HomeMy WebLinkAbout11142011 City Council Laydowns I am asking you to take the time to look at my example, ask questions and
consider our concerns before passing the Budget. I would hope we could
consider an Interim Budget or someway to give us time to work for the
betterment of our community.
We would like input from the new Mayor and City Manager.
When Evaluating the Budget and Rate Increases.
I am asking that the New Mayor, City Manager and Council have a chance
to review, work together and understand the 2010 Financial Report before
passing the 2012-2013Budget!
It will help our community if you have answers to these questions and
more, before deciding what rates to increase or cuts to make.
1 . Where is the Cash from the Profits Prior to Depreciation in the
Enterprise funds going?
Depreciation is a non cash item represented as a cash item where is the
money for the income retained?
2. Is it being transferred out to fund Depreciation / Infrastructure/Assets?
3. Is it remaining in the funds as part of the City of Seward $147 million in
assets exceeding liability? (Equity)
4. Is it transferred out to the General Fund?
5. Is it becoming part of the $20 million of unrestricted funds?
6. Is there Reserves for the Replacement of Infrastructure that Should be
funded by what has been transferred out to the $20 million General Fund?
7. How has our Depreciation Expense Funded our Failing Infrastructure?
If we have underfunded our replacement reserves why- when there have been profits?
Maybe you have the answers, but I have reviewed the 196 pages and I have not
found them. I would hope in your workshops you have the answers to these
questions and more and could produce them for the public to have an
understanding of the decisions you're making in our behalf.
Thank you sincerely for you time, Mary Kulstad
City of Seward
Review of page 24 Exhibit C-2 of Comprehensive Annual Financial Report
Fiscal Year Ending December 31, 2010
Indicates the City took $3,642,107 in Depreciation as a cash Operating Expense
from the Enterprise Fund Accounts in 2010 .
After review :$3,268,003 was Cash Income, that was expensed as Depreciation from their
Combined Cash Income and the Losses of $374,104 was the non cash difference in the
Depreciation: This equals the total of the $3,642,107 Depreciation that was taken.
Where is the Operating Expense that would Fund the Replacement Reserves with that Cash?
This needs review. I understand the financial is complicated,
But income and expenses should be clearly represented Prior to Depreciation!
To get a clear understanding of the income we have to work with, we need to know our profits before
Depreciation and Tax issues— Per my review I Found that
Higher Depreciation has been taken as a Cash Expense and this causes us to show these losses?
At this point I cannot find where the Depreciation Cash is applying to the infrastructure fund?
There should be a large portion of the total profit of$3,268,003. taken for Depreciation that is
actually applied to the Replacement of our Depreciated Infrastructure?
Water Enterprise Example for Review
Year Ended December 31, 2010 Excerpt Exhibit L-8 page 98
Total operating revenues $1,034.888
Operating Expenses
Total Salaries, benefits, admin and general page 98 50% 498,306
Services, supplies, maintenance, other 348,040
Income (profit left before Depreciation) $188,542
Depreciation (Is being taken as Cash to show the loss of 16,062) $204,604
Income (profit left before Depreciation) $188,542
Add in Non Operating revenue 5,198
Total Cash (to work with before depreciation& transfers) $193,740
Total Cash to work with $193,740
Transfers out (summarized as taxes, unpaid and admin costs to the
City) page 98 more admin cost now at 57% 88,291
Total Cash left is 10% of income $105,449
2010 We had $193,740 Cash Profit to work with
CAFA shows 88, 291 Transferred out- please review
Balance left `$105,449 Please clarify —if it was put to infrastructure/asset
Another issue is that No Business can sustain itself operating with 57% of its
Income applied to salaries, benefits, admin, & Transfers totaling$586,597
Look carefully at the Profits Prior to Depreciating (which is Cash) ?
And what Cash has been Transferred out/why & where too?
