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Home My WebLink About2006 CAFR Part 1 COMPREHENSIVE ANNUAL FINANCIAL REPORT Fiscal Year Ended June 30, 2006 Nw Ma�- F COUNTY OF HAWAII Hilo, Hawaii Harry Kim Mayor Dixie Kaetsu Managing Director Prepared by The Department of Finance William Takaba Director of Finance COUNTY OF HAWAII Comprehensive Annual Financial Report For the Fiscal Year Ended June 30,2006 Table of Contents Page INTRODUCTORY SECTION Letter of Transmittal I GFOA Certificate of Achievement 7 Organization Chart 8 List of Elected Officials 9 List of Principal Officials 10 FINANCIAL SECTION Independent Auditors'Report I I Management's Discussion and Analysis 13 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets 24 Statement of Activities 26 Fund Financial Statements: Balance Sheet-Governmental Funds 28 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 29 Statement of Revenues,Expenditures,and Changes in Fund Balances- Govemmental Funds 30 Reconciliation of the Change in Fund Balances of Governmental Funds to the Statement of Activities 32 Statement of Revenues,Expenditures and Changes in Fund Balance- Budget and Actual(Budgetary Basis)-General Fund 34 Statement of Revenues,Expenditures and Changes in Fund Balance- Budget and Actual(Budgetary Basis)-Solid Waste Fund 38 Statement of Net Assets-Proprietary Funds 39 Statement of Revenues,Expenditures,and Changes in Fund Net Assets- Proprietary Funds 40 Statement of Cash Flows-Proprietary Funds 41 Statement of Fiduciary Net Assets-Fiduciary Funds 42 Statement of Changes in Fiduciary Net Assets-Fiduciary Funds 43 Notes to the Basic Financial Statements 44 FINANCIAL SECTION (Continued) Pa Combining and Individual Nonmajor Fund Statements and Schedules: Combining Balance Sheet-Nonmajor Governmental Funds 82 Combining Statement of Revenues,Expenditures,and Changes in Fund Balances-Nonmajor Governmental Funds 86 Schedules of Revenues,Expenditures,and Changes in Fund Balances- Budget and Actual(Budgetary Basis): Highway Fund 89 Sewer Fund 90 Cemetery Fund 91 Parking Meter Fund 92 Vehicle Disposal Fund 93 Bikeway Fund 94 Workforce Investment Act Fund 95 Golf Course Fund 96 Geothermal Relocation Revolving Fund 97 Beautification Fund 98 Hawaii County Housing Agency 99 Park Dedication Fund 100 Combining Balance Sheet-Agency Funds 102 Combining Statement of Changes in Assets and Liabilities-Agency Funds 104 Combining Statement of Net Assets-Private Purpose Trusts 108 Combining Statement of Changes in Net Assets-Private Purpose Trusts 109 STATISTICAL SECTION Table l -Net Assets by Component 111 Table 2-Changes in Net Assets 112 Table 3-Fund Balances,Governmental Funds 113 Table 4-Changes in Fund Balance,Governmental Funds 114 Table 5-Real Property Assessed Values by Classification and Tax Rates 115 Table 6-Principal Taxpayers 119 Table 7-Property Tax Levies and Collections 120 Table 8-Ratios of Outstanding Debt by Type 121 Table 9-Ratios of General Bonded Debt Outstanding 122 Table 10-Legal Debt Margin Information 123 Table 1 I -Demographic and Economic Statistics 124 Table 12-Principal Employers,County of Hawaii 125 Table 13-Full-Time Equivalent County Government Employees by Function 126 Table 14-Operating Indicators by Function 127 Table 15-Capital Asset Statistics by Functions 128 INTRODUCTORY SECTION ♦or Harry Kim ' � r William Takaba Mayor Director Nancy E.Crawford ' Deputy Director •-�•OFNr'� County of Hawaii Finance Department 25 Aupuni Street, Room 118 f Hilo,Hawaii 96720 (808)961-8234 • Fax(809)961-9248 April 27,2007 The Honorable Mayor and Members of the Council County of Hawaii 25 Aupuni Street Hilo,Hawaii 96720 We transmit herewith the Comprehensive Annual Financial Report for the County of Hawaii, State of Hawaii,for the fiscal year July 1,2005 to June 30,2006. This report was prepared by the County's Department of Finance. The accuracy of the financial statements and the completeness and fairness of their presentation are the responsibility of the County government. We believe the enclosed data are complete and accurate in all material respects and are reported in a manner designed to present fairly the financial position and results of operations of the various funds of the County. All disclosures necessary to convey the maximum understanding of the County's financial activities have been included. Management's discussion and analysis is also included to aid users of the financial statements. This report presents the financial position of the County of Hawaii at June 30,2006 and results of operations for the fiscal year then ended. The report is divided into three sections: • The Introductory Section includes this transmittal letter,a Certificate of Achievement for Excellence in Financial Reporting,the County of Hawai`i's organization chart and lists of elected and principal officials. • The Financial Section contains management's discussion and analysis,the basic financial statements,related notes,the combining and individual fund budgetary financial statements, and the independent auditors'report. • The Statistical Section includes selected financial and demographic information,generally presented on a multi-year basis. This report includes all funds of the County of Hawaii, including its component unit,the Department of Water Supply,established by the County Charter as a semi-autonomous body of - 1 - the County government. This component unit is included in the County's reporting entity because of its financial relationship with the County. The County provides the full range of municipal services. These include police and fire protection;emergency medical care;public prosecutor;culture and recreation;sanitation;social services;water;planning and zoning;construction and maintenance of highways,streets and infrastructure;real property assessment and tax collection;and general administrative services. However,the County does not provide such other traditional services as public education, hospitals and courts. These services are provided by the State government. The County of Hawaii consists of the island of Hawaii,4,028 square miles in size. It is twice as large as the combined area of all the other inhabited islands in the Hawaiian Archipelago. Since there is no other local or municipal government within the County,there are no overlapping taxes and no overlapping debt. The County of Hawaii has an elected mayor and a nine-member council. Economic Condition and Outlook The island of Hawaii,commonly known as the Big Island,is located 214 miles from Honolulu, the state capital;2,200 miles from the west coast of the continental United States;and 4,000 miles from Japan. The city of Hilo on the east side of the island serves as the county seat as well as the transportation and financial center for the Big Island. Hilo's infrastructure includes Hilo Harbor,a deep-water port,and Hilo International Airport,which is capable of handling fally- loaded wide-bodied aircraft. Kailua-Kona and South Kohala,major tourist destination areas on the west side of the Big Island,are served by flights from the United States mainland,Japan and Canada through the Kona International Airport. Scheduled freight services are available between the islands by air and sea transport. Communities on the island are linked by a network of State and County maintained streets and highways. The Big Island is the most diversified of the neighbor island economies. As a result it is buffered when any one industry lags. Currently,the Big Island is enjoying its best economic times in recent years. The west side growth is fueled by surging visitors numbers and record construction activity,while the east side economic activity is led by the University of Hawaii at Hilo and other government construction projects. Continued increasing population has contributed to a growing Iabor force that numbered 84,350 in August 2006. The expanding economy has matched the growth in available work force and unemployment continues to follow a downward trend,with an average 3.3 percent for 2006. Total and per capita personal income have been steadily increasing. Tourism— Tourism is the major industry on the island. In addition to the mild climate and natural beauty it shares with other areas in the state,the County features the Hawaii Volcanoes National Park. A popular attraction,the park is the most visited site in the state,handling over 2 million visitors annually. -2- Total visitors to Hawaii increased slightly compared to the prior year,with 1,487,747 arrivals in 2005. A developing source for bringing tourists to the island of Hawaii is the cruise ship industry. Over 300,000 cruise ship visitors arrived in 2005. Scientific Research and Development— Due largely to its unique geographic characteristics which has attracted scientists in fields of astronomy,meteorology,volcanology,and agriculture/aquaculture, Hawaii County has benefited economically by the significant investments made in scientific research. The total astronomy related capital investment on Mauna Kea exceeds$600 million and combined annual budgets are about$60 million,while