Loading...
HomeMy WebLinkAboutR-2007-048 Purchase of Limited Tax General Obligation & Refunding BondsRESOLUTION NO. R-2007- 48 A RESOLUTION of the City Council of the City of Yakima, Washington, authorizing the execution and delivery of a contract for purchase of the City's Limited Tax General Obligation and Refunding Bonds, 2007 in the principal amount of $8,980,000, fixing certain terms of the bonds and approving the form of the official statement. WHEREAS, the City of Yakima, Washington (the "City"), by Ordinance No. 2007-09 passed on March 20, 2007 (the "Bond Ordinance"), authorized the issuance of limited tax general obligation and refunding bonds of the City in the aggregate principal amount of not to exceed $9,500,000 (the "Bonds") to refund certain outstanding Limited Tax General Obligation Bonds, 2002 (the "2002 Bonds"), to provide funds to remodel a fire station, to renovate downtown, including sidewalks, streetlamps, curbs, gutters and other improvements, and to finance the widening of River Road (collectively, the "Projects"); and WHEREAS, Seattle -Northwest Securities Corporation (the "Purchaser") has made an offer to purchase the Bonds dated April 17, 2007 (the "Bond Purchase Agreement"), a copy of which has been presented at this meeting and is on file with the City Clerk, and it is in the best interest of the City that the Bonds be sold on the terms set forth in such Bond Purchase Agreement and as provided in the Bond Ordinance and this resolution; and WHEREAS, the Bond Ordinance provides that the City shall approve the interest rates, maturity amounts, redemption provisions, and certain other terms of such Bonds, by resolution; NOW, THEREFORE, the City of Yakima does resolve: Section 1. Definitions. Capitalized teems used herein and not otherwise defined shall have the same meanings, respectively, in this resolution as such terms are given in Section 1 of the Bond Ordinance. Section 2. Acceptance of Offer. The City Council hereby finds that the Bond Purchase Agreement is fair and reasonable and in the best interest of the City and that the Bonds shall be sold to the Purchaser upon the terms and conditions set forth in the Bond Purchase Agreement and upon the basis of the representations therein set forth. The City Council further finds that all conditions precedent to or concurrent with the acceptance of the Bond Purchase Agreement by the City Council have been met. The City Council hereby accepts the Bond Purchase Agreement and authorizes and directs the Director of Finance and Budget to execute the Bond Purchase Agreement and deliver it to the Purchaser. The Bonds shall be issued and delivered to the Purchaser upon payment of the purchase price specified in the Bond Purchase Agreement, plus accrued interest from their date to the date of their delivery. Section 3 Terms, Schedule of Maturities and Interest Rates. The Bonds shall be in the principal amount of $8,980,000 and designated the "City of Yakima Limited Tax General Obligation and Refunding Bonds, 2007." The Bonds shall be dated as of May 8, 2007, shall be fully registered as to both principal and interest, shall be in the denomination of $5,000 each or any integral multiple thereof, provided that no Bond shall represent more than one maturity, shall be numbered separately in such manner and with any additional designation as the Bond Registrar deems necessary for purposes of identification and control. The Bonds shall bear interest payable on November 1, 2007 and semiannual thereafter on the first days of May and November and shall mature on May 1 of the following years in the following amounts and shall bear interest as follows: -2- P\NMN\NMN2WE 04/17/07 Maturity Date (May 1) Principal Amount Interest Rate 2008 $ 270,000 4.00% 2009 275,000 4.00 2010 290,000 4.00 2011 305,000 4.00 2012 315,000 4.00 2013 580,000 4.00 2014 595,000 4.00 2015 630,000 5.00 2016 655,000 5.00 2017 700,000 5.00 2018 495,000 4.00 2019 520,000 4.00 2020 535,000 4.00 2021 560,000 4.00 2022 580,000 4.05 2023 395,000 4.10 2024 405,000 4.10 2025 430,000 4.125 2026 445,000 4.15 Section 4. Optional Redemption. The City hereby reserves the right to redeem the outstanding Bonds maturing on and after May 1, 2018, in whole or in part (maturities to be selected by the City and randomly within a maturity in such manner as DTC or the Bond Registrar, as appropriate, shall determine) on May 1, 2017, and on any date thereafter, at par, plus accrued interest to the date of redemption. Section 5. Execution and Delivery of the Bonds. The proper officers of the City Council and the Director of Finance and Budget of the City are hereby authorized and directed to do all things necessary or proper for the printing, execution and delivery of the Bonds to the Purchaser in accordance with the terms of the Bond Purchase Agreement and the Bond Ordinance, as well as this resolution, and for the proper application and use of the proceeds of such sale. -3- P-\NMN\NMN2WE 04/17/07 Section 6. Official Statement. The City approves the preliminary official statement, dated April 9, 2007, presented to the City Council and ratifies the Underwriter's distribution of the preliminary official statement in connection with the offering of the Bonds. Pursuant to the Rule, the City deems the preliminary official statement as final as of its date except for the omission of information dependent upon the pricing of the Bonds and the completion of the Bond Purchase Agreement. The City agrees to cooperate with the Underwriter to deliver or cause to be delivered, within seven business days from the date of the sale of the Bonds and in sufficient time to accompany any confirmation that requests payment from any customer of the Underwriter, copies of a final official statement in sufficient quantity to comply with paragraph (b)(4) of the Rule and the rules of the MSRB. The City authorizes the Underwriter to use the official statement, substantially in the form of the preliminary official statement, in connection with the sale of the Bonds. The City Manager and the Director of Finance and Budget are hereby authorized to review and approve on behalf of the City the final Official Statement relative to the Bonds with such additions and changes as may be deemed necessary or advisable to them. Section 7. Disposition of Bond Proceeds; Refunding Plan. (a) Refunding Plan. For the purpose of realizing a debt service savings, the City Council proposes to apply the proceeds of the Bonds for the purpose of providing for the payment of the principal of and interest on all of the outstanding $4,745,000 of the 2002 Bonds maturing in the years 2013 through 2026 (the "Refunded Bonds"). The Refunded Bonds shall be called for redemption at a price of 100% on June 1, 2012. (b) Refunding Account. There is hereby authorized to be created in the Debt Service Fund an account known as the "Refunding Account," which account is to be drawn upon for the -4- P \NMN\NMN2WE 04/17/07 sole purpose of paying the principal of and interest on the Refunded Bonds until their respective dates of redemption and of paying costs related to the refunding of the Refunded Bonds. The proceeds of sale of the Bonds shall be credited to the Refunding Account. Money in the Refunding Account shall be used immediately upon receipt to defease the Refunded Bonds as authorized by the Ordinance and to pay costs of issuance. The City shall defease the Refunded Bonds and discharge such obligations by the use of money in the Refunding Account to purchase certain Government Obligations (which obligations so purchased are herein called "Acquired Obligations"), bearing such interest and maturing as to principal and interest in such amounts and at such times which, together with any necessary beginning cash balance, will provide for the payment of: (1) interest on the Refunded Bonds due and payable through and including June 1, 2012; and (2) the redemption price of the Refunded Bonds (100% of the principal amount thereof) on June 1, 2012. Such Acquired Obligations shall be purchased for the Refunded Bonds at a yield not greater than the yield permitted by the Code and regulations relating to acquired obligations in connection with refunding bond issues. (c) Escrow Agent/Escrow Agreements To carry out the refunding and defeasance of the Refunded Bonds, the Director of Finance and Budget is hereby authorized to appoint as escrow agent a bank or trust company qualified by law to perform the duties described herein (the "Escrow Agent"). A beginning cash balance, if any, and Acquired Obligations shall be deposited irrevocably with the Escrow Agent on the date of issuance of the Bonds in an amount sufficient to defease the Refunded Bonds. The proceeds of the Bonds remaining in the -5- P \NMN\NMN2WE 04/17/07 Refunding Account after acquisition of the Acquired Obligations and provision for the necessary beginning cash balance shall be utilized to pay expenses of the acquisition and safekeeping of the Acquired Obligations and expenses of the issuance of the Bonds. In order to carry out the purposes of this section, the Director of Finance and Budget is authorized and directed to execute and deliver to the Escrow Agent, an Escrow Deposit Agreement for the Bonds. (d) Implementation of Refunding Plan. The City will irrevocably set aside sufficient funds out of the purchase of Acquired Obligations from proceeds of the Bonds to make the payments described in subsections (a) and (b) of this section. The City hereby irrevocably calls the Refunded Bonds for redemption on June 1, 2012 in accordance with the provisions of Ordinance No. 2002-22, as amended by Ordinance No. 2002-27, authorizing the redemption and retirement of the Refunded Bonds prior to their fixed maturities. Said defeasance and call for redemption of the Refunded Bonds shall be irrevocable after the final establishment of the applicable escrow account and delivery of the applicable Acquired Obligations to the Escrow Agent. The Escrow Agent is hereby authorized and directed to provide for the giving of notice of the redemption of the Refunded Bonds in accordance with the applicable provisions of Ordinance Nos. 2002-22 and 2002-27. Section 8. Insurance. (a) Acceptance of Insurance. In accordance with the offer of the Purchaser to purchase the Bonds, the Council hereby approves the commitment of XL Capital Assurance Inc. (the "Insurer") to provide a bond insurance policy guaranteeing the payment when due of principal of and interest on the Bonds (the "Bond Insurance Policy"). The Council further authorizes and directs all proper officers, agents, attorneys and employees of the City to -6- P'\NMN \NMN2WE 04/17/07 cooperate with the Insurer in preparing such additional agreements, certificates, and other documentation on behalf of the City as shall be necessary or advisable in providing for the Bond Insurance Policy. (b) Payments Under the Bond Insurance Policy. As long as the Bond Insurance Policy is in full force and effect, the City and the Bond Registrar shall comply with the following provisions: (1) If, on the third Business Day prior to the related scheduled interest payment date or principal payment date ("Payment Date"), there is not on deposit with the Bond Registrar money sufficient to pay the principal of, and interest on, the Bonds due on such Payment Date, the City or the Bond Registrar shall give notice to the Insurer and to its designated agent (if any) (the "Insurer's Fiscal Agent"), by telephone or telecopy, of the amount of such deficiency by 10:00 a.m., New York City time, on such Business Day. If, on the Business Day prior to the related Payment Date, there is not on deposit with the Bond Registrar money sufficient to pay the principal of, and interest on, the Bonds due on such Payment Date, the Bond Registrar shall make a claim under the Bond Insurance Policy and give notice to the Insurer and the Insurer's Fiscal Agent (if any) by telephone of the amount of any deficiency in the amount available to pay principal and interest, and the allocation of such deficiency between the amount required to pay interest on the Bonds and the amount required to pay principal of the Bonds, confirmed in writing to the Insurer and the Insurer's Fiscal Agent by 10:00 a.m., New York City time, on such Business Day, by delivering the Notice of Nonpayment and Certificate. For the purposes of the preceding paragraph, "Notice" means telephonic or telecopied notice, subsequently confirmed in a signed writing, or written notice by registered or certified mail, from the City or Bond Registrar to the Insurer, which notice shall specify (a) the name of -7- P \NMN\NMN2WE 04/17/07 the entity making the claim, (b) the policy number, (c) the claimed amount and (d) the date such claimed amount will become Due for Payment. "Nonpayment" means the failure of the City to have provided sufficient funds to the Bond Registrar for payment in full of all principal of, and interest on, the Bonds that are Due for Payment. "Due for Payment," when referring to the principal of insured bonds, means when the stated maturity date or mandatory redemption date for the application of a required sinking fund installment has been reached and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by application of required sinking fund installments or other advancement of maturity, unless the Insurer shall elect, in its sole discretion, to pay such principal); and when referring to interest on Bonds, means when the stated date for payment of interest has been reached. "Certificate" means a certificate in form and substance satisfactory to the Insurer as to the Bond Registrar's right to receive payment under the Bond Insurance Policy. (2) The Bond Registrar shall designate any portion of payment of principal on Bonds paid by the Insurer at maturity on its books as a reduction in the principal amount of Bonds registered to the then current Registered Owner, whether DTC or its nominee or otherwise, and shall issue a replacement Bond to the Insurer, registered in the name of the Insurer, as the case may be, in a principal amount equal to the amount of principal so paid (without regard to authorized denominations); provided, however, that the Bond Registrar's failure to so designate any payment or issue any replacement Bond shall have no effect on the amount of principal or interest payable by the City on any Bond or the subrogation rights of the Insurer. (3) The Bond Registrar shall keep a complete and accurate record of all funds deposited by the Insurer into the Policy Payments Account (as hereinafter defined) and the -8- P \NMN\NMN2WE 04/17/07 allocation of such funds to payment of interest on and principal paid with respect to any Bond. The Insurer shall have the right to inspect such records at reasonable times upon reasonable notice to the Bond Registrar. (4) Upon payment of a claim under the Bond Insurance Policy, the Bond Registrar shall establish a separate special purpose trust account for the benefit of owners of Bonds referred to herein as the "Policy Payments Account" and over which the Bond Registrar shall have exclusive control and sole right of withdrawal. The Bond Registrar shall receive any amount paid under the Bond Insurance Policy in trust on behalf of owners of Bonds and shall deposit any such amount in the Policy Payments Account and distribute such amount only for purposes of making the payments for which a claim was made. Such amounts shall be disbursed by the Bond Registrar to owners of Bonds in the same manner as principal and interest payments are to be made with respect to the Bonds under Section 3 hereof It shall not be necessary for such payments to be made by checks or wire transfers separate from the check or wire transfer used to pay debt service with other funds available to make such payments. Funds held in the Policy Payments Account shall not be invested by the Bond Registrar and may not be applied to satisfy any costs, expenses or liabilities of the Bond Registrar. Any funds remaining in the Policy Payments Account following an insured Bond payment date shall promptly be remitted to the Insurer. (c) Provisions Relating to Bond Insurance Policy. As long as the Bond Insurance Policy is in full force and effect, the City shall comply with the following provisions: (1) Notice to the Insurer. Any notices required to be given by the City shall also be given to the Insurer, Attn: Surveillance. -9- P-\NMN\NMN2WE 04/17/07 (2) Amendments. Prior written consent of the Insurer is required for any amendment to this resolution. The City shall give the Insurer notice of any such proposed amendment. A copy of any amendment to this resolution that is consented to by the Insurer shall be sent to Standard & Poor's Rating Services, a Division of The McGraw-Hill Companies, Inc. (3) Remedies. The Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to owners of the Bonds. The Insurer shall be recognized as the owner of each Bond for the purposes of exercising all rights and privileges available to owners of the Bonds. The Insurer shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as an owner of the Bonds. (4) The Insurer as Third Party Beneficiary. The Insurer shall be a third -party beneficiary under this resolution. (5) Subrogation. If principal and/or interest due on the Bonds is paid by the Insurer, such Bonds shall remain outstanding under this resolution for all purposes, and shall not be deemed defeased or otherwise satisfied, or paid by the City, and the pledge of taxes and all covenants, agreements and other obligations of the City to the owners of the Bonds shall continue to exist and shall run to the benefit of the Insurer, and the Insurer shall be subrogated to the rights of such owners. Section 9. Ratification of Past Acts. All actions and proceedings heretofore taken by the officers, agents, attorneys and employees of the City in connection with the issuance and sale of the Bonds are hereby ratified, approved and confirmed. Section 10. Effective Date. This resolution shall take effect immediately. -10- P \NMN\NMN2WE 04/17/07 ADOPTED at a regular meeting of the City Council of the City of Yakima this 17th day of April, 2007. ATTEST: Deborah Moore, City Clerk -11- CITY OF YAKIMA, WASHINGTON By David Edler, Mayor P• \NMN\NMN2WE 04/17/07 APPENDIX A BOND PURCHASE AGREEMENT PAWN \NMN2WE04/12/0703/29/07 SEATTLE -NORTHWEST SECURITIES CORPORATION April 17, 2007 Honorable Mayor and City Council City of Yakima 129 North Second Street Yakima, Washington 98901 Re: City of Yakima, Washington $8,980,000 Limited Tax General Obligation and Refunding Bonds, 2007 Honorable Mayor and City Council: Seattle -Northwest Securities Corporation (the "Underwriter") offers to enter into this purchase agreement (the "Purchase Agreement") with the City of Yakima, Washington (the "Issuer"), (each of the Underwriter and the Issuer may be referred to herein as a "Party" or collectively as the "Parties"). This offer is contingent upon acceptance by the Issuer by execution and delivery of this Purchase Agreement to the Underwriter at or prior to 11:59 p.m. Pacific Time on the date hereof, by means of hand delivery, facsimile or other secure electronic transmission, such as a PDF file. Upon execution of this Purchase Agreement by the Parties, this Purchase Agreement will constitute a binding agreement between the Issuer and the Underwriter. Capitalized terms in this Purchase Agreement that are not otherwise defined herein shall have the meanings given to such terms in the Ordinance as defined below: 1. Authorization and Documents The issuance, sale and delivery of the Bonds (as defined below) shall be authorized by an ordinance passed by the Mayor and City Council of the Issuer on March 20, 2007 and a resolution adopted by the Mayor and City Council of the Issuer on April 17, 2007 (collectively, the "Ordinance"). The transaction at which the Bonds are delivered by the Issuer to the Underwriter and paid for by the Underwriter is referred to herein as the "Closing" and the date of such transaction, the "Closing Date." The Ordinance includes an undertaking to provide certain information to DisclosureUSA (so long as such method of disclosure continues to be approved by the Securities and Exchange Commission for such purposes) or to nationally recognized municipal securities information repositories and regulatory bodies or their designees. The Ordinance and this Purchase Agreement are collectively referred to herein as the "Documents." 2. Purchase and Sale 1420 Fifth Avenue, Suite 4300 Seattle, WA 98101 (206) 628-2882 www.seattlenorthwestcom Washington Oregon Idaho Utah Honorable Mayor and City Council City of Yakima, Washington April 17, 2007 Page 2 Subject to the terms and conditions of this Purchase Agreement, the Underwriter hereby agrees to purchase from the Issuer for offering to the public and the Issuer hereby agrees to sell to the Underwriter all, but not less than all of the $8,980,000 aggregate principal amount of Limited Tax General Obligation and Refunding Bonds, 2007 (the "Bonds"). The Bonds shall be dated, shall mature, shall bear interest, shall be payable, and shall have redemption provisions, all as set forth in Exhibit C attached hereto. The Underwriter's purchase price for the Bonds also is set forth in Exhibit C. 3. Fiscal Agent; Enhancement; Insurance a) The fiscal agent of the State of Washington shall be the fiscal agent for the Bonds, serving as registrar, authenticating agent and paying agent (the "Bond Registrar"). The Bonds shall be payable and shall be secured as provided in the Ordinance and as described in the document entitled Preliminary Official Statement, which is dated April 9, 2007 and which describes the Issuer and the Bonds (the "POS.") b) Payment when due of the regularly scheduled principal of and interest on the Bonds shall be insured by a municipal bond insurance policy (the "Policy") issued by XL Capital Assurance Inc. (the "Insurer"). 