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2012 Annual Comprehensive Financial Report (12-001)ik, MENNEN-.. L-j 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. CITY of Federal Way 2012 COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended December 31, 2012 City of Federal Way 33325 8th Avenue South Federal Way, Washington 98003 (253) 835-2520 www.ciiyoffederalwqy.com Prepared by the Finance Department Finance Director Tho Kraus 4ik CITY OF '0'::tS:p Federal Way It"s all within reach THIS PAGE IS LEFT INTENTIONALLY BLANK COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended December 31, 2012 Table of Contents Page INTRODUCTORY SECTION Letterof Transmittal................................................................................................................................... City Officials and Administrative Officers............................................................................................... City Functional Organization Chart ............................................................................................................ GFOA Certificate of Achievement............................................................................................................. FINANCIAL SECTION IndependentAuditor's Report .................................................................................................................... 8 Management's Discussion and Analysis.................................................................................................... 11 Basic Financial Statements: Government -wide Financial Statements: Statement of Net Position....................................................................................................... 24 Statementof Activities........................................................................................................... 25 Fund Financial Statements: Balance Sheet — Governmental Funds.................................................................................... 26 Statement of Revenues, Expenditures, and Changes in Fund Balances — Governmental Funds......................................................................................................... 28 Reconciliation of the Statement of Revenues, Expenditures, and Change In Fund Balances of Governmental Funds to the Statement of Activities ........................ 30 Statement of Revenues, Expenditures, and Changes in Fund Balances — Budget and Actual GeneralFund................................................................................................................... 31 StreetFund....................................................................................................................... 32 UtilityTax Fund............................................................................................................... 33 Statement of Net Position — Proprietary Funds................................................................................ 34 Statement of Revenues, Expenses and Changes in Fund Net Position — Proprietary Funds ... 35 Statement of Cash Flows — Proprietary Funds........................................................................ 36 Notes to the Basic Financial Statements.......................................................................................... 37 Combining and Individual Fund Statements and Schedules—Nonmajor Governmental Funds: FundDescription.............................................................................................................................. 71 CombiningBalance Sheet................................................................................................................ 73 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ......................... 77 Statement of Revenues, Expenditures, and Changes in Fund Balances — Budget and Actual ArterialStreet Fund.......................................................................................................... 81 Solid Waste & Recycling Fund........................................................................................ 82 Hotel/Motel Lodging Tax Fund....................................................................................... 83 Federal Way Community Center Fund............................................................................ 84 TrafficSafety Fund.......................................................................................................... 85 Paths& Trails Fund......................................................................................................... 86 Individual Fund Statements and Schedules — Debt Service Fund: FundDescription.............................................................................................................................. 87 BalanceSheet.................................................................................................................................. 88 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual ............. 89 Combining and Individual Fund Statements and Schedules — Internal Service Funds: FundDescription.............................................................................................................................. 91 Combining Statement of Net Position............................................................................................... 92 Combining Statement of Revenues, Expenses and Changes in Fund Net Position .......................... 93 Combining Statement of Cash Flows................................................................................................ 94 Capital Assets Used in the Operation of Governmental Funds: Comparative Schedules by Source................................................................................................... 98 Schedule by Function and Activity .................................................................................................. 99 Schedule of Changes by Function and Activity .............................................................................. 100 STATISTICAL SECTION NetPosition by Component................................................................................................................... 102 Changesin Net Position......................................................................................................................... 103 Government -wide Revenues by Source and Expenditures by Function ................................................ 104 Fund Balances, Governmental Funds.................................................................................................... 105 Changes in Fund Balances, Governmental Funds.................................................................................. 106 TaxableSales by Category .................................................................................................................... 107 Assessed and Estimated Actual Value of Taxable Property .................................................................. 108 Property Rates and Levies, Direct and Overlapping Governments........................................................ 109 PrincipalTaxpayers............................................................................................................................... 110 Property Tax Levies and Collections..................................................................................................... III Ratio of Outstanding Debt by Type....................................................................................................... 112 Ratio of General Obligation Bonded Debt to Assessed Value and Net General Obligation Bonded Debt Per Capita.............................................................. 113 Computation of Direct and Overlapping Debt....................................................................................... 114 Computation of Limitation of Indebtedness........................................................................................... 115 Ratio of Annual Debt Service Expenditures for General Obligation Bonded Debt to Total General Governmental Expenditures Net of Debt Service Expense ........................ 116 DemographicStatistics.......................................................................................................................... 117 PrincipalEmployers.............................................................................................................................. 118 Property Value, Construction and Bank Deposits.................................................................................. 119 CapitalAssets by Function.................................................................................................................... 120 Operating Indicators by Function.......................................................................................................... 121 City Government Employees Full -Time Equivalent - History ............................................................... 122 Salaries & Surety Bonds of Principal Officials...................................................................................... 123 Miscellaneous Statistical Information.................................................................................................... 124 ii City of Federal Way 2012 CAFR Letter of Transmittal Ak CITY OF Federal Way June 26, 2013 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, 2012 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. ECONOMIC FACTORS AFFECTING FINANCIAL CONDITION The Great Recession, as agreed upon by most economists ended during 2010. Most economic indicators during 2012 were still below the pre -Great Recession levels. Consumers have lost more ground since the recession ended; groups hit harder than average include young people. The housing market saw slight improvements due to rise in personal income and confidence and decline in mortgage interest rate. City of Federal Way 2012 CAFR Letter of Transmittal During 2012, the economy has continued to recover from the Great Recession but at a slower pace than expected. We saw slight improvements in the unemployment rate but still well above the pre -Great Recession level. Meanwhile, inflation overall has been subdued although we have seen price of crude oil fluctuating and farm prices brought on by the summers' drought. Consumer price inflation, as measured by personal consumption expenditures price index has averaged by exactly 2 percent since the end of the Great Recession. The stock market, as measured by the Dow Jones Industrial average, S&P 500, and NASDAQ finished 2012 on a positive note at 7%, 13%, and 16%, respectively. Nationally, the U.S. Bureau of Economic Analysis (BEA) indicates Gross Domestic Product (GDP) increased at an annualized rate of 2.2% in 2012 versus an annualized rate of 1.8% in 2011. This increase was anchored by personal consumer spending, construction, and exports partly offset by decreased spending by federal, state, and local government. Seattle -Tacoma -Bellevue annual unemployment rated 7.4%, as measured by the Bureau of Labor Statics, and is down from the peak of 9.7%. 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. During 2012 King County saw an increase in short sales by 53% versus 12% for 2011. Short sales are an alternative to foreclosure whereas in foreclosure, the bank takes possession of the home and creates an increase number of unoccupied homes for sale. Bank -owned property sales accounted for 14% of all sales in King County during 2012, down from 23% in 2011. ECONOMIC TRENDS Federal Way is the eleventh largest city, in Washington State with a population of 89,460 as of April 1, 2012. 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 2012, there were 35,493 housing units in Federal Way, an increase of less than 1% over 2011. 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 2012 is estimated at 32,741. Major employers are; Federal Way Public Schools, Xerox Commercial Services, Weyerhaeuser, St. Francis Community Hospital, World Vision, and U.S. Postal Services. Sales tax collected in 2012 total $10.5 million, and is below 2011 by $324 thousand. The retail sector of the local economy is anchored by the following areas; the first is South 348th 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 54%; services 22%; construction 8%; wholesale trade 4%; information 5%, manufacturing 1%, and other 6%. In 2012, new construction assessed value totaled $20.9 million or approximately 0.3% of the City's 2012 assessed valuation. The total assessed value of property in Federal Way was $7.1 billion, which is approximately 7% lower than the 2011 assessed valuation of $7.7 billion. Real Estate sales decreased 3% to approximately $304 million in 2012 as compared to $314 million in 2011. A total of 598 building permits and 2,960 other building related permits were issued in 2012. Estimated market value was $58.0 million and $5.4 million respectively. Significant building permits include: Wild Buffalo Wings, DaVita, Northlake Rim, Wynstone, King County Library System, and Federal Way Public Schools City of Federal Way 2012 CAFR Letter of Transmittal 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 During 2012, the City of Federal Way completed two major transportation infrastructure projects; the first phase of the Triangle Intersection Improvement Project and the Pacific Highway improvements between S. 304th and Dsh Pt. Road. To date, Pacific Highway retrofits cost $80 million. Starting with detailed designs enabled the City to build the most expensive — and most valuable — infrastructure project in our history, with the City's $11 million leveraged by $69 million in outside funding. During last December discussions on the 2013-2014 budgets, the Council and Mayor agreed to fund two additional officers. We currently have 125 officers authorized, which put the City of Federal Way at 1.4 officers per thousand - a comparable per capita figure to surrounding cities. With limited resources, though, the Federal Way Police Department has also found new ways to fight crime and has led the way in innovative policing strategies. First off, Chief Wilson reorganized the department last year, reducing management and increasing the number of officers on the street. The City created a Home Burglary Emphasis team that has caught several of the high -volume burglars that were responsible for a large number of thefts. The City also expanded the successful SafeCity program to neighborhoods, testing a pilot program that uses web -based tools to increase communications between officers and neighbors. With respect to the retail sector, we have seen growth. The Commons is adding a major retailer, Kohl's. Buffalo Wild Wings, The Ram, Mooyah Burgers, Hobby Lobby, Home Goods are some of the major new retailers and restaurants that have joined our community. In addition to the Toys "R" Us property located at 31510 20th Avenue South, there is a proposal with private investment to develop a Performing Arts & Conference Center and hotel. Next to the Toys R Us site, AMC site, we are proposing building an urban park on about half the 4 acres and partnering with a developer to develop the remainder of the site with high quality mixed uses, retail and office, possible residential. The City successfully transitioned from the King County Consortium to a fully staffed and managed Community Development Block Grant entitlement program. Some of the advantages of a direct entitlement community include: more dollars allocated to directly for the City's grant administration and planning; more dollars allocated to public service programs; and the City may award as many Community Economic Revitalization Funding (CERF) grants as it deems appropriate. Overall, the benefits are more control of and greater grant funds retained by the City. OUTLOOK FOR THE FUTURE Council identified the following set of goals for the City which was adopted on March 7, 2006. 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. City of Federal Way 2012 CAFR Letter of Transmittal 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. 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 2012 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 2012; which is the 19`h 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, 2011. The City of Federal Way has received a Certificate of Achievement for the last twenty-two years (fiscal years ended 1990 — 2011). 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 4its 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 department. 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, Tho Kraus Finance Director 4 CITY OFFICIALS SKIP PRIEST JIM FERRELL LINDA KOCHMAR Mayor Deputy Mayor Councilmember SUSAN HONDA Councilmember JEANNE BURBIDGE BOB CELSKI ROGER FREEMAN DINI DUCLOS Councilmember Councilmember Councilmember Councilmember OTHER ADMINISTRATIVE OFFICERS FinanceDirector...................................................................................................................................................Tho Kraus CityAttorney......................................................................................................................................... Patricia Richardson CityClerk.....................................................................................................................................................Carol McNeilly Community and Economic Development Director..................................................................................... Patrick Doherty Parks and Public Works Director..................................................................................................................... Cary M. Roe PoliceChief..................................................................................................................................................Brian J. Wilson 5 CITY OF FEDERAL WAY ORGANIZATION CHART AND OPERATION SUMMARY Municipal Court Misdemeanors & Gross Misdemeanors Traffic /Non -traffic Infractions Probation Services Civil Impounds Finance * Payroll * Accounts Payable * Purchasing * Accounts Receivable * Business License * General Accounting * Budget * Banking and Investments * Monthly Financial Report * Audit Coordination * Internal Controls * Financial Planning/Analysis Law * Civil Legal Services and Litigation * Legislative support * Prosecution * Provide Legal Counsel * Draft/Review Contracts & Ordinances * Negotiate Contracts and Real Estate Transactions * Risk Management Human Resources * 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 MAYOR'S OFFICE Administer City-wide Operations and Budget Coordinate Regional Affairs Information Technology * Data Processing/ GIS * Copier Maintenace * Systems Support Technology Infrastructure Network appliances * Customer Support Online, Remote Helpdesk Staff training * Applications Support Business Systems Database Administration Police * Crime Analysis/Prevention * Traffic Safety Education & Enforcement * Investigation * Patrol * Emergency Communication * Community Safety and Education Programs * Fleet Management * Animal Services City Council * Represent the People of Federal Way * Adopt Ordinances & Resolutions * Grant Franchises * Levy Taxes * Appropriate Funds * Establish Policv Guidelines Community & Economic Development Economic Development Land Use Management --Permit process --Legislative Bldg Permits & Inspections Code Compliance Human Services Comm. Dev. Block Grant Neighborhood Develop Parks & Public Works 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 Knutzen Family Theatre Open Space Management 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, 2011 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. �9:'e ITRID srAs AND ca uA �► GOAP4RATION President r / Executive Director City of Federal Way 2012 CAFR Independent Auditor's Report Washington Troy INDEPENDENT AUDITOR'S REPORT June 26, 2013 Mayor and City Council City of Federal Way Federal Way, Washington State Auditor Kelley REPORT ON FINANCIAL STATEMENTS 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, 2012, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the Insurance Building, P.O. Box 40021 • Olympia, Washington 98504-0021 • (360) 902-0370 • TDD Relay (800) 833-6388 8 City of Federal Way 2012 CAFR Independent Auditor's Report appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinion 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, 2012, 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 accordance with accounting principles generally accepted in the United States of America. Matters of Emphasis As described in Note 16, during the year ended December 31, 2012, the City has implemented the Governmental Accounting Standards Board Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position and Statement No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 11 through 21 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements as a whole. The accompanying information listed as Combining and Individual Fund Statements and Schedules and Capital Assets Used in the Operation of Governmental Funds on pages 71 through 100 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 City of Federal Way 2012 CAFR Independent Auditor's Report 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. OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we will also issue our report dated June 26, 2013, 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control over financial reporting and compliance. Sincerely, -\>\/, AAj� TROY KELLEY STATE AUDITOR 10 City of Federal Way 2012 CAFR Management's Discussion and Analysis 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, 2012. 