direct employment is over 500. The Hawaiian Volcano Observatory in Hawaii Volcanoes National Park and the Natural Energy Laboratory of Hawaii Authority at Keahole, Kona are also major contributors to international research and the local economy. Agriculture— Forestry,nut and fruit orchards,and floral and vegetable farms have successfully replaced lands where sugar once grew. Demand for Kona coffee is improving and macadamia nut prices remain strong. Papaya remains the largest orchard crop. Agriculture makes a substantial contribution to the County's economy and produces a variety of goods for export as well as for local consumption. Major Initiatives For the Year During the year,the County focused on public works,planning, and other issues affecting the quality of life in the County. Public Works—Preliminary and construction work continued on several West Hawaii road projects including Kuakini Highway and various connector roads. Construction of intersection curb cuts and facilities upgrades to meet Americans with Disabilities Act(ADA)requirements is an on-going project. Construction was completed on the Kawailani Street Bridge and the Kamuela Senior Housing Project. In addition,the County is investigating using Community Facility Districts to help speed up construction of roadways by developers in West Hawaii. Planning—The Planning Department initiated the Community Development Plan(CDP) process,beginning in the districts of North and South Kona,and Puna. These districts are being followed by North and South Kohala in an effort that has become the most comprehensive planning process in the State of Hawaii. Open Space—The Public Access,Open Space and Natural Resources Preservation Commission was established during the year. Its mission is to identify land in coastal areas and historic or culturally-important lands and sites to be earmarked for purchase by the County to preserve it for recreation and conservation. In addition,the Public Access,Open Space and Natural Resources Preservation fund was created. Transit Services—During the year the Mass Transit Agency established Kokua free bus service island wide. This program,as well as,expanded bus routes are aimed at giving residents -3 - alternative transportation options. Ridership has exceeded expectations with more than 100 percent capacity on many routes. For the Future Public Safety—Expansion and upgrade of Fire and Police facilities around the island are being planned and site selection is in process. Public Works —The County is working on developing a West Hawaii Civic Center. This facility will improve access to government for the Kona residents. Additionally,the County is working on several major road projects to enhance traffic in West Hawaii. Environmental Management—As the Hilo landfill approaches full capacity,the County will be looking at solid waste technology alternatives to divert waste from the Hilo landfill to enable the County to close that facility. It is anticipated that a request for proposals will be issued in the next year.The County is also working closely with the State Department of Health to extend the life of the Hilo landfill. Human Resources—With numerous Countywide vacancies,and a tight labor market,new "jobs"marketing strategies were developed to reach different segments of the population. Other Financial Information Internal Control The management of the County is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the County are protected from loss,theft or misuse and to ensure that adequate accounting data are compiled to allow for preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable,but not absolute,assurance that these objectives are met. The concept of reasonable assurance recognizes that(1)the cost of a control should not exceed the benefits likely to be derived;and(2)the valuation of costs and benefits requires estimates and judgments by management. Budgetary Control The County maintains budgetary controls to ensure that legal provisions of the annual budget are complied with and that expenditures do not exceed budgeted amounts. Activities of the general fund and special revenue funds are included in the annual appropriated operating budget. Project-length financial plans are adopted for the capital projects fund. Budgetary control is established at the department level. Formal budgetary integration is employed as a management control device for the general fund, special revenue funds,and the capital projects fund. Budgetary control for the debt service fluid is achieved through general obligation bond indenture provisions. -4- The basis of accounting used for the budgets of the general and special revenue funds differs from generally accepted accounting principles. Intergovernmental revenues are recognized when awarded by the granting agency,encumbrances and unexpended allotments are treated as expenditures for purposes of determining legal compliance with the annual budget,all leases are treated as operating leases,and accounts payable are not accrued. The County also maintains an encumbrance accounting system as one technique of accomplishing budgetary control. Encumbrances outstanding at fiscal year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because they will be honored during the following year. As demonstrated by the statements and schedules included in the financial section of this report,the County continues to meet its responsibility for sound financial management. Pension Plan All full-time employees of the County participate in the Employees'Retirement System of the State of Hawaii,a cost-sharing,multiple-employer defined benefit public employee retirement system. Cash Management Cash temporarily idle during the year was invested in demand deposits,certificates of deposit and repurchase agreements. The average yield on investment was 2.66%. The County's policy is to minimize credit and market risks while maintaining a competitive yield on its portfolio. Accordingly,with the exception of 5255,600 held by bond paying agents and a rental management agent,deposits were either insured by federal depository insurance, collateralized,or secured by irrevocable letters of credit. All collateral on deposit was held for safe keeping with a County-designated agent in the County's name. Risk Management The County maintains insurance coverage for privately owned police vehicles as well as for other purposes. The County is substantially self-insured for its vehicles as well as for all other perils including workers'compensation and general liability. Other Information Independent Audit The Hawaii County Charter requires an annual audit by independent certified public accountants. KPMG LLP was selected by the County Council to perform the audit. Employee Union Contracts County employees are members of seven different bargaining units. All of the bargaining units have contracts that run through June 30,2007. -5 - Certifuate ofAchlevement The Government Finance Officers Association of the United States and Canada(GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the County of Hawaii for its Comprehensive Annual Financial Report for the fiscal year ended June 30,2005. This was the eighteenth consecutive year that the government has achieved this prestigious award. In order to be awarded a Certificate of Achievement,a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement Program's requirements,and we are submitting it to the GFOA to determine its eligibility for another certificate. Acknowledgments The preparation of this report on a timely basis was made possible by the efficient and dedicated services of the entire staff of the Department of Finance and fiscal personnel in other departments. I am grateful for their help in preparing this report. I also thank the Mayor and the members of the County Council for their interest and support in assuring the continuing sound financial condition of the County of Rawai`i. J WILLIAM AKABA Director of Finance -6- Certificate of Achievement for Excellence in Financial Reporting Presented to County of Hawaii For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30,2005 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports(CAFRs)achieve the highest standards in government accounting and financial reporting. President � Q Executive Director -7- County of Hawaii Organization Chart County Electorate County Council Mayor Prosecuting Attorney County Clerk Office of Management: Managing Director Departments and agencies Agencies under Departments under under direct supervision administrative supervision commissions and of the Mayor and/or of the Mayor: administrative supervision Managing Director: of the Mayor. Corporation Counsel Civil Defense Civil Service Finance Office ofAging Police Planning Mass Transportation Liquor Control Environmental Management Housing&Community Fire Research&Development Development Water Supply Public Works (semi-autonomous) Parks&Recreation Data Systems - 8- County of Hawaii Elected Officials Administrative Officers (Term: 2004-2008) Harry Kim Mayor Jay T.Kimura Prosecuting