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2011 Annual Comprehensive Financial Report (11-001)low A AW ;j 4t "A �(.v qq `ram'.. -'4 I Noll 0, AN to —ANOF--- Adpld. NOW A-, . T�!n Dumas Bay Cen City of Federal Way History — The earliest recorded accounts of the Federal Way area tell of Native American families who resided in the area of the Muckleshoot Reservation on the east side of the Green River Valley and traveled west to the shores of Puget Sound for the plentiful fisheries resources. Generations of Muckleshoot Indians wore a westward trail across the heavily forested plateau to the area which is now Saltwater State Park. The arrival of the white man in the nineteenth century resulted in a steady decline in the Indian population and by 1890, nearly the entire population had disappeared from the area. Isolated on a triangular shaped plateau rising steeply from Puget Sound, the Federal Way area had little waterfront access or roadways and accordingly, was sparingly developed compared to Tacoma and Seattle. As late as the turn of the century, the original settlers at Dash Point and Dumas Bay had to row to Tacoma for supplies and mail. Old Military Road, constructed around 1856 and extending north from Fort Steilacoom, past Star Lake to Seattle and Fort Lawton, was the first road through the area. Over time, narrow dirt roads were added to provide east/west access and by 1900, a road was constructed between Star Lake and Redondo. The second crossroad, the "Seattle Road," connected old Military Road and Kent. The Seattle -Tacoma Interurban Line, completed in 1901, provided a fast and easy way to reach these urban cities. Improved access brought many visitors to the area and Star Lake became a popular summer recreation site. By the 1920s, Federal Highway 99, the interstate that linked the western states from north to south, was complete. At this time, Federal Way was still primarily forest and farmland. Fred Hoyt had a cabin on Dumas Bay and started a road to Tacoma (still called Hoyt Road). The timber companies, which had a major logging operation going, built an early railroad line and were instrumental in getting Marine View Highway (now Dash Point Road) built in the early 1920s. This roadway spurred development along the coastline. Soon thereafter, Peasley Canyon Road was built to connect Military Road with the Auburn Valley. This road later became known as South 320th Street. In these early days, roadways set the stage for development in the area and they still play an important role in the City today. By the start of World War II, a number of small, thriving communities made up the area that is now Federal Way. Some communities were clustered around lakes, such as Steel Lake, Star Lake, and Lake Geneva. Others were sited to take advantage of the view of Puget Sound, like Adelaide and Buenna. As each of these communities grew, residents built small schoolhouses for their children. By the late 1940s, King County consolidated the many individual red schoolhouses into the Federal Way School District, from which the City gets its name. During this same period, a library was built along the edge of Highway 99, and between 308th Street and 320th Street, a small "downtown" developed with a general store, lumber yard, realty office, beauty parlor, feed store, and gas station. By the end of the 1950s, the ten blocks between 308th and 320th Streets became the first roadside commercial district. One of the more unique developments was Santa Faire, a family oriented theme park. New shopping areas were added around the park, helping to create a "community focus" for the residents of the area. As this commercial area developed, the rest of Federal Way was changing as well. The Boeing Company expanded their operations in Renton and the Kent Valley and began advertising nationally for engineers. Those engineers in turn began roaming the wooded acreage in Federal Way in search of housing. One of the earliest residential developments was Marine Hills, built in 1958 overlooking Puget Sound. Weyerhaeuser, one of the early timber companies, had large land holdings in the area and began to develop their land into high quality housing with amenities like golf courses. Weyerhaeuser's development company also began developing commercial property, creating the West Campus business park. The plan was to integrate offices and businesses with lush landscaping. Though initially the corporate office market was not strong, West Campus has grown almost to capacity, providing space for many civic buildings such as City Hall, the police station, the area's major health care centers, and higher density housing. Another major landmark in the area is SeaTac Mall (now The Commons), built in the mid-1970s on what was farmland south of 320th Street. The Mall is one of the largest in South King County and is the anchor for retail development in the area. The Mall was a result of population growth in the region and its location was determined by the 320th Street intersection with Interstate 5. The Interstate supplanted Highway 99 as the main artery for commuter traffic in the County. By the mid 1980s, South King County was growing quickly. Retail growth occurred along Highway 99, especially at the 320th Street intersection. Roads and office space were developed to accommodate the increased growth. Residential growth was also prominent, following plans developed by King County, with a large number of apartment homes. The changes to the community, with increased housing and traffic, created a movement for greater self-determination. In 1989, the citizens of this area voted for incorporation and the City of Federal Way was born, incorporating on February 28, 1990. COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended December 31, 2011 Table of Contents INTRODUCTORY SECTION Page Letterof Transmittal................................................................................................................................... iii City Officials and Administrative Officers............................................................................................... 1 City Functional Organization Chart ............................................................................................................ 2 GFOA Certificate of Achievement............................................................................................................. 3 FINANCIAL SECTION IndependentAuditor's Report .................................................................................................................... Management's Discussion and Analysis.................................................................................................... Basic Financial Statements: Government -wide Financial Statements: Statementof Net Assets.......................................................................................................... 18 Statement of Activities........................................................................................................... 19 Fund Financial Statements: Balance Sheet — Governmental Funds.................................................................................... 20 Statement of Revenues, Expenditures, and Changes in Fund Balances — Governmental Funds......................................................................................................... 22 Reconciliation of the Statement of Revenues, Expenditures, and Change In Fund Balances of Governmental Funds to the Statement of Activities ........................ 24 Statement of Revenues, Expenditures, and Changes in Fund Balances — Budget and Actual GeneralFund................................................................................................................... 25 StreetFund....................................................................................................................... 26 UtilityTax Fund............................................................................................................... 27 Statement of Net Assets — Proprietary Funds................................................................................... 28 Statement of Revenues, Expenses and Changes in Fund Net Assets — Proprietary Funds...... 29 Statement of Cash Flows — Proprietary Funds........................................................................ 30 Notes to the Financial Statements.................................................................................................... 31 Combining and Individual Fund Statements and Schedules — Nonmajor Governmental Funds: FundDescription.............................................................................................................................. 65 CombiningBalance Sheet................................................................................................................ 67 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ......................... 71 Statement of Revenues, Expenditures, and Changes in Fund Balances — Budget and Actual ArterialStreet Fund.......................................................................................................... 75 Solid Waste & Recycling Fund........................................................................................ 76 Hotel/Motel Lodging Tax Fund....................................................................................... 77 Federal Way Community Center Fund............................................................................ 78 TrafficSafety Fund.......................................................................................................... 79 Paths& Trails Fund......................................................................................................... 80 Individual Fund Statements and Schedules — Debt Service Fund: FundDescription.............................................................................................................................. 81 BalanceSheet.................................................................................................................................. 83 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual ............. 84 Combining and Individual Fund Statements and Schedules — Internal Service Funds: FundDescription.............................................................................................................................. 85 Combining Statement of Net Assets................................................................................................. 86 Combining Statement of Revenues, Expenditures and Changes in Fund Net Assets ....................... 87 Combining Statement of Cash Flows................................................................................................ 88 Capital Assets Used in the Operation of Governmental Funds: Comparative Schedules by Source................................................................................................... 92 Schedule by Function and Activity .................................................................................................. 93 Schedule of Changes by Function and Activity .............................................................................. 94 STATISTICAL SECTION NetAssets by Component..................................................................................................................... 97 Changesin Net Assets........................................................................................................................... 98 Government -wide Revenues by Source and Expenditures by Function ................................................ 99 Fund Balances, Governmental Funds.................................................................................................... 100 Changes in Fund Balances, Governmental Funds.................................................................................. 101 TaxableSales by Category .................................................................................................................... 102 Assessed and Estimated Actual Value of Taxable Property .................................................................. 103 Property Rates and Levies, Direct and Overlapping Governments........................................................ 104 PrincipalTaxpayers............................................................................................................................... 105 Property Tax Levies and Collections..................................................................................................... 106 Ratio of Outstanding Debt by Type....................................................................................................... 107 Ratio of General Obligation Bonded Debt to Assessed Value and Net General Obligation Bonded Debt Per Capita.............................................................. 108 Computation of Direct and Overlapping Debt....................................................................................... 109 Computation of Limitation of Indebtedness........................................................................................... 110 Ratio of Annual Debt Service Expenditures for General Obligation Bonded Debt to Total General Governmental Expenditures Net of Debt Service Expense ........................ III DemographicStatistics.......................................................................................................................... 112 PrincipalEmployers.............................................................................................................................. 113 Property Value, Construction and Bank Deposits.................................................................................. 114 CapitalAssets by Function.................................................................................................................... 115 Operating Indicators by Function.......................................................................................................... 116 City Government Employees Full -Time Equivalent - History ............................................................... 117 Salaries & Surety Bonds of Principal Officials...................................................................................... 118 Miscellaneous Statistical Information.................................................................................................... 119 ii CITY OF A Federal Way May 25, 2012 People of the City of Federal Way Honorable Mayor and City Council THE COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY OF FEDERAL WAY The Comprehensive Annual Financial Report (CAFR) of the City of Federal Way for the year ended December 31, 2011 is hereby submitted. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data are 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 City. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included. This transmittal letter is designed to compliment the MD&A and should be read in conjunction with it. The City's MD&A can be found immediately following the Independent Auditor's Report. REPORTING ENTITY The City is a noncharter Optional Code City with a Mayor -Council form of government. It was incorporated on February 28, 1990, and is governed under the provisions of the Optional Municipal Code of the Revised Code of Washington. Optional Code City status increases the City's operating authority by extending it to the powers of all four city classifications which exist in Washington Law. The City Council consists of seven council members, all of whom are elected at large by citizens of Federal Way to serve four-year terms. In November 2009, the citizens of Federal Way approved Proposition 1 to change the form of government from a City Manager -Council run government to an elected Mayor -Council government. Federal Way voters elected former state representative Skip Priest as mayor on November 2, 2010. City services provided include: police protection, construction and maintenance of streets, building inspection, municipal court services, jail services, planning and zoning, park services, emergency management services, surface water management and general administration, including finance. Services for a land use hearing examiner are contracted. The City continues to have ten major departments consisting of the City Council, Mayor's Office; Law; Finance; Human Resources; Information Technology; Municipal Court, Parks & Public Works; Police; and Community Development. Fire protection and emergency medical services are provided by South King Fire & Rescue. Lakehaven Utility District delivers water and sewer services. Metro provides public transportation services. Public housing services are the primary focus of the King County Housing Authority. The King County Library System engages City residents through its library and reference services. School District No. 210 offers educational programs for kindergarten through high school students, in addition to vocational training. iii ECONOMIC FACTORS AFFECTING FINANCIAL CONDITION The Great Recession is remarkably similar to the Great Depression, although not as severe. The bursting of the housing bubble followed by a freeze in the credit markets, falling home prices, and 50% dip in the stock market and rising unemployment has made it difficult for the economy to quickly recover. Consumer spending slowed, housing construction came to an abrupt halt, and state and local governments began to experience shortfalls in tax revenue. During 2011, matters got worse with bad winter weather, cut in defense spending, increase in gasoline prices and the Japan earthquake combined with less government spending slowed the economy down to a crawl. In addition, due to a deadlock in Congress over raising the debt ceiling took the United States to the brick of default and led Standard & Poor's to downgrade the national long-term credit rating from the highest rating of AAA to AA+ - the first ever downgrade in history. Stock prices plunged, while consumer confidence plummeted back to its recession low. However, the economic conditions started to shift towards the end of 2011. Nationally, the U.S. Bureau of Economic Analysis (BEA) indicates Gross Domestic Product (GDP) advanced at a better-than-expected 2.4% rate in the third quarter of 2011 mainly in part by stronger consumer spending. In addition, home prices have slowly begun to stabilize. Unemployment in the Puget Sound region has been hit harder during this recession compared to the last recession. Unemployment remains at approximately 8% down from the peak of 9%. During the 2001 recession, it took six years to return to the same number of jobs that had existed before the recession began. The Puget Sound region was most affected by the 2001 recession which was a combined effort of the "dot.com" collapse and the 9/11 terror attacks on commercial airplane industry both of which are prominent for the Pacific Northwest. Projections indicate that the Puget Sound jobs will not return to their prerecession level until the fourth quarter of 2014. A key difference between the Great Recession of 2007 and the previous recessions is the sharp decline in the housing market. Housing development and prices grew steadily through the 2000s, fed by low interest rates and the widespread availability of mortgages to marginally -qualified buyers. Homes in King County tripled its value between 1994 and 2006. However, 2011 proved to be the best year for home sales in King County since 2007. Prices however have decreased approximately 33% compared to 2007. Statistics indicates that many of these sales are for foreclosed homes. In King County, the number of bank -repossessed homes sold in 2011 was up 73% from 2010. These homes are selling for significantly less than other homes which in turns erodes home values causing more homeowners owing more on their homes than it's worth. ECONOMIC TRENDS Federal Way is the eleventh largest city, in Washington State with a population of 89,370 as of April 1, 2011. The City is located on a plateau adjacent to Puget Sound in King County, eight miles north of downtown Tacoma and 25 miles south of downtown Seattle. The City occupies approximately 22.5 square miles and is served by Interstate 5 and state highways 99 and 509. In 2011 there were 35,464 housing units in Federal Way, an increase of approximately less than 1% over 2010. Of these units, 56% were single family homes, 40% multi -family units, and 4% mobile homes and trailers. The community is residential and commercial, with the populace employed locally and in the neighboring cities such as SeaTac, Kent, Tacoma, Bellevue, and Seattle. Employment in Federal Way is highly concentrated in retail and services sectors which respond primarily to the needs of the local market area population. The employment figure for 2010 is estimated at 28,939. Major employers are; Federal Way Public Schools, Weyerhaeuser, Lifebridge Incorporated, St. Francis Community Hospital, World Vision, and Wild Waves Theme Park. Sales tax collected in 2011 total $10.9 million, and is above 2010 by $149 thousand. The retail sector of the local economy is anchored by two areas; the first is South 348`h and Pacific Highway 99 including Wal-Mart Super Center, Wholesale Sports, Costco, Lowe's Home Improvement Center, and Home Depot. The second is The Commons regional mall including Target, TJ Max, Best Buy, and many other small businesses adjacent to the area. According to a listing of businesses registered with the City of Federal Way and sorted by the Standard Industrial Classification, the business economy appears to be configured as follows: retail trade 51%; services 22%; construction 11%; wholesale trade 4%; information 5%, manufacturing 1%, and other 6%. IMA In 2011, new improvements to real estate totaled $39.3 million or approximately 0.1% of the City's 2011 assessed valuation. The total assessed value of taxable property in Federal Way was $7.7 billion, which is approximately 6.6% lower than the 2010 assessed valuation of $8.3 billion. Real Estate sales increased 32% to approximately $314 million in 2011 as compared to $238 million in 2010. A total of 482 building permits and 2,385 other building related permits were issued in 2011. Estimated valuation was $33.0 million and $6.2 million respectively. Significant building permits include: Federal Way Public Schools Service Center Facilities and New Kitchen Building, DOW Jones addition, Rockwell Collins Addition, Safeway Fuel New Convenience Store, Fuel Canopy and Vending Kiosk, Wild Waves Zooma Falls Conveyer addition, Wild Waves Tantrum Ride addition, Bigfoot Java New Building, and Mirror Lake Elementary New Portable. LONG-TERM PLANNING The City's fiscal policy requires the City to prepare long-range projections for six years beyond the current budget period. The projection extends current operations to the future to see if the services are sustainable and the magnitude of, if any, future financing gaps. This glimpse into the future allows the City to proactively plan and implement corrective measures over time to avoid sudden drastic changes in service levels or in revenue/tax policies. In addition, the City's fiscal policy requires the City to balance its ongoing services with ongoing revenues. MAJOR INITIATIVES AND ACCOMPLISHMENTS In October 2011, Federal Way City Council voted to move forward with a purchase/sale agreement with ARCAAD Inc. to build an ambitious Crystal Palace design on the former AMC Theatres site in downtown Federal Way. The Crystal Palace design would include approximately 500 residential units, 12,000 square feet of office and retail space, 50,000 square of creation/cinema/restaurant/entertaining space and 75,000 square feet of the "crystal palace" space. Earlier in the year, Federal Way City Council had dissolved a contract with Twin Development to build a high-rise mixed use proj ect. In addition to the Crystal Palace design, the City has made steps towards the proposed Performing Arts and Civic Center project for downtown Federal Way. This project will be built on the former Toys "R" Us property located at 31510 20`h Avenue South. The components of the center have not been established but a performance hall, conference center and a hotel are part of the planning phase of the center. In mid-2011, Federal Way City Council selected LMN Architects of Seattle to design the first step to revitalizing downtown Federal Way. The City has also taken steps not only to revamp the downtown core, but also within the City's neighborhoods. The increase in foreclosed homes have provided a dumping ground for junk, furniture, and appliances in these vacant or abandoned homes. The City set to amend its "unfit building" code to include unfit premises. "Unfit premises" would include accumulation of junk, garbage and trash, unsecured abandoned vehicles and trucks, and/or other equipment on the property deemed to be inoperable, sinkholes, exposed wires or trenches, dilapidated sheds, carports of fences, and noxious weeds or plants. This change would save the city time and money. Funding for the expanded sphere of enforcement will come from abatement funding. In addition, funding can also come from tax liens against property owners if needed. Despite reductions in Police staffing, Federal Way Police Department reports improved levels of service that led to some of the lowest crime rates in the city's history. Index crimes, which include homicide, rape robbery, burglary, aggravated assault, larceny, motor vehicle theft and arson, decreased in the third quarter of 2011 by 12% compared to 2010. 3,427 index crimes were recorded in 2011 and is the lowest crime rate since the inception of the Police Department. A contributing factor to the decrease in the crime rate is the creation of the Special Operations Unit back in 2009. This unit is a group of officers that focus on the transit center, city parks and the downtown core. The unit was able to reduce crime in downtown reporting district by 50 percent in 2011. OUTLOOK FOR THE FUTURE Council identified the following set of goals for the City which was adopted on March 7, 2006. ►v 1. Integrate the public safety strategy in all facets of City operations, building on a strong community -based approach. 2. Create a multi -use urban city center that is pedestrian friendly, linked to neighborhoods and parks, and services as the social and economic hub of the City. 3. Establish Federal Way as an economic leader and job center in South King County by attracting regional market for high quality office and retail businesses. 4. Maintain the capital facilities plan and provide financing options for transportation and surface water improvements, parks, recreation, and cultural arts and public facilities. 5. Ensure a responsive service culture within the City organization where employees listen carefully, treat citizens and each other respectfully and solve programs creatively, efficiently, and proactively. 6. Position Federal Way as a regional leader by working collaboratively with other local and regional jurisdictions in order to leverage resources. FINANCIAL INFORMATION The City of Federal Way is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft, or misuse and to ensure that adequate accounting data are compiled to allow for the 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 evaluation of relative costs and benefits of the control system requires estimates and judgments by management. Budgetary Control The City maintains budgetary controls in accordance with the Revised Code of Washington (RCW 35A.33). The objectives of these budgetary controls are to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City Council. Activities of the General Fund, some Special Revenue Funds, and Debt Service Fund are included in the annual appropriated budget. The level of budgetary control at which expenditures cannot legally exceed the appropriated amount is established at the individual fund level. The project - length based Special Revenue Funds, and the Capital Projects, Enterprise and Internal Service funds are management budgets only and therefore these budgets are not represented in the CAFR. The City also maintains an encumbrance accounting system as one technique of accomplishing budgetary control. All appropriations lapse at year-end. Basis of Accounting All governmental funds are accounted for using the modified accrual basis of accounting. Under the modified accrual basis, revenues are recorded when received in cash, except for revenues susceptible to accrual. Revenues considered susceptible to accrual are those that are measurable and available to finance the government operation during the current period. Expenditures, other than accrued interest on general long-term debt, are recorded at the time liabilities are incurred. All proprietary funds use the accrual basis of accounting. Under the accrual basis, revenues are recorded when they are earned and expenses are recorded as soon as they result in liabilities for benefits received. Independent Audit State law requires an annual audit of all City books of account, financial records, and transactions by the State Auditor, an independently elected state official. In addition to meeting the requirements set forth under state law, the audit was also designed to meet the requirements of the federal Single Audit Act of 1984 and related OMB Circular A-133. The 011 2011 audit of the City has been completed in conformance with generally accepted auditing standards. The financial statements of all City funds have been included in this audit. The City has been given an unqualified opinion for 2011; which is the 18th consecutive year receiving a clean audit. The State Auditor's report on the basic financial statements is included in the financial section of this report. AWARDS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Federal Way for its comprehensive annual financial report (CAFR) for the year ended December 31, 2010. The City of Federal Way has received a Certificate of Achievement for the last twenty-one years (fiscal years ended 1990 — 2010). 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 that our current comprehensive annual financial report continues to meet Certificate of Achievement Program's requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate. The City of Federal Way also received the Government Finance Officers Association Distinguished Budget Presentation Award for its biennial budget for the years beginning January 1, 2011 and 2012. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, a financial plan, an operations guide, and a communications medium. ACKNOWLEDGEMENTS The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the finance division, in particular Phung Huynh (Financial Analyst II), Chase Donnelly (Financial Analyst 1) and Heidi Horton (Accounting Supervisor). In addition, staff in all City departments should be recognized for responding so positively to the requests for detailed information which accompany each audit. The role of the State Auditor's Office should also be acknowledged as a significant contribution to a fine product. Finally, we wish to express our appreciation to the Mayor and City Council for their ongoing support and for providing the firm foundation for the pursuit of excellence in all realms of professional endeavors. Respectfully submitted, (n�kU4_�) Tho Kraus Finance Director vii 41k CI TY OF Federal Way It"s all within reach THIS PAGE IS LEFT INTENTIONALLY BLANK Federal Wav / I CITY OFFICIALS SKIP PRIEST JIM FERREL Mayor Councilmember JEANNE BURBIDGE JACK DOVEY Councilmember Councilmember LINDA KOCHMAR MIKE PARK Councilmember Councilmember ROGER FREEMAN DINI DUCLOS Councilmember Councilmember OTHER ADMINISTRATIVE OFFICERS CityAttorney......................................................................................................................................... Patricia Richardson CityClerk.....................................................................................................................................................Carol McNeilly Community and Economic Development Director..................................................................................... Patrick Doherty FinanceDirector...................................................................................................................................................Tho Kraus Administrative Services Director......................................................................................................................Bryant Enge Parks and Public Works Director..................................................................................................................... Cary M. Roe PoliceChief..................................................................................................................................................Brian J. Wilson Municipal Court David Larson * Civil Impounds * Misdemeanors & Gross Misdemeanors * Traffic & Non -traffic Infractions * Probation Services Finance Tho Kraus * Payroll * Accounts Payable * Purchasing * Accounts Receivable * Business License * General Accounting * Budget * Banking and Investments * Monthly Financial Report * Audit Coordination * hitemal Controls * Financial Planninv/Analy! CITY OF FEDERAL WAY ORGANIZATION CHART AND OPERATION SUMMARY Human Resources Jean Stanley * Records Management * Hearing Examiner Coord.. * Codification Coordination * Licensing Enforcement * Commission & Board appointment process * Recruiting/Training * Benefits Administration * Employee/Labor Relations * Wellness * Retirement System * Civil Service CITIZENS OF FEDERAL WAY City Council * Represents the People of Federal A Mayor's Office Mayor Skip Priest Adopt Ordinances and Resolutions Administer City-wide Operations and Budget * Grant Franchises Coordinate Regional Affairs * Levy Taxes and Appropriate Funds Human Services/Community Development Block Grant *Establish Policy Guidelines Law Patricia Richardson Civil Legal Services and Litigation Legislative support Prosecution Provide Legal Counsel Draft Contracts and Ordinances Negotiate Contracts and Real Estate Transactions Risk Management Police Department Brian J. Wilson * Crime Analysis/Prevention * Traffic Safety Education & Enforcement * Investigation * Patrol * Emergency Communication * Community Safety and Education Programs * Fleet Management * Animal Services Information Technology Thomas Fichtner * Data Processing/ GIS * Mail & Copier * Systems Support Technology Infrastructure Network appliances * Customer Support Online, Remote Helpdesk Staff training * Applications Support Business Systems Setup/Support Database Administration Community & Economic Development Patrick Doherty * Economic Development * Land Use Management --Permit process --Legislative * Bldg Permits & Inspections * Code Compliance * Neighborhood Develop Public Works/Parks Cary M. Roe * Development Services --Permitting --Inspection --Legislation * Maintenance, Operating, & Development of --Public Right -of -Way --Traffic Systems --Surface Water Mgmt * Solid Waste/Recycling * Emergency Management * Fleet Management * Community Center * Recreation & Athletic Progs * Park maintenance/operation & Development * Community Events & Arts * Public Facility Management & Development * Dumas Bay Centre Operations * Knutzen Family Theatre Federal Wav / 3 Certificate of Achievement for Excellence in Financial Reporting Presented to City of Federal Way Washington For its Comprehensive Annual Financial Report for the Fiscal Year Ended December 31, 2010 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. ►ti���'DF iFi�ti��j, �. �i. u�3 t i1EDNSDiA1ESy s GL+tlWA President CORPORATION ■ Executive Director ofFederal Wav/4 4k CI TY OF Federal Way It"s all within reach THIS PAGE IS LEFT INTENTIONALLY BLANK s' gSHIVGAO Washington State Auditor Brian Sonntag INDEPENDENT AUDITOR'S REPORT May 25, 2012 Mayor and City Council City of Federal Way Federal Way, Washington We have audited the accompanying financial statements of the governmental activities, the business -type activities, each major fund and the aggregate remaining fund information of the City of Federal Way, King County, Washington, as of and for the year ended December 31, 2011, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund and the aggregate remaining fund information of the City of Federal Way, King County, Washington, as of December 31, 2011, and the respective changes in financial position and, where applicable, cash flows thereof, and the respective budgetary comparison for the General, Street and Utility Tax funds for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 1, during the year ended December 31, 2011, the City has implemented the Governmental Accounting Standards Board Statement No. 54 — Fund Balance Reporting and Governmental Fund Type Definitions. In accordance with Government Auditing Standards, we will also issue our report dated May 25, 2012, on our consideration of the City'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. That report will be issued under separate cover in the City's Single Audit Report. 