Loading...
HomeMy WebLinkAbout2007 CAFR Part 3 COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2007 Operating Revenues and Expenses Revenues and expenses are distinguished between operating and nonoperating items for the proprietary funds. Operating revenues generally result from providing services in connection with the proprietary funds' principal ongoing operations. The principal operating revenues of the proprietary funds are fees charged to residents for rent and rental subsidies received from the federal government. Operating expenses include the costs associated with providing housing for tenants,such as utilities, lease rent,and maintenance and repairs;administrative expenses;and depreciation on capital assets. All revenues and expenses not meeting these definitions are reported as nonoperating revenues and expenses. Use of Estimates The preparation of the basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,as well as disclosure of contingent assets and liabilities at the date of the financial statements,and the reported amounts of revenues,expenditures,and other financing sources and uses during the reporting period. Actual results could differ from those estimates. 2. STEWARDS111P,COMPLLA.NCE AND ACCOUNTABILITY Annual Budget The County follows these procedures in establishing its operating and capital budgets: • On or before March 1,the Mayor submits to the County Council proposed operating and capital projects budgets for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures for the general fund and special revenue funds,and the means of financing them. A project-length budget is submitted to the County Council for the capital projects fund. • The Mayor submits to the County Council amendments to the proposed operating and capital budgets within ten working days after the close of the state legislature,but not later than May 5. • The County Council conducts public hearings on the proposed operating and capital budgets after March I 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 -52- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2007 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 2006-2007 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$20.4 million in the general fund and$8.9 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 Revolving Fund,Beautification Fund,Housing Agency 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. • 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. - 53 - COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2007 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 30,2007: General Fund Ending fund balance—GAAP basis $44,610,351 Encumbrance adjustments: Beginning encumbrances and unexpended allotments 7,850,955 Ending encumbrances and unexpended allotments (12,518,470) Other adjustments (4,323,5411 Ending fund balance—Non-GAAP budgetary basis 35.619.295 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. 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. Cash The County maintains approximately 18 bank accounts for various purposes at locations throughout the state. Bank deposits are under the custody of the Director of Finance. For financial statement reporting purposes,cash and short-term investments consist of cash,time certificate of deposit,and money market accounts. Cash and short-term investments also include repurchase agreements and U.S. government securities with original maturities of three months or less. The carrying amount of the County's unrestricted and restricted deposits(cash,time certificates of deposit,and money market accounts)as of June 30,2007 was$136,887,257 and$311,788,respectively,for the primary government and$6,177,651 and$637,000, respectively,for the fiduciary funds. Information relating to bank balance,insurance and collateral of cash deposits is determined on a county-wide basis. Total bank balances of deposits for the primary government and fiduciary funds amounted to$249,548,841 at June 30,2007. Of that amount,$249,374,585 represents bank balances covered by federal deposit insurance or by collateral held by the County's fiscal agents in the name of the County. The remaining bank balances of$174,256 represent deposits held by a management agent and were uncollateralized. Accordingly,these -54- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2007 deposits were exposed to custodial credit risk. Custodial credit risk is the risk that in the event of a bank failure,the County's deposits may not be returned to it. For demand or checking accounts and time certificates of deposit,the County requires, in accordance with State statutes,that the depository banks pledge collateral based on the 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 deposited in any one financial