469 9,483,469 Fund balance at end of year $ 7,261,352 $7,261,352 $ 8,966,618 $ 1,705,266 ISee accompanying independent auditors'report I I I I I I - 103 - I COUNTY OF HAWAII 1 Cemetery Fund Schedule of Revenues,Expenditures,and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2013 Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) Revenues-other-sale of cemetery plots $ 10,000 $ 10,000 $ 6,250 $ (3,750) Expenditures-health,education and welfare 10,000 10,000 - 10,000 Excess of revenues over expenditures - - 6,250 6,250 Fund balance at beginning of year 91,659 91,659 91,659 - Fund balance at end of year $ 91,659 $ 91,659 $ 97,909 $ 6,250 See accompanying independent auditors report. I I I I I I I I I - 104- I 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 30,2013 Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) Revenues-Charges for services-highways and streets $ - $ - $ 16,991 $ 16,991 1 Excess of revenues over expenditures - - 16,991 16,991 Fund balance at beginning of year 186,796 186,796 186,796 - Fund balance at end of year $ 186,796 $ 186,796 $ 203,787 $ 16,991 ISee accompanying independent auditors'report. I I 1 I I I I I I I - 105 - I COUNTY OF HAWAII I Vehicle Disposal Fund Schedule of Revenues,Expenditures,and Changes in Fund Balance- II Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2013 Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) Revenues: Licenses and permits-vehicle disposal fee $2,030,364 $ 2,030,364 $ 2,091,972 $ 61,608 Expenditures: Sanitation 2,551,567 2,548,567 1,034,301 1,514,266 1 Pension and retirement contributions 21,805 21,805 20,722 1,083 Employees'health insurance 12,000 15,000 14,954 46 Other 2,000 2,000 - 2,000 Total expenditures 2,587,372 2,587,372 1,069,977 1,517,395 Excess(deficiency)of revenues over(under)expenditures (557,008) (557,008) 1,021,995 1,579,003 Fund balance at beginning of year 2,535,490 2,535,490 2,535,490 - Fund balance at end of year $1,978,482 $ 1,978,482 $ 3,557,485 $ 1,579,003 See accompanying independent auditors'report. I I I r I I I I - 106- 1 I 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 30,2013 Original Actual Variance and Final (Budgetary Positive Budget Basis) (Negative) Revenues-licenses and permits-bicycle tax $ 20,000 $ 84,280 $ 64,280 Expenditures-highways and streets 171,000 25,000 146,000 Excess(deficiency)of revenues over(under) expenditures (151,000) 59,280 210,280 Fund balance at beginning of year 643,203 643,203 - Fund balance at end of year $492,203 $702,483 $210,280 See accompanying independent auditors'report. I I I I I I I I I I - 107 - 1 COUNTY OF HAWAII 1 Workforce Investment Act Fund Schedule of Revenues,Expenditures,and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2013 Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) Revenues-intergovernmental-federal grants $ - $ 1,521,232 $ 1,521,232 $ - Expenditures-health,education and welfare - 1,521,232 1,521,232 - Excess of revenues over expenditures - - - - Fund balance at beginning of year - - - - Fund balance at end of year See accompanying independent auditors'report. I I 1 I I I I I - 108 - 1 I ICOUNTY OF HAWAII Golf Course Fund I Schedule of Revenues,Expenditures,and Changes in Fund Balance- Budget and Actual(Budgetary Basis) IFor the Fiscal Year Ended June 30,2013 Actual Variance I Original Budget Final (Budgetary Positive Budget Basis) (Negative) $ Revenues: Charges for services $ 840,672 $ 840,672 $ 831,038 $ (9,634) Other - - 40 40 ITotal revenues 840,672 840,672 831,078 (9,594) Expenditures: I Culture and recreation 865,653 865,653 789,497 76,156 Pension and retirement contributions 160,709 160,709 139,296 21,413 Employees'health insurance 99,709 99,709 79,517 20,192 II Other 13,601 13,601 3,243 10,358 Total expenditures 1,139,672 1,139,672 1,011,553 128,119 I Deficiency of revenues under expenditures (299,000) (299,000) (180,475) 118,525 Other financing sources: Transfers in-General Fund 299,000 299,000 299,000 - I Excess of revenues and other sources over expenditures - - 118,525 118,525 IFund balance at beginning of year 194,436 194,436 194,436 - Fund balance at end of year $ 194,436 $ 194,436 $ 312,961 $ 118,525 ISee accompanying independent auditors'report. I I I I I I - 109 - I COUNTY OF HAWAII I Geothermal Relocation and Community Benefits Fund Schedule of Revenues,Expenditures,and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2013 Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) Revenues-other-geothermal royalties $ 600,000 $ 600,000 $ 761,524 $ 161,524 Expenditures: General government: Legislative 24,890 24,890 24,890 - I Planning and zoning 351,230 1,051,230 - 1,051,230 Public safety-traffic 80,000 80,000 - 80,000 Highways and streets-mass transit 17,000 17,000 - 17,000 Culture and recreation-parks and recreation 126,880 126,880 13,773 113,107 Total expenditures 600,000 1,300,000 38,663 1,261,337 Excess(deficiency)of revenues over(under)expenditures - (700,000) 722,861 1,422,861 Fund balance at beginning of year 3,448,283 3,448,283 3,448,283 - Fund balance at end of year $ 3,448,283 $2,748,283 $ 4,171,144 $ 1,422,861 See accompanying independent auditors'report. I I I I I I I 1 - 110 - 1 1 ICOUNTY OF HAWAII Beautification Fund I Schedule of Revenues,Expenditures,and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2013 Actual Variance I Original Final (Budgetary Positive Budget Budget Basis) (Negative) I Revenues-licenses and permits-highway beautification $ 157,920 $ 157,920 $ 174,331 $ 16,411 Expenditures: I Highways and streets 96,620 168,620 129,909 38,711 Culture and recreation 61,300 86,300 63,587 22,713 Total expenditures 157,920 254,920 193,496 61,424 Deficiency of revenues under expenditures - (97,000) (19,165) 77,835 Fund balance at beginning of year 1,197,302 1,197,302 1,197,302 -111 Fund balance at end of year $1,197,302 $1,100,302 $1,178,137 $ 77,835 iSee accompanying independent auditors'report. I I I I I I I I I - 111 - I COUNTY OF HAWAII I Hawaii County Housing Agency Schedule of Revenues,Expenditures,and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2013 Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) I Revenues: Intergovernmental- Federal-HUD-Voucher program $ 15,659,252 $ 15,659,252 $ 14,613,640 $ (1,045,612) Other 29,122 29,122 24,526 (4,596) Investment earnings 6,000 6,000 4,329 (1,671) Resale of property - - 124,027 124,027 Other - - 96 96 Total revenues 15,694,374 15,694,374 14,766,618 (927,756) 1 Expenditures: Health,education and welfare 16,209,060 16,209,060 15,310,585 898,475 Pension and retirement contributions 530,834 530,834 469,133 61,701 Employees'health insurance 225,182 225,182 191,646 33,536 Total expenditures 16,965,076 16,965,076 15,971,364 993,712 Deficiency of revenues under expenditures (1,270,702) (1,270,702) (1,204,746) 65,956 Other financing sources: I Transfers in-General Fund 838,384 838,384 838,384 - Deficiency of revenues and other sources under expenditures (432,318) (432,318) (366,362) 65,956 Fund balance at beginning of year 5,242,943 5,242,943 5,242,943 - Fund balance at end of year $ 4,810,625 $ 4,810,625 $ 4,876,581 $ 65,956 See accompanying independent auditors'report. I I I I - 112- 1 I ICOUNTY OF HAWAII Park Dedication Fund I Schedule of Revenues,Expenditures,and Changes in Fund Balance- Budget and Actual(Budgetary Basis) IFor the Fiscal Year Ended June 30,2013 Actual Variance I Original Final (Budgetary Positive Budget Budget Basis) (Negative) I Revenues-investment earnings $ � $ _ $ 18 $ 18 Excess of revenues over expenditures 18 18 I Fund balance at beginning of year 86,785 86,785 86,785 - Fund balance at end of year $ 86,785 $ 86,785 $ 86,803 $ 18 iSee accompanying independent auditors'report. I I I I I I I I I I I - 113 - I COUNTY OF HAWAII 1 Agency Funds Combining Statement of Agency Funds Net Position June 30,2013 Performance 1 State Improvement Improvement and Weight District District Refundable Payroll Flexible Tax No. 18 Revolving Deposits Clearance Spending Fund