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 Standards and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 7 through 16, to be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying information listed as combining financial statements and supplementary information on pages 65 through 119 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. This information has been subjected to auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The information identified in the table of contents as the Introductory and Statistical Sections is presented for purposes of additional analysis and is not a required part of the basic financial statements of the City. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR Federal Wav / 7 MANAGEMENT'S DISCUSSION AND ANALYSIS This section of the City of Federal Way's annual financial report provides a narrative overview of the City's financial activities for the fiscal year ended December 31, 2011. This information should be read in conjunction with the preceding letter of transmittal, the financial statements and notes to the financial statements that follow. FINANCIAL HIGHLIGHTS • The total assets of the City of Federal Way exceeded its liabilities at December 31, 2011 by $588.1 million. Capital Assets (net of depreciation and related debt) account for 88% of this amount with a value of $520.1 million. Of the remaining net assets of $68 million or 12%, $44 million may be used to meet the government's ongoing obligations to citizens and creditors, without legal restriction. • The City's total net assets increased by $4.8 million, or 1% compared to 2010. Governmental activities increased by $4.9 million while business -type activities decreased by $117 thousand. • Invested in capital assets, net of related debt and unrestricted net assets for governmental activities increased by $4.4 million and decreased by $6 million respectively compared to 2010. • Restricted Net Assets increased by $6.5 million or 37% is mainly for funding of capital projects. • Governmental fund balances at year-end were $43.6 million, $1.3 million or 3% decreased over the prior year. Of this amount, a total of $12.4 million, or 28% of the governmental fund balance is unrestricted and available to fund ongoing activities. The remaining $31.2 million is earmarked for debt service, paths & trails reserve, hotel/motel lodging tax, police special funds, petty cash/change funds, court trust fund, advance travel, and capital projects. • Unrestricted fund balance in the general fund was $12.4 million, which increased by $4.2 million or 5 1 % from the prior year. • The City debt decreased by $780 thousand during the current fiscal year. General obligation debt decreased by $597 thousand while public works trust fund loan decreased by $182 thousand. The decreases reflect the annual debt service payments and compensated absences. OVERVIEW OF FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City of Federal Way's basic financial statements. The basic financial statements are comprised of three components: 1) government -wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. In addition to the required components, the City's annual report also includes other supplementary information. The first set of supplementary information is the Combining Statements. These provide Balance Sheets, Statement of Revenues, Expenditures, and Changes in Fund Balances with Budget to Actual Comparisons, Statement of Net Assets, and Cash Flows for all Non -Major Funds. The other set of supplementary information is the Statistical Section. This section provides a four to ten-year view of the City's revenues, expenditures, debt obligations and capacity, the City's largest taxpayers, and those entities with the largest employment within the City of Federal Way. This section provides a long-term perspective on the City's economy. Government -wide Financial Statements The government -wide financial statements are designed to provide readers with a broad overview of the City of Federal Way's finances, in a manner similar to a private -sector business. The statement of net assets presents information on all of the City of Federal Way's assets and liabilities, with the difference between the two reported as net assets. This statement serves a purpose similar to that of a balance sheet in private business. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City'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 Federal Wav / 8 timing of the 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 (e.g., uncollected taxes and earned but unused vacation leave). Both of the government -wide financial statements distinguish functions of the City of Federal Way that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business -type activities). The governmental activities of the City of Federal Way include law enforcement and public safety, construction and maintenance of streets, building inspection, municipal court services, jail services, community planning and development services, parks and recreation facilities, other community services and general administration. The business -type activities of the City include surface water management and the control and operation of Dumas Bay Centre, a multi -use facility that offers business and retreat accommodations, recreation and cultural arts classes and a performing arts facility. The City has no separately identified component units included in the government -wide financial statements. The City has reported its investment in two governmental joint ventures: Valley Communications Center and South Correctional Entity (SCORE). Descriptions of these joint ventures are found in note 14 of the notes to the financial statements. The government -wide financial statements can be found immediately following this MD&A. Fund Financial Statements The annual financial report includes fund financial statements in addition to the government -wide financial statements. While the government -wide statements present the City's finances based on the type of activity, general government versus business -type, the fund financial statements are presented by fund type such as the general funds, special revenue funds, and proprietary funds. A fund is a specific fiscal and accounting entity with a self -balancing set of accounts used to account for specific activities or meet certain objectives. Funds are often set up in accordance with special regulations, restriction or limitations. The City of Federal Way uses fund accounting to ensure and show compliance with finance -related legal requirements. The City's funds are divided into two categories: governmental funds and proprietary funds. Governmental Funds Governmental funds are used to account for essentially the same functions as are reported in governmental activities in the government -wide financial statements. However, unlike the government -wide financial statements, governmental fund financial statements focus on near -term inflows and outflows of spendable resources as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near -term financing requirements. Because the focus of governmental funds is narrower than that of the government -wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for 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 expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Federal Way maintains seventeen individual governmental funds. The City's six major governmental funds, the general fund, street fund, utility tax fund, debt service fund, downtown redevelopment fund, and the transportation fund, are presented separately in the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances. The remaining governmental funds are combined into a single column labeled nonmajor governmental funds. Individual fund data for each of the nonmajor governmental funds can be found in combining statements later on in this report. The City maintains control over its operating funds through the adoption of the biennial budget. Budgets are adopted at the fund level and according to state law. A budgetary comparison statement is presented for the General, Street, and Utility Tax Fund as a basic financial statement. The basic governmental fund financial statements can be found on pages after the government -wide statements of this report. Proprietary Funds The City of Federal Way maintains two types of proprietary funds. Enterprise funds are used to report the same functions presented as business -type activities in the government -wide statements. The City uses enterprise funds to account for its surface water management and control and the Dumas Bay Centre. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City's various functions. The City uses internal service funds to account for its risk management and self-insurance program, information systems, mail and duplication services, fleet of vehicles and motorized equipment, and facilities management. Federal Wav / 9 Proprietary funds provide the same type of information as the government -wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the Surface Water Management fund and for the Dumas Bay Centre. The internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Individual fund data is provided in the form of combining statements elsewhere in this report. The basic proprietary fund financial statements can be found following the governmental fund statements of this report. Notes to the Financial Statements The notes provide additional information that is essential to the full understanding of the data provided in the government - wide and fund financial statements. The notes to the financial statements can be found immediately following the basic financial statements. Other Information In addition to the basic financial statements and accompanying notes, this report also presents the combining statements for nonmajor governmental funds, internal service funds, and capital assets of governmental funds. GOVERNMENT -WIDE FINANCIAL ANALYSIS Statement of Net Assets The statement of net assets can serve as a useful indicator of the City's financial position. The City of Federal Way's net assets at December 31, 2011 total $588.1 million. The following is a condensed version of the government -wide statement of net assets. The largest component of the City's net assets, 88% or $520.1 million, in its investment in capital assets net any related outstanding debt issued to acquire those assets. These capital assets such as land, streets, trails, parks, police vehicles, and parks equipment are used to provide services to the citizens. Consequently, these assets are not available to sell and convert to cash for future spending. CONDENSED STATEMENT OF NET ASSETS Governmental Activities Business -Type Activities Total 2011 2010 2011 2010 2011 2010 Current and other assets $ 83,596,160 $ 83,706,625 $ 6,033,543 $ 5,627,082 $ 89,629,703 $ 89,333,707 Capital assets and CIP, net of accumulated depreciation Total assets Long-term liabilities Other liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total net assets 482,724,905 478,651,345 51,080,562 51,773,132 533,805,467 530,424,477 566,321,065 562,357,970 57,114,105 57,400214 623,435,170 619,758,184 29,731230 30,216,587 1,106,377 1273,197 30,837,607 31,489,784 3,970,884 4,414,309 537,224 539,142 4,508,108 4,953,451 33,702,114 34,630,896 1,643,601 1,812,339 35,345,715 36,443,235 470,074,905 465,671,345 50,052,887 50,563,097 520,127,792 516,234,442 23,941,601 17,442,323 18,831 9,411 23,960,432 17,451,734 38,602,445 44,613,406 5,398,786 5,015,367 44,001,231 49,628,773 $ 532,618,951 S 527,727,074 $ 55,470,504 $ 55,587,875 $ 588,089,455 $ 583,314,949 Approximately 3% or $19.7 million of the total net assets of the city are earmarked for construction improvement projects. $14.5 million of the $19.7 million earmarked for construction improvement projects are restricted and the remainder is committed to construction improvement projects. Some of the major projects include the Annual Transportation System Safety Improvements, S 348th St at 1st Ave S, S 320th St at 20th Ave S, SW 312th St at SR509, SW Camp Dr - 21st Ave SW, S 352nd St Ext from SR99-SR161, S 320th St at I-5 S Ramp, SR99 HOV Lanes PH IV, 21st Ave SW at SW 336th St, and S 344th Way at Weyerhaeuser Way S. During the year, the City funded renovation and improvement of neighborhood parks and open space parks such as Lakota Park, Panther Lake, and various playground improvements. The City attempts to fund capital construction projects on a pay-as-you-go basis, aggressively pursuing transportation grant funding and cost sharing with developers to construct large projects in the City that impact the transportation system. The remaining balance of restricted net assets is divided among restrictions for: $146 thousand for police special funds, petty cash/change funds and advance travel, $86 thousand for municipal court trust fund, $18 thousand for prepaid insurance/debt, $3.9 million for debt service prefunding, $557 thousand Special Contracts/Studies, $213 thousand for Federal Wav / 10 Hotel/Motel lodging tax, $152 thousand for Path & Trails Reserve, and $49 thousand for Community Development Block Grant. The business -type activities portion of $5.3 million, $5.2 million can only be spent on surface water management and the remaining $96 thousand on improvements to Dumas Bay Centre and Knutzen Family Theatre. Maintenance of catch basins, pump stations, storm drain flushing, and other capital construction projects such as West Branch Lakota Creek Restoration are examples of utility activities. Other functions of the City may access the remaining $18.8 million to meet ongoing obligation to citizens and creditors. Examples of other City obligations which these net assets may be used for are public safety, parks maintenance, and ongoing street maintenance. At the end of the fiscal year, the City of Federal Way reported positive balances in all three categories of net assets, for the government as a whole, as well as for the separate governmental and business -type activities. Changes in Net Assets The changes in net assets table illustrates the increases or decreases in net assets of the City resulting from its operating activities. The City's net assets increased approximately $4.8 million in 2011. The increase is mainly due to general governmental activities which contributed 102% or $4.9 million of the increase. The following is a condensed version of the City's changes in net assets. The table shows the revenues, expenses, and related changes in net assets in tabular form for the governmental activities separate from the business -type activities. The graphs that follow compare program revenues to program expenses and illustrate the revenues by source separately for the governmental and business -type activities. Governmental activities contributed $4.9 million or 102% of the total change in net assets of $4.8 million. The increase is mainly due to the overall increase in capital assets of which $2.4 million was contributed from developers and $1.1 million increase in joint venture. Information in regards the joint venture is found in Note 14 starting on page 60. Compared to 2010, total governmental revenues decrease by $6.5 million or 11%. The decrease is mainly due to less funding received from federal and state assistance which decreased $6.5 million from 2010. In 2010, the City received $5 million in state funding for the purchase of the old Toys "R" Us site for the future site of the Performing Arts and Civic Center. Total governmental expenses decrease by $767 thousand or 1% which is mainly due to decrease in capital outlay which is offset by increase in City's jail services. The increase in jail services is for the start-up cost of the South Correctional Entity (SCORE) which opened in the fall of 2011. Information in regards the joint venture is found in Note 14 starting on page 60. Governmental Activities - Revenues Other, 1.7% Charges for services, 16.5 Operating grants & contributions, 7.2 Other taxes, 26.9% Sales tax, 17.0% Capital grants and contribution, 15.2% Property tax, 15.5% Governmental Activities - Expenses Interest on long- General term debt, 1.1 % govemme 7.7% Health and Culture an human services, recreation, 1.2% 14.0% Economic environment, 4.8 Security of Transportation, persons & 23.4% property,47.1% Physical environment, 0.7% I 'Federal Wav / 11 CHANGES IN NET ASSETS RESULTING FROM CHANGES IN REVENUES AND EXPENSES Governmental Activities Business -Type Activities Total 2011 2010 2011 2010 2011 2010 Revenues: Programs revenues: Charges for services $ 10,487,684 $ 10,817,501 $ 4,020,144 $ 4,246,235 $ 14,507,828 $ 15,063,736 Operating grants & contributions 4,597,981 9,718,920 265,660 - 4,863,641 9,718,920 Capital grants & contributions 9,716,551 9,044,477 - 9,716,551 9,044,477 Programs revenues: Property taxes 9,867,614 9,609,740 9,867,614 9,609,740 Sales tax 10,858,381 10,708,951 10,858,381 10,708,951 Local criminal justice sales tax 1,795,971 1,701,120 1,795,971 1,701,120 Utility tax 13,068,510 12,890,310 13,068,510 12,890,310 Real estate excise tax 1,560,395 1,403,361 1,560,395 1,403,361 Othertaxes 702,553 813,034 - - 702,553 813,034 Other 1,061,026 1,045,608 12,405 17,646 1,073,431 1,063,254 Total Revenue 63,716,666 67,753,022 4,298,209 4,263,881 68,014,875 72,016,903 Expenses: General government 4,448,449 4,865,827 4,448,449 4,865,827 Security of persons & property 27,222,584 26,842,240 27,222,584 26,842,240 Transportation 13,539,598 9,781,800 13,539,598 9,781,800 Physical environment 424,466 451,470 424,466 451,470 Economic environment 2,782,435 3,175,005 2,782,435 3,175,005 Health and human services 690,643 767,108 690,643 767,108 Culture and recreation 8,105,578 8,073,804 8,105,578 8,073,804 Interest on long-term debt 614,571 685,214 - - 614,571 685,214 Surface Water Management - - 3,527,590 3,384,352 3,527,590 3,384,352 Dumas Bay Centre - - 890,738 849,176 890,738 849,176 Total Expenses 57,828,324 54,642,468 4,418,328 4,233,528 62,246,652 58,875,996 Change in net assets before transfers 5,888,342 13,110,554 (120,119) 30,353 5,768,223 13,140,907 Transfers (113,000) - 113,000 - - - Change in net assets 5,775,342 13,110,554 (7,119) 30,353 5,768,223 13,140,907 Netassets- beginning 527,727,074 514,463,753 55,587,875 55,710,290 583,314,949 570,174,043 Prior period adjustment (883,465) - (110,252) - (993,717) - Adjusted Netassets - beginning 526,843,609 514,463,753 55,477,623 55,710,290 582,321,232 570,174,043 Netassets- ending 532,618,951 527,574,307 55,470,504 55,740,643 588,089,455 583,314,950 Business -type activities of the City's Surface Water Management system and Dumas Bay Centre decreased the City's net assets by $117 thousand. Surface Water Management Fund increase by $99 thousand which was offset by a decreased in Dumas Bay Centre Fund net assets by $99 thousand. Surface Water Management increase in fund balance is due to a prior period adjustment in Surface Water Management for a settlement that was capitalized incorrectly in project 251 Joe's Creek Regional Stormwater Facility and Salmon Habitat. The decrease in Dumas Bay Centre is due to awarding the managing and operations of the Knutzen Family Theatre to Centerstage starting July 1st, 2010. The City continues to pay for repair and maintenance for the Knutzen Family Theatre without offsetting revenues. Federal Wav / 12 Business -Type Activities - Revenues Operating grants Other, 0.3% & contributions, 6.2% Charges for services, 93.5% FINANCIAL ANALYSIS OF THE CITY'S FUNDS Business -Type Activities - Expenses Dumas Bay Centre, 20.2% 6n Surface Water Management, 79.8% As noted earlier, the City of Federal Way uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. Governmental funds The focus of the City of Federal Way's governmental funds is to provide information on near -term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City'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 2011, the City's governmental funds had a combined ending fund balance of $43.6 million which decreased by $1.3 million from the prior year. Approximately 28% or $12.4 million of this amount constitutes unrestricted General Fund balance, which is available for spending at the City Council's discretion. The remainder of the fund balance is restricted to indicate that it is not available for new spending because it has already been committed for debt service payments, capital projects, police special funds and petty cash/change fund/advance travel. The General Fund is the chief operating fund of the City. Total fund balance increased $4.2 million or 50%. The increase in fund balance is mainly due to capital project funds returning $3.8 million of unspent and/or savings to the General Fund and a one-time transfer of $375 thousand from the Traffic Safety Fund which is funded by Red Light Photo citations to support Police operations in the General Fund. In addition, there was an increase of $370 thousand or 1% in revenues while expenses only increased $117 thousand. The Utility Tax fund was established to account for the utility tax receipts which include 6% collected for capital, debt, and other maintenance & operations as determined by Council and the remaining 1.75% is for Voter Approved enhanced Police and Community Safety in 2007. Total fund balance increased $791 thousand or 23% from 2010. The Debt Service Fund has a total fund balance of $3.9 million which increased by $487 thousand from 2010. The overall decrease is mainly due to the overall increase in real estate excise tax available for transfer for construction in progress projects along with debt payments. The Downtown Redevelopment fund was established to accumulate resources and set aside funding for downtown projects. Overall, ending fund balance decreased by $799 thousand or 27%. The Transportation Fund is used to improve existing traffic signals, new signalization, major roadways and arterials involving the design and construction of new sections of streets, the widening of roadways to provide additional vehicle lanes, the installation of sidewalks and landscaping. The major source of revenue for this fund is grants from other agencies and contributions from other funds. Total ending fund balance decreased by $6.3 million or 31%. Proprietary funds The City of Federal Way's proprietary funds provide the same type of information found in the government -wide, but in more detail. Unrestricted net assets of the Surface Water Management Fund at the end of the year amounted to $5.2 million, and 'Federal Wav / 13 those for Dumas Bay Centre amounted to $96 thousand. The total change in net assets for both funds was $427 thousand increase and $46 thousand decrease, respectively. Other factors concerning the finances of these two funds have already been addressed in the discussion of the City of Federal Way's business -type activities. GENERAL FUND BUDGETARY AND ACTUAL HIGHLIGHTS The City of Federal Way budgets on a biennial basis with each budget beginning in an odd numbered year. Appropriations for operating funds are authorized for two years, but must be reviewed and reauthorized by the City Council in the middle of the biennial period. In 2011, the City made two budget adjustments. The following discussion is reflective only of the current year of the biennium. The General Fund operating budget increased by $429 thousand between the original adopted budget for and the adjusted adopted budget for 2011 fiscal year. The following is the major changes for the 2011 budget: o Added $666 thousand for grant/contribution items; o Added $475 thousand for pending/future deductibles; o Added $420 thousand for PERS (Public Employees' Retirement System) reserves; o Added $150 thousand for gas increase; o Added $106 thousand for increase in election costs; o Added $100 thousand for unemployment claim increase; o Added $12 thousand for contribution to Mental Health from Liquor excise taxes; o Added $10 thousand one-time increase for labor negotiations; o Added $83 thousand for 1.0 FTE Communication and Grant Writer; o Added $12 thousand for 0.25 FTE increase for Human Resource Assistant; o Added $25 thousand for 0.49 FTE Administrative Service Analyst; o Eliminate $144 thousand for elimination of 1.0 FTE Human Resources Manager and convert Senior Human Resource Analyst to Human Resource Manager; o Eliminate $33 thousand for elimination of 1.0 FTE Human Services Manager and 1.0 CDBG Coordinator and add 0.50 FTE to Human Services Technician; o Eliminate $241 thousand for 3.0 FTE frozen Police Officer; o Eliminate $195 thousand for 1.0 FTE unfilled Chief Administrative Officer; o Eliminate $163 thousand for Community Development and Economic Development reorganization which eliminated 1.0 FTE Community Development Director; o Eliminated $99 thousand 1.0 FTE Information Technology Technician; o Eliminated $7 thousand for National League of Cities association dues; o Eliminated $5 thousand for council retreat facilitator; o Eliminated $70 thousand for Federal Lobbyist; o Eliminated $98 thousand for unspent termination pay and outplacement cost; o Reduced courier/postage by $10 thousand due to switching vendors; o Reduced sponsorship policy by $10 thousand; o Reduced travel and training by $25 thousand; o Reduced dispatch services by $199 thousand; o Added $98 thousand for various internal service programs; o Added $663 thousand for program balances continuing into 2011 from 2010 such as federal/state seizure balance, downtown redevelopment, family medical leave, abatement funding, graffiti program, permit system upgrade, public defender open cases, wire theft, shoreline master plan, and outside counsel; and o Rolled forward $1.1 million for contingency reserve funds. Adjustments to revenues and other sources budget include: Adjustments to beginning balance of $3.1 million, increase of $640 thousand for grant/contribution revenues, increase in liquor profits of $312 thousand, increase in gambling tax of $250 thousand for the reopening of a card room establishment, increase of $190 thousand for criminal justice high crime distribution from the state, increase of $120 thousand for property taxes, increase of $74 thousand for criminal justice sales tax, increase in franchise fees of $36 thousand, increase of $22 thousand in park revenues, increase of $10 thousand for business licenses, increase of $2 thousand for leasehold excise tax, decrease of $162 thousand for animal license, decrease in building and electrical permits of $150 thousand, decrease of $40 thousand for interest, decrease of $60 thousand for court revenues. Other sources changes include increase for transfer in for fleet excess reserves of $56 thousand, increase for secure our school grant contribution for $9 thousand and a decrease in transfer in of $70 thousand for elimination of the federal lobbyist. Federal Wav / 14 The General Fund ending fund balance of $12.6 million is $3.8 million over the above the projected $8.8 million for 2011 year- end. The $1.8 million of the $3.8 million excess is being earmarked for carry forward into 2012. The remaining $2.0 million increase is considered one-time funds. The $3.8 million increase in ending fund balance is made up of $211 thousand in additional revenues/other sources and $3.6 million in unspent expenses/other sources. The $211 thousand increase in revenues is attributed to increases in sales tax of $175 thousand; criminal justice sales tax of $86 thousand; parks & fees of $48 thousand; franchise fees of $8 thousand; and $2 thousand for business licenses; offset by decreases in: state shared revenues of $26 thousand; property tax of $24 thousand, and court revenue of $18 thousand; transfer -in from utility tax of $164 thousand due to lower cost than anticipated; and grants & contributions of $146 thousand. The $3.6 million unspent expenses are attributable to savings found in: Police & Jail services of $747 thousand; Community & Economic Development of $529 thousand; Pension Reserves of $420 thousand; Risk Management Deductible Claims of $155 thousand; Mayor's Office/Human Services of $348 thousand; Parks & Recreation of $241 thousand, Law of $196 thousand; Human Resources/City Clerk of $192 thousand, Municipal Court of $123 thousand; Finance of $46 thousand, and City Council of $28 thousand. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The City of Federal Way's investment in capital assets for its governmental and business -type activities as of December 31, 2011 amounts to $533.8 million (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, machinery and equipment, infrastructure, park facilities and construction in progress. For more details, please see Note 8. CAPITAL ASSETS AT YEAR-END, NET OF DEPRECIATION Land Building and improvements Machinery and equipment Infrastructure Construction in progress Total Capital Assets Governmental Business -Type Activities Activities 302,168217 $ 10,310,215 $ 40,471,948 36,470,917 5,068,341 29,956 113,858,340 1,816,003 Total 2011 2010 312,478,433 $ 311,577,872 76,942,864 80,241,357 5,098,298 5,098,553 115,674,344 115,546,565 21,158,058 2,453,470 23,611,529 17,960,130 $ 482,724,904 $ 51,080,559 $ 533,805,463 $ 530,424,476 Major capital asset events during the current fiscal year included the following: expanding and improving the city streets and traffic corridors for a total of $11.0 million and general capital and various park improvements for $225 thousand. Additional information on the City of Federal Way's capital assets can be found in Note 8 of the Notes to the Financial Statements. Long-term debt At the end of 2011, the City of Federal Way had total bonded debt outstanding of $47.3 million for future principal and interest payments which are backed by the full faith and credit of the government. The remainder of the City's debt represents Public Works Trust Fund Loans. LONGTERM DEBT (FUTURE PRINCIPAL AND INTEREST PAYMENTS) Governmental Business -Type Activities Activities Total General obligation bonds $ 46,230,633 $ $ 46,230,633 Public works trust fund loan - 1,067,453 1,067,453 Total $ 46,230,633 $ 1,067,453 $ 47,298,086 The City's total debt decreased by $1.3 million due to annual debt service payments. The City of Federal Way maintains an Aal rating from Moody's as of July 2011 for its general obligation bonds. 'Federal Wav / 15 Washington State statutes limit the amount of debt a government entity may issue to 7.5% of its total assessed valuation, subject to 60% majority vote of qualified electors. Of the 7.5% limit, 2.5% is for general purposes, 2.5% for open space/park facilities, and 2.5% for utilities. Non -voted general purpose indebtedness is limited to 1.5% of assessed valuation and combination of voted and non -voted general purpose indebtedness cannot exceed 2.5% of assessed valuation. The City's assessed valuation for 2011 was $7.773 billion and the total amount of debt the City may issue is $558.3 million. Remaining legal debt capacities as of December 31, 2011 are: General government (no vote required) $ 94,879,813 General government (3/5 majority vote required) 77,229,838 Parks and open space (3/5 majority vote required) 193,074,595 Utilities (3/5 majority vote required) 193,074,595 Total Capacity $ 558,258,841 Additional information on the City of Federal Way's long-term debt can be found in Note 11 and in the Statistical Section of this report. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The economy was growing entering into 2011, but for many Americans life was not getting better. Unemployment remained high, home values are depressed, and state budgets were in deep trouble signifying more layouts, services cuts and potential tax increases. Rising oil and gasoline prices are once again threatening the U.S. economic recovery. The root of the cause is geopolitical turmoil in the Middle East. The threat of removing Iranian oil supplies is pushing gas prices higher. However it's uncertain how this will affect the U.S. economic growth because it depends on if the increase is transitory or longer lasting. As oil prices increases, consumers will be forced to shift discretionary spending away from big -ticket purchases of autos, furniture, appliances, and purchase of nondurables. Higher oil prices act as a tax on consumers and most of these dollars move out of the United States. Like the rest of the nation, Washington state economy is still dealing with a severely damaged economy. How quickly the region emerges from this disastrous downturn largely depends on how fast the nation recovers. The Puget Sound region, however, is doing better than the rest of the country, employment growing 1.6% over the year compared to 1% for the nation. That's largely thanks to Boeing, which hired 7,000 more workers during the period and probably indirectly created another 7,000 jobs. Without those 14,000 jobs, regional employment would have increased at the same rate as the nation. Despite the lift from Boeing, the regional economy remains in fragile state. Foreclosures are still holding down the housing market, while weak tax collections are forcing state and local governments to cut programs and eliminate jobs. In addition, the State is currently trying to fix a gap of more than $1 billion in the state's main budget. The House and the Senate both have different strategies to balance the budget. Some proposed reductions includes eliminating Basic Health Plan, Disability Lifeline, permanently reduce certain state distributions to local governments which includes support for criminal justice programs, and K-12 & higher education reductions. The State's current proposed budget could cost the City of Federal Way approximately $450 thousand per year. With the uncertainty of the State's budget and economic recovery, maintaining City services at the current levels can be challenging. With the uncertainty with the State's budget crisis, rising fuel costs, and unexpected increase in contracted costs; the City approaches the 2013/14 budget with heightened caution. The City is proceeding with caution and restraint, so that it is not overly susceptible to and minimizes the local economy slump without huge fluctuations in services to our citizens. Staff will closely monitor and assess economic impacts experienced around our state and within our local economy to anticipate any negative impact on critical City revenues. Federal Wav / 16 REQUEST FOR INFORMATION This financial report is designed to provide a general overview of the City of Federal Way'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 financial information should be addressed to Finance Department, City of Federal Way, 33325 8"' Avenue South, Federal Way, Washington 98003, telephone 253-835-2523, or visit the City's website at www.cityoffederalwao. 