•
E
t
CITY OF SEWAW)
Proprietary Funds
Statement of Revenues,Expenses and Change in Net Assets
Year Ended December 31,2010
Enterprise Funds
Total Internal
Major Funds
Electric Water Harbor Nonmajor Enterprise Service
Operating revalues: '1� Funds Funds
Charges for services 5 8,842,150 ),034,888;; 2,803,828 296,139 1,043,462 14,020,467 -
Vehicle rental and interfund
charges
Total operating revenues 8,842,150 1,034,888296 - 803,669
2,803,828 ,139 1,043,462 1 4,020,467 803,669
Operating expenses:
Salaries and benefits 142,418 273,392 842,203 73,178 380,886 1,712,077
Services and supplies 4,377,609 348,040 597,157 139,984362,140
Administration 2,334,870 224,914 345,527 87,213 423,4061 3,854,19) 2,140
Depreciation 161,667 3,154,141 -
1,438 032 204,604 1,086,891 622,334 290,246 3107
339 354
Total operating expenses 8 292,929 1,050,950 2,8 71778 922,709 1,256,205 14,394,571 701,781
Earnings(loss)from operations 549,22) (16,062) (67,950) (626,570 3,Zb'�0
(212,743} (374,104)
�,
) 101,888
Nonoperating revenues(expenses):
Intergovernmental 13,482 8,776 2,641,980 1,660
Investment Income 56,187 36,215 47,114 8,712 2,149,280
264
Interest expense (323,864 9,508 49.288 66,670
Commercial passenger vessel tax - ) (39,793) (341,168) (3,581) (3,468) (711,874) (24,635)
Gain on disposal of 720,040 - - 720,040
spa capital assets 5,000
Other expenses (40,624) - - -- - 5,0004 47,129
Dredging - (40,624)- - _
Coast Guard building - (2,3 i 3,022) - (2,313,022)
480 S
Net nonoperating revenues S4) (480,554)
(expenses) (289,819) 5,198 274,390 (1,657) 14,752 864
89,164
Earnings(loss)before contributions
and transfers 259,402
(10,864) 206,440 (628,227) (197,990 (371,240) 191,052
Capital contributions 252,413 941,943 794,074
Transfers in - 302,262 70,567 ),988,829 -
Transfers out (1,041,742) - 3.72,829 -
'(88,291) - (336,046) 75,826) (88,977) 11,§224R11) _
Change in net assets (529,927) 842,788 966,730 (633,486) (286,968)
359,137 191,052
Beginning net assets 23,011 344 5,568,643 17,908080 26,708,745 6 394,14)
3,993,547
Ending net assets S 22481,417 6,4 11,43 18888774,810 26,075,259 6,107,173
4,184,599
Adjustment to reflect the consolidation of internal
service fund activities related to enterprise funds
169,083
Change in net assets of business-type activities
S 528,220
See accompanying notes to basic financial statements.
24
Exhibit L-8
CITY OF SEWARD
Water Enterprise Fund
Statement of Revenues, Expenses
and Change in Net Assets
Year Ended December 31, 2010
(With Comparative Amounts for 2009)
2010 2009
Operating revenues:
Residential $ 375,221 359,181
Small general service 104,175 124,947
Large general service 171,312 156,038
Industrial 168,915 119,711
Seward Marine Industrial Center 58,343 51,795
Ship water sales 61,263 81,390
Miscellaneous 95,659 79,651
Total operating revenues to:1034,88f1 972,713
Operating expenses:
Salaries and benefits 273,392 265,439
Purchased services 244,080 247,577
Supplies and maintenance 82,381 92,900
Administration and generalial 224,914 224,280
Other /,
P� oi 21,579 18,887
Depreciation ,3411 204,604 214,909
Total operating expenses 1,050,950 1,063,992
Loss from operations 16,062) (91,279)
Nonoperating revenues (expenses):
Intergovernmental 8,776 15,984
Investment income 36,215 29,529
Interest expense (39,793) (192)
3
Net nonoperating revenues (expenses) , f s--q2 5-,198 5,198 45,321
h31 7y&
Loss before contributions and transfers (10,864) (45,958)
Capital contributions 941,943
Transfers out .:' 88,291 (82,767)
1cs, IN cz
Change in net assets 842,788 (128,725)
Beginning net assets 5,568,643 5,697,368
Ending net assets $ 6,411,431 5,568,643
(Of the total depreciation expense of$204,604 above, $29,439 was attributable to capital assets that were
funded with capital contributions.)