Fund Fund Fund Fund Account Assets 1 Cash and cash equivalents $1,682,830 $ 183,262 $ 37,894 $ 229,483 $ 341,667 $ 381,933 Investments - - 189,525 - - - I Due from other agency funds - - - - - - Other receivables - 8,269 - - 33,425 - Total assets $1,682,830 $ 191,531 $ 227,419 $ 229,483 $ 375,092 $381,933 I Liabilities Due to other agency funds $ - $ - $ - $ 1,670 $ 872 $ - Accrued liabilities 1,682,830 10,687 - - 374,220 381,933 Advances payable - 11,911 - 227,813 - - Assets held for the benefit of improvement districts - 168,933 227,419 - - - Total liabilities $1,682,830 $ 191,531 $ 227,419 $ 229,483 $ 375,092 $381,933 See accompanying independent auditors'report. I I I I I I I - 114 - 1 I I 1 I Non-Profit Organ and Business Lapsed License Tissue Improvement Warrants Plates Education District Fund Fund Fund 1 -Kailua Total 1 $ 234,640 $ 1,250 $ 954 $ 184 $ 3,094,097 - - - 189,525 2,542 2,542 10,065 - - 20,741 72,500 $ 247,247 $ 1,250 $ 954 $ 20,925 $ 3,358,664 $ - $ - $ - $ - $ 2,542 247,247 1,250 954 183 2,699,304 - - - - 239,724 20,742 417,094 $ 247,247 $ 1,250 $ 954 $ 20,925 $ 3,358,664 I I I I I 1 1 I - 115 - I COUNTY OF HAWAII Agency Funds Combining Statement of Changes in Assets and Liabilities I For the Fiscal Year Ended June 30,2013 Balance Balance I July 1, June 30, 2012 Additions Deductions 2013 State Weight Tax Fund Assets Cash and cash equivalents $1,755,546 $ 23,412,342 $ 23,485,058 $1,682,830 1 Liabilities Vouchers payable $ - $ 23,475,406 $ 23,475,406 $ - Accrued liabilities 1 - 1 - Accrued liabilities-due to State of Hawaii 1,755,545 21,504,223 21,576,938 1,682,830 Total liabilities $1,755,546 $ 44,979,629 $ 45,052,345 $1,682,830 Improvement District No. 18 Fund Assets Cash and cash equivalents $ 17,532 $ 315,224 $ 149,494 $ 183,262 Investments 1,458,449 - 1,458,449 - Other receivables 8,146 343,770 343,647 8,269 Total assets $1,484,127 $ 658,994 $ 1,951,590 $ 191,531 Liabilities Vouchers Payable $ - $ 1,392,773 $ 1,392,773 $ I- Accrued liabilities 10,907 296,251 296,471 10,687 Advances payable 14,183 11,911 14,183 11,911 Assets held for the benefit of improvement districts 1,459,037 279,470 1,569,574 168,933 Total liabilities $1,484,127 $ 1,980,405 $ 3,273,001 $ 191,531 1 Improvement District Revolving Fund Assets Cash and cash equivalents $ 286,569 $ 57 $ 248,732 $ 37,894 Investments - 189,525 - 189,525 Total assets $ 286,569 $ 189,582 $ 248,732 $ 227,419 Liabilities Vouchers payable $ - $ 53,684 $ 53,684 $ - Assets held for the benefit of improvement districts 286,569 157,466 216,616 227,419 Total liabilities $ 286,569 $ 211,150 $ 270,300 $ 227,419 1 I - 116 - 1 I I COUNTY OF HAWAII Agency Funds I Combining Statement of Changes in Assets and Liabilities For the Fiscal Year Ended June 30,2013 IBalance Balance July 1, June 30, I 2012 Additions Deductions 2013 Performance and Refundable Deposits Fund 1 Assets Cash and cash equivalents $ 522,542 $ 326,855 $ 619,914 $ 229,483 I Liabilities Vouchers payable $ $ 615,145 $ 615,145 $ - Due to other agency funds 1,920 1,670 1,920 1,670 I Advances payable 520,622 325,185 617,994 227,813 Total liabilities $ 522,542 $ 942,000 $ 1,235,059 $ 229,483 I Payroll Clearance Fund Assets Cash and cash equivalents $ 323,344 $212,058,388 $212,040,065 $ 341,667 I Due from other non-agency funds - 208,885,478 208,885,478 - Other receivables 41,479 8,054 33,425 Total assets $ 323,344 $420,985,345 $420,933,597 $ 375,092 ILiabilities Vouchers payable $ - $ 104,907,344 $ 104,907,344 $ - I Due to other agency funds 326 872 326 872 374 Accrued liabilities 323,018 382,454,965 382,403,763 374,220 Total liabilities $ 323,344 $487,363,181 $487,311,433 $ 375,092 IFlexible Spending Account Assets 1 Cash and cash equivalents $ 365,481 $ 324,846 $ 308,394 $ 381,933 Liabilities IAccrued liabilities $ 365,481 $ 324,846 $ 308,394 $ 381,933 I I I I - 117 - I COUNTY OF HAWAII Agency Funds Combining Statement of Changes in Assets and Liabilities For the Fiscal Year Ended June 30,2013 Balance Balance I July 1, June 30, 2012 Additions Deductions 2013 Lapsed Warrants Fund Assets Cash and cash equivalents $ 221,496 $ 13,396 $ 252 $ 234,640 1 Due from other agency funds 2,246 2,542 2,246 2,542 Other receivables 11,150 10,065 11,150 10,065 Total assets $ 234,892 $ 26,003 $ 13,648 $ 247,247 I Liabilities Vouchers payable $ - $ 252 $ 252 $ - Accrued liabilities 234,892 27,175 14,820 247,247 Total liabilities $ 234,892 $ 27,427 $ 15,072 $ 247,247 Non-Profit License Plates Fund Assets Cash and cash equivalents $ 1,175 $ 4,750 $ 4,675 $ 1,250 Liabilities Vouchers payable $ - $ 4,650 $ 4,650 $ - Accrued liabilities: Due to non-profit agency 1,175 4,750 4,675 1,250 Total liabilities $ 1,175 $ 9,400 $ 9,325 $ 1,250 Organ and Tissue Education Fund I Assets Cash and cash equivalents $ 923 $ 3,547 $ 3,516 $ 954 Liabilities Vouchers payable $ - $ 3,516 $ 3,516 $ - Accrued liabilities-due to State of Hawaii 923 3,547 3,516 954 Total liabilities $ 923 $ 7,063 $ 7,032 $ 954 $ I I - 118 - 1 I I I COUNTY OF HAWAII Agency Funds ICombining Statement of Changes in Assets and Liabilities For the Fiscal Year Ended June 30,2013 IBalance Balance July 1, June 30, I 2012 Additions Deductions 2013 Business Improvement District 1-Kailua Assets Cash and cash equivalents $ 2,183 $ 754,248 $ 756,247 $ 184 Other receivables-BID 1-Kailua Assessment 14,997 760,006 754,262 20,741 I Other receivables - 470 470 - Total assets $ 17,180 $ 1,514,724 $ 1,510,979 $ 20,925 I Liabilities Vouchers payable $ $ 755,241 $ 755,241 $ - Accrued liabilities-due to KVBID 2,183 121 2,183 121 I Accrued liabilities - 62 - 62 Assets held for the benefit of improvement districts 14,997 897,965 892,220 20,742 ITotal liabilities $ 17,180 $ 1,653,389 $ 1,649,644 $ 20,925 Total-All Agency Funds IAssets Cash and cash equivalents $3,496,791 $237,213,653 $237,616,347 $3,094,097 Investments 1,458,449 189,525 1,45 8,449 189,525 I Due from other agency funds 2,246 2,542 2,246 2,542 Due from other non-agency funds 208,885,478 208,885,478 - Other receivables-BID 1-Kailua Assessment 14,997 760,006 754,262 20,741 IOther receivables 19,296 395,784 363,321 51,759 Total assets $4,991,779 $447,446,988 $449,080,103 $3,358,664 I Liabilities Vouchers payable $ $ 131,208,011 $ 131,208,011 $ - Due to other agency funds 2,246 2,542 2,246 2,542 I Accrued liabilities 934,299 383,103,299 383,023,449 1,014,149 Accrued liabilities-due to non-profit agency 1,175 4,750 4,675 1,250 Accrued liabilities-due to State of Hawaii 1,756,468 21,507,770 21,580,454 1,683,784 I Accrued liabilities-due to KVBID 2,183 53 121 2,183 121 Advances payable 4,805 337,096 632,177 239,724 Assets held for the benefit of improvement districts 1,760,603 1,334,901 2,678,410 417,094 ITotal liabilities $4,991,779 $537,498,490 $ 539,131,605 $3,358,664 1 See accompanying independent auditors'report. I - 119- I COUNTY OF HAWAII Private Purpose Trusts Combining Statement of Private Purpose Trust Net Position June 30,2013 Shippers' Total 1 Geothermal Wharf Private Asset Trust Purpose Assets Fund Fund Trusts Cash and cash equivalents $ 416,700 $ 1,324,554 $ 1,741,254 Investments 1,741,343 1,289,418 3,030,761 Other Receivable - 463 463 Total assets $ 2,158,043 $ 2,614,435 $ 4,772,478 Net Position I Held in trust for other parties $ 2,158,043 $ 2,614,435 $ 4,772,478 Total net position $ 2,158,043 $ 2,614,435 $ 4,772 478 See accompanying independent auditors'report. a I I I a I I I I I - 120- 1 I ICOUNTY OF HAWAII Private Purpose Trusts ICombining Statement of Changes in Private Purpose Trust Net Position For the Fiscal Year Ended June 30,2013 I Shippers' Total Geothermal Wharf Private Asset Trust Purpose IFund Fund Trusts Additions Contributions: IPuna Geothermal Venture $ 50,000 $ - $ 50,000 Investment earnings: Net increase(decrease)in fair value of I investments (50,748) 80,715 29,967 Dividends 55,825 55,825 Interest 459 1,641 2,100 ITotal additions (289) 138,181 137,892 Deductions I Grant payments - 290,734 290,734 Total deductions 290,734 290,734 Change in net position (289) (152,553) (152,842) I Net position,beginning of year 2,158,332 2,766,988 4,925,320 Net position,end of year $ 2,158,043 $ 2,614,435 $ 4,772,478 ISee accompanying independent auditors'report. 