institution,in accordance with State statutes. Investments The 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 predominately comprised of U.S.government securities(all rated AAA),while equity securities are held by the fiduciary fund. The County's investments and maturities at June 30,2007 are as follows: Maturity(in years) Fair Value Less than 1 1 -5 Investments—Primary Government: Certificates of deposit $ 85,410,110 $ 85,410,110 $ -- U.S.government securities 69,003,295 44,003,295 25.000,000 $154,413,405 $129,413,405 $25,000.000 Investments—Fiduciary Funds: Certificates of deposit $1225,932 $3,225,932 Equity securities SU04,658 Interest Rate Risk: As a means of limiting its exposure to fair value losses arising from rising interest rates,the County's investment policy generally limits maturities on investments to not more than five years from the date of investment. Credit Risk: The County's investment policy limits investments in state and U.S.Treasury securities,time certificates of deposit,U.S.government or agency obligations,repurchase agreements,commercial paper,bankers' acceptances,and money market funds,or other securities maintaining a Triple-A rating. Custodial Risk.- For an investment,custodial risk is the risk that,in the event of failure of the counterparty,the County will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The County's investments are held by its fiscal agent and the securities held by the fiduciary fund are held by the County. In -55 - COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2007 addition,the County requires the institutions to set aside in safekeeping,certain types of securities to collateralize repurchase agreements. Concentration of Credit Risk: The County's investment policy contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the Hawaii Revised Statutes. Restricted Cash and Cash Equivalents and Investments Cash and cash equivalents and investments classified as restricted assets amounted to $948,788 at June 30,2007 and consist of the following: Primary government $311,788 Fiduciary funds 637,000 78 The County entered into a capital lease to purchase a new financial accounting computer system. Upon execution of the lease documents,the leasing company deposited into an escrow account in the County's name the full lease proceeds. As progress billings are received for the new system,the County will authorize withdrawals from this escrow account to pay the bills. The balance in this account at June 30,2007 was$80,569. Tenant security deposits received by the County for the Kulaimano Elderly Housing Project and the Ouli Ekahi Affordable Housing Project are recorded as restricted assets. Such funds amounted to$10,625 and$22,009,respectively,at June 30,2007. Restricted amounts set aside by the Kulaimano Elderly Housing Project under its loan agreement with the Farmers Home Administration totaled$183,832 at June 30,2007.This amount is restricted for debt service,or for other purposes with prior approval from the Farmers Home Administration. An operating reserve fund was established by the Ouli Ekahi Affordable Housing Project pursuant to an agreement with the developer of the project. This restricted reserve amounted to$14,753 at June 30,2007. The Improvement District No.17 Fund has restricted$637,000 as a bond reserve at June 30,2007 to comply with the requirements of its Kaloko Subdivision bond issuance. -56 - COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2007 4. RECEIVABLES Receivables as of June 30,2007,for the County's individual major funds and nonmajor funds in the aggregate, including the applicable allowances for uncollectible accounts,are as follows: Governmental activities: Capital Nonmajor General Projects Governmental Fund Fund Funds Total Receivables: Real property taxes $7,631,259 $ -- $ -- $ 7,631,259 Accounts receivable: Sewer -- -- 1,973,637 1,973,637 Solid waste -- -- 2,649,110 2,649,110 Capital projects -- 878,665 -- 878,665 Intergovernmental 6,373,988 7,516,935 719.291 14,610,214 Gross receivables 14,005,247 8,395,600 5,342,038 27,742,885 Less: allowance for uncollectibles -- -- 1600120) (1,600,120) Net total receivables $14.005.247 8.395.600 $ 743.1.91 g 6.142.765 Business-type activities: Enterprise Funds Receivables: Accounts receivable: Rent $57,709 Other 2,531 Gross receivables 60,240 Less: allowance for uncollectibles Net total receivables iWam During fiscal year 2005,the County issued$3,887,493 in general obligation bonds on behalf of Improvement District No. 18,an agency fund. At June 30,2007,the outstanding balance of$3,804,937 is reflected in the government-wide statement of net assets as a receivable(see Note 10). - 57- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2007 5. INTERFUND RECEIVABLES AND