'Federal Wav / 17 BASIC FINANCIAL STATEMENTS Federal Wav / 18 STATEMENT OF NET ASSETS December 31, 2011 ASSETS Cash & cash equivalents and investments Receivables (net) Due from other governments Prepaid items Restricted assets: Cash with escrow agent Seizure funds/Petty cash/Advance travel/Retainage Investment in joint venture Capital assets not being depreciated: Land Construction in progress Capital assets net of accumulated depreciation: Buildings/structures Improvements other than buildings Machinery and equipment Infrastructure Total Assets LIABILITIES Accounts payable and accruals Unearned revenue Retainage payable Retainage payable - with escrow agent Due to other governments Customer deposits Noncurrent Liabilities: Due within one year Due in more than one year Due to other governments Total Liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Customer deposit Debt service prefunding Capital projects Steel Lake & North Lake Mgmt District Other Unrestricted Total Net Assets Governmental Business -type Activities Activities Total $ 57,643,479 $ 5,544,437 $ 63,187,916 2,548,940 388,086 2,937,026 3,239,799 101,018 3,340,817 22,609 - 22,609 6,922 - 6,922 364,190 - 364,190 19,770,221 - 19,770,221 302,168,217 10,310,215 312,478,433 21,158,058 2,453,470 23,611,529 11,536,144 980,884 12,517,029 28,935,803 35,490,032 64,425,836 5,068,341 29,956 5,098,298 113,858,340 1,816,003 115, 674, 344 566,321,065 57,114,105 623,435,170 2,336,862 347,312 221,165 123,247 942,298 646,264 13,778,016 15,306,950 33,702,114 59,927 449,310 5,660 16,990 5,337 184,893 921,484 1,643,601 2,396,789 796,622 221,165 5,660 140,237 947,635 831,157 14,699,500 15,306,950 35,345,715 470,074,905 50,052,887 520,127,792 16,206 5,337 21,543 3,866,184 - 3,866,184 19,711,227 - 19,711,227 - 13,494 13,494 364,190 - 364,190 38,586,239 5,398,786 43,985,025 $ 532,618,951 $ 55,470,504 $ 588,089,455 The notes to the financial statements are an integral part of this statement. 'Federal Wav / 19 Functions/Programs Governmental Activities: General government Security of persons & property Transportation Physical environment Economic nnvironment Health Culture & recreation Interest on long-term debt Total governmental activities Business -type Activities: Surface Water Management Dumas Bay Centre Total business -type activities Total STATEMENT OF ACTIVITIES For the Year ended December 31, 2011 Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions Net (Expense) Revenue & Changes in Net Assets Governmental Business -type Activities Activities Total $ 4,448,449 $ 815,432 $ 1,851,768 $ - $ (1,781,249) $ $ (1,781,249) 27,222,584 4,990,091 720,245 - (21,512,248) (21,512,248) 13,539,598 2,481,904 1,721,893 9,625,608 289,807 289,807 424,466 77,808 146,460 - (200,198) (200,198) 2,782,435 510,040 129,628 25,943 (2,116,824) (2,116,824) 690,643 126,600 2,583 - (561,460) (561,460) 8,105,578 1,485,810 25,404 65,000 (6,529,364) (6,529,364) 614,571 - - - (614,571) (614,571) 57,828,324 10,487,684 4,597,981 9,716,551 (33,026,108) (33,026,108) 3,527,590 3,458,435 265,660 196,505 196,505 890,738 561,709 - (329,029) (329,029) 4,418,328 4,020,144 265,660 (132,524) (132,524) $ 62,246,652 $ 14,507,828 $ 4,863,641 $ 9,716,551 (33,026,108) (132,524) (33,158,632) Property tax Sales tax Local criminal justice sales tax Utility tax Real estate excise tax Gambling tax Hotel/Motel tax Leasehold excise tax Other revenue Investment earnings Transfers Total general revenues and transfers Change in net assets Net assets at beginning of year Prior period adjustment (See Note 15) Adjusted beginning net assets Net assets at end of year 9,867,614 9,867,614 10,858,381 10,858,381 1,795,971 1,795,971 13,068,510 13,068,510 1,560,395 1,560,395 511,005 511,005 185,289 185,289 6,259 6,259 960,012 960,012 101,014 12,405 113,419 (113,000) 113,000 - 38,801,450 125,405 38,926,855 5,775,342 (7,119) 5,768,223 527,727,074 55,587,875 583,314,949 (883,465) (110,252) (993,717) 526,843,609 55,477,623 582,321,232 $532,618,951 $55,470,504 $ 588,089,455 The notes to the financial statements are an integral part of this statement. Federal Wav / 20 BALANCESHEET GOVERNMENTAL FUNDS December 31, 2011 Debt General Street Utility Tax Service ASSETS Equity in pooled cash & investments $ 12,434,843 $ 749,137 $ 2,701,206 $ 3,908,649 Prepaid insurance/debt service 17,609 - - - Retainage in escrow - - - - Receivables (net): Taxes 566,113 - 1,466,988 84,735 Accounts and contracts (14,025) 7,000 - - Restricted cash 253,527 3,695 - - Due from other governments 1,665,653 87,244 2,674 - Interfund loans receivable 10,000 - - TOTAL ASSETS 14,933,720 847,076 4,170,868 3,993,384 LIABILITIES AND FUND BALANCES Liabilities: Vouchers payable 1,387,107 84,506 - - Accounts/payroll payable 22 - - - Retainage payable - 3,695 - Due to other governments 123,247 - - Deposits payable 332,283 593,809 - Interfund loans payable - - - - Deferred revenue 446,913 65,066 - 127,200 TOTAL LIABILITIES 2,289,572 747,076 - 127,200 Fund Balance: Nonspendable 104,012 - - - Restricted 145,524 - - 3,866,184 Committed 21,893 100,000 4,170,868 - Unassigned 12,372,719 - - - TOTAL FUND BALANCES 12,644,148 100,000 4,170,868 3,866,184 TOTAL LIABILITIES AND FUND BALANCE $ 14,933,720 $ 847,076 $ 4,170,868 $ 3,993,384 The notes to the financial statements are an integral part of this statement. 'Federal Wav / 21 BALANCESHEET GOVERNMENTAL FUNDS December 31, 2011 Downtown Redevelopment Transportation ASSETS Equity in pooled cash & investments $ Prepaid insurance/debt service Retainage in escrow Receivables (net): Taxes Accounts and contracts Restricted Cash Due from other governments Interfund loans receivable Nonmajor 2,215,333 $ 12,440,381 $ 7,069,386 $ 41,518,934 - - - 17,609 - 6,922 6,922 268 - - 2,118,104 - 307,620 89,666 390,261 106,969 - 364,190 1,310,374 124,794 3,190,739 - - - 10,000 TOTAL ASSETS 2,215,601 14,165,343 7,290,768 47,616,761 LIABILITIES AND FUND BALANCES Liabilities: Vouchers payable 8,334 Accounts/payroll payable - Retainage payable Due to other governments Deposits payable Interfund loans payable - Deferred revenue 216 248,697 229,988 1,958,632 - - 22 106,969 110,502 221,165 - - 123,247 - 16,206 942,298 - 10,000 10,000 - 110,116 749,512 TOTAL LIABILITIES 8,550 355,666 476,812 4,004,876 Fund Balance: Nonspendable - - - 104,012 Restricted 2,023,299 9,573,357 3,862,649 19,471,013 Committed 183,752 4,236,320 2,951,308 11,664,141 Unassigned - - - 12,372,719 TOTAL FUND BALANCES 2,207,051 13,809,677 6,813,957 43,611,884 TOTAL LIABILITIES AND FUND BALANCE $ 2,215,601 $ 14,165,343 $ 7,290,769 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets are used in governmental activities are not financial resources and, therefore, are not reported in the funds. 466,356,928 Investment in joint venture is not a financial resource and, therefore, not reported in the funds 19,770,221 Other long-term assets are not available to pay for current -period expenditures and, therefore, are deferred in the funds 448,562 Internal service funds are used by management to charge the costs of insurance, information systems, mail and duplication, fleet, and building management to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net as: 32,162,587 Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds. (29,731,230) Net assets of governmental activities $ 532,618,951 The notes to the financial statements are an integral part of this statement. Federal Wav / 22 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For Year Ended December 31, 2011 REVENUES Taxes Licenses and permits Intergovernmental Service charges and fees Fines and forfeitures Interest Other TOTAL REVENUES EXPENDITURES Current: General government Security of persons and property Transportation Physical environment Economic environment Health Culture and recreation Debt service: Principal Interest/fiscal charges/admin fees Capital outlay TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES Debt General Street Utility Tax Service $ 22,844,503 $ - $ 13,068,510 $ 1,560,395 2,089,924 119,949 - - 2,220,929 1,233,570 - - 2,868,359 255,614 - - 1,200,997 - - - 85,701 603 3,726 3,454 528,363 55,407 - - 31,838,777 1,665,144 13,072,237 1,563,848 3,973,098 - 48,000 - 28,314,187 - - - - 4,110,014 - 2,400,051 - 690,824 - 3,589,643 - - - - 457,520 - - - 614,571 68,720 - - - 39,036,523 4,110,014 48,000 1,072,091 OVER (UNDER) EXPENDITURES (7,197,746) (2,444,870) 13,024,237 491,757 OTHER FINANCING SOURCES (USES) Sale of capital assets - - - - Transfers in 13,222,353 2,444,870 - 915,000 Transfers out (1,818,870) - (12,563,553) (920,000) TOTAL OTHER FINANCING SOURCES (USES) 11,403,483 2,444,870 (12,563,553) (5,000) NET CHANGE IN FUND BALANCES FUND BALANCES - BEGINNING Adjustment for GASB 54 - Beginning fund balance ADJUSTED FUND BALANCES - BEGINNING FUND BALANCES - ENDING 4,205,737 (0) 460,684 486,757 8,438,118 100,000 3,710,184 3,379,427 293 - - - 8,438,411 100,000 3,710,184 3,379,427 $ 12,644,148 $ 100,000 $ 4,170,868 $ 3,866,184 The notes to the financial statements are an integral part of this statement. 'Federal Wav / 23 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For Year Ended December 31, 2011 REVENUES Taxes Licenses and permits Intergovernmental Service charges and fees Fines and forfeitures Interest Other TOTAL REVENUES EXPENDITURES Current: General government Security of persons and property Transportation Physical environment Economic environment Health Culture and recreation Debt service: Principal Interest/fiscal charges/admin fees Capital outlay TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES Downtown Nonmajor Redevelopment Transportation Governmental Total $ 13,333 $ - $ 344,304 $ 37,831,045 - - - 2,209,873 25,943 7,316,587 916,218 11,713,248 - 977,685 2,029,629 6,131,287 - - 945,527 2,146,524 2,339 (13,159) 6,673 89,338 104,431 9,246 262,564 960,012 146,046 8,290,360 4,504,916 61,081,327 - - 213,229 4,234,327 - - 18,050 28,332,237 - 1,081,166 2,236,228 7,427,408 - - 427,315 427,315 194,800 - 187,686 2,782,537 - - - 690,824 - - 2,231,517 5,821,160 - - - 457,520 - - - 614,571 - 11,020,921 470,564 11,560,205 194,800 12,102,087 5,784,589 62,348,104 OVER (UNDER) EXPENDITURES (48,754) (3,811,727) (1,279,673) (1,266,777) OTHER FINANCING SOURCES (USES) Sale of capital assets - 9,162 - 9,162 Transfers in - 1,611,000 3,260,000 21,453,223 Transfers out (750,000) (4,100,000) (1,358,000) (21,510,423) TOTAL OTHER FINANCING SOURCES (USES) (750,000) (2,479,838) 1,902,000 (48,038) NET CHANGE IN FUND BALANCES FUND BALANCES - BEGINNING Adjustment for GASB 54 - Beginning fund balance ADJUSTED FUND BALANCES - BEGINNING (798,754) (6,291,565) 622,327 (1,314,815) 3,005,805 20,101,242 6,191,923 44,926,699 (293) 3,005,805 20,101,242 6,191,630 44,926,699 FUND BALANCES - ENDING $ 2,207,051 $ 13,809,677 $ 6,813,957 $ 43,611,884 The notes to the financial statements are an integral part of this statement. Federal Wav / 24 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the Year Ended December 31, 2011 Amounts reported for governmental activities in the statement of activities (page 19) are 2011 different because: Net change in fund balances --total governmental funds $ (1,314,815) Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which 6,553,575 capital outlays exceeded depreciation in the current period. Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. 22,379 The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the issuance proceeds of new debt as current financial resources and payment as the use of current resources, whereas these amounts reduce the net assets. 526,000 Internal service funds are used by management to charge costs of risk management, information systems, mail & duplication, fleet, and building systems to the funds. 31,600 Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the funds. (43,396) Change in net assets of governmental activities $ 5,775,342 The notes to the financial statements are an integral part of this statement. 'Federal Wav / 25 GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2011 REVENUES Taxes Licenses and permits Intergovernmental Service charges and fees Fines and forfeitures Interest Other TOTAL REVENUES EXPENDITURES Current: General government Security of persons and property Economic environment Health Culture and recreation Capital outlay TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) $ 22,113,000 $ 22,559,000 $ 22,844,503 $ 285,503 2,326,000 2,060,000 2,089,924 29,924 1,333,600 2,389,469 2,220,929 (168,540) 2,609,943 2,650,421 2,868,359 217,938 1,255,150 1,252,235 1,200,997 (51,238) 112,000 72,000 85,701 13,701 392,150 405,205 528,363 123,158 30,141,843 31,388,330 31,838,777 450,447 5,274,824 5,123,307 3,973,098 1,150,209 29,102,817 29,296,190 28,314,187 982,003 2,819,371 2,920,672 2,400,051 520,621 724,559 730,669 690,824 39,845 3,703,289 3,830,551 3,589,643 240,908 8,638 161,472 68,720 92,752 41,633,498 42,062,860 39,036,523 3,026,337 OVER (UNDER) EXPENDITURES (11,491,655) (10,674,530) (7,197,746) 3,476,784 OTHER FINANCING SOURCES (USES) Transfers in 13,400,509 13,395,674 13,222,353 (173,321) Transfers out (2,119,306) (2,352,386) (1,818,870) 533,516 TOTAL OTHER FINANCING SOURCES (USES) 11,281,203 11,043,288 11,403,483 360,195 NET CHANGE IN FUND BALANCES FUND BALANCES - BEGINNING Adjustment for GASB 54 - Beginning fund balance ADJUSTED FUND BALANCES - BEGINNING (210,452) 368,758 4,205,737 3,836,979 5,292,275 8,438,116 8,438,118 2 293 293 - 5,292,275 8,438,409 8,438,411 2 FUND BALANCES - ENDING $ 5,081,823 $ 8,807,167 $ 12,644,148 $ 3,836,981 The notes to the financial statements are an integral part of this statement. Federal Wav / 26 STREET FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2011 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Licenses and permits $ 114,130 $ 124,131 $ 119,949 $ (4,182) Intergovernmental 1,254,361 1,378,463 1,233,570 (144,892) Service charges and fees 219,100 199,300 255,614 56,314 Interest 2,000 2,000 603 (1,397) Other 47,260 27,060 55,407 28,347 TOTAL REVENUES 1,636,851 1,730,954 1,665,144 (65,809) EXPENDITURES Current: Transportation 4,420,613 4,699,977 4,110,014 589,962 Capital outlay - - - - TOTAL EXPENDITURES 4,420,613 4,699,977 4,110,014 589,962 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (2,783,762) (2,969,023) (2,444,870) 524,153 OTHER FINANCING SOURCES (USES) Transfers in 2,783,762 2,978,388 2,444,870 (533,518) Transfers out - (9,365) - 9,365 TOTAL OTHER FINANCING SOURCES (USES) 2,783,762 2,969,023 2,444,870 (524,153) NET CHANGE IN FUND BALANCES (0) (0) (0) 0 FUND BALANCES - BEGINNING 100,000 100,000 100,000 - FUND BALANCES - ENDING $ 100,000 $ 100,000 $ 100,000 $ 0 The notes to the financial statements are an integral part of this statement. 'Federal Wav / 27 UTILITY TAX FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2011 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Taxes $ 12,466,000 $ 12,816,000 $ 13,068,510 $ 252,510 Interest 30,000 6,000 3,726 (2,274) TOTAL REVENUES 12,496,000 12,822,000 13,072,237 250,237 EXPENDITURES Current: General government 48,000 48,000 48,000 - TOTAL EXPENDITURES 48,000 48,000 48,000 - EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 12,448,000 12,774,000 13,024,237 250,237 OTHER FINANCING SOURCES (USES) Transfers out (12,727,509) (12,727,509) (12,563,553) 163,956 TOTAL OTHER FINANCING SOURCES (USES) (12,727,509) (12,727,509) (12,563,553) 163,956 NET CHANGE IN FUND BALANCES (279,509) 46,491 460,684 414,193 FUND BALANCES - BEGINNING 3,199,666 3,710,180 3,710,184 4 FUND BALANCES - ENDING $ 2,920,157 $ 3,756,671 $ 4,170,868 $ 414,196 The notes to the financial statements are an integral part of this statement. Federal Wav / 28 ASSETS Current Assets Equity in pooled cash & investments Prepaid items Receivables (net): Accounts and contracts Due from other governments TOTAL CURRENT ASSETS Property, plant and equipment Land Building/structures Machinery/furniture/equipment Infrastructure Construction in progress Less accumulated depreciation TOTAL NONCURRENT ASSETS TOTAL ASSETS LIABILITIES AND FUND EQUITY Current Liabilities: Vouchers/payroll payable Retainage payable - with escrow agent Due to other governments Deposits payable Deferred revenue Public Works Trust Fund loan payable Compensated absences payable TOTAL CURRENT LIABILITIES Long-term liabilities: Public Works Trust Fund loan payable Compensated absences payable TOTAL LONG-TERM LIABILITIES TOTAL LIABILITIES STATEMENT OF NET ASSETS PROPRIETARY FUNDS December 31, 2011 Business -type Activities - Enterprise Funds Surface Water Dumas Bay Management Centre TOTAL Governmental Service $ 5,226,459 $ 253,571 $ 5,480,030 $ 16,188,952 - - - 5,000 367,252 20,834 388,086 40,571 101,018 - 101,018 49,060 5,694,729 274,406 5,969,134 16,283,583 8,200,575 2,109,640 10,310,215 - 19,849 3,581,015 3,600,864 16,497,555 47,818,768 118,374 47,937,142 15,035,018 1,916,645 - 1,916,645 - 2,074,662 378,808 2,453,470 (12,438,596) (2,699,180) (15,137,776) (15,164,592) 47,591,903 3,488,657 51,080,560 16,367,981 53,286,632 3,763,063 57,049,694 32,651,564 42,841 17,086 59,927 378,208 5,660 - 5,660 - 16,990 - 16,990 - 5,337 5,337 - 317,011 132,299 449,310 - 182,359 - 182,359 - 2,534 - 2,534 - 567,395 154,721 722,116 378,208 845,317 - 845,317 - 57,814 18,353 76,167 46,362 903,131 18,353 921,484 46,362 1,470,526 173,074 1,643,600 424,570 Invested in capital assets, net of related debt 46,564,227 3,488,657 50,052,884 16,367,981 Restricted for: Customer deposits - 5,337 5,337 - Steel Lake & North Lake Mgmt District 13,494 - 13,494 - Unrestricted 5,238,385 95,994 5,334,380 15,859,013 TOTAL NET ASSETS $ 51,816,106 $ 3,589,988 55,406,095 $ 32,226,994 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds 64,407 NET ASSETS OF BUSINESS -TYPE ACTIVITIES $ 55,470,504 The notes to the financial statements are an integral part of this statement. 'Federal Wav / 29 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS For Year Ended December 31, 2011 OPERATING REVENUES: Service charges and fees Intergovernmental Miscellaneous TOTAL OPERATING REVENUES OPERATING EXPENSES: Personal services Materials and supplies Services and charges Intergovernmental Depreciation Interfund charges TOTAL OPERATING EXPENSES OPERATING INCOME (LOSS) NON -OPERATING REVENUES (EXPENSES): Business -type Activities - Enterprise Funds Surface Water Dumas Bay Management Centre TOTAL Governmental Service $ 3,441,705 $ 561,709 $ 4,003,414 $ 5,618,163 265,660 - 265,660 467,216 16,730 - 16,730 255,590 3,724,095 561,709 4,285,804 6,340,969 1,724,163 312,261 2,036,422 815,231 117,242 118,985 236,227 599,218 695,710 230,202 925,912 2,677,920 184,328 11,473 195,801 105,774 507,029 181,997 689,026 2,102,287 289,202 36,021 325,223 - 3,517,674 890,939 4,408,611 6,300,430 206,421 (329,230) (122,807) 40,538 Gain (Loss) from disposal of capital assets - - - (186,217) Interest income 11,362 314 11,676 12,405 Interest expense (12,100) - (12,100) - TOTAL NON -OPERATING REVENUES (EXPENSES) (738) 314 (424) (173,812) INCOME (LOSS) BEFORE TRANSFERS 205,683 (328,916) (123,231) (133,274) Capital contributions - - - 223,786 Transfers in 846,865 113,000 959,865 13,500 Transfers out (846,865) - (846,865) (69,300) CHANGE IN NET ASSETS 205,683 (215,916) (10,231) 34,712 NET ASSETS - BEGINNING 51,720,675 3,805,905 32,192,281 Prior period adjustment (110,252) - - ADJUSTED NET ASSETS - BEGINNING 51,610,423 3,805,905 32,192,281 NET ASSETS - ENDING $ 51,816,106 $ 3,589,988 $ 32,226,994 Adjustment to reflect the consolidation of internal service fund activities related to enterprise 3,112 CHANGES IN NET ASSETS OF BUSINESS -TYPE ACTIVITIES $ (7,119) The notes to the financial statements are an integral part of this statement. Federal Wav / 30 STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For Year Ended December 31, 2011 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from users Cash payments to claimants Cash payments to suppliers for goods/services Cash payments to employees Cash payments to other funds for goods and services Cash payments to other governments for goods and services Other operating receipts NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers in Transfers out NET CASH PROVIDED BY NONCAPITAL FINANCINC CASH FLOWS FROM CAPITAL AND CAPITAL - RELATED FINANCING ACTIVITIES, Principal paid on debt service Interest paid on debt service Acquisition of capital asset/construction work in progress Proceeds from the sale of capital assets NET CASH USED FOR CAPITAL AND CAPITAL - RELATED FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Receipts of interest NET CASH PROVIDED BY INVESTING ACTIVITIES NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating Income/(loss) Adjustments to reconcile operating income to net cash provided/(used) by operating activities: Depreciation expenses (Increases)/decrease in accounts receivable (Increases)/decrease in due from other governments Increases/(decrease)in vouchers/accounts payable Increases/(decrease)in retainage payable Increases/(decrease) in due to other government Increases/(decrease)in deposits payable Increases/(decrease)in deferred revenue Increases/(decrease) in accrued payroll/compensated absences payable TOTAL ADJUSTMENTS NET CASH PROVIDEWUSED BY OPERATING ACTIVITIES Non -cash investing, capital, and financing activities: Other contributions of capital assets Governmental Business -type Activities - Enterprise Funds Activities Surface Water Dumas Bay Internal Management Centre TOTAL Service $ 3,417,789 $ 548,380 $ 3,966,169 $ 5,966,164 - - - (820,386) (843,660) (365,840) (1,209,500) (1,815,080) (1,709,407) (311,478) (2,020,885) (817,984) (289,202) (36,021) (325,223) (184,710) (11,473) (196,183) (551,589) 326,206 326,206 255,589 717,016 (176,432) 540,584 2,216,714 846,865 113,000 959,865 13,500 (846,865) - (846,865) (69,300) 113,000 113,000 (55,800) (182,359) - (182,359) (12,100) (12,100) (94,975) (11,731) (106,706) (1,598,313) 40,473 (289,434) (11,731) (301,165) (1,557,840) 11,362 314 11,676 12,405 11,362 314 11,676 12,405 438,944 (74,849) 364,095 615,479 4,787,512 328,422 5,115,934 15,573,475 5,226,459 253,571 5,480,030 16,188,952 206,418 (329,230) (122,812) 40,539 507,029 181,997 689,026 2,102,287 (82,261) (806) (83,067) (29,741) 43,816 - 43,816 (21,554) (31,413) (17,403) (48,816) 195,856 708 708 - (382) - (382) - 750 750 58,345 (12,523) 45,822 (67,920) 14,756 783 15,539 (2,753) 510,598 152,798 663,396 2,176,175 $ 717,016 $ (176,432) $ 540,584 $ 2,216,714 $ 223,786 The notes to the financial statements are an integral part of this statement. 'Federal Wav / 31 NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2011 INDEX Note Page 1 Summary of Significant Accounting Policies............................................................................... 32 ReportingEntity................................................................................................................... 32 Government -wide and Fund Financial Statements............................................................... 32 Measurement Focus, Basis of Accounting, and Financial Statement Presentation .............. 32 Budgetary Information......................................................................................................... 36 Assets, Liabilities and Equities............................................................................................. 37 Cash and Investments.................................................................................................. 37 Receivables.................................................................................................................. 38 Amounts Due to and from Other Funds; Interfund Loans ........................................... 38 Inventories................................................................................................................... 38 CapitalAssets.............................................................................................................. 38 Compensated Absences Payable.................................................................................. 39 Long -Term Liabilities.................................................................................................. 39 DeferredRevenue........................................................................................................ 40 Fund Balance Classification........................................................................................ 40 Interfund Transactions................................................................................................. 41 2 Reconciliation of Government -wide & Fund Financial Statements .............................................. 41 3 Stewardship, Compliance and Accountability.............................................................................. 41 4 Supplemental Appropriations....................................................................................................... 42 5 Deposits and Investments.............................................................................................................. 42 6 Receivables and Due from Other Governments............................................................................ 44 7 Due To Other Governments.......................................................................................................... 45 8 Capital Assets............................................................................................................................... 46 9 Pension Plans................................................................................................................................ 48 10 Risk Management......................................................................................................................... 54 11 Long -Term Liabilities................................................................................................................... 56 12 Interfund Transactions.................................................................................................................. 59 13 Contingencies and Litigation........................................................................................................ 60 14 Joint Ventures............................................................................................................................... 60 15 Prior Period Adjustment................................................................................................................ 63 16 Subsequent Event.......................................................................................................................... 63 Federal Wav / 32 NOTES TO THE BASIC FINANCIAL STATEMENTS For the Year Ended December 31, 2011 NOTE 1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Federal Way have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described below. 1;701Z�7:71Y1�[ei�1�MYMYIx.� The City's Comprehensive Annual Financial Report (CAFR) includes the funds, agencies and boards controlled by or dependent on the City. In conformance with Governmental Accounting Standards Board (GASB) Statement 14, "The Financial Reporting Entity", the primary basis of determining whether outside agencies and organizations should be considered component units of the City is Financial Accountability. Financial Accountability is dependence on the City's obligation to redeem the organization's debts, to finance the organization's deficits, and the extent to which subsidies from the City constitute a major portion of the organization's total resources. Applying these criteria, as outlined in GASB Statement 14, the City has no relationships that qualify as component units. Financial Accountability Financial accountability is defined as appointment of a voting majority of an agency's or organization's board, and either the City's ability to impose will on the agency or organization or the possibility that the agency or organization will provide a financial benefit to or impose a financial burden on the City. Joint Ventures A joint venture is a legal entity or organization which results from a contractual arrangement that is owned, operated, or governed by two or more participants as a separate activity subject to joint control, in which participants retain an ongoing financial interest or an ongoing financial responsibility. The City participates in two joint ventures: Valley Communications Center and South Correctional Entity (SCORE). See Note 14, Joint Venture, which more fully describes these organizations. GOVERNMENTAL -WIDE AND FUND FINANCIAL STATEMENTS The government -wide financial statements (i.e. the statement of net assets and the statement of activities) report information on all activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business -type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Our policy is to allocate indirect costs to specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use or directly benefit from goods, services, or privileges provided by a given function or segment, and 2) grant and contributions that are restricted to meeting the operational or capital requirements or a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, FINANCIAL STATEMENT PRESENTATION The government -wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 'Federal Wav / 33 Governmental Funds Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City of Federal Way considers revenues to be available if they are collected within 30 days of the end of the current fiscal period with an exception to utility and gambling taxes in which is extended to 60 days. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, licenses, and interest associated within the current period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessment receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the City. The City reports the following major governmental funds: General Fund This is the City's general operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. Street Fund This fund accounts for receipt and disbursement of State -levied motor vehicle fuel taxes which must be accounted for in a separate fund and expended for street -oriented engineering, maintenance and operations. Utility Tax Fund This fund was established to account for all utility tax receipts. These receipts will subsequently be distributed to various funds (Debt Service, Capital Improvement Projects, etc.) for project expenditure as determined by the City Council. Debt Service Fund This fund accounts for the accumulation of resources for the payment of general obligation and assessment bond principal, interest and related costs. Downtown Redevelopment CIP Fund This fund was established to accumulate resources to set aside for downtown projects. Transportation CIP Fund This fund accounts for receipts and disbursements related to acquisition, design, construction and any other related street project expenditures. The City reports the following fund groups as non -major funds: Special Revenue Funds These funds are to be used to account for the proceeds of revenues and sources (other than special assessments, expendable trust or major capital projects) that are committed or legally restricted to expenditures for specified purposes. Capital Project Funds These funds account for the acquisition or construction of major capital facilities with the exception of those facilities financed by the proprietary and trust funds. The major sources of revenues for this fund are general obligation bond proceeds, grants from other agencies, local taxes and contributions from other funds. Proprietary Funds Proprietary funds are used to account for activities similar to those found in the private sector where the intent of the governing body is to finance the full cost of providing services, including depreciation, primarily through user charges. The measurement focus for these funds is based on the commercial model, which uses a flow of economic resources approach. Under this approach, the operating statements for the proprietary funds focus on a measurement of net income (revenues and expenses) and both current and non -current assets and liabilities are reported on the related balance sheets. Federal Wav / 34 Private sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government -wide and proprietary fund financial statements to the extent that those standards to not conflict with or contradict guidance of the Governmental Accounting Standards board. Governments also have the option of following subsequent private -sector guidance for their business -type activities and enterprise funds, subject to the same limitation. The City of Federal Way has elected not to follow subsequent private -sector guidance. As a general rule the effect of the interfund activity has been eliminated for the government -wide financial statements. Amounts reported as program revenue include 1) charges to customers, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than program revenues. General revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from non -operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the enterprise and internal service funds are primarily user charges, the cost of providing goods or services to the general public on a continuing basis. Operating expenses for enterprise funds and internal service funds includes the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non -operating revenues and expenses. The City reports the following major proprietary funds: Enterprise Funds The City uses enterprise funds to account for government activities that are financed and operated in a manner similar to private business. Costs of providing services to the general public are primarily financed by user fees. Surface Water Management Fund This fund was established to administer and account for all receipts and expenditures related to the City's surface and storm water management system. Dumas Bay Centre Fund This fund was established to account for the revenues and expenses related to the acquisition, capital improvements maintenance and operations of the City -owned Dumas Bay Centre and Knutzen Family Theatre. Internal Service Funds The City uses Internal Service Funds to account for the financing of goods or services provided by one department or agency to other departments or agencies of a government, or to other governments, on a cost -reimbursement basis. A description of each individual Internal Service Fund included in the Comprehensive Annual Financial Report is provided below: Risk Management Fund This fund accounts for the City's risk financing activities established to minimize adverse effects of losses associated with property and casualty, medical and dental, unemployment and worker's compensation claims. Both risk control (to minimize the losses that strike and organization) and risk financing (to obtain finances to provide for or restore the economic damages of those losses) are involved. The City is currently self -insuring only State Unemployment Compensation. Related premiums received by the fund are used to reimburse the unemployment benefits paid to eligible individuals and to establish reserves for the payment of estimated future unemployment claims liability. The City is also currently recovering costs and building reserves for general liability including property, casualty, errors and omissions and fidelity coverage. Information Systems Fund This fund was established to account for all costs associated with data processing, telecommunications and the Geographical Information System (GIS). This fund will own and depreciate all non-proprietary fund assets related to these functions, and will charge equipment/software users for both maintenance and operating costs and equipment replacement charges based on depreciation schedules. Support Services Fund This fund accounts for duplication, graphics and other general support services provided to departments and funds throughout the City. 