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I I I I I 1 I 1 I I I - 122 - 1 1 1 1 1 I STATISTICAL SECTION (UNAUDITED) I Contents Page Financial Trends—These schedules contain trend information to help help the reader understand how the County's financial performance and well-being have changed over time. 123 Revenue Capacity—These schedules contain information to help the reader assess the County's most significant local revenue source,the property tax. 128 Debt Capacity—These schedules present information to help the reader assess the affordability of the County's current levels of outstanding debt and the County's ability to issue additional debt in the future. 134 Demographic and Economic Information—These schedules offer demographic and economic indicators to help the reader understand the environment within which the County's financial acitivities take place. 137 Operating Information—These schedules contain service and infrastructure data to help the reader understand how the information in the County's financial report relates to the services provided and the activities performed by the County. 139 r I I I I I N V 0 'O N vii CT V -- O En N -- N„o0 t-- N ' •- <t V r.-...O O M 1D N Vi 0 Vi O -- t� O i F" O M V 00 \O M 0 M 'V' 0' N ON vD ~ • O, ED• N VD ED 68 6r9 48 69 69 V m N. 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(" °z - 126 - 1 I ITable 4 I COUNTY OF HAWAII Changes in Fund Balances,Governmental Funds (Modified accrual basis of accounting) I Last Ten Fiscal Years (Amounts in thousands) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues: Property tax $121,868 $131,087 $153,207 $181,446 $208,313 $225,858 $215,548 $216,511 $208,231 $201,201 Public service company tax 5,332 6,351 6,812 7,396 8,381 10,229 9,647 9,297 9,897 10,766 Fuel tax 7,552 7,581 7,857 .8,471 7,888 7,662 7,406 7,603 8,293 6,353 I Public utility franchise tax 5,373 6,017 7,329 8,520 9,027 11,118 8,963 9,416 11,065 11,087 Licenses and permits 11,840 14,442 16,544 16,269 15,918 14,972 14,725 15,097 15,790 15,991 Intergovernmental 58,559 73,372 69,637 63,599 72,601 70,869 77,614 93,748 100,867 79,912 Charges for services 14,467 18,149 19,852 21,685 22,154 21,404 18,909 16,416 16,885 17,055 Investment earnings(loss) 1,806 3,104 5,223 10,291 12,144 8,914 2,253 510 406 (618) Settlement contributions 12,500- Other 4,718 4,450 4,380 5,073 7,151 5,690 3,241 7,874 4,201 4,399 Total Revenues 231,515 264,553 290,841 322,750 363,577 376,716 358,306 376,472 375,635 358,646 I Expenditures: Current: General government 23,070 26,183 31,153 37,652 42,991 45,882 40,586 34,251 35,088 33,360 Public safety 69,117 76,404 83,591 93,241 103,617 107,540 108,798 104,917 104,523 106,885 Highways and streets 9,542 9,787 12,608 14,033 19,529 17,159 20,222 17,114 17,338 17,923 I Sanitation 17,602 21,883 26,565 31,817 33,405 35,025 35,675 28,424 29,511 30,672 Health,education and welfare 19,047 19,870 19,050 21,470 24,609 24,596 25,519 26,847 23,749 24,199 Culture and recreation 13,169 13,982 14,731 17,118 18,179 18,853 17,266 16,001 16,763 16,337 Pension and retirement contributions 11,081 14,204 19,937 21,796 24,296 28,870 28,509 27,284 27,773 29,816 I Employees'health insurance 14,256 16,168 16,133 16,941 18,089 19,119 23,573 25,212 25,902 26,011 Other postemployment benefits 13,629 14,950 15,700 17,307 Other 7,128 6,133 6,780 5,108 5,344 6,257 4,773 4,758 4,183 2,991 Debt service: I Principal 12,826 13,150 14,060 16,076 16,548 19,749 20,720 42,233 24,834 25,718 Interest 9,283 9,534 9,914 9,894 13,116 12,790 14,584 14,841 15,032 14,345 Capital outlay 23,474 32,816 30,588 52,285 70,156 89,368 100,653 87,782 71,220 48,565 Total Expenditures 229,595 260,114 285,110 337,431 403,508 440,158 456,578 446,971 395,916 376,822 I Revenues over(under)Expenditures 1,920 4,439 5,731 (14,681) (39,931) (63,442) (98,272) (70,499) (20,281) (18,176) Other Financing Sources(Uses): Sale of assets 1,593 1,486 82 5 3,470 58 10 6 153 1 I Capital leases 1,474 1,369 404 2,403 2,187 1,026 1,948 47 2,521 1,307 State Revolving Fund loans 1,504 25 6,255 1,916 280 6,811 9,257 4,569 4,991 Sale of bonds 1,725 30,000 25,000 85,000 50,000 45,000 50,480 Issuance of bond anticipation notes(BANs) - - - - - - 19,000 - - - Refunding bonds - 24,595 - 31,607 - - - - - 47,510 I Premium on bonds 3,025 972 3,099 185 2,078 17,570 Refunding bonds/BANs issuance costs (129) (218) (19)- Payment to refunded bond escrow agent (25,885) (32,699) (45,352) Retirement of refunded debt - - - - - - - - - (9,635) I Transfers in 39,440 42,119 45,691 59,139 64,929 56,697 61,495 56,099 59,971 51,356 Transfers out (39,440) (42,119) (45,691) (59,139) (64,929) (56,697) (61,495) (56,099) (59,971) (51,356) Total other financing sources 4,792 35,965 26,483 95,452 7,573 51,549 27,750 56,388 7,243 66,872 Net change in fund balances $ 6,712 $ 40,404 $ 32,214 $ 80,771 $(32,358) $(11,893) $(70,522) $(14,111) $(13,038) $ 48,696 Debt service as a percentage of noncapital expenditures 10.8% 10.3% 9.7% 9.0% 9.3% 9.0% 10.4% 15.9% 12.3% 13.9% iUnaudited-see accompanying independent auditors'report. 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V' \O N •-+ kn M V' h O v) -N. c� .r 5 r) O v) N V' N O In w \O M h V' N M Vn 4,,, O kO 00 h V N Vn •--• )n fl.. z V N N M- M -+ N NM- M N N N N 69 69 69 .-•. 49 O p w o q w o w o > o o Z Z N c z c z o c o z a U 1 o 4 c4 i 0 i o'0 a o o b o ° o oo o °"0. o O o 0. o d oa o a a o -d b s: ¢ xU4 ¢ Ux ¢ 04 ¢ xc.) 4 ¢ ox ¢ n: ¢ xU5 ¢ Ux ¢ r 0 b o ° .� f� NN NN NN .+ a 0 U I I - 130 - 1 I I 1 Lel 00 00 .-r 01 l� •-. rt 01 l` d' .--- kr) N mil' 0- N © co 00 01 0\ t` r .-r 00 0\ O v1 00 v'i t` 01 00 rt N 10 0 Lo - O V l� kn 0� — 0 1D M 00 N 00 d� 0 CO 00 00 rt �n al ° 01 01 M M 01 vl 00 7• N 10 l� M co" t` 10 N 00 [� rl l� �'" H 0 01 N 0 01 O N O O N r+ M 01 N N N N cn TS H a M Qw M v'� O v, M O N 'd' N 01 et M O v N cC 69 M ti .--I ■--1 .1" vl N M• .■. vl fn.' .Y z 3 i O 0 ° 0 O O 0 C vt L1 'bD �--- 00 00 .-. ---- M 00 Vl V? 0 00 00 0 0 N 00 •--■ — 0 I � � � � � � � � � 00000001010 ao a � 0 0 aJ I o 0 k0 0 .-■ 00 0 01 00 --- N 00 (f N 0 10 2O ct.i .D M 00 0 D\ O— N 01 N k0 01 0, M M D1 N N N 00 z•O ,� — N 00 0 l� 00 N 10 .-. 01 O 01 .-, 00 c---.. M 00 N — V Ol N — N M — M• Ol co- 'I' 0• 1 1D M vl N N N 'b 0 M 10 N N N N 0\ M �° 0 0 N 00 0 10 �° a) L.., a � .-. 10 00 � V) M •-4 N O 00 N 10 10 ', y M ,--' N N N M ,--, N N ,--, 'O Z 69 00 69 69 00 G ; E N a) 'cC r V i o 0 Q 0000000000 � � v ❑ x cct 3 .� 00 00 .--i •--� M 00 v) V7 0 00 00 0 0 N 00 �-+ .-+ O (0 bq 0; a; 01 0, 0\ 00 01 v'i "C O O O O O 0, O .6 10 'b y = H ROi 69 cd 69 +5 'i. 1 ° ° ° as N M o U .0 0 0 C- a0i N N a �,Y b II 0 0 G C OOi l� ono Obi M 001 CO h N VN D\ O 0 0000 Q\ N N 00 O 00 01 . 00 N 00 M N O v) O N M i� a) O b Ol N 10 M O• N N 0 N M• -� N N Lc, O vi v X 6. p w O N N N 'Cr N 00 d' 0 41 N 0 ..r 10 N 10 N 10 0) ti g 2 O H 00 l� l� 10 O �t --� N 00 l� 10 O vl ,--, 00 Lzn N +� o. III ,7 y (� N N N N N N N N (.z. 0 69 W cd •." al z 6q E,v O E >, g fl, 0 A ... ... C 4-I ,-=', O 'O N� ) C Z 0 g E \° 0 by O C r w N Gs. oo = oN aoi > ° 0) ° aV o 0 aV o 0 4. Z Q fYd y 'U V M ° `� `� ;� .: z 0 0 C i a 00 cn cn at al I ~ R. E I ..., 0 a. O o -0 tO 0 0 y 0. 