4. Offering The Underwriter agrees to make a bona fide public offering of all the Bonds, at prices not in excess of the initial public offering prices or at yields not lower than the initial yields as set forth in Exhibit C attached hereto. 5. Official Statement a) In the Ordinance, the Issuer has ratified and "deemed final" the POS for purposes of Rule 15c2-12 of the Securities Exchange Act of 1934, as amended (the "Rule"). The Issuer approves and ratifies the use and distribution by the Underwriter of the POS in connection with the public offering for sale of the Bonds by the Underwriter. b) The final official statement shall be substantially in the form of the POS with only such changes permitted by the Rule as shall have been reviewed by the Underwriter (such final official statement, incorporating such changes, if any, shall be referred to herein as the "Final Official Statement"). The Issuer shall cooperate with the Underwriter in the preparation of the Final Official Statement for delivery within seven (7) business days after the date hereof and, in any event, for delivery in sufficient time to accompany any order confirmation from the Underwriter to its customer, and in sufficient time to permit the Underwriter to comply with the provisions of the Rule and with all applicable rules of the Municipal Securities Rulemaking Board. -2- Honorable Mayor and City Council City of Yakima, Washington April 17, 2007 Page 3 c) The Issuer will not amend or supplement the Final Official Statement without the consent of the Underwriter. The Issuer agrees to notify the Underwriter promptly if, on or prior to the 25th day after the End of the Underwriting Period (as defined below), any event shall occur, or information come to the attention of the Issuer, that would cause the Final Official Statement (whether or not previously supplemented or amended), as of its date, to contain any untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If, in the opinion of the Issuer, such event requires the preparation and distribution of a supplement or amendment to the Final Official Statement, the Issuer at its expense and with Underwriter's assistance, shall amend or supplement the Final Official Statement in a form and manner approved by the Underwriter and will provide such number of copies of the supplement or amendment to the Final Official Statement, as the Underwriter may reasonably request. For purposes of this Purchase Agreement, the "End of the Underwriting Period" shall occur on the Closing Date. 6. Representations, Warranties and Covenants The Issuer represents, warrants and covenants to the Underwriter that as of the date hereof and as of the Closing Date: a) The Issuer is a municipal corporation duly organized and validly existing under the laws and Constitution of the State of Washington; b) The Issuer has duly passed the Ordinance and it is a valid, legal and binding ordinance of the Issuer; c) The Issuer is duly authorized and has full legal right, power, and authority to issue, sell and deliver the Bonds and perform its obligations under the Documents; d) The Ordinance is in full force and effect and has not been superseded, rescinded or amended; e) The Issuer has full legal right, power and authority to and will apply or cause to be applied the proceeds of the Bonds as described in the Ordinance; f) The execution of and performance by the Issuer of its obligations under the Documents will not cause the Issuer to be (i) in violation of any constitutional provision, law, court decree, administrative regulation or judgment or (ii) in material default under any loan agreement, indenture, bond, note, resolution or other material agreement or instrument to which the Issuer is a party or to which the Issuer or any of its properties or assets is otherwise subject; -3- Honorable Mayor and City Council City of Yakima, Washington April 17, 2007 Page 4 g) All governmental approvals or authorizations required to be obtained by the Issuer prior to the Closing in connection with the issuance and delivery of the Bonds or the performance by the Issuer of its obligations under the Documents have been or will be obtained prior to Closing; h) No filing or registration of the Ordinance or other instrument or financing statement is required to be made to create, protect or preserve the pledge of taxing power under the Ordinance or is required for the validity and enforceability of the Ordinance; As of the Closing, the Bonds will be legal, valid and binding obligations of the Issuer, and, subject only to the laws of bankruptcy and insolvency, will be enforceable in accordance with their terms and will be in full force and effect; Except as described in the Final Official Statement there is no action, suit, proceeding, inquiry or investigation before or by any court, governmental agency, public board or body pending or, to the knowledge of the Issuer, threatened against the Issuer, (i) in any way questioning the legal existence of the Issuer or the titles of the officers of the Issuer to their respective offices; (ii) in any way affecting or contesting or seeking to prohibit, restrain or enjoin the issuance or delivery of the Bonds; (iii) wherein an unfavorable decision, ruling, or finding would have a material adverse effect on the collection and application of taxes that may be levied for the benefit of the Issuer for the payment of the Bonds, the financial condition of the Issuer, or would have an adverse effect on the validity or enforceability of the Bonds or the Ordinance, or which would in any way adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes; or (iv) contesting the completeness or accuracy of the POS or the Final Official Statement; (v) to the actual knowledge of the Issuer, there is no reasonable basis for any action, proceeding, inquiry or investigation of the nature described in the foregoing clauses (i) through (iv); k) The financial statements of the Issuer contained in the Final Official Statement fairly present the financial position of the Issuer as of the dates and for the periods therein set forth in accordance with the accounting standards applicable to the Issuer, and since the date thereof, there has been no material adverse change in the financial position of the Issuer; 1) In connection with the financing process, the Underwriter may have provided the format for and certain of the content for inclusion in the POS and may have assumed principal drafting responsibility for the preparation of the POS and may coordinate the preparation and dissemination of the Final Official Statement. The Issuer understands and acknowledges, however, that the ultimate responsibility for the POS and the Final Official Statement with respect to content, accuracy and completeness is the responsibility of the Issuer as an issuer of municipal securities. The Issuer hereby represents and warrants to the Underwriter that the -4- Honorable Mayor and City Council City of Yakima, Washington April 17, 2007 Page 5 POS did not, as of its date, and the Final Official Statement will not, as of its date and at the Closing Date, contain any untrue statement of material fact nor omit any statement or information which is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that no representation or warranty is made with respect to information within the POS or the Final Official Statement relating to DTC, the book entry system, the Insurer or the Underwriter; and m) The Issuer has not failed to comply with any prior undertaking under the Rule in the past five years. 7. Termination The Underwriter may terminate its obligation under this Purchase Agreement, without liability therefor, by notifying the Issuer of its election to do so in writing if, after the execution of this Purchase Agreement and prior to the Closing, any one or more of the following events shall have occurred and such event, in the reasonable opinion of the Underwriter (i) would materially and adversely affect the marketability of the Bonds or the prices or yields of the Bonds as set forth in Exhibit C, or (ii) would materially and adversely affect the Underwriter's ability to enforce contracts for the sale of the Bonds: a) A material disruption in commercial banking or securities settlement or clearance services; or b) The United States shall have become engaged in hostilities or existing hostilities shall have escalated or a national emergency or other national or international calamity, including but not limited to terrorist attack(s) or other event; or c) A general suspension of trading or other material restrictions not in force as of the date of this Purchase Agreement on the New York Stock Exchange or other national securities exchange; or d) Declaration of a general banking moratorium by the United States, New York State or Washington State authorities; or e) Legislation with respect to eliminating or reducing the exemption from federal or state taxation for interest income received on obligations of the general character of the Bonds shall be introduced or enacted by the legislature of the State of Washington or by Congress of the United States or adopted by either the United States House of Representatives or the United States Senate or shall have been recommended to the Congress or otherwise endorsed for passage by the Treasury Department of the United States, the Internal Revenue Service or by the chairman of the Senate Finance Committee or a decision or an order or ruling with respect to eliminating or reducing such exemption, shall have been issued by a court of -5- Honorable Mayor and City Council City of Yakima, Washington April 17, 2007 Page 6 the United States, including the United States Tax Court, or by or on behalf of the Treasury Department of the United States or the Internal Revenue Service; or f) Legislation shall hereafter be enacted, or actively considered for enactment, or a decision by a court of the United States shall hereafter be rendered, or a ruling, stop order or regulation by the Securities and Exchange Commission or other governmental agency having jurisdiction of the subject matter shall hereafter be made, the effect of which is or would be that the offering and sale of the Bonds would be illegal or that: g) i) The Bonds are not exempt from the registration, qualification or similar requirements of the Securities Act of 1933, as amended and as then in effect (the "33 Act") or distribution of the Bonds, as contemplated herein or in the Final Official Statement, is in violation of or not exempt from the registration, qualification or other requirements of the 33 Act, as amended and as then in effect, or the Securities Exchange Act of 1934, as amended and then in effect or the Investment Company Act of 1940, as amended and then in effect (the "Investment Company Act") or, in each case, the rules or regulations promulgated thereunder as then in effect; or ii) The Ordinance is not exempt from the registration, qualification or other requirements of the Trust Indenture Act of 1939, as amended and as then in effect; or iii) This Purchase Agreement is subject to the Investment Company Act or requires any registration under the Investment Company Act; or Any litigation, except as described in the Final Official Statement, shall be instituted or pending at Closing to restrain or enjoin the authorization, issuance, execution, sale or delivery of the Bonds or the execution and delivery of any of the Documents, or in any way contesting or affecting any authority for or the validity or enforceability of the Bonds, the Ordinance or any of the other Documents, any moneys or securities provided for the payment of the Bonds or the existence or powers of the Issuer; or h) Any legislation, ordinance, rule or regulation shall be introduced in or enacted by any governmental body, board, department or agency of Washington State or of the United States, or a decision by any court of competent jurisdiction within Washington State or any court of the United States shall be rendered materially affecting the Issuer or the Bonds; or i) There shall have been established any new restrictions on transactions in securities materially affecting the free market for securities or the extension of credit by, or the charge to the net capital requirements of the Underwriter, including without limitation, the fixing of minimum or maximum prices for -6- Honorable Mayor and City Council City of Yakima, Washington April 17, 2007 Page 7 j) trading or maximum ranges of prices, by any exchange, the Securities and Exchange Commission, any other federal or state agency or the Congress of the United States, or by Executive Order; or Except for such changes to the Final Official Statement as provided in Section 5(c) of this Purchase Agreement, there shall have been a material adverse change in the affairs of the Issuer or there shall exist any event or fact or set of facts that either (a) makes untrue or incorrect in any material respect any statement or information contained in the Final Official Statement or (b) is not reflected in the Final Official Statement but should be reflected therein to make the statements and information contained therein under the circumstances in which made not misleading in any material respect; or k) The withdrawal or downgrading of any rating of the Bonds by a national rating agency from those shown in (c)(i) of Exhibit B. 8. Closing; Conditions of Closing The Closing shall occur on such date and at such time and place as is set forth in Exhibit C or otherwise agreed between the Issuer and the Underwriter, and subject to the satisfaction of the terms and conditions of this Purchase Agreement. At Closing, the following shall occur: the Issuer will deliver the duly executed Bonds or cause to be delivered to the fiscal agent for re -delivery through Fast Automated Transfer System to DTC and will deliver or cause to be delivered to the Underwriter the Ordinance; the Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in Exhibit C hereof in same day funds. The Issuer shall cause the applicable CUSIP identification numbers to be printed on the Bonds of each maturity, but neither the failure to print such number on any such Bond nor any error with respect thereto shall constitute cause for a failure or refusal by the Underwriter to accept delivery of and to pay for the Bonds. The Bonds shall be prepared and delivered to the Bond Registrar at or prior to the Closing Date. In addition to the other requirements of this Purchase Agreement, Underwriter's obligations hereunder are subject to and conditioned upon Issuer, at or prior to the Closing Date, delivering or making available to Underwriter copies of the Documents and such items as are listed in Exhibit B attached hereto and incorporated herein. 9. Fees and Expenses The Issuer will pay the cost of preparing, printing and executing the Bonds; the fees and disbursements of Bond Counsel; bond registration and rating fees and expenses; the bond insurance premium; the escrow agent fee; escrow verification fee; the cost of printing and distributing the POS and Final Official Statement; travel and lodging expenses of the Issuer's employees and representatives; and other expenses of the Issuer. -7- Honorable Mayor and City Council City of Yakima, Washington April 17, 2007 Page 8 The Underwriter will pay fees and disbursements of its counsel, if any, the cost of preparation and filing of blue sky and legal investment surveys where necessary, the Underwriter's travel expenses, and other expenses of the Underwriter. As a convenience to the Issuer, the Underwriter may from time to time, but only upon the prior written direction from the Issuer, make arrangements for certain items for which Issuer is responsible hereunder, such as printing of the POS and the Final Official Statement and travel or lodging arrangements for the Issuer's representatives. The Underwriter also may advance for the Issuer's account when appropriate and when directed in advance in writing by the Issuer, the cost of the items for which the Issuer is responsible by making payments to third -party vendors. In such cases, the Issuer shall pay such costs or expenses directly, upon submission of appropriate invoices by the Underwriter, or promptly reimburse the Underwriter in the event the Underwriter has advanced such costs or expenses for the Issuer's account. It is understood that the Issuer shall be primarily responsible for payment of all such items and that the Underwriter may agree to advance the cost of such items from time to time solely as an accommodation to the Issuer and on the condition that it shall be reimbursed in full by the Issuer. 10. Miscellaneous a) All matters relating to the Purchase Agreement shall be governed by the laws of the state of Washington. b) This Purchase Agreement is intended to benefit only the parties hereto. Unless it can be shown that the untruth of any representation or warranty of the Issuer or the violation of any agreement of the Issuer hereunder actually was or should have been discovered by the Underwriter through its review of the information in the Final Official Statement in accordance with and as a part of its responsibilities under federal securities laws as applied to the facts and circumstances of this transaction, all representations and warranties and agreements of the Issuer in this Purchase Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of the Underwriter, (ii) delivery of and payment for the Bonds hereunder, or (iii) any termination of this Purchase Agreement. If the Issuer fails to satisfy any of the foregoing conditions or covenants, or if the Underwriter's obligations are terminated for any reason permitted under this Purchase Agreement, then neither the Underwriter nor the Issuer shall have any further obligations under this Purchase Agreement, except that any expenses incurred shall be borne in accordance with the Fees and Expenses Section hereof. c) Any notice or other communication to be given to the Issuer by the Underwriter under this Purchase Agreement may be given by delivering the same in writing to the Director of Finance and Budget or other authorized official of the Issuer at 129 North Second Street, Yakima, Washington 98901; and any notice or other communication to be given to the Underwriter by the Issuer under this Purchase -8- Honorable Mayor and City Council City of Yakima, Washington April 17, 2007 Page 9 Agreement may be given by delivering the same in writing to the attention of the officer of the Underwriter executing this Purchase Agreement at Seattle - Northwest Securities Corporation, 1420 Fifth Avenue, Suite 4300, Seattle, Washington, 98101. Written communications may be delivered by electronic means. d) This Purchase Agreement may be executed in any number of counterparts, all of which shall be one and the same instrument, and either Party hereto may execute this Purchase Agreement by signing any such counterpart. e) This Purchase Agreement, including all documents incorporated herein by reference, constitutes the entire agreement between and among the Parties, supersedes any other representations, understandings or communications between the Parties or their representatives, and may be amended only in a writing signed by both Parties. This Purchase Agreement is intended solely for the benefit of the Parties (including any successors and assigns thereof but not any holder of any Bonds). No other person shall acquire or have any rights hereunder or by virtue hereof. Respectfully submitted, SEATTLE -NORTHWEST SECURITIES CORPORATION By: Lindsay A. Sovde, Vice President Accepted April 17, 2007 City of Yakima, Washington BY:)J?