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, 2012 by $594.7 million. Capital Assets (net of depreciation and related debt) account for 88% of this amount with a value of $520.9 million. Of the remaining net assets of $73.9 million or 12%, $51.0 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 $6.7 million, or 1% compared to 2011. Governmental activities increased by $5.9 million while business -type activities decreased by $805 thousand. • Net investment in capital assets and unrestricted net assets for governmental activities increased by $523 thousand and unrestricted net assets increased by $6.4 million respectively compared to 2011. • Restricted Net Assets decreased by $1.1 million or 5% is mainly for funding of capital projects. • Governmental fund balances at year-end were $48.8 million, $5.2 million or 12% increase over the prior year. Of this amount, a total of $14.8 million, or 30% of the governmental fund balance is unrestricted and available to fund ongoing activities. The remaining $34 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 $14.8 million, which increased by $2.4 million or 19% from the prior year. • The City debt decreased by $775 thousand during the current fiscal year. General obligation debt decreased by $579 thousand while public works trust fund loan decreased by $196 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 Position, 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 position 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. 11 City of Federal Way 2012 CAFR Management's Discussion and Analysis 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 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. 12 City of Federal Way 2012 CAFR Management's Discussion and Analysis 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. 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 This section provides analysis of the government -wide financial statements including long-term and short-term information about the City's overall financial condition. The following tables address the financial results of the City as a whole. CONDENSED STATEMENT OFNEI' POSMON As of December 31, 2012 and 2011 Governmental Activities Business -Type Activities Total 2012 2011 2012 2011 2012 2011 Current and other assets $ 87,471,044 $ 83,596,160 $ 6,432,446 $ 6,033,543 $ 93,903,490 $ 89,629,703 Capital assets and CIP, net ofaccuxn depreciation 482,907,776 482,724,905 51,126,195 51,080,562 534,033,970 533,805,467 Total assets 570,378,820 566,321,065 57,558,641 57,114,105 627,937,460 623,435,170 Long-term liabilities 29,119,984 29,731,230 912,383 1,106,377 30,032,367 30,837,607 Other liabilities 2,466,661 3,623,572 75,403 87,914 2,542,064 3,711,486 Total liabilities 31,586,645 33,354,802 987,786 1,194,291 32,574,431 34,549,093 Deferred inflow ofresources 319,999 347,312 295,177 449,310 615,176 796,622 Total deferred inflow ofresources 319,999 347,312 295,177 449,310 615,176 796,622 Net position: Net investment in: capital assets 470,597,776 470,074,905 50,280,880 50,052,887 520,878,656 520,127,792 Restricted 22,847,077 23,941,601 26,496 18,831 22,873,573 23,960,432 Unrestricted 45,027,323 38,602,445 5,968,302 5,398,786 50,995,625 44,001,231 Total net position $ 538,472,176 $ 532,618,951 $ 56,275,678 $ 55,470,504 $ 594,747,853 $ 588,089,455 13 City of Federal Way 2012 CAFR Management's Discussion and Analysis Analysis of Net Position Total net position of the primary government of $594.7 at December 31, 2012 increased $6.7 million or 1.1% compared to December 31, 2011. The increase is mainly due to general governmental activities which contributed 88% or $5.9 million of the increase. The largest component of the City's net position, 88% or $520.9 million, is its net investment in capital 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. Approximately 3% or $20.7 million of the total net assets of the city are earmarked for construction improvement projects. $15.3 million of the $20.7 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 324th St at 20th Ave S, SW 312th St at SR509, S 352nd St Ext from SR99-SR161, S 320th St at 1-5 S Ramp, SR99 HOV Lanes PH IV, SR99 HOV Lanes PH V, SW 336th Way to SW 340th St at 26th Pl SW to Hoyt Road, 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 Sacajawea Park and Trail and Pedestrian Access 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: $61 thousand for police special funds, petty cash/change funds and advance travel, $51 thousand for municipal court trust fund, $19 thousand for prepaid insurance/debt, $2 million for debt service prefanding, $502 thousand Special Contracts/Studies, $102 thousand for Hotel/Motel lodging tax, $167 thousand for Path & Trails Reserve, and $41 thousand for Community Development Block Grant. The business -type activities portion of $5.9 million, $5.8 million can only be spent on surface water management and the remaining $133 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 $23.0 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. Governmental Activities: Capitals assets and CIP, net of accumulated depreciation increased by $183K or less than 0.1% due to increase in land contributed to the City of $1.4M, an increase in construction in progress of $1.58M primarily due to SR99 HOV Phase 4 and 20 Ave SW at SW 336th Street, decrease in buildings and structures of $891K primarily due to depreciation expense, decrease in improvements other than buildings of $2.2M due to depreciation expense, increase in machinery and equipment of $130K due to purchase and disposition of vehicles and equipment, and increase in infrastructure of $155K due to capitalizing S 348th Street at 1" Avenue S, developer contribution Campus Crest, and offset by depreciation expense. Long-term liabilities decreased by $611 thousand or 2.1% due to decrease in compensated absences, and a lower outstanding balance in GO Bond Loans, SCORE facility debt, and Valley Communications debt. Other liabilities decreased by $1.2 million or 29.8% due to decrease in accounts payable and accruals primarily in the General Fund due to timing of invoice payments. Net investments in capital assets increased $523 thousand or 0.1% primarily due to an increase in Transportation capital assets and a decrease in long term liabilities such as a compensated absences and outstanding long-term debt. Restricted net position represents amounts that must be used in accordance with external restrictions, and decreased by $1.1 million or 4.5% from the prior year primarily due to decrease in debt service prefanding of $1.9M, increase in capital projects of $1.0M. 14 City of Federal Way 2012 CAFR Management's Discussion and Analysis Business -Type Activities: Current and other assets increased by $400 thousand or 6.6% primarily due to an increase in grants received in Surface Water Management and an increase in storm drainage fees. Capitals assets and CIP, net of accumulated depreciation increased by $46K or less than 0.1% due to increase in land of $623K for purchase of West Hylebos Basin Land, decrease in construction in progress of $51K due to capitalization of West Hylebos Creek Headwaters Restoration, decrease in buildings and structures of $180K due to depreciation expense, decrease in improvements other than buildings of $324K due to depreciation expense offset by capitalization of West Hylebos Creek Headwaters Restoration, decrease in infrastructure of $19K due to depreciation expense. Long-term liabilities decreased by $194 thousand or 17.5% due to decrease in compensated absences, and low outstanding balance in Public works trust fund loan. Other liabilities decreased by $167 thousand or 31.0% primarily due to decrease in deferred inflow of resources of surface water management fees due to timing of receipts. Net investments in capital assets increased $228 thousand or 0.5% primarily due to an increase in Surface Water Management capital assets and a decrease in long term liabilities in Public Works Trust Fund Loan balances. Restricted net position represents amounts that must be used in accordance with external restrictions, and increased by $8 thousand or 40.7% from the prior year primarily due to increase in Steel Lake and North Lake district balances. Unrestricted net position increased by $570 thousand or 10.5% due to an increase in grants received in Surface Water Management, and an increase in storm drainage fees. 15 City of Federal Way 2012 CAFR Management's Discussion and Analysis CHANGES IN NET POSMON For the Years Ended December 31, 2012 and 2011 Governmental Activities Business -Type Activities Total 2012 2011 2012 2011 2012 2011 Revenues: Programs revenues: Charges for services $ 11,560,208 $ 10,487,684 $ 4,222,726 $ 4,020,144 $ 15,782,934 $ 14,507,828 Operating grants & contrib. 5,367,163 4,597,981 576,182 265,660 5,943,345 4,863,641 Capital grants & contrib. 5,225,265 9,716,551 - - 5,225,265 9,716,551 General revenues: Property taxes 10,052,109 9,867,614 - - 10,052,109 9,867,614 Sales tax 10,534,147 10,858,381 - - 10,534,147 10,858,381 Local criminal justice sales tag 1,864,991 1,795,971 - - 1,864,991 1,795,971 Utility tax 13,083,179 13,068,510 - - 13,083,179 13,068,510 Real estate excise tax 1,507,313 1,560,395 - - 1,507,313 1,560,395 Othertaxes 313,607 702,553 - - 313,607 702,553 Other 838,259 1,061,026 11,424 12,405 849,683 1,073,431 Total Revenue 60,346,241 63,716,666 4,810,332 4,298,209 65,156,573 68,014,875 Expenses: General government 4,300,691 4,448,449 - - 4,300,691 4,448,449 Security ofpersons & property 27,604,936 27,222,584 - - 27,604,936 27,222,584 Transportation 9,946,776 13,539,598 - - 9,946,776 13,539,598 Physical environment 415,935 424,466 - - 415,935 424,466 Economic environment 2,645,478 2,782,435 - - 2,645,478 2,782,435 Health and human services 754,727 690,643 - - 754,727 690,643 Culture and recreation 8,081,401 8,105,578 - - 8,081,401 8,105,578 Interest on long-term debt 602,572 614,571 - - 602,572 614,571 Surface Water Management - - 3,272,514 3,527,590 3,272,514 3,527,590 Dumas Bay Centre - - 873,144 890,738 873,144 890,738 Total Expenses 54,352,517 57,828,324 4,145,658 4,418,328 58,498,175 62,246,652 Change in net position 5,993,724 5,888,342 664,674 (120,119) 6,658,398 5,768,223 before transfers Transfers (140,500) (113,000) 140,500 113,000 - - Change in net position 5,853,224 5,775,342 805,174 (7,119) 6,658,398 5,768,223 Net position - beginning 532,618,951 527,727,074 55,470,504 55,587,875 588,089,455 583,314,949 Prior period adjustment - (883,465) - (110,252) - (993,717) Adjusted net position - 588,089,455 582,321,232 bebeginning g� g 532,618,951 526,843,609 55,470,504 55,477,623 Net position - ending S 539,472,176 $ 532,618,951 $ 56,275,678 $ 55,470,504 $ 594,747,854 $ 588,089,455 Analysis of the change in net position: Total government -wide revenues of the primary government increase $2.9 million or 4.2% and total expenses decreased $3.7 million or 6.0% from the prior years. These changes are discussed in more detail below. 16 City of Federal Way 2012 CAFR Management's Discussion and Analysis Governmental Activities: Governmental activities contributed $5.9 million or 88% of the total change in net assets of $6.7 million. The increase is mainly due to the overall increase in capital assets of which $2.9 million was contributed from developers. Total revenues for governmental activities decreased $3.4 million or 5.3%. The decrease is mainly due to less funding received from federal and state assistance which decreased 4.5 million from 2011. In 2011, the City received more funding for capital improvement projects that were in the construction phase. Total expenses for governmental activities decreased $3.5 million or 6.0%. The decrease is mainly due to decreases in capital outlay expenditures and prior period impairment loss reported in 2011. Governmental Activities - Revenues Other, 1.4% AlCharges for services, 19.2% Operating grants Other taxes, & contributions, 27.8% 8.9% Sales tax, 17.5% Capital grants and contribution, Property tax, 8,7% 16.7% Business -Type Activities: Governmental Activities - Expenses Interest on long- General term debt, 1.1% govemment, 7.9% Culture and Health and recreation, 14.9% human services, 1.4% Economic environment, 4.9°/ ransportation, Security of 183% persons& property, 50.8% Physical environment, 0.84 Business -type activities of the City's Surface Water Management system and Dumas Bay Centre increased the City's net assets by $805 thousand. Surface Water Management Fund increase by $950 thousand which was offset by a decreased in Dumas Bay Centre Fund net assets by $145 thousand. Key elements of the increase are as follows: Total revenues increased by $512 thousand or 11.9% from 2011. Attributing factors to the increase in revenues are as follows: Surface Water Management increase is primarily due to $129 thousand in storm drainage fees; $47 thousand in mitigation fees; and $311 thousand in grant revenue change from 2011. Total expenditures decrease of $273 thousand or 6.2% from 2011. Attributing factors to the decrease in expenditures are as follows: Surface Water Management decrease is primarily due $188 thousand in salaries and wages from a vacant position. In 2011 $95 thousand was capitalized as land and construction work in progress but in 2012 $726 thousand was capitalized as land and improvements other than buildings. Business -Type Activities - Revenues Operating & contribi 12.0"/ Business -Type Activities - Expenses F Dumas Bay Centre, 21.1% Surface Water Management, 78.9% 17 City of Federal Way 2012 CAFR Management's Discussion and Analysis FINANCIAL ANALYSIS OF THE CITY'S FUNDS 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 $48.8 million which increased by $5.2 million from the prior year. Approximately 30% or $14.8 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 $2.3 million or 18%. The increase in fund balance is mainly due to an increase in building permits and franchise fees revenues, and a decrease in expenditures in jail services, health care costs, and frozen Police positions. 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 $483 thousand or 12% from 2011 due mainly to additional tax revenue received as a result of audit. The Debt Service Fund has a total fund balance of $4.2 million which increased by $316 thousand from 2011 due to an increase in real estate excise tax revenue earmarked for future capital spending. The Downtown Redevelopment fund was established to accumulate resources and set aside funding for downtown projects. Overall, ending fund balance decreased by $42 thousand or 2%. 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 increased by $1.3 million or 10%. 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 $5.8 million, and those for Dumas Bay Centre amounted to $133 thousand. The total change in net assets for both funds was $955 thousand increase and $145 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 2012, the City made three budget adjustments. The following discussion is reflective only of the current year of the biennium. The General Fund operating expenditure budget increased by $3.2 million between the original adopted budget and the adjusted budget for 2012 fiscal year. The following is the major changes for the 2012 budget: o Reduced $355 thousand for personnel cost savings due to management changes. o Reduced $28 thousand in travel and training budgets. o Added $190 thousand for gasoline cost increases. o Added $100 thousand for unemployment compensation claims. 18 City of Federal Way 2012 CAFR Management's Discussion and Analysis o Added $21 thousand for increase in insurance premiums. o Reduced $20 thousand for postage delivery service savings. o Eliminate $70 thousand for Federal Lobbyist. o Eliminate $133 thousand for Human Services and CDBG grant reorganization. o Added $17 thousand for increase 0.25 FTE Human Resources Administrative Assistant. o Added $53 thousand for increase in election costs. o Added $925 thousand for SCORE jail services. o Eliminate $306 thousand for Valley Communications dispatch services. o Eliminate $311 thousand for freezing 3.0 FTE vacant Police Officer positions. o Added $85 thousand for Recreation Inclusive Coordinator. o Rolled forward $450 thousand for pension reserves for future rate increases. o Added $65 thousand for workers compensation rate increase. o Eliminate $306 thousand for healthcare savings. o Rolled forward $82 thousand for Community Weatherization Energy Efficiency grant. o Reduced $35 thousand for converting Administrative Services Director to Community Services Manager. o Eliminated $41 thousand for eliminating Administrative Services Analyst. o Eliminated $18 thousand, net of temp help increase, for eliminating 0.50 FTE Business Licenses Specialist. o Rolled forward $97 thousand for abatement funds. o Rolled forward $63 thousand for permit system upgrades. o Rolled forward $82 thousand for City Center Redevelopment. o Rolled forward $49 thousand for Comprehensive Plan update. o Added $483 thousand for pending deductibles and claims. o Rolled forward $155 thousand for pending deductibles and claims. o Rolled forward $110 thousand for legal counsel. o Added $38 thousand for legal counsel. o Rolled forward $121 thousand for Federal and State seizure expenditures. o Eliminate $330 thousand for freezing 3.0 FTE Police Officer positions. o Rolled forward $50 thousand for Non -SCORE jail services. o Rolled forward $277 thousand for Police grants and contributions. o Rolled forward $60 thousand for Arts Cultural Plan. o Rolled forward $45 thousand for replacement of monument signs at park entrances. o Rolled forward $22 thousand for storm damage repairs and tree/shrub replacement. o Added $123 thousand for Police grants and contributions o Rolled forward $1.2 million for contingency reserve funds. Adjustments to revenues and other sources budget include: Adjustments to beginning balance of $7.6 million; increase of $544 thousand for grant/contribution revenues; increase in liquor profits of $553 thousand; decrease in gambling tax of $46 thousand; decrease in sales tax of $205 thousand; increase in utility tax of $925 thousand; increase of $90 thousand for criminal justice high crime distribution from the state; increase of $200 thousand for property taxes; increase of $67 thousand for criminal justice sales tax; increase in franchise fees of $36 thousand; increase of $84 thousand in park revenues; increase of $8 thousand for business licenses; increase of $2 thousand for leasehold excise tax; decrease of $119 thousand for animal license; decrease in building and electrical permits of $150 thousand; decrease of $41 thousand for interest; and decrease of $60 thousand for court revenues. Other sources changes include a decrease in transfer in of $70 thousand for elimination of the federal lobbyist and $4 thousand for healthcare savings. The General Fund ending fund balance of $14.9 million is $6.4 million over the above the projected $8.6 million for 2012 year- end. The $3.5 million of the $6.4 million excess is being earmarked for carry forward into 2012. The remaining $2.9 million increase is considered one-time funds. The $6.4 million increase in ending fund balance is made up of $594 thousand in additional revenues/other sources and $5.8 million in unspent expenses/other uses. The $594 thousand increase in revenues/other sources is attributed to increases in interest earnings of $22 thousand, criminal justice shared revenue of $102 thousand, liquor profits of $338 thousand, building permits of $303 thousand, franchise fees of $23 thousand, property taxes of $153 thousand, criminal justice sales tax of $146 thousand, police services and charges of $197 thousand, court revenue of $7 thousand, and plan checking fees and community development fees of $162 thousand, offset by decreases in: traffic infractions of $145 thousand, liquor excise tax of $224 thousand, animal licenses of $55 thousand, sales tax of $52 thousand, gambling tax of $48 thousand, park revenue of $43 thousand, and transfer in utility tax of $278 thousand. 