0 0 ti bq D w ,c O �GdxUSdUxd c� dxU � dUxd U < 1) HHH >, N W b cd N M 0 W ... i 0 cn N O O • H O ›. N N 4.. O z 0 COI I I - 131 - I Table 6 1 COUNTY OF HAWAII I Principal Taxpayers June 30,2013 and 2004 1 Fiscal Year 2013 Fiscal Year 2004 Percentage Percentage 2012 of Total 2003 of Total Assessed Assessed Assessed Assessed Taxpayer Business Valuation Rank Valuation Valuation Rank Valuation Mauna Kea/Hapuna Beach Corps. Developer/Hotel $ 187,032,300 3 0.8% $ - - I Hilton Land Investment 1 LLC Hotel 203,948,300 1 0.9% - - Hualalai Investors LLC Developer/Hotel 197,921,000 2 0.8% - - Orchid 09 LLC Hotel 115,055,200 5 0.5% - - I WB KD Acquisition LLC Developer 73,331,000 7 0.3% - - Mauna Lani Resort Inc. Developer/Hotel 95,267,000 6 0.4% 102,923,900 7 0.7% Hilton Resorts Corp. Timeshare 132,459,000 4 0.6% - - Target Coporation Retailer 65,499,500 8 0.3% - - Kohanaiki Shores LLC Developer 65,342,600 9 0.3% - - Ho Retail Properties Devoloper 58,833,600 10 0.3% - - i BP Bishop Estate Developer - - 428,030,800 1 2.7% Mauna Kea Development Corp Hotels/Dev. - - 238,141,700 2 1.5% I WB Kukio Resorts LLC Developer - - 190,704,200 3 1.2% Global Resort Partners Hotel - - 156,732,600 4 1.0% Liliuokalani Trust Estate Land Trust - - 143,313,700 5 0.9% FHR(ML)Hotel Holdings LLC Hotel - - 128,678,600 6 0.8% 1250 Oceanside Partners Developer - - 78,528,600 8 0.5% Kaupulehu Makai Venture Developer - - 74,396,800 9 0.5% RWH Inc. Hotel - - 54,723,400 10 0.4% $1,194,689,500 5.2% $ 1,596,174,300 10.2% I Note: Gross valuation at January 1,2012: $23,527,568,906 Gross valuation at January 1,2003: $15,605,696,000 Source: County of Hawaii,Department of Finance,Real Property Tax Division Unaudited-see accompanying independent auditors'report. I I - 132 - 1 I I 1 al OA J v cn Q ' 0 0 0 0 0 ,. 0 e' y N N I 0 0 0 0 0 0 — •-+ N M OC� Ha * U co MN 00 M N OO O N 0 Q y — Q\ N N .--. m I O- . . m 01 00 y H M d' co O N Q N 00 y —, N M vi * * 69 C y a O O O O O O O O O O O 'a+ y 0 0 0 0 0 0 0 O, 0p, 00 N I * . 0 0 0 0 0 0 ON ON O 01 o a9 m U U 0 �0 m N N N 00 0 vM' O\ „k c) N CI. N 00 N 00 N �Y 0 .'' 00 00 M V1 N l� Q H• H .0) r N 00 O r3 V * O - N a0 O N M N w. .. t. O O, 0 y FA U .. .- N N N N N 'Q EA w VU y =Q --i 0 N 0 N 00 � 0 M ON 0 00 m N m ""1 w O O M M 00 N O\ .--i yQ ON O H ett C a Q O U* N N N M N N] . ei..., O I N 0 0 0 0 ",i.:•!, 0 0 0 0 0 o U N U o o \ \ \ \ \ \ \ �+ Cu N• a ,.�. N 00 00 00 00 N �O `O N N p c4.., C O\ 0 O1 O rn ON ON O\ O, U O I 6 *. 0 ~ _ w ci N O 00 DD m O 00 00 ON rn .5 Q • g y0 0 N - N 0 N 0 0 N k a) Q I U M .O ' N N 01 l� 00 00 1 0 * V .. l-. N N O O D1 ON d•__ E .- 69 c� G) Q A o ao • M O vl ON N M N M �1' '" �O N 0 cn N ON ,�-� r ,-. VD O ai O N 00 �n N ON N O CT' N O M N '-+ N 00 N 00 M at V' 01 0\ M O N 00 0 x 0. N N 00 N 00 \O N t 00 O ti 4-. OU * a N 00 O N O O� . Oa 0 I •-+ — — N N N N N �--- 4) L' 69 0 v00i �- 0 . 4 U b am 0 ° N • I c)W >", 0 0 0 0 0 - O O O O O O O O O O N N N N N N N N N N O¢ U C * r7 I 1 - 133 - 1 00 0 c z° oo � — av'di8 'C8 0 .. N v M .at. O 00 O O ON Q F .� ,-.: .� ..r N N N N z O C U 64 0 C O db�^a . 0 0 0 0 0 0_ 0 0 0 U `. O '•" N n D` a I N 0 Q g v) vi v1 �O vi ■O �O vi vi Q V t °' g z H a o S N O N Q N V7 M N N 0'0 Q 0. U 6," 1 y_ 1 0 o 0 .. 0 0 e o 0 '�`O�l 00 lO N <P 00 00 (� O1 ON J. p b 00 N b N v) ON 0. C+ �? 2 V' Ti CF Vl V1 v'1 V1 vi V a °' g z A. O a 0 F I5 OD p Ol Cr 0 N .n N - - O Cam•' 3 'fl v O N Vl O N aO+ rj p vl M qO I� v1 vl N M o0 M 0 p> a orn - vai � .- 0 00000O b ea Crl N M v) v1 00 - 000 N 0 p' 0 '� p 0 0 .N. 0 N •. O N M cd N N M m v 'D M N 00 I.V 0 0 "� N N V. 00 M V O M .. C >, p�-) e" •^0 O N 4p ,,e; ON ONO O� .N. 04 I .0 FFFVyyyl 0. . 0 CO vl V 00 45 vi M N O d Q M M M M M `T v v A 0 -2 yO O y. O 0 O k• t^d O In O O M 0 00 `0 0 y }� .ar N ' O N NO O V N v) O 00 E E� O 0 a 0 an 00 0 v N en D +• .. 0 'C a\ b O O et .� _ O fV ti v O N r' 0 N - Oi rn 0 W n.a •� E� .O. N O Ol N M V' M e� U O v� p. 7 N N M N M M M M M U I LE w 1 N 1/'1 ,O N of N NO M .0 an co 00 vl co M O M N E-• N 0 N 7 N M 00 0o N M �O 'S 'A y vi o." vi o gyp" a '0 y • T 0 0 0 ON ON ON ON 000 000 N y CC1 ropy c vl 00 v-, v) N 1Pl 0 N 00 0 p 'O e3 ' 0 0, vl N vN) 000 N 0 'O 67 'tom? 0 rea�Jp2i N N eh vl ,O N N N M N eO e0 ejyyp" vll b 000 00 b - v 0 000 0 d 'b A t+' U en' en' M N 7 M. f+1 a n- M a I/ A en C In N a b S • bD p n O NV vl - N N N N OMO p . OD CO M 0 M N N N N CO N gi Q 2 3 eomtov NOsv, 0c�i I Table 9 ICOUNTY OF HAWAII IRatios of General Bonded Debt Outstanding Last Ten Fiscal Years I Debt Percent of I Applicable to Net Taxable Legal Debt Property Per Year Margin(a) Value(b) Capita(c) I2004 $ 176,693,195 1.4% $ 1,082 2005 195,198,142 1.3% 1,167 I 2006 205,219,940 1.2% 1,199 2007 281,836,503 1.2% 1,633 2008 265,431,280 1.0% 1,510 I2009 296,535,925 1.0% 1,667 2010 277,481,633 1.0% 1,549 I 2011 305,615,691 317,699,844 1.2% 1,636 2012 1.3% 1,679 2013 315,676,941 1.3% N/A I NOTES: I (a) See Table 10 for debt applicable to legal debt margin. (b) See Table 5 for net taxable property values. (c) See Table 11 for population data. IDetails regarding the County's outstanding debt can be found in the Inotes to the basic financial statements. Unaudited-see accompanying independent auditors'report. I I I I I - 135 - r _ 1 a' -" v o vii VD eh cri en N •--■ ,--. M N N - ,_„ O M M Cl. 00 O h VI M N N N M M Erg 69 69 69 69 ›. i VD O \p O N D\ O� N \0 II VD VD 0 g i r 6. O N N C OM z �y.0 N N N O\ VS Cn O - "" -„b I 69 69 , .O .YG 0.9 Z A A a In VD Os 01 000 v1 M ca' O N N N N y ,0 N "cr., N 7 >1 VS 0 0 o y � r0 CI CD r. •�0?•, N 0 N 60 Q .d rn Q L CO h ,E6 49 69 3 a,C " 0 eh f0+1 o U t. p o 6 LE. .5 F al N N .N-i 00 tw i 1 F = 69 69 .4 ¢ V1 O 00 0 ti V `� co N OO O y N e 0 b a N ' N N OM N N +g 69 69 .D O .b •''i- r `Cr 00 ON PO V'1 O .-■ 00 \ OO"1 ..r7 O 000 0, 0000 W 0 N — O\ OA p, N 'b .fl 4 r 69 69 g V v 0 S o'a' O M en o y > 7 N C NrN cel Qi g y s V C 69 U d g c • ' g • , o a) E 0 a S o 8 8 r a § b l I o - 136 - 1 I 1 Table 11 COUNTY OF HAWAII I Demographic and Economic Statistics I Last Ten Fiscal Years I Fiscal *Personal *Per I Year *Resident Income Capita Ended Population (thousands Personal School Unemployment June 30, as of July 1 of dollars) Income Enrollment Rate I2003 158,442 $ 3,869,362 $ 24,421 29,635 4.6% 2004 162,852 $ 4,223,829 $ 25,937 29,827 3.9% I2005 168,237 $ 4,638,838 $ 27,573 30,262 3.3% 2006 173,536 $ 5,064,624 $ 29,185 30,539 3.0% 2007 177,733 $ 5,509,169 $ 30,997 30,618 3.4% 2008 181,506 $ 5,899,236 $ 32,502 30,408 5.7% 2009 183,629 $ 5,517,497 $ 30,047 30,138 9.9% I 2010 185,381 $ 5,717,885 $ 30,844 29,741 10.0% 2011 187,229 $ 6,114,237 $ 32,656 30,103 9.7% 2012 189,191 $ 6,318,657 $ 33,398 30,314 8.3% I * Amounts reflect subsequent adjustments ISource: County of Hawaii, Department of Research and Development IUnaudited-see accompanying independent auditors'report. I I I I I I - 137 - 1 Table 12 COUNTY OF HAWAI'I I Principal Employers,County of Hawaii June 30,2013 and 2004 2011 (a) 2004 I Percentage Percentage of Total County of Total County I Employer Employees Rank Employment Employees Rank Employment State of Hawaii 7,962 1 10.1% 7,608 1 10.0% I County of Hawaii 2,630 2 3.3% 2,291 2 3.0% United States Government 1,429 3 1.8% 1,221 3 1.6% Hilton Waikoloa Village 935 4 1.2% 1,100 4 1.4% I KTA Super Stores 750 5 0.9% 785 5 1.0% Walmart 741 6 0.9% - - Four Seasons Resort Hualalai 650 7 0.8% 557 8 0.7% 1 The Fairmont Orchid,Hawaii 616 8 0.8% 600 6 0.8% Mauna Kea Beach Hotel 513 9 0.6% 556 9 0.7% Mauna Lani Resort(Operations)Inc. 450 10 0.6% - Mauna Lani Bay Hotel - - 580 7 0.8% Hapuna Beach Prince Hotel - - 542 10 0.7% Total 16,676 21.0% 15,840 20.7% I Total employee count 78,950 76,200 NOTES: I (a)Data for Fiscal Year 2012 and Fiscal Year 2013 are unavailable. Source: County of Hawaii,Department of Research and Development I Unaudited-see accompanying independent auditors'report. 1 I I I 1 I - 138 - 1 I I I en 0 0 Vi 0 0 t- 0 0 0 0 0 oo N 0 0 Cr. 0 00 0 0 0 0 0 0 N -. �.,� O VI N O 0 M 0 0 0 0 V1 O' VI 0 0 Cr 0 V 0 0 0 0 0 O 00 V1 ON N M ..0 N -• 4 O r b V1 00 00 4 N co: 00 'O N .O 4 00 -. -. O N am O V1 N M N V1 V1 7 •-• ON N -. O. V -• N V1 N _, -. V1 eh -• M N-1, 0 0 V1 0 0 V•1 00 0 0 0 00 Vl 00 0 0 Cl 0 00 0 CT 0 0 00 0 Vl 00 0 0 t� V1 0 M V 0 0 0 N N O 0 V' 0 o- 0 0 0 o. 0 -• -• Cl 7 7 00 T M V1 00 N lD V1 -. -. V1 N -. N 00 N N N T M M O Cs 0 V1 .-. N N N V1 d' T .-. 01 N -. as �' .-i N .-. N �--� V1 M -• M M N 0 0 0 001 0 000 7 0 0 000 ON 0 0 0 0 0 dam' C 0 0 O N 7 ..+ D\ M vi D; V1 Q; .