PAYABLES Interfund receivables and payables consist of the following at June 30,2007: Receivable Fund Payable Fund Amount General fund Capital projects fund $ 10,679 Other governmental funds 410,680 421,359 Capital projects fund General fund 185,056 Other governmental funds 80,186 265,242 Other governmental funds General fund 77,363 Capital projects fund 275,100 Other governmental funds 30,652 383,115 Total 1.069.716 Other governmental funds Enterprise funds 2 7 The above interfund balances result from the time lag between the dates that interfund goods and services are provided or reimbursable expenditures occur,transactions are recorded,and payment between funds are made. Transfers for the fiscal year ended June 30,2007 consisted of the following: Transfers out: Nonmajor General Governmental Fund Funds Total Transfers in: Capital projects fund $9,244,816 $6,141,687 $ 15,386,503 Nonmajor governmental funds 43,752,217 43,752,217 $52.997.033 U.141,687 $59,138,720 The interfund transfers noted above include transfers from the general fund to provide support for various County programs and to provide resources for the payment of debt services. In addition,some of the nonmajor governmental funds have made transfers to the capital projects fund for the construction of various projects. - 58 - COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2007 6. CAPITAL ASSETS Capital asset activity for the year ended June 30,2007 for the County was as follows: Balance Balance June 30, Retirements/ June 30, 2006 Additions Transfers 2007 Governmental activities: Capital assets not being depreciated: Land $ 22,737,854 $ 261,314 $ -- $ 22,999,168 Construction in progress 86,742,320 28,253,686 (5,229,565) 109,766,441 Total capital assets not being depreciated 109,480,174 28,515,000 (5,229,565) 132,765,609 Capital assets being depreciated: Buildings and improvements 265,234,373 3,180,636 -- 268,415,009 Machinery and equipment 76,509,196 10,232,837 (2,228,193) 84,513,840 Infrastructure 258,162,085 13,024,276 271,186,361 Total capital assets being depreciated 599,905,654 26,437,749 (2,228,193) 624,115,210 Less accumulated depreciation for: Buildings and improvements (45,346,622) (3,391,324) -- (48,737,946) Machinery and equipment (44,654,333) (5,166,983) 1,545,099 (48,276,217) Infrastructure (102,784,281) (11,160,605) (113,944,886) Total accumulated depreciation (192,785,236) (19,718,912) 1,545,099 (210,959,049) Total capital assets, being depreciated, net 407,120.418 6,718,837 (683,094) 413,156,161 Governmental activities capital assets,net $516,600,592 $35,233,837 ($5912459) $545921.770 - 59- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2007 Balance Balance June 30, Retirements/ June 30, 2006 Additions Transfers 2007 Business-type activities: Capital assets not being depreciated: Land 753,877 $ $ -- $ 753,877 Capital assets being depreciated: Buildings 1,136,008 -- -- 1,136,008 Ground and site improvements 261,000 -- -- 261,000 Furnishings and equipment 93,946 3,387 (2,837) 94,496 Total capital assets being depreciated 1,490,954 3,387 (2,837) 1,491,504 Less accumulated depreciation for: Buildings (658,589) (24,615) -- (683,204) Ground and site improvements (170,893) (3,755) -- (174,648) Furnishings and equipment (78,429) (5,296) 2,459 (81,266) Total accumulated depreciation 90( 7,91 (33,666) 2,459 (939,118) Total capital assets, being depreciated, net 583,043 (30,279) 378 552,386 Business-type activities capital assets,net 1 336 (3-M $1,306263 -60 - COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2007 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities: General government $ 1,397,729 Public safety 1,840,133 Highways and streets 12,261,153 Sanitation 3,021,822 Health,education and welfare 110,744 Culture and recreation 1,087,331 Total depreciation expense—governmental activities ]9.718.912 Business-type activities: Kulaimano Elderly Housing Project $33,666 Total depreciation expense—business-type activities 7. DEFERRED REVENUE Deferred revenue consists of the following at June 30,2007: Capital Other Total General Projects Governmental Governmental Fund Fund Funds Funds Real property taxes $7,969,370 $ -- $ -- $ 7,969,370 Liquor control revenue 155,870 -- -- 155,870 Sewer revenue -- -- 1,127,318 1,127,318 Solid waste revenue -- -- 1,895,309 1,895,309 Intergovernmental 3,206,998 7,407,157 29.287 10,643.442 Total presented in fund financial statements 11,332,238 7,407,157 3,051,914 21,791,309 Less adjustments for accrual of revenues (7.631,259) -- (3,021628) (10,653,887) Total government- wide financial statements 3.700.9 7 4 57 $ 29•. 