19 City of Federal Way 2012 CAFR Management's Discussion and Analysis The $5.8 million unspent expenses/other uses are attributable to savings found in: Police & Jail services of $1.1 million; Community & Economic Development of $436 thousand; Parks & Recreation of $348 thousand, Pension Reserves of $450 thousand; Risk Management Deductible Claims of $496 thousand; Mayor's Office/Human Services of $202 thousand; Law of $310 thousand; Human Resources/City Clerk of $188 thousand, Municipal Court of $208 thousand; Finance of $63 thousand, City Council of $19 thousand, Contingency Reserves of $1.1 million, and transfer out for General/Street Fund Subsidy of $860 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, 2012 amounts to $534 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 Governmental Business -Type Total Activities Activities 2012 2011 Land $ 303,565,575 $ 10,933,528 $ 314,499,103 $ 312,478,433 Building and improvements 37,387,676 35,966,374 73,354,051 76,942,864 Machinery and equipment 5,198,053 27,012 5,225,065 5,098,298 Infrastructure 114,012,943 1,796,835 115,809,778 115,674,344 Construction in progress 22,743,528 2,402,446 25,145,974 23,611,529 Total Capital Assets $ 482,907,776 $ 51,126,195 $ 534,033,970 $ 533,805,467 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 2012, the City of Federal Way had total bonded debt outstanding of $45.6 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. LONG-TERM DEBT (FUTURE PRINCIPAL AND INTEREST PAYMENTS) General obligation bonds Public works trust fund loan Total Governmental Business -Type Activities Activities Total $ 44,787,976 $ - $ 44,787,976 - 874,817 874,817 $ 44,787,976 $ 874,817 $ 45,662,793 The City's total debt decreased by $1.6 million due to annual debt service payments. In February 2013 Moody's Investors Service assigned a Aa3 rating to the City's Limited Tax General Obligation Refunding Bonds, 2013. At the same time, Moody's affirmed the Aa3 rating on the City's approximately $355,000 limited G.O. Bonds, post refunding. Moody's also affirmed the City's Aa2 unlimited GO -equivalent issuer rating. 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. 20 City of Federal Way 2012 CAFR Management's Discussion and Analysis The City's assessed valuation for 2012 was $7.143 billion and the total amount of debt the City may issue is $510.1 million. Remaining legal debt capacities as of December 31, 2012 are: General government (no vote required) $ 81,530,018 General government (3/5 majority vote required) $ 71,428,320 Parks and open space (3/5 majority vote required) $178,570,799 Utilities (315 majority vote required) $178,570,799 Total Capacity $510,099,936 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 United States economy has continued to grow slightly in 2012, but for many Americans life has remained the same. With unemployment rates remaining high at 7.8% in December 2012; a decrease from 8.5% in 2011; many Americans have remained jobless. Home values and housing starts were an upturn for the 2012 economy, but state budgets have continued to decline signifying more layoffs, services cuts and potential tax increases. In 2012 we saw oil and gasoline prices decrease slightly due to weakness in demand around the world from economic conditions, the Middle East tensions and a great deal of noise in the currency markets in Europe and the United States is having effect of raising the price of crude. Retail and commodity item purchases increased slightly in 2012, but as oil prices increase, consumers will be forced to shift discretionary spending away from big -ticket purchases of autos, furniture, appliances, and purchase of nondurables. Other factors in 2012 that affected the United States economy negatively are the budget negotiations "the fiscal cliff' and health care costs affected by the Affordable Care Act. According to economists and business owners in 2012 this has frozen many decisions about hiring and expanding within companies until final decisions are made. Like the rest of the nation, the Washington state economy is still dealing with a severely damaged economy. How quickly the region emerges from this 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 0.2% over the year compared to 0% for the nation. That's largely thanks to Boeing, which has advanced at twice the national rate. 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. 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 approached 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 at the federal, state and local level to anticipate any negative impact on critical City resources. 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 8th Avenue South, Federal Way, Washington 98003, telephone 253-835-2520, or visit the City's website at www.cityoffederalway.com. 21 4ik CITY OF '0'::tS:p Federal Way It"s all within reach THIS PAGE IS LEFT INTENTIONALLY BLANK 22 BASIC FINANCIAL STATEMENTS 23 City of Federal Way 2012 CAFR Basic Financial Statements STATEMENT OF NET POSITION December 31, 2012 ASSETS Cash & cash equivalents and investments Receivables (net) Due from other governments Prepaid items Restricted assets: 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 Governmental Business -type Activities Activities Total $ 64,784,796 $ 5,865,106 $ 70,649,902 1,883,155 139,862 2,023,017 1,888,756 427,477 2,316,233 23,771 - 23,771 111,212 - 111,212 18,779,354 - 18,779,354 303,565,575 10,933,528 314,499,103 22,743,528 2,402,446 25,145,974 10,645,151 800,840 11,445,991 26,742,525 35,165,534 61,908,059 5,198,053 27,012 5,225,065 114,012,943 1,796,835 115,809,778 570,378,820 57,558,641 627,937,460 Accounts payable and accruals 1,453,202 51,201 1,504,403 Due to other governments - 18,265 18,265 Customer deposits 1,013,459 5,937 1,019,396 Noncurrent Liabilities: Due within one year 989,570 185,633 1,175,203 Due in more than one year 13,038,464 726,750 13,765,214 Due to other governments 15,091,950 - 15,091,950 Total Liabilities 31,586,645 987,786 32,574,431 DEFERRED INFLOW OF RESOURCES 319,999 295,177 615,176 NET POSITION Net investment in capital assets 470,597,776 50,280,880 520,878,656 Restricted for: Customer deposit 12,206 5,937 18,143 Debt service prefunding 2,004,488 - 2,004,488 Capital projects 20,719,171 - 20,719,171 Steel Lake & North Lake Mgmt District - 20,559 20,559 Other 111,212 - 111,212 Unrestricted 45,027,323 5,968,302 50,995,625 Total Net Position $ 538,472,176 $ 56,275,678 $ 594,747,853 The notes to the financial statements are an integral part of this statement. 24 City of Federal Way 2012 CAFR Basic Financial Statements STATEMENT OF ACTIVITIES For the Year ended December 31, 2012 Program Revenues Net (Expense) Revenue & Changes in Net Position Operating Capital Charges for Grants and Grants and Governmental Business -type Expenses Services Contributions Contributions Activities Activities Total Functions/Programs Governmental Activities: General government $ 4,300,691 $ 924,966 $ 2,459,749 $ - $ (915,976) $ $ (915,976) Security of persons & property 27,604,936 5,937,100 888,641 - (20,779,196) (20,779,196) Transportation 9,946,776 2,139,292 1,827,558 5,225,265 (754,661) (754,661) Physical environment 415,935 89,457 139,966 - (186,512) (186,512) Economic environment 2,645,478 568,973 - (2,076,505) (2,076,505) Health 754,727 162,322 3,392 (589,013) (589,013) Culture & recreation 8,081,401 1,738,098 47,857 (6,295,446) (6,295,446) Interest on long-term debt 602,572 - - (602,572) (602,572) Total governmental activities 54,352,517 11,560,208 5,367,163 5,225,265 (32,199,881) - (32,199,881) Business -type Activities: Surface Water Management 3,272,514 3,635,574 576,182 - 939,242 939,242 Dumas Bay Centre 873,144 587,152 - (285,992) (285,992) Total business -type activities 4,145,658 4,222,726 576,182 - 653,250 653,250 Total $ 58,498,175 $ 15,782,934 $ 5,943,345 $ 5,225,265 (32,199,881) 653,250 (31,546,631) General revenues: Propertytax 10,052,109 - 10,052,109 Sales tax 10,534,147 10,534,147 Local criminal justice sales tax 1,864,991 1,864,991 Utility tax 13,083,179 13,083,179 Real estate excise tax 1,507,313 1,507,313 Gambling tax 114,443 114,443 Hotel/motel tax 193,344 193,344 Leasehold excise tax 5,820 5,820 Other revenue 702,833 - 702,833 Investment earnings 135,426 11,424 146,850 Transfers (140,500) 140,500 - Total general revenues and transfers 38,053,106 151,924 38,205,030 Change in net assets 5,853,224 805,174 6,658,398 Net position at beginning of year 532,618,951 55,470,504 588,089,455 Adjusted beginning net assets 532,618,951 55,470,504 588,089,455 Net position at end of year $ 538,472,176 $56,275,678 $ 594,747,853 The notes to the financial statements are an integral part of this statement. 25 City of Federal Way 2012 CAFR Basic Financial Statements ASSETS Equity in pooled cash & investments Prepaid insurance/debt service Receivables (net): Taxes Accounts and contracts Restricted cash Due from other governments Interfund loans receivable TOTAL ASSETS LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES Liabilities: Vouchers payable Accounts/payroll payable Deposits payable Interfund loans payable TOTAL LIABILITIES BALANCESHEET GOVERNMENTAL FUNDS December 31, 2012 Debt General Street Utility Tax Service $ 14,277,516 $ 970,100 $ 3,473,409 $ 3,977,303 18,771 - - - 361,257 1,177,253 301,156 4,676 - - 111,212 - - - 1,249,004 96,544 3,025 935 10,000 - - - 16,032,436 1,066,644 4,653,687 4,279,394 429,652 185,083 - 6,935 456 - 285,156 716,097 - 721,743 901,636 - DEFERRED INFLOWS OF RESOURCES 375,598 65,009 - 97,050 Fund Balance: Nonspendable 69,398 - - - Restricted 60,585 - - 2,004,488 Committed 21,893 100,000 4,653,687 2,177,857 Unassigned 14,783,219 - - - TOTAL FUND BALANCES 14,935,095 100,000 4,653,687 4,182,345 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 16,032,436 $ 1,066,645 $ 4,653,687 $ 4,279,395 The notes to the financial statements are an integral part of this statement. 26 City of Federal Way 2012 CAFR Basic Financial Statements ASSETS Equity in pooled cash & investments Prepaid insurance/debt service Receivables (net): Taxes Accounts and contracts Restricted Cash Due from other governments Interfund loans receivable TOTAL ASSETS LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES Liabilities: Vouchers payable Accounts/payroll payable Deposits payable Interfund loans payable TOTAL LIABILITIES BALANCESHEET GOVERNMENTAL FUNDS December 31, 2012 Downtown Nonmajor Redevelopment Transportation Governmental Total $ 2,176,561 $ 15,205,345 $ 7,705,151 $ 47,785,386 - - - 18,771 (7,880) - - 1,831,786 - 46,693 51,369 - - 111,212 177,673 361,575 1,888,756 - - - 10,000 2,168,681 15,383,018 8,113,419 51,697,280 12,000 226,546 358,293 1,211,574 - - - 7,391 - - 12,206 1,013,459 - - 10,000 10,000 12,000 226,546 380,499 2,242,424 DEFERRED INFLOWS OF RESOURCES (7,902) Fund Balance: Nonspendable Restricted Committed Unassigned TOTAL FUND BALANCES 2,025,153 139,429 97,734 627,489 - 69,398 10,807,760 3,241,767 18,139,753 4,348,712 4,393,420 15,834,998 - - 14,783,220 2,164,582 15,156,472 7,635,187 48,827,368 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 2,168,680 $ 15,383,018 $ 8,113,420 Amounts reported for governmental activities in the statement of net position are different because: Capital assets are used in governmental activities are not financial resources and, therefore, are not reported in the funds. 467,293,556 Investment in joint venture is not a financial resource and, therefore, not reported in the funds 18,779,354 Other long-term assets are not available to pay for current -period expenditures and, therefore, are deferred inflow of resources in the funds 351,662 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 positior 32,340,220 Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds. (29,119,984) Net position of governmental activities $ 538,472,176 The notes to the financial statements are an integral part of this statement. 27 City of Federal Way 2012 CAFR Basic Financial Statements STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For Year Ended December 31, 2012 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 General Street Utility Tax $ 22,497,545 $ - $ 13,083,178 2,402,123 99,245 - 2,223,210 1,329,384 - 3,049,783 215,585 - 1,111,542 - - 94,311 606 3,405 429,533 34,569 - Debt ---= -- $ 1,507,315 3,287 31,808,047 1,679,389 13,086,583 1,510,602 3,413,961 - 49,000 - 26,552,884 - - - - 4,088,227 - - 2,288,187 - - - 754,311 - - - 3,632,440 - - - - - 480,760 - - - 602,572 190,464 2,190 - - 36,832,247 4,090,417 49,000 1,083,332 OVER (UNDER) EXPENDITURES (5,024,200) (2,411,028) 13,037,583 427,270 OTHER FINANCING SOURCES (USES) Transfers in 9,088,018 2,419,371 - 913,892 Transfers out (1,772,871) (8,343) (12,554,760) (1,025,000) TOTAL OTHER FINANCING SOURCES (USES) 7,315,147 2,411,028 (12,554,760) (111,108) NET CHANGE IN FUND BALANCES 2,290,947 - 482,823 316,162 FUND BALANCES - BEGINNING 12,644,148 100,000 4,170,864 3,866,183 FUND BALANCES - ENDING $ 14,935,095 $ 100,000 $ 4,653,687 $ 4,182,345 The notes to the financial statements are an integral part of this statement. 28 City of Federal Way 2012 CAFR Basic Financial Statements STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For Year Ended December 31, 2012 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 Redevelopment Transportation Nonmajor Governmental Total $ 8,066 $ - $ 353,955 $ 37,450,059 - - - 2,501,368 - 2,539,012 1,539,408 7,631,014 - 504,422 1,917,172 5,686,962 - - 2,260,336 3,371,878 2,003 12,493 6,378 122,483 - - 238,728 702,830 10,069 3,055,927 6,315,977 57,466,594 - - 939,168 4,402,129 - - 9,386 26,562,270 - 13,812 1,937,144 6,039,183 - - 409,042 409,042 52,539 - 304,489 2,645,215 - - - 754,311 - - 2,244,930 5,877,370 - - - 480,760 - - - 602,572 - 3,316,321 828,783 4,337,758 52,539 3,330,133 6,672,942 52,110,610 OVER (UNDER) EXPENDITURES (42,470) (274,206) (356,965) 5,355,984 OTHER FINANCING SOURCES (USES) Transfers in - 1,621,000 2,186,000 16,228,281 Transfers out - - (1,007,807) (16,368,781) TOTAL OTHER FINANCING SOURCES (USES) - 1,621,000 1,178,193 (140,500) NET CHANGE IN FUND BALANCES (42,470) 1,346,794 821,228 5,215,484 FUND BALANCES - BEGINNING 2,207,052 13,809,678 6,813,959 43,611,884 FUND BALANCES - ENDING $ 2,164,582 $ 15,156,472 $ 7,635,187 $ 48,827,368 The notes to the financial statements are an integral part of this statement. 29 City of Federal Way 2012 CAFR Basic Financial Statements 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, 2012 Amounts reported for governmental activities in the statement of activities (page 19) are 2012 different because: Net change in fund balances --total governmental funds $ 5,215,485 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 (54,239) 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. (94,711) 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 position. 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 position. 541,000 Internal service funds are used by management to charge costs of risk management, information systems, mail & duplication, fleet, and building systems to the funds. 177,632 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. 68,057 Change in net position of governmental activities $ 5,853,224 The notes to the financial statements are an integral part of this statement. 30 City of Federal Way 2012 CAFR Basic Financial Statements GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2012 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 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) $ 22,286,000 $ 22,304,000 $ 22,497,545 $ 193,545 2,345,000 2,120,000 2,402,123 282,123 950,432 2,044,519 2,223,210 178,691 2,646,723 2,727,336 3,049,783 322,447 1,257,150 1,256,468 1,111,542 (144,926) 113,000 72,000 94,311 22,311 386,150 410,915 429,533 18,618 29,984,455 30,935,238 31,808,047 872,809 3,886,120 6,068,320 3,413,961 2,654,359 27,508,759 27,966,232 26,552,884 1,413,348 2,659,603 2,723,741 2,288,187 435,554 722,039 858,735 754,311 104,424 3,752,150 3,980,114 3,632,440 347,674 - 164,803 190,464 (25,661) 38,528,671 41,761,945 36,832,247 4,929,698 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (8,544,216) (10,826,707) (5,024,200) 5,802,507 OTHER FINANCING SOURCES (USES) Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES FUND BALANCES - BEGINNING 8,483,357 9,366,359 9,088,018 (278,341) (2,219,541) (2,633,233) (1,772,871) 860,362 6,263,816 6,733,126 7,315,147 582,021 (2,280,400) (4,093,581) 2,290,947 6,384,528 5,081,826 12,644,148 12,644,148 0 FUND BALANCES - ENDING $ 2,801,426 $ 8,550,567 $ 14,935,095 $ 6,384,528 The notes to the financial statements are an integral part of this statement. 31 City of Federal Way 2012 CAFR Basic Financial Statements STREET FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2012 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Licenses and permits $ 115,271 $ 115,272 $ 99,245 $ (16,027) Intergovernmental 1,073,000 1,438,260 1,329,384 (108,876) Service charges and fees 221,222 201,624 215,585 13,961 Interest 2,000 2,000 606 (1,394) Other 47,526 27,122 34,569 7,447 TOTAL REVENUES 1,459,019 1,784,278 1,679,389 (104,889) EXPENDITURES Current: Transportation 4,342,927 5,047,449 4,088,227 959,222 Capital outlay - - 2,190 (2,190) TOTAL EXPENDITURES 4,342,927 5,047,449 4,090,417 957,032 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (2,883,908) (3,263,171) (2,411,028) 852,143 OTHER FINANCING SOURCES (USES) Transfers in 2,883,908 3,272,536 2,419,371 (853,165) Transfers out - (9,365) (8,343) 1,022 TOTAL OTHER FINANCING SOURCES (USES) 2,883,908 3,263,171 2,411,028 (852,143) NET CHANGE IN FUND BALANCES - - - - FUND BALANCES - BEGINNING 100,000 100,000 100,000 - FUND BALANCES - ENDING $ 100,000 $ 100,000 $ 100,000 $ - The notes to the financial statements are an integral part of this statement. 32 City of Federal Way 2012 CAFR Basic Financial Statements UTILITY TAX FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2012 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Taxes $ 12,546,000 $ 12,420,000 $ 13,083,178 $ 663,178 Interest 30,000 6,000 3,405 (2,595) TOTAL REVENUES 12,576,000 12,426,000 13,086,583 660,583 EXPENDITURES Current: General government 49,000 49,000 49,000 - TOTAL EXPENDITURES 49,000 49,000 49,000 - EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 12,527,000 12,377,000 13,037,583 660,583 OTHER FINANCING SOURCES (USES) Transfers out (12,837,357) (12,833,187) (12,554,760) 278,427 TOTAL OTHER FINANCING SOURCES (USES) (12,837,357) (12,833,187) (12,554,760) 278,427 NET CHANGE IN FUND BALANCES (310,357) (456,187) 482,823 939,010 FUND BALANCES - BEGINNING 2,920,156 4,170,864 4,170,864 - FUND BALANCES - ENDING $ 2,609,799 $ 3,714,677 $ 4,653,687 $ 939,010 The notes to the financial statements are an integral part of this statement. 