98
11/14/0
November 14, 2011
Mayor Seaward, Members of the City council, staff, and those seated in the audience
I 'd like to ask you, "What is the Goal of the City of Seward's Budget and Budget
Process?"
From my Analysis of the 2010 Comprehensive Annual Financial Report, the answer is,
"for City Government to get a bigger piece of the Pie and Retain it.
The first page of my hand out indicates the City of Seward has over Two Hundred
Million Dollars in Assets ($200,000,000)
Fifty Three Million in Liabilities ($53,000,000)
And One hundred and forty seven Million ($147,000,000) in Net Assets or Equity
My second hand out indicate Twenty Million($20,000,000) of those assets are
unrestricted funds
I have been led to believe that the $20,000,000 represented 3 to 6 months available
reserves required for prudent operation of City Government.
Yet my third handout indicates the reserve is a Financial Condition of the General Fund.
With my forth handout Stating that amount if currently satisfied with the amount of
$4,039,264, equal to 4.2 months reserves.
Last year the City of Seward increased it assets by $1,294,098 over the previous year as
indicated in my last handout.
I'm not sure how many years the City of Seward has been incorporated but if I used 100
years. The City of Seward has been increasing its net worth by One Million four hundred
and seventy thousand dollars ($1,470,000) a year for ONE HUNDRED YEARS
The only way the City can increase it's assets, is by receiving Grants, State Funding,
Settlements, or nearer and dearer to me,by overcharging for fee,utilities, and taxes.
Please schedule us an addition budget workshop were we all can consider the benefit of
leaving more in the pockets of Business, and residents to encourage the growth of a larger
tax base for Seward.
Thank you for the opportunity to address you.
For those that don't know me I'm Mark Kulstad, and my wife Mary and I own Hotel
Seward
GOVERNMENT-WIDE FINANCIAL ANALYSIS
Statement of Net Assets
Over time, net assets may serve as a useful indicator of a government's financial position. At December
31, 2010, the City's assets exceeded liabilities by $147,633,382. A significant portion of the City's net
assets (84%) reflects its investment in capital assets, less any outstanding debt used to acquire those
assets. Capital assets are not liquid and are not available for future spending. Since the investment in
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.
The following table provides a summary of the City's net assets:
Table l
Statement of Net Assets
As of December 31, 2010 and 2009
Governmental Business-Type
Activities Activities Total
2010 2009 2010 2009 2010 2009
Current and other assets $ 12,009,231 10,449,004 17,041,977 19,922,994 29,051,208 30,371,998
Capital assets 86.374.266 87,444,285 85,196,116 82,831,999 171,570,382 170.276.284
Total assets 98,383,497 97,893,289 102,238,093 102,754,993 200,621,590 200,648,282
Long-term liabilities
outstanding 30,709,106 31,667,877 17,600,752 18,872,239 48,309,858 50,540,116
Other liabilities 1,568,655 1,397,944 3,109,695 2,883,328 4,678,350 4,281,272
Total liabilities 32,277,761 33,065,821 20,710,447 21,755,567 _52.988,208 54,821.388
Net assets:
Invested in capital assets,
net of related debt 56,122,348 56,208,473 67,773,127 64,111,569 123,895,475 120,320,042
Restricted - - 3,464,536 2,110,512 3,464,536 2,110,512
Unrestricted 9,983,388 8,618,995 10,289,983 14,777,345 20,273,371 23,396,340
Total net assets $ 66,105,736 64,822,46.8 _8 _522,64fz 80.999.426 147,633,3 82 19.5826,894
At the end of 2010, the City of Seward 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.