'Federal Wav / 35 Fleet and Equipment Fund This fund accounts for the cost of maintaining City vehicles and other motorized equipment. Rates charged to user departments are based on the full cost of maintaining equipment items, including the recovery of related depreciation expense. Buildings and Furnishings Fund This fund accounts for all costs associated with the operation and maintenance of specified City buildings. City building facilities and furnishings will be owned by this Fund, and both maintenance/operating costs and depreciation recovery will be charged City departments and funds. Basis of Accounting Basis of accounting refers to when revenues and expenditures or expenses are recognized and reported in the financial statements. The accrual basis of accounting is used by proprietary funds. Under this method, revenues are recognized when earned, and expenses are recognized when incurred. The modified accrual basis of accounting is used by governmental funds. Revenues and other financial resources are recognized when they become susceptible to accrual, i.e., when the related funds become both measurable and available to finance expenditures of the current period. To be considered "available", revenue must be collected during the current period or soon enough thereafter to pay current liabilities. The City uses thirty days when evaluating the available criteria. Expenditures are recognized when the related fund liability is incurred. Since the recognition of depreciation does not reduce net financial resources, it is not considered as expenditure. Other exceptions include (1) inventories of materials and prepaid items are reported as expenditures when purchased, (2) interest on long-term debt is not accrued but is recorded as an expenditure when due, (3) accumulated unpaid vacation and sick pay are considered expenditures when paid. Major revenues recorded on the modified accrual basis are: Property Taxes - King County acts as the City's collection agent for these taxes. Each day, the County electronically transmits to the City the taxes which it has collected on the City's behalf in the prior day. On this basis, property taxes received in January are considered both measurable and available and are therefore recognized as revenue in the current year. Other Locally Levied Tares - King County also acts as the City's collection agent for the 1/4% and optional 1/4% real estate excise taxes. Although a time lag occurs in payment of these taxes to the City, since the taxes are actually collected by King County in December and receipted to the City within 10 days after the end of the year, they are considered to be both measurable and available, and are, therefore, accrued as revenue at year end. The State of Washington acts as the City's collection agency for the locally levied sales tax. The sales tax is distributed monthly and remitted to the City in the following month. The Sales Tax remittance in January is considered both measurable and available and is therefore accrued as revenue at year-end. Grant Revenues - Under Section G60.109 of the Codification of Governmental Accounting and Financial Reporting Standards, revenues for cost reimbursement grants are determined to be earned and, therefore, available at the time related expenditures are incurred. For this reason, grant revenues to be received as reimbursement for expenditures incurred in the current year are also recognized as revenue in that year. Shared Revenues - Revenues that have been collected, but not remitted by an intermediary collection agency to the City, are considered measurable and available. Other Revenue Sources - Other items recognized as revenue in the current year on the modified accrual basis include investment interest earned but not received at year end; interfund, and intergovernmental service billings related to services provided in the current year which are outstanding at year end; and any other material revenue amounts determined to be both measurable and available under current modified accrual accounting practices. Revenues not considered to meet the criteria for recognition on the modified accrual basis include licenses and permits, fines and forfeitures, and other miscellaneous revenues which are generally not measurable until received. ofFederal Wav / 36 FINANCIAL STATEMENT PRESENTATION In order to obtain an understanding of changes in the City's position and the results of the City's operations, the financial statements for year end of 2011 should be read in conjunction with the government's financial statements for the year ended December 31, 2010. BUDGETARY INFORMATION Scope of Budget Annual appropriated budgets are adopted for the general, some special revenue, and debt service funds on the modified accrual basis of accounting. For governmental funds, there are no differences between the budgetary basis and generally accepted accounting principles. Budgets for project and grant related special revenue funds and capital project funds are adopted at the level of the individual project and for fiscal periods that correspond to the lives of projects. Since these funds are not budgeted on an annual basis, budgetary comparisons are not presented. NCGA Statement 1 does not require, and the financial statements do not present, budgetary comparisons for proprietary fund types. Legal budgetary control is established at the fund level, i.e., expenditures for a fund may not exceed the total appropriation amount. Any unexpended appropriation balances for annually budgeted funds lapse at the end of the year. Appropriations for other special purpose funds that are non -operating in nature are adopted on a "project -length" basis and, therefore, are carried forward from year to year without reappropriation until authorized amounts are fully expended or the designated purpose of the fund has been accomplished. The individual funds within each fund type which are included in the City's annual operating budget (funds budgeted on an annual basis) are: General Fund Special Revenue Funds Street Fund Arterial Street Utility Tax Solid Waste & Recycling Federal Way Community Center Traffic Safety Hotel/Motel Lodging Tax Paths & Trails Debt Service Fund Procedures for Adopting the Biennial Budget The City's budget process and the time limits under which the budget must be prepared are defined by the Revised Code of Washington (RCW) 35A.33. The procedures followed in establishing the annual budget are described below: By late May the official budget call is made by the Finance Director for current level service budgets and a preliminary financial forecast. By late June, departments submit their preliminary expenditure estimates and the Finance department updates the preliminary revenue estimates to define resources available to finance coming year expenditure programs. Prior to the first Tuesday in September, the Mayor submits a proposed budget to the City Council. This budget is based on priorities established by the Council and estimates provided by City departments during the preceding months, and balanced with revenue estimates made by the Finance Director. City Council conducts workshops and public hearings on the proposed budget between mid -September and mid - December. No later than the third Monday in November, the City Council must adopt an ordinance to establish the amount of property taxes to be levied in the coming year. By October 31, the Mayor files a preliminary budget with the City Clerk. Copies of the preliminary budget are provided to staff and the City Council and made available to the public. 'Federal Wav / 37 During the first two weeks of November, the City Clerk publishes a notice of the filing of the preliminary budget and notices of public hearings to be held during preliminary budget deliberations. Two public hearings on the proposed budget are also held during November and December. Final hearings on the budget must begin on or before the first Monday of December, and may continue until the 25th day prior to beginning of the next fiscal year. By December 31, the City Council makes its adjustments to the proposed budget and adopts a final budget by ordinance. The final operating budget, as adopted, is published and distributed within the first three months of the following year. Copies of the adopted budget are made available to the public. Amending the Budget The Mayor is authorized to transfer budgeted amounts between departments within any fund; however, any revisions that alter the total expenditures of a fund must be approved by the City Council. When the City Council determines that it is in the best interest of the City to increase or decrease the appropriation for a particular fund, it may do so by ordinance approved by a simple majority. During 2011, the budget was amended two times. The budget amounts shown in the financial statements are the final authorized amounts as revised during the year. The financial statements contain the original and final budget information. The original budget is the first complete appropriated budget. The final budget is the original budget adjusted by all reserves, transfers, allocations, supplemental appropriations, and other legally authorized changes applicable for the fiscal year. Encumbrances An encumbrance system is used for budgetary control purposes to record commitments resulting from approved purchase orders. During the year, encumbrances are recorded in the accounting system at the time purchase orders are issued for goods and services. Upon payment, the encumbrance is reversed and the actual cost of the related item is recorded as a fund expenditure. Outstanding encumbrances lapse at year end, are canceled and rolled over to the next fiscal year. Therefore, these amounts have not been recorded as current year expenditures unless considered to be susceptible to accrual at the end of the year. The total encumbrances at year-end for the City were $9,658,769. ASSETS, LIABILITIES, AND NET ASSETS OR EQUITY Cash and Investments The City follows the practice of pooling cash and investments of all funds for investment purposes, except for cash held in escrow, which is disclosed separately on the balance sheet. Each fund's portion of total cash and investments is summarized by fund type in the combined balance sheet as equity in pooled cash and investments. It is the City's policy to invest all cash not immediately required for disbursement. At December 31, 2011, the State Treasurer was holding $40,290,229 in the State Investment Pool. The State Investment Pool is considered a cash equivalent. The interest earnings on these investments are allocated to all funds based on the average monthly balance for each fund. For purposes of the Statement of Cash Flows, the City considers all highly liquid investments with a maturity of three months or less when purchased, to be cash equivalents. At December 31, 2011, the total cash and cash equivalents were $63,559,028. The City's deposits are entirely covered by federal depository insurance (FDIC) or by collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commission (PDPC). The City is authorized by State law to purchase certificates of deposit issued by Washington State depositories that participate in a state insurance pool managed by the Washington Public Deposit Protection Commission; securities purchased by the Washington State Investment Pool; U.S. Treasury and Agency securities, banker's acceptances trading in the secondary market; and repurchase agreements with dealers that use authorized securities as collateral. ofFederal Wav / 38 In accordance with GASB 31, investments in money market investments and participating interest -earning investment contracts with a remaining maturity of one year or less at the time of purchase are stated at amortized cost. All other investments are stated at fair value. There was no material deviation from fair value quoted at year-end. Receivables Taxes receivable consists of property taxes and related interest and penalties (see Property Tax Note 6). Accrued interest receivable consists of amounts earned on investments, notes, and contracts at the end of the year. Due From Other Governments reflects measurable and available intergovernmental grants, entitlements, or State shared revenues (taxes/charges levied and collected by an intermediary collecting government and distributed on some basis); loans; and charges for services rendered by the City for another government unit. A separate schedule of Due From Other Governments is disclosed in Note 6. Amounts Due to and from Other Funds; Interfund Loans Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "interfund loans receivable/payable" or "advances to/from other funds." All other outstanding balances between funds are reported as "due to/from other funds." Any residual balances outstanding between the governmental activities and business -type activities are reported in the government -wide financial statements as "internal balances." Loans between funds must be authorized by the Mayor. In the governmental funds, loans to other funds are offset by a corresponding reservation of fund balance to indicate that the outstanding loan amounts do not constitute "available spendable resources" and are, therefore, not available for appropriation. A separate schedule of interfund loans receivable and payable is furnished in Note 12. Inventories Inventories in the governmental funds are recorded as expenditures at the time of purchase. Amounts remaining at year-end are immaterial and, therefore, are not reflected on the balance sheets of those funds. There were no material inventories at year-end in the Internal Service or Enterprise Funds. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure, are reported in the applicable governmental or business -type activities columns in the government -wide financial statements. Pursuant to GASB Statement 34, the City included capitalized retroactive infrastructure assets owned prior to 2003, such as roads, bridges, curbs and gutters, streets and sidewalks, bridges, and lighting systems, in the year end 2007 financial statement. The City compiled an inventory of the retroactive infrastructure and recorded these capital assets for yearend 2007. The City inventoried current infrastructure assets; performed a condition assessment on the infrastructure assets and summarized the results using a measurement scale. To arrive at the retroactive infrastructure assets value, the City used a deflationary factor of the change from the City's assessed value during 1990 through 2006 and multiplied this factor to the infrastructure to determine the historical cost. The City elected to capitalize all infrastructure assets including pre- 1990 assets when the City incorporated from unincorporated King County. The City has determined that this method would accurately reflect capital assets. Infrastructure is the largest asset class of the City and has historically not been reflected nor a measure of its consumption been charged. Major expenditures for capital assets, including capital leases and major repairs that increase useful lives are capitalized. Maintenance, repairs, and minor renewals are accounted for as expenditures or expenses when incurred. The City has adopted a general capital asset capitalization policy where an item's cost must equal or exceed $1,000. All capital assets are valued at historical cost (or estimated cost, where historical cost is not known/or estimated market value for donated assets). Depreciation on all capital assets is recorded as an allocated expense in the government -wide Statement of Activities and in the proprietary fund statements. Capital assets are reported net of depreciation. The City uses a combination of group depreciation and straight-line depreciation over the life of the assets. 'Federal Wav / 39 The following summarizes the average service lives used to calculate depreciation for specific categories of assets in the City's Assets: Asset Class Life in Years Computers...............................................................5-6 Printers& Faxes...........................................................7 Telecommunications Equipment........................................7 Police Radio Equipment................................................11 Other Office Equipment..............................................4-10 Office Furniture and Fixtures..........................................10 Recreation Equipment..................................................10 Parks Equipment .......................................... ............ 6-10 Police Equipment.....................................................9-11 Shop/Miscellaneous Equipment...................................10-12 Heavy Work Equipment ................................. ........... 10-16 Non -Police Vehicles......................................................7 Police Patrol Vehicles .................................... . ...............5 Police Non -Patrol Vehicles..........................................7-10 Heavy Trucks..........................................................8-10 Land Improvements.....................................................20 Buildings..................................................................20 Storm Drainage Systems ................................. . ..............20 Infrastructure........................................................15 -100 Compensated Absences The City records a liability for all outstanding vacation pay and accrued compensatory time. In governmental funds, vacation pay and compensatory time is recorded as expenditures when paid which occurs when used or upon termination. In the entity -wide statements and the proprietary fund statements, vacation pay and compensatory time is recorded as a liability and expense in the year earned. Employee vacation leave is accumulated monthly at rates ranging from 12 to 22.5 days per year depending on term of employment. Employees may accumulate up to a maximum of 240 hours of vacation leave, except the Police Guild, who can accrue up to a maximum of 360 hours. Outstanding vacation leave is payable upon termination of employment at the following rate: City Employees up to 240 hours and Police Guild members is at two years of their accrued rate at the time of termination. The differences between the governmental fund statements and the entity -wide statements represent reconciling items between the fund level and government -wide financial statements. The reconciliations are included as part of the financial statements. A non-exempt employee may request compensatory time off in lieu of overtime payment. Compensatory time is accrued at a rate of one and one-half hours for each hour of overtime worked, to a maximum of eighty hours for both City employees and Police Guild members. Sick leave may be accumulated up to a maximum of 720 hours for regular City employees per City policy and 1,040 hours for the Police Guild, per their contract. The monthly accrual rate for City employees is 8 hours per month. Accumulated sick leave is not payable upon termination of employment. Outstanding sick leave at year-end is not accrued due to the difficulty in estimating the portion of existing balances likely to result in expenditures in future periods. Long-term Liabilities In the government -wide financial statements and the proprietary fund financial statements, long-term debt and other long- term obligations are reported as liabilities in the applicable governmental activities, business -type activities, or proprietary fund statement of net assets. Long-term debt outstanding at year-end is outlined in Note 11. Federal Wav / 40 Deferred Revenues The deferred revenue account is used to offset receivables established in the governmental funds for certain revenues that are measurable but not considered available to finance payment of current obligations and, therefore, are not susceptible to accrual on the modified accrual basis. When the receivable amounts are collected in future periods, this liability account is reduced and corresponding revenue is recorded. The portions of Property Taxes that do not meet the available criteria are recorded as deferred revenue. Fund Balance Classification 2011 Fund Balance Classification Fund Balance General Utility Debt Street Downtown Transport- Nonmajor Total Fund Tax Service Redevelop. ation Gov't Nonspendabie: Court trust $ 86,403 $ $ $ $ $ $ $ 86,403 Prepaid insurance/debt service 17,609 17,609 Restricted for: Police covert/seizure 145,524 145,524 Future debt payments - 3,866,184 3,866,184 Special Contracts/Studies - 556,753 556,753 Hotel/Motel Lodging Tax 213,484 213,484 Path & Trails Reserves 151,807 151,807 Community Development Block Grant 48,712 48,712 Downtown Redevelopment - REET 2,023,299 - 2,023,299 City Facilities CIP - REET - 848,727 848,727 Parks CIP - REET/Mitigation/Donation/Path & Trails 2,043,166 2,043,166 Transportation CIP - REET/Mitigation/Gas Tax 9,573,357 - 9,573,357 Committed to: Capital, debt, and other maintenance/operations - 3,326,822 - 3,326,822 Petty cash/advance travel 21,600 - 21,600 Proposition 1 - 844,045 - 844,045 Transportation CIP - - 4,236,320 4,236,320 Downtown Redevelopment 183,752 - 183,752 City Facilities CIP - 436,882 436,882 Arterial Street 469,704 469,704 Solid Waste/Recycling - 153,980 153,980 2% for the Arts 293 - 293 Federal Way Community Center - 967,943 967,943 Traffic Safety 557,077 557,077 Snow/ice removal 100,000 - 100,000 Parks CIP - 365,723 365,723 Unassigned* General Fund 12,372,719 - - - - 12,372,719 Total Fund Balance: $ 12,644,148 $ 100,000 $ 4,170,868 $ 3,866,184 $ 2,207,051 $ 13,809,677 $ 6,813,957 $ 43,611,884 Fund balance is a measurement of available financial resources and is the difference between total assets and total liabilities in each fund. Beginning with the most restrictive constraints, fund balance amounts will be reported in the following categories: Nonspendable - amounts that are not in a spendable form or are legally or contractually required to be maintained. Restricted - amounts that can be spent only for the specific purposes stipulated by external parties either constitutionally or through enabling legislation. Committed - amounts that can be used only for the specific purposes determined by formal action of the City Council. Commitments may be changed or lifted by referring to the formal action that imposed the constraint originally. Assigned - amounts intended to be used by the government for specific purposes. Intent can be expressed by the City Council or the Mayor. In governmental funds other than the general fund, assigned fund balance represents the amount that is not restricted or committed. This indicates that resources in other government funds, at a minimum, are intended to be used for the purpose of that fund. Unassigned - includes all amounts not contained in other classifications and is the residual classification of the general fund only. Unassigned amounts are available for any legal purpose. 'Federal Wav / 41 The responsibility for designating funds to specific classifications shall be as follows: Committed Fund Balance — The City Council is the highest level of decision -making authority, and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is established by ordinance approved by the Council. When multiple categories of fund balance are available for expenditure, the City will start with the most restricted category and spend those funds first before moving down to the next category with available funds. Interfund Transactions There are four types of transactions between funds - interfund loans, interfund services provided and used, interfund reimbursements, and interfund transfers. Interfund loans are temporary borrowings of cash which do not affect operating statements, but which may incur interest expense or expenditure to the borrowing fund. Interfund services provided and used are equivalent to buying goods or services from an outside vendor, they are accounted for by the related funds as revenues, expenditures or expenses. Interfund reimbursements are repayments to a fund for expenditures or expenses that belong to another fund. They involve only expenditure or expense accounts. Except for the Enterprise Fund, transfers are accounted for as 'other financing sources and uses" and are therefore included in the operating statements. NOTE 2 — RECONCILIATION OF GOVERNMENT -WIDE & FUND FINANCIAL STATEMENTS Explanation of Certain Differences Between the Governmental Funds Balance Sheet and the Government -Wide Statement of Net Assets The governmental funds' balance sheet includes reconciliation between fund balance — total governmental funds and net assets — governmental activities as reported in the government -wide statement of net assets. One element of that reconciliation explains that "long-term liabilities, including bonds payable, are not due and payable in the current period, and, therefore, are not reported in the funds." The details of this $29,731,230 difference are as follows: Bonds Payable at beginning of year $28,683,950 Plus: Inclusion of compensated absences 1,573,280 Less: Current year reduction of principal portion of debt (526,000) Net Adjustment to reduce fund balance -total governmental funds to arrive at net assets - governmental activities $29,731,230 Explanation of Certain Differences Between the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances and the Government -Wide Statement of Activities The governmental funds' statement of revenues, expenditure, and changes in fund balances includes reconciliation between net changes in fund balances — total governmental funds and changes in net assets of governmental activities as reported in the government -wide statement of activities. One element of that reconciliation explains that "Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense." The details of this $6,553,575 difference are as follows: Capital outlay $11,481,732 Less: Governmental depreciation expense (6,017,826) Plus: Increase investment in joint venture 1,089,669 Net adjustment o increase net changes in fund balances - Total governmental funds to arrive at changes in net assets ofgovernmental activities $ 6,553,575 Another element of the reconciliation states that "Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds." This item presents: Property taxes earned reported as deferred in the fund statements $ 22,379 Federal Wav / 42 Another element of the reconciliation states that "Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the funds." This item represents: Compensated absences $ (43,396) NOTE 3 — STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY There have been no material violations of finance -related legal or contractual provisions, and there have been no expenditures exceeding legal appropriations in any of the funds of the City. NOTE 4 — SUPPLEMENTAL APPROPRIATIONS Operating Budget Funds Appropriations established during 2011 for the City's operating budget funds are provided below. As explained in Note 1, both original and supplemental appropriations are adopted by the City Council by ordinance. Both original and final budget appropriations are shown on the accompanying financial statements. The final budget values include all adopted adjustments to original budget amounts. FUND ORIGINAL BUDGET 2011 SUPPLEMENTAL APPROPRIATIONS FINAL BUDGET General Fund $ 43,752,800 $ 662,442 $ 44,415,242 Special Revenue Funds: Street Fund 4,420,612 288,728 4,709,340 Arterial Street Fund 1,513,500 881,374 2,394,874 Utility Tax Fund 12,775,508 - 12,775,508 Solid Waste/Recycling Fund 415,118 15,000 430,118 Hotel/Motel Lodging Tax 160,300 212,200 372,500 Federal Way Community Center 2,142,839 8,883 2,151,722 Traffic Safety 1,205,000 50,000 1,255,000 Subtotal Special Revenue Funds: 22,632,877 1,456,185 24,089,062 Debt Service Fund 2,082,726 - 2,082,726 Total: 68,468,403 2,118,627 70,587,030 NOTE 5 — DEPOSITS AND INVESTMENTS As required by state law, all deposits and investments of the City's funds are obligations of the U.S. Government, the State Treasurer's Investment Pool, bankers' acceptances, or deposits with Washington State banks and savings and loan institutions. In 2011 the City utilized all the above with the exception of bankers' acceptances as legal authorized investment instruments. The City's investment policies are described in Note 1. Cash and Deposits The City follows the practice of pooling cash and investments of all funds, except restricted funds and funds held with a trustee or in escrow, for investment purposes as disclosed in Note 1. At December 31, 2011, the equity in pooled cash and investments was $63,559,028. At year-end, the City had $63,552,106 in cash and cash equivalents which consisted of investments with the State Pool of $40,290,229 the City's checking account bank balance prior to outstanding checks was $23,126,764; and petty cash and change funds, advance travel fund and investigative fund totaling $48,710, and Court Trust of $86,403. No deposits were uninsured or uncollateralized. Insurance coverage up to $250,000 is through federal depository insurance and the 'Federal Wav / 43 Washington Public Deposit Protection Commission (WPDPC) for amounts over $250,000. Under State statute, members of WPDPC, a multiple -financial institution collateral pool, may be assessed on a prorated basis if the pool's collateral is insufficient to cover a loss. Investments are carried at cost or book value because the City holds all investments until maturity. The fair value of the positions in the State Investment Pool is the same as the value of the pool shares. The State Investment Pool is managed by the Treasurer of the State of Washington. As of December 31, 2011 the City had the following investments and maturities: Investment maturities Less than 1 to 2 Greater than Investment Type Book Value 1 year years 3 years State Investment Pool $ 40,290,229 $ 40,290,229- $ 40,290,229 $ 40,290,229 $ - $ - Reconciliation of Government -Wide Statement of Net Assets: Bank of America checking account per books $ 23,126,764 Petty cash/change fund/advance travel/investigative fund 48,710 State Investment Pool 40,290,229 Municipal Court Trust on books 86,403 Subtotal cash and cash equivalents 63,552,106 Cash with escrow agent 6,922 Total cash and investments, Government -Wide Statement of Net Assets $ 63,559,028 Investments Interest Rate Risk As a means of limiting its exposure to fair value losses arising from rising interest rate, the City's investments policy states that "no more than 20% of the portfolio may be invested beyond 12 months, and average maturity of the portfolio may not exceed 2 years." Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. State law and the City's investment policy limits the instruments in which the City may invest. The following are categories of investments authorized under the City's policy, in general order of safety and liquidity: State Investment Pool; repurchase agreements; U.S. treasury obligations; U.S. government agencies; U.S. government -sponsored corporations/instrumentalities; bankers' acceptances (secondary market domestic and foreign); commercial paper (secondary market); insured certificates of deposit (banks and savings & loans); and uninsured/collateralized certificates of deposit (banks and savings & loans). The credit risk of the State Investment Pool is limited to obligations of the US Government, government sponsored enterprises, or insured demand deposit accounts and certificates of deposit. As of December 31, 2011, all City investments were in the State Local Government Investment Pool. The State Investment Pool ratings for Long Term Bonds are as follows: Fitch Investors Service, Inc. AA+, Moody's Investors Services Aal, and Standard & Poor's Ratings AA+. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of an investment in a single issuer. The City diversifies its investments by security type and institution. The investment policy states: "no more than 5% of the portfolio may be invested in the securities of a single issuer, except for the U.S. Treasury, to which no limits apply, and commercial paper, which is limited to 3% of the portfolio. No more than 30% of the portfolio may be invested in Bankers' Acceptances and Certificates of Deposit." Federal Wav / 44 Other Information Below is a schedule of investments by fund type: SCHEDULE OF INVESTMENTS BYFUND CATEGORYAND INVESTMENT TYPE AS OF DECEMBER 31, 2011 State Investment Fund Type Pool Total General Fund $ 8,020,483 $ 8,020,483 Special Revenue Funds 6,773,955 6,773,955 Capital Projects Funds 13,611,255 13,611,255 Enterprise Funds 1,613,328 1,613,328 Internal Services Funds 10,271,208 10,271,208 Total: $ 40,290,229 $ 40,290,229 NOTE 6 — RECEIVABLES AND DUE FROM OTHER GOVERNMENTS Property Taxes The King County Treasurer is responsible for collecting property taxes levied in the County by all taxing districts. Amounts collected by the County on the City's behalf are remitted daily. As described in Note 1, taxes are levied and become an enforceable lien against properties as of January 1. Annual tax billings may be paid in two equal installments, due April 30 and October 31. At December 31, 2011, the total balance of property taxes receivable recorded by the City was $468,600. Of this, $402,200 is recorded as deferred revenue, since it was not collected within the first 30 days of 2012. The property tax levy calendar in 2011 was: PROPERTY TAX CALENDAR January 1 Taxes are levied and become an enforceable lien against properties. February 14 Tax bills are mailed. April 30 First of two equal installment payments is due. May 31 Assessed value of property established for next year's levy at 100% of market value. October 31 Second installment is due. Property taxes are recorded as a receivable when levied, offset by deferred revenue. During the year, property tax revenues are recognized when cash is collected. At year-end, property tax revenues are recognized for collections expected to occur within 30 days. No allowance for uncollectible taxes is established because delinquent taxes are considered fully collectible. Under State law, the maximum levy (for general governmental services) is up to $3.60 per $1,000 of assessed valuation, subject to two limitations, set forth below. Since the City of Federal Way is not a full service city, the City is only allowed $1.64. The remaining $1.96 is for the fire district ($1.39) and library district ($0.57). 1. Chapter 84.55 of the State RCW was amended most recently by Initiative No. 747 (which was passed by voters on November 6, 2001), limits the total dollar amount of regular property taxes levied by the City to the amount of such taxes levied in the three most recent years multiplied by a limit factor, plus an adjustment to account for taxes on new construction, improvements and state -assessed property at the previous year's rate. As amended by Initiative No. 747, the limit factor is the lesser of 101% or 100% plus the percent change in the Implicit Price Deflator, unless a greater amount is approved by a simple majority of the voters; and 2. The Washington State Constitution limits the total regular property taxes to 1% of assessed valuation or $10 per $1,000 of value. If the taxes of all districts exceed this amount, each is proportionately reduced until the total is at or below the 1% limit. The City's regular levy for 2011 was $1.19750 per $1,000 on an assessed valuation of $8,268,335,786 for a total regular levy of $9,827,398. 