�-.i b oo V1 N Ol N so 00 t� N V7 N -N-'i O O NVl N N N 7 -. h cos "� M M N 0 00 0 0 0 ON 00 0 0 00 O1 N '+1 0 0 7 0 00 00 00 0 0 d' 0 0 O\ i O 0 0 0 0 0 00 ON 0 0 V ON M Vl O O N 0 7 ON O± O © O h 00 O+ ,O V1 05 N M l� O1 .4. 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"O N H C 6 rw O O DD M 'yy"' IO 0�0 n R v) O O p e0 O� 00 00 �D 00 O al r` -. v1 v1 00 VD a+ ■-.a O .... .M-." h -r eF Os M Q M n 00 U N h N no Z h t+ d C0. IO O M O 01 O --. M Cr, N h et 00 10 N 1 0% et N O N O el- O h " —. p - 000 h ¢ d M N N --. Z N N A 3 d S0. .. 5 b 5 5 a, en m x O 07 a v N 1IJflhf11Jjfl a a oAH aw " o �? P. tL t° I - 140 - I I lli 00 00 O M.-i V V N crl T N O en H 00 O O *F M eh N *- N 00 eh N N N Cr, CO O O N 00 O 0 'O M --. * ---- N V 'D 7 ,0 0, 00 ,•- O I N 00 0 0 7 N M 0 O O\ O N 00 0 0 M 0 M ,C * N O - 00 Cr, 0 N I 111 00 0 0 N 00 en 00 * N V 0 N C+ 0 C M 0 0 0 I y N C O u C 0 0 y o0 rn 0 N 'C M 00 00 >.., O o V N 0 r .. V] aCi 00 .M-i 0 O N N 00 en y N NO N M Cn Q .-� 00 Tel N CO w V o0 en O M -, 00 en - N 0 ON N M 0 .-, O N NO O Q .0 co M O M 0 T CO M C I N OOi o' — M in CO C 0 00 0 N y • a. N P4 49.. w 'O 0 CO 0 d ❑ b N R CO• C •C _ W C T on po U u C 0 y L; ._N. E D. •?r 0 0 9 'C w E b - '7 • i 0 0 I W 2 y V W y O / V 0 0) u 0 b V U tU C yr b O C v O N j, L'' p a p . u I0 arncn , LJ �i +ac mac/) -o• ] - 141 - • • • AC • CERTIFIED PUBLIC ACCOUNTANTS • .. • • • • • • • • • County of Hawaii • State of Hawaii • Single Audit of Federal Financial Assistance Programs • June 30, 2013 • • • • • • • • • • • • • • • • • • • • • • • • • Quality Integrity Insight • IP • • County of Hawaii • State of Hawaii • Index June 30, 2013 S • Page(s) • Introduction • Audit Objectives 1 • Scope of Audit 2 • Organization of Report 2 • Compliance and Internal Control over Financial Reporting • • Report of Independent Auditors on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements • Performed in Accordance with Government Auditing Standards Compliance and Internal Control over Federal Awards • Report of Independent Auditors on Compliance for Each Major Program, • Internal Control Over Compliance and the Schedule of Expenditures of • Federal Awards Required by OMB Circular A-133 • Schedule of Expenditures of Federal Awards 8-18 Notes to Schedule of Expenditures of Federal Awards 19 • Schedule of Findings and Questioned Costs 20-25 S • Corrective Action Plan S • S S S S S S S S S S 5 S S S S S S • • • • • • • • • • • • • • • • SECTION I • • Introduction • • • • • • • • • • • • • • • • • • • • • • • • • • AcuityLLP • G7. in n II II t)PUBLIC NC 1. 1) IAN IS • • • • • December 24, 2013 • • • To the Chair and Members of the County Council County of Hawaii • • We have completed our audit of the basic financial statements of the County of Hawaii, State of Hawaii • (the"County"), as of and for the year ended June 30, 2013. Our report containing our opinion on those basic financial statements is included in the County's Comprehensive Annual Financial Report. We • have also audited the County's compliance with requirements applicable to its major federal financial • assistance programs. We submit herein our reports on compliance and on internal control over financial reporting and over federal awards, the County's schedule of expenditures of federal awards, and the • schedule of findings and questioned costs. • The audit objectives and scope of the audit were as follows: • • Audit Objectives • 1. To provide opinions on the fair presentation of the County's basic financial statements and the • schedule of expenditures of federal awards as of and for the year ended June 30, 2013 in accordance with accounting principles generally accepted in the United States of America. • 2. To consider the County's internal control over financial reporting in order to design our auditing • procedures for the purpose of expressing our opinions on the financial statements. • 3. To perform tests of the County's compliance with certain provisions of laws, regulations, contracts, • and grant agreements that could have a direct and material effect on the determination of financial • statement amounts. 4. To consider the County's internal control over compliance for each major federal program in order to • determine our auditing procedures for the purpose of expressing our opinion on compliance, to test and report on internal control over compliance and report on the schedule of expenditures of federal • awards required by U.S. Office of Management and Budget ("OMB") Circular A-133, Audits of States, • Local Governments, and Non-Profit Organizations. • 5. To provide an opinion on the County's compliance with the requirements of laws, regulations, • contracts, and grants that could have a direct and material effect on each major program. • 6. To report on the status of prior year findings and questioned costs. • • • • • 999 BISHOP STREET,SUITE 1900 • an independent member of HONOLULU,HAWAII 96813 BAKER TI L LY Ttaa:rliONt::808 531 3400 EAcs1MILE:808 531 3433 • INTERNATIONAL • IP • • To the Chair and Members of the County Council • County of Hawaii December 24,2013 • Page 2 • • Scope of Audit • We performed an audit of the County's basic financial statements and schedule of expenditures of federal • awards as of and for the year ended June 30, 2013, in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in • Government Auditing Standards, issued by the Comptroller General of the United States; and the • provisions of OMB Circular A-133. • Organization of Report • Our report is organized into three sections as follows: • • 1. Section I, entitled "Introduction," describes the objectives and scope of our audit and the organization and contents of this report. • • 2. Section II, entitled "Compliance and Internal Control over Financial Reporting,"contains our report on the County's internal control over financial reporting and on compliance and other matters based • upon our audit of the County's basic financial statements. • 3. Section III, entitled "Compliance and Internal Control over Federal Awards,"contains our report on • the County's compliance for each major program, internal control over compliance and the schedule of expenditures of federal awards required by OMB Circular A-133, the County's schedule of • expenditures of federal awards, and the schedule of findings and questioned costs. • Our report on the basic financial statements of the County as of and for the year ended June 30, 2013 is • included under a separate cover. A separate management letter containing our observations regarding • the County's internal controls dated December 24, 2013 has also been issued to the County Council. • We would like to take this opportunity to express our appreciation to the personnel of the County of • Hawai'i for the cooperation and assistance extended to us during our audit. We will be pleased to discuss any questions that you or your associates may have regarding our recommendations. • • Very truly yours, • Ace_wra..... L.LP • • • • • • • • • • • • • • • a • • • • • • • • • • • • • • • • SECTION II • • Compliance and Internal Control • Over Financial Reporting • • • • • • • • • • • • • • • • • • • • • • • • • • • I t LLP • (;1 121 HIM)I?MAC.A(GOLTN IAN'I'S • • • Report of Independent Auditors on Internal Control • Over Financial Reporting and on Compliance and • Other Matters Based on an Audit of Financial Statements • Performed in Accordance with Government Auditing Standards • • To the Chair and Members of the County Council • County of Hawaii • • We have audited, in accordance with the 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, the financial statements of the governmental • activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the County of Hawaii, State of Hawaii (the"County") as of and • for the year ended June 30, 2013,and the related notes to the financial statements, which collectively comprise the County's basic financial statements, and have issued our report thereon dated • December 24, 2013. • Internal Control over Financial Reporting • • In planning and performing our audit of the financial statements, we considered the County's internal control over financial reporting ("internal control") to determine the audit procedures that are appropriate • in the circumstances for the purpose of expressing our opinions on the financial statements, but not for • the purpose of expressing an opinion on the effectiveness of the County's internal control. Accordingly, we do not express an opinion on the effectiveness of the County's internal control. • • A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a • combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a • timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control • that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. • Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material • weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may • exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist • that have not been identified. We did identify a deficiency in internal control, described in Finding No. 2013-001 in the accompanying schedule of findings and questioned costs that we consider to be a • significant deficiency. • • 999 BISHOP SMELT,SUITE. 