6 11,137.422 Enterprise Funds Unearned rental income -61 - COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2007 8. LEASES The County leases machinery and equipment under noncancellable leases expiring at various dates through April 2012 which meet the criteria for capitalization. These capital leases are financed from general fund resources. The estimated value of the leased machinery and equipment at the inception of the capital leases and accumulated depreciation,amounting to$10,780,339 and$3,940,848,respectively, and the related present value of the remaining obligations under the capital leases amounting to$4,085,735 at June 30,2007 are included in capital assets and long-term debt,respectively. The County also leases land,office facilities and other equipment under noncancellable operating leases expiring through July 2020. Expenditures for such operating leases were $1,763,493 for the fiscal year ended June 30,2007. The future minimum obligations under capital and operating leases at June 30,2007 are as follows: Governmental Activities- Capital Operating Leases Leases Year Ending June 30: 2008 $1,560,143 $1,824,436 2009 1,061,387 1,691,017 2010 859,545 1,237,408 2011 546,924 1,147,365 2012 385,235 96,519 2013 -2017 -- 179,401 2018-2021 -- 1.110 Total minimum lease payments 4,413,234 6.177.256 Less amount representing interest 327.499 Obligations under capital leases $4,-085,735 9. SOLID WASTE LANDFILL CLOSURE AND POSTCLOSURE CARE COSTS Hilo Landfill The County owns and operates a landfill located in the city of Hilo. State and federal laws require the County to place covers on certain landfill sites and to monitor and maintain the sites for thirty years after the facility is closed. Although the closure and postclosure care costs will be paid near and after the date that the landfill stops accepting waste,the County recognizes a portion of the closure and postclosure care costs in each -62- COUNTY OF HAWAII Notes to the Basic Financial Statements June 30,2007 operating period. The liability for these costs is included in the government wide statement of net assets. The amount recognized each year is based on the landfill capacity used as of the balance sheet date. At June 30,2007,the County recognized a liability of$12,855,000, based on the use of 96%of the estimated capacity of the landfill. During the fiscal year ended June 30,2007,$227,819 was spent on closure of the landfill. The remaining$571,449 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 four years. These amounts are based on what it would cost to perform the required closure and postclosure care in 2007. Actual costs at that time may be higher due to inflation,changes in technology,or changes in regulations. The County's permit to operate the landfill expired October 9, 1998. The County filed for an extension which was approved by the state until permitted capacity is reached. In accordance with state statute,the County is allowed to continue operations provided that the County acts consistently with the permit previously granted and the extension application,plans, specifications and all other information contained therein. Kealakehe In October 1993,the County closed its Kealakehe landfill in Kona. Under state and federal requirements,the County would have to monitor and maintain this site for ten years from the closure date. However,the County anticipates monitoring and maintaining the site for thirty years because there is presently a subterranean fire which requires active management. The estimated cost of closure and postclosure is$15,250,000,based on what it would cost to perform the required closure and postclosure care in 2007. Actual costs may be higher due to inflation,changes in technology,or changes in regulations. Through June 30,2007,$6,863,972 was spent on closure and postclosure care of the landfill. The remaining estimated liability of$8,386,000 is included in the government-wide statement of net assets. During the year ended June 30,2007,nothing was spent on this 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 Hawaii. The present contract calls for County employees to perform the daily operations of the landfill,and for the private company to retain the overall management as well as perform all construction work on the landfill cells. Under the terms of the contract,the County has no responsibility for remediation,closure or postclosure care. Accordingly,no liability for this landfill is included in the County's financial statements. Financial Assurance For fiscal year 2007,the County has provided for financial resources that will be available to provide for closure,postclosure care and remediation or containment of environmental hazards at the above landfills,except Pu'uanahulu. The Environmental Protection Agency's financial assurance rules include a local government financial test consisting of a financial component,a public notice component,and a recordkeeping -63 -