'Federal Wav / 45 Deferred Revenue Deferred revenue reported on the governmental funds balance sheet is in the schedule below. Grant reimbursements and refuse collection fees are receivable within one year of the end of the fiscal period. DEFERRED REVENUE AS OF DECEMBER 31, 2011 Deferred Revenue General Downtown Debt Street Redevelopment Service Nonmajor Gov't Proprietary Total Property tax $401,984 $ - $ 216 $ - $ - $ - $ 402,200 SWM fees - - - - - 317,011 317,011 King County New Solution Grant 3,821 - - - - - 3,821 Commute Trip Reduction Grant - 65,066 - - - - 65,066 Federal Way Fire Department Buy- In of ValleyCom - _ _ 127,200 - - 127,200 Recreation programs/facilityrentals 41,109 - - - 110,116 132,299 283,524 Total by Fund: 446,913 65,066 216 127,200 110,116 449,310 1,198,822 Receivables & Due from Other Governments The receivables for the fiscal year ended December 31, 2011 on the government -wide statement of net assets are detailed in the following schedule. RECEIVABLES & DUE FROM OTHER GOVERNMENTS AS OF DECEMBER 31, 2011 Receivable General Street Debt Downtown Utility Tax Service Redevelopment Transport- ation Nonmajor Gov't Proprietary Total Property tax $ 468,332 $ $ $ - $ 268 $ $ $ $ 468,600 Real Estate Excise tax - 84,734 - 84,734 Utility tax - 1,466,984 - 1,466,984 Gambling tax 97,781 - 97,781 Recreation programs/ facilities (14,025) 89,669 20,834 96,478 Grants & contributions 450,081 13,182 1,595,885 77,265 190,649 2,327,062 Other receivable - 7,000 - - - - 7,000 State Shared revenue 1,215,572 74,062 2,674 22,114 47,530 - 1,361,953 Surface Water Management fees - _ - - - 367,252 367,252 Total bi Fund: $ 2,217,741 $ 94,244 $ 1,469,658 $ 84,734 $ 268 $ 1,617,999 $ 214,464 $ 578,735 $ 6,277,844 NOTE 7 - DUE TO OTHER GOVERNMENTS At December 31, 2011, the City recorded $140,237 as due to other governmental units as follows: DUE TO OTHER GOVERNMENT AS OF DECEMBER 31, 2011 General Fund King County - December 2011 jail services $ 10,747 King County - 2011 primary/general election cost $ 112,500 Total Governmental Activities $ 123,247 Surface Water Mgmt. King County - SWM collection fee $ 16,990 Total Business -Type Activities $ 16,990 Federal Wav / 46 NOTE 8 — CAPITAL ASSETS Governmental Activity deletion of $5,586,182 includes $2,387,494 for impairment loss due to construction stoppage for Downtown Park, Camp Kilworth, Planning Fee Study, South 320th Street @ 15t Avenue South, and I-5City Center Access Study. Capital assets activity for the year ended December 31, 2011 was as follows: CAPITAL ASSETS AS OF DECEMBER 31, 2011 Governmental Activity Beginning Balance Additions Deletions Ending Balance 1/1/2011 12/31/2011 Capital Assets, not being depreciated: Land $ 301,270,211 $ 898,006 $ - $ 302,168,217 Construction in progress 15,298,641 11,445,599 (5,586,182) 21,158,058 Total capital assets, not being depreciated: 316,568,852 12,343,605 (5,586,182) 323,326,275 Capital assets, being depreciated: Buildings Improvements other than buildings Infrastructure Machinery & equipment Total capital assets, being depreciated: Less accumulated depreciation for: Buildings Improvements other than buildings Infrastructure Machinery & equipment Total accumulated depreciation: Total assets being depreciated, net 16,698,395 648,316 (197,692) 17,149,019 43,264,217 601,363 - 43,865,580 143,187,237 3,976,317 - 147,163,554 14,713,673 1,328,904 (823,559) 15,219,018 217,863,522 6,554,900 (1,021,251) 223,397,171 (4,797,631) (884,127) 68,883 (5,612,875) (12,766,566) (2,163,211) - (14,929,777) (29,475,841) (3,829,373) - (33,305,214) (9,624,461) (1,243,402) 717,186 (10,150,677) (56,664,499) (8,120,113) 786,069 (63,998,543) 161,199,023 (1,565,213) (235,182) 159,398,628 Governmental activities capital assets, net $ 477,767,876 $ 10,778,392 $ (5,821,364) $ 482,724,904 Beginning Balance Ending Balance Business -Type Activities 1/1/2011 Additions Deletions 12/31/2011 Capital Assets, not being depreciated: Land $ 10,307,661 $ 2,554 $ - $ 10,310,215 Construction in progress 2,365,472 92,421 (4,423) 2,453,470 Total capital assets, not being depreciated: 12,673,133 94,975 (4,423) 12,763,685 Capital assets, being depreciated: Buildings 3,596,441 4,423 - 3,600,864 Improvements other than buildings 47,818,768 - - 47,818,768 Infrastructure 1,916,645 - - 1,916,645 Machinery & equipment 106,643 11,731 - 118,374 Total capital assets, being depreciated: 53,438,497 16,154 - 53,454,651 Less accumulated depreciation for: Buildings (2,438,349) (181,631) - (2,619,980) Improvements other than buildings (11,843,453) (485,283) - (12,328,736) Infrastructure (81,476) (19,166) - (100,642) Machinery & equipment (85,472) (2,946) - (88,418) Total accumulated depreciation: (14,448,750) (689,026) - (15,137,776) Total assets being depreciated, net 38,989,747 (672,872) - 38,316,875 Business -Type activities capital assets, net $ 51,662,879 $ (577,897) $ (4,423) $ 51,080,559 'Federal Wav / 47 At the end of 2011, 40 projects comprise the Construction in Progress for Governmental Activities. Upon completion, the projects will be capitalized in the Government -wide statements in their appropriate categories. Construction commitments for Governmental Activities as of December 31, 2011, are as follows: CAPITAL COMMITMENTS AS OF DECEMBER 31, 2011 Governmental Activities Projects Construction Remaining in progress Commitment Downtown Redevelopment $ 279,919 $ - Community Center - 478,549 Major Facility Rehabilitation 231,109 56,702 Performing Arts Center 90,253 750,068 Regional Park Development 300,666 - Down Town Park - 96,050 Parks - Playgrounds - 292,232 Lakota Park 161,498 5,414 Hylebos Boardwalk Replacement 1,361,310 28,201 Sacajawea Park Masterplan 47,382 701,120 Trail and pedestrian access improvements 3,255 825,679 Planning Fee Study/Open space Mgmt plan - 2,315 Laurelwood 35,344 167,100 Celebration Park Maintenance Building - 71,583 Annual Transportation System Safety Improvements - 1,290,875 So 348th St @ 1st Ave South Turn Lanes 2,361,367 835,333 S 320th St @ 20th Ave South 48,711 598,819 SW 312th ST @ SR509 46,769 339,106 S 320th St-8th Ave S-SR99 - 97,665 1Oth Avenue SW / SW 344th St: SW Campus Drive - 21st Ave SW 183,112 135,258 1st Ave South & South 28th Intersection - 30,761 S 352nd Street Extension From SR-99 to SR-161 452,008 5,218,076 S 320th St SW at 21 st Ave SW - 24,526 S 320th St: 1st Ave to 8th Ave S - 38,871 S 304th St @ 28th Ave S - 16,991 South 320th st @ 1-5 southbound ramp 2,679,511 2,568,956 South 356th St: SR99 - SR161 145 97,161 SR99 HOV Lanes Phase 4 12,166,650 2,833,436 South 312th St @ 28th Ave South - 7,937 Military Rd S: S Star Lake Rd - S 288th St - 10,563 SW 320th St @ 47th Ave SW - 1,111 SW 336th Way / SW 340th St: 26th PI SW - Hoyt Rd 40,316 41,575 21 ST AVE SW @ SW 336TH ST 326,694 4,556,929 Citywide Flashing Yellow Lights Installation 100,095 42,804 SR 99 @ S 312th St - 63,061 SW 344th St: 12th Ave SW - 21st Ave SW - 1,753 Citywide Pedestrian Crossing Improvements - 42,094 S 344th Way @ Weyerhaeuser Way S 201,524 830,901 Mrk Twain Elementary Safe Route to School Impr 14,939 371,118 SW 312th St & 14th Ave SW Lakota Safe Rt to School Imp 25,477 832,125 Total governmental activities $ 21,158,058 $ 24,402,818 Federal Wav / 48 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental and Internal Service Activities General government $ 354,672 Security of persons & property 1,226,115 Transportation 4,018,168 Physical environment 26,449 Economic environment 118,143 Health 31,338 Culture & recreation 2,345,229 Total Depreciation - Governmental Activities $ 8,120,113 Business -Type Activities Utilities - Surface Water Management $ 507,029 Culture & recreation - Dumas Bay Centre 181,997 Total Depreciation - Business -Type Activities $ 689,026 NOTE 9 — PENSION PLANS Washington State Department of Retirement Systems Substantially all City full-time and qualifying part-time employees participate in one of the following statewide retirement systems administered by the Washington State Department of Retirement Systems, under cost -sharing multiple -employer public employee defined benefit retirement plans. The Department of Retirement Systems (DRS), a department within the primary government of the State of Washington, issues a publicly available comprehensive annual financial report (CAFR) that includes financial statements and required supplementary information for each plan. The DRS CAFR may be obtained by writing to: Department of Retirement Systems, Communications Unit, P.O. Box 48380, Olympia, WA 98504-8380; or it may be downloaded from the DRS website at www.drs.wa.gov. The following disclosures are made pursuant to GASB Statements No. 27, Accounting for Pensions by State and Local Government Employers and No. 50, Pension Disclosures, an Amendment of GASB Statements No. 25 and No. 27. Public Employees' Retirement System (PERS) Plan I, 2 and 3 Plan Description The Legislature established PERS (Public Employees' Retirement System) in 1947. Membership in the system includes: elected officials; state employees; employees of the Supreme, Appeals, and Superior courts (other than judges currently in the Judicial Retirement System); employees of legislative committees; community and technical colleges, college and university employees not participating in higher education retirement programs; judges of district and municipal courts; and employees of local governments. PERS retirement benefit provisions are established in Chapters 41.34 and 41.40 RCW and may be amended only by the State Legislature. PERS is a cost -sharing multiple -employer retirement system comprised of three separate plans for membership purposes: Plans 1 and 2 are defined benefit plans and Plan 3 is a defined benefit plan with a defined contribution component. PERS members who joined the system by September 30, 1977 are Plan 1 members. Those who joined on or after October 1, 1977 and by either, February 28, 2002 for state and higher education employees, or August 31, 2002 for local government employees, are Plan 2 members unless they exercised an option to transfer their membership to Plan 3. PERS members joining the system on or after March 1, 2002 for state and higher education employees, or September 1, 2002 for local government employees have the irrevocable option of choosing membership in either PERS Plan 2 or PERS Plan 3. The option must be exercised within 90 days of employment. An employee is reported in Plan 2 until a choice is made. Employees who fail to choose within 90 days default to PERS Plan 3. Notwithstanding, PERS Plan 2 and Plan 3 members may opt out of plan membership if terminally ill, with less than five years to live. PERS Plan 1 and Plan 2 defined benefit retirement benefits are financed from a combination of investment earnings and employer and employee contributions. 'Federal Wav / 49 PERS Plan 1 members are vested after the completion of five years of eligible service. Plan 1 members are eligible for retirement after 30 years of service, or at the age of 60 with five years of service, or at the age of 55 with 25 years of service. The monthly benefit is 2 percent of the average final compensation (AFC) per year of service. (AFC is the monthly average of the 24 consecutive highest -paid service credit months.) The retirement benefit may not exceed 60 percent of AFC. The monthly benefit is subject to a minimum for PERS Plan 1 retirees who have 25 years of service and have been retired 20 years, or who have 20 years of service and have been retired 25 years. Plan 1 members retiring from inactive status prior to the age of 65 may receive actuarially reduced benefits. If a survivor option is chosen, the benefit is further reduced. A cost - of -living allowance (COLA) was granted at age 66 based upon years of service times the COLA amount. This benefit was eliminated by the Legislature, effective July 1, 2011. Plan 1 members may elect to receive an optional COLA that provides an automatic annual adjustment based on the Consumer Price Index. The adjustment is capped at 3 percent annually. To offset the cost of this annual adjustment, the benefit is reduced. PERS Plan 1 provides duty and non -duty disability benefits. Duty disability retirement benefits for disablement prior to the age of 60 consist of a temporary life annuity payable to the age of 60. The allowance amount is $350 a month, or two-thirds of the monthly AFC, whichever is less. The benefit is reduced by any workers' compensation benefit and is payable as long as the member remains disabled or until the member attains the age of 60. A member with five years of covered employment is eligible for non -duty disability retirement. Prior to the age of 55, the allowance amount is 2 percent of the AFC for each year of service reduced by 2 percent for each year that the member's age is less than 55. The total benefit is limited to 60 percent of the AFC and is actuarially reduced to reflect the choice of a survivor option. A cost -of -living allowance was granted at age 66 based upon years of service times the COLA amount. This benefit was eliminated by the Legislature, effective July 1, 2011. Plan 1 members may elect to receive an optional COLA that provides an automatic annual adjustment based on the Consumer Price Index. The adjustment is capped at 3 percent annually. To offset the cost of this annual adjustment, the benefit is reduced. PERS Plan 1 members can receive credit for military service. Members can also purchase up to 24 months of service credit lost because of an on-the-job injury. PERS Plan 2 members are vested after the completion of five years of eligible service. Plan 2 members are eligible for normal retirement at the age of 65 with five years of service. The monthly benefit is 2 percent of the AFC per year of service. (AFC is the monthly average of the 60 consecutive highest -paid service months.) PERS Plan 2 members who have at least 20 years of service credit and are 55 years of age or older are eligible for early retirement with a reduced benefit. The benefit is reduced by an early retirement factor (ERF) that varies according to age, for each year before age 65. PERS Plan 2 members who have 30 or more years of service credit and are at least 55 years old can retire under one of two provisions: • With a benefit that is reduced by 3 percent for each year before age 65. • With a benefit that has a smaller (or no) reduction (depending on age) that imposes stricter return -to -work rules. PERS Plan 2 retirement benefits are also actuarially reduced to reflect the choice, if made, of a survivor option. There is no cap on years of service credit; and a cost -of -living allowance is granted (based on the Consumer Price Index), capped at 3 percent annually. The surviving spouse or eligible child or children of a PERS Plan 2 member who dies after leaving eligible employment having earned ten years of service credit may request a refund of the member's accumulated contributions. PERS Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component and member contributions finance a defined contribution component. The defined benefit portion provides a monthly benefit that is 1 percent of the AFC per year of service. (AFC is the monthly average of the 60 consecutive highest -paid service months.) Effective June 7, 2006, PERS Plan 3 members are vested in the defined benefit portion of their plan after ten years of service; or after five years of service, if twelve months of that service are earned after age 44; or after five service credit years earned in PERS Plan 2 prior to June 1, 2003. Plan 3 members are immediately vested in the defined contribution portion of their plan. Vested Plan 3 members are eligible for normal retirement at age 65, or they may retire early with the following conditions and benefits: y of Federal Way / 50 • If they have at least ten service credit years and are 55 years old, the benefit is reduced by an ERF that varies with age, for each year before age 65. • If they have 30 service credit years and are at least 55 years old, they have the choice of a benefit that is reduced by 3 percent for each year before age 65; or a benefit with a smaller (or no) reduction factor (depending on age) that imposes stricter return -to -work rules. PERS Plan 3 defined benefit retirement benefits are also actuarially reduced to reflect the choice, if made, of a survivor option. There is no cap on years of service credit and Plan 3 provides the same cost -of -living allowance as Plan 2. PERS Plan 3 defined contribution retirement benefits are solely dependent upon contributions and the results of investment activities. The defined contribution portion can be distributed in accordance with an option selected by the member, either as a lump sum or pursuant to other options authorized by the Director of the Department of Retirement Systems. PERS Plan 2 and Plan 3 provide disability benefits. There is no minimum amount of service credit required for eligibility. The Plan 2 monthly benefit amount is 2 percent of the AFC per year of service. For Plan 3, the monthly benefit amount is 1 percent of the AFC per year of service. These disability benefit amounts are actuarially reduced for each year that the member's age is less than 65, and to reflect the choice of a survivor option. There is no cap on years of service credit, and a cost -of -living allowance is granted (based on the Consumer Price Index) capped at 3 percent annually. PERS Plan 2 and Plan 3 members may have up to ten years of interruptive military service credit; five years at no cost and five years that may be purchased by paying the required contributions. Effective July 24, 2005, a member who becomes totally incapacitated for continued employment while serving the uniformed services, or a surviving spouse or eligible children, may apply for interruptive military service credit. Additionally, PERS Plan 2 and Plan 3 members can also purchase up to 24 months of service credit lost because of an on-the-job injury. PERS members may also purchase up to five years of additional service credit once eligible for retirement. This credit can only be purchased at the time of retirement and can be used only to provide the member with a monthly annuity that is paid in addition to the member's retirement benefit. Beneficiaries of a PERS Plan 2 or Plan 3 member with ten years of service who is killed in the course of employment receive retirement benefits without actuarial reduction, if the member was not at normal retirement age at death. This provision applies to any member killed in the course of employment, on or after June 10, 2004, if found eligible by the Department of Labor and Industries. A one-time duty -related death benefit is provided to the estate (or duly designated nominee) of a PERS member who dies in the line of service as a result of injuries sustained in the course of employment, or if the death resulted from an occupational disease or infection that arose naturally and proximately out of said member's covered employment, if found eligible by the Department of Labor and Industries. Judicial Benefit Multiplier During January 1, 2007 through December 31, 2007, judicial members of PERS were given the choice to participate in the Judicial Benefit Multiplier Program (JBM) enacted in 2006. Justices and judges in PERS Plan 1 and Plan 2 were able to make a one-time irrevocable election to pay increased contributions that would fund a retirement benefit with a 3.5 percent multiplier. The benefit would be capped at 75 percent of AFC. Judges in PERS, Plan 3 could elect a 1.6 percent of pay per year of service benefit, capped at 37.5 percent of AFC. Members who chose to participate in JBM would: accrue service credit at the higher multiplier beginning with the date of their election; be subject to the benefit cap of 75 percent of AFC, pay higher contributions; stop contributing to the Judicial Retirement Account (JRA); and be given the option to increase the multiplier on past judicial service. Members who did not choose to participate would: continue to accrue service credit at the regular multiplier; continue to participate in JRA, if applicable; never be a participant in the JBM Program; and continue to pay contributions at the regular PERS rate. Newly elected or appointed justices and judges who chose to become PERS members on or after January 1, 2007, or who had not previously opted into PERS membership, were required to participate in the JBM Program. Members required into the JBM program would: return to prior PERS Plan if membership had previously been established; be mandated into Plan 2 and not have a Plan 3 transfer choice, if a new PERS member; accrue the higher multiplier for all judicial service; not contribute to JRA; and not have the option to increase the multiplier for past judicial service. 'Federal Wav / 51 There are 1,197 participating employers in PERS. Membership in PERS consisted of the following as of the latest actuarial valuation date for the plans of June 30, 2011: Retirees and beneficiaries receiving benefits 76,899 Terminated plan members entitled to but not yet receiving benefits 28,860 Active plan members vest 105,521 Active plan members nonvested 51,005 Total 262,285 Funding Policy Each biennium, the state Pension Funding Council adopts PERS Plan 1 employer contribution rates, PERS Plan 2 employer and employee contribution rates, and PERS Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are established by statute at 6 percent for state agencies and local government unit employees, and at 7.5 percent for state government elected officials. The employer and employee contribution rates for Plan 2 and the employer contribution rate for Plan 3 are developed by the Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. All employers are required to contribute at the level established by the Legislature. Under PERS Plan 3, employer contributions finance the defined benefit portion of the plan and member contributions finance the defined contribution portion. The Plan 3 employee contribution rates range from 5 percent to 15 percent, based on member choice. Two of the options are graduated rates dependent on the employee's age. As a result of the implementation of the Judicial Benefit Multiplier Program in January 2007, a second tier of employer and employee rates was developed to fund, along with investment earnings, the increased retirement benefits of those justices and judges that participate in the program. The methods used to determine the contribution requirements are established under state statute in accordance with Chapters 41.40 and 41.45 RCW. The required contribution rates expressed as a percentage of current -year covered payroll, as of December 31, 2011, are as follows: Members not participating in JBM: PERS Plan 1 Employer* 7.25%* Employee 6.00% PERS Plan 2 PERS Plan 3 7.25% 7.25%** 4.59% *** * The employer rates include the employer administrative expense fee currently set at 0.16%. ** Plan 3 defined benefit portion only. *** Variable from 5.0% to 15.0% maximum based on rate selected by the PERS 3 member. Members participating in JBM: PERS Plan 1 _ PERS Plan 2 _ PERS Plan 3 Employer* 7.25%* 7.25% 7.25%** Employee 12.26% 11.60% 7.50*** * The employer rates include the employer administrative expense fee currently set at 0.16%. ** Plan 3 defined benefit portion only. * * * Minimum Rate Both the City and employees made the required contributions. The City's required contributions for the years ended December 31 were: PERS Plan I PERS Plan II PERS Plan III 2011 $ 2,872 $ 623,807 $ 111,278 2010 $ 7,826 $ 571,406 $ 104,390 2009 $ 13,646 $ 745,549 $ 137,774 Law Enforcement Officers' and Fire Fighters' Retirement System (LEOFF) Plans 1 and 2 Plan Description The Legislature established LEOFF in 1970. Membership in the system includes all full-time, fully compensated, local law enforcement commissioned officers, firefighters and, as of July 24, 2005, emergency medical technicians. LEOFF membership is comprised primarily of non -state employees, with Department of Fish and Wildlife enforcement officers, who were first included prospectively effective July 27, 2003, being an exception. LEOFF retirement benefit provisions are established in Chapter 41.26 RCW and may be amended only by the State Legislature. Federal Wav / 52 LEOFF is a cost -sharing multiple -employer retirement system comprised of two separate defined benefit plans. LEOFF members who joined the system by September 30, 1977 are Plan 1 members. Those who joined on or after October 1, 1977 are Plan 2 members. LEOFF defined benefit retirement benefits are financed from a combination of investment earnings, employer and employee contributions, and a special funding situation in which the state pays through state legislative appropriations. Effective July 1, 2003, the LEOFF Plan 2 Retirement Board was established by Initiative 790 to provide governance of LEOFF Plan 2. The Board's duties include adopting contribution rates and recommending policy changes to the Legislature for the LEOFF Plan 2 retirement plan. Plan 1 retirement benefits are vested after an employee completes five years of eligible service. Plan 1 members are eligible for retirement with five years of service at the age of 50. The benefit per year of service calculated as a percent of final average salary is as follows: Term of Service Percent of Final Average 20 or more years 2.0% 10 but less than 20 years 1.5% 5 but less than 10 years 1.0% The final average salary is the basic monthly salary received at the time of retirement, provided a member has held the same position or rank for 12 months preceding the date of retirement. Otherwise, it is the average of the highest consecutive 24 months' salary within the last 10 years of service. A cost -of -living allowance is granted (based on the Consumer Price Index). LEOFF Plan 1 provides death and disability benefits. Death benefits for survivors of Plan 1 members on active duty consist of the following: (1) If eligible spouse, 50 percent of the FAS, plus 5 percent of FAS for each eligible surviving child, with a limitation on the combined allowances of 60 percent of the FAS; or (2) If no eligible spouse, eligible children receive 30 percent of FAS for the first child plus 10 percent for each additional child, subject to a 60 percent limitation of FAS, divided equally. A one-time duty -related death benefit is provided to the estate (or duly designated nominee) of a LEOFF Plan 1 member who dies as a result of injuries or illness sustained in the course of employment, if found eligible by the Department of Labor and Industries. The LEOFF Plan 1 disability allowance is 50 percent of the FAS plus 5 percent for each child up to a maximum of 60 percent. Upon recovery from disability before the age of 50, a member is restored to service with full credit for service while disabled. Upon recovery after the age of 50, the benefit continues as the greater of the member's disability allowance or service retirement allowance. LEOFF Plan 1 members may purchase up to five years of additional service credit once eligible for retirement. This credit can only be purchased at the time of retirement and can be used only to provide the member with a monthly annuity that is paid in addition to the member's allowance. LEOFF Plan 2 members are vested after the completion of five years of eligible service. Plan 2 members may retire at the age of 50 with 20 years of service, or at the age of 53 with five years of service, with an allowance of 2 percent of the FAS per year of service. (FAS is based on the highest consecutive 60 months). Plan 2 members who retire prior to the age of 53 receive reduced benefits. Benefits are actuarially reduced for each year that the benefit commences prior to age 53 and to reflect the choice of a survivor option. If the member has at least 20 years of service and is age 50, the reduction is 3 percent for each year prior to age 53. A cost -of -living allowance is granted (based on the Consumer Price Index), capped at 3 percent annually. LEOFF Plan 2 provides disability benefits. There is no minimum amount of service credit required for eligibility. The Plan 2 allowance amount is 2 percent of the FAS for each year of service. Benefits are actuarially reduced for each year that the member's age is less than 53, unless the disability is duty -related, and to reflect the choice of a survivor option. If the member has at least 20 years of service and is age 50, the reduction is 3 percent for each year prior to age 53. A catastrophic disability benefit equal to 70 percent of their FAS, subject to offsets for workers' compensation and Social Security disability benefits received, is also available to those LEOFF Plan 2 members who are severely disabled in the line of duty and incapable of future substantial gainful employment in any capacity. 'Federal Wav / 53 Effective June 2010, benefits to LEOFF Plan 2 members who are catastrophically disabled include payment of eligible health care insurance premiums. Members of LEOFF Plan 2 who leave service because of a line of duty disability are allowed to withdraw 150 percent of accumulated member contributions. This withdrawal benefit is not subject to federal income tax. Alternatively, members of LEOFF Plan 2 who leave service because of a line of duty disability may be eligible to receive a retirement allowance of at least 10 percent of FAS and 2 percent per year of service beyond five years. The first 10 percent of the FAS is not subject to federal income tax. LEOFF Plan 2 retirees may return to work in an eligible position covered by another retirement system, choose membership in that system and suspend their pension benefits, or not choose membership and continue receiving pension benefits without interruption. LEOFF Plan 2 members who apply for retirement may purchase up to five years of additional service credit. The cost of this credit is the actuarial equivalent of the resulting increase in the member's benefit. LEOFF Plan 2 members can receive service credit for military service that interrupts employment. Additionally, LEOFF Plan 2 members who become totally incapacitated for continued employment while servicing in the uniformed services may apply for interruptive military service credit. Should any such member die during this active duty, the member's surviving spouse or eligible child (ren) may request service credit on behalf of the deceased member. LEOFF Plan 2 members may also purchase up to 24 consecutive months of service credit for each period of temporary duty disability. Beneficiaries of a LEOFF Plan 2 member who is killed in the course of employment receive retirement benefits without actuarial reduction, if found eligible by the Director of the Department of Labor and Industries. Benefits to eligible surviving spouses and dependent children of LEOFF Plan 2 members killed in the course of employment include the payment of on -going health care insurance premiums paid to the Washington state Health Care Authority. A one-time duty -related death benefit is provided to the estate (or duly designated nominee) of a LEOFF Plan 2 member who dies as a result of injuries or illness sustained in the course of employment, if found eligible by the Department of Labor and Industries. There are 374 participating employers in LEOFF. Membership in LEOFF consisted of the following as of the latest actuarial valuation date for the plans of June 30, 2011: Retirees and beneficiaries receiving benefits 9,647 Terminated plan members entitled to but not yet receiving benefits 782 Active plan members vest 13,420 Active plan members nonvested 3,656 Total 27,505 Funding Policy Starting on July 1, 2000, LEOFF Plan 1 employers and employees contribute zero percent as long as the plan remains fully funded. Employer and employee contribution rates are developed by the Office of the State Actuary to fully fund the plan. LEOFF Plan 2 employers and employees are required to pay at the level adopted by the LEOFF Plan 2 Retirement Board. The Legislature, by means of a special funding arrangement, appropriated money from the state General Fund to supplement the current service liability and fund the prior service costs of LEOFF Plan 2 in accordance with the requirements of the Pension Funding Council and the LEOFF Plan 2 Retirement Board. However, this special funding situation is not mandated by the state constitution and this funding requirement could be returned to the employers by a change of statute. The required contribution rates expressed as a percentage of current year covered payroll, as of December 31, 2011 were: LEOFF Plan I LEOFF Plan H Employer 0.16%* 5.24%** Employee 0.00% 8.46% State N/A 3.45% * The employer rates include the employer administrative expense fee currently set at 0.16%. ** The employer rate for ports and universities is 7.18%. Federal Wav / 54 Both the City and employees made the required contributions. The City's required contributions for the years ended December 31 were: LEOFF Plan I LEOFF Plan II 2011 $ - $ 577,434 2010 $ - $ 589,769 2009 $ - $ 598,194 Other Local Government Pension Systems - City of Federal Way Employees' Retirement System Effective June 1, 1990, the Federal Way City Council established the Federal Way Employees' Retirement System, per City Ordinance 90-74 and as authorized by the Federal Social Security Act (42 USCA, Section 418 (g)). The Retirement System is a defined contribution pension plan established as an alternative to the Federal Social Security System. During 2011, there were a total of 306 individuals covered by this system. As of the end of the year, 295 remained as active employees of the City and six were drawing retirement benefits. The 16 inactive had left the City's employment and either had been reimbursed their contributions, or the reimbursement was pending, or they elected to have their contributions remain in the plan if the balance was $1,000 or greater. All regular employees of the City of Federal Way are required to participate in the system, with the City matching the employee's required contribution. The employee pays 6.2% and this is matched by the composite of a cash match (approximately 5.2%) and insurance payments (1%) for disability, survivor, accidental death and dismemberment, and lump sum death benefit coverage. Contributions into the plan are tax deferred. Employees are entitled to make voluntary contributions to the plan, assuming that highly compensated and non -highly compensated employees are treated equally. Each payroll period, employees may make a voluntary contribution equal to a minimum of 1 % of the participant's compensation, not to exceed 10% of the participant's compensation. Covered payroll for 2011 was $20,593,167 and total City payroll was $24,253,038. Actual City contributions for the year were $1,157,950. Actual employee contributions were $1,401,516. All contributions were invested in instruments arranged through independent investment advisors selected by the Municipal Employers Benefit Trust (MEBT) committee comprised of the entities of Bellevue, Kirkland, Redmond, Edmonds, Mill Creek, Woodinville, Federal Way, and North East King Conty Regional Public Safety Communication Agency (NORCOM) but administered by Northwest Plan Services (NWPS). Retirement System assets are not the property of the City and are not subject to the claims of the City's general creditors. The Federal Way Retirement System assets are with Security Trust Company, N.A. who invests Plan assets. In July 1995, the City implemented the hardship withdrawal and loan provision program that allow participants to have limited access to their contributions while still employed by the City. Hardship withdrawals are available in the event of financial necessity resulting from uninsured medical expenses, tuition expenses, purchasing one's primary residence, or to prevent foreclosure on one's primary residence. Loans receivable as of December 31, 2011 were $1,375,678. The consulting actuary firm of Northwest Plan Services (NWPS) has been contracted to provide record keeping, administrative and consulting services related to the Plan Actuarial determinations are not required because accidental death and dismemberment insurance, long-term disability, survivor income insurance and the lump sum death benefit are provided by a group insurance policy with Standard Insurance Company; and benefits paid to participants upon retirement are limited to: (a) a nonforfeitable, nontransferable annuity contract purchased by the plan's trustee, (b) retirement benefits payable from the employee's account to which no contributions by the City or the participant can be added after retirement, or a single lump -sum payment equal to the accumulated balance in the employee's account as of his retirement date. NOTE 10 — RISK MANAGEMENT The City uses the Risk Management Internal Service Fund to account for its risk financing activities. The City maintains insurance against most normal hazards except for unemployment insurance where it has elected to become fully self -insured. Related premiums received by the Risk Management Fund are used to reimburse the State Employment Security Department for unemployment benefits paid to eligible individuals, and to establish reserves for the payment of estimated future unemployment claims liability. The City faces most of the risks faced by similar sized cities. Through its Risk Management Fund, the City is also recovering insurance premium costs for general liability coverage and building reserves for a future general liability self-insurance program. The City's insurance coverage in 2011 remained relatively similar to the coverage for 2010. 