1900 • ao 1odependPOt member of HoNot.0 t,t HAWAII 96813 BAKER TILLY TLIL:1LloNL:808531 3400Rvcs1yiti.I:8085313433 • INTERNATIONAL • • • • • Compliance and Other Matters • As part of obtaining reasonable assurance about whether the County's financial statements are free from • material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the • determination of financial statement amounts. However, providing an opinion on compliance with those • provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be • reported under Government Auditing Standards. County's Response to Finding • The County's response to the finding identified in our audit is described in the accompanying corrective action plan. The County's response was not subjected to the auditing procedures applied in the audit of • the financial statements and, accordingly, we express no opinion on it. • Purpose of this Report • The purpose of this report is solely to describe the scope of our testing of internal control and compliance • and the result of that testing, and not to provide an opinion on the effectiveness of the entity's internal • control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, • this communication is not suitable for any other purpose. • • te%C.C-U-Arp""CP • • Honolulu, Hawaii • December 24, 2013 S • • S S S • S S S S S S • • • S S S • • • • • • • • • • • • • • • • • SECTION III • • Compliance and Internal Control • Over Federal Awards • • • • • • • • • • • • • • • • • • • • • • • • • •• A© 1tyLLP • CERTIFIF,I)PUBLIC ACCOUNTANTS • • • Report of Independent Auditors on Compliance for Each Major Program, Internal Control Over • Compliance and the Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 • • To the Chair and Members of the County Council County of Hawaii • • Report on Compliance for Each Major Federal Program • We have audited the County of Hawaii, State of Hawaii's (the "County") compliance with the types of • compliance requirements described in the OMB CircularA-133 Compliance Supplement that could have a direct and material effect on each of the County's major federal programs for the year ended June 30, • 2013. The County's major federal programs are identified in the summary of auditors' results section of • the accompanying schedule of findings and questioned costs. Management's Responsibility • Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. • • Auditors'Responsibility Our responsibility is to express an opinion on compliance for each of the County's major federal programs • based on our audit of the types of compliance requirements referred to above. We conducted our audit of • compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the • Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and • perform the audit to obtain reasonable assurance about whether noncompliance with the types of • compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the County's compliance • with those requirements and performing such other procedures as we considered necessary in the • circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major • federal program. However, our audit does not provide a legal determination of the County's compliance. • Opinion on Each Major Federal Program • In our opinion, the County complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the • year ended June 30, 2013. • • • • • M_ _ • 999 BisiIOp'STREET,SUITE 1900 • an Independent member of HONOLULU,HAWAII 96813 BAKER TI L LY TLLL:rLIoNr::808 531 3400 FACSIMILE:808 531 3433 • INTERNATIONAL • w S S • • Report on Internal Control Over Compliance • Management of the County is responsible for establishing and maintaining effective internal control over • compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the County's internal control over compliance with the types of • requirements that could have a direct and material effect on each major federal program to determine the • auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in • accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the 4110 effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the County's internal control over compliance. • A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned • functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a • deficiency, or combination of deficiencies, in internal control over compliance, such that there is a • reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in • internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over • compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged • with governance. Our consideration of internal control over compliance was for the limited purpose described in the first • paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any • deficiencies in internal control over compliance that we consider to be material weaknesses. However, • material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our • testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. • • Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 • We have audited the 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 as of and for the year ended June 30, 2013, and the related notes to the financial statements, • which collectively comprise the County's basic financial statements. We have issued our report thereon 4110 dated December 24, 2013, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise • the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required • part of the financial statements. As described in Note 1 to the schedule of expenditures of federal • awards, the accompanying schedule of expenditures of federal awards was prepared on the cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. Such information is the responsibility of management and was • derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such • information directly to the underlying accounting and other records used to prepare the basic financial S S S • • • statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, • the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the • financial statements as a whole. • I�CL • LL1 • • Honolulu, Hawaii December 24, 2013 • • • • • • • • • • • • • • • • • • • • • • • • • • S • S • • • 6. . co ,_ co ,_ ., CO CV LO LO 0 • 'j� O O 0) N to O N W V N O LO Cr) M 0) ct N M LM CD r• C y d LL N N • x x w • N CO L V N- ,� E o c co co rn r • st R o C7 O 0) Cn C 3 O O CD Cn C)1 N N ec• LL a Q E fA • • • M co r- d Q Q N O O E N CO rn • Z O oo Q Q p • c _ = ZZ r o0 _ N Z N l0 • C7 C3 Z Z • • • Da oo o cv8 °' o co o V o 0 0 • Z o • • • • • a) • i= N E 0 • U O • 3 a` ° i a)r U • a o 03 2 0 V _ O• • c ° co a C Z w • C N ca LL 2 L O O C-O C Q O C (0 V • `�' U) p W •O J 7 c0 O _ O E io O (� u 0m 'dCL E (A CO a > rn ° V ° 8) •E o E • i t ° �' ° a a m E C.) • N • a° To r � r � ° or Eoo, w 73 o o o d a =, Lo a� d € U) a • gas A C M To _ '° � a. o a `� E d a 0 0) E • U Z • ° °? ° °? 