6
)exhibit A-I
CITY OF SEWARD
Statement of Net Assets
December 31,2010
Component
U1111
Providence
Primary Government Seward
Governmental Business-type Medical
Aatti Activitieg Activities Tag Center
Cash and investments $ 10,510,994 3,812,385 14,323,379 62,000
Receivables,net of allowance
for doubtful accounts:
Taxes 485,456 - 485,456 -
Accounts 84,418 1,157,754 1,242,172 2,059,000
Assessments,due within one year - 12,886 12,886 -
Grants,shared revenues,and loans 1,126,956 2,226,759 3,353,715 -
Accrued interest 104,748 - 104,748 -
Note receivable-PSMC 180,822 - 180,822 -
Other 237,903 186,212 424,115 58,000
Prepaid items 405,196 - 405,196 -
inventories 8,930 1,109,167 1,118,097 -
Restricted cash and investments 1,973,360 4,753,318 6,726,678 30,000
Unamortized bond issuance costs 419,028 204,724 623,752 -
Assessments,due after one year • 50,192 50,192 -
Internal balances (3,528,580) 3,528,580 - -
Capital assets not being depreciated 11,192,117 30,919,169 42,111,286 -
Capital assets being depreciated 75,182,149 54,276,947 129,459,096 32,000
Total assets $ 98,383,497 102,238,093 200,621,590 2,241,000
Liabilities
Accounts payable 681,851 1,640,808 2,322,659 223,000
Accrued payroll and related liabilities 157,827 75,884 233,711 834,000
Accrued interest 424,690 183,556 608,246 -
Other accrued liabilities 85,736 - 85,736 1,651,000
Funds held in trust 24,064 - 24,064 -
Customer deposits - 217,874 217,874 -
Unearned revenue 194,487 991,573 1,186,060 30,000
Noncurrent liabilities:
Due within one year:
Accrued leave 109,056 42,361 151,417 -
Notes payable - 329,310 329,310 -
Bonds payable 1,555,970 774,030 2,330,000 -
Capital lease obligations 194,014 - 194,014 23,000
Due in more than one year:
Accrued leave 348,132 135,402 483,534 -
Notes payable - 2,601,006 2,601,006 -
Bonds payable,net of bond premium and deferred loss 28,081,218 13,718,643 41,799,861 -
Capital lease obligations 420,716 - 420,716 15,000
Other liabilities - - - 31,000
Total liabilities 32,277,761 20,710,447 52,988,208 2,807,000
Net Assets
Invested in capital assets,net of related debt 56,122,348 67,773,127 123,895,475 (6,000)
Restricted for capital projects and bond retirement - 3,464,536 3,464,536 3,000
Unrestricted(deficit) 9,983,388 10,289,983 20,273,371 (563,000)
Total net assets 66,105,736 81,527,646 147,633382 (566,000)
Total liabilities and net assets $ 98,383,497 10238,093 200,621,590 .,2,241,000
See accompanying notes to basic financial statements,
16
Long Term financial planning
The City recently implemented its first biennial budget, freeing up time for the City Council and
administration to focus on long-term financial planning for the first time. The first step of this process
saw completion of a five-year financial forecast which identified a number of key areas of structural
weakness in the City's financial health, influenced by a lagging economy, rising healthcare costs, ailing
enterprise operations and infrastructure, lack of identified revenue to repair/replace critical City
infrastructure, pressure to spend reserve accounts, etc. The financial forecast highlighted the importance
of planning to meet pending challenges to the City's financial condition in order to provide sufficient
time for course correction.