33 City of Federal Way 2012 CAFR Basic Financial Statements STATEMENT OF NET POSITION PROPRIETARY FUNDS December 31, 2012 Governmental Business -type Activities - Enterprise Funds Activities Surface Water Dumas Bay Internal Management Centre TOTAL Service ASSETS Current Assets Equity in pooled cash & investments $ 5,471,809 $ 334,331 $ 5,806,139 $ 17,058,370 Prepaid items - - - 5,000 Receivables (net): Accounts and contracts 122,995 16,867 139,862 - Due from other governments 427,477 - 427,477 - TOTAL CURRENT ASSETS 6,022,281 351,198 6,373,478 17,063,370 Property, plant and equipment Land 8,823,888 2,109,640 10,933,528 - Building/structures 19,849 3,581,015 3,600,864 16,515,708 Machinery/furniture/equipment 47,972,459 118,374 48,090,833 15,805,700 Infrastructure 1,916,645 - 1,916,645 - Construction in progress 2,023,638 378,808 2,402,446 - Less accumulated depreciation (12,936,942) (2,881,177) (15,818,119) (16,707,188) TOTAL NONCURRENT ASSETS 47,819,537 3,306,660 51,126,197 15,614,220 TOTAL ASSETS 53,841,818 3,657,858 57,499,675 32,677,590 LIABILITIES AND FUND EQUITY Current Liabilities: Vouchers/payroll payable 56,175 13,291 69,466 234,237 Retainage payable - with escrow agent - - - - Due to other governments - - - Deposits payable 51937 5,937 - Deferred revenue - - - - Public Works trust fund loan payable 182,359 - 182,359 - Compensated absences payable 3,274 - 3,274 - TOTAL CURRENT LIABILITIES 241,808 19,228 261,036 234,237 Long -tern liabilities: Public Works trust fund loan payable 662,958 - 662,958 - Compensated absences payable 51,065 12,727 63,792 44,173 TOTAL LONG-TERM LIABILITIES 714,023 12,727 726,750 44,173 TOTAL LIABILITIES 955,831 31,955 987,786 278,410 DEFERRED INFLOW OF RESOURCES 114,631 180,546 295,177 - Net investment in capital 46,974,220 3,306,660 50,280,880 15,614,220 Restricted for: Customer deposits - 5,937 5,937 - Steel Lake & North Lake Mgmt District 20,559 - 20,559 - Unrestricted 5,776,577 132,760 5,909,337 16,784,960 TOTAL NET POSITION $ 52,771,356 $ 3,445,357 56,216,713 $ 32,399,180 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds 58,960 NET POSITION OF BUSINESS -TYPE ACTIVITIES $ 56,275,678 The notes to the financial statements are an integral part of this statement. 34 City of Federal Way 2012 CAFR Basic Financial Statements STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS For Year Ended December 31, 2012 Governmental Business -type Activities - Enterprise Funds Activities Surface Water Dumas Bay Internal Management Centre TOTAL Service OPERATING REVENUES: Service charges and fees $ 3,617,369 $ 587,152 $ 4,204,521 $ 5,559,201 Intergovernmental 576,182 - 576,182 69,898 Miscellaneous 18,205 - 18,205 217,610 TOTAL OPERATING REVENUES 4,211,756 587,152 4,798,908 5,846,709 OPERATING EXPENSES: Personal services 1,535,929 301,315 1,837,243 761,271 Materials and supplies 139,877 131,613 271,490 607,838 Services and charges 640,508 220,286 860,794 2,230,725 Intergovernmental 147,030 1,928 148,958 175,417 Depreciation 498,346 181,997 680,343 2,175,432 Interfund charges 294,777 35,497 330,274 - TOTAL OPERATING EXPENSES 3,256,467 872,636 4,129,102 5,950,683 OPERATING INCOME (LOSS) 955,289 (285,484) 669,806 (103,974) NON -OPERATING REVENUES (EXPENSES): Gain (Loss) from disposal of capital assets - - - 47,462 Interest income 10,238 354 10,592 13,775 Interest expense (10,277) - (10,277) - TOTAL NON -OPERATING REVENUES (EXPENSES) (39) 354 315 61,237 INCOME (LOSS) BEFORE TRANSFERS 955,250 (285,130) 670,121 (42,737) Capital contributions Transfers in Transfers out CHANGE IN NET POSITION 409,181 (409,181) 955,250 - - 214,922 140,500 549,681 56,790 - (409,181) (56,790) (144,630) NET POSITION - BEGINNING 51,816,106 3,589,988 NET POSITION - ENDING $ 52,771,356 $ 3,445,357 Adjustment to reflect the consolidation of internal service fund activities related to enterprise CHANGES IN NET POSITION OF BUSINESS -TYPE ACTIVITIES 810,621 172,185 32,226,994 $ 32,399,180 (5,447) $ 805,174 The notes to the financial statements are an integral part of this statement. 35 City of Federal Way 2012 CAFR Basic Financial Statements STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For Year Ended December 31, 2012 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 PROVIDED/USED 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 $ 3,659,246 $ 639,366 $ 4,298,612 $ 5,724,306 - - - (452,921) (772,710) (355,094) (1,127,804) (2,042,459) (1,541,938) (306,941) (1,848,879) (763,460) (294,777) (35,497) (330,274) (164,020) (1,928) (165,948) (662,573) 267,926 267,926 212,036 1,153,728 (60,094) 1,093,633 2,014,929 409,181 140,500 549,681 56,790 (409,181) - (409,181) (56,790) 140,500 140,500 (182,359) (182,359) (10,277) (10,277) (725,980) (725,980) (1,212,045) 57 759 (918,616) - (918,616) (1,159,287) 10,238 354 10,592 13,775 10,238 354 10,592 13,775 245,350 80,760 326,109 869,417 5,226,459 253,571 5,480,030 16,188,952 5,471,812 334,329 5,806,140 17,058,367 955,288 (285,484) 669,804 (103,974) 498,346 181,997 680,343 2,175,432 244,257 3,967 248,224 40,571 (326,459) - (326,459) 49,060 13,334 (3,795) 9,539 (143,971) (5,660) (5,660) (16,990) - (16,990) 600 600 (202,380) 48,247 (154,133) (6,009) (5,626) (11,635) (2,189) 198,439 225,390 423,829 2,118,903 $ 1,153,728 $ (60,094) $ 1,093,633 $ 2,014,929 $ 214,922 The notes to the financial statements are an integral part of this statement. 36 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements NOTES TO THE BASIC FINANCIAL STATEMENTS December 31, 2012 INDEX Note Page 1 Summary of Significant Accounting Policies............................................................................... 38 ReportingEntity................................................................................................................... 38 Government -wide and Fund Financial Statements............................................................... 38 Measurement Focus, Basis of Accounting, and Financial Statement Presentation .............. 38 Financial Statement Presentation......................................................................................... 41 BudgetaryInformation......................................................................................................... 41 Assets, Liabilities, Fund Balance and Net Position.............................................................. 43 Cashand Investments.................................................................................................. 43 Receivables.................................................................................................................. 43 Amounts Due to and from Other Funds; Interfund Loans ........................................... 44 Inventories................................................................................................................... 44 CapitalAssets.............................................................................................................. 44 Compensated Absences Payable.................................................................................. 45 Long -Term Liabilities.................................................................................................. 45 Deferred Outflows/Inflows of Resources.................................................................... 45 Fund Balance Classification........................................................................................ 45 Interfund Transactions................................................................................................. 46 2 Reconciliation of Government -wide & Fund Financial Statements .............................................. 47 3 Stewardship, Compliance and Accountability.............................................................................. 47 4 Supplemental Appropriations....................................................................................................... 48 5 Deposits and Investments.............................................................................................................. 48 6 Receivables, Due from Other Governments and Deferred Inflows of Resources ......................... 50 7 Due To Other Governments.......................................................................................................... 51 8 Capital Assets............................................................................................................................... 52 9 Pension Plans................................................................................................................................ 54 10 Risk Management......................................................................................................................... 61 11 Long -Term Liabilities................................................................................................................... 62 12 Interfund Transactions.................................................................................................................. 65 13 Contingencies and Litigation........................................................................................................ 67 14 Joint Ventures............................................................................................................................... 67 15 Accounting and Reporting Changes.............................................................................................. 69 16 Subsequent Event.......................................................................................................................... 69 37 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements NOTES TO THE BASIC FINANCIAL STATEMENTS For the Year Ended December 31, 2012 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. REPORTING ENTITIES 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 dependent 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 position 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 functions or segments. 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. 38 City of Federal Way 2012 CAFR Governmental Funds Notes to the Basic Financial Statements 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, 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 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 the 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 to provide for debt service, capital projects, maintenance and operations expenditures, etc. 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. 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 do 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. 39 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements As a general rule the effect of the inter -fund 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 is included in the Comprehensive Annual Financial Report 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 an 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. 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 owned by this Fund. Both maintenance/operating costs and depreciation recovery will be charged to City departments and funds. 40 City of Federal Way 2012 CAFR Basis of Accounting Notes to the Basic Financial Statements 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 '/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 Reportinc 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; inter -fund, 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. 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 2012 should be read in conjunction with the government's financial statements for the year ended December 31, 2011. 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 41 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements 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 re -appropriation 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 Debt Service Fund - Street Fund - Arterial Street - Utility Tax - Solid Waste & Recycling - Federal Way Community Center - Traffic Safety - Hotel/Motel Lodging Tax -Paths & Trails 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. By the first Tuesday in October, 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. Copies of the preliminary budget are provided to the City Council and made available to staff and the public. 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. No later than 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. 42 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements 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 or that affect the number of authorized positions 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. 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 2012 for the City were $4,736,238. ASSETS, LIABILITIES, FUND BALANCE, NET POSITION 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, 2012, the State Treasurer was holding $66,472,650 in the Local Government Investment Pool. The Local Government 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, 2012, the total cash and cash equivalents were $70,761,104. 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. 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 same 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. 43 City of Federal Way 2012 CAFR Amounts Due to and from Other Funds; Interfund Loans Notes to the Basic Financial Statements Activities 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 inter -fund 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. 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 at an 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. 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 44 City of Federal Way 2012 CAFR Compensated Absences Notes to the Basic Financial Statements 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 position. Long-term debt outstanding at year-end is outlined in Note 11. Deferred Outflows/Inflows of Resources The deferred inflow of resources 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 inflow of resources. Fund Balance Classification 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 intact. 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. 45 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements 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. 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. 2012 FUND BALANCE CLASSIFICATION Fund Balance General Fund Street Utility Debt Downtown Tax Service Redevelop. Transport- Nonmajor ation Godt Total Nonspendable: Court trust $ 50,627 $ $ $ $ $ $ $ 50,627 Prepaid insurance/debt service 18,771 18,771 Restricted for: Police covert/seizure 60,585 60,585 Future debt payments - 2,004,488 2,004,488 Special Contracts/Studies - 502,375 502,375 Hotel/Motel Lodging Tax 102,416 102,416 Path & Trails Reserves 166,668 166,668 Comm. Development Block Grant 40,715 40,715 Downtown Redevelopment 2,025,153 - 2,025,153 City Facilities CIP - - 657,781 657,781 Parks CIP - 1,771,812 1,771,812 Transportation CIP 10,807,760 - 10,807,760 Committed to: Capital, debt, and operations - 3,577,357 2,177,857 - 5,755,214 Petty cash/advance travel 21,600 - - 21,600 Proposition 1 - 1,076,330 - 1,076,330 Transportation CIP - - 4,348,712 4,348,712 Downtown Redevelopment 139,429 - 139,429 City Facilities CIP - 480,071 480,071 Arterial Street 79,530 79,530 Solid Waste/Recycling - 172,002 172,002 2% for the Arts 293 - 293 Federal Way Community Center - 1,197,498 1,197,498 Traffic Safety 1,975,866 1,975,866 Snow/ice removal 100,000 - 100,000 Parks CIP - 488,453 488,453 Unassigned: General Fund 14,783,219 - - 14,783,219 Total Fund Balance: $14,935,095 $100,000 $ 4,653,687 $ 4,182,345 $ 2,164,582 $ 15,156,472 $ 7,635,187 $ 48,827,368 Interfund Transactions There are four types of transactions between funds - inter -fund loans, inter -fund services provided and used, inter -fund reimbursements, and inter -fund 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 46 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements are equivalent to buying goods or services from an outside vendor, and 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 Position The governmental funds' balance sheet includes reconciliation between fund balance — total governmental funds and net position — governmental activities as reported in the government -wide statement of net position. One element of the 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 $29,119,984 difference are as follows: Bonds Payable at beginning of year $28,157,950 Plus: Inclusion of compensated absences 1,503,034 Less: Current year reduction of principal portion of debt (541,000) Net Adjustment to reduce fund balance -total governmental funds to arrive at net position - governmental activities $ 29,119,984 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 position 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 ($54,238) difference are as follows: Capital outlay $ 7,024,012 Less: Governmental depreciation expense (6,087,383) Plus: Decrease investment in joint venture (990,867) Net adjustment to increase net changes in fund balances - Total governmental funds to arrive at changes in net position ofgovernmental activities $ (54,238) 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 inflows in the fund statements $ (94,711) 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 $ 68,057 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. 47 City of Federal Way 2012 CAFR NOTE 4 — SUPPLEMENTAL APPROPRIATIONS Notes to the Basic Financial Statements Operating Budget Funds Appropriations established during 2012 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. General Fund Special Revenue Funds: Street Fund Arterial Street Fund Utility Tax Fund Solid Waste/Recycling Fund Hotel/Motel Lodging Tax Federal Way Conmiunity Center Traffic Safety Subtotal Special Revenue Funds Debt Service Fund 2012 ORIGINAL SUPPLEMENTAL BUDGET APPROPRIATIONS FINAL BUDGET $ 40,748,229 $ 3,646,968 $ 44,395,197 4,342,923 1,523,500 12,886,357 420,575 161,300 2,177,404 830,000 22,342,059 2,182,669 713,888 469,704 (4,170) 35,867 248,623 67,716 26,754 1,558,382 5,056,811 1,993,204 12,882,187 456,442 409,923 2,245,120 856,754 23,900,441 2,182,669 Total: $ 65,272,957 $ 5,205,350 $ 70,478,307 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 Local Government Investment Pool, bankers' acceptances, or deposits with Washington State banks and savings and loan institutions. In 2012 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, 2012, the equity in pooled cash and investments was $70,761,104. At year-end, the City had $70,761,104 in cash and cash equivalents which consisted of investments with the Local Government Investment Pool of $66,472,650 the City's checking account bank balance prior to outstanding checks was $4,189,117; and petty cash and change funds, advance travel fund and investigative fund totaling $48,710, and Court Trust of $50,627. No deposits were uninsured or uncollateralized. Insurance coverage up to $250,000 is through federal depository insurance and the 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 Local Government Investment Pool is managed by the Treasurer of the State of Washington. As of December 31, 2012 the City had the following investments and maturities: 48 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements SC Ul OF E VFS TMINTS BY MATMUTIES AS OF DECEMBER 31, 2012 Investment maturities Less than 1 to 2 Greater than Investment Type Book Value 1 year years 3 years State Investment Pool $ 66,472,650 $ 66,472,650 $ - $ - $ 66,472,650 $ 66,472,650 $ - $ - Reconciliation of Government -Wide Statement of Net Position: Key Bank and Bank of America checking account per books $ 4,189,117 Petty cash/change fund/advance travel/investigative fund 48,710 Local Government Investment Pool 66,472,650 Municipal Court Trust on books Subtotal cash and cash equivalents Cash with escrow agent 50,627 70,761,104 Total cash and investments, Government -Wide Statement of Net Position $ 70,761,104 Investments Interest Rate Risk As a means of limiting its exposure to fair value losses arising from rising interest rates, the City's investment 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 counter -party has to an investment in not fulfilling 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: Local Government 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, 2012, 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." Other Information Below is a schedule of investments by fund type: 49 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements S CBEDULE OF INVESTMENTS BY FUND CATEGORY AND INVESTMENT TYPE AS OF DECEMBER 31, 2012 State Investment Fund Type Pool Total General Fund $ 13,495,702 $ 13,495,702 Special Revenue Funds 11,953,530 11,953,530 Capital Projects Funds 21,627,894 21,627,894 Enterprise Funds 3,377,465 3,377,465 Internal Services Funds 16,018,059 16,018,059 Total: $ 66,472,650 $ 66,472,650 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. 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. 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 $329,242. Of this, $307,489 is recorded as deferred inflow of resources, since it was not collected within the first 30 days of 2013. Property taxes are recorded as a receivable when levied, offset by deferred inflow of resources. 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 $1.60. The remaining $2.00 is for the fire district ($1.50) and library district ($0.50). 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 2012 was $1.3011 per $1,000 on an assessed valuation of $7,722,983,802 for a total regular levy of $9,967,650. 