'Federal Wav / SS The City of Federal Way is a member of the Washington Cities Insurance Authority (WCIA). Utilizing Chapter 48.62 RCW (self-insurance regulation) and Chapter 39.34 RCW (Interlocal Cooperation Act), nine cities originally formed WCIA on January 1, 1981. WCIA was created for the purpose of providing a pooling mechanism for jointly purchasing insurance, jointly self -insuring, and / or jointly contracting for risk management services. WCIA has a total of 145 Members. New members initially contract for a three-year term, and thereafter automatically renew on an annual basis. A one-year withdrawal notice is required before membership can be terminated. Termination does not relieve a former member from its unresolved loss history incurred during membership. Liability coverage is written on an occurrence basis, without deductibles. Coverage includes general, automobile, police, public officials' errors or omissions, stop gap, and employee benefits liability. Limits are $4 million per occurrence self - insured layer, and $16 million per occurrence in the re -insured excess layer. The excess layer is insured by the purchase of reinsurance and insurance and is subject to aggregate limits. Total limits are $20 million per occurrence subject to aggregate sublimits in the excess layers. The Board of Directors determines the limits and terms of coverage annually. Insurance coverage for property, automobile physical damage, fidelity, inland marine, and boiler and machinery are purchased on a group basis. Various deductibles apply by type of coverage. Property insurance and auto physical damage are self -funded from the members' deductible to $500,000, for all perils other than flood and earthquake, and insured above that amount by the purchase of insurance. In-house services include risk management consultation, loss control field services, claims and litigation administration, and loss analyses. WCIA contracts for the claims investigation consultants for personnel issues and land use problems, insurance brokerage, and lobbyist services. WCIA is fully funded by its members, who make annual assessments on a prospectively rated basis, as determined by an outside, independent actuary. The assessment covers loss, loss adjustment, and administrative expenses. As outlined in the interlocal, WCIA retains the right to additionally assess the membership for any funding shortfall. An investment committee, using investment brokers, produces additional revenue by investment of WCIA's assets in financial instruments which comply with all State guidelines. These revenues directly offset portions of the membership's annual assessment. A Board of Directors governs WCIA, which is comprised of one designated representative from each member. The Board elects an Executive Committee and appoints a Treasurer to provide general policy direction for the organization. The WCIA Executive Director reports to the Executive Committee and is responsible for conducting the day to day operations of WCIA. There were no settlements in excess of insurance for commercially insured activities for 1996 through 2011. The following is a summary of coverage in force in 2011. S CUEDULE OF INS URANCE IN FORCE AS OF DECEMBER 31, 2011 Company Policy Period Details of Coverage Liability Limits WCIA 1/l/11-12/31/11 General liability (auto, general, police e & o, $20,000,000 per occurrence subject to annual aggregates and e to went practices, & stop a) sublunits. Deductible: $100,000 Crime/fidelity (employee dishonesty, faithful WCIA 1/l/11-12/31/11 performance ofduty, forgery or alternation, $2,500,000. Deductible $10,000. theft, disappearance and destruction, robbery and safe burglary, and computer fraud Limit $300,000,OOOper occurrence. Sub-limits:$150,000,000 Earthquake per occurrence; $100,000,000 Flood per occurrence. WCIA 1/l/11-12/31/11 Property coverage Deductible: earthquake 2% ofthe values involved, subject to $100,000 min per occurrence. Flood $250,0000 per occurrence. All other perils $25,000 WCIA 1/l/11-12/31/11 Automobile physical damage for scheduled Actual cash value. Deductible $1,000 per occurrence for automobiles scheduled automobiles $100,000,000 Maximumlimit; Sub -limits: $10,000,000 business interruption; $1,000,000 extra expense; $500,000 hazardous WCIA 1/l/11-12/31/11 Equipment breakdown coverage waste. Deductible $10,000 combined all coverage expect. Turbine generator units, KP motors, pumps, and deep water wells, KVA transformers, HP A/C and refrigeration systems and HP ICE's and generators —500 HP Federal Wav / 56 The City's industrial insurance is provided by Washington State and is administered by the Department of Labor and Industries. Coverage is purchased by means of standard rates per working hour and is computed by the total number of hours worked by employees multiplied by the basic premium rate assigned to the business risk classification. The following are benefits provided by industrial insurance: medical services, damaged clothing, travel expenses, time -loss payments, vocational rehabilitation, partial disability awards, pension awards and survivor benefits. The City is self -insured for unemployment compensation. At December 31st, 2011 the City had $1,407,110 in reserve. 2010 2011 Unemployment reserve, Jan. 1st $ 1,318,338 $ 1,407,110 Unemployment compensation benefits 241,683 248,718 Claim payments during the year (152,911) (248,718) Unemployment reserve, Dec. 31st $1,407,110 $1,407,110 NOTE 11- LONG-TERM LIABILITIES The various categories of long-term debt reflected on the City's financial statements are briefly described in the following paragraphs. General obligation bonds are backed by the City's full faith and credit. Proceeds are typically used for the acquisition or construction of major capital facilities or equipment. "Councilmanic Bonds" are general obligation bonds issued by City Council without voter approval. Under State law, repayment of these bonds must be financed from general City revenues since no additional property taxes can be levied to support related debt service payments. General Obligation bonds approved by the voters are typically repaid through an annual "excess" property tax levy authorized for this purpose by State statute. At year-end 2011 the City had no voter -approved bonds outstanding. All principal and interest payments on general obligation debts are recorded as expenditures by the City's Debt Service Fund. The compensated absences liability will be liquidated approximately 91 % by the General Fund and 9% by the Street Fund. The following schedules detail the long-term debt activity and balances of the City. OUTSTANDING GENERAL OBLIGATION DEBT AND LONG-TERM LIABILITIES - BY TYPE DECEMBER 31, 2011 Bond Rating Issue Maturity Interest Amount Beginning Amount Amount Ending Description at Issuance Date Date Rate Originally Outstanding Issued Redeemed Outstanding Issued Debt Debt Governmental Activities: General Obligation Bonds: 2003 Limited/Community Center AAA -Insured Nov 15, 03 Dec 01, 33 4.676 $ 15,000,000 $ 12,980,000 $ $ 330,000 $ 12,650,000 Subtotal GO Bonds: - - - 15,000,000 12,980,000 330,000 12,650,000 Other Miscellaneous Debt -Intergovernmental: 2000 Limited/Valley Comm. PDA Al Sep 12, 00 Dec 01, 15 5.31 2,551,600 1,044,000 196,000 848,000 2009 SCORE/Special Obligation Bond Al/AA Nov 04, 09 Jan 01, 39 3.00-6.62 14,659,950 14,659,950 - 14,659,950 Subtotal miscellaneous: - - 17,211,550 15,703,950 196,000 15,507,950 Subtotal GO Bonds plus Misc. 32,211,550 28,683,950 526,000 28,157,950 Compensated absences 1,532,637 111,968 71,325 1,573,280 Subtotal GO bonds, misc. & compensated absences: - - 32,211,550 30,216,587 111,968 597,325 29,731,230 Business -Type Activities: Public Works Trust Fund Loan: PWTL - Kitts Comer Drain Imp Aug 31, 94 Jul 01, 14 1.00 233,316 40,503 - 12,936 27,567 PWTL - Kitts Comer Drain Imp Ju124, 96 Jul 01, 14 1.00 1,166,580 262,193 64,680 197,513 PWTL - Kitts Comer Drain Imp Sep 04, 97 Jul 01, 14 1.00 155,544 42,261 8,624 33,637 PWTL - SeaTac Mall Drain Imp May 31, 00 Jul 01, 19 1.00 412,500 144,180 16,020 128,160 PWTL - SeaTac Mall Drain Imp Aug 14, 00 Jul 01, 19 1.00 2,062,500 720,898 80,099 640,799 Subtotal PWTFL - - 4,030,440 1,210,035 182,359 1,027,676 Compensated absences - 63,162 15,539 - 78,701 Subtotal PWTFL plus compensated absences: 4,030,440 1,273,197 15,539 182,359 1,106,377 Grand Total All Long -Term Debt: $ 36,241,990 $ 31,489,784 $ 127,507 $ 779,684 $ 30,837,607 'Federal Wav / 57 OUTSTANDING GENERAL OBLIGATION DEBT AND LONGTERM LIABILITIES - BY FUND DECEMBER 31, 2011 Amount Beginning Ending Description Originally Outstanding Amount Amount Outstanding Due within Issued Debt Issued Redeemed Debt one year Governmental Long -Term Debt: General Obligation Bonds: 2003 Limited/Comnmnity Center $ 15,000,000 $ 12,980,000 $ $ 330,000 $ 12,650,000 $ 340.000 Subtotal GO Bonds: 15,000,000 12,980,000 330,000 12,650,000 340,000 Other Mis cellaneous Debt -Intergovernmental: 2000 Limited/Valley Conan. PDA 2,551,600 1,044,000 196,000 848,000 201,000 2009 SCORE/Special Obligation Bond 14,659,950 14,659,950 - 14,659,950 - Subtotal miscellaneous: 17,211,550 15,703,950 196,000 15,507,950 201.000 Subtotal GO Bonds plus Misc. 32,211,550 28,683,950 526,000 28,157,950 541,000 Compensated absences - 1,532,637 111,968 71,325 1,573,280 105,264 Subtotal GO bonds, misc. & compensated absences: 32,211,550 30,216,587 111,968 597,325 29,731,230 646,264 Business -Type Activities: Enterprise Funds: Public Works Trust Fund Loan 4,030,440 1,210,035 - 182,359 1,027,676 182,359 Subtotal Bus -Type Long -Term Debt 4,030,440 1,210,035 - 182,359 1,027,676 182,359 Compensated absences - 63,162 15,539 - 78,701 2,534 Total Bus -Type plus comp. absences LTD: 4,030,440 1,273,197 15,539 182,359 1,106,377 184,893 �GrantTotalAll Long -Term Debt: $ 36,241,990 $ 31,489,784 $ 127,507 $ 779,684 $ 30,837,607 $ 831,157 * Debt service principal payments in Debt Service Fund include credits of $30,270 from Interlocal agreement with Federal Way Fire District to participate in capital cost obligations with Valley Communications joint venture with the City ofFederal Way. SCHEDULE OF CHANGES IN LONGTERM LIABILITIES PERIOD ENDED DECEMBER 31, 2011 Beginning Ending Outstanding Additions Reductions Outstanding Debt Debt Governmental Activities: General Obligation Bonds $ 12,980,000 $ - $ (330,000) $ 12,650,000 Other -intergovernmental debt 15,703,950 - (196,000) 15,507,950 Compensated absences 1,532,637 111,968 (71,325) 1,573,280 Total Governmental Activities 30,216,587 111,968 (597,325) 29,731,230 Business -Type Activities: Enterprise Funds Public Works Trust Fund Loan 1,210,035 - (182,359) 1,027,676 Compensated absences 63,162 15,539 - 78,701 Total Business -Type Activities 1,273,197 15,539 (182,359) 1,106,377 Total All Funds $ 31,489,784 $ 127,507 $ (779,684) $ 30,837,607 SCHEDULE OF DEBT SERVICE REQUIREMENTS TO MATURITY AS OF DECEMBER 31, 2011 Government Activities Business -Type Activities General Governmental Debt Public Work Trust Fund Grand Total Year Principal Interest Principal Interest Principal Interest P&I 2012 541,000 901,657 182,359 10,277 723,359 911,934 1,635,293 2013 895,550 1,176,067 182,359 8,453 1,077,909 1,184,520 2,262,429 2014 913,500 1,147,476 182,359 6,630 1,095,859 1,154,106 2,249,965 2015 943,300 1,114,298 96,120 4,806 1,039,420 1,119,104 2,158,524 2016 756,050 1,076,875 96,120 3,845 852,170 1,080,720 1,932,889 2017-2021 4,267,650 4,901,226 288,359 5,767 4,556,009 4,906,993 9,463,002 2022-2026 5,300,650 3,913,438 - - 5,300,650 3,913,438 9,214,088 2027-2031 6,656,700 2,607,581 - - 6,656,700 2,607,581 9,264,281 2032-2036 5,357,350 1,068,039 - - 5,357,350 1,068,039 6,425,389 2037-2041 2,526,200 166,026 - - 2,526,200 166,026 2,692,226 Totall $ 28,157,950 $ 18,072,683 $ 1,027,676 $ 39,777 $ 29,185,626 $ 18,112,460 $ 47,298,086 Federal Wav / 58 Computation of Legal Debt Margin Under Washington State law (RCW 39.36.020), a City may incur general obligation debt for general city purposes in an amount not to exceed 2'h percent of the value of all taxable property within the City. State law requires all property to be assessed at 100 percent of its true and fair value. Unlimited tax general obligation debt requires an approving vote of the people, and any election to validate such general obligation debt must have a voter turnout of at least 40 percent of those who voted in the last State general election and of those voting, 60 percent must be in the affirmative. The City Council may, by ordinance, authorize the issuance of limited tax general obligation debt in an amount up to 1.5% of the valuation within the City without a vote of the people. No combination of limited or unlimited tax debt may exceed 7'/z percent of the valuation. The debt service on unlimited tax debt is secured by excess property tax levies, whereas the debt service on limited tax debt is secured by property taxes collected with the City's councilmanic levy. The City's legally remaining debt capacities as of December 31, 2011 are: General government (no vote required) $ 94,879,813 General government (3/5 majority vote required) 77,229,838 Parks and open space (3/5 majority vote required) 193,074,595 Utilities (3/5 majority vote required) 193,074,595 Total Capacity $ 558,258,841 Compensated Absences The City's liability for accrued vacation and compensatory time balances is recorded in the schedule below. Accrued compensated absences for proprietary fund employees are recorded as liabilities in those funds expected to incur the related future expense. Governmental Activities: Current portion $ 105,264 Noncurrent portion 1,468,016 Business -Type Activities: Current portion 2,534 Noncurrent portion 76,167 Total Compensated absences $ 1,651,981 Estimated Arbitrage Rebate The Federal Tax Reform Act of 1986 requires issuers of tax-exempt debt of over $5 million to make payments to the United States Treasury of investment interest received at yields that exceed the issuer's tax-exempt borrowing rates. Payments of arbitrage rebate amounts due under these regulations must be made to the U.S. Treasury every five years. The City's estimated rebatable arbitrage amount as of December 31, 2011 is $-0- for its tax-exempt general obligation bond issues subject to the Tax Reform Act issued through that date. Leases The City of Federal Way leases office buildings and land which are accounted for as operating leases. Operating leases do not give rise to property rights or lease obligations, and therefore the results of the lease agreements are not reflected in the City's capital assets. Total Cost for the leases was $3,720 for the year ended December 31, 2011. The current year lease payments included the site lease for the City's WiFi Project. Federal Way WiFi project is to provide free broadband Internet service to Federal Way citizens, businesses and visitors in the downtown business corridor, City parks, Community Center, Dumas Bay Centre and City Hall. The site lease was extended in July of 2010 for an additional 5 years terminating in July 2015. The future minimum lease payments for the WiFi Project are as follows: 2011 $ 3,000 2012 3,000 2013 3,000 2014 3,000 2015 1,500 Total: $ 13,500 'Federal Wav / 59 NOTE 12 — INTERFUND TRANSACTIONS Interfund transfers for the year ended December 31, 2011 were as follows: Interfund Transfers Governmental Funds: General Fund Street Fund Utility Tax Fund Debt Service Downtown Redevelopment Transportation Nonmajor Governmental Funds Proprietary Funds: Surface Water Management Dumas Bay Centre Internal Service Funds In Out $ 13,222,353 $ 1,818,870 2,444,870 - - 12,563,553 915,000 920,000 - 750,000 1,611,000 4,100,000 3,260,000 1,358,000 846,865 846,865 113,000 - 13,500 69,300 Total: $22,426,588 $22,426,588 The following describes the amounts transferred out during 2011: General Fund: • $1,743,870 to Street Fund to subsidize street maintenance and operations • $50,000 to CDBG Neighborhood Stabilization Program support • $25,000 to Federal Way Community Center for use of facilities by General Parks and Recreation Utility Tax Fund: • $2,769,553 to General Fund for Proposition 1 for Public Safety and Community Programs Funding • $915,000 to Federal Way Community Center Debt Service • $1,011,000 to Arterial Street Fund overlay program • $1,432,000 to General Fund for Public Safety Positions • $226,000 to General Fund for Celebration Park maintenance & operations • $371,000 to Street Fund for maintenance and operations on bond projects • $113,000 to Dumas Bay Centre Fund for Knutzen Family Theatre subsidy • $74,100 to General Fund for Arts Commission • $22,900 to General Fund for Red, Whites & Blues Festival • $48,000 to General Fund for new Parks maintenance and operations • $696,000 to Federal Way Community Center for maintenance/operations and capital reserves • $3,919,000 to General Fund for ongoing support of operations • $500,000 to Transportation CIP project South 320th St at 201b Ave South • $291,000 to Transportation CIP project 215t Ave Southwest at Southwest 336th St. • $50,000 to Parks CIP Major Maintenance -Parks Facilities • $125,000 to Parks CIP for Sacajawea Park Masterplan Debt Service Fund: • $820,000 of Real Estate Excise Tax to Transportation CIP project 20 Ave Southwest at Southwest 336"' St. • $100,000 of Real Estate Excise Tax to Parks CIP for Playgrounds Downtown Redevelopment: • $750,000 to City Facilities for PACC Transportation CIP Fund: • $3,800,000 to General Fund for unspent project savings • $300,000 to Arterial Street Fund overlay program Proprietary Funds: • $144,798 from Surface Water Management CIP to Surface Water Management Operations • $222,000 from Surface Water Management Operations to Surface Water Management CIP for Small Projects • $480,067 from Surface Water Management Operations to Surface Water Management CIP for Department of Ecology Grant. Federal Wav / 60 Internal Service: • $13,500 from Risk management to Fleet/Equipment for insurance proceeds • $55,800 from Fleet/Equipment to General Fund for fleet excess reserves Nonmajor Fund: • $50,000 from Traffic Safety Fund to General Fund for support of Municipal Court • $825,000 from Traffic Safety Fund to General Fund for support of Police Department • $330,000 from Traffic Safety Fund to Street Fund for support of Traffic Services Interfund loans for the year ended December 31, 2011 were as follows: Interf ind Loans Receivable Payable General Fund $ 10,000 $ - Special Revenue Funds: Community Development Block Grant - 10,000 Total lnterfundLoans $ 10,000 $ 10,000 NOTE 13 — CONTINGENCIES AND LITIGATION As of December 31, 2011 there were a small number of claims for damages and lawsuits pending against the City. In the opinion of the City Attorney, however, neither the potential liability for any single claim or lawsuit, nor the aggregate potential liability arising from all actions currently pending would materially affect the financial condition of the City. Due to both their uncertainty and immateriality, no liabilities or estimated liabilities have been included in the City's financial statements. NOTE 14 — JOINT VENTURE Valley Communication Center The "Valley Communications Center" was established August 20, 1976, when an Interlocal Agreement was entered into by the four original participating municipal corporations, including the cities of Renton, Kent, Auburn, and Tukwila, and Federal Way which was formally admitted during 2000. The agreement is sanctioned by the provisions and terms of the Interlocal Cooperation Act pursuant to RCW 39.34. The initial duration of the agreement was five years, and thereafter is automatically extended for consecutive five year -periods. The purpose of the joint operation, hereafter referred to as Valley Com, is to provide improved consolidated emergency communications (dispatch) services for police, fire, and medical aid, to the five participating cities and to several subscribing agencies, which include King County Fire Districts 2, 20, 26, 40, 43, 44, and 47; City of Pacific Police and Fire Departments, City of Algona Police Department, City of Des Moines Police Department, City of Black Diamond Police and Fire Department; SeaTac Fire Department; North Highline Fire Department; King County EMS Units; and Vashon Island Fire Department. Separate agreements between Valley Com and the subscribing agencies have been executed, which set forth conditions of services and rates charged. The allocation of prorated financial participation among the five member cities is the percentage of dispatched calls attributed to each jurisdiction compared to the total estimated dispatched calls, for the current twelve month period ending December 31. The percentages are applied to the current approved budget, less revenue from all other sources. Distribution of the current year net income is based on the same percentages. The 2011 cost distributions for the five member cities are as follows: Dispatchable Percent City Calls of Total Kent 94,760 27.57% Renton 73,519 21.39% Auburn 66,805 19.43% Tukwila 33,025 9.61% Federal Way 75,628 22.00% Total 343,737 100.00% 'Federal Wav / 61 Valley Com is governed by an Administration Board, composed of the Mayors or designated representatives from the five participating cities of Renton, Kent, Auburn, Tukwila, and Federal Way. The Administration Board is authorized to establish bylaws that govern procedures of the Board and Valley Com's general operations for the following functions: 1) Budget review and recommendations to the legislative bodies of the member cities, and budget adoption after each legislative body has approved the required financial participation for the ensuing year; 2) Approve appointment and/or discharge of the Director; 3) Approve personnel policy and make final decisions on all major policy changes; and 4) Review and approves all contracts. In addition, an Operating Board was established and consists of two members of each participating City's Public Safety Departments, including the heads of such departments or their designees. The Operating Board performs the following functions: 1) Oversees the general operation of Valley Com, and advises and makes recommendations to the Administration Board; 2) Make recommendations on Director selection; 3) Presents proposed policies and budgets to the Administration Board; and 4) Reviews disbursements of funds by the Director. The Director presents a proposed budget to the Operating Board on or before August 15 of each year. Said budget is then presented to the Administrative Board by September 1 of each year. The Administration Board can make changes to the proposed Valley Com budget as it finds necessary, but final approval falls to the legislative body of each member city, in accordance with the provisions of the interlocal agreement. In May 1993 Valley Com entered into an agreement with King County to provide joint project management for the acquisition and installation of 800-MHz emergency radio communications system approved by the voters of King County in conjunction with a $57 million levy. In August 1993 Valley Com also entered into an Interlocal Cooperation Agreement with the sub -regions of King County, Seattle, and Eastside Public Safety Communications, which governs the development and installation of the new 800-MHz emergency radio system. Valley Com now provides emergency communication dispatch services to a population of approximately 570,000. Valley Com operates as an enterprise fund and is totally self supporting through the implementation of user fees and the primary source of revenue is provided by charges for calls for service. The 800-MHz emergency radio communications system operated by the agreement with King County is operated as a separate enterprise fund, and the Member Cities have no equity interest in the contributed capital from this system. The share of equity belonging to the five participating cities is shown below. Liabilities are the responsibility of the five participating cities in direct proportion to their equity position. Balances in 2011 Kent Renton Auburn Tukwila Federal Way Total Equity @ January 1, 2011 $ 6,841,893 $ 4,833,671 $ 4,575,538 $ 2,739,460 $ 3,090,648 $ 22,081,210 Current year increase 210,199 163,082 148,189 73,257 167,760 762,487 Equity @ December 31, 2011 $ 7,052,092 $ 4,996,753 $ 4,723,727 $ 2,812,717 $ 3,258,408 $ 22,843,697 Percent of equity 30.87% 21.87% 20.68% 12.31% 14.26% 100.00% Percent of 2010 distribution 30.99% 21.89% 20.72% 12.41% 14.00% 100.00% A complete set of financial statements is available from: Valley Communications Center, 27519 108"' Avenue SE, Kent, WA 98030. South Correction Entity (SCORE) The South Correctional Entity (SCORE) consolidated correctional facility was established February 25, 2009, when an Interlocal Agreement (the "Original Interlocal Agreement") was entered into by seven participating municipal governments, the "Member Cities" of Auburn, Burien, Des Moines, Federal Way, Renton, SeaTac and Tukwila, under the authority of the "Interlocal Cooperation Act" (RCW 39.34). This "Original Interlocal Agreement" was amended and restated October 1, 2009 and named the City of Des Moines as the "Host City" and the remaining Member Cities as "Owner Cities". This interlocal agreement is known as the "Formation Interlocal Agreement". Pursuant to a separate "Host City Agreement" dated October 1, 2009, the Host City will not enjoy the same equity position as the Owner Cities until all debts issued are paid and the Host City fulfills all of its obligations as outlined in the Agreement. SCORE, a governmental administrative agency pursuant to RCW 39.34.030 (3), has the power to acquire, construct, own, operate, maintain, equip, and improve a correctional facility known as the "SCORE Facility" and to provide correctional services and functions incidental thereto, for the purpose of detaining arrestees and sentenced offenders in the furtherance of Federal Wav / 62 public safety and emergencies within the jurisdiction of the Member Cities. The SCORE Facility may serve the Member Cities and Subscribing Agencies which are in need of correctional facilities. Any agreement with a Subscribing Agency shall be in writing and approved by SCORE as provided within the SCORE Formation Interlocal Agreement. Financing for the acquisition, construction, equipping, and improvement of the SCORE Facility will be provided by bonds issued by the South Correctional Entity Facility Public Development Authority (the "SCORE PDA"), a public development authority chartered by the City of Renton pursuant to RCW 35.21.730 through 35.21.755 and secured by the full faith and credit of the Cities of Auburn, Burien Federal Way, Renton, SeaTac, and Tukwila (the "Owner Cities"). The SCORE PDA issued $86 million in special obligation bonds in 2009 to carry out the facility development project. The following is a summary of the debt service requirements for the bond issue: Summary of Debt Service Requirements Debt Service Schedule Debt Service Allocation to Owner Cities 35% BABs Auburn Burien Federal Way Renton SeaTac Tukwila Year Principal Interest Subsidy Total 31% 4% 18% 36% 3% 8% 2012 $ - $ 5,155,732 $ (1,675,089) $ 3,480,643 $ 1,078,999 $ 139,226 $ 626,516 $ 1,253,031 $ 104,419 $ 278,451 2013 1,915,000 5,126,998 (1,675,089) 5,366,909 1,663,742 214,676 966,044 1,932,087 161,007 429,353 2014 1,950,000 5,066,566 (1,654,975) 5,361,591 1,662,093 214,464 965,086 1,930,173 160,848 428,927 2015 1,990,000 4,995,069 (1,632,787) 5,352,282 1,659,207 214,091 963,411 1,926,822 160,568 428,183 2016 2,065,000 4,911,886 (1,632,787) 5,344,099 1,656,671 213,764 961,938 1,923,876 160,323 427,528 2017-2021 11,545,000 22,986,907 (7,869,713) 26,662,194 8,265,280 1,066,488 4,799,195 9,598,390 799,866 2,132,976 2022-2026 13,945,000 19,586,127 (6,994,733) 26,536,394 8,226,282 1,061,456 4,776,551 9,553,102 796,092 2,122,912 2027-2031 17,010,000 14,723,464 (5,346,730) 26,386,734 8,179,888 1,055,469 4,749,612 9,499,224 791,602 2,110,939 2032-2036 20,955,000 8,498,417 (3,217,063) 26,236,354 8,133,270 1,049,454 4,722,544 9,445,087 787,091 2,098,908 2035-2039 14,860,000 1,502,494 (697,922) 15,664,572 4,856,017 626,583 2,819,623 5,639,246 469,937 1,253,166 Total $ 86,235 000 $ 92 553,660 $ 32 396,888 $ 146 391,772 $ 45,381449 $ 5,855,671 $ 26,350 520 $ 52,701,038 $ 4,391753 $ 11,711,343 Note: Interest is to be paid from bond proceeds during the construction period (2010-2011). *Of the $26,350,520 allocation to Federal Way, $15,522,298 is for the principal portion and the remainder is for interest. The City of Federal Way reports its share of equity interest in the Governmental Activities column within the Government - wide financial statements under non -current assets. The following is condensed (unaudited) financial information as of December 31, 2011 related to SCORE: South Correction Entity (SCORE) 2011 Owner Cities Equity Allocation Member Percent of 2010 2011 city i i Balance Distribution Equity Balance Auburn 31.00% $ 1,601,588 $ 1,587,732 $ 3,189,320 Burien 4.00% 206,656 204,869 411,525 Federal Way 18.00% 929,954 921,909 1,851,863 Renton 36.00% 1,859,910 1,843,818 3,703,728 SeaTac 3.00% 154,992 153,651 308,643 Tukwila 8.000/0 413,313 409,737 823,050 Total 1 100.00%1 $ 5,166,413 1 $ 5,121,716 $ 10,288,129 A complete set of financial statements is available from: SCORE, 20817 17th Avenue South, Des Moines, WA 98198. 'Federal Wav / 63 NOTE 15 - PRIOR PERIOD ADJUSTMENT Beginning Balance Prior Period Adjusted Beginning Ending Balance Governmental Activity 1/1/2011 Adjustment Balance Additions Deletions 12/31/2011 Capital assets, not being depreciated: Land $ 301,270,211 $ - $ 301,270,211 $ 898,006 $ $ 302,168,217 Construction in progress 16,193,940 (895,299) 15,298,641 11,445,599 (5,586,182) 21,158,058 Total capital assets, not being depreciated: 317,464,151 (895,299) 316,568,852 12,343,605 (5,586,182) 323,326,275 Capital assets, being depreciated Buildings 16,698,395 16,698,395 648,316 (197,692) 17,149,019 Improvements other than buildings 43,264,217 43,264,217 601,363 43,865,580 Infrastructure 143,187,237 143,187,237 3,976,317 147,163,554 Machinery and equipment 14,713,673 14,713,673 1,328,904 (823,559) 15,219,018 Total capital assets, being depreciated: 217,863,522 217,863,522 6,554,900 (1,021,251) 223,397,171 Less accumulated depreciation for: Buildings (4,797,631) (4,797,631) (884,127) 68,883 (5,612,875) Improvements other than buildings (12,766,566) (12,766,566) (2,163,211) - (14,929,777) Infrastructure (29,475,841) - (29,475,841) (3,829,373) - (33,305,214) Machinery and equipment (9,636,291) 11,830 (9,624,461) (1,243,402) 717,186 (10,150,677) Total accumulated depreciation: (56,676,328) 11,830 (56,664,498) (8,120,113) 786,069 (63,998,542) Total assets being depreciated, net 161,187,194 11,830 161,199,024 (1,565,213) (235,182) 159,398,629 Governmental activities capital assets, net $ 478,651,345 $ (883,469) $ 477,767,876 $ 10,778,392 $ (5,821,364) $ 482,724,904 Business -Type Activities Beginning Balance Prior Period Adjusted Beginning 1/1/2011 Adjustment Balance Additions Deletions Ending Balance 12/31/2011 Capital assets, not being depreciated: Land $ 10,307,661 $ - $ 10,307,661 $ 2,554 $ - $ 10,310,215 Construction in progress 1,766,190 599,282 2,365,472 92,421 (4,423) 2,453,470 Total capital assets, not being depreciated: 12,073,851 599,282 12,673,133 94,975 (4,423) 12,763,685 Capital assets, being depreciated Buildings 3,596,441 - 3,596,441 4,423 3,600,864 Improvements other than buildings 48,528,302 (709,534) 47,818,768 - 47,818,768 Infrastructure 1,916,645 1,916,645 - 1,916,645 Machinery and equipment 106,643 106,643 11,731 118,374 Total capital assets, being depreciated: 54,148,030 (709,534) 53,438,496 16,154 53,454,650 Less accumulated depreciation for: Buildings (2,438,349) (2,438,349) (181,631) - (2,619,980) Improvements other than buildings (11,843,453) (11,843,453) (485,283) - (12,328,736) Infrastructure (81,476) (81,476) (19,166) - (100,642) Machinery and equipment (85,472) (85,472) (2,946) - (88,418) Total accumulated depreciation: (14,448,750) (14,448,750) (689,026) - (15,137,776) Total assets being depreciated, net 39,699,280 (709,534) 38,989,746 (672,872) - 38,316,874 Business Type activities capital assets, net $ 51,773,131 $ (110,252) $ 51,662,879 $ (577,897) $ (4,423) $ 51,080,559 Governmental -type activity prior period adjustments of $883,469 are required for construction in progress and include adjustments of $568,022 for equipment that were previously capitalized in the internal service funds in 2009 and was not deleted from construction in progress, $324,986 for private work done between 2006-2009 that should have not been reported as construction in progress, $2,291 for technical adjustments to be deleted from construction in progress, and a ($11,830) adjustment to accumulated depreciation for a reporting error in 2010. Business -type activity prior period adjustments of ($110,252) include adjustments for construction in progress corrections from previous years of $599,282, and ($709,534) in adjustments to Improvements Other Than Buildings for legal services related to a settlement that should not have been capitalized as part of the project cost. NOTE 16 - SUBSEQUENT EVENT On March 6, 2012 Council approved a bond ordinance for the purpose of refunding the 2003 Federal Way Community Center bonds. The $15M bond was issued in 2003 and has the option to call $11,955,000 on or after 12/1/2013. The current average interest rates on the bonds are 4.66%. The interest rates on the refunding bonds would average between 3.0% to 3.25%. The timing of the bond sale is to be determined, based on market conditions. ofFederal Wav / 64 41k CI TY OF Federal Way It"s all within reach THIS PAGE IS LEFT INTENTIONALLY BLANK 'Federal Wav / 65 Combining Statement — Nonmajor Governmental Funds' Description For the Year Ended December 31, 2011 Special Revenue Funds Special Revenue funds are used to account for the proceeds of revenue sources (other than special assessments, expendable trusts or major capital projects) that are legally restricted to expenditures for specified purposes. The Arterial Street Fund accounts for the receipt and expenditure of the State -levied motor vehicle fuel tax distributed to the City in accordance with State R.C.W. 82.36.020. These revenues are to be used for the construction, improvement, chip sealing, seal -coating, and repair of arterial highways and city streets, or for the payment of related municipal indebtedness. The Solid Waste/Recycling Fund was established to account for special refuse collection fees used to manage the Solid Waste and Recycling program. The Special Contracts/Studies Fund accounts for receipts and disbursements related to special contracts and special projects where completion will extend beyond the calendar year. The HotellMotel Lodging Tax Fund was established to account for all lodging tax receipts and disbursements related to tourism promotion and acquisition and/or operation of tourism -related facilities. The Federal Way Community Center Fund was established to account for the operation of the community center. The fund is supported by user fees and designated utility tax transfers. The Traffic Safety Fund was established to account for the penalties and fines collected in criminal traffic violations and those related to the operation of the Red Light Photo Enforcement Program. Funds collected for traffic safety shall be used for, but not limited to prevention, education, and enforcement effectors related to traffic safety and compliance with traffic control devices within the city, including maintenance and operation costs. The Community Development Block Grant Fund accounts for the receipt and disbursement of federal grant revenue received through the Department of Housing and Urban Development's Community Development Block Grant Program. Separate subsidiary records are maintained to administer the individual projects accounted for in this fund. The