Fina tidal Condition
The City has struggled for a number of years to bring its General Fund undesignated fund balance to a
level that meets its own policy of having between three and six months' reserves available in the
undesignated fund balance account. For the first time in many years, the level of undesignated fund
balance meets the policy band due to one-time EXXON Valdez oil spill settlement payments in 2009 and
2010 of nearly$2.0 million. This brings the City's reserve levels in the General Fund to within the lower
range of three to six months' expenditures and transfers-out, and provides much more flexibility to the
City in terms of meeting unexpected needs and emergencies. However, there is significant pressure to
spend those reserves to meet capital repair, replacement, and expansion needs. In addition, the City's
reserve levels are at risk due to: health system financial shortfalls, Alaska Sealife Center funding
uncertainty, insufficient enterprise fund resources, unforeseen emergencies and natural disasters,
potential sustained reduction in sales tax revenue and/or passenger fees, and other similar risks. Any of
these risks can have a significant adverse impact on the City's financial condition, enhancing the need for
a healthy level of undesignated reserves.
In recent years, municipal governments in Alaska experienced a significant decline in State financial
assistance. In the past four years however, the State legislature has provided revenue sharing funds and
assistance in the form of funding a portion of retirement system liabilities. This has mitigated the need to
reduce services or increase property taxes to cover the shortfall. The general strength of Seward's retail
sales has enabled the City to absorb State funding reductions,but revenue sharing remains the City's only
source of funding governmental infrastructure and capital needs. The City's continued dependence on
state and federal funding for major repairs and replacement of infrastructure assets is not sustainable in
the long-term. In addition, any change in the State's current policy of funding retirement system rates
above 22%could bave a materially adverse financial impact on the City.
The City's enterprise funds recently underwent a thorough assessment of capital infrastructure condition
and needs, resulting in the classification of the most critical, high-risk, and moderate-risk repair and
replacement needs. The end result of this process saw rate increases in most enterprise funds. However,
taxpayer rate fatigue, combined with years of failing to pass along cost increases to ratepayers, now
places the enterprise funds in a position of having costly critical repair needs, with insufficient resources
to meet those needs. With reductions in state and federal grant opportunities, it will be more and more
difficult for enterprise funds to mitigate risks to their financial condition. Recent rate increases will help
enterprise funds from falling further behind, but fall short of the level necessary to finance replacement
of existing deteriorated assets and infrastructure. In the future, it is hoped that smaller incremental rate
increases will cause less "rate shock" to ratepayers, as enterprise fund tariffs have been modified to raise
rates annually based on the Anchorage consumer price index.
Major Projects
The City completed construction of a new $27 million 40-bed long-term care facility in October, 2009,
providing stable employment for many Seward residents and helping to strengthen the continuity of care
X
FINANCIAL ANALYSIS OF ME GOVERNMENT'S FUNDS
Governmental Funds
The City of Seward's governmental funds focus on near-term inflows, outflows, and balances of
spendable resources. As such, you will not find long-term capital assets or long-term debt displayed
on the governmental funds' individual fund financial statements. This focus on near-term inflows
and outflows assesses whether the City is generating sufficient revenues in the current year to pay
for current-year obligations. However, it does not indicate whether there are sufficient funds
available to cover long-term operations. The level of unreserved fund balance is an important
indicator of the amount of net resources available for spending at the end of the year.
At the end of the year, the City of Seward's governmental funds reported combined ending fund
balances of $9,534,235. Of this amount, $3,057,324 has been legally reserved (reserved fund
balance) for inventory, prepaid expenses and notes receivable ($584,948) and to meet debt service
requirements ($2,472,376). An additional $2,395,250 has been designated as follows: $268,832 for
capital projects; $500,000 for hospital cash flow to cover anticipated operating losses; $1,500,000
working capital to pay routine payables and payroll; and $126,418 for insurance reserves. This
leaves an undesignated fund balance of$4,039,264 in the General Fund and $42,397 in the capital
project and special revenue funds.
Fund balances in the governmental funds increased by $2,180,852, representing a net increase in the
General Fund of$983,759, and a combined net increase in other governmental funds of$1,197,093.