50 City of Federal Way 2012 CAFR Deferred Inflows of Resources Notes to the Basic Financial Statements The table below provides details of the deferred inflows of resources as reported on the statement of net position. Grant reimbursements and refuse collection fees are receivable within one year of the end of the fiscal period. DEFERRED INFLOWS OF RESOURCES AS OF DECEMBER 31, 2012 Downtow Total Surface Dumas n Debt Nonmajor General Water Bay Total Deferred Inflows of Resources General Street Redev. Service Gov't Govt Mgmt Centre Proprietary Property tax $ 315,391 $ $ (7,902) $ $ $ 307,489 $ - $ $ - SWM fees - - 114,631 114,631 Public Defender Grant 23,000 - 23,000 - - King County New Solution Grant 428 - 428 Commute Trip Reduction Grant - 65,009 65,009 South King Fire & Rescue Buy -In - - 97,050 97,050 - of ValleyCom Recreation programs / facility rentals 36,779 - - 97,734 134,513 180,546 180,546 Total by Fund: 1 $ 375,598 $ 65,009 $ (7,902) $ 97,050 $ 97,734 $ 627,489 $ 114,631 $ 180,546 1 $ 295,177 Receivables & Due from Other Governments The receivables for the fiscal year ended December 31, 2012 on the government -wide statement of net position are detailed in the following schedule. RECEIVABLES & DUE FROM OTHER GOVMNIVIENTS AS OF DECEMBER 31, 2012 Receivable General Street Utility Tax Debt Downtown Transport- Service Redevelopment ation Nonmajor Govt Proprietary Total Property tax $ 337,123 $ $ $ - $ (7,880) $ - S $ $ 329,242 Real Estate Excise tax - 301,156 301,156 Utility tax - 1,177,253 - 1,177,253 Gambling tax 24,134 - - - 24,134 Recreation programs/ facilities 4,676 - 46,693 16,867 68,237 Grants & contributions 156,957 15,273 153,407 309,320 382,251 1,017,208 Otherreceivable - - - - - - - - State Shared revenue Surface Water Management fees 1,092,047 81,271 3,025 935 24,266 - 52,255 - 168,221 1,253,800 168,221 Total by Fund: $ 1,614,937 $ 96,544 $ 1,180,278 $ 302,091 $ (7,880) $ 177,673 $ 408,268 $ 567,340 $4,339,252 NOTE 7 - DUE TO OTHER GOVERNMENTS At December 31, 2012, the City recorded $18,265 as due to other governmental units as follows: DUE TO OTHER GOVERNMENT AS OF DECEMBER 31, 2012 Surface Water Mgmt. King County - 2012 SWM collection fee $ 18,265 Total Business -Type Activities $ 18,265 51 City of Federal Way 2012 CAFR NOTE 8 — CAPITAL ASSETS Notes to the Basic Financial Statements Capital assets activity for the year ended December 31, 2012 is as follows: CAPITAL ASS ErS AS OF DECEMBER 31, 2012 Governmental Activity Beginning Balance Additions Deletions Ending Balance 1/1/2012 12/31/2012 Capital Assets, not being depreciated: Land Construction in progress Total capital assets, not being depreciated 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 $ 302,168,217 $ 1,397,358 $ - $ 303,565,575 21,158,058 3,964,704 (2,379,234) 22,743,528 323,326,275 5,362,062 (2,379,234) 326,309,103 17,149,019 18,153 - 17,167,172 43,865,580 - - 43,865,580 147,163,554 4,041,184 - 151,204,738 15,219,018 1,408,815 (638,132) 15,989,701 223,397,171 5,468,152 (638,132) 228,227,191 (5,612,875) (909,147) - (6,522,022) (14,929,777) (2,193,279) - (17,123,056) (33,305,214) (3,886,582) - (37,191,796) (10,150,677) (1,273,807) 632,836 (10,791,648) (63,998,542) (8,262,815) 632,836 (71,628,522) 159,398,629 (2,794,663) (5,296) 156,598,669 Governmental activities capital assets, net $ 482,724,905 $ 2,567,399 $ (2,384,530) $ 482,907,774 Business -Type Activities Beginning Balance Additions Deletions Ending Balance 1/1/2012 12/31/2012 Capital Assets, not being depreciated: Land $ 10,310,215 $ 623,313 $ - $ 10,933,528 Construction in progress 2,453,470 102,667 (153,691) 2,402,446 Total capital assets, not being depreciated: 12,763,685 725,980 (153,691) 13,335,974 Capital assets, being depreciated: Buildings 3,600,864 - - 3,600,864 Improvements other than buildings 47,818,768 153,691 - 47,972,459 Infrastructure 1,916,645 - - 1,916,645 Machinery & equipment 118,374 - - 118,374 Total capital assets, being depreciated: 53,454,650 153,691 - 53,608,341 Less accumulated depreciation for: Buildings (2,619,980) (180,043) - (2,800,023) Improvements other than buildings (12,328,736) (478,188) - (12,806,924) Infrastructure (100,642) (19,166) - (119,808) Machinery & equipment (88,418) (2,946) - (91,364) Total accumulated depreciation: (15,137,776) (680,343) - (15,818,119) Total assets being depreciated, net 38,316,874 (526,652) - 37,790,222 Business -Type activities capital assets, net $ 51,080,558 $ 199,328 $ (153,691) $ 51,126,195 52 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements At the end of 2012, 23 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, 2012, are as follows: AS OF DECFNIBER 31, 2012 Construction Remaining Governmental Activities Projects in progress Commitment Downtown Redevelopment $ 279,919 $ - Major Facility Rehabilitation 231,109 56,371 Performing Arts Center 229,530 601,118 Regional Park Development 300,666 - Lakota Park 166,912 - Hylebos Boardwalk Replacement 1,361,909 27,602 Sacajawea Park Masterplan 627,949 104,553 Trail and pedestrian access improvements 80,206 1,160,728 Laurelwood 40,460 161,984 Lakota Soccer Field Upgrade - 391,000 S 320th St @ 20th Ave South 268,126 3,879,047 SW 312th ST @ SR509 282,829 1,232,657 loth Avenue SW / SW 344th St: SW Campus Drive - 21st Ave SW 252,301 66,137 S 352nd Street Extension From SR-99 to SR-161 452,008 - South 320th st @ 1-5 southbound ramp 3,128,090 620,912 South 356th St: SR99 - SR161 145 1,097,249 SR99 HOVLanes Phase 4 13,181,250 442,661 SR99 HOV Lanes Phase 5 - 2,000,809 SW 336th Way / SW 340th St: 26th A SW - Hoyt Rd 52,312 212,396 21ST AVE SW @ SW 336TH ST 795,240 4,523,042 Citywide Flashing Yellow Lights Installation 137,834 5,101 SR 99 @ S 312th St 7,260 55,857 S 344th Way @ Weyerhaeuser Way S 281,685 11,384 Mrk Twain Elementary Safe Route to School Impr 370,965 15,092 SW 312th St & 14th Ave SW Lakota Safe Rt to School Imp 214,819 818,395 Total governmental activities $ 22,743,528 $ 17,484,095 53 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements Depreciation expense was charged to functions/programs of the primary government as follows: CAPITAL ASSETS DEPRECIATION BY TYPE AS OF DECEMBER 31, 2012 Governmental and Internal Service Activities General government $ 319,151 Security of persons & property 1,146,690 Transportation 4,201,783 Physical environment 25,670 Economic environment 148,781 Health 30,350 Culture & recreation 2,390,390 Total Depreciation - Governmental Activities $ 8,262,815 Business -Type Activities Utilities - Surface Water Management $ 498,346 Culture & recreation - Dumas Bay Centre 181,997 Total Depreciation - Business -Type Activities $ 680,343 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 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. 54 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements 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. 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 6SI City of Federal Way 2012 CAFR Notes to the Basic Financial Statements 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: • 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 56 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements 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. There are 1,184 participating employers in PERS. Membership in PERS consisted of the following as of the latest actuarial valuation date for the plans of June 30, 2012: Retirees and Beneficiaries Receiving Benefits 79,363 Terminated Plan Members Entitled to But Not Yet Receiving Benefits 29,925 Active Plan Members Vest 105,578 Active Plan Members Nonvested 46,839 Total 261,705 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, 2012, are as follows: Members not participating in JBM: PERS Plan 1 PERS Plan 2 PERS Plan 3 Employer* 7.21%* 7.21% 7.21%** Employee 6.00% 4.64% * The employer rates include the employer administrative expense fee currently set at 0.16%. ** Plan 3 defined benefitportion 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* 7.21%* 7.21% 7.21%** Employee 12.26% 11.60% 7.50*** * The employer rates include the employer administrative expense fee currently set at 0.16%. ** Plan 3 defined benefitportion 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 1 PERS Plan 2 PERS Plan 3 2012 $ 1,588 $ 708,790 $ 132,404 2011 $ 2,872 $ 623,807 $ 111,278 2010 $ 7,826 $ 571,406 $ 104,390 6111 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements 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. 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. 58 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements 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. 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 373 participating employers in LEOFF. Membership in LEOFF consisted of the following as of the latest actuarial valuation date for the plans of June 30, 2012: Retirees and beneficiaries receive benefits 9,947 Terminated plan members entitled to but not yet receiving benefits 656 Active plan members vest 13,942 Active plan members nonvested 3,113 Total 27,658 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. 59 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements The required contribution rates expressed as a percentage of current year covered payroll, as of December 31, 2011 were: LEOFF Plan 1 LEOFF Plan 2 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%. Both the City and employees made the required contributions. The City's required contributions for the years ended December 31 were: LEOFF Plan 1 LEOFF Plan 2 2012 - $ 575,718 2011 - $ 577,434 2010 - $ 589,769 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 2012, there were a total of 297 individuals covered by this system. As of the end of the year, 294 remained as active employees of the City and six were drawing retirement benefits. The 15 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 2012 was $20,344,866 and total City payroll was $24,017,446. Actual City contributions for the year were $1,158,306. Actual employee contributions were $1,381,059. 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 County 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, 2012 were $1,713,739. 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. 60 City of Federal Way 2012 CAFR NOTE 10 —RISK MANAGEMENT Notes to the Basic Financial Statements 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. 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 2012. The following is a summary of coverage in force in 2012. 61 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements S CHEDULE OF INS URANCE IN FORCE AS OF DECEMBER 31, 2012 Company Policy Period Details of Coverage Liability Limits General Liability (Auto, General, Police E & O, $20,000,000 per Occurrence subject to Annual Aggregates and WCIA 1/l/12-12/31/12 Employment Practices, & Stop Gap) Sublimits. Deductible: $100,000 Crime/Fidelity (Employee Dishonesty, Faithful Performance of Duty, Forgery or Alternation, WCIA 1/l/12-12/31/12 Theft, Disappearance and Destruction, $2,500,000. Deductible $10,000. Robbery and Safe Burglary, and Computer Fraud) Limit $300,000,000 per occurrence. Sub-limits:$150,000,000 Earthquake per Occurrence; $100,000,000 Flood per WCIA I/l/12-12/31/12 Property Coverage Occurrence. Deductible: Earthquake 2% ofthe values involved, subject to $100,000 min per occurrence. Flood $250,0000 per occurrence. All other perils $25,000 Automobile Physical Damage for Scheduled Actual Cash Value. Deductible $1,000 per occurrence for WCIA I/l/12-12/31/12 Automobiles scheduled automobiles $100,000,000 Maximum Limit; Sub -limits: $10,000,000 Business Interruption; $1,000,000 Extra Expense; $500,000 Hazardous Waste. Deductible $10,000 Combined All Coverage Expect. WCIA 1/l/12-12/31/12 Equipment Breakdown Coverage Turbine Generator Unites, KP Motors, Pumps, and Deep Water Wells, KVA Transformers, HP A/C and Refrigeration Systems and HP ICE's and Generators >=500 HP 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 31", 2012 the City had $1,529,657 in reserve. Unemployment compensation benefits 2011 2012 Unemployment reserve, Jan. 1st $ 1,407,110 $ 1,407,110 Unemployment compensation benefits 248,718 225,920 Claim payments during the year (248,718) (103,373) Unemployment reserve, Dec. 31st $1,407,110 $1,529,657 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 because 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 2012 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 with the exception of SCORE interest payments which in 2012 were paid from the General Fund. Future SCORE debt service will be paid from the 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. 62 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements OUTSTANDING GENERAL OBLIGATION DEBT AND LONG-TERMLIABILITIES - BY TYPE DECEM BER 31, 2012 Amount Beginning Ending Description Bond Rating Issue Maturity M Interest Originally Outstanding Amount Amount Outstanding at Issuance Date Date Rate Issued Debt Issued Redeemed Debt Governmental Activities: General Obligation Bonds: 2003 Limited/Community Center AAA -Ins Nov 15, 03 Dec 01, 33 4.676 $ 15,000,000 $ 12,650,000 $ $ 340,000 $ 12,310,000 Subtotal GO Bonds: - - - - 15,000,000 12,650,000 - 340,000 12,310,000 Other Miscellaneous Debt -Intergovernmental: 2000 Limited/Valley Comm. PDA Al Sep 12, 00 Dec 01, 15 5.31 2,551,600 848,000 201,000 647,000 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 15,507,950 - 201,000 15,306,950 Subtotal GO Bonds plus Misc. 32,211,550 28,157,950 541,000 27,616,950 Compensated absences 1,573,280 1,440,830 1,511,076 1,503,034 Subtotal GO bonds, misc. & comp absences: - - 32,211,550 29,731,230 1,440,830 2,052,076 29,119,984 Business -Type Activities: Public Works Trust Fund Loan: PWTL - Kitts Comer Drain Imp Aug 31, 94 Jul 01, 14 1.00 233,316 27,567 - 12,936 14,631 PWTL -Kitts Comer Drain Imp Jul 24, 96 Jul 01, 14 1.00 1,166,580 197,513 64,680 132,833 PWTL-Kitts Comer Drain Imp Sep 04, 97 Jul 01, 14 1.00 155,544 33,637 8,624 25,013 PWTL-SeaTac Mall Drain Imp May 31, 00 Jul 01, 19 1.00 412,500 128,160 16,020 112,140 PWTL - SeaTac Mall Drain Imp Aug 14, 00 Jul 01, 19 1.00 2,062,500 640,799 80,099 560,700 Subtotal PWTFL - - 4,030,440 1,027,676 182,359 845,317 Compensated absences - 78,701 78,093 89,728 67,066 Subtotal PWTFL plus compensated absences: 4,030,440 1,106,377 78,093 272,087 912,383 Grand Total All Long -Term Debt: $36,241,990 $30,837,607 $ 1,518,923 $ 2,324,163 $30,032,367 OUTSTANDING GINERAL OBLIGATION DEBT AND LONG-TERM LIABILTl IES - BY FUND DECEMBER 31, 2012 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/Conitnunity Center $ 15,000,000 $ 12,650,000 $ $ 340,000 $ 12,310,000 $ 355,000 Subtotal GO Bonds: 15,000,000 12,650,000 340,000 12,310,000 355,000 Other Miscellaneous Debt -Intergovernmental: 2000 Limited/Valley Comm PDA 2,551,600 848,000 - 201,000 647,000 215,000 2009 SCORE/Special Obligation Bond 14,659,950 14,659,950 - - 14,659,950 325,550 Subtotal miscellaneous: 17,211,550 15,507,950 - 201,000 15,306,950 540,550 Subtotal GO Bonds plus Misc. 32,211,550 28,157,950 541,000 27,616,950 895,550 Compensated absences - 1,573,280 1,440,830 1,511,076 1,503,034 94,020 Subtotal GO bonds, misc. & corinp absences: 32,211,550 29,731,230 1,440,830 2,052,076 29,119,984 989,570 Business -Type Activities: Enterprise Funds: Public Works Trust Fund Loan 4,030,440 1,027,676 182,359 845,317 182,359 Subtotal Bus -Type Long -Term Debt 4,030,440 1,027,676 - 182,359 845,317 182,359 Compensated absences - 78,701 78,093 89,728 67,066 3,274 Total Bus -Type plus conip. absences LTD: 4,030,440 1,106,377 78,093 272,087 912,383 185,633 Grant Total All Long -Term Debt: $ 36,241,990 $ 30,837,607 $ 1,518,923 $ 2,324,163 $ 30,032,367 $ 1,175,203 *Debt service principal payments in Debt Service Fund include credits of $30,150 from lnterlocal agreement with Federal Way Fire District to participate in capital cost obligations with Valley Communications joint venture with the City of Federal Way. 63 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements SCHEDULE OF CHANGES IN LONGTERM LIABILITIES PERIOD ENDED DECELVIBER 31, 2012 Beginning Ending Outstanding Additions Reductions Outstanding Debt Debt Governmental Activities: General Obligation Bonds $ 12,650,000 $ - $ (340,000) $ 12,310,000 Other -intergovernmental debt 15,507,950 - (201,000) 15,306,950 Compensated absences 1,573,280 1,440,830 (1,511,076) 1,503,034 Total Governmental Activities 29,731,230 1,440,830 (2,052,076) 29,119,984 Business -Type Activities: Enterprise Funds Public Works Trust Fund Loan 1,027,676 - (182,359) 845,317 Compensated absences 78,701 78,093 (89,728) 67,066 Total Business -Type Activities 1,106,377 78,093 (272,087) 912,383 Total All Funds $ 30,837,607 $ 1,518,923 $ 2,324,163 $ 30,032,367 SC XJI OF DEBT SERVICE REQUJIMIINTS TO MATURITY AS OF DECEMBER 31, 2012 Government Activities Business -Type Activities General Governmental Debt Public Work Trust Fund Grand Total Principal Interest Principal Interest Principal Interest P&I Year 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 $ 27,616,950 1 $ 17,171,026 $ 845,317 $ 29,501 1 $ 28,462,267 1 $ 17,200,527 1 $ 45,662,793 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'h 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, 2012 are: General government (no vote required) $ 81,530,018 General government (3/5 majority vote required) 71,428,320 Parks and open space (3/5 majority vote required) 178,570,799 Utilities (3/5 majority vote required) 178,570,799 Total Capacity $ 510,099,936 64 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements 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 $ 94,020 Noncurrent portion 1,409,014 Business -Type Activities: Current portion 3,274 Noncurrent portion 63,792 Total Compensated absences $ 1,570,100 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, 2012 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, 2012. 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: 2012 3,000 2013 3,000 2014 3,000 2015 1,500 Total: $ 10,500 NOTE 12 — INTERFUND TRANSACTIONS Interfund transfers for the year ended December 31, 2012 were as follows: Interfund Transfers In Out 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 $ 9,088,018 $ 1,772,871 2,419,371 8,343 - 12,554,760 913,892 1,025,000 1,621,000 - 2,186,000 1,007,807 409,181 409,181 140,500 - 56,790 56,790 Total: $16,834,752 $16,834,752 65 City of Federal Way 2012 CAFR The following describes the amounts transferred out during 2012: Notes to the Basic Financial Statements General Fund: • $1,716,371 to Street Fund to subsidize street maintenance and operations • $27,500 to DBC for roof repair and pump station • $25,000 to Federal Way Community Center for use of facilities by General Parks and Recreation • $4,000 to CDBG for Consolidated Plan update Street Fund: • $8,343 to General Fund for support of Secure Our School Grant contribution Utility Tax Fund: • $2,702,868 to General Fund for Proposition 1 for Public Safety and Community Programs Funding • $925,000 for SCORE • $913,892 to Federal Way Community Center Debt Service • $1,021,000 to Arterial Street Fund overlay program • $616,000 to General Fund for Public Safety Positions • $227,000 to General Fund for Celebration Park maintenance & operations • $373,000 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 • $49,000 to General Fund for new Parks maintenance and operations • $706,000 to Federal Way Community Center for maintenance/operations and capital reserves • $3,940,000 to General Fund for ongoing support of operations • $543,000 to Transportation CIP project SW 312th St at SR509 • $153,000 to Transportation CIP project 216t Ave Southwest at Southwest 336th St. • $50,000 to Parks CIP Major Maintenance -Parks Facilities • $50,000 to Parks CIP for Playgrounds • $75,000 to Parks CIP for Sacajawea Park Masterplan Debt Service Fund: $834,000 of Real Estate Excise Tax to Transportation CIP project South 344t" Way at Weyerhaeuser Way S $91,000 of Real Estate Excise Tax to Transportation CIP project 215t Ave SW at SW 336th St. $100,000 of Real Estate Excise Tax to Parks CIP for Playgrounds Proprietary Funds: • $179,181 from Surface Water Management CIP to Surface Water Management Operations • $230,000 from Surface Water Management Operations to Surface Water Management CIP for Small Projects Internal Service: • $56,790 from Risk management to Fleet/Equipment for insurance proceeds Nonmajor Fund: • $50,000 from Traffic Safety Fund to General Fund for support of Municipal Court • $450,000 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 • $22,807 from CDBG Fund to General Fund for Recreation Inclusive Coordinator • $155,000 from Paths & Trails Fund to Parks CIP Trail and Pedestrian Access Improvements Interfund loans for the year ended December 31, 2012 were as follows: Interfund Loans Receivable Payable General Fund $ 10,000 $ - Special Revenue Funds: Community Development Block Grant - 10,000 Total InterfundLoans $ 10,000 $ 10,000 66 City of Federal Way 2012 CAFR NOTE 13 — CONTINGENCIES AND LITIGATION Notes to the Basic Financial Statements As of December 31, 2012 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, 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 was automatically extended for a consecutive five year -period. 