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Basis of Presentation III • The accompanying schedule of expenditures of federal awards includes the federal grant activity of the County of Hawaii, State of Hawaii (the "County") and its discretely presented component III unit, the Department of Water Supply(the"Department") and is presented on the cash basis of • accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. • Therefore, some amounts presented in this schedule may differ from amounts presented in, • or used in the preparation of, the basic financial statements. • 2. Subrecipients • Of the federal expenditures presented in the schedule, the County provided federal awards to • subrecipients as follows: II Amount • CFDA Provided to • Program Title Number Subrecipients U.S. Department of Housing and Urban Development • Community Development Block Grant/State's Program and • Non-Entitlement Grants in Hawaii 14.228 $ 75,763 • HOME Investment Partnerships Program 14.239 484,464 Total U.S. Department of Housing and • Urban Development 560,227 • U.S. Department of Justice • Juvenile Accountability Incentive Block Grant 16.523 58,900 Juvenile Justice and Delinquency Prevention—Allocation to States 16.540 19,800 • Crime Victim Assistance 16.575 45,733 • Total U.S. Department of Justice 124,433 • U.S. Department of Labor WIA Adult Program 17.258 466,385 • WIA Youth Activities 17.259 355,552 • WIA Dislocated Workers 17.278 317,857 • ARRA—Program of Competitive Grants for Worker Training and Placement in High Growth and Emerging Industry Sectors 17.275 65,103 • Total U.S. Department of Labor 1,204,897 • U.S. Department of Health and Human Services • Substance Abuse and Mental Health Services—Projects of Regional and National Significance 93.243 81,702 • Total U.S. Department of Health and • Human Services 81,702 • Total Provided to Subrecipients $ 1,971,259 0 0 III • • 19 • • IP County of Hawai`i 411 State of Hawaii Schedule of Findings and Questioned Costs • Year Ended June 30, 2013 • Section I—Summary of Auditors' Results • Financial Statements • Type of auditors' report issued Unmodified • Internal control over financial reporting • • Material weaknesses identified? _yes X no • • Significant deficiencies identified? X yes _none reported • Noncompliance material to financial statements noted? _yes X no • Federal Awards • Internal control over major programs • • Material weaknesses identified? _yes X no • • Significant deficiencies identified? _yes X none reported Type of auditors' report issued on compliance for major programs Unmodified S Any audit findings disclosed that are required to be reported • in accordance with section 510(a) of Circular A-133? yes X no . Identification of major programs • CFDA • Numbers Name of Federal Program or Cluster 14.228 Community Development Block Grants/State's • Program and Non-Entitlement Grants in Hawaii • 17.258/17.259/17.278 WIA Cluster 20.205 Highway Planning and Construction • 66.458 Capitalization Grants for Clean Water State Revolving Funds • 66.468 Capitalization Grants for Drinking Water State Revolving Funds • Dollar threshold used to distinguish between type A and • type B programs $1,307,000 • Auditee qualified as low-risk auditee? X yes _no S S S S S S S S S • 20 S IP • • County of Hawaii • State of Hawaii Schedule of Findings and Questioned Costs • Year Ended June 30, 2013 • • Section II—Financial Statement Findings S • Finding No. 2013-001: Information Technology(Significant Deficiency) • • Condition Information technology("IT") is a strategic element of the operations of the County of Hawaii (the • "County") and the Department of Water Supply(the "Department"), a component unit of the County. • Because of the high volume of transactions at the County and the Department, the establishment of internal controls over processes incorporating IT is critical to its operations. As part of our financial • statement audits for the year ended June 30, 2013, we performed IT general controls reviews of the • following systems operated by the County and the Department: • County • Windows Domain S • Eden • • Integrated Assessment System • • Revenue Collection • Department • Windows Domain • Select Financial System • • Public Utility Billing System • • ARB N_Sight Mobile System • Our review resulted in several IT control deficiencies in the areas of physical and logical security, change • management, and IT operations as follows: • Physical and logical security • • Lack of formal security administration policies and procedures addressing: o New, transferred and terminated user account administration • o Maintenance of audit evidence to support approval of employee access to the system • o Identification of terminated employees who continue to have access to the system o Identification of employees whose access to system resources are not commensurate • with their job responsibilities o Minimum password security settings • o Network security reviews • o Minimum environmental security requirements o Physical access to the servers • • Weak password security settings or the lack of system functionality to enforce strong password • policies for certain applications. • System databases are not appropriately restricted and monitored for unauthorized changes. • • Appropriate user access reviews are not performed for certain applications and security groups. • Change management • • Lack of a formalized change management process for certain applications and firewall configuration • settings. • Lack of segregation of duties for developers and security administrators. • IT Operations • Test restorations not performed. 0 • 21 0 0 • • • County of Hawaii • State of Hawaii Schedule of Findings and Questioned Costs • Year Ended June 30, 2013 0 • Criteria • When IT is used to initiate, record, process, and report on transactions included in the financial • statements, the systems and related processes should include internal controls to prevent or detect potential misstatements. • • Effect Internal controls in the following areas address the following risks: • Physical and logical security Unauthorized access to these systems could result in either the destruction or theft of data, unauthorized • or nonexistent transactions being made or transactions being inaccurately recorded. • Change management • Unauthorized or untested changes promoted to the production environment could cause the systems • to either process data differently than intended or unexpectedly compromise the integrity of the data maintained. • IT Operations • Lack of restoration testing could result in the inability to recover from data loss, corruption, or data • integrity concerns. • Causes • The primary cause of the internal control deficiencies identified was due to the lack of IT policies and procedures which include internal controls to address the IT risks discussed above. • • Recommendation We recommend that the County perform the following: • • • Develop and implement IT policies and procedures to include internal control procedures addressing the IT risks above. • • Indentify procedures to ensure that IT policies and procedures are consistently followed. • • Implement change management detective controls. • Perform annual test restoration exercises. • • • • • • • • • • 0 S S • 22 • 0 • • County of Hawaii State of Hawaii Schedule of Findings and Questioned Costs • Year Ended June 30, 2013 0 • Section III—Federal Award Findings and Questioned Costs • • None • • • S • • • • • • • • III • S • • • • • • • • • S S • • • • • • • 23 • • W 0 County of Hawaii • State of Hawaii Schedule of Findings and Questioned Costs • Year Ended June 30, 2013 • • Section IV—Status of Prior Year Findings and Questioned Costs • • Financial Statement Findings • • Finding No.2012-01: Information Technology(Significant Deficiency) • During our prior audits, we performed IT general