Attorney County Council (Term: 2004-2006) Stacy K.Higa Chair Virginia Isbell Vice Chair James Y.Arakaki Member Pete Hoffmann Member Fred C. HoIschuh,M.D. Member Donald Ikeda Member Bob Jacobson Member K. Angel Pilago Member Gary Safarik Member -9- Principal Officials June 30,2006 County Clerk Connie Kiriu Legislative Auditor Vacant Managing Director Dixie Kaetsu Deputy Managing Director Peter L.Hendricks Corporation Counsel Lincoln Ashida Director of Finance William Takaba Planning Director Christopher Yuen Director of Personnel Michael R. Ben Director of Research and Development Jane Testa Chief of Police Lawrence K.Mahuna Fire Chief Darryl Oliveira Director of Public Works Bruce McClure Director of Environmental Management Barbara Bell Director of Parks and Recreation Patricia Engelhard Manager,Department of Water Supply Milton Pavao Civil Defense Administrator Troy M.Kindred Director of Liquor Control Janice A. Pakele Transit Operations Administrator Thomas Brown Executive on Aging Alan Parker Administrator,Office of Housing and Community Development Edwin S. Taira - 10- KPMG LI.P PO Box 4150 Honckki,HI 96812-4150 Independent Auditors'Report `1'o the Chair and Members of the County Council County of Hawaii State of Hawaii: We have audited the accompanying financial statements of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the County of Hawaii, State of Hawai'i(the County)as of and for the year ended June 30, 2006,which collectively comprise the County's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the County's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the County's internal control over financial reporting.Accordingly,we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities; the discretely presented component unit, each major fund, and the aggregate remaining fund information of the County as of June 30, 2006, and the respective changes in financial position and, where applicable, cash flows thereof, and the respective budgetary comparisons for the general fund and the solid waste fund for the year then ended in conformity with U.S.generally accepted accounting principles. — 11- KPWG U.P.a U.S.Nn0.ed fablity parhwrnhip.is the U-S. member firm of KPMG Inlwnaborol,a Swiss 000peredve. In accordance with Government Auditing Standards, we have also issued our report dated April 27, 2007 on our consideration of the County's internal control over financial reporting and on our tests of its compliance with certain provisions of laws,regulations,contracts,and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standardv and should be considered in assessing the results of our audit. The management's discussion and analysis on pages 13 through 22 is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information.However,we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County's basic financial statements.The introductory section, the combining and individual nonmajor fund financial statements, and the statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements have been subjected to the auditing procedures applied in the audit of basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and the statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly,we express no opinion on them. Honolulu,Hawaii April 27,2007 — 12— MANAGEMENT'S DISCUSSION AND ANALYSIS This section of the County of Hawai'i's(the County)Comprehensive Annual Financial Report presents a narrative overview and analysis of the financial activities of the County for the fiscal year ended June 30,2006. 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$441.8 million (net assets). This amount includes$9.7 million in unrestricted net assets,an increase of$20.6 million from the prior year. • The government's total net assets increased by$45.6 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$207.0 million,an increase of$32.9 million from the prior year. Approximately 45 percent of this total amount,$92.I million,is available for spending at the government's discretion(unreserved fund balance). • At the end of the current fiscal year,unreserved fund balance for the general fund was$23.4 million,or 13 percent of total general fund expenditures. • The County's total current and other assets increased by$31.1 million(I5 percent)during the current fiscal year. The key factors in this increase were the increase in state and federal grant receivables($5.6 million)and the net increase in cash and investments($24.9 million). OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the County's basic financial statements. The County's basic financial statements comprise three components: (1) Government-wide financial statements,(2)Fund financial statements,and(3)Notes to the basic financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the County's finances,in a manner similar to a private-sector business. The statement of net assets presents information on all of the County's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether or not the financial position of the County is improving or deteriorating. The statement of activities presents information showing how the County's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs,regardless of the timing of related cash flows. Thus,revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods,such as revenues pertaining to uncollected taxes and expenses pertaining to earned but unused vacation and sick leave. Both of the government-wide financial statements distinguish functions of the County that are principally supported by taxes and intergovernmental revenues(governmental activities)from - 13 - other functions that are intended to recover all or a significant portion of their costs through user fees and charges(business-type activities). The governmental activities of the County include public safety,highways and streets,health,education and welfare,culture and recreation, sanitation and general government. The business-type activities of the County include rental housing for senior citizens and families. The government-wide financial statements include not only the County itself(known as the primary government),but also the Department of Water Supply,a legally separate entity that the County is financially accountable for. Financial information for this component unit is reported separately from the financial information presented for the primary government itself. Fund Financial Statements The fund financial statements are designed to report information about groupings of related accounts which are used to maintain control over resources that have been segregated for specific activities or objectives. The County,like other state and local governments,uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the County can be divided into the following three categories: governmental funds, proprietary funds,and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government wide financial statements— i.e.,most of the County's basic services are reported in governmental funds. These statements,however,focus on(1)how cash and other financial assets can readily be converted to available resources and(2)the balances left at year-end that are available for spending. Such information may be useful in determining what financial resources are available in the near future to finance the County's programs. Because the focus of governmental fluids is narrower than that of the government wide financial statements,it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so,readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues,expenditures,and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The County maintains several individual governmental funds organized according to their type(general,special revenue,debt service,and capital projects). Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues,expenditures,and changes in fund balances for the general fund,solid waste fund and capital projects fund,which are considered to be major funds. Data from the remaining governmental funds are combined into a single,aggregated presentation. Individual fund data for each of the non-major governmental funds is provided in the form of combining statements elsewhere in this report. The County adopts an annual appropriated budget for its general fund and special revenue funds. A budgetary comparison statement has been provided for these funds to demonstrate compliance with this budget. The budgetary comparison statement for the general fund and solid waste fund is located in the basic financial statements,whereas the budgetary comparison statements for the nonmajor special revenue funds are presented elsewhere in this report. - 14- Proprietary funds. Proprietary funds are generally used to account for services for which the County charges outside customers. Proprietary funds provide the same type of information as shown in the government-wide financial statements,only in more detail. The County maintains only one type of proprietary funds,enterprise funds. Enterprise funds are used to report the same functions presented as business-type activities in the government wide financial statements. The County uses enterprise funds to account for the operations of the Kulaimano Elderly Housing Project and the Ouli Ekahi Affordable Housing Project. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the County. The Geothermal Asset Fund,Shippers' Wharf Trust Fund and the agency funds are reported under the fiduciary funds. Since the resources of these funds are not available to support the County's own programs,they are not reflected in the government-wide financial statements. The accounting used for fiduciary funds is much like that used for proprietary funds. Notes to the Basic Financial Statements The notes to the basic financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Other Supulementary Information In addition to the basic financial statements and accompanying notes,this report also presents supplementary information,including the combining statements referred to earlier in connection with nonmajor governmental funds and budget comparison statements for the nonmajor special revenue funds. This supplementary information is presented immediately following the notes to the basic financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS Condensed Schedule of Net Assets ,Tune 30,2006 and 2005 Primary Government _ Governmental Activities Business-type Activities Total 0M 241 =6 M M Assets: Current and other assets $233,765,854 S 202,715,246 $1,382,097 $1,339,425 S 235,147,951 S 204,054,671 Capital assets,net 516,600,592 497,287,738 1,336,920 1,367,085 517,937,512 498,654,823 Total assets $750.366,446 $700,002,984 $2,719,017 $2,706,510 S 753,085,463 $702,709,494 Liabilities: Long-term I inbilities outstanding 292,196,562 286,831,687 1,019,386 1,041,285 293,215,948 287,872,972 Other liabilities 17.685,089 18,300,401 385,869 306,2% 18,070,958 18,606,697 Total liabilities S 309,881,651 $305,132,088 $1,405,255 $1,347,581 SS 311,286 5 306,479,669 Net assets: Invested in capital assets,net ofrelated debt 386,861,296 364,662,377 317,534 325,800 387,1785830 364,988,177 Restricted 44,737,588 41,950,262 182,797 182,167 44,920,385 42,132,429 Unrestricted(deficit) 8,885911 (11,741,743) 813,431 850,962 9,699,342 (10,890,781) Total net assets $40404 795 $394,870,896 $1,313,762 $1,358,929 S 441,798,557 S 396,229,825 - 15 - Analysis of Net Assets As noted earlier,net assets may serve over time as a useful indicator of a government's financial position. In the case of the County,assets exceeded liabilities by$441.8 million at the close of the most recent fiscal year. By far the largest portion of the County's net assets(88 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. AIthough the County's investment in its capital assets is reported net of related debt,it should be noted that the resources needed to repay this debt must be provided from other sources,since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the County's net assets(10 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 assets,both for the government as a whole,as well as for its separate governmental and business-type activities. The government's net assets increased by$45.6 million during the current fiscal year. Approximately$22.4 million of the increase is due to increases in real property tax valuations and collections. The remaining increase represents the degree to which increases in ongoing revenues have outstripped similar increases in ongoing expenses. The government's current and other assets increased by$31.1 million during the current fiscal year. Approximately$24.9 million of the increase is due to an increase in cash and investments, while$5.6 million is due to an increase in state and federal grant receivables. The government's capital assets increased by$19.3 million due to the large amount of capital improvement projects done by the County during the current fiscal year. See further discussion of the increase in capital assets on page 21. The government's long-term liabilities outstanding increased by$5.3 million due to the new general obligation bonds issued during the current year,offset by principal payments and decreases in other long-term liabilities. See further discussion of the increase in long-term debt outstanding on page 22. The government's other liabilities decreased by$0.5 million primarily due to a decrease in unearned revenue relating to intergovernmental grants($1.6 million)offset by smaller increases in other accounts. - 16- Condensed Schedule of Changes in Net Assets For the Fiscal Years Ended June 30,2W6 and 2005 Primary Government Governmental Activities 8osiness-type Activiiw; Total 2006 2005 2006 2005 2M Im Revenues: Program revenues: Charges for services $ 38,977,264 $ 35.377,514 S 338,141 S 314,971 S 39,315,405 S 35,692,485 Operating grants and contributions 38,252,889 36,370,993 141,019 135,829 38,393,908 36,506,822 Capital grants and contributions 14,801,828 26,221,627 - 14,801,828 26,221,627 General revenues: Property taxes 152,182,806 129,775,410 - - 152,182,806 129,775,410 Other taxes 21,997,764 19,948,903 - 21,997,764 19,948,903 Grants and contributions,unrestricted 18,510,262 16,734,850 - - 18,510,262 16,734,850 Investntentearnings 4,976,178 2,957,188 22,874 13,580 4,999,052 2,970,768 Miscellaneous 2,110,854 3,657,794 - 2,110,854 3,657,794 Total revenues 291,809,845 271,044,279 502,034 464,380 292,311;879 271,508,659 Expenses: General govemrnent 38,264,132 51,262,329 - - 38;264,132 51,262,329 Publiesafety 106,067,466 94,422,057 - 106,067,466 94,422,057 Highways and streets 24,783,476 20,857,341 - 24,783,476 20,857,341 Hcalth,education and welfare 20,181,685 21,503,635 547,201 484,879 20,728,886 21,988,514 Culture and recreation 19,464,962 16,124,457 - 19,464,962 16,124,457 Sanitation 27,265,515 26,669,660 - - 27,265,515 26,669,660 Interest on longterm debt 10,168,710 8,718,758 - 10,168,710 8,718,758 Total expenses 246,195,946 239,558,237 547201 484,879 246,743,147 240,043,116 Increase(decrease)in net assets 45,613,899 31,486,042 (45,167) (20,499) 45,568,732 31,465,543 Net assets at beginning of year 394,870,896 363,384,854 1,358,929 1,379,428 396,229,825 364,764,282 Net assets at end of year $440,484,795 S 394,870,896 S 1,313,762 S 1,358,929 S 441,798,557 $396,229,825 Analysis of Changes in Net Assets Governmental activities. Governmental activities increased the County's net assets by$45.6 million or primarily all of the total growth in net assets of the County. Total revenues increased by$20.8 million(eight percent). The County's property taxes increased by$22.4 million(17 percent)during the year. Most of this increase is attributable to the increase in assessed values. Grants and contributions not restricted to specific programs increased by$1.8 million(1l percent). Total expenses increased by$6.6 million(three percent). This increase was primarily due to increases in almost all of the expense categories. Part of the increase is the result of negotiated pay raises and related benefits. Much of the increase in all areas is due to the increased cost of employee benefits,particularly employee retirement and health insurance costs. These increases were offset by a decrease in general government expenditures of$13.0 million(25 percent). This decrease is primarily due to a reduction in claims and judgments,as well as fewer general government capital projects. For the most part,other fluctuations in expenses closely paralleled inflation and growth in demand for services. - 17- Expenses and Program Revenues-Governmental Activities Year Ended June 30,2006 t 20,000,000 S 100,000,000 - a, ■Expenses O Program revenues 80,000,000 \, ''r..." � s •.,. Y- .,; .:.yi} x. ..�� ` ., f by•, 40,000,000 20.000,000 General Public safety Highways and Healtn, J Culture and Saritation Interest on government streets educationand recreation wip-term debt ,veftre Revenues by Source-Governmental Activities Year Ended June 30,2006 Investment comings Miscellaneous Grants and contributions not y J restricted to specific _ l programs Charges for services 13% (-V•ertaxes_ Operating grants and contributions 19% +l { Capital grants and 1 conntributens 596 Pro perty taxes --� 52'§0 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 sanitation(I 1 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(52 percent),followed by charges for services (13 percent)and operating grants and contributions(13 percent). Business-type activities. Business-type activities decreased the County's net assets by$45,167. Expenses for health,education and welfare account for all of the$547,201 of expenses. Charges for services were$338,141,operating grants and contributions were$141,019 and investment earnings were$22,874. FINANCIAL ANALYSIS OF THE COUNTY'S FUNDS As noted earlier,the County uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the County's governmental funds is to provide information on near-term inflows,outflows,and balances of spendable resources. Such information is useful in assessing the County's financing requirements. In particular,unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year,the