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 2012 cost distributions for the five member cities are as follows: City Dispatchable Calls Percent of Total Kent 96,126 28.28% Renton 72,004 21.18% Auburn 65,612 19.30% Tukwila 33,645 9.90% Federal Way 72,547 21.34% Total 339,934 100.00 % 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. 67 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements 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 2012 Kent Renton Auburn Tukwila Federal Way Total Equity @ January 1, 2012 $ 7,052,093 $ 4,996,753 $ 4,723,727 $ 2,812,717 $ 3,258,408 $ 22,843,698 Current year increase 87,685 65,681 59,850 30,690 66,176 310,082 Equity @ December 31, 2012 $ 7,139,778 $ 5,062,434 $ 4,783,577 $ 2,843,407 $ 3,324,584 $ 23,153,780 Percent of equity 30.84% 21.86% 20.66% 12.28% 14.36% 100.00% Prior year's percent of equity 30.87% 21.87% 20.68% 12.31% 14.26% 100.00% A complete set of financial statements is available from: Valley Communications Center, 27519 108t' 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 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: 68 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements Summary of Debt Service Requirements Debt Service Schedule Debt Service Allocation to Owner Cities 35% BA -Bs Auburn Burien Federal Way Renton SeaTac Tukwila Year Principal Interest Subsidy Total 31% 4% 18% 36% 3% 8% 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 2,145,000 4,820,241 (1,621,980)� 5,343,261 1,656,411 213,730 961,787 1,923,574 160,298 427,461 2018-2022 11,990,000 22,399,915 (7,748,350) 26,641,565 8,258,885 1,065,663 4,795,482 9,590,963 799,247 2,131,325 2023-2027 14,485,000 18,727,798 (6,710,481) 26,502,317 8,215,718 1,060,093 4,770,417 9,540,834 795,070 2,120,185 2028-2032 17,725,000 13,590,870 (4,959,695) 26,356,175 8,170,414 1,054,247 4,744,112 9,488,223 790,685 2,108,494 2033-2037 21,855,000 7,082,263 (2,731,829) 26,205,434 8,123,685 1,048,217 4,716,978 9,433,956 786,163 2,096,435 2038-2039 10,115,000 676,321 (353,824) 10,437,497 3,235,624 417,500 1,878,749 3,757,499 313,125 835,000 Total $ 86,235,000 $ 87,397,927 $ (30,721,797) $ 142,911,130 $ 44,302,450 $ 5,716,445 $ 25,724,004 $ 51,448,007 $ 4,287,334 $11,432,891 *Of the $25,724,004 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, 2012 related to SCORE: South Correction Entity (SCORE) 2012 Owner Cities Equity Allocation Member Percentof 2011 2012 city i i Balance Distribution Equity Balance Auburn 31.00% $ 3,189,320 $ (1,820,461) $ 1,368,859 Burien 4.00% 411,525 (234,898) 176,627 Federal Way 18.00% 1,851,863 (1,057,043) 794,820 Renton 36.00% 3,703,728 (2,114,084) 1,589,644 SeaTac 3.00% 308,643 (176,174) 132,469 Tukwila 8.00% 823,050 (469,796) 353,254 Total 100.00% $ 10,288,129 $ (5,872,456) $ 4,415,673 A complete set of financial statements is available from: SCORE, 20817 17th Avenue South, Des Moines, WA 98198. NOTE 15 - ACCOUNTING AND REPORTING CHANGES Effective for financial statements for periods beginning after December 15, 2011, the City implemented GASB Statement No. 63, Financial Reporting of Deferred Ou�flows of Resources, Deferred Inflow of Resources and Net Position. GASB Statement No. 63 provides financial reporting guidance for deferred outflows of resources and deferred inflows of resources, introduced and defined in GASB Concepts Statement No. 4. This Statement amends the net asset reporting requirements in Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, and other pronouncements by incorporating deferred outflows of resources and deferred inflows of resources into the definitions of the required components of the residual measure and by renaming that measure as net position, rather than net assets. Effective for financial statements for periods beginning after December 15, 2012, the City implemented early, GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. GASB Statement No. 65 establishes accounting and reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were reported as assets and liabilities. NOTE 16 - SUBSEQUENT EVENTS On January 1, 2013, the City transferred coverage from the Washington Cities Insurance Authority to three new insurance providers. The City hopes eventually to become self -insured, which the City believes will provide a greater ability to control cost and implement frugal innovation. The new insurance carriers will allow the City to move toward its goal of self- insurance by allowing the City to self -insure up to $250,000, while providing insurance for claims that may exceed that amount. Brit Global Specialty USA is the carrier providing general liability, automobile liability, public officials miscellaneous liability, employee benefits liability and law enforcement activities coverage with a $250,000 self-insurance retention with aggregate limits of $10,000,000. Philadelphia Insurance Companies is the carrier for property liability with a $25,000 deductible with single loss limits of $36,897,057 for building and $3,849,548 in contents. Travelers Casualty and Surety Company of America is the carrier providing public officials and crime fidelity insurance. Coverage includes fidelity 69 City of Federal Way 2012 CAFR Notes to the Basic Financial Statements for employee theft, forgery or alteration, on premises, in transit, money orders and counterfeit money, computer crime, fund transfer fraud, and claims expense with a deductible ranging from $5,000 to $25,000 with single loss limits ranging from $50,000 to $1,000,000. In February 2013 Moody's Investors Service assigned an Aa3 rating to the City's Limited Tax General Obligation Refunding Bonds, 2013. At the same time, Moody's affirmed the Aa3 rating on the City's approximately $355,000 limited tax G.O. bonds, post refunding. Moody's also affirmed the City's Aa2 unlimited tax GO -equivalent issuer rating. In March 2013 the city issued advance refunding bonds for the purpose of refunding the 2003 Federal Way Community Center bonds on December 1, 2013. Details of the refunding bond are as follows: Issue Amount $12,415,000; True Interest Cost 2.886%; Net Present Value of Refunded Par 14%; Net Present Value Savings $1,741,000. FTI City of Federal Way 2012 CAFR Fund Financial Statements and Schedules Combining Statement — Nonmajor Governmental Funds' Description For the Year Ended December 31, 2012 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. 71 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules 4ik CITY OF '0'::tS:pFederal Way It"s all within reach THIS PAGE IS LEFT INTENTIONALLY BLANK 72 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS December 31, 2012 ASSETS Equity in pooled cash & investments Receivables (net): Accounts and contracts Due from other governments TOTAL ASSETS LIABILITIES AND FUND BALANCES Liabilities: Vouchers payable Deposits payable Interfund loans payable TOTAL LIABILITIES Special Capital Revenue Projects Total $ 4,294,342 $ 3,410,809 $ 7,705,151 46,693 - 46,693 361,575 - 361,575 4,702,610 3,410,809 8,113,419 345,601 12,692 358,293 12,206 - 12,206 10,000 - 10,000 367,807 12,692 380,499 DEFERRED INFLOW OF RESOURCES 97,734 Fund Balance: Restricted 812,174 2,429,593 3,241,767 Committed 3,424,896 968,524 4,393,420 TOTAL FUND BALANCES 4,237,069 3,398,117 7,635,187 TOTAL LIABILITIES AND FUND BALANCE $ 4,702,610 $ 3,410,809 $ 8,113,419 73 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules COMBINING BALANCE SHEET NONMAJOR SPECIAL REVENUE FUNDS December 31, 2012 Special Arterial Solid Waste Contracts/ Hotel/Motel Street Recycling Studies Lodging Tax ASSETS Equity in pooled cash & investments $ 41,864 $ 121,158 $ 502,613 $ 88,879 Receivables (net): Accounts and contracts - - - - Due from other governments 37,997 60,446 - 13,537 TOTAL ASSETS 79,861 181,604 502,613 102,416 LIABILITIES AND FUND BALANCES Liabilities: Vouchers payable 332 9,602 238 - Deposits payable - - - - Interfund loans payable - - - - TOTAL LIABILITIES 332 9,602 238 - DEFERRED INFLOW OF RESOURCES - - - - Fund Balance: Restricted - - 502,375 102,416 Committed 79,530 172,002 - - TOTAL FUND BALANCES 79,530 172,002 502,375 102,416 TOTAL LIABILITIES AND FUND BALANCE $ 79,861 $ 181,604 $ 502,613 $ 102,416 74 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules ASSETS Equity in pooled cash & investments Receivables (net): Accounts and contracts Due from other governments TOTAL ASSETS LIABILITIES AND FUND BALANCES Liabilities: Vouchers payable Deposits payable Interfund loans payable TOTAL LIABILITIES COMBINING BALANCE SHEET NONMAJOR SPECIAL REVENUE FUNDS December 31, 2012 Federal way Community Paths and Community Traffic Development Trails Center Safety Block Grant Reserve Total $ 1,318,533 $ 2,031,182 $ 24,165 $ 165,947 $ 4,294,341 46,693 - - - 46,693 - - 248,874 721 361,575 1,365,226 2,031,182 273,039 166,668 4,702,609 57,788 55,316 222,325 12,206 - - - - 10,000 69,994 55,316 232,325 345,600 - 12,206 10,000 367,806 DEFERRED INFLOW OF RESOURCES 97,734 - - - 97,734 Fund Balance: Restricted - - 40,715 166,668 812,174 Committed 1,197,498 1,975,866 - - 3,424,896 TOTAL FUND BALANCES 1,197,498 1,975,866 40,715 166,668 4,237,069 TOTAL LIABILITIES AND FUND BALANCE $ 1,365,226 $ 2,031,182 $ 273,039 $ 166,668 $ 4,702,609 01 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules COMBINING BALANCE SHEET NONMAJOR CAPITAL PROJECTS FUNDS December 31, 2012 City Facilities Parks Total ASSETS Equity in pooled cash & investments $ 1,137,853 $ 2,272,957 $ 3,410,810 TOTAL ASSETS 1,137,853 2,272,957 3,410,810 LIABILITIES AND FUND BALANCES Liabilities: Vouchers payable - 12,692 12,692 TOTAL LIABILITIES - 12,692 12,692 Fund Balance: Restricted 657,781 1,771,812 2,429,593 Committed 480,071 488,453 968,524 TOTAL FUND BALANCES 1,137,852 2,260,265 3,398,117 TOTAL LIABILITIES AND FUND BALANCE $ 1,137,853 $ 2,272,957 $ 3,410,810 76 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS For Year Ended December 31, 2012 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 $ 353,955 $ - $ 353,955 1,539,408 - 1,539,408 1,802,294 114,878 1,917,172 2,260,336 - 2,260,336 2,882 3,496 6,378 234,988 3,739 238,728 6,193,863 122,113 6,315,977 929,044 10,124 939,168 9,386 - 9,386 1,937,144 - 1,937,144 409,042 - 409,042 304,489 - 304,489 2,214,485 30,445 2,244,930 20,859 807,924 828,783 5,824,449 848,493 6,672,942 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 369,414 (726,380) (356,965) OTHER FINANCING SOURCES (USES) Transfers in 1,756,000 430,000 2,186,000 Transfers out (1,007,807) - (1,007,807) TOTAL OTHER FINANCING SOURCES (USES) 748,193 430,000 1,178,193 NET CHANGE IN FUND BALANCES 1,117,607 (296,380) 821,228 FUND BALANCES - BEGINNING 3,119,462 3,694,497 6,813,959 FUND BALANCES - ENDING $ 4,237,069 $ 3,398,117 $ 7,635,187 V&A City of Federal Way 2012 CAFR Fund Financial Statements and Schedules COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR SPECIAL REVENUE FUNDS For Year Ended December 31, 2012 Special Arterial Solid Waste Contracts/ Hotel/Motel Street Recycling Studies Lodging Tax REVENUES Taxes $ $ - $ - $ 193,344 Intergovernmental 484,393 139,966 - - Service charges and fees 41,500 282,584 - - Fines and forfeitures - 3,700 - - Interest 77 119 481 77 Other - 695 - - TOTAL REVENUES 525,970 427,064 481 193,421 EXPENDITURES Current: General government - - 34,000 - Security of persons and property - - - - Transportation 1,937,144 - - - Physical environment - 409,042 - - Economic environment - - - 304,489 Culture and recreation - - - - Capital outlay - - 20,859 - TOTAL EXPENDITURES 1,937,144 409,042 54,859 304,489 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (1,411,174) 18,022 (54,378) (111,068) OTHER FINANCING SOURCES (USES) Transfers in 1,021,000 - - - Transfers out - - - - TOTAL OTHER FINANCING SOURCES (USES) 1,021,000 - - - NET CHANGE IN FUND BALANCES (390,174) 18,022 (54,378) (111,068) FUND BALANCES - BEGINNING 469,704 153,980 556,753 213,484 FUND BALANCES - ENDING $ 79,530 $ 172,002 $ 502,375 $ 102,416 78 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules REVENUES Taxes Intergovernmental Service charges and fees Fines and forfeitures Interest Other TOTAL REVENUES COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR SPECIAL REVENUE FUNDS For Year Ended December 31, 2012 EXPENDITURES Current: General government Security of persons and property Transportation Physical environment Economic environment Culture and recreation Capital outlay Federal way Community Community Traffic Development Center Safety Block Grant Paths and Trails Reserve Total $ - $ - $ - $ 160,611 $ 353,955 - - 905,854 9,195 1,539,408 1,478,210 - - - 1,802,294 - 2,256,636 - - 2,260,336 534 1,539 - 55 2,882 234,294 - - - 234,988 1,713,038 2,258,175 905,854 169,861 6,193,863 - - 895,044 - 929,044 9,386 - - 9,386 - - - 1,937,144 - 409,042 - - - 304,489 2,214,485 - - 2,214,485 - - 20,859 TOTAL EXPENDITURES 2,214,485 9,386 895,044 - 5,824,449 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (501,447) 2,248,789 10,810 169,861 369,414 OTHER FINANCING SOURCES (USES) Transfers in 731,000 - 4,000 - 1,756,000 Transfers out - (830,000) (22,807) (155,000) (1,007,807) TOTAL OTHER FINANCING SOURCES (USES) 731,000 (830,000) (18,807) (155,000) 748,193 NET CHANGE IN FUND BALANCES 229,553 1,418,789 (7,997) 14,861 1,117,607 FUND BALANCES - BEGINNING 967,945 557,077 48,712 151,807 3,119,462 FUND BALANCES - ENDING $ 1,197,498 $ 1,975,866 $ 40,715 $ 166,668 $ 4,237,069 79 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR CAPITAL PROJECTS FUNDS For Year Ended December 31, 2012 City Facilities Parks Total REVENUES Service charges and fees $ - $ 114,878 $ 114,878 Interest 1,145 2,351 3,496 Other 500 3,239 3,739 TOTAL REVENUES 1,645 120,468 122,113 EXPENDITURES Current: General government 10,124 - 10,124 Culture and recreation - 30,445 30,445 Capital outlay 139,277 668,647 807,924 TOTAL EXPENDITURES 149,401 699,092 848,493 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (147,756) (578,624) (726,380) OTHER FINANCING SOURCES (USES) Transfers in - 430,000 430,000 TOTAL OTHER FINANCING SOURCES (USES) - 430,000 430,000 NET CHANGE IN FUND BALANCES (147,756) (148,624) (296,380) FUND BALANCES - BEGINNING 1,285,608 2,408,889 3,694,497 FUND BALANCES - ENDING $ 1,137,852 $ 2,260,265 $ 3,398,117 80 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules ARTERIAL STREET SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2012 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Intergovernmental $ 500,000 $ 500,000 $ 484,393 $ (15,607) Service charges and fees - - 41,500 41,500 Interest 2,500 2,500 77 (2,423) TOTAL REVENUES 502,500 502,500 525,970 23,470 EXPENDITURES Current: Transportation 1,523,500 1,993,204 1,937J44 56,060 TOTAL EXPENDITURES 1,523,500 1,993,204 1,937,144 56,060 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (1,021,000) (1,490,704) (1,411,174) 79,530 OTHER FINANCING SOURCES (USES) Transfers in 1,021,000 1,021,000 1,021,000 - TOTAL OTHER FINANCING SOURCES (USES) 1,021,000 1,021,000 1,021,000 - NET CHANGE IN FUND BALANCES - (469,704) (390,174) 79,530 FUND BALANCES - BEGINNING - 469,704 469,704 - FUND BALANCES - ENDING $ - $ - $ 79,530 $ 79,530 81 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules SOLID WASTE & RECYCLING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2012 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Intergovernmental $ 136,000 $ 174,736 $ 139,966 $ (34,770) Service charges and fees 278,120 278,120 282,584 4,464 Fines and forfeitures - - 3,700 3,700 Interest - - 119 119 Other - - 695 695 TOTAL REVENUES 414,120 452,856 427,064 (25,792) EXPENDITURES Current: Physical environment 420,574 456,441 409,042 47,399 TOTAL EXPENDITURES 420,574 456,441 409,042 47,399 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (6,454) (3,585) 18,022 21,607 NET CHANGE IN FUND BALANCES (6,454) (3,585) 18,022 21,607 FUND BALANCES - BEGINNING 135,093 153,980 153,980 - FUND BALANCES - ENDING $ 128,639 $ 150,395 $ 172,002 $ 21,607 82 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules HOTEL/MOTEL LODGING TAX SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2012 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Taxes $ 155,000 $ 193,440 $ 193,344 $ (96) Interest 300 500 77 (423) Other 6,000 2,499 - (2,499) TOTAL REVENUES 161,300 196,439 193,421 (3,018) EXPENDITURES Current: Economic environment 161,300 409,923 304,489 105,434 TOTAL EXPENDITURES 161,300 409,923 304,489 105,434 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES - (213,484) (111,068) 102,416 NET CHANGE IN FUND BALANCES - (213,484) (111,068) 102,416 FUND BALANCES - BEGINNING - 213,484 213,484 - FUND BALANCES - ENDING $ - $ - $ 102,416 $ 102,416 83 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules FEDERAL WAY COMMUNITY CENTER SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2012 REVENUES Service charges and fees Interest Other TOTAL REVENUES EXPENDITURES Current: Culture and recreation TOTAL EXPENDITURES EXCESS (DEFICIENCY) OF REVENUES Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) $ 1,281,122 $ 1,281,122 $ 1,478,210 $ 197,088 - - 534 534 252,500 252,500 234,294 (18,206) 1,533,622 1,533,622 1,713,038 179,416 2,177,404 2,203,113 2,214,485 (11,372) 2,177,404 2,245,120 2,214,485 30,635 OVER (UNDER) EXPENDITURES (643,782) (711,498) (501,447) 210,051 OTHER FINANCING SOURCES (USES) Transfers in 731,000 731,000 731,000 - TOTAL OTHER FINANCING SOURCES (USES) 731,000 731,000 731,000 - NET CHANGE IN FUND BALANCES 87,218 19,502 229,553 210,051 FUND BALANCES - BEGINNING 778,960 967,945 967,945 - FUND BALANCES - ENDING $ 866,178 $ 987,447 $ 1,197,498 $ 210,051 84 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules TRAFFIC SAFETY SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2012 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Fines and forfeitures $ 830,000 $ 830,000 $ 2,256,636 $ 1,426,636 Interest - - 1,539 1,539 TOTAL REVENUES 830,000 830,000 2,258,175 1,428,175 EXPENDITURES Current: Security of persons and property - 26,754 9,386 17,368 TOTAL EXPENDITURES - 26,754 9,386 17,368 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 830,000 803,246 2,248,789 1,445,543 OTHER FINANCING SOURCES (USES) Transfers out (830,000) (830,000) (830,000) - TOTAL OTHER FINANCING SOURCES (USES) (830,000) (830,000) (830,000) - NET CHANGE IN FUND BALANCES - (26,754) 1,418,789 1,445,543 FUND BALANCES - BEGINNING 105,288 557,077 557,077 - FUND BALANCES - ENDING $ 105,288 $ 530,323 $ 1,975,866 $ 1,445,543 85 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules PATH & TRAILS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2012 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Taxes $ 155,000 $ 155,000 $ 160,611 $ 5,611 Intergovernmental 8,000 8,000 9,195 1,195 Interest - - 55 55 TOTAL REVENUES 163,000 163,000 169,861 6,861 EXPENDITURES Current: General government - - - - TOTAL EXPENDITURES - - - - EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 163,000 163,000 169,861 6,861 OTHER FINANCING SOURCES (USES) Transfers out (155,000) (155,000) (155,000) - TOTAL OTHER FINANCING SOURCES (USES) (155,000) (155,000) (155,000) - NET CHANGE IN FUND BALANCES 8,000 8,000 14,861 6,861 FUND BALANCES - BEGINNING 140,768 151,807 151,807 - FUND BALANCES - ENDING $ 148,768 $ 159,807 $ 166,668 $ 6,861 86 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules Budget and Actual — Debt Service Fund Description For the Year Ended December 31, 2012 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. 