�t�`{ Rita M. DeBord, Director of Finance and Budget Time Signed -9- EXHIBIT A FINAL PRICING NUMBERS BOND DEBT SERVICE City of Yakima, Washington LTGO & Refunding Bonds, 2007 FINAL NUMBERS Dated Date 05/08/2007 Delivery Date 05/08/2007 Period Annual Ending Principal Coupon Interest Debt Service Debt Service 05/08/2007 11/01/2007 183,257 46 183,257 46 183,257 46 05/01/2008 270,000 4.000% 190,672.50 460,672.50 11/01/2008 185,272.50 185,272.50 645,945.00 05/01/2009 275,000 4.000% 185,272.50 460,272.50 11/01/2009 179,772.50 179,772.50 640,045.00 05/01/2010 290,000 4.000% 179,772.50 469,772.50 11/01/2010 173,972.50 173,972.50 643,745.00 05/01/2011 305.000 4.000% 173,972.50 478,972.50 11/01/2011 167,872.50 167,872.50 646,845.00 05/01/2012 315,000 4.000% 167,872.50 482,872.50 11/01/2012 161,572.50 161,572.50 644,445.00 05/01/2013 580,000 4.000% 161,572.50 741,572.50 11/01/2013 149,972.50 149,972.50 891,545.00 05/01/2014 595,000 4.000% 149,972.50 744,972.50 11/01/2014 138,072.50 138,072.50 883,045.00 05/01/2015 630,000 5.000% 138,072.50 768,072.50 11/01/2015 122,322.50 122,322.50 890,395.00 05/01/2016 655,000 5.000% 122.322.50 777,322.50 11/01/2016 105,947.50 105,947.50 883,270.00 05/01/2017 700.000 5.000% 105,947.50 805,947.50 11/01/2017 88,447.50 88,447.50 894,395.00 05/01/2018 495,000 4.000% 88,447.50 583,447.50 11/01/2018 78,547.50 78,547.50 661,995.00 05/01/2019 520,000 4.000% 78,547.50 598,547.50 11/01/2019 68,147.50 68,147.50 666,695.00 05/01/2020 535,000 4.000% 68,147.50 603,147.50 11/01/2020 57,447.50 57,447.50 660,595.00 05/01/2021 560,000 4.000% 57,447.50 617,447.50 11/01/2021 46,247.50 46,247.50 663,695.00 05/01/2022 580,000 4.050% 46,247.50 626,247.50 11/01/2022 34,502.50 34,502.50 660,750.00 05/01/2023 395,000 4 100% 34,502.50 429,502.50 11/01/2023 26,405.00 26,405.00 455,907.50 05/01/2024 405,000 4.100% 26,405.00 431,405.00 11/01/2024 18,102.50 18,102.50 449,507.50 05/01/2025 430,000 4.125% 18,102.50 448,102.50 11/01/2025 9,233.75 9,233.75 457,336.25 05/01/2026 445,000 4.150% 9,233 75 454,233.75 454,233.75 8,980,000 3,997,647 46 12,977,647 46 12,977,647 46 Apr 16, 2007 2:22 pm Prepared by Seattle -Northwest Securities Corp - JMW (k:'analysis\dbc\city\Yakima:2007) Page 3 Bond Component BOND PRICING City of Yakima, Washington LTGO & Refunding Bonds, 2007 FINAL NUMBERS Maturity Yield to Call Call Premium Date Amount Rate Yield Price Maturity Date Price (-Discount) Serial Bonds. 05/01/2008 270,000 4.000% 3.620% 100.362 977 40 05/01/2009 275,000 4.000% 3.640% 100.681 1,872.75 05/01/2010 290,000 4.000% 3.650% 100.979 2,83910 05/01/2011 305,000 4.000% 3.680% 101.174 3,580.70 05/01/2012 315,000 4.000% 3.700% 101.352 4,258.80 05/01/2013 580,000 4.000% 3.740% 101.381 8,009.80 05/01/2014 595,000 4.000% 3.780% 101.338 7,961.10 05/01/2015 630,000 5.000% 3.800% 108.193 51,615.90 05/01/2016 655,000 5 000% 3.840% 108.740 57,247 00 05/01/2017 700,000 5.000% 3.880% 109.194 64,358.00 05/01/2018 495,000 4.000% 3.930% 100.572 C 3.935% 05/01/2017 100.000 2,831.40 05/01/2019 520,000 4.000% 3.990% 100.080 C 3.991% 05/01/2017 100.000 416.00 05/01/2020 535,000 4.000% 4.020% 99 798 -1,080.70 05/01/2021 560,000 4.000% 4.050% 99469 -2,973.60 05/01/2022 580,000 4.050% 4.080% 99.665 -1,943.00 05/01/2023 395,000 4.100% 4.100% 100.000 05/01/2024 405,000 4.100% 4.120% 99 756 -988.20 05/01/2025 430,000 4.125% 4.150% 99.684 -1,358.80 05/01/2026 445,000 4.150% 4.180% 99.608 -1,744 40 8,980,000 195,879.25 Dated Date 05/08/2007 Delivery Date 05/08/2007 First Coupon 11/01/2007 Par Amount 8,980,000.00 Premium 195,879.25 Production Underwriter's Discount Purchase Price Accrued Interest Net Proceeds 9,175,879.25 -62,860.00 102.181283% -0.700000% 9,113,019.25 101.481283% 9,113,019.25 Apr 16, 2007 2:22 pm Prepared by Seattle -Northwest Securities Corp - JMW (lc:\analysis\dbc\city\Yakima:2007) Page 2 Sources: Bond Proceeds: Par Amount Net Premium/OID SOURCES AND USES OF FUNDS City of Yakima, Washington LTGO & Refunding Bonds, 2007 FINAL NUMBERS Dated Date 05/08/2007 Delivery Date 05/08/2007 07LTGO1 07LTGO2 07LTGO3 RO2LTGO Total Other Sources of Funds: Bond Fund Contribution (6/1/07 payment) 1,765,000.00 1,490,000 00 815,000.00 4,910,000.00 8,980,000 00 65,920.90 32,242.85 17,841.20 79,874.30 195,879.25 1,830,920.90 1,522,242.85 832,841.20 4,989,874.30 9,175,879.25 115,606.25 115,606.25 1,830,920.90 1,522,242.85 832,841.20 5,105,480.55 9,291,485.50 Uses: 07LTGO1 07LTGO2 07LTGO3 RO2LTGO Total Project Fund Deposits: River Road Proceeds Downtown Futures Proceeds Fire Station Proceeds Refunding Escrow Deposits: Cash Deposit SLG Purchases 1,807,000.00 1,807,000 00 1,500,000.00 1,500,000 00 820,000.00 820,000.00 1,807,000.00 1,500,000.00 820,000.00 4,127,000.00 2.24 5,032,405.00 2.24 5,032,405.00 Delivery Date Expenses: Cost of Issuance Underwriter's Discount Bond Insurance (XLCA @ 18.9 bps) Other Uses of Funds: Additional Proceeds 5,032,407.24 5,032,407.24 5,338.24 4,506.50 2,464.97 20,050.29 32,360 00 12,355.00 10,430.00 5,705 00 34,370 00 62,860.00 4,220.48 3,854.00 2,110.39 14,342.88 24,527 75 21,913 72 18,790.50 10,280.36 68,763 17 119,747 75 2,00718 3,452.35 2,560.84 4,31014 12,330.51 1,830,920.90 1,522,242.85 832,841.20 5,105,480.55 9,291,485.50 Apr 16, 2007 2:22 pm Prepared by Seattle -Northwest Securities Corp - JMW (k:\analysis\dbc\city\Yak ma:2007) Page 1 EXHIBIT B CLOSING DOCUMENTS Issuer's Closing Documents At Closing, Issuer shall provide the following: a) Copies of the Ordinance and the Blanket Issuer Letter of Representation; b) The approving opinion of Bond Counsel dated as of the Closing Date and addressed to the Issuer and Underwriter, substantially in the form set forth in Appendix A to the Final Official Statement and a letter addressed to the Insurer, to the effect that the Insurer may rely upon such opinion as if it were addressed to the Insurer; c) Evidence of each of the following: i) That Standard & Poor's ("S&P") has assigned its (i) underlying rating of "A" to the Bonds and that such rating is in full force and effect on and as of the date of Closing and (ii) insured rating of "AAA", based upon the Issuer's purchase of the Policy issued by the Insurer; ii) Issuer's purchase of the Policy, including a copy of the Policy and an opinion of counsel to the Insurer in form and substance satisfactory to the Underwriter; iii) Designation of the Bonds as "qualified tax-exempt obligations" for banks, thrift institutions and other financial institutions, as defined in Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. d) A report from Grant Thornton LLP (the "Verification Agent") verifying the accuracy of (a) the mathematical computations concerning the adequacy of the maturing principal amounts of and interest earned on the Government Obligations, together with other escrowed moneys, to be placed in the escrow account to pay when due, pursuant to stated maturity or call for redemption, as the case may be, the principal of, premium, if any, and interest on the Refunded Bonds and (b) the mathematical computations of the yield on the Bonds and the yield on the Government Obligations purchased with a portion of the proceeds of the sale of the Bonds, together with a letter from the Verification Agent consenting to the inclusion in the POS and in the Final Official Statement under the heading "Verification" of references to the Verification Agent and to its report. e) A copy of completed Form 8038-G; f) The following certifications, which may be combined, executed by an authorized officer of the Issuer and dated as of the Closing Date, to the effect that: i) The representations, warranties and covenants of the Issuer contained herein and in the Ordinance are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date; g) ii) No litigation or other proceedings are pending or, to the knowledge of the Issuer, threatened in any court in any way (a) affecting the position or title of the authorized officers of the Issuer, or (b) seeking to restrain or to enjoin the authorization, issuance, sale or delivery of, or security for, any of the Bonds, or (c) contesting or affecting the validity or enforceability of the Bonds, the Ordinance, this Purchase Agreement, or (d) contesting the completeness or accuracy of the POS or the Final Official Statement, or (e) contesting the powers of the Issuer or its authority with respect to the Bonds, the Ordinance or this Purchase Agreement, or (f) materially affecting the finances of the Issuer. For the purpose of this subparagraph, the Issuer may rely upon a certificate of the Issuer's legal counsel with respect to the legal matters set forth therein; iii) No event affecting the Issuer has occurred since the date of the Final Official Statement which should be disclosed in the Final Official Statement for the purpose for which it is to be used or which is necessary to disclose therein in order to make the statements therein not misleading, and the Final Official Statement does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; Such additional certificates, instruments or opinions or other evidence as the Underwriter or the Bond Counsel may deem reasonably necessary or desirable to evidence the due authorization, issuance, execution, authentication and delivery of the Bonds, the truth and accuracy as of the time of the Closing of the representations and warranties contained in this Purchase Agreement, and the conformity of the Bonds and Ordinance with the terms thereof as summarized in the POS and the Final Official Statement, and to cover such other matters as the Underwriter or the Bond Counsel reasonably requests. Underwriter's Closing Documents At Closing, Underwriter shall deliver or cause to be delivered to the Issuer or Bond Counsel a receipt for the Bonds including therein a representation that all closing conditions set forth in this Purchase Contract have been provided to the satisfaction of the Underwriter or waived by it. EXHIBIT C DESCRIPTION OF THE BONDS (a) Principal Amount: $8,980,000 (b) Purchase Price: (c) Denominations: (d) Form: (e) Interest Payment Dates: $9,113,019.25 ($101.481283 per $100), representing a net original issue premium of $195,879.25 and an underwriter's discount of $62,860.00. $5,000, or integral multiples thereof Registered; Book -entry only May 1 and November 1, commencing November 1, 2007. (f) Maturity and Interest Rates: The Bonds shall mature on May 1 of each year and bear interest as follows: Due Interest CIJSW May 1. Apietu1.t8. Rates.. Yielder 984= 2008 $ 270,000 4.000% 3.62% QN7 2009 275,000 4.000 3.64 QP2 2010 290,000 4.000 3.65 QQO 2011 305,000 4.000 3.68 QR8 2012 315,000 4.000 3.70 QS6 2013 580,000 4.000 3.74 QT4 2014 595,000 4.000 3.78 QU1 2015 630,000 5.000 3.80 QV9 2016 655,000 5.000 3.84 QW7 2017 700,000 5.000 3.88 QX5 Due Interest CUS4 May t Amounts ' Rates` ' :Weide . 98.4521:' 2018* $ 495,000 4.000% 3.93% QY3 2019* 520,000 4.000 3.99 QZO 2020 535,000 4.000 4.02 RA4 2021 560,000 4.000 4.05 RB2 2022 580,000 4.050 4.08 RCO 2023 395,000 4.100 4.10 RD8 2024 405,000 4.100 4.12 RE6 2025 430,000 4.125 4.15 RF3 2026 445,000 4.150 4.18 RG1 * Priced to the call date of May 1, 2017. (g) Optional Redemption: The Bonds maturing on May 1 in years 2008 through May 1, 2017 are not subject to redemption prior to maturity. The Bonds maturing on or after May 1, 2018 are subject to redemption at the option of the Issuer, in whole or in part on any date on or after May 1, 2017 at a price of par plus accrued interest, if any, to the date of redemption. (h) Dated Date: (i) Offer Expires: a) (k) Bond Counsel: Closing: (1) Delivery: (m) Bond Insurance: (n) Ratings: Date of Delivery, expected to be May 8, 2007. 11:59 p.m. Pacific Time, April 17, 2007. K&L Preston Gates Ellis LLP Via conference call initiated by Bond Counsel on May 8, 2007 at 9:00 a.m. To the Bond Registrar on behalf of DTC by Fast Automated Securities Transfer. Payment of the principal of and interest on the Bonds, when due, will be insured by the Policy to be issued by the Insurer simultaneously with the delivery of the Bonds. S&P will assign its rating of "AAA" to the Bonds based on the Issuer's purchase of the Policy described above. Furthermore, S&P has assigned its underlying rating of "A" to the Bonds. BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. a For Meeting Of 4-17-2007 ITEM TITLE: A Resolution authorizing the execution and delivery of a contract for the purchase of the City's Limited Tax General Obligation and Refunding Bonds, 2007, in the aggregate principal amount of $8,980,000, fixing terms of the Bonds, ratifying certain acts and proceedings and approving the form of the Official Statement. SUBMITTED BY: Rita DeBord, Finance Directo CONTACT PERSON/TELEPHONE: Tim Jens reasury Services Officer; # 575-6070 SUMMARY EXPLANATION: On March 20, 2007 the City Council passed Ordinance number 2007-09 authorizing the issuance of up to $9,500,000 Limited Tax General Obligation and Refunding Bonds (LTGO), the proceeds from which are to be used to fund various capital projects; a) Remodel of West Valley Fire Station, b) Modifications to River Road and c) financing for the Downtown Futures Initiative; and refund the 2002 LTGO's issued for Phase III of the Convention Center remodel. At that time, staff was directed and authorized to perform all proceedings and tasks necessary to accomplish this transaction. Since then, staff completed a comprehensive credit review with Standard and Poor's, which resulted in affirmation of the City's "A" credit rating with a Stable Outlook. This is an investment Continued... Resolution X Ordinance _ Other (Specify) Bond Purchase Agreement from Seattle Northwest Securities, credit report from Standard & Poor's and final amortization schedules Contract X Mail to (name and address). Phone Funding Source APPROVED FOR SUBMITTAL: City Man STAFF RECOMMENDATION: Adopt Resolution accepting purchase offer BOARD/COMMISSION RECOMMENDATION: COUNCIL ACTION: Resolution adopted. RESOLUTION R-2007-48 Legal/BD rev effective 7/21/92 grade credit rating, reflecting good management of the City's financial affairs and a stable local economy (See credit report attached). The sale of the bonds took place on April 16th, and resulted in a purchase offer from Seattle Northwest Securities for $8,980,000 of these 2007 LTGO's bonds. The new money portion of the bonds is $4,070,000 for the West Valley Fire Station remodel, the River Road Project and the Downtown Futures Initiative, at an interest cost of 4.07% including legal and underwriting costs (amortization schedules on the three projects are included in this packet for your review); the refunding bonds are in the par amount of $4,910,000 to refund $4,745,000 of the 2002 LTGO's at an interest cost of 4.17%, resulting in average debt service savings of about $12,000 annually, or 5162,000 at present value over the life of the issue. This savings is about 3.5% of the refunded bonds. Total interest cost on the combined sale is 4.13%, including issuance and bond insurance costs. Items for Council Consideration at the April 17, 2007 regular Council meeting are as follows: • Bond Sale Resolution; prepared by the City's Bond Counsel, KL Preston Gates (enclosed) • Bond Purchase Agreement from Seattle Northwest Securities (enclosed) • Preliminary Official Statement (included in your packet on Friday). Additionally the following documents are enclosed for your information: • Amortization Schedule(s) • Credit Report from Standard & Poor's In today's interest rate environment, staff feels this is an acceptable offer and recommends Council to approve the sale of the 2007 LTGO and Refunding bonds by adopting the Resolution. Legal/BD rev effective 7/21/92 BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No q For Meeting Of: April 17, 2007 ITEM TITLE: A Resolution authorizing the execution and delivery of a contract for sale and purchase of the City's Limited Tax General Obligation Bonds (The Bonds) in the aggregate amount of not to exceed $9,500,000 and fixing the terms of The Bonds, approving the form of the Official Statement and ratifying certain acts and proceedings. SUBMITTED BY: Rita DeBord, Finance Direct CONTACT PERSON / TELEPHONE: Tim Jen efi, / reasury Services Officer; # 575-6070 SUMMARY EXPLANATION: On March 20,2007, Cy Council passed Ordinance #2007-09 authorizing the issuance of up to $9.5 million of Limited Tax General Obligation Bonds of the City for the purpose of providing funds for certain new capital projects and advance refunding certain outstanding bonds and directing staff to take all appropriate actions and perform all proceedings and tasks necessary to accomplish this transaction Therefore, staff engaged in a credit rating interview with Standard and Poor's on April 10th and completed the Preliminary Official Statement, dated April 9, 2007. Staff anticipates receiving Standard and Poor's rating on Thursday, April 12th and has a bond -pricing meeting scheduled with the Bond Underwriters, Seattle Northwest Securities, scheduled for Friday, April 13th. (Note due to market fluctuations, the projected savings from the refinancing of the 2002 Limited Tax General Obligation Bonds has decreased significantly over the past two weeks. Staff is closely monitoring the bond market and, during our pricing call on Friday, April 13 h., we will make a final determination regarding whether to move forward with refunding of these bonds or pulling them from the overall bond issue and waiting for more favorable market conditions before proceeding with the refunding At this point in time, we do not anticipate any problems in the issuance of the "new money" portion of this bond issue ) The actual pricing of the Bonds (at which time the bonds are officially offered for sale and investors make purchase offers) is scheduled for Monday, April 16, 2007. Once these items are known and the pricing is complete, all of the final terms and conditions of The Bond purchase offer will be known, including the interest rates, discounts/premiums if any, the final amortization schedule, etc. Assuming a reasonable offer has been made, staff will submit this offer to Council for your consideration at your regular business meeting on Tuesday, April 17th, Subject to Council's acceptance and authorization of the bond purchase offer, the transaction will be executed and scheduled to close within 30 days after Council authorization; the City will receive the bond proceeds at closing In order to accept and authorize staff to execute the purchase offer, Council would need to approve: (1) the purchase offer, (2) The Bond Resolution and (3) the Final Preliminary Official Statement (POS). Enclosed, you will find the Final POS and draft versions of the Purchase Offer and The Bond resolution for your review (Final documents will be provided to Council on Tuesday ) Resolution X Ordinance Other (Specify) Final POS and draft Sale/Purchase offer_ Contract Mail to (name and address) Phone: Funding Source APPROVED FOR SUBMITTAL: , �'' City Manager STAFF RECOMMENDATION Adopt Resolution, Purchase Offer and final POS BOARD/COMMISSION RECOMMENDATION COUNCIL ACTION Resolution adopted. RESOLUTION NO. R-2007-48 PRELIMINARY OFFICIAL STATEMENT DATED APRIL 9, 2007 $9,200,000* City of Yakima, Washington Limited Tax General Obligation and Refunding Bonds, 2007 DATED: Date of Delivery DUE: May 1, as shown below STANDARD & POOR'S RATING—Applied for. BANK QUALIFIED —The City has designated the Bonds as "qualified tax-exempt obligations" for purposes of section 265(b)(3)(B) of the Code. See "Tax Matters" herein for a discussion of this designation. BOOK -ENTRY ONLY—The Bonds will be issued as fully registered bonds in denominations of $5,000, or integral multiples thereof, and will be registered in the name of Cede & Co., as bond owner and nominee for The Depository Trust Company ("DTC"). DTC will act as securities depository for the Bonds. Purchasers will not receive certificates representing their interest in the Bonds purchased. PRINCIPAL AND INTEREST PAYMENTS—Interest on the Bonds will be payable semiannually on each May 1 and November 1, commencing on November 1, 2007, to maturity or earlier redemption. Principal of and interest on the Bonds will be payable by the fiscal agency of the State of Washington in New York, New York, currently The Bank of New York (the "Bond Registrar"), as further described herein. For so long as the Bonds remain in a "book -entry only" transfer system, the fiscal agent will make such payments only to DTC, which in turn is obligated to remit such principal and interest to its Participants for subsequent disbursement to Beneficial Owners of the Bonds as further described herein in Appendix B —Book -Entry Transfer System. MATURITY SCHEDULE — Due Interest Price or Due Interest Price or May 1 Amount* Rate Yield CUSIP May 1 Amount* Rate Yield CUSIP 2008 $ 300,000 % 2018 $ 495,000 % 2009 305,000 2019 520,000 2010 315,000 2020 535,000 2011 325,000 2021 560,000 2012 345,000 2022 580,000 2013 600,000 2023 395,000 2014 625,000 2024 410,000 2015 650,000 2025 430,000 2016 665,000 2026 445,000 2017 700,000 OPTIONAL REDEMPTION—The Bonds are subject to redemption prior to their stated maturities as further described herein. See "Description of the Bonds - Redemption Provisions." SECURITY—The Bonds are limited tax general obligations of the City. The City has irrevocably covenanted and agreed for as long as any of the Bonds are outstanding and unpaid that each year it will include in its budget and levy ad valorem taxes upon all the property within the City subject to taxation in an amount that will be sufficient, together with all other revenues and money of the City legally available for such purposes, to pay the principal of and interest on the Bonds as the same shall become due. The full faith, credit and resources of the City have been pledged irrevocably for the annual levy and collection of such taxes and the prompt payment of such principal and interest. There are limitations on the ability of a city in the State of Washington to raise property taxes. The Bonds do not constitute a debt or indebtedness of the State of Washington or any political subdivision thereof other than the City. See "Security for the Bonds" and "Taxing Authority" herein. TAX EXEMPTION—In the opinion of K&L Preston Gates Ellis LLP, Bond Counsel, assuming compliance with certain covenants of the City, interest on the Bonds is excludable from gross income for federal income tax purposes under existing law. Interest on the Bonds is not an item of tax preference for purposes of either individual or corporate alternative minimum tax. Interest on the Bonds may be indirectly subject to corporate alternative minimum tax and certain other taxes imposed on certain corporations. See "Tax Matters" herein for a discussion of the opinion of Bond Counsel. DELIVERY— The Bonds are offered for sale to the original purchaser subject tothe final approving legal opinion of K&L Preston Gates Ellis LLP, Seattle, Washington, Bond Counsel. It is expected that the Bonds will be available for delivery to the Bond Registrar on behalf of DTC by Fast Automated Securities Transfer, on or about May 1, 2007. * Preliminary, subject to change. This cover page contains certain information for quick reference only. 11 is not a summary of the issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Milli SEATTLE -NORTHWEST UUU SECURITIES CORPORATION (This Pio Tntantinnally T aft Rlanic\ City of Yakima, Washington 129 North Second Street Yakima, Washington 98901 Phone: (509) 575-6000 Fax: (509) 576-6614 www.ci.yakima.wa.us* David Edler Neil McClure Ron Bonlender Micah Cawley Norm Johnson Bill Lover Susan Whitman Richard A. Zais, Jr. Dave Zabell Rita M. DeBord, CPA Ray Paolella Timothy Jensen Cindy Epperson Mayor and City Council Mayor Assistant Mayor Council Member Council Member Council Member Council Member Council Member Administrative Officials City Manager Assistant City Manager Director of Finance & Budget City Attorney Treasury Services Officer Financial Services Manager Bond Counsel K&L Preston Gates Ellis LLP Seattle, Washington 206-623-7580 Bond Registrar The Bank of New York New York, New York 1-800-438-5473 * The City's website is not part of this Official Statement, and investors should not rely on information presented in the City's website in determining whether to purchase the Bonds. This inactive textual reference to the City's website is not a hyperlink and does not incorporate the City's website by reference. This Official Statement does not constitute an offer to sell the Bonds in any jurisdiction in which or to a person to whom it is unlawful to make such an offer. No dealer, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations, other than those contained herein, in connection with the offering of the Bonds and, if given or made, such information or representations must not be relied upon. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder will, under any circumstances, create an implication that there has been no change in the affairs of the City since the date hereof The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. This Preliminary Official Statement has been "deemed final" by the City, pursuant to Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, except for information which is permitted to be excluded from this Preliminary Official Statement under said Rule 15c2-12. In connection with this offering, the Underwriter may over -allot or effect transactions that stabilize or maintain the market price of the Bonds at levels above those which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. ii (Thio Para Tnfan+innally T a1f Rlanikl Table of Contents Page Description of the Bonds 1 Principal Amount, Date, Interest Rates and Maturities 1 Redemption Provisions 1 Purchase 1 Bond Registrar and Registration Features 2 Book -Entry Bonds 2 Authorization for Issuance 2 Purpose and Use of Proceeds 2 Purpose 2 Plan of Refunding 2 Refunding Procedure 3 Verification of Mathematical Calculations 3 Sources and Uses of Funds 4 Security for the Bonds 4 General 4 Additional Revenue for the New Money Portion of the Bonds 4 Additional Revenue for the Refunding Portion of the Bonds 5 Bonded Indebtedness 5 Summary of Limited Tax General Obligation Bond Debt Service Requirements 8 Net Direct and Overlapping Debt 9 Debt Payment Record 9 Future Financings 9 Taxing Authority 10 Authorized Property Tax Levies 10 The City's Property Tax Levies 10 Overlapping Taxing Districts 11 General Property Taxes 11 Regular Property Tax Limitations 12 Assessed Value 13 Tax Collection Procedure 13 Tax Collection Record 14 Major Property Taxpayers 14 Authorized Investments 15 Local Government Investment Pool 15 Authorized Investments for Bond Proceeds 15 City of Yakima Comparative General Fund Balance Sheet 16 Comparative General Fund Statement of Revenues, Expenditures and Changes in Fund Balance 17 The City 18 Key Administrative Staff 18 Labor Relations 19 Pension System 19 Other Post Employment Benefits 21 Risk Management 22 Accounting Policies 23 Budgetary Process 23 Cash and Investments 24 Auditing of City Finances 24 Demographic Information 25 Initiative and Referendum 27 State Initiatives 27 Tax Matters 28 Qualified Tax -Exempt Obligations 29 Rating 29 Continuing Disclosure 29 Legal and Underwriting 30 Approval of Counsel 30 Litigation 31 Official Statement 31 Underwriting 31 Concluding Statement 31 Opinion of Bond Counsel Appendix A Book -Entry Transfer System Appendix B 2005 Annual Financial Report Appendix C iii (chic Patro Trvi-orifirrnallcr T o4 Rlanlrl OFFICIAL STATEMENT $9,200,000* City of Yakima, Washington Limited Tax General Obligation and Refunding Bonds, 2007 The City of Yakima, Washington (the "City"), a municipal corporation duly organized and existing under and by virtue of the laws of the State of Washington (the "State"), furnishes this Official Statement in connection with the offering of $9,200,000* aggregate principal amount of the above -referenced bonds (the `Bonds"). This Official Statement provides information concerning the City and the Bonds. Description of the Bonds Principal Amount, Date, Interest Rates and Maturities The Bonds will be issued in the aggregate principal amount of $9,200,000* and will be dated and bear interest from the date of initial delivery to the Underwriter. The Bonds will mature on the dates and in the principal amounts and will bear interest (payable semiannually on each May 1 and November 1, commencing November 1, 2007) until the maturity or earlier redemption of the Bonds at the rates set forth on the cover of this Official Statement. Interest on the Bonds will be computed on the basis of a 360 -day year consisting of twelve 30 -day months. Principal of and interest on the Bonds will be payable by the fiscal agency of the State of Washington in New York, New York, currently The Bank of New York (the "Bond Registrar"). Redemption Provisions Optional Redemption. The Bonds maturing in years 2008 through 2017, inclusive, are not subject to optional redemption prior to maturity. The Bonds maturing on and after May 1, 2018 are subject to redemption at the option of the City, in whole or in part (and if in part, with maturities to be selected by the City) on any date on and after May 1, 2017 at the price of par, plus accrued interest, if any, to the date of redemption. For as long as the Bonds are in book -entry only form, if fewer than all of the Bonds of a maturity are called for redemption, the selection of Bonds within a maturity to be redeemed shall be made by The Depository Trust Company, New York, New York ("DTC"), in accordance with its operational procedures then in effect. See Appendix B attached hereto. If the Bonds are no longer held in book -entry only form, then the Bond Registrar will select Bonds for redemption using a random selection method. Notice of Redemption. For as long as the Bonds are held in book -entry only form, the Bond Registrar will provide notice to DTC only, and it will be the responsibility of DTC to disseminate notices to DTC participants. The City will not provide any notice of redemption to beneficial owners of Bonds. See "Book - Entry Bonds." If the Bonds are no longer kept in book -entry only form, notice of redemption will be given not fewer than 30 days nor more than 60 days prior to the redemption date by first-class mail, postage prepaid, to the registered owner of any Bond to be redeemed at the address appearing on the bond registration books maintained by the Bond Registrar. Interest on the Bonds called for redemption shall cease to accrue on the date fixed for redemption unless the Bond or Bonds called are not redeemed when presented pursuant to the call. Purchase The City reserves the right and option to purchase any or all of the Bonds offered to the City at any time at any price. All Bonds so purchased shall be canceled. * Preliminary, subject to change. 1 Bond Registrar and Registration Futures The Bonds will be issued as fully registered bonds and, when issued, will be registered in the name of Cede & Co. as Bond Owner and as nominee for DTC. DTC will act as securities depository for the Bonds. Individual purchases and sales of the Bonds may be made in book -entry form only in minimum denominations of $5,000 within a single maturity and integral multiples thereof. Purchasers ("Beneficial Owners") will not receive certificates representing their interest in the Bonds. Principal of and interest on the Bonds will be payable by the Bond Registrar (or such other fiscal agency or agencies as the State may from time to time designate). So long as Cede & Co. is the registered owner of the Bonds, principal of and interest on the Bonds are payable by wire transfer by the Bond Registrar to DTC, which inturn is terd to remit such a obligprincipal and interest to its Participants for subsequent disbursement Yr r� r subsequent to the Beneficial Owners of the Bonds, as further described herein in Appendix B. Book -Entry Bonds DTC will act as securities depository for the Bonds. The ownership of one fully registered Bond for each maturity of the Bonds, as set forth on the cover of this Official Statement, each in the aggregate principal amount of such maturity, will be registered in the name of Cede & Co., as nominee for DTC. See Appendix B attached hereto for additional information. Procedure in the Event of Revisions of Book -entry Transfer System. If DTC-; resigns as the securities depository and the City is unable to retain a qualified successor to DTC, or the City has determined that it is in the best _1 the City 'die book -entry _I . ansf_r _ that interests o1 the Beneficial ll-.-_.ers interest CJL V2 Ll LC l..SLV not to continue LS IC system of transfer LJiCd Vl LS LAL 11ltCr CJl9 V! 6l LC UCSLClSL20.d V WiLClb of the Bonds might be affected adversely if the book -entry system of transfer is continued, the City will execute, authenticate and deliver at no cost to the Beneficial Owners of the Bonds or their nominees Bonds in fully registered form, in the denomination of $5,000 or any integral multiple thereof within a maturity. In the event the Bonds are transferred by the City to fully registered form, the Bonds may be payable by the Bond Registrar or the State's co -fiscal agent, which is currently Wells Fargo Bank, National Association, in Seattle, Washington. Thereafter, the principal of the Bonds will be payable upon due presentment and surrender thereof at the principal office of the Bond Registrar; interest on the Bonds will be payable by check or draft mailed on the interest payment date to the owners of the Bonds at the address appearing on the Bond Register on the 15th day of the month next preceding the interest payment date, and the Bonds will be transferable as provided in the ClydinanrP (defined below). Authorization for Issuance Under and in accordance with State laws, the Bonds are issued pursuant to Ordinance No. 2007-09 passed by the City Council (the "Council") on March 20, 2007 and Resolution No. adopted by the Council on 2007 (collectively, the "Ordinance"), and the authority of RCW chapters 39.36, 39.46, 35.37 and 39.53. Purpose ansa use of Proceeds Purpose The proceeds from the sale of the Bonds will be used to (i) remodel a fire station; (ii) renovate the downtown area of the City, inclnclinv ciriewalkc ctreetlamnc miners and nthPr imnrnvamentc° (iii) make infrastructure improvements to River Road; (iv) refund a portion of the City's outstanding debt to obtain the benefit of savings in annual and total debt service requirements; and (v) pay the costs of issuance of the Bonds. Plan of Refunding A portion of the proceeds of the Bonds may be used to provide funds to establish an irrevocable trust escrow to refund a portion of the City's outstanding obligations. The candidates authorized to be refunded with the proceeds of the Bonds are identified below. Depending on market conditions on the pricing date and the savings available to the City as a result of such refunding, the City may include none, all or a portion of $4,745,000 of the City's callable Limited Tax General Obligation Bonds, 2002, dated June 1, 2002 (the "2002 2 Bonds"), maturing on June 1 in the years 2013, 2014, 2016 through 2022, inclusive, and 2026 (the "Refunded Bonds"). Information on the Refunded Bonds is as follows: Refunded Amount Redemption Maturities* Refunded* Date Price 2013, 2014, 2016-2022, 2026 $ 4,745,000 06/01/12 100% * Preliminary, subject to change. Refunded Bonds* Maturity Years Principal Interest CUSIP (Tune 1) Amounts Rates Numbers 2013 $ 245,000 4.35% 984521MP6 2014 255,000 4.50 984521MQ4 2016* 550,000 4.70 984521MS0 2017 295,000 4.75 984521MT8 2018 310,000 4.80 984521MU5 2019 325,000 4.95 984521MV3 2020 340,000 5.00 984521MW1 2021 355,000 5.00 984521MX9 2022 375,000 5.00 984521MY7 2026* 1,695,000 5.00 984521NC4 * Term Bond. Refunding Procedure If the City proceeds with the refunding, a portion of the proceeds of the Bonds would be used to acquire certain direct non -callable United States government obligations (referred to herein as "Government Obligations") by U.S. Bank National Association ("Escrow Agent"). The maturing principal of the Government Obligations, interest earned thereon, and necessary cash balance, if any, will be used to provide payment of the interest on the Refunded Bonds until June 1, 2012 and the redemption price (100%) on June 1, 2012. The Government Obligations, interest earned thereon, and necessary cash balance, if any, will irrevocably be pledged to and held in trust for the benefit of the owners of the Refunded Bonds by the Escrow Agent, pursuant to an escrow agreement to be executed by the City and the Escrow Agent. Verification of Mathematical Calculations Grant Thornton LLP, a firm of independent public accountants, will deliver on or before the delivery date of the Bonds, its verification report indicating that it has verified, in accordance with attestation standards established by the American Institute of Certified Public Accountants, the mathematical accuracy of (a) the mathematical computations of the adequacy of the cash and the maturing principal of and interest on the Government Obligations, to pay, when due, the interest on and redemption price of the Refunded Bonds and (b) the mathematical computations of yield used by Bond Counsel to support its opinion that interest on the Bonds will be excluded from gross income for federal income tax purposes. The verification performed by Grant Thornton LLP will be solely based upon data, information and documents provided to Grant Thornton LLP by the Underwriter and its representatives. Grant Thornton LLP has restricted its procedures to recalculating the computations provided by the Underwriter and its representatives and will not evaluate or examine the assumptions or information used in the computations. 3 Sources and hfiL Uses of Funds >>)) The proceeds of e Bonds are estimated to be applied as follows: Sources of Funds Par Amount of Bonds(1) $ 9,200_,000 Net Premium/ (Discount) Total Sources of Funds $ Use of Funds Funds Available for Projects $ Escrow Requirements T......... -.,c,. C....i... (91 Issuance Costs `-' Total Use of Funds $ (1) Preliminary, subject to change. (2) Includes Bond Counsel fees, rating fees, bond insurance premium, underwriter's discount, and other costs associated with the issuance of the Bonds. Security for the Bonds General The Rnn(lc ora 14m4te,4 +ov nonoral nhligatinn hnn(le n4 the city. The city, as ati+hnrixorl hi, law anll the Ordinance, has irrevocably pledged that, unless the principal of and interest on the Bonds are paid from other sources, it will make annual levies of taxes, within the constitutional and statutory tax limitations provided by law without a vote of the electors of the City, upon all of the property in the City subject to taxation in amounts, together with all other revenues and money of the City legally available for such purposes, sufficient to pay such principal and interest as the same shall become due. The Bonds do not constitute a debt or indebtedness of the State or any political subdivision thereof other than the City. 1 Additional T2evenue for the New 1‘4oney Portion of the Bonds The City will also use revenues and money legally available to the City, including gas taxes made available by the retirement of two debt issues in 2008 and State mandated increases in the gas tax rate that will result in increased gas tax allocations from the State, in the case of the portion of the Bonds used for the River Road project, and real estate excise taxes ("REET") in the case of the portion of the Bonds used for the downtown renovation project, to pay the principal of and interest on the new money portion of the Bonds. REET is split into two parts, REET 1 and REET 2, both at 1/4 of one percent of the sale price of the real estate. The City is dedicating REET 2 to the payment of the Bonds used for the downtown renovation project. The following tables provide a history of the revenue from gas taxes and REET for the City. City of Yakima Historical Gas Tax and REET Revenue Gas Taxes REET 2 2006 $ 1,299,298 :y 894,037 2005 1,164,787 878,934 20041,111,681 706,670 2003 1,125,915 N/A (1) 2002 1,156,907 N/A (1) (1) The City did not begin collecting taxes for REET 2 until 2004. Source: City of Yakima. 4 Additional Revenue for the Refunding Portion of the Bonds The refunding portion of the Bonds will be paid from legally dedicated revenue sources that include an additional pledge of sales tax revenue levied under RCW 82.14.390 and Hotel/Motel taxes levied under RCW 67.28. The State Legislature made these revenue sources available to the City in 2002 and 1996, respectively, for the purpose of constructing and operating a regional convention center. This revenue stream will continue as long as there are bonds outstanding to which this revenue is pledged for debt service. City of Yakima Historical Sales Tax and Hotel/Motel Tax Revenue Sales Tax Hotel/Motel Tax 2006 $ 635,902 $ 1,016,499 2005 604,565 939,571 2004 577,700 922,117 2003 559,205 910,387 2002 531,120 931,443 Source: City of Yakima. Bonded Indebtedness As prescribed by State statutes, the unlimited tax general obligation indebtedness permitted for cities, subject to a 60 percent majority vote of registered voters, is limited to 2.5 percent of assessed value for general purposes, 2.5 percent for utilities and 2.5 percent for open space/park facilities. Within the 2.5 percent of assessed value for general purposes, the City may, without a vote of the electors, incur general obligation indebtedness in an amount not to exceed 1.5 percent of assessed value. Additionally, within the 2.5 percent of assessed value for general purposes, the City may, also without a vote of the electors, enter into leases if the total principal component of the lease payments, together with the other nonvoted general obligation indebtedness of the City, does not exceed 1.5 percent of assessed value. The combination of unlimited tax and limited tax general obligation debt for general purposes, including leases, cannot exceed 2.5 percent of assessed value and for all purposes cannot exceed 7.5 percent of assessed value. The Bonds are issued without a vote. The City may, without a vote of the electorate, issue debt as follows: (1) Pursuant to an ordinance specifying the amount and object of the expenditure of the proceeds, the City Council may borrow money for corporate purposes and issue bonds and notes within the constitutional and statutory limitations on indebtedness. (2) The City may execute conditional sales contracts for the purchase of real or personal property. (3) The City may execute leases with or without an option to purchase. 