controls reviews of the following systems operated by • the County and the Department: • County • • Windows Domain • Eden • • Integrated Assessment System • • Revenue Collection • Department • • Windows Domain • Select Financial System • • Public Utility Billing System • • ARB N_Sight Mobile System • Our review resulted in several IT control deficiencies over physical and logical security and change • management. • Status • Partially resolved. In fiscal year 2013, the County and the Department took the following actions to address the control deficiencies listed above: • • The County installed software designed to monitor its systems for unauthorized activity and was in • the process of testing the software at June 30, 2013. • • The County implemented a software program to generate reports for user access reviews of the • Windows domain and was developing a process to distribute the reports for review at June 30, 2013. • • The Department implemented formal backup and restore policies for the Public Utility Billing System. • • The Department moved the Public Utility Billing System to a physically secure server room. • • The Department performed a terminated user access review for the Select Financial System and the Public Utility Billing System. • • The remaining IT control deficiencies have not been resolved; however, the County and the Department are in the process of developing policies and procedures to address them. As the unresolved • deficiencies are reported in current year Finding 2013-001, this finding will not carry forward. • • • • • • • 24 • • • e • County of Hawaii • State of Hawaii Schedule of Findings and Questioned Costs • Year Ended June 30, 2013 S • Questioned • Cost • Finding No.2009-01: Activities Allowed and Unallowed—Calculation of • Federal Expenditures $ 27,965 • Federal Agency: U.S. Department of Homeland Security • CFDA Number and Title: 97.036— Disaster Grants— Public Assistance • (Presidentially Declared Disasters): Kiholo • Earthquake Award Number and Award FEMA-1664-DR-Hl 10/15/06— 10/15/10 • Year: • Per the prior auditor's testing of the activities allowed and unallowed compliance requirement, it • was noted that the County overstated the federal share of eligible costs related to the lkuo Hisaoka Gymnasium by$27,965. The amount the County reported was based on the actual expenditures, • however, as the lkuo Hisaoka Gymnasium was insured at the time of loss, the expenditures should • have been based on the insurance deductible in accordance with Title 44 Code of Federal Regulations • (44 CFR) §206.250(c). • Status Unresolved. We understand that the County has sought the assistance of the Hawaii State Civil Defense • in determining the correct portion eligible for federal aid and is still awaiting a response. • • • • • • • • • • • 0 0 0 • 0 0 0 0 • 25 • • • • • • • • • • • • • • • • • • • Corrective Action Plan • • • • • • • • • • • • • • • • • • • • • • • • • • • 0 0 • CORRECTIVE ACTION PLAN • • Financial Statement Findings: • Finding 2013-001 Information Technology(Significant Deficiency) • • Recommendation: We recommend that the County and/or the Department perform the following: • • Develop or update IT policies and procedures to include internal control procedures addressing • the IT risks above. • • Identify procedures to ensure that IT policies and procedures are consistently followed. • Implement change management detective controls. 0 • Perform annual test restoration exercises. II • General Comment: Not all the comments applied to both entities which have separate IT environments and staff. We have broken out the response into two pieces and have done our best to • respond fully to the comment. We acknowledge the importance of good internal controls especially • in the area of information technology. • Water Department's Comment: The Department has addressed the IT related concerns as follows: • 1) Physical Security—The Department migrated its billing and accounting applications to a new • server located in a secured office. Backups are performed daily with off-site storage updated weekly. • 2) Logical Security—The Department strengthened password settings for those systems that • allowed it by requiring users to change passwords every 90 days. In addition, unique user ID's were issued to all ARB users. • 3) Change Management—The Department implemented a reporting system to monitor all • access to the financial server by outside parties. • 4) Restoration Testing—The Department is unable to conduct restoration tests due to the absence of hardware on which to restore our applications and because recovery of the system • also requires coordination and the associated costs of the Department's software provider to • reestablish licensing. III County's Comment: The County has deployed"TripWire", a change management software package • used to monitor and alert on access and changes to the Eden and IAS applications. Test restoration is • performed on a regular basis for the Eden application, as part of the normal testing of updates to the system, prior to deploying those updates to the production system. As of January 2014, the • Department's new management staff was finally in place and a review of the existing policies and • procedures has begun to ensure that that they are current and to better address internal control procedures. • Anticipated Completion Date: Some items have already been implemented, others will be • implemented by June 30, 2014 and for a few items this will be an ongoing effort as we strive to improve our internal controls over information technology. • • Contact People: Rick Sumada, Waterworks Controller Department of Water Supply • Don Jacobs, Director of Information Technology • County of Hawaii • III Page 1 • 0 ep • • Status of Prior Year Findings: • Finding 2012-01 Information Technology (Significant Deficiency) • Recommendation: We recommend that the County and the Department perform the following: • • • Develop or update IT policies and procedures to include internal control procedures addressing • the IT risks above. • Identify procedures to ensure that IT policies and procedures are consistently followed. • • County's Comment: Refer to County's comment to Current Year Finding 2013-001 for status • update. • Anticipated Completion Date: Some items have already been implemented, others will be • implemented by June 30, 2014 and for a few items this will be an ongoing effort as we strive to improve our internal controls over information technology. • • Contact People: Rick Sumada, Waterworks Controller • Department of Water Supply Don Jacobs, Director of Information Technology • County of Hawaii • Federal Award Findings: • • U.S.Department of Homeland Security Disaster Grants—Public Assistance(Presidentially Declared Disasters): Kiholo Earthquake • CFDA No.97.036 Federal Award No.: FEMA-1664-DR-HI • Award Period: July 1,2008 to June 30,2009 Finding 2009-01 Activities Allowed and Unallowed—Calculation o f Federal Expenditures • • Recommendation: We recommend that the County be more cognizant of deviations in the calculation of the federal share to ensure that the expenditures are accurately reported, including applying the applicable guidance. • County's Comment: The County continues to strive to be more diligent in meeting its activities allowed and unallowed requirements, including the accurate reporting of the federal expenditures. • Repairs to the facility in question have now been completed and we have received our final insurance • proceeds—the amount of which impacts the allowed federal expenditures. The County has submitted all of the required documents pertaining to the project in question to the State Civil Defense and we • are still awaiting the final review by the Hawai`i State Civil Defense in determining the final eligible • portion for federal aid. • Anticipated Completion Date: June 30, 2014 • • Contact Person: Kay Oshiro, Controller County of Hawaii • • • • Page 2 • •