County's governmental funds reported combined ending fund balances of$207.0 million,an increase of$32.9 million in comparison with prior year. Approximately 45 percent of this total amount($92.1 million)constitutes unreserved fund balance,which is available for spending at the government's discretion. The remainder of the fund balance is reserved to indicate that it is not available for new spending because it has already been committed 1)to liquidate contracts and purchase orders for last fiscal year($64.6 million), 2)to pay debt service($16.8 million),or 3)for a variety of other restricted purposes($33.5 million). The general fund is the chief operating fund of the County. At the end of the current fiscal year, unreserved fund balance of the general fund was$23.4 million,while total fund balance reached $35.0 million. As a measure of the general fund's liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund expenditures. Unreserved fund balance represents 13 percent of total general fund expenditures,while total fund balance represents 20 percent of that same amount. The fund balance of the County's general fund increased by$11.0 million during the current fiscal year. Key factors in this increase are as follows: • An increase of$22.1 million(17 percent)in property tax revenue due to increasing property values. • An increase of$3.1 million(seven percent)in intergovernmental revenue due to an increase in transient accommodations tax proceeds($1.8 million)and emergency medical services proceeds($0.7 million)from the state and increased federal grant revenue related to many different programs. - 19- • An increase of$5.2 million(44 percent)in pension and retirement system contributions. The increase is due to a change in contribution methods established by State statute. During the current fiscal year,the contribution amount was changed from a fixed contribution amount for the year based on the actuarial valuation of the plan to a percentage contribution based on fixed percentages of salaries and wages. • An increase of$5.0 million(19 percent)in general government expenditures due primarily to increases in expenditures for the legislative branch($0.8 million),planning($0.6 million), research and development($0.8 million)and automotive($0.5 million). Increases were noted in many of the grant-funded programs,coqui frog eradication,fuel costs,community development plans as well as in salaries and wages due to negotiated pay increases and an increase in the number of positions. • An increase of$6.9 million(10 percent)in public safety expenditures due primarily to increases in expenditures for police($3.1 million),fire($2.9 million)and civil defense($0.6 million). Increases were noted in many of the grant-funded programs as well as in salaries and wages due to negotiated pay increases. • An increase of$2.1 million(103 percent)in highways and streets expenditures due primarily to increases in expenditures for mass transit($2.1 million)due to increased spending in federal grant-funded transit programs. • A decrease of$1.8 million(30 percent)in capital outlay due primarily to decreases in CDBG and HOME grant programs for capital improvements($1.8 million). The fund balance of the County's capital projects fund increased by$16.2 million during the current fiscal year. The increase is primarily dueto the fund's main revenue sources of intergovernmental revenue($8.3 million),transfers in($7.3 million)and bond proceeds($25.0 million)combining to exceed capital expenditures($26.3 million)for the current fiscal year. The debt service funds, included in other governmental funds,have combined total fund balances of$16.8 million,all of which is reserved for the payment of debt service. The net increase in the combined fiend balances during the current year in the debt service funds was$1.7 million(12 percent). Proprietary funds. The County's proprietary funds provide the same type of information found in the government-wide financial statements,but in more detail. Unrestricted net assets of the Kulaimano Elderly Housing Project(Kulaimano)at the end of the year amounted to$860,128,and the unrestricted net deficit of the Ouli Ekahi Affordable Housing Project(Ouli Ekahi)amounted to$46,697. The net assets for Kulaimano decreased by$20,214 and the net deficit for Ouli Ekahi increased by$24,953. Other factors concerning the finances of these two funds have already been addressed in the discussion of the County's business-type activities. GENERAL FUND BUDGETARY HIGHLIGHTS Differences between the original budget and the final amended budget were primarily the result of a$9.3 million increase in appropriations and an$0.8 million increase in transfers out and can be briefly summarized as follows: • $3.5 million in increases due to the appropriation of higher than expected fund balance to be used in the year's operations. • $6.6 million in increases due to the appropriations for capital and operating grants and contributions. -20- Differences between the final budget and the actual(budgetary basis)resulted in$2.4 million more revenues than expected and$14.6 million less expenditures than appropriated. This is primarily due to the following factors: • $2.3 million favorable variance in taxes and assessments revenue resulting from collections being more than expected. • $2.6 million favorable variance in interest and penalties revenue resulting from higher earnings on cash and investments than expected. • $2.3 million unfavorable variance in intergovernmental revenue,including$1.6 million in federal grants and$0.6 million in state grants. • $3.5 million favorable variance in general government expenditures caused by an overall effort by each department to hold the line on expenditures. • $5.8 million favorable variance in public safety expenditures primarily created by vacant positions in the police and fire departments,as well as an increased effort to control costs during the budget year. • $2.2 million favorable variance in miscellaneous expenditures,due primarily to lower than expected costs relating to such accounts as provision for compensation adjustment. CAPITAL ASSET AND DEBT ADM MSTRATION Capital assets. The County's investment in capital assets for its governmental and business-type activities as of June 30,2006 amounts to$517.9 million(net of accumulated depreciation). This investment in capital assets includes land,buildings and improvements,equipment,and infrastructure assets,which consists of primarily roads and bridges. The total increase in the County's investment in capital assets for the current fiscal year was four percent. Major capital asset events during the current fiscal year included the following: • Construction began on Kuakini Highway Improvements;construction in progress as of the end of the current fiscal year had reached$9.5 million. • Construction continued on Hoolulu Accessibility Improvements;construction in progress as of the end of the current fiscal year had reached$4.7 million. • Construction was completed on the Kawailani Street Bridge;construction in progress of$6.9 million was transferred to infrastructure. • Construction was completed on the Kamuela Senior Housing Project;construction in progress of$3.7 million was transferred to buildings and improvements. Capital Assets (net of depreciation) As of June 30,2006 and 2005 Primary Government Governmental Activities Business-type Activities Total 744 Im 7406 744 7445 Land S 22,737,854 S 19,560,739 S 753,877 S 753,877 S 23,491,731 $ 20,314,616 Infrastructure assets 155,377,804 156,145,061 - - 155,377,804 156,145,061 Ground and site improvements - - 90,107 93,861 90,107 93,861 BuildinEs and improvements 219,887,751 216,853,443 477,419 502,034 220,365,170 217,355,477 Equipment 31,854,863 28,603,325 15,517 17,313 31,870,380 28,620,638 Construction work inprogress 86,742,320 76,125,170 86,742,320 76,125,170 Total S 516,600,592 $497,287,738 $1,336,920 $1,367,095 S 517,937,512 $498,654,823 -21 - Additional information on the County's capital assets can be found in note 6 to the basic financial statements. Long-term debt. At the end of the current fiscal year,the County had total bonded debt outstanding of$196.7 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$14.5 million(eight percent)during the current fiscal year. The key factors in this increase were new debt($25.0 million)and normal principal reduction. The County maintains an"A+"rating from Standard&Poor's and an"A1"rating from Moody's for general obligation debt. State statutes limit the amount of general obligation debt the County may issue to 15 percent of the total assessed value of all county real property as established for tax purposes on the last tax assessment rolls. The current debt limitation for the County is$2,471,705,I40,which is in excess of the County's outstanding general obligation debt. Currently the County's outstanding debt represents eight percent of our debt limitation. At the end of the current fiscal year,the County also had loans outstanding from the State Water Pollution Control Revolving Fund amounting to$26.4 million and notes payable to the U.S. Department of Agriculture,Farmers Home Administration amounting to$1.0 million. Additional information on the County's long-term debt can be found in note 10 to the basic financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES • The unemployment rats for the County is 33 percent,which is consistent with the rate from a year ago. • The number of visitors to the County for the most recent calendar year was 1,487,747,up 16 percent from the previous year's count of 1,281,156. Both of these factors were considered in preparing the County's budget for the 2007 fiscal year. At the end of the current fiscal year,unreserved fund balance in the general fund was$23.4 million. The County has appropriated$7.3 million of this amount for spending in the 2007 fiscal year budget. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the County's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to.the Director of Finance,County of Hawaii,25 Aupuni Street,Room 118,Hilo,Hawaii 96720. -22- BASIC FINANCIAL STATEMENTS -23 - COUNTY OF HAWAII Statement of Net Assets June 30,2006 Primary Government Governmental Business-type Component Activities Activities Total Unit Assets Current Assets: Cash and cash equivalents(notes 3 and 14) $ 66,680,839 $ 406,970 $ 67,087,809 $ 2,669,765 Restricted cash and cash equivalents(note 3) 92,077 30,471 122,548 - Investments(notes 3 and 14) 89,746,526 700,000 90,446,526 45,690,033 Receivables,net(note 4) 32,321,132 49,991 32,371,123 4,441,140 Internal balances(note 5) 4,050 (4,050) - - Inventories 2,798,136 - 2,798,136 1,214,001 Prepaid expenses - 1,231 1,231 254,400 Other 1,052,352 - 1,052,352 - Total current assets 192,695,112 1,184,613 193,879,725 54,269,339 Investments(note 3) 37,183,249 - 37,183,249 - Restricted cash and cash equivalents(note 3) - 197,484 197,484 - Restricted investments(note 14) - - - 14,403,033 Loans receivable,excluding current portion - - - 669,246 Receivable from improvement district (notes 4 and 10) 3,887,493 - 3,887,493 - Deferred charges - - - 5,003,102 Capital assets(notes 6, 8 and 14): Utility plant in service,net - - - 153,495,436 Infrastructure assets,net 155,377,804 - 155,377,804 - Ground and site improvements,net - 90,107 90,107 - Buildings and improvements,net 219,887,751 477,419 220,365,170 - Equipment,net 31,854,863 15,517 31,870,380 - Construction work in progress 86,742,320 - 86,742,320 42,106,718 Land 22,737,854 753,877 23,491,731 815,962 Total capital assets,net 516,600,592 1,336,920 517,937,512 196,418,116 Total noncurrent assets 557,671,334 1,534,404 559,205,738 216,493,497 Total assets 750,366,446 2,719,017 753,085,463 270,762,836 (Continued) -24- COUNTY OF HAWAII Statement of Net Assets June 30,2006 (Concluded) Primary Government Governmental Business-type Component Activities Activities Total Unit Liabilities Current Liabilities: Accounts payable and accrued liabilities $ 4,31 1,308 $ 382,537 $ 4,693,845 $ 3,884,740 Unearned revenue(note 7) 5,548,849 3,332 5,552,181 - Interest due on long-term debt 3,492,466 - 3,492,466 80,517 Bonds and loans payable,current portion net (notes 10 and 14) 15,029,533 23,532 15,053,065 1,940,000 Compensated absences,current portion(note 10) 6,062,248 - 6,062,248 1,617,384 Claims and judgments,current portion (notes 10, 12 and 14) 4,088,755 - 4,088,755 61,000 Capital leases,current portion(notes 8 and 10) 1,060,724 - 1,060,724 - Landfill costs payable,current portion (notes 9 and 10) 148,699 - 148,699 - Customers'deposits for service connections - - - 704,199 Other 4,332,466 - 4,332,466 - Total current liabilities 44,075,048 409,401 44,484,449 8,287,840 Noncurrent liabilities: Bonds and loans payable,net (notes 10 and 14) 210,232,741 995,854 211,228,595 39,609,919 Compensated absences(note 10) 18,004,132 - 18,004,132 785,032 Claims and judgments(notes 10, 12 and 14) 17,251,638 - 17,251,638 211,000 Capital leases(notes 8 and 10) 1,803,791 - 1,803,791 - Landfill costs payable(notes 9 and 10) 18,514,301 - 18,514,301 - Customers'deposits payable from restricted assets - - - 14,403,033 Total noncurrent liabilities 265,806,603 995,854 266,802,457 55,008,984 Total liabilities 309,881,651 1,405,255 311,286,906 63,296,824 Net Assets Invested in capital assets,net of related debt 386,861,296 317,534 387,178,830 180,181,457 Restricted for Capital projects 27,953,881 - 27,953,881 - Debt service(note 10) 16,783,707 182,797 16,966,504 - Unrestricted 8,885,911 813,431 9,699,342 27,284,555 Total net assets $440,484,795 $ 1,313,762 $441,798,557 $207,466,012 See accompanying notes to the basic financial statements. -25- COUNTY OF HAWAII Statement of Activities For the Fiscal Year Ended June 30,2006 Program Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Primary government: Governmental activities: General government $ 38,264,132 $ 4,032,542 $ 3,833,841 $ 4,758,534 Public safety 106,067,466 6,975,962 17,358,506 302,612 Highways and streets 24,783,476 9,079,084 331,380 9,461,535 Health,education and welfare 20,181,685 980,147 15,089,070 - Culture and recreation 19,464,962 1,439,784 554,064 279,147 Sanitation 27,265,515 16,469,745 1,086,028 - Interest on long-term debt 10,168,710 - - - Total governmental activities 246,195,946 38,977,264 38,252,889 14,801,828 Business-type activities: Health,education and welfare 547,201 338,141 141,019 - Total primary government $ 246,743,147 $ 39,315,405 $ 38,393,908 $ 14,801,828 Component unit: Water(note 14) $ 39,203,973 $ 34,048,010 $ - $ 6,380,606 General revenues: Taxes: Property taxes,levied for general purposes Public service company taxes Franchise taxes Fuel taxes Grants and contributions not restricted to specific programs Investment earnings Miscellaneous Total general revenues Change in net assets Net assets,beginning of year Net assets,end of year See accompanying notes to the basic financial statements. -26- Net(Expense)Revenue and Changes in Net Assets Primary Government Governmental Business-type Component Activities Activities Total Unit $ (25,639,215) $ - $(25,639,215) $ - (81,430,386) - (81,430,386) - (5,911,477) - (5,911,477) - (4,112,468) - (4,112,468) - (17,191,967) - (17,191,967) - (9,709,742) - (9,709,742) - (10,168,710) - (10,168,710) - (154,I63,965) - (154,163,965) - - _ (68,041) (68,041) - (154,163,965) (68,041) (154,232,006) - - - - 1,224,643 152,182,806 - 152,182,806 - 6,811,483 - 6,811,483 - 7,328,887 - 7,328,887 - 7,857,394 - 7,857,394 - 18,510,262 - 18,510,262 - 4,976,178 22,874 4,999,052 1,623,842 2,110,854 - 2,110,854 - 199,777,864 22,874 199,800,738 1,623,842 45,613,899 (45,167) 45,568,732 2,848,485 394,870,896 1,358,929 396,229,825 204,617,527 $440,484,795 $ 1,313,762 $441,798,557 $207,466,012 - 27 - COUNTY OF HAWAII Governmental Funds Balance Sheet June 30,2006 Other Total Solid Waste Capital Governmental Governmental General Fund Projects Funds Funds Assets Cash and cash equivalents(note 3) $ 6,793,183 $ 4,553,851 $ 19,331,120 $36,002,685 $ 66,680,839 Investments(note 3) 17,452,228 - 98,904,606 10,572,941 126,929,775 Receivables,net(note 4) 5,468,161 1,312,956 838,721 1,893,901 9,513,739 Due from other governmental funds(note 5) 346,262 - 132,231 102,133 580,626 Due from other nongovernmental funds(note 5) - - - 4,050 4,050 Receivables from other governments(note 4) 14,940,738 187,286 7,491,913 187,456 22,807,393 Restricted cash with escrow(note 3) 92,077 - - - 92,077 Inventories 2,798,136 - - - 2,798,136 Other 312,622 483,025 - 256,705 1,052,352 Total assets $48,203,407 $ 6,537,118 $ 126,698591 $49,019,871 $230,458,987 Liabilities and Fund Balances Liabilities: Accounts payable $ 1,538,905 $ 1,078,561 $ 1,136,353 $ 557,489 $ 4,311,308 Due to other governmental funds(note 5) 80,580 35,796 - 464,250 580,626 Deferred revenue(note 7) 7,894,905 1,324,954 3,108,107 1,893,901 14,221,867 Other 3,723,810 4,912 250 603,494 4,332,466 Total liabilities 13,238,200 2,444,223 4,244,710 3,519,134 2__ 46,267 Fund balances: Reserved for: Encumbrances 7,850,955 2,787,687 44,282,459 9,680,126 64,601,227 Inventories 2,798,136 - - - 2,798,136 Taxicab investigations 64,696 - - - 64,696 Liquor control 805,348 - - - 805,348 Unexpended allotments - - 29,825,584 - 29,825,584 Debt service(note 10) - - - 16,783,707 16,783,707 Unreserved,reported in: General fund 23,446,072 - - - 23,446,072 Special revenue funds - 1,305,208 - 19,036,904 20,342,112 Capital projects funds - - 48,345,838 - 48,345,838 Total fund balances 34,965,207 4,092,895 122,453,881 45,500,737 207,012,720 Total liabilities and fund balances $48,203,407 $ 6,537,118 $ 126,698,591 X49,019,871 $230,45087 See accompanying notes to the basic financial statements. -28- COUNTY OF HAWAII Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets June 30,2006 Total fund balances-governmental funds $207,012,720 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. These assets consist of: Land 22,737,854 Infrastructure assets,net 155,377,804 Buildings and improvements,net 219,887,751 Equipment,net 31,854,863 Construction work in progress 86,742,320 Total capital assets 516,600,592 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) 