5 Computation of Debt Capacity (As of May 1, 2007) 2007 Collection Year Assessed Value (1) Nonvoted Debt Capacity 1.5% of Assessed Value Less: Outstanding Nonvoted Debt (2) Less: The Bonds (3) Remaining Nonvoted Debt Capacity Voted and Nonvuted Debt Capacity 2.5% of Assessed Value Less: Outstanding Nonvoted Debt (2) Less: The Bonds (3) Less: Outstanding Voted Debt Total Remaining Voted and Nonvoted Debt Capacity Voted Utility Debt Capacity 2.5% of Assessed Value Less: Outstanding Utility Obligations Total Remaining Utility Debt Capacity Voted Open Space/Park Debt Capacity 2.5% of Assessed Value Less: Outstanding Open Space/Park 'Obligations Total Remaining Open Space/Park Debt Capacity (1) Provided by the Yakima County Assessor. (2) Includes limited tax general obligation debt and lease purchase agreements; excludes the Refunded Bonds. (3) Preliminary, subject to change v v Source: City of Yakima. $ 4,586,923,853 68,803,858 (11,734,053) (9,200,000) 47,869,805 114,673,096 (11,734,053) (9,200,000) (2,010,000) 91,729,043 114,673,096 0 $ 114,673,096 $ 114,673,096 n $ 114,673,096 6 General Obligations: Non -voted (1) Limited Tax General Obligations LTGO 1996 LTGO 1998 LTGO 2002 LTGO 2002 Line of Credit LTGO 2003 Series A LTGO 2003 Series B LTGO Refunding 2004 LTGO 2005 The Bonds (this issue) LTGO Bond Total Lease Purchase Agreements Police Video Printer/ copier Mobile Wireless Data Network Printer/copier Purchase Contract Total Outstanding Debt (As of May 1, 2007) Long Term Borrowing Date of Date of Issue Maturity 01/01/96 11/01/07 04/01/98 06/01/08 05/01/02 06/01/12 (2) 06/01/02 06/01/07 06/01/03 12/01/23 06/01/03 12/01/13 09/01/04 11/01/19 12/01/05 12/01/15 05/01/07 05/01/26 Amount Issued $ 6,000,000 1,430,000 6,735,000 5,000,000 1,430,528 4,155,000 4,175,000 775,000 9,200,000 (4) Amount Outstanding $ 235,000 340,000 1,280,000 44,569 (3) 1,430,528 3,225,000 4,035,000 695,000 9,200,000 (4) 33,775,528 20,485,097 11/03/03 11/03/08 491,838 06/01/04 03/01/09 93,414 07/09/04 04/09/09 325,000 10/15/04 07/15/09 54,255 964,507 Total Non -voted General Obligations $ 30,664,507 204,933 43,911 168,951 31,161 448,956 $ 20,934,053 General Obligations: Voter Approved Unlimited Tax General Obligation Bonds UTGO Refunding 2004 09/01/04 12/01/14 $ 2,300,000 $ 2,010,000 UTGO Bond Total $ 2,300,000 $ 2,010,000 (1) Does not include special assessment notes and warrants outstanding in the amount of $5,409 and $564,500, respectively, as of March 1, 2007. Also does not include City's obligation pursuant to an interlocal agreement with Yakima County to pay approximately $75,000 annually through 2008. (2) The Date of Maturity reflects the redemption of the Refunded Bonds. The June 1, 2007 through 2012 principal payments remain after this refunding. (3) A portion of the proceeds of the new money portion of the Bonds will be used to pay down $500,000 of the line of credit at closing. As of April 9, 2007, the balance on the line of credit is $544,569. (4) Preliminary, subject to change. 7 Summary of Limited Tax General Obligation Bond Debt Service Requirements (As of May 1, 2007) Calendar Outstanding LTGO Bonds (1) The Bonds (2) '1'otal Debt Years Principal Tnterest Principal Tnterest Service 2007 $ 1,187,615 $ 265,075 $ 0 $ 177,388 $ 1,630,078 2008 1,229,861 308,889 300,000 349,318 2,188,068 2009 1,154,241 292,130 305,000 338,218 2,089,588 2010 1,158,125 266,614 315,000 326,655 2,066,394 2011 1,187,419 236,395 325,000 314,804 2,063,618 2012 1,221,614 205,646 345,000 302,490 2,074,750 2013 1,013,534 175,123 600,000 285,008 2,073,665 2014 520,455 147,442 625,000 262,189 1,555,086 2015 537,376 134,864 650,000 238,376 1,560,616 nn-i,"AO 1 f Inc '7')O /_/_C /Inn n1 CC,/ 1 /1=,1AQ7 6 210 4`40,196 1GJ,/JO VOJ,OVV 21J,✓✓., i,2✓2,Z6/ 2017 458,302 113,852 700,000 187,348 1,459,502 n 7 -a0n nn n 9_r5 000 164;173 i 232,800 •018 470,855 1 �.,$.� 4 . ,L„ -� - 2019 408,409 90,662 520,000 1/41,233 1,163,303 2020 65,464 82,333 535,000 123,526 806,323 2021 61,613 84,133 560,000 101,900 807,646 2022 59,687 88,246 580,000 79,240 807,174 2023 57,762 92,238 395,000 59,740 604,740 2024 0 0 410,000 43,639 453,639 2025 0 0 430,000 26,730 456,730 2026 0 0 445,000 9,011 454,011 Total $ 11,240,528 $ 2,812,201 $ 9,200,000 $ 3,747,485 $ 27,000,214 (1) Does not include the 2002 LTGO Line of Credit (see "Bonded Indebtedness -Outstanding Debt" for details); excludes the Refunded Bonds. (2) Preliminary, subject to change. 8 Overlapping Taxing District Yakima School District No. 7 West Valley School District No. 208 Yakima County Naches School District No. 3 Total Summary of Overlapping Debt (As of February 1, 2007) 2007 Assessed Value $ 3,779,689,607 1,891,405,806 12,599,607,728 576,713,011 Percent Overlap 94.04% 51.40 35.99 0.29 Source: Yakima County Assessor and Treasurer and individual taxing districts. Outstanding GO Debt $ 29,675,000 58,610,000 41,565,000 2,640,000 Estimated Overlapping Debt $ 27,907,614 30,124,537 14,961,146 7,638 $ 73,000,935 Net Direct and Overlapping Debt The following tables present information regarding the City's direct debt (including the Bonds) and the estimated portion of the debt of overlapping taxing districts allocated to the City's residents. Regular Assessed Value (2007 Collection Year) (1) $ 4,586,923,853 Estimated 2006 Population (2) 81,710 Debt Information Net Direct Debt (3) $ 13,744,053 Estimated Net Overlapping Debt (as previously detailed herein) 73,000,935 Total Net Direct and Overlapping Debt $ 86,744,988 (1) Provided by the Yakima County Assessor's Office. (2) Estimate derived from the State of Washington, Office of Financial Management, Forecasting Division. (3) Includes the Bonds plus limited and unlimited tax general obligation debt and lease purchase agreements; excludes the Refunded Bonds. Bonded Debt Ratios Net Direct Debt to Assessed Value Net Direct and Overlapping Debt to Assessed Value Per Capita Assessed Value Per Capita Net Direct Debt Per Capita Total Net Direct and Net Overlapping Debt 0.30% 1.89% $ 56,137 $ 168 $ 1,062 Debt Payment Record The City has promptly met all debt service payments on outstanding obligations. No refunding bonds have been issued to prevent an impending default. Future Financings Other than the Bonds, the City has no authorized but unissued general obligation bonds outstanding, nor does it anticipate issuing additional long-term debt within the next 12 months. 9 Taxing Authority Authorized Property Tax Levies The City is authorized to impose (1) a regular levy (up to $3.60/$1,000, less the Library District levy, not to exceed $0.50/$1,000) of assessed value) and (2) excess levies (unlimited as to rate or amount). The City's regular levy for the 2007 collection year is $3.1165/$1,000. The regular levy is imposed without a vote of the people for general purposes, including payment of debt service on the Bonds, and is subject to limitations (see "General Property Taxes—Regular Property Tax Limitations" herein). Excess levies are imposed, upon voter approval, to pay debt service on unlimited tax general obligation bonds. An excess levy also may be imposed without a vote to prevent the impairment of a contract (RCW 84.52.052). The City's Property Tax Levies The following table shows the City's levy rates and dollar amounts Levied since 2003. Ad Valorem Tax Levies (Dollars per $1,000 of Assessed Value) Collection Levy Rates Levy Amounts Year General Bond 4) Total General Bond (1) Total nnn % /7\ inn 11,r inn n/An inn 101 A m1 A nnA 1)/n d' nn4 nnn d:1 A coo 1)e") GUU/ ' ' pJ.110:) pU.UO`t7 pJ.101't qi 1`t,47‘t,70:) 4' 47Y,000 4'1Y,J00,7UJ 2006 3.3813 0.0729 3.4542 14,099,088 300,000 14,399,088 205 1.e.395 0.0763 3,158 1 M1) A 9 301)1)011 13,961),637 2004 3.4718 0.0841 3.5559 13,276,452 315,833 13,592,285 2003 3.5214 0.0957 3.6171 12,935,578 345,000 13,280,578 (1) For repayment of voted bonds; not subject to limitation on levy rates or levy amounts, (2) In 2006 the voters of the City elected to annex to the Yakima County Rural Library District (the "Library District"). This transaction caused a transfer of up to $0.50/$1,000 of property tax authority from the City to -the Library District. This reduced the City's maximum levy to $3.60/$1,000 less the Library levy - capped at $0.50/$1,000. In return, the City was released from its annual contractual obligation to pay the Library District an annual operating subsidy, amounting to approximately $0.32/$1,000 in2006. This annexation increased the 2007 combined rate from $3.38/ $1,000 (the 2006 rate) to $3.60/$1,000 _ a $0.22/$1,000 increase. Of this voter -approved increase, the Library District is receiving an additional $0.15/$1,000, and the City is receiving an additional $0.07/$1,000. The effect of the transaction amounts to a greater operating levy for the Library District and about $650,000 annually in additional property tax revenue to the City. Sources: Yakima County Assessor's and Treasurer's Office. 10 Overlapping Taxing Districts The overlapping taxing districts within the City have the statutory power to levy regular property taxes at the following rates, subject to the limitations provided by chapter 84.55 RCW, and levy excess voter approved property taxes. For purposes of demonstration, representative levy rates for "levy code 333" of Yakima County (the "County"), as well as the statutory levy authority of each type of potential overlapping district, are listed below. Total Representative Total Statutory Levy Rates Levy Authority Per $1,000 of Per $1,000 of Assessed Value Assessed Value Yakima County $ 1.7383 $1.80 (2) County (Road Levy) n/a (1) 2.25 Library District n/a (1) 0.50 Fire Protection District n/a (1) 1.50 Port District n/a (1) 0.45 The City 3.1814 3.60 (3) Hospital District n/a (1) 0.75 State Schools 2.2536 3.60 (4) Yakima School District No. 7 4.7269 County Emergency Services 0.2303 Total rate for Yakima County levy code 333: $ 12.1305 (1) Yakima County levy code 333 is included within the incorporated portion of Yakima County and therefore does not have a road levy. Likewise, it does not contain either a fire district, library district, port district or a hospital district. (2) Pursuant to RCW 84.52.043(1), a county may increase its levy from $1.80 per $1,000 to a rate not to exceed $2.475 per $1,000 for general county purposes if (i) the total levies for both the county and any road district within the county do not exceed $4.05 per $1,000 and (ii) no other taxing district has its levy reduced as a result of the increased county levy. Of Yakima County's total levy rate of $1.7383, the nonvoted levy rate is $1.6697 and $0.0686 is the voted portion. (3) RCW 41.16.060. $0.225 of the total $3.60 can be used for pension funding purposes, if required; otherwise this tax may be levied and used for any other municipal purpose. The total levy includes a regular levy of $3.1165 and a voted bond levy of $0.0649. (4) RCW 84.52.043(1). The levy by the State shall not exceed $3.60 per $1,000 assessed value adjusted to the State equalized value in accordance with the indicated ratio fixed by the State Department of Revenue to be used exclusively for the support of the common schools. Source: Yakima County Assessor for Levy Code 333. General Property Taxes The following provides a general description of the City's taxing authority and limitations thereon, the method of determining the assessed value of real and personal property, tax collection procedures, and tax collection information. Authorized Property Taxes. The City is authorized to levy both "regular" property taxes and "excess" property taxes. (1) Regular Property Taxes. Regular property taxes are subject to constitutional and statutory limitations as to rates and amounts and commonly are imposed by taxing districts for general municipal purposes, including the payment of debt service on limited tax general obligation indebtedness, such as the Bonds. Regular property taxes do not require voter approval except as described below. (2) Excess Property Taxes. Excess property taxes are not subject to limitation as to rates or amounts but must be authorized by a 60 percent approving popular vote, as provided in Article VII, Section 2, of the State Constitution and RCW 84.52.052. To be valid, such popular vote must have a minimum voter turnout of 40 percent of the number who voted at the last City general election, except that one- year excess tax levies also are valid if the turnout is less than 40 percent and the measure receives a number of affirmative votes equal to or greater than 24 percent of the number who voted at the last City general election. Excess levies may be imposed without a popular vote when necessary to prevent impairment of the obligations of contracts. 11 Regular Property Tax Limitations The authority of a City to levy taxes without a vote of the people for general City purposes, including the payment of debt service on limited tax general obligation indebtedness, is subject to the limitations described below. Information relating to regular property tax limitations is based on existing statutes and constitutional provisions. Changes in such laws could alter the impact of other interrelated tax limitations on the City. Regular property tax levies are subject to rate limitations and amount limitations, as described below, and to the uniformity requirement of Article VII, Section 1 of the State Constitution, which specifies that a taxing district must levy the same rate on similarly classified property throughout the district. Aggregate property taxes vary within the County because of its different overlapping taxing districts. In the event that the maximum permissible levy valie5 within the City, ute low -est permissible laic for any part of LIiC City would be applied to the entire City. Maximum Rate Limitation. Title 84 RCW authorizes the imposition of regular tax levies to various statutory maximums (see "Overlapping Taxing Districts" herein). The One Percent Aggregate Regular Levy Limitation. Article VII, Section 2 of the Washington Constitution, as amended in 1973, limits aggregate regular property tax levies by the State and all taxing districts, except port districts and public utility districts, to one percent of the true and fair value of property. RCW 84.52.050 provides the same limitation by statute. $ .9O/$1 ,vv OOO Aggregate Regular Levi; Lumtafion. Within the one percent limitation describeddescribedabove, RCW 84.52,043(2) imposes an aggregate limitation on regular tax levies by all taxing districts, other than the State, of $5.90/$1,000 of assessed value, except levies for any port or public utility district; excess levies authorized in Article VII, Section 2 of the State Constitution; and certain levies for acquiring conservation futures, for emergency medical services or care, and to finance affordable housing. Uniformity Requirement. Article VII, Section 1 of the Washington Constitution requires that property taxes be levied at a uniform rate upon the saltie class of property' Vvit in tuie .err iior tai limits of a taxing district levying such taxes. It is possible because of different overlapping taxing districts in different areas of the City that the maximum permissible levy might vary within the City. In that event, to comply with the constitutional requirement for uniformity of taxation, the lowest permissible rate for any part of the City would be applied to the entire City. Prioritization of Levies. RCW 84.52,010 provides that if aggregate levies certified by all taxing districts exceed the aggregate levy limitations described above, levies certified by junior taxing districts are reduced or eliminated in order to bring the aggregate levy into compliance with the statutory maximum prescribed by RCW 04.52.050 and 84.52.043. RCW 84.52.043 defines "junior taxing districts" as all taxing districts other than the state, counties, road districts, cities, towns, port districts, and public utility districts. The tax levy for unlimited fay general obligation bonds is special excess levy approved by the voters, and as such, is not subject to the limitations on regular levies described above. Levy Amount Limitation ("Levy Lid"). The regular property tax increase limitation (chapter 84.55 RCW) limits the total dollar amount of regular property taxes levied by an individual local taxing district such as the City LV IC ClilV V! 3l1lYiL ,LQAGOl CVIGL4 11 LI LG highest lglejt i! the three 11lVJl L,Ciiii_liiiu by % limit factor, , plus an adjustment at the previous year's levy rate to account for taxes on new construction, annexations, improvements, State -assessed property and wind -power turbines assessed as real property. Under Initiative 747 ("I-747") passed by the voters in 2001, the limit factor is the lesser of 101 percent of the highest levy in the three previous years or 100 percent plus inflation, unless a greater amount is approved by a simple majority of the voters. On June 13, 2006, a King County Superior Court ruled Washington State Initiative 747 unconstitutional. Initiative 747 limits annual increases in the amount of regular property taxes levied by the City. Since Initiative 747, the City has generally been subject to a one percent limit on annual increases (except for, among other things, increases resulting from new construction). The recent King County Superior Court order voided the Initiative and enjoined the State of Washington from enforcing the Initiative. 12 The State Attorney General filed an appeal to the State Supreme Court and has been granted a stay of the lower court's decision pending the State Supreme Court's final decision. The State Supreme Court is expected to hear the case in 2007. The City cannot predict whether the Superior Court decision invalidating the Initiative will be upheld or, if upheld, whether the Legislature would re-enact the one percent limit rather than permitting a return to the higher limits m effect prior to Initiative 747 (generally permitting annual increases equal to the lesser of inflation or six percent). RCW 84.55.092 allows the property tax levy to be set at the amount that would be allowed if the tax levy for taxes due in each year since 1986 had been set at the full amount allowed under Chapter 84.55 RCW. This is sometimes referred to as "banked" levy capacity. The City does not have any banked levy capacity. With a majority vote of its electors, a taxing district may levy, within the rate limitations described above, more than what otherwise would be allowed by the tax increase limitation indefinitely or for a limited period or to satisfy a limited purpose, as allowed by RCW 84.55.050. This is known as a "levy lid lift." A newly created taxing district can initiate its levy at the maximum permitted statutory levy rate, unless that rate would exceed any of the limitations described above. Since the regular property tax increase limitation applies to the total dollar amount levied rather than to levy rates, increases in the assessed value of all property in the taxing district (excluding new construction, improvements and State -assessed property) which exceed the rate of growth in taxes allowed by the limit factor result in decreased regular tax levy rates, unless voters authorize a higher levy or the taxing district uses banked levy capacity. Decreases in the assessed value of all property in the taxing district (including new construction, improvements and State -assessed property) or increases in such assessed value that are less than the rate of growth in taxes imposed, among other events, may result in increased regular tax levy rates. Special excess levies approved by a 60 percent majority of the voters and meeting minimum voter turnout requirements are not subject to the rate or amount limitations on regular levies described above. Assessed Value The County Assessor, or equivalent thereof ("Assessor"), determines the value of all real and personal property throughout the County that is subject to ad valorem taxation, except certain utility properties which are valued by the State Department of Revenue. The Assessor is an elected official whose duties and methods of determining value are prescribed and controlled by statute and by detailed regulations promulgated by the State Department of Revenue. For tax purposes, the assessed value of property is 100 percent of its market value. Three approaches may be used to determine real property value: market data, replacement cost and income generating capacity. In the County, all property is subject to an annual property valuation and an on-site revaluation every six years. The property is listed by the Assessor on a roll at its current assessed value and the roll is filed in the Assessor's office. The Assessor's determinations are subject to revisions by the County Board of Equalization and, for certain property, subject to further revisions by the State Board of Tax Appeals. Tax Collection Procedure Property taxes are levied in specific amounts and the rate for all taxes levied for all taxing districts in the County is determined, calculated and fixed by the Assessor based upon the assessed value of the property within the various taxing districts. The Assessor extends the taxes to be levied within each taxing district on a tax roll that contains the total amount of taxes to be so levied and collected. By January 15 of each year, the tax roll is delivered to the County Treasurer, or equivalent thereof, who creates a tax account for each taxpayer and is responsible for the collection of taxes due to each account. All such taxes are due and payable on April 30 of each year, but if the amount due from a taxpayer exceeds $50, one-half may be paid then and the balance no later than October 31 of that year. Delinquent taxes are subject to interest at the rate of 12 percent per year computed on a monthly basis from the date of delinquency until paid. In addition, a penalty of three percent is assessed on June 1st of the year in which the tax was due and eight percent on December 1st of the year due. All collections of interest on delinquent taxes are credited to the County's current expense fund. The method of giving notice of payment of taxes due, the accounting for the money collected, the division of the taxes among the various taxing districts, notices of delinquency, and collection procedures are covered by detailed statutes. The lien on property taxes is prior to all other liens or encumbrances of any kind on real or personal 13 property subject to taxation. By law the County Treasurer may not commence foreclosure of a tax lien on real property until three years have passed since the first delinquency. The State's courts have not decided whether the Homestead Law (chapter 6.13 RCW) may give the occupying homeowner a right to retain the first $40,000 of proceeds of the forced sale of the family residence or other "homestead" property for delinquent general property taxes. (See Algona v. Sharp, 30 Wn. App. 837, 638 P.2d 627 (1982), holding the homestead right superior to the improvement district assessments.) The United States Bankruptcy Court for the Western District of Washington has held that the Homestead Exemption applies to the lien for property taxes, while the State Attorney General has taken llC position that ii. does not. )C. Collection Year 2007 2006 2005 2004 2003 2002 City of Yakima Tax Collection Record Regular Ad Valorem Assessed Value (1) Tax Levy $ 4,586,923,853 $14,588,963 4,169,739,611 14,399,088 3,971,667,847 13,960,632 3,824,096,823 13,592,285 3,673,433,781 13,280,578 3,268,615,861 12,390,073 Tax Collection Year of Levy (2) 97.6% 96.1 96.8 96.7 95.4 As of 02/01/07 (2) 97.6% 99.0 99.5 99.9 99.9 (1) Assessed valuation is based upon 100 percent of actual valuation. (2) In process of collection. NOTE: Taxes are due and payable on April 30 of each year of the levy. The entire tax or first half must be paid on or before April 30, otherwise the total amount becomes delinquent on May 1. The second half of the tax is payable oil or before October 31, bec11TLlilg delinquent 11 TTOvelnlbcr 1. Source: City of Yakima and Yakima County Assessor's Office, Taxpayer Yakima HMA Inc. (1) Shields Bag & Printing Co. Longview Fibre Co. Qwest Corporation Safeway Stores Inc, Jeld-Wen Windows & Doors Hansen Fruit Company LP Washington Fruit & Produce Yakima Valley Subsidiary Cascade Natural Gas Corporation City of Yakima Major Property Taxpayers Jape of Business Hospital Manufacturing Manufacturing Telecommunications Food and beverage Wood products Fruit processing Fruit processing Medical services Utilities Subtotal - Ten of the City's Largest Taxpayers All Other City Taxpayers Total ('i -h, Taxpayers J 1 J (1) Formerly Providence Health Systems, a non-profit medical facility. Regional Medical and Cardiac Center. Source: Yakima County Treasurer's Office. 