Path and Trails Reserve Fund was established in accordance with State law to accumulate unexpended proceeds of the City's '/2% motor vehicle fuel tax receipts which are restricted in use to the construction and maintenance of paths and trails within City right-of-way. In August 2007, King County voters approved a new $0.05, six -year, inflation adjusted property tax lid lift to expand park and recreation opportunities. One cent of the five -cent acquisition levy proceeds will be distributed to cities for acquisition and development of open space and natural lands and city trail projects that support connections to the regional trail system. Capital Proiects Funds The Capital Project Funds account for the acquisition or construction of major capital facilities with the exception of those facilities financed by proprietary and trust funds. The major sources of revenue for this fund are general obligation bond proceeds, grants from other agencies, local taxes and contributions from other funds. The Parks CIP Fund was established to account for receipts and disbursements related to acquisition, design, construction and any other related parks capital project expenditures. The City Facilities CIP Fund accounts for receipts and disbursements related to acquisition, design, construction and any other related municipal facility and community/senior capital project expenditures. ofFederal Wav / 66 41k CI TY OF Federal Way It"s all within reach THIS PAGE IS LEFT INTENTIONALLY BLANK 'Federal Wav / 67 COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS December 31, 2011 Special Capital Revenue Projects Total ASSETS Equity in pooled cash & investments $ 3,315,681 $ 3,753,705 $ 7,069,386 Retainage in escrow - 6,922 6,922 Receivables (net): Accounts and contracts 89,666 - 89,666 Due from other governments 124,794 - 124,794 TOTAL ASSETS 3,530,141 3,760,628 7,290,768 LIABILITIES AND FUND BALANCES Liabilities: Vouchers payable Retainage payable Deposits payable Interfund loans payable Deferred revenue TOTAL LIABILITIES 170,782 59,206 229,988 103,579 6,922 110,502 16,206 - 16,206 10,000 - 10,000 110,116 - 110,116 410,684 66,128 476,812 Fund Balance: Restricted 970,756 2,891,893 3,862,649 Committed 2,148,702 802,606 2,951,308 TOTAL FUND BALANCES 3,119,457 3,694,499 6,813,957 TOTAL LIABILITIES AND FUND BALANCE $ 3,530,141 $ 3,760,627 $ 7,290,768 Federal Wav / 68 COMBINING BALANCE SHEET NONMAJOR SPECIAL REVENUE FUNDS December 31, 2011 Special Arterial Solid Waste Contracts/ Hotel/Motel Street Recycling Studies Lodging Tax ASSETS Equity in pooled cash & investments $ 541,911 $ 160,516 $ 556,753 $ 201,488 Receivables (net): Accounts and contracts - - - - Due from other governments 34,625 - - 12,247 TOTAL ASSETS 576,536 160,516 556,753 213,734 LIABILITIES AND FUND BALANCES Liabilities: Vouchers payable 3,254 6,536 - 250 Retainage payable 103,579 - - Deposits payable - - Interfund loans payable - - - - Deferred revenue - - - - TOTAL LIABILITIES 106,834 6,536 - 250 Fund Balance: Restricted - - 556,753 213,484 Committed 469,703 153,980 - - TOTAL FUND BALANCES 469,703 153,980 556,753 213,484 TOTAL LIABILITIES AND FUND BALANCE $ 576,536 $ 160,516 $ 556,753 $ 213,734 'Federal Wav / 69 COMBINING BALANCE SHEET NONMAJOR SPECIAL REVENUE FUNDS December 31, 2011 Federal way Community Paths and Community Traffic Development Trails Center Safety Block Grant Reserve Total ASSETS Equity in pooled cash & investments $ 1,085,299 $ 613,396 $ 5,168 $ 151,150 $ 3,315,681 Receivables (net): Accounts and contracts 89,666 - - - 89,666 Due from other governments - - 77,265 657 124,794 TOTAL ASSETS 1,174,965 613,396 82,433 151,807 3,530,141 LIABILITIES AND FUND BALANCES Liabilities: Vouchers payable 80,701 56,319 23,722 - 170,781 Retainage payable - - - 103,579 Deposits payable 16,206 - - - 16,206 Interfund loans payable - - 10,000 - 10,000 Deferred revenue 110,116 - - - 110,116 TOTAL LIABILITIES 207,023 56,319 33,722 - 410,683 Fund Balance: Restricted - - 48,712 151,807 970,756 Committed 967,942 557,077 - - 2,148,702 TOTAL FUND BALANCES 967,942 557,077 48,712 151,807 3,119,457 TOTAL LIABILITIES AND FUND BALANCE $ 1,174,965 $ 613,396 $ 82,433 $ 151,807 $ 3,530,141 Federal Wav / 70 COMBINING BALANCE SHEET NONMAJOR CAPITAL PROJECTS FUNDS December 31, 2011 City Facilities Parks Total ASSETS Equity in pooled cash & investments $ 1,299,687 $ 2,454,018 $ 3,753,705 Retainage in escrow 6,922 - 6,922 TOTAL ASSETS 1,306,610 2,454,018 3,760,628 LIABILITIES AND FUND BALANCES Liabilities: Vouchers payable Retainage payable TOTAL LIABILITIES Fund Balance: Restricted Committed 14,077 45,129 59,206 6,922 - 6,922 20,999 45,129 66,128 848,727 2,043,166 2,891,893 436,883 365,723 802,606 TOTAL FUND BALANCES 1,285,610 2,408,889 3,694,499 TOTAL LIABILITIES AND FUND BALANCE $ 1,306,610 $ 2,454,018 $ 3,760,628 'Federal Wav / 71 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS For Year Ended December 31, 2011 REVENUES Taxes Intergovernmental Service charges and fees Fines and forfeitures Interest Other TOTAL REVENUES EXPENDITURES Current: General government Security of persons and property Transportation Physical environment Economic environment Culture and recreation Capital outlay TOTAL EXPENDITURES Special Capital Revenue Projects Total $ 344,304 $ - $ 344,304 851,218 65,000 916,218 2,029,629 - 2,029,629 945,527 - 945,527 3,366 3,307 6,673 216,969 45,596 262,564 4,391,013 113,903 4,504,916 209,568 3,661 213,229 18,050 - 18,050 2,236,228 - 2,236,228 427,315 - 427,315 187,686 - 187,686 2,136,945 94,572 2,231,517 - 470,564 470,564 5,215,792 568,797 5,784,589 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (824,779) (454,895) (1,279,673) OTHER FINANCING SOURCES (USES; Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES FUND BALANCES - BEGINNING Adjustment for GASB 54 - Beginning fund balance ADJUSTED FUND BALANCES - BEGINNING 2,082,000 1,178,000 3,260,000 (1,358,000) - (1,358,000) 724,000 1,178,000 1,902,000 (100,779) 723,105 622,327 3,220,529 2,971,394 6,191,923 (293) - (293) 3,220,236 2,971,394 6,191,630 FUND BALANCES - ENDING $ 3,119,457 $ 3,694,499 $ 6,813,957 Federal Wav / 72 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR SPECIAL REVENUE FUNDS For Year Ended December 31, 2011 Special Arterial Solid Waste Contracts/ Hotel/Motel Street Recycling Studies Lodging Tax REVENUES Taxes $ $ - $ - $ 185,289 Intergovernmental 488,322 146,460 - - Service charges and fees 344,750 297,130 - - Fines and forfeitures - - - - Interest 486 112 526 223 Other - 2,495 - - TOTAL REVENUES 833,558 446,197 526 185,512 EXPENDITURES Current: General government - - 1,247 - Security of persons and property - - - - Transportation 2,236,228 - - - Physical environment - 427,315 - - Economic environment - - - 187,686 Culture and recreation - - - - TOTAL EXPENDITURES 2,236,228 427,315 1,247 187,686 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (1,402,670) 18,882 (721) (2,174) OTHER FINANCING SOURCES (USES) Transfers in 1,311,000 - - - Transfers out - - - - TOTAL OTHER FINANCING SOURCES (USES) 1,311,000 - - - NET CHANGE IN FUND BALANCES (91,670) 18,882 (721) (2,174) FUND BALANCES - BEGINNING 561,373 135,098 557,474 215,658 FUND BALANCES - ENDING $ 469,703 $ 153,980 $ 556,753 $ 213,484 'Federal Wav / 73 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR SPECIAL REVENUE FUNDS For Year Ended December 31, 2011 Federal way Community Paths and Community Traffic Development Trails Center Safety Block Grant Reserve Total REVENUES Taxes $ - $ - $ - $ 159,015 $ 344,304 Intergovernmental - - 207,032 9,404 851,218 Service charges and fees 1,387,750 - - - 2,029,629 Fines and forfeitures - 945,527 - 945,527 Interest 912 1,080 27 3,366 Other 214,474 - - - 216,969 TOTAL REVENUES 1,603,135 946,607 207,032 168,446 4,391,013 EXPENDITURES Current: General government - - 208,321 - 209,568 Security of persons and property - 18,050 - - 18,050 Transportation - - - 2,236,228 Physical environment - - - 427,315 Economic environment - - - 187,686 Culture and recreation 2,136,945 - - - 2,136,945 TOTAL EXPENDITURES 2,136,945 18,050 208,321 - 5,215,792 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (533,810) 928,557 (1,288) 168,446 (824,779) OTHER FINANCING SOURCES (USES) Transfers in 721,000 - 50,000 - 2,082,000 Transfers out - (1,205,000) - (153,000) (1,358,000) TOTAL OTHER FINANCING SOURCES (USES) 721,000 (1,205,000) 50,000 (153,000) 724,000 NET CHANGE IN FUND BALANCES 187,190 (276,444) 48,712 15,446 (100,779) FUND BALANCES - BEGINNING 780,752 833,520 - 136,361 3,220,236 FUND BALANCES - ENDING $ 967,942 $ 557,077 $ 48,712 $ 151,807 $ 3,119,457 Federal Wav / 74 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR CAPITAL PROJECTS FUNDS For Year Ended December 31, 2011 City Facilities Parks Total REVENUES Intergovernmental $ 65,000 $ - $ 65,000 Interest 1,040 2,267 3,307 Other 41,516 4,080 45,596 TOTAL REVENUES 107,556 6,347 113,903 EXPENDITURES Current: General government 3,661 - 3,661 Culture and recreation - 94,572 94,572 Capital outlay 245,868 224,696 470,564 TOTAL EXPENDITURES 249,529 319,268 568,797 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (141,974) (312,921) (454,895) OTHER FINANCING SOURCES (USES) Transfers in 750,000 428,000 1,178,000 Transfers out - - - TOTAL OTHER FINANCING SOURCES (USES) 750,000 428,000 1,178,000 NET CHANGE IN FUND BALANCES 608,026 115,079 723,105 FUND BALANCES - BEGINNING 677,584 2,293,810 2,971,394 FUND BALANCES - ENDING $ 1,285,610 $ 2,408,889 $ 3,694,499 'Federal Wav / 75 ARTERIAL STREET SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2011 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Intergovernmental S 500,000 $ 500,000 $ 488,322 $ (11,678) Service charges and fees - 320,000 344,750 24,750 Interest 2,500 2,500 486 (2,014) TOTAL REVENUES 502,500 822,500 833,558 11,058 EXPENDITURES Current: Transportation 1,513,500 2,394,874 2,236,228 158,646 TOTAL EXPENDITURES 1,513,500 2,394,874 2,236,228 158,646 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (1,011,000) (1,572,374) (1,402,670) 169,704 OTHER FINANCING SOURCES (USES) Transfers in 1,011,000 1,311,000 1,311,000 - TOTAL OTHER FINANCING SOURCES (USES) 1,011,000 1,311,000 1,311,000 - NET CHANGE IN FUND BALANCES - (261,374) (91,670) 169,704 FUND BALANCES - BEGINNING - 561.375 561.373 (2 FUND BALANCES - ENDING $ - $ 300,001 $ 469,703 $ 169,702 Federal Wav / 76 SOLID WASTE & RECYCLING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2011 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Intergovernmental $ 137,877 $ 146,458 $ 146,460 $ 2 Service charges and fees 275,366 275,366 297,130 21,764 Interest - - 112 112 Other - - 2,495 2,495 TOTAL REVENUES 413,243 421,824 446,197 24,373 EXPENDITURES Current: Physical environment 415,118 430,118 427,315 2,803 TOTAL EXPENDITURES 415,118 430,118 427,315 2,803 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (1,875) (8,294) 18,882 27,176 NET CHANGE IN FUND BALANCES (1,875) (8,294) 18,882 27,176 FUND BALANCES - BEGINNING 136,968 135,098 135,098 (0) FUND BALANCES - ENDING $ 135,093 $ 126,804 $ 153,980 $ 27,176 'Federal Wav / 77 HOTEL/MOTEL LODGING TAX SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2011 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Taxes $ 155,000 $ 155,000 $ 185,289 $ 30,289 Interest 300 500 223 (277) Other 5,000 3,500 - (3,500) TOTAL REVENUES 160,300 159,000 185,512 26,512 EXPENDITURES Current: Economic environment 160,300 372,500 187,686 184,814 TOTAL EXPENDITURES 160,300 372,500 187,686 184,814 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES - (213,500) (2,174) 211,326 NET CHANGE IN FUND BALANCES - (213,500) (2,174) 211,326 FUND BALANCES - BEGINNING - 215.657 215.658 1 FUND BALANCES - ENDING $ - $ 2,157 $ 213,484 $ 211,327 Federal Wav / 78 FEDERAL WAY COMMUNITY CENTER SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2011 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Service charges and fees $ 1,281,122 $ 1,281,122 $ 1,387,750 $ 106,628 Interest - - 912 912 Other 249,300 249,300 214,474 (34,826) TOTAL REVENUES 1,530,422 1,530,422 1,603,135 72,713 EXPENDITURES Current: Culture and recreation 2,142,839 2,151,722 2,136,945 14,777 TOTAL EXPENDITURES 2,142,839 2,151,722 2,136,945 14,777 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (612,417) (621,300) (533,810) 87,490 OTHER FINANCING SOURCES (USES) Transfers in - - 721,000 721,000 TOTAL OTHER FINANCING SOURCES (USES) - - 721,000 721,000 NET CHANGE IN FUND BALANCES (612,417) (621,300) 187,190 808,490 FUND BALANCES - BEGINNING 670.377 780.754 780.752 (2 FUND BALANCES - ENDING $ 57,960 $ 159,454 $ 967,942 $ 808,488 'Federal Wav / 79 TRAFFIC SAFETY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2011 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Fines and forfeitures $ 830,000 $ 830,000 $ 945,527 $ 115,527 Interest - - 1,080 1,080 TOTAL REVENUES 830,000 830,000 946,607 116,607 EXPENDITURES Current: Security of persons and property - 50,000 18,050 31,950 TOTAL EXPENDITURES - 50,000 18,050 31,950 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 830,000 780,000 928,557 148,557 OTHER FINANCING SOURCES (USES) Transfers out (1,205,000) (1,205,000) (1,205,000) - TOTAL OTHER FINANCING SOURCES (USES) (1,205,000) (1,205,000) (1,205,000) - NET CHANGE IN FUND BALANCES (375,000) (425,000) (276,444) 148,557 FUND BALANCES - BEGINNING 480,288 833,520 833,520 (0) FUND BALANCES - ENDING $ 105,288 $ 408,520 $ 557,077 $ 148,556 Federal Wav / 80 PATH & TRAILS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2011 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Taxes $ 153,000 $ 153,000 $ 159,015 $ 6,015 Intergovernmental 8,000 8,000 9,404 1,404 Interest - - 27 27 TOTAL REVENUES 161,000 161,000 168,446 7,446 EXPENDITURES Current: General government - - - - TOTAL EXPENDITURES - - - - EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 161,000 161,000 168,446 7,446 OTHER FINANCING SOURCES (USES) Transfers out (153,000) (153,000) (153,000) - TOTAL OTHER FINANCING SOURCES (USES) (153,000) (153,000) (153,000) - NET CHANGE IN FUND BALANCES 8,000 8,000 15,446 7,446 FUND BALANCES - BEGINNING 132,768 136,362 136,361 (1) FUND BALANCES - ENDING $ 140,768 $ 144,362 $ 151,807 $ 7,445 'Federal Wav / 81 Budget and Actual — Debt Service Fund Description For the Year Ended December 31, 2011 The Debt Service Fund accounts for the accumulation of resources for the payment of general obligation and special assessment bond principal, interest and related costs. Revenues for this fund consist of the City's real estate excise tax, transfers from the Utility Tax Fund, and/or other revenues designated by the City Council. ofFederal Wav/82 40k CI TY OF Federal Way It"s all within reach THIS PAGE IS LEFT INTENTIONALLY BLANK 'Federal Wav / 83 BALANCESHEET GOVERNMENTAL FUNDS December 31, 2011 Debt Service ASSETS Equity in pooled cash & investments $ 3,908,649 Receivables (net): Taxes 84,735 TOTAL ASSETS 3,993,384 LIABILITIES AND FUND BALANCES Liabilities: Deferred revenue 127,200 TOTAL LIABILITIES 127,200 Fund Balance: Restricted 3,866,184 TOTAL FUND BALANCES 3,866,184 TOTAL LIABILITIES AND FUND BALANCE $ 3,993,384 Federal Wav / 84 DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2011 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Taxes $ 900,000 $ 1,400,000 $ 1,560,395 $ 160,395 Interest 15,000 15,000 3,454 (11,546) TOTAL REVENUES 915,000 1,415,000 1,563,848 148,848 EXPENDITURES Debt service: - - Principal 496,600 496,600 457,520 39,080 Interest/fiscal charges/admin. fees 666,126 666,126 614,571 51,555 TOTAL EXPENDITURES 1,162,726 1,162,726 1,072,091 90,635 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (247,726) 252,274 491,757 239,483 OTHER FINANCING SOURCES (USES) Transfers in 915,000 915,000 915,000 - Transfers out (920,000) (920,000) (920,000) - TOTAL OTHER FINANCING SOURCES (USES) (5,000) (5,000) (5,000) - NET CHANGE IN FUND BALANCES FUND BALANCES - BEGINNING (252,726) 247,274 486,757 239,483 2,915,604 3,379,425 3,379,427 2 FUND BALANCES - ENDING $ 2,662,878 $ 3,626,699 $ 3,866,184 $ 239,485 'Federal Wav / 85 Combining Statement — Internal Service Fund's Description For the Year Ended December 31, 2011 Internal Service Funds Internal Service Funds are used to account for the financing of goods or services provided by one department or agency to other departments or agencies of a government, or to other governments, on a cost -reimbursement basis. The Risk Management Fund accounts for the City's risk financing activities established to minimize adverse effects of losses associated with property and casualty, medical and dental, unemployment and worker's compensation claims. Both risk control (to minimize the losses that strike and organization) and risk financing (to obtain finances to provide for or restore the economic damages of those losses) are involved. The City is currently self -insuring only State Unemployment Compensation. Related premiums received by the fund are used to reimburse the unemployment benefits paid to eligible individuals and to establish reserves for the payment of estimated future unemployment claims liability. The City is also currently recovering costs and building reserves for general liability including property, casualty, errors and omissions and fidelity coverage. The Information Systems Fund was established to account for all costs associated with data processing, telecommunications and the Geographical Information System (GIS). This fund will own and depreciate all non-proprietary fund assets related to these functions, and will charge equipment/software users for both maintenance/operating costs and equipment replacement charges based on depreciation schedules. The Support Services Fund will account for duplication, graphics and other general support services provided to departments and funds throughout the City. The Fleet and Equipment Fund accounts for the cost of maintaining City vehicles and other motorized equipment. Rates charged to user departments are based on the full cost of maintaining equipment items, including the recovery of related depreciation expense. The Buildings and Furnishings Fund accounts for all costs associated with the operation and maintenance of specified City buildings. City building facilities and furnishings will be owned by this Fund, and both maintenance/operating costs and depreciation recovery will be charged City departments and funds. Federal Wav / 86 INTERNAL SERVICE FUNDS COMBINING STATEMENT OF NET ASSETS December 31, 2011 Risk Information Support Fleet and Buildings and Management Systems Services Equipment Furnishings TOTAL ASSETS Current Assets Equity in pooled cash & investments $ 5,524,276 $ 3,608,917 $ 279,884 $ 5,294,581 $ 1,481,294 $ 16,188,952 Prepaid items - - 5,000 - - 5,000 Receivables (net): Accounts and contracts - 40,571 40,571 Due from other governments - - - - 49,060 49,060 TOTAL CURRENT ASSETS 5,524,276 3,608,917 284,884 5,294,581 1,570,925 16,283,583 Noncurrent assets Capital assets: Building/structures - - - - 16,497,555 16,497,555 Machinery/furniture/equipment 6,766,364 257,936 8,010,718 - 15,035,018 Less accumulated depreciation - (5,183,970) (147,532) (4,635,171) (5,197,919) (15,164,592) TOTAL NONCURRENT ASSETS - 1,582,394 110,404 3,375,547 11,299,636 16,367,981 TOTAL CURRENT ASSETS 5,524,276 5,191,311 395,288 8,670,128 12,870,561 32,651,564 LIABILITIES Current Liabilities: Vouchers/payroll payable 92,494 147,970 5,811 23,498 108,435 378,208 TOTAL CURRENT LIABILITIES 92,494 147,970 5,811 23,498 108,435 378,208 Long-term liabilities: Compensated absences payable 43,086 3,276 46,362 TOTAL LONG-TERM LIABILITIES - 43,086 3,276 - 46,362 TOTAL LIABILITIES 92,494 191,056 5,811 26,774 108,435 424,570 NET ASSETS Invested in capital assets - 1,582,394 110404 3,375,547 11,299,636 16,367,981 Unrestricted 5,431,782 3,417,861 279:073 5,267,807 1,462,490 15,859,013 TOTAL NET ASSETS $ 5,431,782 $ 5,000,255 $ 389,477 $ 8,643,354 $ 12,762,126 $ 32,226,994 'Federal Wav / 87 INTERNAL SERVICE FUNDS COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS For Year Ended December 31, 2011 Risk Information Support Fleet and Buildings and Management Systems Services Equipment Furnishings TOTAL OPERATING REVENUES: Service charges and fees $ 1,151,971 $ 1,778,631 $ 152,918 $ 2,089,277 $ 445,366 $ 5,618,163 Intergovernmental - - - 12,336 454,880 467,216 Miscellaneous 148,626 29,415 2,152 75,396 255,590 TOTAL OPERATING REVENUES 1,300,598 1,808,046 155,070 2,101,613 975,642 6,340,969 OPERATING EXPENSES: Personal services - 691,247 - 37,791 86,193 815,231 Materials and supplies - 19,490 16,466 532,752 30,509 599,218 Services and charges 23,858 549,502 96,969 372,888 368,502 1,411,720 Intergovernmental - 105,774 - - - 105,774 Insurance 445,815 - 445,815 Claims 820,386 - - - - 820,386 Depreciation - 398,530 22,947 821,925 858,885 2,102,287 Interfund charges TOTAL OPERATING EXPENSES 1,290,059 1,764,543 136,383 1,765,356 1,344,090 6,300,430 OPERATING INCOME (LOSS) 10,539 43,503 18,687 336,257 (368,447) 40,538 NON -OPERATING REVENUES (EXPENSES): Gain (Loss) from disposal of capital assets - - - (57,408) (128,809) (186,217) Interest income 2,962 3,224 311 4,631 1,277 12,405 Interest expense TOTAL NON -OPERATING REVENUES (EXPENSES) 2,962 3,224 311 (52,777) (127,532) (173,812) INCOME (LOSS) BEFORE TRANSFERS 13,500 46,726 18,998 283,480 (495,979) (133,274) Capital contributions - 136,177 - 87,609 223,786 Transfers in - 13,500 13,500 Transfers out (13,500) (55,800) (69,300) CHANGE IN NET ASSETS 0 182,903 18,998 328,789 (495,979) 34,712 NET ASSETS - BEGINNING 5,431,782 4,817,352 370,478 8,314,564 13,258,105 32,192,281 NET ASSETS - ENDING $ 5,431,782 $ 5,000,255 $ 389,477 $ 8,643,354 $ 12,762,126 $ 32,226,994 Federal Wav / 88 INTERNAL SERVICE FUNDS COMBINING STATEMENT OF CASH FLOWS For Year Ended December 31, 2011 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from users Cash payments to claimants Cash payments to suppliers for goods/services Cash payments to employees Cash payments to other governments for goods and services Other operating receipts NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers in Transfers out NET CASH PROVIDED BY NONCAPITAL FINANCING CASH FLOWS FROM CAPITAL AND CAPITAL - RELATED FINANCING ACTIVITIES: Acquisition of capital asset/construction work in progress Proceeds from the sale of capital assets NET CASH USED FOR CAPITAL AND CAPITAL - RELATED FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Receipts of interest NET CASH PROVIDED BY INVESTING ACTIVITIES NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating Income/(loss) Adjustments to reconcile operating income to net cash provided/(used) by operating activities: Depreciation expenses (Increases)/decrease in accounts receivable (Increases)/decrease in due from other governments Increases/(decrease)in vouchers/accounts payable Increases/(decrease)in deferred revenue Increases/(decrease) in accrued payroll/compensated absences payable TOTAL ADJUSTMENTS NET CASH PROVIDED/USED BY OPERATING ACTIVITIES Non -cash investing, capital, and financing activities: Other contributions of capital assets Fleet and Buildings and Equipment Furnishings TOTAL $ 2,101,613 $ 770,201 $ 5,966,164 - - (820,386) (917,012) (332,124) (1,815,080) (37,516) (88,466) (817,984) - (551,589) - 75,396 255,589 1, 1'+/,V6J '+LJ,VV/ /-,/-10,/1'+ 13,500 13,500 (55,800) - (69,300) (42,300) - (55,800) (759,902) (493,195) (1,598,313) 39,742 - 40,473 (720,160) (493,195) (1,557,840) 4,631 1,277 12,405 4,OJ1 1,L// 1L,'+VJ 389,256 (66,911) 615,479 4,905,325 1,548,205 15,573,475 5,294,5 81 1,481,294 16,188,952 336,257 (368,447) 40,539 821,925 858,885 2,102,287 - (40,571) (29,741) - (21,554) (21,554) (11,372) 66,887 195,856 - (67,920) (67,920) 275 (2,273) (2,753) 810,828 793,454 2,176,175 $ 1,147,085 $ 425,007 $ 2,216,714 $ 87,609 $ - $ 223,786 'Federal Wav / 89 INTERNAL SERVICE FUNDS COMBINING STATEMENT OF CASH FLOWS For Year Ended December 31, 2011 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from users Cash payments to claimants Cash payments to suppliers for goods/services Cash payments to employees Cash payments to other governments for goods and services Other operating receipts NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers in Transfers out NET CASH PROVIDED BY NONCAPITAL FINANCING CASH FLOWS FROM CAPITAL AND CAPITAL - RELATED FINANCING ACTIVITIES: Acquisition of capital asset/construction work in progress Proceeds from the sale of capital assets NET CASH USED FOR CAPITAL AND CAPITAL - RELATED FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Receipts of interest NET CASH PROVIDED BY INVESTING ACTIVITIES NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating Income/(loss) Adjustments to reconcile operating income to net cash provided/(used) by operating activities: Depreciation expenses (Increases)/decrease in accounts receivable (Increases)/decrease in due from other governments Increases/(decrease) in vouchers/accounts payable Increases/(decrease)in deferred revenue Increases/(decrease) in accrued payroll/compensated absences payable TOTAL ADJUSTMENTS NET CASH PROVIDED/USED BY OPERATING ACTIVITIES Non -cash investing, capital, and financing activities: Other contributions of capital assets Risk Information Support Management Systems Services $ 1,162,801 $ 1,778,631 $ 152,918 (820,386) - - 23,794 (451,991) (137,747) - (692,002) - (445,815) (105,774) - 148,626 29,415 2,152 69,020 558,279 17,323 (13,500) - (13,500) - - - (269,936) (75,280) 731 - - (269,205) (75,280) 2962 3224 311 G,7VG J,GG'Y J 1 1 58,482 292,298 (57,646) 5,465,794 3,316,620 337,531 5,524,276 3,608,917 279,884 10,538 43,503 18,688 - 398,530 22,947 10,830 - - 47,652 117,001 (24,312) - (755) - 58,482 514,776 (1,365) $ 69,020 $ 558,279 $ 17,323 $ - $ 136,177 $ - ofFederal Wav /90 40k CI TY OF Federal Way It"s all within reach THIS PAGE IS LEFT INTENTIONALLY BLANK Federal Wav / 91 CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS Federal Wav / 92 CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS COMPARATIVE SCHEDULE BY SOURCE December 31, 2011 GOVERNMENTAL FUNDS CAPITAL ASSETS Land Buildings Improvements other than buildings Machinery and equipment Infrastructure Construction in progress TOTAL GOVERNMENTAL FUNDS CAPITAL ASSETS INVESTMENTS IN GOVERNMENTAL FUNDS CAPITAL ASSETS BY SOURCE: General Fund Special Revenue Funds Capital Project Funds Donations TOTAL GOVERNMENTAL FUNDS CAPITAL ASSETS 2011 2010 $ 302,168,217 $ 301,270,212 651,464 504,835 43,865,580 43,264,217 184,000 184,000 147,163,554 143,187,237 21,158,058 16,193,940 515,190,873 504,604,441 125,244, 871 125,244, 871 252,375,395 252,375,395 121,141, 891 112,933 ,199 16,428,716 14,050, 976 $ 515,190,873 $ 504,604,441 This schedule presents only the historical cost of capital asset balances (no depreciation expenses) related to governmental funds. Accordingly, the capital assets reported in internal service funds are excluded from the above amounts. Generally, the capital assets of the internal service funds are included as governmental activities in the statement of net assets. CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS SCHEDULE BY FUNCTION AND ACTIVITY December 31, 2011 Improvements Machinery Construction Other than and in Total Total Function and Activity Land Buildings Buildings Equipment Infrastructure Progress 2011 2010 GENERAL GOVERNMENT Miscellaneous general government $ 16,775,446 $ - $ 19,973 $184,000 $ 6,139,001 $ 275,001 $ 23,393,421 $ 23,005,458 Total General Government: 16,775,446 - 19,973 184,000 6,139,001 275,001 23,393,421 23,005,458 CULTURE AND RECREATION Culture and Recreation 121,007,794 651,464 43,845,607 - 94,474,128 2,100,637 262,079,630 262,177,736 Total Culture and Recreation: 121,007,794 651,464 43,845,607 - 94,474,128 2,100,637 262,079,630 262,177,736 TRANSPORTATION Streets and Traffic 164,384,977 - - - 46,550,425 18,782,420 229,717,822 219,421,246 Total Transportation: 164,384,977 - - - 46,550,425 18,782,420 229,717,822 219,421,246 Total General Fixed Asset by Function: $302,168,217 $ 651,464 $ 43,865,580 $184,000 $147,163,554 $ 21,158,058 $515,190,873 $504,604,441 This schedule presents only the historical cost of capital asset balances (no depreciation expenses) related to governmental funds. Accordingly, the capital assets reported in internal service funds are excluded from the above amounts. Generally, the capital assets of the internal service funds are included as governmental activities in the statement of net assets. Federal Wav / 94 CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS SCHEDULE OF CHANGES BY FUNCTION AND ACTIVITY For the Year Ended December 31, 2011 GENERAL GOVERNMENT Miscellaneous general government TOTAL GENERAL GOVERNMENT CULTURE AND RECREATION TOTAL CULTURE AND RECREATION TRANSPORTATION Streets and traffic TOTAL TRANSPORTATION TOTAL GENERAL FIXED ASSETS Governmental Funds Capital Assets 1/1/2011 Additions Deductions Governmental Funds Capital Assets 12/31 /2011 $ 23,005,458 $ 387,962 $ - $ 23,393,421 23,005,458 387,962 - 23,393,421 262,177,736 (98,106) - 262,079,630 262,177,736 (98,106) - 262,079,630 219,421,246 10,296,576 - 229,717,822 219,421,246 10,296,576 - 229,717,822 $ 504,604,441 $ 10,586,432 $ - $ 515,190,873 This schedule presents only the historical cost of capital asset balances (no depreciation expenses) related to governmental funds. Accordingly, the capital assets reported in internal service funds are excluded from the above amounts. Generally, the capital assets of the internal service funds are included as governmental activities in the statement of net assets. 'Federal Wav / 95 Statistical Section The statistical section presents detailed information as a context for understanding what the information in the financial statements and note disclosures say about the City's overall financial health. The following are the five categories of information presented in this section. Financial Trends — These schedules contain trend information to help the reader understand how the City's financial performance and well-being have changed over time. Revenue Capacity — These schedules contain information to help the reader assess the City's most significant local revenue sources, property tax and sales tax. Debt Capacity — These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future. Demographic and Economic Information — These schedules offer demographic and economic indicators to help the reader understand the environment within which the City's financial activities take place. Operating Information — These schedules contain service and infrastructure data to help the reader understand how the information in the City's financial report relates to the services the city provides and the activities it performs. ofFederal Wav /96 40k CI TY OF Federal Way It"s all within reach THIS PAGE IS LEFT INTENTIONALLY BLANK NET ASSETS BY COMPONENT Last Seven Fiscal Years 2005 2006 2007 2008 2009 2010 2011 Governmental activities Invested in capital assets, net of related debt $ 70,138,350 $ 93,835,163 $ 439,127,122 $ 456,600,030 $ 442,704,401 465,671,345 470,074,905 Restricted 45,017,742 38,359,454 32,269,512 28,434,066 27,476,530 17,442,323 23,941,601 Unrestricted 13,292,837 15,051,966 23,651,674 24,773,913 44,282,822 44,613,406 38,602,445 Total governmental activities net assets 128,448,929 147,246,583 495,048,308 509,808,009 514,463,753 527,727,074 532,618,951 Business -type activities Invested in capital assets, net of related debt 425294,741 43,697,633 45,264,105 50,494,590 50,578,649 50,563,097 50,052,887 Restricted 18,880 26,439 15,777 42,558 16,366 9,411 18,831 Unrestricted 75206,807 7,467,417 6,550,179 5,071,617 5,1155275 5,015,367 5,398,786 Total business -type activities net assets 49,520,428 51,191,489 51,830,061 55,608,765 55,710,290 55,587,875 55,470,504 Primary government Invested in capital assets, net of related debt 112,433,091 137,532,796 484,391,227 507,094,620 493,283,050 516,234,442 520,127,792 Restricted 45,036,622 38,385,893 32,285,289 28,476,624 27,492,896 17,451,734 23,960,432 Unrestricted 20,499,644 22,519,383 30,201,853 29,845,530 49,398,097 49,628,773 44,001,231 Total primary government net assets $ 177,969,357 $ 198,438,072 $ 546,878,369 $ 565,416,774 $ 570,174,043 $583,314,949 $588,089,455 Source: City of Federal Way Finance Note: All amounts are reported on the accrual basis. Federal Wav / 98 CHANGES IN NET ASSETS Last Seven Fiscal Years 2005 2006 2007 2008 2009 2010 2011 Expenses Governmental activities, General government $ 5,539,682 $ 4,364,710 $ 4,506,800 $5,606,797 $4,566,457 $ 4,865,827 $ 4,448,449 Security of persons and property 16,825,123 19,906,722 23,107,683 24,745,284 26,341,614 26,842,240 27,222,584 Transportation 5,451,324 5,628,100 9,986,067 7,891,298 9,448,397 9,781,800 13,539,598 Physical environment 322,151 313,388 336,588 370,718 450,914 451,470 424,466 Economic environment 3,095,391 3,162,089 3,319,955 3,382,572 3,560,620 3,175,005 2,782,435 Health and human svcs 631,133 622,761 684,984 705,976 776,854 767,108 690,643 Culture and recreation 4,789,920 5,172,663 6,506,137 6,955,442 8,089,242 8,073,804 8,105,578 Interest on long-term debt 1,541,930 1,420,691 1,122,358 901,161 811,124 685,214 614,571 Total governmental activities expenses 38,196,654 40,591,124 49,570,572 50,559,248 54,045,222 54,642,468 57,828,324 Business -type activities: Surface Water Mgmt 2,995,074 3,142,613 3,454,193 4,060,440 3,345,027 3,384,352 3,527,590 Dumas Bay Center 819,515 925,825 980,588 1,045,250 984,103 849,176 890,738 Total business -type activities expenses 3,814,589 4,068,438 4,434,781 5,105,690 4,329,130 4,233,528 4,418,328 Total primary government expense: 42,011,243 44,659,562 54,005,353 55,664,938 58,374,352 58,875,996 62,246,652 Program Revenues Governmental activities: Charges for services General Government 1,372,270 1,052,641 3,510,339 $2,313,939 $873,258 975,515 816,140 Security of Persons & Property 4,780,082 4,800,920 2,110,164 2,309,406 5,037,388 5,381,407 4,985,320 Transportation 1,351,596 1,357,333 3,119,637 513,340 1,806,846 1,961,083 2,484,058 Physical Environment 88,222 75,580 - 262,847 86,230 90,512 77,875 Economic Environment 847,686 762,603 1,009,707 1,962,624 680,908 636,534 510,483 Health 172,838 150,192 - - 148,579 153,792 126,710 Culture & Recreation 1,322,962 1,247,495 531,041 2,561,685 1,546,931 1,618,659 1,487,099 Operating grants and contributions 1,228,979 1,512,394 22,858 1,538,476 2,172,168 9,718,920 4,597,981 Capital grants and contributions 4,250,635 5,973,071 11,457,030 8,933,154 8,452,149 9,044,477 9,716,551 Total governmental activities program revenues 15,415,270 16,932,229 21,760,776 20,395,471 20,804,457 29,580,898 24,802,216 Business -type activities: Charges for services 4,100,623 4,130,179 3,667,168 4,473,453 4,183,012 4,246,235 4,020,144 Operating grants and contributions - 1,113,010 632,185 - - - 265,660 Capital grants and contributions - - 222,474 - - - - Total business -type activities program revenues 4,100,623 5,243,189 4,521,827 4,473,453 4,183,012 4,246,235 4,285,804 19,515,893 22,175,418 26,282,603 24,868,924 24,987,469 33,827,133 29,088,020 Net (Expense)/Revenue Governmental activities (22,781,384) (23,658,895) (27,809,796) (30,163,777) (33,240,765) (25,061,570) (33,026,108) Business -type activities 286,034 1,174,751 87,046 (632,237) (146,118) 12,707 (132,524) General Revenues and Other Changes in Net Assets Governmental activities, Taxes Sales tax 11,305,537 12,409,719 13,048,624 12,144,276 10,583,298 10,708,951 10,858,381 Local Criminal Justice Sales Tax 1,817,981 1,953,822 2,145,383 2,051,524 1,743,893 1,701,120 1,795,971 Utility tax 8,292,520 9,043,449 12,796,461 13,469,136 13,549,472 12,890,310 13,068,510 Property tax 8,442,172 8,892,558 9,059,734 9,397,456 9,653,537 9,609,740 9,867,614 Real estate excise tax 4,695,984 5,499,911 4,898,537 2,590,310 1,428,985 1,403,361 1,560,395 Gambling Tax 1,501,065 1,363,468 1,489,952 1,259,783 1,127,203 493,486 511,005 Hotel/Motel Tax 158,117 175,219 191,691 188,833 154,148 149,058 185,289 Leasehold tax 2,026 4,592 7,254 5,712 4,999 5,757 6,259 Other 6,080,222 3,221,392 6,971,413 6,502,869 2,020,751 1,210,341 1,061,026 Transfers (126,369) (107,581) (185,495) 123,518 (200,907) 152,768 (113,000) Total governmental activities 42,169,255 42,456,549 