The Seward Mountain Haven Debt Service Fund contributed significantly to the increase in fund
balance,with an ending fund balance of$1,925,681.
The overall net increase in fund balance is due to the following:
General Fund
General Fund revenues were $599,093 higher than expenditures, and after adding net transfers of
$384,666, fund balance increased by $983,759. General Fund revenues came in $619,936 higher,
than budget primarily due to receipt of$347,281 in EXXON Valdez settlement proceeds which were
not budgeted, and administrative fees higher than budget by $358,152. Expenditures came in
$784,692 (7.6%) lower than budget due in large part to planned but unspent contracted services in
public works ($215,882 savings), vacancy factor in the community development department
($94,230 savings), and debt service savings of$177,330.
The General Fund's fund balance must be able to meet unforeseen needs and emergencies, as well
as future spending needs. Industry standards suggest maintaining undesignated fund balance
reserves equal to between three and six months' expenditures and routine transfers-out to other
funds. The General Fund undesignated fund balance at the end of 2010 is $4,039,264, equal to 4.2
months' reserves, up from 3.2 months' at the end of 2009 due, primarily, to the receipt of $2.0
million in EXXON Valdez oil spill settlement proceeds in 2009 and 2010. In the City's case, an
adequate level of fund balance is between $2.8 million and $5.7 million, which results in General
Fund currently being in the mid-range of the desired level of undesignated fund balance.
Special Revenue Funds
Special revenue fund projects experienced a net decrease in fund balance of(-$24,961) to $75,369,
with all but the Fish Ditch Restoration project maintaining a positive fund balance.
10
• Transfers to other funds increased by a total of$285,398 during the year, reflecting the
following: $226,846 for the transfer of State revenue sharing monies from the General
Fund to the Electric Enterprise Fund to begin repaying monies taken from the Electric
Enterprise Fund over the years, to help cover losses in the SMIC Enterprise Fund;
$26,080 for library/museum project costs; $20,644 for voice-over-internet-protocol
costs; $8,150 for historic preservation matching grants; and $3,679 for fire department
matching grants.
General Fund revenues exceeded budget by $619,936 primarily due to the failure to budget for the
EXXON Valdez settlement ($347,281) and administrative fees higher than budget by $358,152.
Expenditures came in $784,692 (7.6%) lower than budget due in large part to planned but unspent
contracted services in public works ($215,882 savings), vacancy factor in the community development
department ($94,230 savings), and debt service savings of$177,330. All departments in the General
Fund achieved some level of budget savings by staying within their budget.
General Fund Actual Highlights
General Fund revenues exceeded expenditures by $599,093, and after transfers between funds were
accounted for, there was a net increase in fund balance of$983,759. General Fund revenues came in
$619,936 (6.5%) higher than budgeted. The following budget variances are of particular note: Tax
revenues (-$76,684); charges for services ($404,253); EXXON Valdez settlement ($347,281); and
investment income(-$73,290).
CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets
As of December 31,2010,the City had $171,570,382 invested in capital assets net of accumulated
depreciation, representing an overall increase of$1,294,098 from the previous year.
Table 3
City of Seward Capital Assets
(in thousands, net of depreciation)
Governmental Business-Type
Activities Activities Total
2010 2009 2010 2009 2010 2009
Land and improvements $ 5,432 5,432 17,484 17,484 22,916 22,916
Buildings 57,880 60,377 639 720 58,519 61,097
Improvements other
than buildings 9,613 10,399 48,994 51,594 58,607 61,893
Machinery and equipment 7,689 7,346 4,644 4,457 12,333 11,803
Construction in progress 5,760 3,890 13.435, 8,677 19,195 12,567
Total net capital assets $ 8.6.374 87,444 X5,196 82.832 Z ,520, 170,27,¢
Additional information regarding the City of Seward's capital assets can be found in Footnote 4 on
pages 38-40.
12