14 2007 Collection Year Assessed Valuation $ 53,515,199 34,815,751 24,007,854 21,543,014 20,102,613 17,430,035 16,791,638 16,293,819 14,847,150 14,439,196 233,786,269 4,353,137,584 4, 586,923,8.53 Percent of City's Total A.V. 1.17% 0.76 0.53 0.47 0.44 0.38 0.37 0.35 0.32 0.31 5.10 94.90 100.00 °! Yakima HMA Inc. is doing business as Yakima Authorized Investments Chapter 35.39 RCW limits the investment by cities and towns of its inactive funds or other funds in excess of current needs to the following authorized investments: United States bonds; United States certificates of indebtedness; bonds or warrants of the State and any local government in the State; its own bonds or warrants of a local improvement district which are within the protection of the local improvement guaranty fund law; and any other investment authorized by law for any other taxing district or the State Treasurer. Under chapter 43.84 RCW, the State Treasurer may invest in non-negotiable certificates of deposit in designated qualified public depositories; in obligations of the US government, its agencies and wholly owned corporations; in bankers' acceptances; in.commercial paper; in the obligations of the federal home loan bank, federal national mortgage association and other government corporations subject to statutory provisions and may enter into repurchase agreements. Utility revenue bonds and warrants of any city and bonds or warrants of a local improvement district are also eligible investments (RCW 35.39.030). Money available for investment may be invested on an individual fund basis or may, unless otherwise restricted by law, be commingled within one common investment portfolio. All income derived from such investment may be either apportioned to and used by the various participating funds or for the benefit of the general government in accordance with city ordinances or resolutions. Funds derived from the sale of bonds or other instruments of indebtedness will be invested or used in such manner as the authorizing ordinances, resolutions or bond covenants may lawfully prescribe. Local Government Investment Pool The State Treasurer's Office administers the Washington State Local Government Investment Pool i (the "LGIP"), a $5.1 billion dollar fund that invests money on behalf of more than 350 cities, counties and special taxing districts. In its management of LGIP, the State Treasurer is required to adhere, at all times, to the principles appropriate for the prudent investment of public finds. These are, in priority order, (i) the safety of principal; (ii) the assurance of sufficient liquidity to meet cash flow demands; and (iii) to attain the highest possible yield within the constraints of the first two goals. Historically, the LGIP has had sufficient liquidity to meet all cash flow demands. The LGIP, authorized by chapter 43.250 RCW, is a voluntary pool which provides its participants the opportunity to benefit from the economies of scale inherent in pooling. It is also intended to offer participants increased safety of principal and the ability to achieve a higher investment yield than would otherwise be available to them. The pool is restricted to investments with maturities of one year or less, and the average life typically is less than 90 days. Investments permitted under the pool's guidelines include U.S. government and agency securities, bankers' acceptances, high quality commercial paper, repurchase and reverse repurchase agreements, motor vehicle fund warrants, and certificates of deposit issued by qualified Washington State depositories. Authorized Investments for Bond Proceeds In addition to the eligible investments discussed above, bond proceeds may also be invested in mutual funds with portfolios consisting of U.S. government and guaranteed agency securities with average maturities of less than four years; municipal securities rated in one of the four highest categories; and money market funds consisting of the same, so long as municipal securities held in the fund(s) are in one of the two highest rating categories of a nationally recognized rating agency. Bond proceeds may also be invested in shares of money market funds with portfolios of securities otherwise authorized by law for investment by local governments (RCW 39.59.030). See "The City - Cash and Investments" for more information regarding the City's investment practices. 15 City of Yakima Comparative General Fund Balance Sheet (Fiscal Years Ended December 31) Unaudited Audited 2006 2005 2004 2003 2002 Assets and Other Debits Cash & Equity in Pooled Investments $ 8,870,302 $ 7,497,410 $ 8,021,708 $ 8,55p 215 $ 7,704,560 Receivables: Taxes 4,100,191 4,201,726 3,684,741 3,363,202 862,274 Accounts 51,652, 113,498 153,443 174,20G 174,086 Interest/Penalties 133,286 131,653 70,611 89,499 287,596 Other 0 0 6,397 0 0 Due from Other Funds 395,685 511,606 242,101 584,875 1,066,233 Due from Other Gov't Units 129,660 38,210 28,880 73,368 26,964 Inventories 50,181 48,671 44,150 27,933 26,802 Total Assets 13,730,958 12,542,774 12,252, 031 12,863,298 10,148, 515 Liabilities Warrants/Accounts Payable 513,301 448,896 503,264 606,871 389,798 Wages/Benefits Payable 3,348,383 2,918,085 2,655,805 2,551,753 2,246,608 Due to Governments 55,552 46,513 37,258 22,399 24,585 Deposits Payable 247,429 58,511 68,183 271,744 214,524 Deferred Revenues 44,414 106,774 136,987 153,690 897,784 Total Liabilities Fund Equity and Other Credits Fund Balance: 4,209,079 3,578,779 3,401,497 3,606,457 3,773,299 Reserved 377,505 277,565 383,582 781,001 788,694 Unreserved 9,144,374 8,686,430 8,466,952 8,475,840 5,586,522 Total Fund Equity and Other Credits 9,521,879 8,963,995 8,850,534 9,256,841 6,375,216 Total Liabilities, Equity and Other Credits $ 13,730,958 $ 12,542,774 $ 12,252,031 $ 12,863,298 $ 10,148,515 Source: City of Yakima. 16 (1) (2) (3) City of Yakima Comparative General Fund Statement of Revenues, Expenditures and Changes in Fund Balance (Fiscal Years Ended December 31) Revenues Taxes and Special Assessments Licenses and Permits Intergovernmental Charges for Services Fines and Forfeitures Interest Other Unaudited Audited 2006 2005 2004 $ 34,350,810 $ 32,066,945 $ 30,119,323 741,492 690,783 529,767 2,115,772 1,763,988 1,605,395 4,182,839 4,290,541 4,201,981 1,309,431 1,190,300 1,363,565 694,610 735,857 414,847 137,532 57,00.1 40,518 Total Revenues $ 43,532,486 $ 40,795,415 $ 38,275,396 Expenditures General Government Security of Persons and Property Physical Environment Economic Environment Mental and Physical Health Culture and Recreation Capital Outlay Debt Service Total Expenditures Excess of Revenues Over (Under) Expenditures Other Financing Sources (Uses) Proceeds from Capital Lease Financing Operating Transfers In Operating Transfers (Out) (2) Intergovernmental Agreements Sale of Capital Assets Comp. For Loss of Gen. Fixed Assets Total Other Financing Sources (Uses) Excess of Revenues and Other Sources Over (Under) Expenditures/Other Uses Fund Balance, January 1 Change in Reserve for Inventory 10,329,835 9,852,233 9,783,461 26,751,975 25,098,721 23,297,962 1,341,936 1,328,608 1,326,367 694,277 607,358 582,593 17,569 18,255 16,952 1,320,440 1,419,440 1,421,107 126,502 64,800 200,122 394,797 393,142 357,374 40,976,756 38,782,557 36,985,938 2,555,730 2,012,858 1,289,458 0 0 147,669 40,000 90,000 145,000 (2,100,949) (1,994,240) (2,005,430) (39,095) 0 0 100,000 0 0 688 322 779 (1,999,356) (1,903,918) 2003 $ 28,294,713 469,716 1,739,409 3,861,959 1,396,796 425,786 (259,859) (1) $ 35,928,520 8,963,242 22,262,081 1,230,396 503,422 15,327 1,405,448 56,641 211,843 2002 $ 26,565,287 405,856 1,749,790 3,723,724 1,631,877 558,359 56,453 $ 34,691,346 8,662,004 20,794,442 1,242,009 419,434 23,219 1,251,178 93,030 212,403 34,648,400 32,697,719 1,280,120 1,993,627 0 0 110,000 110,000 (1,845,427) (1,919,371) 0 0 0 0 1,143 2,774 (1,711,982) (1,734,284) (1,806,597) 556,374 108,940 (422,524) (454,164) 187,030 8,963,995 8,850,534 9,256,841 9,709,874 (3) 6,191,466 1,510 4,521 16,217 1,131 (3,280) Ending Fund Balance $ 9,521,879 $ 8,963,995 $ 8,850,534 $ 9,256,841 $ 6,375,216 Prior period adjustment. The majority of operating funds transferred out of the general fund are used to fund parks programs, contingency funds and the City's public safety communications network. In conjunction with GASB 34, the City also implemented GASB 33, which defines revenue recognition for "no exchange" (i.e. tax) transactions. As a result of the implementation of GASB 33, a change in accounting principle was determined to have occurred. This change caused a restatement of $3,334,658 in the General Fund beginning fund balance to comply with the pronouncement. Source: City of Yakima. 17 The City The City of Yakima was incorporated in 1886. It is the tenth largest city in the State of Washington (the "State"), and encompasses approximately 23 square miles. The City provides the full range of municipal services including public safety (police, fire, building), public improvements (streets, traffic signals, storm sewer, irrigation utility), sanitation (solid waste disposal, wastewater utility), water utility, irrigation utility, community development, parks and recreation, and general administrative services. The City operates under a council/manager form of government with a full-time city manager. The City Council (the "Council") consists of seven council members. Four members are elected from individual districts and three are elected at large. The mayor is chosen by the Council from within its own membership every two years. Elected Officials City Council David Edler, Mayor Neil McClure, Asst. Mayor Ronald J. Bonlender Micah Cawley Norm Johnson Bill Lover Susan J. Whitman Term Expires December 31, 2007 December 31, 2007 December 31, 2007 December 31, 2009 December 31, 2009 December 31, 2009 December 31, 2007 Key Administrative Staff Richard A. Zais, jr., City Manager. Mr. Zais joined the City in 1973 as the Administrative Assistant to the City Manager and was appointed to the position of City Manager in 1979. Mr. Zais is responsible for the supervision and direction of a full-service city with seven operating departments. Mr. Zais administers the $164 million annual City budget with a $55 million annual payroll for over 600 full-time employees. Mr. Zais serves as the Council's chief advisor, appoints all administrative officers and employees and executes Council policy and programs. Mr. Zais' educational background is in public administration with a B.A. and M.P.A. from the University of Washington. Rita M. DeBord, Director of Finance & Budget. Ms. DeBord joined the City in 1999 as the Finance Director, coming from Puget Sound Energy Corporation. Ms. DeBord is responsible for all financial and treasury services, budgeting and accounting, utility customer services and information systems for the City. During her 21 years with Puget Sound Energy, Ms. DeBord served in many capacities including the following key management positions: Manager of District Operations; Manager of Corporate Budgets; and Manager of Information Systems Project. Ms. DeBord has a degree in Accounting from Central Washington University, is a Certified Public Accountant ("CPA") and is a member of the American Institute of Certified Public Accountants and the Washington Society of Certified Public Accountants, Timothy Ivi. jensen, Treasury Services Officer. Mr. jensen joined the City ui 1990 as an accountant, coming from a national public accounting firm where his primary duties were as a senior auditor. Mr. Jensen was appointed the City's Treasury Services Officer in 2001 where he oversees the security of the City's investments, cash management, and debt administration and performs high-level financial analysis. Mr. jensen obtained a Bachelor of Science in Accounting from Central Washington University in 1986, passed the CPA exam, and practiced as a CPA for six years. Mr. Jensen also studied Economics at the University of California, Berkeley and the University of Nevada, Reno from 1974 through 1977. Mr. Jensen is an executive officer of the Washington Finance Officers Association ("WFOA") and will be President of that organization in 2008. He has served on the Board of Directors of WFOA since 1998. Mr. Jensen is a past member of the Washington State Local Government Investment Pool Advisory Committee. He is also currently serving on the Washington State Auditor's Local Government Advisory Committee and has served two different State Treasurers on select issue committees. 18 Cindy J. Epperson, Financial Services Manager. Ms. Epperson joined the City in 1990 as an accountant, previously working in the agricultural industry as an accounting manager and as a Senior Auditor for an international accounting firm. Ms. Epperson was promoted to Financial Services Manager in 1998, where she has the responsibility for the City's accounting systems and processes including financial statement preparation. Ms. Epperson is a key strategic participator in the development of the City's budget, in maintaining the City's fiscal stability, and in generating and/or analyzing complex financial proposals to further the City's critical goals and objectives. Ms. Epperson obtained a Bachelor of Science degree in Accounting from the University of Arkansas in Little Rock and passed the CPA exam Labor Relations The City currently employs approximately 652 full-time and 18 part-time and temporary employees. A majority of the City's employees are represented by bargaining units as follows: Bargaining Unit AFSCME Municipal YPPA Fire Suppression AFSCME Transit Fire Communications Fire PERS Number of Employees 282 114 81 47 11 14 Contract Expiration Date December 31, 2009 December 31, 2005 (1) December 31, 2006 (1) December 31, 2006 (1) December 31, 2006 (1) December 31, 2006 (1) (1) Currently under negotiation; City management has proposed a wage freeze for 2007. The City considers its relationships with its employee groups and bargaining units to be satisfactory. Pension System Public Employees' Retirement System ("PERS"). Substantially all of the City's full-time and qualifying part-time employees, other than those covered under union plans, participate in PERS. This is a statewide local government retirement system administered by the Washington State Department of Retirement Systems, under cost-sharing, multiple -employer defined benefit public employee retirement plans. The PERS system includes three plans. Participants who joined the system by September 30, 1977, are PERS Plan I members. Those joining thereafter are enrolled in PERS Plan II. A third plan, entitled PERS Plan III, provides members with a defined benefit plan similar to PERS Plan II and the opportunity to invest their retirement contributions in a defined contribution plan. PERS Plan I members are eligible for retirement at any age after 30 years of service, at age 60 with five years of service, or at age 55 with 25 years of service. The annual pension is two percent of the average final compensation per year of service, capped at 60 percent. The average final compensation is based on the greatest compensation earned during any 24 eligible consecutive compensation months. PERS Plan II members may retire at age 65 with five years of service or at 55 with 20 years of service. The annual pension is two percent of the average final compensation per year of service. PERS Plan II retirements prior to 65 are actuarially reduced. On July 1 of each year following the first full year of retirement service, the benefit will be adjusted by the percentage change in the Consumer Price Index ("CPI") of Seattle, capped at three percent annually. PERS Plan III is structured as a dual benefit program that will provide members with the following benefits: • A defined benefit allowance similar to PERS Plan II calculated as one percent of the average final compensation per year of service (versus a two percent formula) and funded entirely by employer contributions. • A defined contribution account consisting of member contributions plus the full investment return on those contributions. 19 Each biennium, the State Pension Funding Council adopts PERS Plan I employer contribution rates and PERS Plan II employer and employee contribution rates. Employee contribution rates for PERS Plan I are established by statute at six percent and do not vary from year to year. The employer and employee contribution rates for PERS Plan II are set by the director of the Department of Retirement Systems, based on recommendations by the Office of the State Actuary, to continue to fully fund PERS Plan II. Unlike PERS Plan II, which has a single contribution rate (which is currently 2.25 percent), with PERS Plan III, the employee chooses how much to contribute from one to six contribution rate options. Once an option has been selected, t ----t - choice irrevocable ----1 ., ---- 1 hang --l-- er the contribution rale ulul�e 1� irrevu�avie u1ue55 the employee changes employers. All employers are required to contribute at the level established by State law. The methods used to determine the contribution requirements are established under State statute in accordance with Chapters 41.40 and 41.26 RCW. For the year ending December 31, 2006, the City's contribution of $732,732, or 3.01 percent of covered payrolls, represents its full liability under the system, except that future rates may be adjusted to meet the system needs. Adopted PERS Employer Contribution Rates Effective Effective Effective Effective 7/1/06 1/1/07 7/1/07 7/1/08 T\Tnrmal Rate 4 I,f% 1 cifl% d.1 c?/, d Rq% PERS I Unfunded Liability 0.01 1.78 1.69 2.57 Gain Sharing 0.00 0.00 0.62 0.62 DRS Admin. Expense -Rate 0.18 .10 V .10 0.18 0.18 .10 Total PERS Employer Rate 3.69% 5.46% 6.64% 8.20% Law Enforcement Officers' and Fire Fighters' Retirement System ("LEOFF"). LEOFF is a cost-sharing multiple - employer defined benefit pension plan. Membership in the plan includes all full-time, fully compensated local law enforcement officers, and fire fighters. The LEOFF system includes two plans. Participants who joined the system by September 30, 1977, are LEOFF Plan I members. Those joining thereafter are enrolled in LEOFF Plan II. Retirement benefits are financed from employee and employer contributions investment earnings and State contribµtions. Retirement benefits in both T EOFF Plan T and LEOFF Plan II are vested after completion of five years of eligible service. LEOFF Plan I members are eligible to retire with five years of service at age 50. The service retirement benefit is dependent upon the final average salary and service credit years at retirement. On April 1 of each year following the first full year of retirement service, the benefit will be adjusted by the percentage change in the CPI of Seattle. Term of Service Percent of Final Average 5-9 Years 1.0% 10-19 Years 1.5 20 or more years 2.0 T EOI T Plan TT members _ eligible t the _ .,L 50 with r1(1 of service ..t 53 - -with �:..