8,673,018 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 (221,374,781) Accrued interest on bonds (3,492,466) Capital leases (2,864,515) Compensated absences (24,066,380) Claims and judgments (21,340,393) Landfill closure/postclosure costs (18,663,000) Total Iong-term liabilities (291,801,535) Net assets of governmental activities $440,484,795 See accompanying notes to the basic financial statements. -29- COUNTY OF HAWAII Governmental Funds Statement of Revenues,Expenditures,and Changes in Fund Balances For the Fiscal Year Ended June 30,2006 Other Total Solid Waste Capital Governmental Governmental General Fund Projects Funds Funds Revenues Property tax $153,206,841 $ - $ - $ - $153,206,841 Public service company tax 6,811,483 - - - 6,811,483 Fuel tax - - - 7,857,394 7,857,394 Public utility franchise tax - - - 7,328,887 7,328,887 Licenses and permits 7,805,988 - - 8,737,921 16,543,909 Intergovernmental 46,876,511 1,086,028 8,300,605 13,373,733 69,636,877 Charges for services 4,685,819 7,883,950 - 7,282,625 19,852,394 Investment earnings 5,061,559 18,888 142,745 5,223,192 Miscellaneous 2,182,582 45,455 886,202 1,266,189 4,380,428 Total revenues 2264630,783 9,015,433 9,205,695 45,989,494 290,841,405 Expenditures Current: General govermnent 31,153,304 - - - 31,153,304 Public safety 79,544,132 - - 4,046,898 83,591,030 Highways and streets 4,091,851 - - 8,515,753 12,607,604 Sanitation 979,335 18,820,254 - 6,765,448 26,565,037 Health,education and welfare 5,680,647 - - 13,369,530 19,050,177 Culture and recreation 13,987,544 - - 743,412 14,730,956 Pension and retirement coutributions(note 13) 17,081,687 692,061 - 2,162,793 19,936,541 Employees'health insurance 14,857,226 316,865 - 958,701 16,132,792 Miscellaneous 5,083,675 145,874 - 1,550,504 6,780,053 Debt service: Principal 400,810 779,939 - 12,879,775 14,060,524 Interest 53,953 83,630 - 9,776,371 9,913,954 Capital outlay 4,306,760 - 26,281,533 - 30,588,293 Total expenditures 177,220,924 20,838,623 26,281,533 60,769,185 285,l I0,265 Excess(deficiency)of revenues over expenditures 49,409,859 (11,823,190) (17,075,838) (14,779,691) 5,731,140 (Continued) -30- COUNTY OF HAWAII Governmental Funds Statement of Revenues,Expenditures,and Changes in Fund Balances For the Fiscal Year Ended June 30,2006 (Concluded) Other Total Solid Waste Capital Governmental Governmental General Fund Projects Funds Funds Other Financing Sources(Uses),including transfers Sale of assets $ 81,774 $ - $ - $ - $ 81,774 Capital leases(note 10) 114,547 280,269 - 8,689 403,505 State Revolving Fund loans(mote 10) - - 25,167 - 25,167 Sale of bonds(note 10) - - 25,000,000 - 25,000,000 Premium on bonds(note 10) - - 972,327 - 972,327 Transfers in(note 5) - 12,652,576 7,322,432 25,715,726 45,690,734 Transfers out(note 5) (39,277,734) - - (6,413,000} (45,690,734) Total other financing sources(uses) _(39,081,413} 12,932,845 33,319,926 19,311%415 26,482,773 Net change in fund balances 10,328,446 1,109,655 16,244,088 4,531,724 32,213,913 Fund balance at beginning of year 23,978,072 2,983,240 106,209,793 40,969,013 174,140,118 Increase in reserve for inventories 658,689 - - - 658,689 Fund balance at end of year $ 34,965,207 $ 4 2092,895 $122,453,881 $45,500,737 $207,012,720 See accompanying notes to the basic financial statements. - 31 - COUNTY OF HAWAII Reconciliation of the Change in Fund Balances of Governmental Funds to the Statement of Activities For the Fiscal Year Ended June 30,2006 Net change in fund balances-total governmental funds $ 32,213,913 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 and dedicated property 38,023,844 Depreciation expense and loss on disposals (18,710,990) Excess of capital outlay over depreciation expense 19,312,854 Borrowings provide current financial resources to governmental funds; however,issuing debt increases Iong-term liabilities in the statement of net assets. In the current period,proceeds were received from: General obligation bonds (25,000,000) Premium on bond issuance (972,327) SRF loan obligations (25,167) Capital lease obligations (403,505) Total debt proceeds (26,400,999) Repayment of long-term debt is reported as an expenditure in governmental funds,but the repayment reduces long-term liabilities in the statement of net assets. In the current year,these amounts consist of: Bond principal retirement 10,506,277 SRF loan repayment 2,372,329 Capital lease payments 1,181,918 Total long-term debt repayment 14,060,524 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. (924,097) (Continued) -32- COUNTY OF HAWAII Reconciliation of the Change in Fund Balances of Governmental Funds to the Statement of Activities For the Fiscal Year Ended June 30,2006 (Concluded) Some items reported in the statement of activities do not involve current financial resources and therefore are not reported as expenditures in governmental funds. These activities are: Increase in inventory $ 658,689 Increase in compensated absences (1,493,125) Decrease in claims and judgments 5,261,896 Decrease in landfill closure/postclosure care costs 3,179,000 Amortization of premium from bond issuance 157,229 Amortization of deferred amount on refunding of bonds (129,400) Net increase in accrued interest (282,585) Net additional expenditures 7,351,704 Change in net assets of governmental activities $ 45,613,899 See accompanying notes to the basic financial statements. -33 - COUNTY OF HAWAII General Fund Statement of Revenues,Expenditures and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2006 Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) Revenues: Taxes and assessments: Real property taxes $ 151,187,300 $ 151,187,300 $ 153,206,841 $ 2,019,541 Public service company taxes 6,500,000 6,500,000 6,811,483 311,483 Total taxes and assessments 157,687,300 157,687,300 160,018,324 2,331,024 Licenses and permits: Nonbusiness licenses and permits 3,972,467 3,972,467 4,992,199 1,019,732 Business licenses 1,300,800 1,300,800 1,205,178 (95,622) Street use 1,528,300 1,528,300 1,608,611 80,311 Total licenses and permits 6,801,567 6,801,567 7,805,988 1,004,421 Intergovernmental: Federal: Programs for the aged 1,932,813 1,932,813 1,537,664 (395,149) Community development block grants - 2,417,268 2,417,268 - HOME program grant - 1,496,173 1,496,173 - Civil defense 118,000 118,000 26,234 (91,766) Law enforcement 2,358,355 2,648,079 1,846,343 (801,736) Other 3,605,313 4,854,841 4,501,229 (353,612) Total federal 8,014,481 13,467,174 11,824,911 (1,642,263) State: State General Fund-Act 185, SLH 1990 17,667,000 17,667,000 18,187,203 520,203 Emergency medical services 10,979,401 10,979,401 10,701,787 (277,614) Other 4,046,108 4,862,887 3,971,004 (891,883) Child support enforcement 1,020,903 1,020,903 1,054,889 33,986 Total State 33,713,412 34,530,191 33,914,883 (615,308) Total intergovernmental revenue 41,727,893 47,997,365 45,739,794 (2,257,571) Charges for current services: General government 3,012,380 3,012,380 3,414,184 401,804 Culture and recreation 830,080 830,080 709,363 (120,717) Highways and streets 541,000 309,000 295,623 (13,377) Public safety 150,284 150,284 266,649 116,365 Total charges for current services 4,533,744 4,301,744 4,685,819 384,075 Fines and forfeitures 1,374,500 1,374,500 1,069,039 (305,461) Rents 56,500 56,500 66,312 9,812 (Continued) -34- COUNTY OF HAWAII General Fund Statement of Revenues,Expenditures and Changes in Fund Balance.- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2006 Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) Revenues(continued): Interest and penalties $ 2,400,000 $ 2,400,000 $ 5,005,036 $ 2,605,036 Miscellaneous 3,849,423 4,176,965 2,797,500 (1,379,465) Total revenues 218,430,927 224,795,941 227,187,812 2,391,871 Expenditures: Current: General government: Finance 7,218,371 7,435,910 6,284,810 1,151,100 Research and development 3,350,028 4,583,487 4,228,982 354,505 Legislative 5,191,863 3,996,791 3,308,336 688,455 General government building 3,370,579 3,394,660 3,296,405 98,255 Law 3,319,531 3,319,531 3,020,497 299,034 Automotive equipment 2,906,909 3,061,493 2,955,442 106,051 Planning and zoning 2,259,247 2,628,188 2,409,953 218,235 Personnel services 1,641,866 1,701,836 1,569,003 132,833 Engineering 1,596,564 1,633,411 1,548,059 85,352 Mayor's office 1,249,087 1,666,347 1,516,400 149,947 Data Systems 1,020,758 1,086,935 1,050,714 36,221 Chief engineer 848,834 983,903 937,340 46,563 Elections 535,038 612,667 522,158 90,509 Total general government 34,508,675 36,105,159 32,648,099 3,457,060 Public safety: Police department 41,701,652 43,284,134 41,226,841 2,057,293 Fire department 27,137,094 29,085,176 26,883,124 2,202,052 Prosecuting attorney 6,351,389 6,603,333 5,638,472 964,861 Protective inspection 1,945,302 2,066,891 1,993,399 73,492 Liquor control 1,262,417 1,284,517 1,089,202 195,315 Flood control 153,939 466,042 466,042 - Civil defense agency 468,793 551,044 252,036 299,008 Humane Society 992,384 995,697 995,697 - Total public safety 80,012,970 84,336,834 78,544,813 5,792,021 Highways and streets: Mass transit 4,925,321 4,948,041 4,938,4I6 9,625 (Continued) -35 - COUNTY OF