50,423,554 47,733,417 40,065,379 38,324,892 38,801,450 Business -type activities Other 319,432 388,729 366,031 3,447,458 46,736 17,646 12,405 Transfers 126,369 107,581 185,495 (123,518) 200,907 (152,768) 113,000 Total business -type activities 445,801 496,310 551,526 3,323,940 247,643 (135,122) 125,405 Total primary government $ 42,615,056 $ 42,952,859 $ 50,975,080 $ 51,057,357 $ 40,313,022 $ 38,189,770 $ 38,926,855 Change in Net Assets Governmental activities $ 19,387,871 $ 18,797,654 $ 22,613,758 $ 17,569,640 $ 6,824,613 $ 13,263,321 $ 5,775,342 Business -type activities 731,835 1,671,061 638,572 2,691,703 101,525 (122,415) (7,119) Prior Period Adjustment - - - (1,722,939) (2,168,769) - - Total primary government $ 20,119,706 $ 20,468,715 $ 23,252,330 $ 18,538,404 $ 4,757,370 $ 13,140,907 $ 5,768,223 Source: City of Federal Way Finance Note: All amounts are reported on the accrual basis GOVERNMENT -WIDE REVENUES BY SOURCE AND EXPENDITURES BY FUNCTION Last Seven Fiscal Years 2005 2006 2007 2008 2009 2010 2011 Program Revenues Charges for Services $14,036,279 $ 4,130,179 $14,580,241 $14,397,294 $14,363,151 15,063,736 14,507,828 Operating Grants and Contributions 1,228,979 2,625,404 246,305 1,538,476 2,172,168 9,718,920 4,863,641 Capital Grants and Contributions 4,250,635 5,973,071 11,457,030 8,933,154 8,452,149 9,044,477 9,716,551 General revenues Sales tax 11,305,537 12,409,719 13,048,624 12,144,276 10,583,298 10,708,951 10,858,381 Local Criminal Justice Sales Tax 1,817,981 1,953,822 2,145,383 2,051,524 1,743,893 1,701,120 1,795,971 Utility tax 8,292,520 9,043,449 12,796,461 13,469,136 13,549,472 12,890,310 13,068,510 Property tax 8,442,172 8,892,558 9,059,734 9,397,456 9,653,537 9,609,740 9,867,614 Real estate excise tax 4,695,984 5,499,911 4,898,537 2,590,310 1,428,985 1,403,361 1,560,395 Gambling Tax 1,501,065 1,363,468 1,489,952 1,259,783 1,127,203 493,486 511,005 Hotel/Motel Tax 158,117 175,219 191,691 188,833 154,148 149,058 185,289 Leasehold tax 2,026 4,592 7,254 5,712 4,999 5,757 6,259 Otherrevenue 1,188,598 1,299,548 4,194,183 875,389 1,421,791 1,063,825 960,012 Unrestricted Grants & Contribution 146,000 - - 7,448,783 284,350 - - Investment Earnings 2,025,243 3,194,690 3,223,005 1,678,292 385,976 179,373 113,419 Disposition of capital assets 3,039,813 (884,117) (79,744) (52,137) (24,630) (15,211) - Total Revenues 62,130,949 55,681,513 77,258,656 75,926,281 65,300,490 72,016,903 68,014,875 Expenses/Expenditures General Government 5,539,682 4,364,710 4,506,800 5,606,797 4,566,457 4,865,827 4,448,449 Security of Persons & Property 16,825,123 19,906,722 23,107,683 24,745,284 26,341,614 26,842,240 27,222,584 Transportation 5,451,324 5,628,100 9,986,067 7,891,298 9,448,397 9,781,800 13,539,598 Physical Environment 322,151 313,388 336,588 370,718 450,914 451,470 424,466 Economic Environment 3,095,391 3,162,089 3,319,955 3,382,572 3,560,620 3,175,005 2,782,435 Health 631,133 622,761 684,984 705,976 776,954 767,108 690,643 Culture & Recreation 4,789,920 5,172,663 6,506,137 6,955,442 8,089,242 8,073,804 8,105,578 Interest on long-term debt 1,541,930 1,420,691 1,122,358 901,161 811,124 685,214 614,571 Surface Water Management 2,995,074 3,142,613 3,455,166 4,060,440 3,345,027 3,384,352 3,527,590 Dumas Bay Centre 819,515 925,825 980,588 1,045,250 984,103 849,176 890,738 Total Expenses/Expenditures $42,011,243 $44,659,562 $54,006,326 $55,664,938 $58,374,452 $58,875,996 $ 62,246,652 Source: City of Federal Way Finance General fund Reserved Unreserved Nonspendable Restricted Committed Assigned Unassigned Total general fund All Other Governmental Funds Reserved Unreserved, reported in: Special revenue funds Capital projects funds Debt service funds Nonspendable Restricted Committed Assigned Unassigned Total all other governmental funds FUND BALANCES OF GOVERNMENTAL FUNDS Last Seven Fiscal Years 2005 2006 2007 2008 2009 2010 2011 14,510 278,778 125,184 418,207 106,728 - - 4,522,705 6,492,057 7,783,868 5,511,440 8,138,468 - - - - - - - 81,146 104,012 - - - - - 168,398 145,524 - - - - - - 21,893 - - - - - 8,188,575 12,372,719 4,537,215 6,770,835 7,909,052 5,929,647 8,245,196 8,438,119 12,644,148 147,901 194,463 2,323,184 1,763,667 4,770,399 - - 1,652,622 2,772,153 4,392,623 7,505,799 4,311,238 - - 39,805,812 31,863,330 30,054,670 26,252,192 22,934,356 - - 3,195,705 6,217,346 - - - - - - - - - 17,776,967 19,325,489 - - - 18,611,612 11,642,248 - - - - - 100,000 - $ 44,802,040 $ 41,047,292 $ 36,770,477 $ 35,521,658 $ 32,015,993 $ 36,488,580 $30,967,736 Source: City of Federal Way Finance Note: Fund Balance reclassification implementation of GASB 54 for year's 2010 and forward. Federal Wav / 101 CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS Last Seven Fiscal Years Revenues Taxes Licenses, fees and permits Intergovernmental Charges for services Development Fees Fines and Forfeitures Investment earnings Otherrevenues Total revenues Expenditures General government Security of persons and property Transportation Physical Environment Economic Environment Health Culture and Recreation Debt Service Principal Interest/fiscal charges/admin fe Capital Outlay Total expenditures Excess of revenues over (under) expenditures Other Financing Sources (Uses) GO bond proceeds Sale of capital assets Transfers in Transfers out 2005 2006 2007 2008 2009 2010 2011 $ 36,310,754 $ 39,334,751 $ 43,584,824 $ 41,071,781 $ 38,192,852 $ 37,122,069 $ 37,831,045 2,247,651 2,089,844 2,939,328 2,195,068 2,163,984 2,547,655 2,209,873 5,479,614 8,047,243 15,494,887 10,520,570 11,127,718 18,648,749 11,713,248 4,927,163 6,355,262 6,327,552 6,246,207 5,573,647 5,486,632 6,131,287 2,040,378 196,060 - - - - - 720,464 805,598 1,005,293 1,433,628 2,200,092 2,783,214 2,146,524 1,557,935 2,447,996 2,463,670 1,274,955 271,600 139,698 89,338 1,065,664 717,922 630,966 875,389 1,599,207 899,092 960,012 54,349,623 59,994,676 72,446,520 63,617,598 61,129,100 67,627,109 61,081,327 5,462,633 3,944,288 4,364,750 5,197,032 4,518,821 4,857,177 4,234,327 16,988,412 19,909,858 24,183,913 25,470,722 27,051,814 26,892,207 28,332,237 5,080,577 5,373,983 6,631,030 6,634,548 6,165,540 5,700,274 7,427,408 322,151 313,388 336,588 370,718 448,873 450,971 427,315 3,119,831 3,055,426 3,326,986 3,344,987 3,504,767 3,161,820 2,782,537 634,061 613,800 677,536 700,876 772,151 765,963 690,824 3,859,465 4,108,813 5,300,455 5,871,288 5,845,676 5,857,621 5,821,160 2,933,231 2,197,357 9,953,505 440,900 4,558,750 494,250 457,520 1,518,384 1,420,691 1,122,358 901,161 811,124 685,214 614,571 8,228,486 24,412,303 19,162,067 18,037,109 8,443,523 14,249,501 11,560,205 48,147,231 65,349,907 75,059,188 66,969,341 62,121,039 63,114,998 62,348,104 6,202,392 (5,355,231) (2,612,668) (3,351,743) (991,939) 4,512,111 (1,266,777) - 4,100,000 - - - - - 3,618,512 20,000 (23,786) - - - 9,162 15,650,064 13,231,785 22,688,136 16,232,916 25,619,678 22,473,128 21,453,223 (16,266,811) (13,517,681) (23,190,280) (16,109,398) (25,817,857) (22,319,725) (21,510,423) Total other financing sources (uses) 3,001,765 3,834,104 (525,930) 123,518 (198,179) 153,403 (48,038) Net change in fund balances $ 9,204,157 $ (1,521,127) $ (3,138,598) $ (3,228,225) $ (1,190,118) $ 4,665,514 $ (1,314,815) Debt service as a percentage of noncapital expenditures 12.6% 9.7% 24.7% 2.8% 11.1% 2.4% 2.1% Source: City of Federal Way Finance TAXABLE SALES BY CATEGORY Last Ten Fiscal Years 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Accommodation and Food Svcs 123,542,545 125,236,574 131,057,207 139,256,190 147,464,635 170,754,055 172,336,596 161,656,544 162,080,293 172,173,126 Admin, Supp, Remed Svcs 31,635,709 32,292,668 31,855,764 32,521,639 23,796,653 25,202,780 23,285,051 23,989,198 20,998,848 21,110,205 Agriculture, Forestry, Fishing 235,350 116,481 186,395 279,688 196,678 563,627 174,571 99,907 320,095 203,977 Arts, Entertain, Recreation 34,817,467 29,441,915 28,601,771 33,416,416 19,364,073 15,898,253 17,769,325 16,244,594 28,716,747 16,978,760 Company Management 32,028 34,334 4,451 35,853 221,233 501,671 127,477 28,870 9,928 2,128 Construction 143,569,453 116,671,439 132,186,499 191,476,403 256,655,702 213,216,740 147,652,627 105,372,864 107,492,060 142,973,397 Educational Services 2,312,275 2,329,638 2,232,256 2,081,425 2,170,754 2,516,022 2,487,015 3,054,167 2,972,699 3,102,022 Finance and Insurance 14,314,466 21,334,384 13,943,553 12,855,387 13,752,698 12,795,964 10,426,093 7,921,100 8,663,227 8,248,881 Health Care Social Assistance 5,131,421 5,425,838 4,796,427 4,080,451 6,250,812 6,193,370 5,342,504 5,612,490 15,803,384 7,322,602 Information 65,713,358 64,966,268 69,861,905 71,936,131 63,746,061 63,218,235 70,578,046 62,112,491 69,603,652 61,156,569 Manufacturing 18,560,838 13,779,409 12,333,001 18,549,951 19,845,265 32,336,606 25,872,050 24,193,672 17,801,791 17,271,646 Mining 2,213,631 1,736,743 1,520,579 2,098,237 1,963,909 1,994,597 1,699,300 1,341,478 3,268,934 1,463,342 Other Services 31,603,126 31,432,796 32,464,044 32,453,303 34,861,423 38,713,357 38,169,579 37,317,191 35,702,088 36,377,900 Prof, Sci, Technical Svcs 24,132,269 23,276,337 23,593,203 34,278,076 38,463,408 45,110,196 36,310,677 27,410,760 29,049,698 27,671,872 Public Administration 16,850,457 18,052,898 16,067,380 17,388,331 18,520,714 19,370,515 14,858,844 11,456,288 11,279,171 11,531,505 Real Estate, Rental, Leasing 21,067,387 22,350,732 23,194,989 28,846,250 29,046,116 30,541,290 26,728,671 24,648,187 18,840,542 28,989,345 Retail Trade 670,932,962 673,820,056 667,413,427 684,657,717 734,665,452 799,193,903 753,483,183 692,296,559 675,521,056 661,569,656 Transportation and Warehousing 1,204,127 3,473,820 1,308,585 1,281,763 1,253,647 1,183,415 1,251,568 1,246,300 1,036,483 1,246,547 Unknown 1,738,761 812,357 1,618,555 1,633,108 1,032,221 1,249,062 860,373 318,381 491,888 621,705 Utilities 587,892 945,172 470,300 419,820 349,874 -115,973 1,349,464 541,307 347,929 410,315 Wholesale Trade 53,992,471 55,923,920 60,505,731 55,771,629 56,900,436 66,306,761 67,553,891 45,478,266 51,243,480 51,315,756 Total $1,264,187,991 $ 1,243,453,779 $1,255,216,019 $1,365,317,769 $1,470,521,763 $ 1,546,744,447 $1,418,316,906 $1,252,340,615 1,261,243,993 1,271,741,256 City direct sale tax rate 0.085% Source: City of Federal Way Finance ASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY* Last Ten Fiscal Years Total City Percent Fiscal Personal State Public Direct Increase Year Real Property Property Service Property Total Tax Rate (Decrease) 2001 5,322,237,420 226,854,474 101,339,376 5,650,431,270 1.41 8.4% 2002 5,604,164,978 227,961,155 107,761,209 5,939,887,342 1.38 5.1% 2003 5,992,899,727 193,519,890 105,924,009 6,292,343,626 1.34 5.9% 2004 6,218,643,830 181,366,723 102,350,559 6,502,361,112 1.30 3.3% 2005 6,937,653,592 225,118,781 89,220,328 7,251,992,701 1.27 11.5% 2006 7,689,395,358 235,157,554 87,062,687 8,011,615,599 1.22 10.5% 2007 8,644,609,276 262,048,562 103,698,540 9,010,356,378 1.14 12.5% 2008 9,527,060,585 257,152,954 97,434,092 9,881,647,631 1.04 9.7% 2009 8,294,282,076 236,445,351 92,287,195 8,623,014,622 0.97 -12.7% 2010 7,948,924,766 228,247,721 91,163,299 8,268,335,786 1.13 -4.1% 2011 7,410,324,237 219,890,581 92,768,984 7,722,983,802 1.20 -6.6% * Real, personal, and state public service property has been assessed at 100% of the estimated value. Source: King County Assessor's Office. Note: These figures includes all final tax adjustments, omits and senior citizen exempted property. This total assessed value was reduced by senior citizen exemptions (no tax amounts) of $62,083,163 and prior year omits of $1,330,795 yielding a regular levy value of $7,659,569,844. These assessed valuations are the basis for the following year's tax levy. PROPERTY TAX RATES AND LEVIES, DIRECT AND OVERLAPPING GOVERNMENTS For the Last Ten Fiscal Years City Direct Rates* Overlapping Rates City of Federal Way Emergency Fiscal Federal School King Washington Green River Port of Fire District Medical Year Way District #210 County State Flood Zone Seattle #39 Library Services Total TAX RATES PER $1,000 OF ASSESSED VALUATION 2002 1.38 4.16 1.45 2.99 0.05 0.19 1.50 0.53 0.25 12.50 2003 1.34 4.28 1.35 2.90 0.05 0.26 1.50 0.54 0.24 12.46 2004 1.30 4.20 1.43 2.76 0.05 0.25 1.50 0.53 0.24 12.26 2005 1.27 4.30 1.38 2.69 0.05 0.25 1.50 0.53 0.23 12.21 2006 1.22 4.26 1.33 2.50 0.04 0.23 1.50 0.53 0.22 11.84 2007 1.14 4.19 1.29 2.33 0.04 0.23 1.50 0.50 0.21 11.42 2008 1.04 4.15 1.26 2.13 0.10 0.22 1.50 0.45 0.30 11.16 2009 0.97 4.20 1.15 1.96 0.09 0.20 1.50 0.42 0.27 10.76 2010 1.13 5.11 1.29 2.22 0.11 0.22 1.50 0.49 0.30 12.36 2011 1.20 5.36 1.34 2.28 0.11 0.22 1.39 0.57 0.30 12.77 DETAIL OF TAX RATES FOR 2011 Basic Rate 1.20 - 1.27 2.28 0.11 0.22 1.39 0.50 - 6.97 Voted Rate - 5.36 0.07 - - - - 0.07 0.30 5.80 TAX LEVIES 2002 7,764,913 33,552,460 304,062,327 627,772,703 799,554 39,806,235 11,061,131 64,373,926 52,497,313 1,141,690,562 2003 7,941,900 36,639,878 302,100,182 648,995,138 849,988 58,003,521 11,774,814 72,580,170 54,088,854 1,192,974,445 2004 8,117,874 38,051,680 335,853,716 647,490,235 873,826 59,657,092 12,467,237 74,860,405 55,704,127 1,233,076,192 2005 8,248,919 40,744,820 342,395,871 666,827,056 901,356 62,779,505 13,062,586 78,374,467 57,476,670 1,270,811,250 2006 8,800,989 43,672,564 357,240,140 672,185,668 922,666 62,785,749 14,108,124 85,715,008 59,154,623 1,304,585,531 2007 9,098,370 47,315,366 383,039,569 691,250,598 956,482 68,841,070 19,882,637 88,486,309 61,300,276 1,370,170,677 2008 9,300,030 52,730,549 428,433,792 723,908,902 33,945,830 75,908,664 22,288,360 91,371,026 101,861,635 1,539,748,788 2009 9,551,027 58,588,636 442,092,857 756,272,108 35,151,944 75,911,308 23,715,724 95,398,383 105,611,047 1,602,293,034 2010 9,690,241 61,404,973 438,349,236 756,411,197 35,783,324 73,504,599 20,409,747 97,015,693 102,103,088 1,594,672,098 2011 9,827,398 61,622,347 440,820,019 749,341,420 36,076,405 73,512,887 18,234,001 115,495,462 98,604,471 1,603,534,410 Source: King County Assessor's Office and King County Department of Finance. *The City of Federal Way's Direct Rate has only one component which is the expense levy PRINCIPAL TAXPAYERS Current Year and Ten Years Ago 2011 2002 % of Total % of Total Assessed Assessed Assessed Assessed Taxpayer Type of Business Valuation Rank Valuation Valuation Rank Valuation (A) Weyerhaeuser Lumber Products $120,022,792 1 1.57% $ 178,382,643 1 3.02% Puget Sound Energy-Elec/Gas Electric/Gas 52,071,616 2 0.68% 52,504,721 2 0.89% Steadfast Commons LLC Real Estate Management 51,489,701 3 0.67% 40,778,400 4 0.69% Harsch Investment Properties Real Estate Management 50,846,527 4 0.66% 30,403,100 5 0.51% LBA Realty Real Estate Management 33,305,500 5 0.43% - - - Qwest Corporation Inc. Communications/Telephone 27,597,020 6 0.36% - - - Forest Cove LLC Real Estate Management 25,876,000 7 0.34% - - - KNL Vision WA LLC (formerly BRE Properties) Real Estate Management 24,285,000 8 0.32% 16,141,000 10 0.27% Virginia Mason Medical Services 17,414,137 9 0.23% 14,399,353 12 0.24% Fred Meyer Retailer 16,963,100 10 0.22% 17,118,763 8 0.29% IA Orchard Hotels Federal Way (formerly Apple Hospitality Five Inc.) Hospitality 14,641,900 11 o 0.19 /o - - - Campus Business Parks LLC Real Estate Invest/Holding 12,474,100 12 0.16% 13,282,300 13 0.22% Costco Retailer / Wholesaler 12,191,200 13 0.16% 15,340,924 11 0.26% ANS LLC Retailer 12,002,700 14 0.16% - - - $471,181,293 6.15% $ 378,351,204 6.40% Source: King County Assessor's Office and King County Department of Finance. (A) 2002 assessed valuation for the City of Federal Way was $5,912,362,755 PROPERTY TAX LEVIES AND COLLECTIONS For the Last Ten Fiscal Years Collected within the Total Ratio of Taxes Levied Fiscal Year of the Levy Collections Total Collections to Date Outstanding Delinquent Fiscal for the Current Tax Percentage in Subsequent Total Tax Percentage Delinquent Taxes to Year Fiscal Year Amount of Levy Years Amount of Levy Taxes Total Tax Levy 2002 7,700,412 7,471,822 97.0% 228,470 7,700,292 100.0% 120 0.0% 2003 7,912,598 7,740,741 97.8% 171,565 7,912,306 100.0% 292 0.0% 2004 8,119,460 7,945,659 97.9% 173,435 8,119,094 100.0% 366 0.0% 2005 8,248,919 8,082,340 98.0% 162,202 8,244,542 99.9% 4,377 0.1% 2006 8,933,515 8,584,565 96.1% 347,410 8,931,975 100.0% 1,540 0.0% 2007 9,068,740 8,868,895 97.8% 196,962 9,065,857 100.0% 2,883 0.0% 2008 9,265,234 9,037,601 97.5% 185,130 9,222,731 99.5% 42,502 0.5% 2009 9,511,404 9,277,004 97.5% 172,687 9,449,691 99.4% 61,713 0.6% 2010 9,680,047 9,433,214 97.5% 139,340 9,572,554 98.9% 107,493 1.1% 2011 9,755,022 9,506,527 97.5% - 9,506,527 97.5% 248,494 2.5% Source: Most of data has been derived from the "Annual Tax Receivable Summary" prepared by the King County Finance RATIO OF OUTSTANDING DEBT BY TYPE For the Last Ten Fiscal Years Governmental Activities Fiscal General Obligation Certificates of Year Bonds Participation 2002 27,682,000 59,936 2003 34,710,026 20,490 2004 30,802,892 - 2005 27,701,761 - 2006 29,581,454 - 2007 19,605,000 - 2008 19,138,000 - 2009 29,212,950 - 2010 28,683,950 - 2011 28,157,950 - Business Type Activities Public Works Trust Fund Loan 2,668,907 2,486,548 2,304,189 2,121,830 1,939,471 1,757,112 1,574,753 1,392,394 1,210,035 1,027,676 Percentage Total Primary of Personal Government Income (b) Per Capita (b) 30,410,843 0.074% 363 37,217,064 0.060% 446 33,107,081 0.068% 386 29,823,591 0.075% 348 31,520,925 0.071% 364 21,362,112 0.122% 244 20,712,753 0.134% 235 30,605,344 0.090% 346 29,893,985 0.091% 337 29,185,626 0.091% 327 Source: City of Federal Way Finance Division Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. See Demographic Statistics schedule for personal income and population data. These ratios are calculated using personal income for the prior calendar year. (b) Per capita income information for the years 2002 to 2007 are based on 2000 U.S. Census report since this information is available for individual cities only every ten years when the census is done. 2008-2010 info for Federal Way is based on US Census Bureau, 2005-2009 American Community Survey five-year Estimates. RATIO OF NET GENERAL OBLIGATION BONDED DEBT TO ASSESSED VALUE AND NET GENERAL OBLIGATION BONDED DEBT PER CAPITA For the Last Ten Fiscal Years Ratio of Net (B) (C) Bonded Debt Net Bonded Fiscal (A) Assessed Gross Less Debt Net To Assessed Debt Per Year Population Value Bonded Debt Service Fund Bonded Debt Value Capita 2002 83,850 5,912,362,755 30,410,844 5,579,129 24,831,715 0.0042 296.14 2003 83,500 6,292,343,626 28,157,950 2,599,653 25,558,297 0.0041 306.09 2004 83,590 6,418,941,601 33,113,539 2,880,857 30,232,682 0.0047 361.68 2005 85,800 7,251,992,701 29,823,591 2,886,785 26,936,806 0.0037 313.95 2006 86,530 8,011,615,599 31,520,925 6,001,415 25,519,510 0.0032 294.92 2007 87,390 9,010,356,378 21,362,112 2,147,282 19,214,830 0.0021 219.87 2008 88,040 9,825,319,904 20,712,753 1,882,041 18,830,712 0.0019 213.89 2009 88,578 8,563,964,852 30,605,344 4,225,463 26,379,881 0.0031 297.82 2010 88,760 8,206,354,959 29,893,985 3,379,427 26,514,558 0.0032 298.72 2011 89,370 7,659,569,844 29,185,626 3,866,184 25,319,442 0.0033 283.31 (A) Sources: U.S. Census Bureau; State of Washington Office of Program Planning and Fiscal Management, Population Study Division; and the City of Federal Way Community Development Department. (B) The final certified Regular Levy assessed value of taxable property which was used by the King County Assessor's Office for use in calculating levy rates for the following year's tax roll. The total assessed valuation of $7,722,983,802 has been reduced by senior citizen exemptions of $62,083,163 and prior year omits of $1,330, to arrive at taxable assessed valuation. (C) Includes Public Works Trust Fund Loans issued in 1994, 1996, 1997, and 2000; general obligation bonds issued in 2000, 2003 and 2009. Federal Wav / 109 COMPUTATION OF DIRECT AND OVERLAPPING DEBT December 31, 2011 Jurisdiction King County Port of Seattle Federal Way School District #210 Library Total Overlapping Debt CITY OF FEDERAL WAY (A) (B) Gross General Percentage Amount Obligation Debt Applicable to Applicable to Outstanding Federal Way Federal Way $ 1,189,992,489 2.42% $ 28,768,127 336,120,000 2.42% 8,125,717 191,672,024 70.96% 136,009,147 123,620,000 3.71% 4,592,117 1,841,404,513 177,495,109 28,157,950 (C; 100.00% 28,157,950 Total Direct and Overlapping Debt $ 1,869,5629463 $ 205,653,059 (A) Total general obligation bonds outstanding at the year end, exclusive of refunded bonds. Source is King County Department of Finance. (B) Determined by ratio of assessed valuation of property subject to taxation in overlapping unit to valuation of property subject to taxation in reporting unit. (C) Includes general obligation bonds issued in 2000, 2003 and 2009. Source is City of Federal Way Finance Federal Wav / 110 COMPUTATION OF LIMITATION OF INDEBTEDNESS December 31, 2011 General Debt Capacity Excess Levy Excess Levy (Limited) (Unlimited) Open Space Utility Total Debt DESCRIPTION Councilmanic Excess Levy and Park Purposes Capacity Statutory debt limit: (2011 AV47,722,983,802) (A) 1.50%AV @ 100% $ 115,844,757 $ (115,844,757) $ -- 2.50% AV @ 100% - 193,074,595 193,074,595 193,074,595 579,223,785 Add: Cash on hand for debt redemption (B) 7,193,006 - - - 7,193,006 Less: Bonds and COPS outstanding (28,157,950) - - - (28,157,950) Remaining Debt Capacity $ 94,879,813 $ 77,229,838 $ 193,074,595 $ 193,074,595 $ 558,258,841 Total Remaining "General" Capacity $172,109,651 (A) This figure represents the City's final total taxable assessed valuation (AV) for 2011 which was used to determine the 2012 property tax levy. (B) Reflects ending fund balance in the Debt Service Fund and Utility Tax Fund as of December 31, 2011. (C) Combined total for Councilmanic, Financing Lease, and Excess Levy capacities. Total net debt Total net debt applicable to applicable Legal debt the limit as a Fiscal Year Debt limit to limit margin % of debt limit 2002 443,427,207 (14,289,859) 429,137,348 3.22% 2003 469,715,580 (31,327,803) 438,387,777 6.67% 2004 471,925,773 (26,881,086) 445,044,687 5.70% 2005 487,677,084 (23,478,555) 464,198,529 4.81% 2006 543,899,454 (21,459,145) 522,440,309 4.32% 2007 600,871,170 (12,012,597) 588,858,573 3.91% 2008 736,889,175 (11,615,105) 725,274,070 1.58% 2009 741,123,572 (22,913,431) 718,210,141 3.09% 2010 615,476,622 (22,291,874) 593,184,748 3.62% 2011 579,223,785 (20,964,944) 558,258,841 3.62% Source: City of Federal Way Finance (A) King County Department of Finance Note: Under state finance law, the city's outstanding general obligation debt should not exceed 15 percent of total assessor's property value. By law, the general obligation debt subject to the limitation may be offset by amounts set aside for repaying general obligation bonds. RATIO OF ANNUAL DEBT SERVICE EXPENDITURES FOR GENERAL OBLIGATION BONDED DEBT TO TOTAL GENERAL GOVERNMENTAL EXPENDITURES NET OF DEBT SERVICE EXPENSE Ratio of Debt Service Total General to General Fiscal Total Debt Governmental Governmental Year Principal Interest * Service Expenditures Expenditures 2002 2,834,084 1,651,197 4,485,281 36,819,618 12.2% 2003 14,159,881 1,703,165 15,863,046 50,550,741 31.4% 2004 3,080,677 1,796,791 4,877,468 40,610,863 12.0% 2005 3,100,546 1,531,364 4,631,910 40,108,790 11.5% 2006 2,219,676 1,418,843 3,638,519 41,086,555 8.9% 2007 9,976,455 1,153,300 11,129,755 56,186,140 19.8% 2008 467,000 841,542 1,308,542 51,278,215 2.6% 2009 4,585,000 824,693 5,409,693 54,585,436 9.9% 2010 525,000 629,419 1,154,419 50,093,838 2.3% 2011 526,000 622,903 1,148,903 49,482,421 2.3% Source: City of Federal Way Finance Note: * Interest excludes bond issuance and debt registration costs. DEMOGRAPHIC STATISTICS Education Personal Level in Years Fiscal Income Per Capita Median of Formal School Unemployment Year Population Sea-Tac-Bel [D] Income [C] Age [C] Schooling Enrollment (A) Rate (B) 2002 83,850 119,343,435,000 22,451 32.5 13.0 22,194 7.3% 2003 83,500 121,624,885,000 22,451 32.5 13.0 22,265 7.4% 2004 83,590 133,156,997,000 22,451 32.5 13.0 22,395 6.2% 2005 85,800 136,859,162,000 22,451 32.5 13.0 22,383 5.0% 2006 86,530 149,858,462,000 22,451 32.5 13.0 22,184 4.5% 2007 87,390 162,934,794,000 26,137 37.2 13.0 21,775 4.1% 2008 88,040 169,798,086,000 27,730 37.0 13.0 21,622 5.1% 2009 88,578 171,680,771,000 27,638 36.6 13.0 21,700 8.9% 2010 88,760 176,084,963,000 27,307 35.1 13.0 21,630 9.7% 2011 89,370 N/A 26,668 35.2 13.0 21,608 8.2%* (A) Includes public school enrollment. Kindergarten is included though not State mandated. (B) Unemployment rates came from the US Department of Labor, Bureau of Labor Statistics. *Rate is preliminary as of April 16, 2012. (C) Per capita income and Median age information for the years 2002 to 2006 are based on 2000 U.S. Census report since this information is available for individual cities only every ten years when the census is done. 2007 info for Federal Way is based on 2006 US Census American Community Survey. 2008-2010 info for Federal Way is based on 2005-2009 American Community Survey five-year Estimates. 2011 info for Federal Way is based on 2006-2010 American Community Survey five-year Estimates. (D) Personal income information is for Seattle -Tacoma -Bellevue area provided by the Bureau of Economic Analysis, information is not available for Federal Way. 2011 data for Personal Income was not available at the time of publication. Sources: Data was obtained from U. S. Census Bureau US Department of Labor, Bureau of Labor Statistics US Department of Commerce, Bureau of Economic Analysis School data was provided by the Federal Way School District. PRINCIPAL EMPLOYERS Current Year and Ten Years Ago 2011 2002 Number of % of Total City Number of % of Total City Taxpayer Type of Business Employees Rank Employment Employees Rank Employment Federal Way Public Schools Educational Services 1,951 1 6.74% 2,885 1 9.90% Weyerhaeuser Company Lumber Products 1,263 2 4.36% 1,258 2 4.32% Lifebridge Inc Business Services 1210 3 4.18% - - - St Francis Hospital Medical Services 875 4 3.02% 744 3 2.55% World Vision Inc Christian Relief Agency-Nonprofi 852 5 2.94% 663 5 2.28% Wild Waves Theme Park Amusement Center 632 6 2.18% 734 4 2.52% Us Postal Service - Bulk Mail Postal Service 616 7 2.13% 572 6 1.96% City Of Federal Way Government Services 476 8 1.64% 440 7 1.51% Wal-Mart Supercenter #3794 Retail 386 9 1.33% 225 11 0.77% Virginia Mason Federal Way Medical Services 235 10 0.81% 235 10 0.81% Fred Meyer Retail 220 11 0.76% 214 14 0.73% Costco Wholesale Corporation Wholesale 214 12 0.74% 251 8 0.86% Wal-Mart Store #2571 Retail 183 13 0.63% - - - Target Store #1947 Retail 178 14 0.62% 130 29 0.45% Devry University Educational Services 167 15 0.58% - - - Source: City of Federal Way Business License Note: Principal Employers - includes both full-time and part-time employees. PROPERTY VALUE AND CONSTRUCTION Commercial Construction (A) Residential Construction (A) Multi -Family Construction (A) Value Value Value Year Permits (In Thousands) Permits (In Thousands) Permits (In Thousands) 2002 393 59,075 318 38,176 1 - 2003 240 25,695 290 37,775 1 1,042 2004 335 64,522 289 82,658 0 - 2005 289 124,985 591 111,504 0 - 2006 332 78,194 455 70,862 1 2,027 2007 370 59,666 388 55,321 33 11,487 2008 256 45,810 258 17,554 91 26,025 2009 132 45,343 275 13,057 76 20,802 2010 149 31,043 321 19,676 75 2,686 2011 134 12,744 301 19,454 47 846 Sources & Notes: (A) Federal Way Community Development Department. Commercial construction includes alterations. Other building -related permits (plumbing, mechanical, fire alarm, etc.) numbering 2,385 and valued at $6,229,017 have been excluded. Transportation Street (Center Line Miles) Signals WSDOT-owned and maintained Signals City -owned & County -maintained Street lights City -owned and maintained Street lights City -owned and PSE-maintains Street lights PSE-owned and maintained Culture & Recreation Developed Parks - Acreage Developed Parks - # of Parks Undeveloped Parks - Acreage Undeveloped Parks - # of Parks Tennis Courts City -Owned Tennis Courts - Public Swimming Pools City -Owned Swimming Pools County -Owned Trails - Miles Trails - # of Trails Community Centers/Recreation Facilities CAPITAL ASSETS BY FUNCTION Last Ten Fiscal Years 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 224.48 224.48 224.48 230.84 233.84 233.84 234.72 234.72 242.90 248.23 4 4 4 4 5 5 5 5 5 5 67 70 71 71 74 74 76 76 76 76 810 1,038 1,050 1,050 1,214 1,214 1,463 1,467 1,509 1,554 - 644 644 644 644 644 644 644 644 644 2,850 1,975 1,975 1,975 1,975 1,975 1,975 1,975 1,975 1,975 493.5 500.25 500.25 522.9 522.9 524.49 524.49 524.49 524.49 524.49 28 31 32 32 32 32 32 32 32 32 352 356.24 356.24 543.5 543.5 543.46 551.12 551.12 551.12 551.12 20 21 21 21 21 21 22 22 22 22 9 9 9 11 11 11 11 11 11 11 10 10 16 22 22 22 22 22 22 22 0 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 4 4 4 6 6 6 6 6 6 6 2 2 2 2 2 2 3 3 3 3 2 2 2 2 2 2 1 1 1 1 Source: City of Federal Way Public Works and Parks Department OPERATING INDICATORS BY FUNCTION Last Ten Fiscal Years 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 SECURITY OF PERSONS & PROPERTY Police Information Offenses: Forcible Rape (including attempts) 34 50 50 55 64 48 30 51 50 38 Robbery 108 125 121 153 146 129 170 198 152 119 Criminal Homicide 4 2 - 7 1 3 10 5 5 4 Aggravated Assault 120 120 109 101 120 107 115 115 118 99 Vehicle Theft 1,206 1,204 1,118 1,573 1,199 939 816 561 741 694 Burglary (commercial & residential) 677 672 759 800 753 739 800 741 828 752 Larceny 3,347 3,145 3,257 3,786 3,230 3,159 2,933 3,231 3,141 3,067 Arson 29 14 23 25 26 18 13 13 11 11 Citations: Traffic 13,439 18,411 13,219 11,402 11,931 14,043 19,339 20,678 18,094 17,226 Red Light Photo - - - - - - 3,813 13,002 25,691 15,340 ECONOMIC ENVIRONMENT Building Related Permits & Values Building Permits 712 531 624 880 788 791 605 483 545 482 Estimated Value (In Millions $) 97.3 S64.5 147.2 $236.5 $151.1 $126.5 $89.4 $79.2 $53.4 $33.0 Other Building Related Permits 2024 1779 1958 2705 2550 2690 2370 2209 2423 2385 Estimated Value (In Millions $) $2.5 $ 2.4 $ 2.5 $ 3.9 $ 4.2 $ 5.5 $ 7.0 $ 5.6 $ 5.9 $ 6.2 Source: City of Federal Way Police Department and Community Development Department Note: 2009 Police Information has been updated from 2009 report due to new/further information. Federal Wav / 117 CITY GOVERNMENT EMPLOYEES FULL-TIME EQUIVALENT - HISTORY Department 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Mayor's Office 6.00 6.00 6.00 6.00 6.00 10.00 9.75 7.63 7.63 5.00 Administration 5.00 5.00 5.00 5.00 5.00 5.50 5.25 3.13 3.13 4.00 Economic Development 1.00 1.00 1.00 1.00 1.00 1.50 1.50 1.50 1.50 - Government Affairs - - - - - 3.00 3.00 3.00 3.00 - Human Services - - - - - - - - - 1.00 City Council 3.50 3.50 3.50 3.50 3.50 3.50 3.50 3.50 4.50 4.50 Municipal Court 13.55 13.55 12.55 12.55 12.55 14.00 14.00 13.00 13.00 13.00 Human Resources 7.00 6.50 6.50 5.00 5.00 5.00 5.25 5.25 5.25 4.50 City Clerk 2.50 2.00 2.00 1.50 1.50 1.50 1.75 1.75 1.75 1.75 Human Resources 4.50 4.50 4.50 3.50 3.50 3.50 3.50 3.50 3.50 2.75 Finance 8.50 9.50 9.50 8.50 8.50 9.50 8.00 7.60 7.60 7.00 Administration 1.50 1.50 1.50 1.50 1.50 1.50 - - - - Finance 7.00 8.00 8.00 7.00 7.00 8.00 8.00 7.60 7.60 7.00 Information System 9.00 9.00 9.00 8.50 8.50 10.60 10.60 10.00 9.60 7.00 Law 11.00 10.38 10.60 10.60 10.60 13.00 13.00 12.00 12.00 11.00 Civil Legal Services 5.05 5.80 5.80 5.80 5.80 5.80 5.80 4.80 4.80 4.80 Criminal Prosecution Services 5.95 4.58 4.80 4.80 4.80 7.20 7.20 7.20 7.20 6.20 Community & Econ Developmeu 28.55 29.60 29.60 28.70 28.70 30.49 32.00 30.00 28.90 19.00 Administration 4.50 4.50 4.50 4.50 4.50 4.50 4.50 5.00 5.00 3.50 Planning 8.80 8.80 8.80 8.80 8.80 8.75 8.75 8.00 7.00 6.00 Building 11.25 12.30 12.30 12.30 12.30 13.25 14.25 13.00 13.00 9.00 Human Services 3.00 3.00 3.00 2.50 2.50 3.00 3.50 3.00 3.00 - Neighborhood Development 1.00 1.00 1.00 0.70 0.70 1.00 1.00 1.00 0.90 - Economic Development - - - - - - - - - 0.50 Police 151.00 155.00 155.00 152.00 155.00 169.00 169.00 164.00 161.00 135.00 Administration 2.00 2.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 Support Services 59.00 55.00 54.00 53.00 55.00 61.00 61.00 61.00 58.00 51.00 Field Operations 90.00 98.00 98.00 96.00 97.00 105.00 105.00 100.00 100.00 81.00 Parks, Rec. & Cultural Svcs. 27.00 30.40 30.40 30.20 31.20 44.25 44.25 39.75 39.75 36.45 Administration 2.00 1.80 1.80 1.80 1.80 1.80 2.80 1.35 1.35 1.35 Planning 1.00 1.00 1.00 1.00 1.00 1.00 - - - - Kenneth Jones Pool - 3.00 3.00 3.00 3.00 - - - - - General Recreation 6.50 6.60 6.60 6.60 6.60 7.10 7.10 4.80 4.80 5.50 Community Center - - - - - 12.35 12.35 13.35 13.35 13.35 Dumas Bay Centre 2.00 2.00 2.00 2.00 3.00 3.00 2.75 2.75 2.75 2.75 Knutzen Family Theatre 1.00 1.50 1.50 1.50 1.50 1.50 1.75 - - - Parks Maintenance 14.00 14.00 14.00 13.80 13.80 17.00 17.00 17.00 17.00 13.00 Building 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 Public Works 38.50 41.50 41.60 41.60 42.60 44.00 44.00 42.95 41.95 38.95 Administration 2.10 2.10 2.10 2.10 1.90 1.85 1.85 2.35 2.35 2.25 Development Services 6.45 6.45 5.80 5.80 6.50 6.45 6.45 4.45 4.45 4.20 Traffic Services 4.10 5.10 5.10 5.10 5.10 6.10 6.10 6.10 5.10 2.35 Street Services 10.00 11.00 11.70 11.70 11.00 11.50 11.00 10.50 10.50 10.60 Emergency Management - - - - 1.00 1.00 1.00 1.00 1.00 1.00 Solid Waste & Recycling 1.60 1.60 1.60 1.60 1.70 1.70 1.70 1.70 1.70 1.70 Surface Water Management 14.25 15.25 15.30 15.30 15.40 15.40 15.40 16.35 16.35 16.35 Fleet & Equipment - - - - - - 0.50 0.50 0.50 0.50 Total 303.60 314.93 314.25 307.15 312.15 353.34 353.35 335.68 331.18 281.40 Source: City of Federal Way Finance Division Federal Wav / 118 MAYOR DEPUTY MAYOR COUNCIL MEMBERS SALARIES AND SURETY BONDS OF PRINCIPAL OFFICIALS DECEMBER 31, 2011 POSITION POSITION CITY ATTORNEY CITY CLERK COMMUNITY & ECONOMIC DEVELOPMENT DIRECTOR FINANCE DIRECTOR ADMINISTRATIVE SERVICES DIRECTOR PARKS AND PUBLIC WORKS DIRECTOR POLICE CHIEF Source: City of Federal Way Finance Division LEGISLATIVE BODY EMPLOYEE ANNUAL SALARY SKIP PRIEST $112,800 DINI DUCLOS $13,800 JIM FERRELL $13,800 LINDA KOCHMAR $13,800 MICHAEL PARK $13,800 JEANNE BURBIDGE $13,800 JACK DOVEY $13,800 ROGER FREEMAN $13,800 ADMINISTRATIVE STAFF EMPLOYEE ANNUAL SALARY PAT RICHARDSON $134,484 CAROL MCNEILLY $77,664 PATRICK DOHERTY $115,680 THO KRAUS $121,848 BRYANT ENGE $141,036 CARY M. ROE $141,036 BRIAN J. WILSON $135,384 NOTE: In accordance with State of Washington legal statues, individual fidelity coverage of not less than $100,000 exists for the Mayor, City Attorney, Community & Economic Development Director, Finance Director, Administrative Services Director, Parks and Public Works Director, and Police Chief. MISCELLANEOUS STATISTICAL INFORMATION LOCAL TAXES ON BUSINESSES Franchise Tax - Cable TV ............................. 5.00% Gambling Taxes: Bingo/Raffles.................................... 5.00% Amusement/Game s ............................. 2.00% Punchboard/Pull Tabs .......................... 3.00% Cardrooms....................................... 10.00% Local Sales Tax (Collected by the State)............ 9.50% Food & Beverage Tax (Collected by the State).... 0.50% FIRE AND EMERGENCY MEDICAL RESPONSE INFORMATION Fire and Emergency Medical Response information reflects the greater Federal Way area, which is served by South King Fire & Rescue. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Fire and Other Responses 3,055 3,117 2,896 3,210 865 639 1,083 1,147 1,041 934 Emergency Medical 7,422 8,042 8,263 8,636 11,164 11,350 12,058 11,077 11,460 11,914 PUBLIC EDUCATION 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 23 Elementary Schools 11,990 9,854 9,916 9,806 9,733 9,612 9,594 9,594 9,560 9,673 9 Middle Schools (incl. Public Academy) 5,509 5,458 5,476 5,271 5,183 5,139 5,234 5,203 5,235 5,205 5 High Schools 4,316 6,625 6,650 7,004 6,954 6,720 6,531 6,637 6,547 6,409 1 Internet Academy (K-12) 379 328 353 302 314 304 263 266 288 321 22,194 22,265 22,395 22,383 22,184 21,775 21,622 21,700 21,630 21,608 2,700 Staff members TAXABLE SALES (in millions) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Retail Sales $1,298 $1,237 $1,239 $1,331 $1,471 $1,540 $1,458 $1,257 $1,261 $1,277 Real Estate Sales $503 $570 $616 $939 $988 $963 $536 $208 $238 $315