`. of t,ivb n 1 heal �1 1.�LC1i vC1 are e 1 1 1e W retire u,, the f"�"C v1 vv .7141! �U years ; .J1 J1 +.+ .-.� . • _+.. _- • _- )�=----- service. Retirement benefits prior to age 53 are actuarially reduced at a rate of three percent per year. The benefit is two percent of the final average salary per year of service. The final average salary is determined as the 60 highest paid consecutive service months. There is no limit on the number of service credit years, which may be included in the benefit calculation. On July 1 of each year following the first full year of retirement service, the benefit will be adjusted by the percentage change in the CPI of Seattle, capped at three percent annually. LEOFF Plan I employer and employee contribution rates are established by statute, and the State is responsible for the balance of the funding at rates set by the Pension Funding Council to fully amortize the total costs of the plan. Employer and employee rates for LEOFF Plan II are set by the director of the Department of 20 Retirement Systems, based on recommendations by the Office of the State Actuary, to continue to fully fund the plan. LEOFF Plan II employers and employees are required to contribute at the level required by State law. The methods used to determine the contribution rates are established under State statute in accordance with Chapters 41.26 and 41.45 RCW. For the year ending December 31, 2006, the City's contribution to LEOFF I (for participants who joined the system by September 30, 1977) of 0.19 percent and to LEOFF II (participants who joined after September 30, 1977) of 4.9 percent of covered payroll totaled $15,174,689, representing its full liability under the system, except that future rates may be adjusted to meet the system needs. Historical trend information regarding all of these plans is presented in Washington State's Department of Retirement Systems' annual financial report. A copy of this report may be obtained at: Department of Retirement Systems Point Plaza West 1025 East Union Street P.O. Box 48380 Olympia, WA 98504-8380 Internet Address: www.drs.wa.gov According to information provided by the Office of State Actuary, the LEOFF System currently has no unfunded actuarial accrued liability. Unfunded Pension Liabilities. The City maintains two single employer defined benefit pension plans, Firemen's Pension and Police Pension, which are closed systems covering Firemen and Police Officers hired prior to March 1, 1970. Both plans had their first annual actuarial valuation as of March 31, 1989, and actuarial studies are performed every five years with the most recent update completed January 1, 2003. The required contributions identified in these valuations have been the basis for recording the unfunded pension liability since 1989. The Police Pension is a department in the General Fund, and is operating on a pay-as-you-go basis. The unfunded pension liability will be adjusted annually by comparing actual expenditures for pension benefits to the actuarially determined contribution. The City intends to maintain this plan on a pay-as-you-go basis. This fund had an unfunded pension liability of $4,309,741 at December 31, 2006. The Firemen's Relief and Pension Fund is a trust fund, and has as its funding sources a portion of local property taxes, a state tax on fire insurance premiums and interest income. This fund had an unfunded pension liability of $1,073,261 at December 31, 2006. An actuarial study was completed January 1, 2003. Other Post Employment Benefits The Government Accounting Standards Board ("GASB") has issued a new standard concerning Accounting and Financial Reporting by Employers for Post Employment Benefits Other than Pensions ("GASB 45"). In addition to pensions, many state and local governmental employers provide other post employment benefits ("OPEB") as a part of total compensation to attract and retain the services of qualified employees. OPEB includes post employment healthcare, as well as other forms of post employment benefits when provided separately from a pension plan. The new standard provides for the measurement, recognition and display of OPEB expenses/expenditures, related liabilities (assets), note disclosures, and if applicable, required supplementary information in the financial reports. This pronouncement is effective for the City for the fiscal year ending after December 15, 2007. To date, the City has not had an actuarial study performed to comply with GASB 45. The City plans to have an actuarial study performed by March 31, 2008 for the fiscal year ending December 31, 2007. 21 Risk Management The City maintains reserve funds to provide for self-insurance coverage in the areas of Unemployment Compensation, Medical/Dental coverage, and Workers' Compensation. In addition, the City maintains a Risk Management Fund to provide for property, liability, and other coverages. Unemployment Compensation. In 1978, the City established an Unemployment Compensation Reserve Fund to provide unemployment compensation coverage for its employees, and thereby elected to participate with the State in a cost -reimbursement instead of monthly premium program. In doing so, the City retained its right to appeal awards and determinations made by the State Department of Employment Security. Self-insured Medical/Dental Program. The City, in 1979, self-insured its medical and dental programs for all 1,___.,_ 1 1___ 1____ .] l.___.,__ 1_i_,_.1 1_ less 1_,.__ 1Lcu1 time The City employees other than temporary employees and Ci1LfilUy CCJ hired W WU1R iC3J LilLiiL 1LLLll-Lila LC. 11LC City's Human Resources Office administers the self-insured program and claims payment services are provided by Health Care Management Administration, Inc. Each operating fund is charged an amount per covered employee which would otherwise have been paid to an insurance carrier. Interfund premiums to the Employee Health Benefit Reserve Fund for 2006 were $6,641,801. Incurred but not reported claims of $984,044 were accrued as a liability. In order to avoid catastrophic losses, the City "reinsures" the program by purchasing insurance known as "stop -loss insurance." Two types of "stop -loss" insurance are purchased: (i) individual stop -loss, and (ii) aggregate stop -loss, with both provided through Sun Life Insurance Company. Under the individual stop- loss insurance, the City pays the first $15i i,000 of claims for an individual employee or dependent, Any charges accrued by an individual in excess of $150,000 in a calendar year are thereafter reimbursed by Sun Life up to $1 million per person. The aggregate stop -loss is designed to protect the City from multiple large claims which may not reach the individual stop -loss attachment point of $150,000. The aggregate stop -loss attachment point is calculated by determining the projected amount of claims for the year and adding an additional 25 percent of that amount (125 percent of projected claims) Workers' Compensation Program. The City self-insured its workers' col1Lpensat101L program for all employees except those covered by the T EOFF T Retirement System in 1984. This workers' compensation program provides coverage identical to the State -administered workers' compensation program; however, the City pays only the direct injury -related costs and certain administrative fees. The program is administered by the City's Human Resources Office with claims administration and safety services provided by NovaPro Risk Solutions (formerly Ward North America). Each operating fund is charged an appropriate accrual amount, per employee, based on rate requirements prescribed by the State. Each year the reserve fund is reviewed to determine a contribution rate which provides for an appropriate reserve. Interfund premiums to the Workers' Compensation Fund for 2006 were $981,803. Based on the claim manager's estimate, the City has accrued incurred but not reported claims of $636,219 at December 31, 2006. In order to avoid catastrophic losses, the City "reinsures" the program by purchasing insurance known as "stop -loss insurance." This insurance is provided through Wells Fargo Insurance Company under a policy purchased from Employers Reinsurance Corporation. Under the individual stop -loss portion of the insurance, the City pays the first $500,000 of a claim and the insurance company pays (a) the balance up to $1 million for individual �•] �1 l_ •___ _ /1\ .1_ 1__1___ •_ _ ( $25 ___illi___ C__. multiple _7___�- arising 11011 .. single an uaazav laz azul <luiilL 'vl ii%� las balance ilii Lv a$ ilLdniiiiiilli of y,Gv million for 11LiaiLlfiiC �iG 1�1L ii:✓zl.l� from ,,.. v..,.LbiC incident. Risk Management Program. The Risk Management Reserve Fund was established in 1986 when the City elected to self -insure the liability exposure portion of its insurance program. Resources accrue to the fund through interfund premiums to Operating Funds for appropriate insurance coverage and the replenishment and building of reserves for potential liability claims. City contributions to the Risk Management Reserve Fund for 2006 were $2,027,904. The Fund provides for administration, legal services, claims adjustment, and for the purchase of property, excess liability and other insurance coverage. 22 Liabilities of the fund are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. The result of the process to estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation, changes in legal doctrines and damage awards. Accordingly, claims are reevaluated periodically to consider recent claim settlement trends, inflation and other economic and social factors. The estimate of the claims liability also includes amounts for incremental claims adjustment expenses related to specific claims. Based on these factors, the claims manager's estimate of claims liability was $1.1 million as of December 31, 2006. In late 2005, the City joined an insurance pool and now maintains general liability coverage of $15 million, insured by St. Paul Travelers with a $100,000 deductible. The City also joined the Washington State Transit Insurance Pool (WSTIP) in September 2005. The deductible for the Transit Division for this program is $5,000 with $12 million in general liability coverage. Accounting Policies Accounting records for the City are maintained in accordance with methods prescribed by the State Auditor under the authority of Washington State law. The City financially reports on the calendar year basis and employs a double -entry modified accrual system for all fund categories with the exception of proprietary, nonexpendable and pension trust funds which require full accrual reporting. The modified accrual basis differs from the accrual basis in the following ways: (i) purchases of capital assets are considered expenditures; (ii) redemption of long-term debt is considered an expenditure when due; (iii) revenues are recognized only when they become both measurable and available to finance expenditures of the current period, revenues that are measurable but not available are recorded as receivable and offset by deferred revenues; (iv) inventories and prepaid items are reported as expenditures when purchased; (v) interest on long-term debt is not accrued but is recorded as an expenditure when due; and (vi) accumulated unpaid vacation and sick pay are considered expenditures when paid. In accordance with GASB 34, the City has implemented this accounting standard in its December 31, 2005 financial statement. Fund Accounting. The accounts of the City are organized on the basis of funds each of which is considered a separate accounting entity. The City uses governmental, proprietary and fiduciary funds. Each governmental fund and expendable trust or agency fund is accounted for with a separate set of self -balancing accounts that comprise its assets, liabilities, fund balances, revenues and expenditures. Proprietary and similar trust funds use the revenue, expense and equity accounts of similar businesses in the private sector. The City's resources are allocated to and accounted for in individual funds depending on what they are to be spent for and how they are controlled. Governmental Funds. All governmental funds are accounted for on a spending or "financial flow" measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. Their reported fund balance (net current assets) is considered a measure of "available expendable resources." Governmental fund operating statements focus on measuring changes in financial position, rather than net income; they present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Budgetary Process The City Council annually approves the City's operating budget. The operating budget is designed to allocate available resources among the City's services and programs and to provide for associated financing decisions. Annual appropriated budgets are adopted on the modified accrual basis of accounting. For governmental funds, there are no differences between budgetary basis and generally accepted accounting principles. Budgetary accounts are integrated in fund ledgers for all budgeted funds, but the financial statements include budgetary comparisons for the General Fund and Special Revenue Funds only. Budgets for debt service and capital projects are adopted at the level of the individual debt issue or project and for fiscal periods that correspond to the lines of debt issues or projects. Annual appropriated budgets are adopted at the fund level. Subsidiary revenue and expenditure ledgers are used to compare the budgeted amounts with actual revenues and expenditures. As a management control device, the subsidiary ledgers monitor expenditures for individual functions and activities by object class. Appropriations for general and special revenue funds lapse at year-end. 23 The City Manager is authorized to transfer budgeted appropriations between departments within any fund; however, any revisions that alter the total expenditures of a fund, or that affect the number of permanently authorized employee positions, salary ranges, or other conditions of employment must be approved by the Council. Cash and Investments Cash and investments are managed under the guidance of the City's Investment Policy adopted by a resolution of the Council. The policy was based on the Model Investment Policy prepared by the Municipal Treasurers' Association of the United States and Canada and applies to all financial assets of the City. Investments are made using the "prudent person" standard with primary objectives being safety of principal, liquidity enabling the City to meet all operating requirements and a return on investment objective of attammg a market rate of return through budgetary and economic cycles. City policies require the City to minimize counterparty risks by safekeeping all purchased securities and conducting all trades on a delivery versus payment basis. A report on the performance of the Treasury Division is prepared quarterly for review by the Council and City Manager. Investments of City funds except those of the Firemen's Relief and Pension Fund are limited to: (i) investment deposits, including certificates of deposit with qualified public depositories as defined in chapter 39.59 RCW; (ii) certificates, notes or bonds of the United States, or other obligations of the United States, or its agencies, or of any corporation wholly owned by the government of the United States; (iii) obligations of government- sponsored corporations which are eligible as collateral for advances to member banks as determined by the Board of Governors of the Federal Reserve System; (iv) banker's acceptances sold on the secondary market; (v) the LGIP; and (vi) high quality commercial paper. The market value of investments held in the combined porifolios under the control of the Department of Finance and Budget as of December 31, 2006 was $53.3 million. Of that amount, 43 percent was in agency securities, 56 percent was in the LGIP and one percent was invested in U.S. Treasuries. See "Appendix C 2005 Annual Financial Report" for a breakdown of investments. Auditing of City Finances Accounting systems and budgetary controls are prescribed by the Office of the Sate Auditor in accordance with RCW 43.09.200 and RCW 43.09.230. The City complies with the systems and controls prescribed by the Office of the State Auditor and establishes procedures and records which reasonably assure safeguarding of assets and the reliability of financial reporting (see "Authorized Investments" herein). The State Auditor is required to examine the affairs of cities at least once every two years. The City is audited annually. The examination must include, among other things, the financial condition and resources of the City, whether the laws and constitution of the State are being complied with, and the methods and accuracy of the accounts and reports of the City. Reports of the auditor's examinations are required to be filed in the office of the State Auditor and in the finance department of the City. The audited financial statements of the City for the year ended December 31, 2005, attached as Appendix C, are incorporated by reference to this Official Statement and have been filed with the current nationally recognized municipal securities information repositories ("NRMSIR"). 24 Demographic Information The City lies in central Washington State in the County about 142 miles southeast of Seattle and 188 miles northeast of Portland, Oregon. The County ranks second in the State in terms of square miles and seventh in terms of population. The City is the County seat and the largest incorporated community in the County encompassing 23 square miles. Population history for both the City and County in recent years is shown in the following table: April 1 2006 2005 2004 2003 2002 Population Yakima County and the City Yakima County 231,800 229,300 227,500 226,000 225,000 * The City completed an annexation of 1,990 citizens in June 2005. Source: Washington State Office of Financial Management, June 2006. of Yakima City of Yakima 81,710 79,480* 79,480 79,220 79,120 Economic Indicators Major Employers. The economy of the City is based on government -related jobs and agriculture that produces and processes tree fruits, hops, mint, vegetables, livestock, dairy and grapes for wine. The City is the center of the County's economic activity. Employer Yakima Valley Memorial Hospital Washington State D.S.H.S. Yakima School District No. 7 Yakima County Yakima Regional Medical Wal-Mart Tree Top, Inc. City of Yakima Yakima Valley Community College A.B. Foods, Inc, Snokist Growers Shields Bag & Printing Company E.P.I.C. Washington Fruit & Produce Co. Quality Transportation West valley School District No. 208 Smith's Aerospace Actuation Systems Yakima Forrest Products Ace Hardware Wholesale Center Central WA Comp. Mental City of Yakima Major Employers Type of Business Healthcare Social Services Education Government Healthcare Retail Fruit Processing Government Education Food Processing Fruit Processing Printing Social Services Fruit Processing Trucking Education Manufacturing Wood Products Hardware Health Healthcare Source: Yakima County Development Association, April 2007. 25 Number of Employees 1,500 1,500 1,050 1,000 941 700 646 623 590 550 521 520 500 430 410 406 370 325 320 300 Tncnnip, Tisfnric personal income and per capita income levels for the Cnrrntv and the State are shown below Yakima County and State of Washington Total Personal and Per Capita Income Yakima County Total Personal Per Capita Year Income (in millions) Income 2005* N/A N/A 2004 $5,766,499 $25,125 2003 5,457,597 24,057 2002 5,179,243 23,071 2001 5,151,726 23,067 2000 4,916,123 22,070 State of Washington Total Personal Per Capita Tnrnmc+ (in millinncl Tnrnmt mss..-..��. , ______ $222,642,504 217,503,197 201,606,772 197,451,578 193,498,304 187,853,404 Source: U.S. Department of Commerce, Bureau of Economic Analysis, February 2007. $35,409 35,041 32,882 32,549 32,291 31,779 Taxable Retail Sales. Taxable retail sales reflect only those sales subject to retail sales tax. Historic taxable retail sales for the City and the County are shown below: City of Yakima and Yakima County Taxable Retail Sales Year 2006* 2005 2004 2003 2002 2001 City of Yakima Yakima County $ 1,056,146,195 $ 1,961,429,106 1,350,618,320 2,503,736,875 1,307,845,725 2,411,522,348 1,246,026,347 2,294,202,221 1,205,189,471 2,178,920,758 1,176,022,552 2,122,049,462 *Data through third quarter only. Source: Washington State Department of Revenue, February 2007. Building Permits. Residential building permits are an indicator of growth within a region. The number and valuation of new single-family and multi -family residential building permits in the County are listed below: Year 2006 2005 2004 2003 2002 2001 Yakima County Residential Building Permits New Single Family Units New Multi Family Units Number Valuation 310 414 393 325 279 221 68,284,422 85,356,908 79,122,131 53,948,476 41,477,251 28,283,731 Source: Greater Yakima Valley Chamber of Commerce. Number Valuation 26 N/A $ N/A N/A N/A 4 200,672 33 2,468,9680 80 5,655,912 51 4,400,963 Total Valuation $ 68,284,422 85,828,413 79,322,803 56,417,4114 47,133,163 32,684,694 Employment. Employment within the County is described in the following tables. Civilian Labor Force data is based on household surveys of residents. NAICS data are estimates based on surveys of employers and benchmarked based on covered employment as reported by all employers. Yakima MSA Nonagricultural Wage & Salary Workers and Labor Force and Employment Data Annual Average 2006 2005 2004 2003 2002 Civilian Labor Force 118,800 119,200 117,300 114,700 112,700 Total Employment 110,300 110,200 107,100 103,500 101,700 Total Unemployment 8,500 9,000 10,200 11,200 11,000 Percent of Labor Force 7.2 7.6 8.7 9.8 9.8 NAICS INDUSTRY 2006 2005 2004 2003 2002 TOTAL NONFARM 78,700 75,900 75,100 74,900 74,000 TOTAL PRIVA I'b 61,400 59,000 58,400 58,300 57,800 GOODS PRODUCING 13,300 12,700 12,700 12,900 13,300 NAT. RESOURCES, MINING, and CONSTR. 