HAWAII General Fund Statement of Revenues,Expenditures and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June.30,2006 Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) Expenditures(continued): Current(continued): Sanitation: Environmental management $ 1,074,258 $ 1,074,258 $ 976,130 $ 98,128 Health,education and welfare: Elderly Activities 2,992,387 3,093,514 2,764,765 328,749 Office.of Aging 2,056,578 2,056,578 1,966,287 90,291 Education 55,000 55,000 42,899 12,101 Social programs 825,000 825,000 819,000 6,000 Cemeteries 273,632 362,232 318,215 44,017 Physical examination 102,942 102,942 102,942 - Total health,education and welfare 6,305,539 6,495,266 6,014,108 481,158 Culture and recreation: Community music 180,119 166,119 162,322 3,797 Organized recreation: Maintenance 5,366,933 5,525,448 5,515,367 10,081 Recreation 2,189,457 2,292,819 2,181,728 111,091 Aquatics 3,077,259 3,226,093 3,039,703 186,390 Hoolulu Park complex 823,186 940,107 928,335 11,772 Administration 875,081 953,281 902,097 51,184 Children's zoo 527,943 580,443 550,588 29,855 Summer/Tntersession 423,365 414,865 314,273 100,592 Culture and arts 140,238 143,238 133,618 9,620 Elderly activities administration 634,766 619,766 545,026 74,740 Total culture and recreation 14,238,347 14,862,179 14,273,057 589,122 Pension and retirement contributions 17,612,204 17,812,204 16,881,540 930,664 Health fund 16,154,000 15,954,000 14,857,226 1,096,774 Miscellaneous 7,837,500 6,161,738 3,992,408 2,169,330 Total current 182,668,814 187,749,679 173,125,797 14,623,882 (Continued) -36- COUNTY OF HAWAII General Fund Statement of Revenues,Expenditures and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2006 (Concluded) Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) Expenditures(continued): Capital Outlay: Community Development Block grants(HUD) $ - $ 2,608,038 $ 2,608,038 S - HOME Program - 1,614,946 1,614,946 - Total capital outlay - 4,222,984 4,222,984 - Total expenditures 182,668,814 191,972,663 177,348,781 14,623,882 Excess of revenues over expenditures 35,762,113 32,823,278 49,839,031 17,015,753 Other financing uses: Transfers out: Capital Projects Fund (517,866) (909,432) (909,432) - Housing Fund (745,303) (935,303) (935,303) - Solid Waste Fund (12,652,576) (12,652,576) (12,652,576) - Golf Course Fund (161,804) (161,804) (161,804) - Highway Fund - (222,000) (222,000) - Self Insurance Fund (1,000,000) (1,000,000) (1,000,000) - Disaster/Emergency Fund (1,000,000) (1,000,000) (1,000,000) - Public Access/Open Space Pres Fund (1,000,000) (1,000,000) (1,000,000) - Debt Service Fund (27,500,608) (27,500,608) (26,065,113) 1,435,495 Total transfers out (44,578,157) (45,381,723) (43,946,228) 1,435,495 Total other financing uses (44,578,157) (45,381,723) (43,946,228) 1,435,495 Excess(deficiency)of revenues and other sources over expenditures and other uses (8,816,044) (12,558,445) 5,892,803 18,451,248 Fund balance at beginning of year 23,978,072 23,978,072 23,978,072 - Fund balance at end of year $ 15,162,028 $ 11,419,627 $ 29,870,875 $ 18,451,248 See accompanying notes to the basic financial statements. -37- COUNTY OF HAWAII Solid Waste Fund Schedule of Revenues,Expenditures and Changes in Fund Balance- Budget and Actual(Budgetary Basis) For the Fiscal Year Ended June 30,2006 Actual Variance Original Final (Budgetary Positive Budget Budget Basis) (Negative) Revenues: Intergovernmental $ 1,970,500 $ 1,970,500 $ 1,236,833 $ (733,667) Charges for services-tipping fees 8,561,406 8,561,406 7,883,950 (677,456) Miscellaneous - - 45,455 45,455 Total revenues 10,531,906 10,531,906 9,166,238 (1,365,668) Expenditures: Sanitation 21,872,699 23,197,699 22,033,126 1,164,573 Pension and retirement contributions 581,783 696,783 692,061 4,722 Health fund 410,000 320,000 316,865 3,135 Miscellaneous 320,000 170,000 145,300 24,700 Total expenditures 23,184,482 24,384,482 23,187,352 1,197,130 Deficiency of revenues over expenditures (12,652,576) (13,852,576) (14,021,114) (168,538) Other financing sources-transfers in- General Fund 12,652,576 12,652,576 12,652,576 - Deficiency of revenues and other sources over expenditures - (1,200,000) (1,368,538) (168,538) Fund balance at beginning of year 2,983,240 2,983,240 2,983,240 - Fund balance at end of year $2,983,240 $ 1,783,240 $ 1,614,702 $ (168,538) See accompanying notes to the basic financial statements. -38- COUNTY OF HAWAII Proprietary Funds Statement of Net Assets June 30,2006 Business-type Activities- Enterprise Funds Kulaimano Ouli Ekahi Elderly Affordable Housing Housing Project Project Total Assets Current assets: Cash and cash equivalents(note 3) $ 161,892 $ 244,928 $ 406,820 Restricted cash and cash equivalents(note 3) 10,373 20,098 30,471 Investments(note 3) 700,000 - 700,000 Imprest fund(note 3) 50 100 150 Receivables(note 4) 6,467 43,524 49,991 Prepaid expenses 1,231 - 1,231 Total current assets 880,013 308,650 1,188,663 Noncurrent assets: Restricted cash and cash equivalents(note 3) 182,797 14,687 197,484 Capital assets(note 6): Land and site improvements 511,000 503,877 1,014,877 Buildings and equipment 1,229,954 - 1,229,954 Less accumulated depreciation (907,911 - (907,911 Total capital assets 833,043 _ 503,877 1,336,920 Total noncurrent assets 1,015,840 518,564 1,534,404 Total assets 1,895,853 827,214 2,723,067 Liabilities Current liabilities: Accounts payable 3,467 342,275 345,742 Internal balances(note 5) 4,050 - 4,050 Due to developer - 7,729 7,729 Security deposits payable from restricted assets 10,373 18,693 29,066 Deferred revenue(note 7) 1,995 1,337 3,332 Notes payable,current portion(note 10) 23,532 - 23,532 Total current liabilities 43,417 370,034 413,451 Noncurrent liabilities: Notes payable(note 10) 995,854 - 995,854 Total liabilities 1,039,271 370,034 1,409,305 Net Assets Invested in capital assets,net of related debt (186,343) 503,877 317,534 Restricted for debt service 182,797 - 182,797 Unrestricted 860,128 (46,697) 813,431 Total net assets $ 856,582 $ 457,180 $ 1,313,762 See accompanying notes to the basic financial statements. -39- COUNTY OF HAWAII Proprietary Funds Statement of Revenues,Expenses,and Changes in Fund Net Assets For the Fiscal Year Ended June 30,2006 Business-type Activities- Enterprise Funds Kulaimano Ouli Ekahi Elderly Affordable Housing Housing Project Project Total Operating revenues: Rental receipts from tenants $ 100,285 $ 233,338 $ 333,623 Rental subsidy from federal government-HUD 141,019 - 141,019 Laundry receipts 2,247 - 2,247 Miscellaneous - 2,271 2,271 Total operating revenues 243,551 235,609 479,160 Operating expenses: Utilities 39,100 23,888 62,988 General and administration 87,531 105,716 193,247 Maintenance and repairs 53,532 54,805 108,337 Lease expense - 76,226 76,226 Depreciation(note 6) 33,828 - 33,828 Total operating expenses 213,991 260,635 474,626 Operating income(loss) 29,560 (25,026) 4,534 Nonoperating revenues(expenses): Investment income 22,801 73 22,874 Interest expense (72,013) - (72,013) Loss on disposal of assets (562 (562) Total nonoperating revenue(expenses) (49,774) 73 (49,701) Change in net assets (20,214) (24,953) (45,167) Total net assets-beginning 876,796 482,133 1,358,929 Total net assets-ending $ 856,582 $ 457,180 $ 1,313,762 See accompanying notes to the basic financial statements. -40- COUNTY OF HAWAII Proprietary Funds Statement of Cash Flows For the Fiscal Year Ended June 30,2006 Business-type Activities- Enterprise Funds Kulaimano Ouli Ekahi Elderly Affordable Housing Housing Project Project Total Cash Flows from Operating Activities Receipts from tenants $ 103,653 $ 233,756 $ 337,409 Receipts from federal government-HUD 141,019 - 141,019 Payments to suppliers for goods and services (178,932) 184,409 3{ 63,341) Net cash provided by operating activities 65,740 49,347 115,087 Cash Flows from Capital and Related Financing Activities Principal paid on notes payable (21,899) - (21,899) Interest paid on notes payable (72,013) - (72,013) Purchase of capital assets (4,225) - (4,225 Net cash used in capital and related financing activities (98,137) - (98,137 Cash FIows from Investing Activities Purchase of investments (1,400,000) - (1,400,000) Proceeds from maturities of investments 1,400,000 - 1,400,000 Interest on investments 22,756 69 22,825 Net cash provided by investing activities 22,756 69 22,825 Net increase(decrease)in cash and cash equivalents (9,641) 49,416 39,775 Cash and cash equivalents at beginning of year 364,753 230,397 595,150 Cash and cash equivalents at end of year $ 355,112 $ 279,813 $ 634,925 Reconciliation of operating income(loss)to net cash provided by operating activities Operating income(loss) $ 29,560 $ (25,026) $ 4,534 Adjustments to reconcile operating income(loss)to net cash provided by operating activities: Depreciation expense 33,828 - 33,828 Change in assets and liabilities: Receivables (490) (1,064) (1,554) Prepaid expenses 56 - 56 Accounts and other payables 2,258 76,063 78,321 Unearned income 528 _ (626) (98) Net cash provided by operating activities $ 65,740 $ 49,347 $ 115,087 See accompanying notes to the basic financial statements. -41 -