87 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules BALANCESHEET GOVERNMENTAL FUNDS December 31, 2012 ASSETS Equity in pooled cash & investments Receivables (net): Taxes TOTAL ASSETS DEFERRED INFLOW OF RESOURCES Fund Balance: Restricted TOTAL FUND BALANCES TOTAL LIABILITIES AND FUND BALANCE Debt Service $ 3,978,238 301,156 4,279,394 97,050 4,182,345 4,182,345 $ 4,182,345 88 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For Year Ended December 31, 2012 Variance with Budgeted Amounts Final Budget - Positive Original Final Actual Amounts (Negative) REVENUES Taxes $ 900,000 $ 1,400,000 $ 1,507,315 $ 107,315 Interest 15,000 15,000 3,287 (11,713) TOTAL REVENUES 915,000 1,415,000 1,510,602 95,602 EXPENDITURES Debt service: - - Principal 510,850 510,850 480,760 30,090 Interest/fiscal charges/admin fees 1,571,819 646,819 602,572 44,247 TOTAL EXPENDITURES 2,082,669 1,157,669 1,083,332 74,337 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (1,167,669) 257,331 427,270 169,939 OTHER FINANCING SOURCES (USES) Transfers in 915,000 915,000 913,892 (1,108) Transfers out (100,000) (1,025,000) (1,025,000) - TOTAL OTHER FINANCING SOURCES (USES) 815,000 (110,000) (111,108) (1,108) NET CHANGE IN FUND BALANCES FUND BALANCES - BEGINNING FUND BALANCES - ENDING (352,669) 147,331 316,162 168,831 2,662,878 3,866,183 3,866,183 - $ 2,310,209 $ 4,013,514 $ 4,182,345 $ 168,831 89 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules 4ik CITY OF '0'::tS:pFederal Way It"s all within reach THIS PAGE IS LEFT INTENTIONALLY BLANK rS City of Federal Way 2012 CAFR Fund Financial Statements and Schedules Combining Statement — Internal Service Fund's Description For the Year Ended December 31, 2012 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. City of Federal Way 2012 CAFR Fund Financial Statements and Schedules INTERNAL SERVICE FUNDS COMBINING STATEMENT OF NET POSITION December 31, 2012 Risk Information Support Fleet and Buildings and Management Systems Services Equipment Furnishings TOTAL ASSETS Current Assets Equity in pooled cash & investments $ 5,628,656 $ 3,756,957 $ 287,535 $ 5,777,473 $ 1,607,749 $ 17,058,370 Prepaid items - - 5,000 - - 5,000 TOTAL CURRENT ASSETS 5,628,656 3,756,957 292,535 5,777,473 1,607,749 17,063,370 Noncurrent assets Capital assets: Building/structures - - - - 16,515,708 16,515,708 Machinery/furniture/equipment 7,201,917 263,815 8,339,968 - 15,805,700 Less accumulated depreciation (5,600,610) (143,907) (4,863,127) (6,099,544) (16,707,188) TOTAL NONCURRENT ASSETS - 1,601,307 119,908 3,476,841 10,416,164 15,614,220 TOTAL CURRENT ASSETS 5,628,656 5,358,264 412,443 9,254,314 12,023,913 32,677,590 LIABILITIES Current Liabilities: Vouchers/payroll payable 70,782 98,450 6,672 27,716 30,617 234,237 TOTAL CURRENT LIABILITIES 70,782 98,450 6,672 27,716 30,617 234,237 Long-term liabilities: Compensated absences payable - 41,247 2,926 44,173 TOTAL LONG-TERM LIABILITIES - 41,247 2,926 44,173 TOTAL LIABILITIES 70,782 139,697 6,672 30,642 30,617 278,410 NET POSITION Net Investment in capital - 1,601,307 119,908 3,476,841 10,416,164 15,614,220 Unrestricted 5,557,874 3,617,260 285,863 5,746,831 1,577,132 16,784,960 TOTAL NET POSITION $ 5,557,874 $ 5,218,567 $ 405,771 $ 9,223,672 $ 11,993,296 $ 32,399,180 r•► City of Federal Way 2012 CAFR Fund Financial Statements and Schedules INTERNAL SERVICE FUNDS COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION For Year Ended December 31, 2012 Risk Information Support Fleet and Buildings and Management Systems Services Equipment Furnishings TOTAL OPERATING REVENUES: Service charges and fees $ 1,059,742 $ 1,733,870 $ 142,038 $ 2,129,456 $ 494,095 $ 5,559,201 Intergovernmental - - - 37,161 32,737 69,898 Miscellaneous 172,790 22,893 707 21,219 217,610 TOTAL OPERATING REVENUES 1,232,532 1,756,763 142,038 2,167,324 548,051 5,846,709 OPERATING EXPENSES: Personal services 634,524 - 37,323 89,424 761,271 Materials and supplies 1,119 24,548 18,885 535,450 27,836 607,838 Services and charges 60,500 480,810 76,040 373,660 299,458 1,290,468 Intergovernmental 51,319 123,918 - 180 - 175,417 Insurance 487,336 487,336 Claims 452,921 - 452,921 Depreciation - 426,519 31,087 816,201 901,625 2,175,432 TOTAL OPERATING EXPENSES 1,053,195 1,690,319 126,012 1,762,814 1,318,343 5,950,683 OPERATING INCOME (LOSS) 179,337 66,444 16,026 404,510 (770,292) (103,974) NON -OPERATING REVENUES (EXPENSES): Gain (Loss) from disposal of capital assets - 47,462 - 47,462 Interest income 3,545 3,505 267 4,996 1,462 13,775 TOTAL NON -OPERATING REVENUES (EXPENSES) 3,545 3,505 267 52,458 1,462 61,237 INCOME (LOSS) BEFORE TRANSFERS 182,882 69,949 16,293 456,968 (768,830) (42,737) Capital contributions 148,363 66,559 214,922 Transfers in 56,790 56,790 Transfers out (56,790) (56,790) CHANGE IN NET POSITION 126,092 218,312 16,293 580,317 (768,830) 172,185 NET POSITION - BEGINNING 5,431,782 5,000,255 389,477 8,643,354 12,762,126 32,226,994 NET POSITION - ENDING $ 5,557,874 $ 5,218,567 $ 405,771 $ 9,223,672 $ 11,993,296 $ 32,399,180 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules INTERNAL SERVICE FUNDS COMBINING STATEMENT OF CASH FLOWS For Year Ended December 31, 2012 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 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 asset. Risk Information Support Management Systems Services $ 1,059,742 $ 1,739,446 $ 142,038 (452,921) - - (83,332) (554,879) (94,064) - (636,363) - (538,655) (123,918) - 172,791 17,318 - 157,625 441,604 47,974 (56,790) (56,790) - - (297,069) (40,591) - (297,069) (40,591) 3.545 3.505 267 J,J'YJ J,JVJ LV/ 104,380 148,040 7,650 5,524,276 3,608,917 279,884 5,628,656 3,756,956 287,533 179,337 66,444 16,026 426,519 31,087 (21,712) (49,520) 861 (1,839) - (21,712) 375,160 31,948 $ 157,625 $ 441,604 $ 47,974 $ - $ 148,363 $ - ►!' City of Federal Way 2012 CAFR Fund Financial Statements and Schedules INTERNAL SERVICE FUNDS COMBINING STATEMENT OF CASH FLOWS For Year Ended December 31, 2012 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 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 asset. Fleet and Buildings and Equipment Furnishings TOTAL $ 2,166,617 $ 616,463 $ 5,724,306 - - (452,921) (905,072) (405,112) (2,042,459) (37,673) (89,424) (763,460) - - (662,573) 708 21,219 212,036 1,224,580 143,146 2,014,929 56,790 - 56,790 - - (56,790) 56,790 - - (856,232) (18,153) (1,212,045) 52,758 - 52,758 (803,474) (18,153) (1,159,287) 4,996 1,462 13,775 LF,77D 1,°FOL 1J,//J 482,892 126,455 869,417 5,294,5 81 1,481,294 16,188,952 5,777,473 1,607,749 17,058,367 404,511 (770,292) (103,974) 816,201 901,625 2,175,432 - 40,571 40,571 - 49,060 49,060 4,218 (77,818) (143,971) (350) - (2,189) 820,069 913,438 2,118,903 $ 1,224,580 $ 143,146 $ 2,014,929 $ 66,559 $ - $ 214,922 ►` . City of Federal Way 2012 CAFR Fund Financial Statements and Schedules 4ik CITY OF '0'::tS:pFederal Way It"s all within reach THIS PAGE IS LEFT INTENTIONALLY BLANK 01 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS 97 City of Federal Way 2012 CAFR Fund Financial Statements and Schedules CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS COMPARATIVE SCHEDULE BY SOURCE December 31, 2012 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 2012 2011 $ 303,565,575 $302,168,217 651,464 651,464 43,865,580 43,865,580 184,000 184,000 151,204,738 147,163,554 22,743,528 21,158,058 522,214,885 515,190,873 125,244,871 125,244, 871 252,375,395 252,375,395 122,888,397 121,141,891 21,706,222 16,428,716 $ 522,214,885 $ 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 position. r•: City of Federal Way 2012 CAFR Fund Financial Statements and Schedules CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS SCHEDULE BY FUNCTION AND ACTIVITY December 31, 2012 Improvements Machinery Construction Other than and in Total Total Function and Activity Land Buildings Buildings Equipment Infrastructure Progress 2012 2011 GENERAL GOVERNMENT Miscellaneous general government $ 18,013,262 $ $ 19,973 $184,000 $ 6,139,001 $ 414,278 $ 24,770,514 $ 23,393,421 Total General Government: 18,013,262 19,973 184,000 6,139,001 414,278 24,770,514 23,393,421 CULTURE AND RECREATION Culture and Recreation 121,007,794 651,464 43,845,607 - 94,474,128 2,769,284 262,748,277 262,079,630 Total Culture and Recreation: 121,007,794 651,464 43,845,607 94,474,128 2,769,284 262,748,277 262,079,630 TRANSPORTATION Streets and Traffic 164,544,519 - - 50,591,609 19,559,966 234,696,094 229,717,822 Total Transportation: 164,544,519 50,591,609 19,559,966 234,696,094 229,717,822 Total General Fixed Asset by Function: $303,565,575 $ 651,464 $ 43,865,580 $184,000 $151,204,738 $ 22,743,528 $522,214,885 $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 position. r' City of Federal Way 2012 CAFR Fund Financial Statements and Schedules CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS SCHEDULE OF CHANGES BY FUNCTION AND ACTIVITY For the Year Ended December 31, 2012 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 1/1/2012 Additions Deductions Governmental Funds Capital Assets 12/31/2012 $ 23,393,421 $ 1,377,093 $ - $ 24,770,514 23,393,421 1,377,093 - 24,770,514 262,079,630 668,647 - 262,748,277 262,079,630 668,647 - 262,748,277 229,717,822 4,978,272 - 234,696,094 229,717,822 4,978,272 - 234,696,094 $ 515,190,873 $ 7,024,012 $ - $ 522,214,885 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 position. 100 City of Federal Way 2012 CAFR Statistical Section 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. 101 City of Federal Way 2012 CAFR Statistical Section NET POSITION BY COMPONENT Last Seven Fiscal Years 2006 2007 2008 2009 2010 2011 2012 Governmental activities Net investment in capital assets $ 93,835,163 $ 439,127,122 $ 456,600,030 $ 442,704,401 465,671,345 470,074,905 470,597,776 Restricted 38,359,454 32,269,512 28,434,066 27,476,530 17,442,323 23,941,601 22,847,077 Unrestricted 15,051,966 23,651,674 24,773,913 44,282,822 44,613,406 38,602,445 45,027,323 Total governmental activities net position 147,246,583 495,048,308 509,808,009 514,463,753 527,727,074 532,618,951 538,472,176 Business -type activities Net investment in capital assets 43,697,633 45,264,105 50,494,590 50,578,649 50,563,097 50,052,887 50,280,880 Restricted 26,439 15,777 42,558 16,366 9,411 18,831 26,496 Unrestricted 7,467,417 6,550,179 5,071,617 5,115,275 5,015,367 5,398,786 5,968,302 Total business -type activities net position 51,191,489 51,830,061 55,608,765 55,710,290 55,587,875 55,470,504 56,275,678 Primary government Net investment in capital assets 137,532,796 484,391,227 507,094,620 493,283,050 516,234,442 520,127,792 520,878,656 Restricted 38,385,893 32,285,289 28,476,624 27,492,896 17,451,734 23,960,432 22,873,573 Unrestricted 22,519,383 30,201,853 29,845,530 49,398,097 49,628,773 44,001,231 50,995,625 Total primary government net assets $ 198,438,072 $ 546,878,369 $ 565,416,774 $ 570,174,043 $583,314,949 $588,089,455 $594,747,853 Source: City of Federal Way Finance Note: All amounts are reported on the accrual basis. 102 City of Federal Way 2012 CAFR Statistical Section CHANGES IN NET POSITION Last Seven Fiscal Years 2006 2007 2008 2009 2010 2011 2012 Expenses Governmental activities, General government $ 4,364,710 $ 4,506,800 $5,606,797 $4,566,457 $ 4,865,827 $ 4,448,449 $ 4,300,691 Security of persons and property 19,906,722 23,107,683 24,745,284 26,341,614 26,842,240 27,222,584 27,604,936 Transportation 5,628,100 9,986,067 7,891,298 9,448,397 9,781,800 13,539,598 9,946,776 Physical environment 313,388 336,588 370,718 450,914 451,470 424,466 415,935 Economic environment 3,162,089 3,319,955 3,382,572 3,560,620 3,175,005 2,782,435 2,645,478 Health and human svcs 622,761 684,984 705,976 776,854 767,108 690,643 754,727 Culture and recreation 5,172,663 6,506,137 6,955,442 8,089,242 8,073,804 8,105,578 8,081,401 Interest on long-term debt 1,420,691 1,122,358 901,161 811,124 685,214 614,571 602,572 Total governmental activities expenses 40,591,124 49,570,572 50,559,248 54,045,222 54,642,468 57,828,324 54,352,517 Business -type activities: Surface Water Mgmt 3,142,613 3,454,193 4,060,440 3,345,027 3,384,352 3,527,590 3,272,514 Dumas Bay Center 925,825 980,588 1,045,250 984,103 849,176 890,738 873,144 Total business -type activities expenses 4,068,438 4,434,781 5,105,690 4,329,130 4,233,528 4,418,328 4,145,658 Total primary government expense; 44,659,562 54,005,353 55,664,938 58,374,352 58,875,996 62,246,652 58,498,175 Program Revenues Governmental activities, Charges for services General Government 1,052,641 3,510,339 $2,313,939 $873,258 975,515 816,140 924,966 Security of Persons & Property 4,800,920 2,110,164 2,309,406 5,037,388 5,381,407 4,985,320 5,937,100 Transportation 1,357,333 3,119,637 513,340 1,806,846 1,961,083 2,484,058 2,139,292 Physical Environment 75,580 - 262,847 86,230 90,512 77,875 89,457 Economic Environment 762,603 1,009,707 1,962,624 680,908 636,534 510,483 568,973 Health 150,192 - - 148,579 153,792 126,710 162,322 Culture & Recreation 1,247,495 531,041 2,561,685 1,546,931 1,618,659 1,487,099 1,738,098 Operating grants and contributions 1,512,394 22,858 1,538,476 2,172,168 9,718,920 4,597,981 5,367,163 Capital grants and contributions 5,973,071 11,457,030 8,933,154 8,452,149 9,044,477 9,716,551 5,225,265 Total governmental activities program revenues 16,932,229 21,760,776 20,395,471 20,804,457 29,580,898 24,802,216 22,152,636 Business -type activities: Charges for services 4,130,179 3,667,168 4,473,453 4,183,012 4,246,235 4,020,144 4,222,726 Operating grants and contributions 1,113,010 632,185 - - - 265,660 576,182 Capital grants and contributions - 222,474 - - - - - Total business -type activities program revenues 5,243,189 4,521,827 4,473,453 4,183,012 4,246,235 4,285,804 4,798,908 22,175,418 26,282,603 24,868,924 24,987,469 33,827,133 29,088,020 26,951,544 Net (Expense)/Revenue Governmental activities (23,658,895) (27,809,796) (30,163,777) (33,240,765) (25,061,570) (33,026,108) (32,199,881) Business -type activities 1,174,751 87,046 (632,237) (146,118) 12,707 (132,524) 653,250 General Revenues and Other Changes in Net Position Governmental activities, Taxes Sales tax 12,409,719 13,048,624 12,144,276 10,583,298 10,708,951 10,858,381 10,534,147 Local Criminal Justice Sales Tax 1,953,822 2,145,383 2,051,524 1,743,893 1,701,120 1,795,971 1,864,991 Utility tax 9,043,449 12,796,461 13,469,136 13,549,472 12,890,310 13,068,510 13,083,179 Property tax 8,892,558 9,059,734 9,397,456 9,653,537 9,609,740 9,867,614 10,052,109 Real estate excise tax 5,499,911 4,898,537 2,590,310 1,428,985 1,403,361 1,560,395 1,507,313 Gambling Tax 1,363,468 1,489,952 1,259,783 1,127,203 493,486 511,005 114,443 Hotel/Motel Tax 175,219 191,691 188,833 154,148 149,058 185,289 193,344 Leasehold tax 4,592 7,254 5,712 4,999 5,757 6,259 5,820 Other 3,221,392 6,971,413 6,502,869 2,020,751 1,210,341 1,061,026 838,259 Transfers (107,581) (185,495) 123,518 (200,907) 152,768 (113,000) (140,500) Total governmental activities 42,456,549 50,423,554 47,733,417 40,065,379 38,324,892 38,801,450 38,053,106 Business -type activities: Other Transfers Total business -type activities Total primary government Change in Net Position Governmental activities Business -type activities Prior Period Adjustment Total primary government Source: City of Federal Way Finance Note: All amounts are reported on the accrual basis 388,729 107,581 366,031 185,495 3,447,458 (123,518) 46,736 200,907 17,646 (152,768) 12,405 113,000 11,424 140,500 496,310 551,526 3,323,940 247,643 (135,122) 125,405 151,924 $ 42,952,859 $ 50,975,080 $ 51,057,357 $ 40,313,022 $ 38,189,770 $ 38,926,855 $ 38,205,030 $ 18,797,654 $ 22,613,758 $ 17,569,640 $ 6,824,613 $ 1,671,061 638,572 2,691,703 101,525 - - (1,722,939) (2,168,769) $ 20,468,715 $ 23,252,330 $ 18,538,404 $ 4,757,370 $ 13,263,321 $ 5,775,342 $ 5,853,224 (122,415) (7,119) 805,174 13,140,907 $ 5,768,223 $ 6,658,398 103 City of Federal Way 2012 CAFR Statistical Section GOVERNMENT -WIDE REVENUES BY SOURCE AND EXPENDITURES BY FUNCTION Last Seven Fiscal Years 2006 2007 2008 2009 2010 2011 2012 Program Revenues Charges for Services $ 4,130,179 $14,580,241 $14,397,294 $14,363,151 15,063,736 14,507,828 15,782,934 Operating Grants and Contributions 2,625,404 246,305 1,538,476 2,172,168 9,718,920 4,863,641 5,943,345 Capital Grants and Contributions 5,973,071 11,457,030 8,933,154 8,452,149 9,044,477 9,716,551 5,225,265 General revenues Sales tax 12,409,719 13,048,624 12,144,276 10,583,298 10,708,951 10,858,381 10,534,147 Local Criminal Justice Sales Tax 1,953,822 2,145,383 2,051,524 1,743,893 1,701,120 1,795,971 1,864,991 Utility tax 9,043,449 12,796,461 13,469,136 13,549,472 12,890,310 13,068,510 13,083,179 Property tax 8,892,558 9,059,734 9,397,456 9,653,537 9,609,740 9,867,614 10,052,109 Real estate excise tax 5,499,911 4,898,537 2,590,310 1,428,985 1,403,361 1,560,395 1,507,313 Gambling Tax 1,363,468 1,489,952 1,259,783 1,127,203 493,486 511,005 114,443 Hotel/Motel Tax 175,219 191,691 188,833 154,148 149,058 185,289 193,344 Leasehold tax 4,592 7,254 5,712 4,999 5,757 6,259 5,820 Other revenue 1,299,548 4,194,183 875,389 1,421,791 1,063,825 960,012 702,833 Unrestricted Grants & Contribution - - 7,448,783 284,350 - - - Investment Earnings 3,194,690 3,223,005 1,678,292 385,976 179,373 113,419 146,850 Disposition of capital assets (884,117) (79,744) (52,137) (24,630) (15,211) - - Total Revenues 55,681,513 77,258,656 75,926,281 65,300,490 72,016,903 68,014,875 65,156,573 Expenses/Expenditures General Government 4,364,710 4,506,800 5,606,797 4,566,457 4,865,827 4,448,449 4,300,691 Security of Persons & Property 19,906,722 23,107,683 24,745,284 26,341,614 26,842,240 27,222,584 27,604,936 Transportation 5,628,100 9,986,067 7,891,298 9,448,397 9,781,800 13,539,598 9,946,776 Physical Environment 313,388 336,588 370,718 450,914 451,470 424,466 415,935 Economic Environment 3,162,089 3,319,955 3,382,572 3,560,620 3,175,005 2,782,435 2,645,478 Health 622,761 684,984 705,976 776,954 767,108 690,643 754,727 Culture & Recreation 5,172,663 6,506,137 6,955,442 8,089,242 8,073,804 8,105,578 8,081,401 Interest on long-term debt 1,420,691 1,122,358 901,161 811,124 685,214 614,571 602,572 Surface Water Management 3,142,613 3,455,166 4,060,440 3,345,027 3,384,352 3,527,590 3,272,514 Dumas Bay Centre 925,825 980,588 1,045,250 984,103 849,176 890,738 873,144 Total Expenses/Expenditures $ 44,659,562 $ 54,006,326 $ 55,664,938 $ 58,374,452 $ 58,875,996 $ 62,246,652 $ 58,498,175 Source: City of Federal Way Finance 104 City of Federal Way 2012 CAFR Statistical Section General fund Reserved Unreserved Nonspendable Restricted Committed Unassigned Total general fund All Other Governmental Funds Reserved Unreserved, reported in: Special revenue funds Capital projects funds Debt service funds Restricted Committed Assigned Total all other governmental funds FUND BALANCES OF GOVERNMENTAL FUNDS Last Seven Fiscal Years 2006 2007 2008 2009 2010 2011 2012 278,778 125,184 418,207 106,728 6,492,057 7,783,868 5,511,440 8,138,468 - - - - - - - 81,146 104,012 69,398 168,398 145,524 60,585 - 21,893 21,893 - - - - 8,188,575 12,372,719 14,783,219 6,770,835 7,909,052 5,929,647 8,245,196 8,438,119 12,644,148 14,935,095 194,463 2,323,184 1,763,667 4,770,399 2,772,153 4,392,623 7,505,799 4,311,238 31,863,330 30,054,670 26,252,192 22,934,356 6,217,346 - - - - - - - 17,776,967 19,325,489 18,079,168 18,611,612 11,642,248 15,813,105 - 100,000 - - $ 41,047,292 $ 36,770,477 $ 35,521,658 $ 32,015,993 $ 36,488,580 $ 30,967,736 $ 33,892,273 Source: City of Federal Way Finance Note: Fund Balance reclassification implementation of GASB 54 for year's 2010 and forward 105 City of Federal Way 2012 CAFR Statistical Section 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 fee 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 2006 2007 2008 2009 2010 2011 2012 $39,334,751 $43,584,824 $41,071,781 $38,192,852 $37,122,069 $ 37,831,045 $ 37,450,059 2,089,844 2,939,328 2,195,068 2,163,984 2,547,655 2,209,873 2,501,368 8,047,243 15,494,887 10,520,570 11,127,718 18,648,749 11,713,248 7,631,014 6,355,262 6,327,552 6,246,207 5,573,647 5,486,632 6,131,287 5,686,962 196,060 - - - - - - 805,598 1,005,293 1,433,628 2,200,092 2,783,214 2,146,524 3,371,878 2,447,996 2,463,670 1,274,955 271,600 139,698 89,338 122,483 717,922 630,966 875,389 1,599,207 899,092 960,012 702,830 59,994,676 72,446,520 63,617,598 61,129,100 67,627,109 61,081,327 57,466,594 3,944,288 4,364,750 5,197,032 4,518,821 4,857,177 4,234,327 4,402,129 19,909,858 24,183,913 25,470,722 27,051,814 26,892,207 28,332,237 26,562,270 5,373,983 6,631,030 6,634,548 6,165,540 5,700,274 7,427,408 6,039,183 313,388 336,588 370,718 448,873 450,971 427,315 409,042 3,055,426 3,326,986 3,344,987 3,504,767 3,161,820 2,782,537 2,645,215 613,800 677,536 700,876 772,151 765,963 690,824 754,311 4,108,813 5,300,455 5,871,288 5,845,676 5,857,621 5,821,160 5,877,370 2,197,357 9,953,505 440,900 4,558,750 494,250 457,520 480,760 1,420,691 1,122,358 901,161 811,124 685,214 614,571 602,572 24,412,303 19,162,067 18,037,109 8,443,523 14,249,501 11,560,205 4,337,758 65,349,907 75,059,188 66,969,341 62,121,039 63,114,998 62,348,104 52,110,610 (5,355,231) (2,612,668) (3,351,743) (991,939) 4,512,111 (1,266,777) 5,355,984 4,100,000 - - - - - - 20,000 (23,786) - - - 9,162 - 13,231,785 22,688,136 16,232,916 25,619,678 22,473,128 21,453,223 16,228,281 (13,517,681) (23,190,280) (16,109,398) (25,817,857) (22,319,725) (21,510,423) (16,368,781) Total other financing sources (uses) 3,834,104 (525,930) 123,518 (198,179) 153,403 (48,038) (140,500) Net change in fund balances $ (1,521,127) $ (3,138,598) $ (3,228,225) $ (1,190,118) $ 4,665,514 $ (1,314,815) $ 5,215,484 Debt service as a percentage of noncapital expenditures 9.7% 24.7% 2.8% 11.1% 2.4% 2.1% 2.5% Source: City of Federal Way Finance 106 City of Federal Way 2012 CAFR Statistical Section SALES TAX REVENUE BY CATEGORY Last Ten Fiscal Years 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Retail Trade $ 6,747,812 $ 5,735,317 $ 5,889,728 $ 6,317,881 $ 6,856,216 $ 6,551,426 $ 5,767,340 $ 5,716,833 $ 5,566,978 $ 5,739,670 Services 1,392,255 2,103,295 2,243,364 2,319,304 2,538,494 2,504,690 2,400,997 2,474,589 2,396,007 2,328,726 Construction/Contract 1,019,930 1,035,464 1,490,740 2,114,732 1,873,526 1,266,029 883,432 909,184 1,202,802 857,781 Wholesaling 505,109 538,663 516,208 499,626 544,846 605,736 390,660 421,989 431,751 426,322 Transportation/Utility * 443,279 15,725 13,446 17,014 7,914 22,867 4,147 3,257 3,453 8,007 Information * - 598,078 594,013 531,407 502,959 567,599 521,336 590,649 514,634 521,833 Manufacturing 107,451 109,524 138,158 179,874 267,464 221,683 210,996 144,076 145,420 156,478 Government 42,815 49,877 55,702 40,888 68,356 55,633 107,750 171,918 258,026 120,701 Finance/Insurance/RealEstate 206,984 346,073 340,448 355,940 360,101 331,957 274,781 237,328 313,904 336,117 Other Services 81,898 14,202 23,730 33,053 28,762 16,656 21,866 39,129 25,413 38,512 Total $ 10,547,533 $ 10,546,218 $ 11,305,537 $ 12,409,719 $ 13,048,638 $ 12,144,276 $ 10,583,305 $ 10,708,952 $ 10,858,388 $ 10,534,147 City direct sale tax rate 0.85% Information category combined with Transportation/Utility in 2003. Source: City of Federal Way Finance 107 City of Federal Way 2012 CAFR Statistical Section 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) 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 -10.4% 2012 6,832,615,312 213,389,519 96,827,145 7,142,831,976 1.30 -13.6% * 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 include all final tax adjustments, omits and senior citizen exempted property. The total assessed value was reduced by senior citizen exemptions (no tax amounts) of $55,270,036 and prior year omits of $259,000 yielding a regular levy value of $7,087,561,940. The assessed valuations are the basis for the following year's tax levy. 108 City of Federal Way 2012 CAFR Statistical Section 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 King County Port of County Fire District Medical Year Way District #210 County State Flood Zone Seattle Ferry District #39 Library Services Total TAX RATES PER $1,000 OF ASSESSED VALUATION 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 1.21 2.13 0.10 0.22 0.055 1.50 0.45 0.30 11.16 2009 0.97 4.20 1.10 1.96 0.09 0.20 0.052 1.50 0.42 0.27 10.76 2010 1.13 5.11 1.28 2.22 0.11 0.22 0.003 1.50 0.49 0.30 12.36 2011 1.20 5.36 1.34 2.28 0.11 0.22 0.004 1.39 0.57 0.30 12.77 2012 1.30 5.77 1.42 2.42 0.12 0.23 0.004 1.50 0.57 0.30 13.63 DETAIL OF TAX RATES FOR 2012 Basic Rate 1.30 - 1.34 2.42 0.12 0.23 0.004 1.50 0.50 - 7.42 Voted Rate - 5.77 0.07 - - - - - 0.07 0.30 6.21 TAX LEVIES 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 52,730,549 409,763,053 723,908,902 33,945,830 75,908,664 18,670,739 22,288,360 91,371,026 101,861,635 1,539,748,788 2009 9,551,027 58,588,636 422,757,529 756,272,108 35,151,944 75,911,308 19,335,328 23,715,724 95,398,383 105,611,047 1,602,293,034 2010 9,690,241 61,404,973 437,163,660 756,411,197 35,783,324 73,504,599 1,185,576 20,409,747 97,015,693 102,103,088 1,594,672,098 2011 9,827,398 61,622,347 439,635,095 749,341,420 36,076,405 73,512,887 1,184,924 18,234,001 115,495,462 98,604,471 1,603,534,410 2012 9,967,650 61,493,504 449,642,988 769,672,818 36,904,878 73,014,552 1,182,466 18,291,481 112,332,714 95,287,781 1,627,790,832 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. King County certified tax levy at beginning of year 109 City of Federal Way 2012 CAFR Statistical Section PRINCIPAL TAXPAYERS Current Year and Ten Years Ago Taxpayer Type of Business Weyerhaeuser Lumber Products Puget Sound Energy-Elec/Gas Electric/Gas Steadfast Commons LLC Real Estate Management Harsch Investment Properties Real Estate Management LBA Realty Real Estate Management Qwest Corporation hic. Communications/Telephone Forest Cove LLC Real Estate Management KNL Vision WA LLC (formerly BRE Properties) Real Estate Management Fred Meyer Retailer Costco Retailer / Wholesaler Virginia Mason Medical Services IA Orchard Hotels Federal Way (formerly Apple Hospitality Hospitality Five Inc.) Campus Business Parks LLC Real Estate hivest/Holding ANS LLC Retailer Source: King County Assessor's Office and King County Department of Finance. (A) 2003 assessed valuation for the City of Federal Way was $6,262,874,389 2012 2003 % of Total % of Total Assessed Assessed Assessed Assessed Valuation Rank Valuation Valuation Rank Valuation (A) $ 113,070,028 1 1.60% $ 157,395,612 1 2.51% 58,272,997 2 0.82% 51,359,264 2 0.82% 53,877,400 3 0.76% 38,434,837 4 0.61% 50,936,000 4 0.72% 33,723,200 5 0.54% 32,470,300 5 0.46% - _ 27,311,903 6 0.39% 43,115,769 3 0.69% 25,876,000 7 0.37% - _ 24,285,000 8 0.34% 17,454,000 10 0.28% 21,087,400 9 0.30% 20,608,672 7 0.33% 18,788,019 10 0.27% 16,422,949 11 0.26% 17,306,840 11 0.24% 16,403,198 0.26% 12 15,029,200 12 0.21% - 12,027,400 13 0.17% 11,735,600 13 0.19% 11,899,300 14 0.17% - $ 482,237,787 6.80% $ 406,653,101 6.49% 110 City of Federal Way 2012 CAFR Statistical Section 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 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% 186,036 9,692,563 99.4% 62,459 0.6% 2012 9,919,406 9,739,696 98.2% (0) 9,739,696 98.2% 179,710 1.8% Source: Most of data has been derived from the "Annual Tax Receivable Summary" prepared by the King County Finance. Note: These figures include tax adjustments such as omits, refunds, appeals, and senior citizen exempted property. Taxes levied for Fiscal Year includes adjustments versus taxes levied at beginning of year. 111 City of Federal Way 2012 CAFR Statistical Section RATIO OF OUTSTANDING DEBT BY TYPE For the Last Ten Fiscal Years Governmental Activities Fiscal General Obligation Certificates of Year Bonds Participation 2003 34,710,026 20,490 2004 30,802,892 - 2005 27,701,761 - 2006 29,581,454 - 2007 19,605,000 - 2008 19,13 8,000 - 2009 29,212,950 - 2010 28,683,950 - 2011 28,157,950 - 2012 27,616,950 - Business Type Activities Public Works Trust Fund Loan 2,486,548 2,304,189 2,121,830 1,939,471 1,757,112 1,574,753 1,392,394 1,210,035 1,027,676 845,317 Percentage Total Primary of Personal Government Income (b) Per Capita (b) 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 28,462,267 0.093% 318 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. 2008-2011 info for Federal Way is based on US Census Bureau, 2005-2009 American Community Survey five-year Estimates. 2012 info for Federal Way is based on 2007-2011 American Community Survey five-year Estimates. 112 City of Federal Way 2012 CAFR Statistical Section 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 2003 83,500 6,292,343,626 27,616,950 2,599,653 25,017,297 0.0040 299.61 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 29,893,985 3,866,184 26,027,801 0.0034 291.24 2012 89,460 7,142,831,976 28,462,267 4,182,345 24,279,922 0.0034 271.41 (A) Sources: U.S. Census Bureau; State of Washington Office of Program Planning and Fiscal Management. (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 $7,142,831,976 has been reduced by senior citizen exemptions of $73,498,579 and prior year omits of $259,009 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. 113 City of Federal Way 2012 CAFR Statistical Section COMPUTATION OF DIRECT AND OVERLAPPING DEBT December 31, 2012 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 $ 894,303,000 3.34% $ 29,885,237 312,005,000 3.34% 10,426,381 137,405,000 70.88% 97,395,446 188,445,000 3.65% 6,880,989 1,532,158,000 144,588,053 27,616,950 (Q 100.00% 27,616,950 Total Direct and Overlapping Debt $ 1,559,774,950 $ 172,205,003 (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 114 City of Federal Way 2012 CAFR Statistical Section COMPUTATION OF LIMITATION OF INDEBTEDNESS December 31, 2012 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: (2012 AV47,142,831,976) (A) 1.50%AV @ 100% $ 107,142,480 $ (107,142,480) $ - $ - $ - 2.50% AV @ 100% - 178,570,799 178,570,799 178,570,799 535,712,398 Add: Cash on hand for debt redemption (B) 2,004,488 - - - 2,004,488 Less: Bonds and COPS outstanding (27,616,950) - - - (27,616,950) Remaining Debt Capacity $ 81,530,018 $ 71,428,320 $ 178,570,799 $ 178,570,799 $ 510,099,936 Total Remaining "General" Capacity $152,958,337 (A) This figure represents the City's final total taxable assessed valuation (AV) for 2012 which was used to determine the 2013 property tax levy. (B) Reflects ending fund balance in the Debt Service Fund and Utility Tax Fund as of December 31, 2012. (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 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% 2012 535,712,398 (25,612,462) 510,099,936 4.78% 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. 115 City of Federal Way 2012 CAFR Statistical Section 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 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% 2012 480,760 1,114,827 1,595,587 47,879,445 3.3% Source: City of Federal Way Finance Note: * Interest excludes bond issuance and debt registration costs. 116 City of Federal Way 2012 CAFR DEMOGRAPHIC STATISTICS Statistical Section 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) 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 89,370 178,306,642,000 26,668 35.2 13.0 21,608 8.9% 2012 89,460 N/A 26,514 34.9 13.0 20,665 8.1% (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. (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. 2008-2011 info for Federal Way is based on 2005-2010 American Community Survey five-year Estimates. 2012 info for Federal Way is based on 2007-2011 American Community Survey five-year Estimates. (D) Personal income information is for Seattle -Tacoma -Bellevue area provided by the Bureau of Economic Analysis, information for 2012 not available. 2012 data for Personal Income to be published fall of 2013. 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. 117 City of Federal Way 2012 CAFR Statistical Section PRINCIPAL EMPLOYERS Current Year and Ten Years Ago 2012 2003 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 2,584 1 7.89% 3,025 2 10.22% Xerox Commerical Services Business Services 1,210 2 3.70% - - Weyerhaeuser Company Lumber Products 1,158 3 3.54% 3,283 1 11.09% St Francis Hospital Medical Services 875 4 2.67% 744 3 2.51% World Vision Inc Christian Relief Agency -Nonprofit 852 5 2.60% 663 5 2.24% Us Postal Service - Bulk Mail Postal Service 616 6 1.88% 662 6 2.24% City Of Federal Way Government Services 476 7 1.45% 440 7 1.49% Wal-Mart Supercenter #3794 Retail 386 8 1.18% - - 0.00% Virginia Mason Federal Way Medical Services 235 9 0.72% 235 12 0.79% Telecom Labs Inc Communications 225 10 0.69% - 0.00% Fred Meyer Retail 220 11 0.67% 214 15 0.72% Costco Wholesale Corporation Wholesale 214 12 0.65% 255 8 0.86% Wal-Mart Store #2571 Retail 183 13 0.56% 225 13 0.76% Target Store #1947 Retail 178 14 0.54% 130 29 0.44% Garden Terrace Alzheimer's Center Health Services 163 15 0.50% 50 38 0.17% Source: City of Federal Way Business License Note: Principal Employers - includes both full-time and part-time employees. 118 City of Federal Way 2012 CAFR Statistical Section 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) 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 12,724 301 19,455 47 847 2012 160 27,989 346 29,115 92 974 Sources & Notes: (A) Federal Way Community Economic Development Department. Commercial construction includes alterations. Other building -related permits (plumbing, mechanical, fire alarm, etc.) numbering 2,960 and valued at $5,405,873 have been excluded. 119 City of Federal Way 2012 CAFR Statistical Section CAPITAL ASSETS BY FUNCTION Last Ten Fiscal Years 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Transportation Street (Center Line Miles) 224.48 224.48 224.48 230.84 233.84 233.84 234.72 234.72 242.90 248.23 248.23 Signals WSDOT-owned and maintained 4 4 4 4 5 5 5 5 5 5 6 Signals City -owned & County -maintained 67 70 71 71 74 74 76 76 76 76 77 Street lights City -owned and maintained 810 1,038 1,050 1,050 1,214 1,214 1,463 1,467 1,509 1,554 1,618 Street lights City -owned and PSE-maintair - 644 644 644 644 644 644 644 644 644 644 Street lights PSE-owned and maintained 2,850 1,975 1,975 1,975 1,975 1,975 1,975 1,975 1,975 1,975 1,975 Culture & Recreation Developed Parks - Acreage 493.5 500.25 500.25 522.9 522.9 524.49 524.49 524.49 524.49 524.49 579.86 Developed Parks - # of Parks 28 31 32 32 32 32 32 32 32 32 29 Undeveloped Parks - Acreage 352 356.24 356.24 543.5 543.5 543.46 551.12 551.12 551.12 551.12 539.43 Undeveloped Parks - # of Parks 20 21 21 21 21 21 22 22 22 22 22 Tennis Courts City -Owned 9 9 9 11 11 11 11 11 11 11 9 Tennis Courts - Public 10 10 16 22 22 22 22 22 22 22 25 Swimming Pools City -Owned 0 1 1 1 1 1 1 1 1 1 2 Swimming Pools County -Owned 2 1 1 1 1 1 1 1 1 1 3 Trails - Miles 4 4 4 6 6 6 6 6 6 6 9 Trails -# of Trails 2 2 2 2 2 2 3 3 3 3 6 Community Centers/Recreation Facilities 2 2 2 2 2 2 1 1 1 1 1 Source: City of Federal Way Public Works and Parks Department 120 City of Federal Way 2012 CAFR Statistical Section SECURITY OF PERSONS & PROPERTI Police Information Offenses: Forcible Rape (including attempts) Robbery Criminal Homicide Aggravated Assault Vehicle Theft Burglary (commercial & residential) Larceny Arson Citations: Traffic 1 Red Light Photo ECONOMIC ENVIRONMENT Building Related Permits & Values Building Permits Estimated Value (In Millions $) Other Building Related Permits Estimated Value (In Millions $) OPERATING INDICATORS BY FUNCTION Last Ten Fiscal Years 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 50 50 55 64 48 30 51 50 38 48 125 121 153 146 129 170 198 152 119 107 2 - 7 1 3 10 5 5 4 3 120 109 101 120 107 115 115 118 99 150 1,204 1,118 1,573 1,199 939 816 561 741 694 800 672 759 800 753 739 800 741 828 752 931 3,145 3,257 3,786 3,230 3,159 2,933 3,231 3,141 3,067 3,409 14 23 25 26 18 13 13 11 11 9 8,411 13,219 11,402 11,931 14,043 19,339 20,678 18,094 17,226 13,023 - - - - - 3,813 13,002 25,691 15,340 13,455 531 624 880 788 791 605 483 545 482 598 $64.5 147.2 $236.5 $151.1 $126.5 $89.4 $79.2 $53.4 $33.0 $58.1 1779 1958 2705 2550 2690 2370 2209 2423 2385 2960 $ 2.4 $ 2.5 $ 3.9 $ 4.2 $ 5.5 $ 7.0 $ 5.6 $ 5.9 $ 6.2 $ 5.4 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. 121 City of Federal Way 2012 CAFR CITY GOVERNMENT EMPLOYEES FULL-TIME EQUIVALENT - HISTORY Statistical Section Department 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Mayor's Office 6.00 6.00 6.00 6.00 10.00 9.75 7.63 7.63 5.00 3.00 Administration 5.00 5.00 5.00 5.00 5.50 5.25 3.13 3.13 4.00 3.00 Economic Development 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 4.50 4.50 3.85 Municipal Court 13.55 12.55 12.55 12.55 14.00 14.00 13.00 13.00 13.00 13.00 Human Resources 6.50 6.50 5.00 5.00 5.00 5.25 5.25 5.25 4.50 4.50 City Clerk 2.00 2.00 1.50 1.50 1.50 1.75 1.75 1.75 1.75 1.75 Human Resources 4.50 4.50 3.50 3.50 3.50 3.50 3.50 3.50 2.75 2.75 Finance 9.50 9.50 8.50 8.50 9.50 8.00 7.60 7.60 7.00 7.00 Administration 1.50 1.50 1.50 1.50 1.50 - - - - - Finance 8.00 8.00 7.00 7.00 8.00 8.00 7.60 7.60 7.00 7.00 Information System 9.00 9.00 8.50 8.50 10.60 10.60 10.00 9.60 7.00 7.00 Law 10.38 10.60 10.60 10.60 13.00 13.00 12.00 12.00 11.00 11.00 Civil Legal Services 5.80 5.80 5.80 5.80 5.80 5.80 4.80 4.80 4.80 4.80 Criminal Prosecution Services 4.58 4.80 4.80 4.80 7.20 7.20 7.20 7.20 6.20 6.20 Community & Econ Developmei 29.60 29.60 28.70 28.70 30.49 32.00 30.00 28.90 19.00 21.65 Administration 4.50 4.50 4.50 4.50 4.50 4.50 5.00 5.00 3.50 3.50 Planning 8.80 8.80 8.80 8.80 8.75 8.75 8.00 7.00 6.00 6.00 Building 12.30 12.30 12.30 12.30 13.25 14.25 13.00 13.00 9.00 9.00 Human Services 3.00 3.00 2.50 2.50 3.00 3.50 3.00 3.00 - 2.65 Neighborhood Development 1.00 1.00 0.70 0.70 1.00 1.00 1.00 0.90 - - Economic Development - - - - - - - - 0.50 0.50 Police 155.00 155.00 152.00 155.00 169.00 169.00 164.00 161.00 135.00 132.00 Administration 2.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 Support Services 55.00 54.00 53.00 55.00 61.00 61.00 61.00 58.00 51.00 52.00 Field Operations 98.00 98.00 96.00 97.00 105.00 105.00 100.00 100.00 81.00 77.00 Parks, Rec. & Cultural Svcs. 30.40 30.40 30.20 31.20 44.25 44.25 39.75 39.75 36.45 36.45 Administration 1.80 1.80 1.80 1.80 1.80 2.80 1.35 1.35 1.35 1.35 Planning 1.00 1.00 1.00 1.00 1.00 - - - - - Kenneth Jones Pool 3.00 3.00 3.00 3.00 - - - - - - General Recreation 6.60 6.60 6.60 6.60 7.10 7.10 4.80 4.80 5.50 5.50 Community Center - - - - 12.35 12.35 13.35 13.35 13.35 13.35 Dumas Bay Centre 2.00 2.00 2.00 3.00 3.00 2.75 2.75 2.75 2.75 2.75 Knutzen Family Theatre 1.50 1.50 1.50 1.50 1.50 1.75 - - - - Parks Maintenance 14.00 14.00 13.80 13.80 17.00 17.00 17.00 17.00 13.00 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 41.50 41.60 41.60 42.60 44.00 44.00 42.95 41.95 38.95 38.95 Administration 2.10 2.10 2.10 1.90 1.85 1.85 2.35 2.35 2.25 2.20 Development Services 6.45 5.80 5.80 6.50 6.45 6.45 4.45 4.45 4.20 4.20 Traffic Services 5.10 5.10 5.10 5.10 6.10 6.10 6.10 5.10 2.35 2.35 Street Services 11.00 11.70 11.70 11.00 11.50 11.00 10.50 10.50 10.60 10.60 Emergency Management - - - 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Solid Waste & Recycling 1.60 1.60 1.60 1.70 1.70 1.70 1.70 1.70 1.70 1.70 Surface Water Management 15.25 15.30 15.30 15.40 15.40 15.40 16.35 16.35 16.35 16.40 Fleet & Equipment - - - - - 0.50 0.50 0.50 0.50 0.50 Total 314.93 314.25 307.15 312.15 353.34 353.35 335.68 331.18 281.40 278.40 Source: City of Federal Way Finance Division 122 City of Federal Way 2012 CAFR Statistical Section MAYOR DEPUTY MAYOR COUNCIL MEMBERS SALARIES AND SURETY BONDS OF PRINCIPAL OFFICIALS DECEMBER 31, 2012 POSITION POSITION FINANCE DIRECTOR CITY ATTORNEY CITY CLERK COMMUNITY & ECONOMIC DEVELOPMENT DIRECTOR PARKS AND PUBLIC WORKS DIRECTOR POLICE CHIEF Source: City of Federal Way Finance Division LEGISLATIVE BODY EMPLOYEE ANNUAL SALARY SKIP PRIEST $112,800 JIM FERRELL $13,800 LINDA KOCHMAR $13,800 SUSAN HONDA $13,800 JEANNE BURBIDGE $13,800 BOB CELSKI $13,800 ROGER FREEMAN $13,800 DINI DUCLOS $13,800 ADMINISTRATIVE STAFF EMPLOYEE ANNUAL SALARY THO KRAUS $121,848 PAT RICHARDSON $132,684 CAROL MCNEILLY $82,140 PATRICK DOHERTY $115,680 CARY M. ROE $137,436 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, Parks and Public Works Director, and Police Chief. 123 City of Federal Way 2012 CAFR Statistical Section MISCELLANEOUS STATISTICAL INFORMATION LOCAL TAXES ON BUSINESSES Franchise Tax - Cable TV ............................. 5.00% Gambling Taxes: Bingo/Raffles.................................... 5.00% Amusement/Games ............................. 2.00% Punchboard/Pull Tabs .......................... 3.00% Cardrooms........................................ 10.00% Local Sales Tax (Collected by the State) ............. 9.50% 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. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Fire and Other Responses 3,117 2,896 3,210 865 639 1,083 1,147 1,041 934 1,363 Emergency Medical 8,042 8,263 8,636 11,164 11,350 12,058 11,077 11,460 11,914 12,571 PUBLIC EDUCATION 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 23 Elementary Schools 9,854 9,916 9,806 9,733 9,612 9,594 9,594 9,560 9,673 9,229 9 Middle Schools (incl. Public Academy) 5,458 5,476 5,271 5,183 5,139 5,234 5,203 5,235 5,205 5,041 5 High Schools 6,625 6,650 7,004 6,954 6,720 6,531 6,637 6,547 6,409 6,018 1 Internet Academy (K-12) 328 353 302 314 304 263 266 288 321 377 22,265 22,395 22,383 22,184 21,775 21,622 21,700 21,630 21,608 20,665 2,584 Staff members TAXABLE SALES (in millions) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Retail Sales $1,237 $1,239 $1,331 $1,471 $1,540 $1,458 $1,257 $1,261 $1,277 $1,239 Real Estate Sales $570 $616 $939 $988 $963 $536 $208 $238 $315 $303 124