4,000 3,600 3,400 3,200 3,100 MANUFACTURING 9,200 9,100 9,300 9,800 10,100 Non -Durable Goods 5,300 5,000 5,000 5,500 5,800 SERVICES PROVIDING 65,400 63,200 62,300 62,000 60,800 PRIVATE SERVICES PROVIDING 48,200 46,300 45,600 45,400 44,600 TRADE, TRANSPORTATION, & WAREHSG. 17,300 16,300 16,300 15,700 15,800 Wholesale Trade 4,600 4,200 4,000 3,800 3,900 Retail Trade 9,700 9,500 9,400 9,500 9,200 Transportation, Warehousing, and Utilities 3,100 2,700 2,900 2,400 2,700 PROFESSIONAL and BUSINESS SERVICES 4,300 4,200 4,200 4,500 4,500 EDUCATIONAL and HEALTH SERVICES 13,000 12,600 12,200 11,800 11,600 Health Services 11,900 11,500 11,100 10,800 10,700 LEISURE and HOSPITALITY 6,700 6,700 6,400 6,400 6,300 Food Services 4,800 4,800 4,600 4,600 4,500 GOVERNMENT 17,200 17,000 16,700 16,600 16,200 Federal Government 1,300 1,300 1,300 1,400 1,400 State Government 3,000 3,000 3,000 2,900 2,900 Local Government 12,900 12,700 12,400 12,300 11,900 Workers in Labor/Management Disputes 0 0 0 0 0 Source: Washington State Employment Security Department, February 2007. Initiative and Referendum State Initiatives Under the State Constitution, the voters of the State have the ability to initiate legislation and require the Legislature to refer legislation to the voters through the powers of initiative and referendum, respectively. The initiative power in Washington may not be used to amend the State Constitution. Initiatives and referenda are submitted to the voters upon receipt of a petition signed by at least eight percent (initiative) and four percent (referenda) of the number of voters registered and voting for the office of Governor at the preceding regular gubernatorial election. Any law approved in this manner by a majority of the voters may not be amended or repealed by the Legislature within a period of two years following enactment, except by a vote of two-thirds of all the members elected to each house of the Legislature. After two years, the law is subject to amendment or repeal by the Legislature in the same manner as other laws. 27 Future Initiative l.ecisla(7on. Other tax and fee initiative measures have been and may be filed, but it cannot he predicted whether any such initiatives might gain sufficient signatures to qualify for submission to the Legislature and/or the voters or, if submitted, whether they ultimately would be approved. Tax Matters In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, interest on the Bonds is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. Federal income tax law contains a number of requirements that apply to the Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the use of proceeds of the Bonds and the facilities financed or refinanced with proceeds of the Bonds and certain other matters. The City has covenanted to comply with all applicable requirements. Bond Counsel's opinion is subject to the condition that the City comply with the above -referenced covenants and, in addition, will rely on representations by the City and its advisors with respect to matters solely within the knowledge of the City and its advisors; respectively, which Bond Counsel has not independently verified. If the City fails to comply with such covenants or if the foregoing representations are determined to be inaccurate or incomplete, interest on the Bonds could be included in gross income for federal income tax purposes retroactively- to the UQLC of issuance of the AIVA IUJ, regardless of the 14(1 LC 13111 VV 1111.11 11 LC event 11 l_a 11011lJA taxability occurs. In rendering its opinion, Bond Counsel has relied on the report of Grant Thornton LLP with respect to the accuracy of certain mathematical calculations. Except as expressly stated above, Bond Counsel expresses no opinion regarding any other federal or state income tax consequences of acquiring, carrying, owning or disposing of the Bonds. Owners of the Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Bonds, which may include original issue discount original issue premium, purchase at a market discount or at a premium, taxation upon sale, redemption or other disposition, and various withholding requirements. Prospective purchasers of the Bonds should be aware that e nership of +he Bends may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain S corporations with "excess net passive income," foreign corporations subject to the branch profits tax, life insurance companies and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry or have paid or incurred certain expenses allocable to the Bonds. Bond Counsel expresses no opinion regarding any collateral tax consequences. Prospective purchasers of the Bonds should consult their tax advisors regarding collateral federal income tax consequences. Payments of interest on tax-exempt obligations such as the Bonds, are in many cases required to be reported to the Internal Revenue Service (the "IRS"). Additionally, backup withholding may apply to any such payments made to any owner who is not an "exempt recipient" and who fails to provide certain identifying information. Individuals generally are not exempt recipients, whereas corporations and certain other entities generally are exempt recipients. Bond Counsel's opinion is not a guarantee of result and is not binding on the IRS; rather, the opinion represents Bond Counsel's legal judgment based on its review of existing law and in reliance on the representations made to Bond Counsel and the City's compliance with its covenants. The IRS has established an ongoing program to audit tax-exempt obligations to determine whether interest on such obligations is includable in gross income for federal income tax purposes. Bond Counsel cannot predict whether the IRS will commence an audit of the Bonds. Owners of the Bonds are advised that, if the IRS does audit the Bonds, under current IRS procedures, at least during the early stages of an audit, the IRS will treat the City as the taxpayer, and the owners of the Bonds may have limited rights to participate in the audit. The commencement of an audit could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of the ultimate outcome. 28 Qualified Tax -Exempt Obligations The City has designated the Bonds as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3)(B) of the Code. Rating As noted on the cover page of this Official Statement, the City will apply for ratings for the Bonds from Standard & Poor's Ratings Services. When and if obtained, the rating will reflect only the views of the rating agency and an explanation of the significance of the rating may be obtained from the rating agency. There is no assurance that the rating, once obtained, will be retained for any given period of time or that the rating will not be revised downward or withdrawn entirely by the rating agency if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of the rating will be likely to have an adverse effect on the market price of the Bonds. Continuing Disclosure In accordance with Section (b)(5) of Securities and Exchange Commission Rule 15c2-12 under the Securities Exchange Act of 1934, as the same may be amended from time to time (the "Rule"), the City has agreed in the Ordinance for the benefit of the Bond Owners or Beneficial Owners of the Bonds to provide or cause to be provided to each NRMSIR and to the state information depository for the State of Washington (if one is created) ("SID"), in each case as designated by the Securities and Exchange Commission (the "Commission") in accordance with the Rule, the following annual financial information and operating data for the prior fiscal year (commencing in 2008 for the fiscal year ended December 31, 2007): (i) annual financial statements, which statements may or may not be audited showing ending fund balances, prepared in accordance with regulations prescribed by the State Auditor pursuant to RCW 43.09.200 (or any successor statutes) and generally of the type included in this Official Statement for the Bonds under the heading "Comparative General Fund Statement of Revenues, Expenditures and Changes in Fund Balance;" (ii) the assessed valuation of taxable property in the City; (iii) property taxes due and percentage of taxes collected; (iv) property tax levy rate per $1,000 of assessed valuation; and (v) outstanding general obligation debt of the City. Such annual information and operating data described above will be so provided on or before the end of nine months after the end of the City's fiscal year. The City may adjust such date if the City changes its fiscal year by providing written notice of the change of fiscal year to each then existing NRMSIR and the SID. The City's current fiscal year ends on December 31. In lieu of providing such annual financial information and operating data, the City may cross-reference to other documents provided to the NRMSIR, the SID or to the Commission, and, if such document is a final official statement within the meaning of the Rule, such document will be available from the Municipal Securities Rulemaking Board ("MSRB"). If not provided as part of the annual financial information discussed above, the City will provide its audited annual financial statement prepared in accordance with regulations prescribed by the State Auditor pursuant to the statutes cited above (or any successor statutes) when and if available to each then existing NRMSIR and the SID, if any. Material Events. The City agrees to provide or cause to be provided, in a timely manner, to the SID, if any, and to each NRMSIR notice of the occurrence of any of the following events with respect to the Bonds, if material: (1) Principal and interest payment delinquencies; (2) Non-payment related defaults; (3) Unscheduled draws on debt service reserves reflecting financial difficulties; (4) Unscheduled draws on credit enhancements reflecting financial difficulties; (5) Substitution of credit or liquidity providers, or their failure to perform; (6) Adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) Modifications to the rights of Bond owners; 29 (8) Bond calls (optional, cnnftingent or unscheduled Bond calls other than scheduled sinking fund redemptions for which notice is given pursuant to Exchange Act Release 34-238560); (9) Defeasances; (10) Release, substitution or sale of property, securing repayment of the Bonds; and (11) Rating changes. Solely for purposes of disclosure, and not intending to modify this undertaking, the City advises that no credit enhancements, debt service reserves or property secure payment of the Bonds. Notification Upon Failure to Provide Financial Data. The City has agreed in the Ordinance to provide or cause to TsT17ARcm ....- ,.,, ,.i.,, cTT :c ,,, ,.r :a-.. t..;l, 4." ;�7,. i-- - ivc iJrV VIU.CU, 11t a Ll11 LCly iilai ti LC1, 1V' cal.11 1 J1\1VJsJlli axL.4 1v 11 Li. 111i1, 1t (AI iy, itvuLi. va 1LJ 1Uxlizri iv vs. v 1'A4_ ciia. annual financial information described above in this section under the subheading "General" on or prior to the date set forth above in such subsection. Termination/Modification. The City's obligations to provide notices of material events shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. Any provision of this section shall be null and void if the City (1) obtains an opinion of nationally recognized bond counsel to the effect that the portion of the Rule that requires that provision is invalid, has been repealed retroactively or otherwise does not apply to the Bonds, and (2) notifies each NRMSIR and the SID, if any, of such opinion and the cancellation of this section. The City may amend this section with an approving opinion of nationally recognized bond counsel in accordance with the Rule. The right of any bondowner or beneficial owner of Bonds to enforce the provisions of this section shall be limited to a right to obtain specific enforcement of the City's obligations under this section, and any failure by the City to comply with the provisions of this undertaking shall not be an event of default with respect to the Bonds. For purposes of this section, "beneficial owner" means any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds, including persons holding Bonds through nominees or depositories. Rnndowner's Remedies Related to continuing Disclosure Undertaking. A Bondnwne_r's nr a Beneficial Owner's right to enforce the provisions related to continuing disclosure undertaking shall be limited to a right to obtain specific enforcement of the City's obligations related thereto, and any failure by the City to comply with the provisions of this undertaking shall not be an Event of Default with respect to the Bonds under the Ordinance. For purposes of this section, "Beneficial Owner" means any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds, including persons holding Bonds through nominees or depositories. DisclosureUSA. The City may elect to submit the information required to be filed with the NRMSIRs and the SID, if any, directly to DisclosureUSA.org unless or until the Commission withdraws its approval of this submission process. Prior Compliance with Continuing Disclosure Undertakings. The City has entered into undertakings with respect to its obligations issued after July 3, 1995 subject thereto and is in compliance with its obligations thereunder. arm aaa aAl nal b.1nb%aiA Sv asanan� Approval of Counsel Legal matters incident to the authorization, issuance and sale of Bonds by the City are subject to the approving legal opinion of K&L Preston Gates Ellis LLP, Bond Counsel. A form of the opinion of Bond Counsel is attached hereto. Bond Counsel will be compensated only upon the issuance and sale of the Bonds. Bond Counsel has not been retained to review and has not reviewed this Official Statement for completeness or accuracy and will not offer an opinion concerning this Official StatPmPnt. All or a portion of the fees of Bond Counsel are contingent upon the issuance and sale of the Bonds. 30 Litigation On February 15, 2005, Congdon Orchards, Inc. and Congdon Development Company, LLC (Congdon) filed a damage claim with the City alleging Congdon has been wrongfully damaged by Yakima's breach of contract, tortious conduct, negligence, breaches of duties, errors and omissions and other wrongful conduct. Congdon alleged its damages exceed $21 million and continue. The City's legal staff believes the chances of recovery are low based on recent court rulings. There is no litigation pending or threatened questioning the validity of the Bonds nor the power and authority of the City to issue the Bonds. There is no litigation pending or threatened which would materially affect the City's ability to meet debt service requirements on the Bonds. Because of the nature of its activities, the City is subject to certain pending legal actions which arise in the ordinary course of business. The City believes, based on the information presently known, that the ultimate liability for any of such legal actions will not be material to the financial position of the City. Official Statement In the Ordinance the City will deem final this Preliminary Official Statement as of its date for the purpose of Securities and Exchange Commission Rule 15c2-12. Underwriting The Bonds are being purchased by Seattle -Northwest Securities Corporation, the Underwriter. The purchase contract provides that the Underwriter will purchase all of the Bonds, if any are purchased, at a price of percent of the par value of the Bonds. The Bonds will be reoffered at an average price of percent of the par value of the Bonds. After the initial public offering, the public offering prices may be varied from time to time. Concluding Statement So far as any statement herein includes matters of opinion, or estimates of future expenses and income, whether or not expressly so stated, they are intended merely as such and not as representations of fact. The information contained herein should not be construed as representing all conditions affecting the City or the Bonds. Additional information may be obtained from the City. The statements relating to the Ordinance are in summarized form, and in all respects are subject to and qualified in their entirety by express reference to the provisions of such document in its complete form. The agreements of the City are set forth in such documents, and the information assembled herein is not to be construed as a contract with the Owners of the Bonds. 31 (This Page Intentionally Left Blank) (This Page Intentionally Left Blank) K&L GATES , 2007 City of Yakima Yakima, Washington Seattle -Northwest Securities Corporation Seattle, Washington K&L Preston Gates Ellis LLP 925 fourth Avenue Suite 2900 Seattle, WA 98104-1158 T 206.623,7580 www.klgates,com RE: City of Yakima, Washington Limited Tax General Obligation and Refunding Bonds, 2007 Dear Ladies and Gentlemen: We have acted as bond counsel to the City of Yakima, Washington (the "City") and have examined a certified transcript of all of the proceedings taken in the matter of the issuance by the City of its Limited Tax General Obligating and Refunding Bonds, 2007, dated as of the date of their delivery, in the aggregate principal amount of $ (the "Bonds"), issued for the purpose of financing to remodel a fire station, finance the downtown renovation project and the River Road project, to refund certain outstanding bonds of the City and to pay costs of issuing the Bonds. The Bonds are issued pursuant to Ordinance No. and Resolution No. of the City (together, the "Bond Ordinance"). Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Bond Ordinance. The Bonds are subject to optional [and mandatory] redemption prior to their stated maturities. We have not been engaged nor have we undertaken to review the accuracy, completeness or sufficiency of the official statement or other offering material related to the Bonds (except to the extent, if any, stated in the official statement), and we express no opinion relating thereto, or relating to the undertaking by the City to provide ongoing disclosure pursuant to Securities and Exchange Commission Rule 15c2-12. Regarding questions of fact material to our opinion, we have relied on representations Ci+a� riff. Yakima a�� vl Seattle -Northwest Seecnritie_s Comoration , 2007 Page 2 of the City in the Bond Ordinance and in the certified proceedings and on other certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. Based on the foregoing, we are of the opinion that, under existing law: 1. The Bonds have been legally issued and constitute valid general obligations of the City, except to the extent that the enforcement of the rights and remedies of the holders and owners of the Bonds may be limited by laws relating to bankruptcy, insolvency, moratorium, reorganization or other similar laws of general application affecting the rights of creditors, by the application of equitable principles and the exercise of judicial discretion. The Rnnd frdinatiee ie a legal valid and binding nhligation of the City_ has been duly authorized, executed and delivered and is enforceable in accordance with its terms, avnar,+ +n +11A av+ant anfnreamant may ha 1imitarl lhv la1a7Q rP1atina to 1►anlrnint'v vnvvNL Lv LIIV vIkLvakI, uaL vulvlvvuavuasau.� vv aauu..vu v� ..... .. ., �..�,...""t, insolvency, moratorium, reorganization or other similar laws of general application affecting the rights of creditors, by the application of equitable principles and the exercise of judicial discretion. 3. Both principal of and interest on the Bonds are payable out of annual levies of ad valorem taxes to be made upon all of the taxable property within the City permitted to be levied without a vote of the electorate in amounts that, together with sales and use tax levied pursuant to RCW 82.14.390 and hotel/motel taxes levied pursuant to RCW 67.28 in the case of the portion used to refund the Refunded Bonds, real estate excise taxes (REST) in the case of the downtown renovation Project and gas taxes in the case of the River Road Project, and other available funds, will be sufficient to pay such principal and interest as the same shall become due. 4. Interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, interest on the Bonds is taken into account iidetermining adjusted current earnings for Inc purpose of computing the alternative minimum tax imposed on certain corporations. The opinion set forth in the preceding sentence is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bon is rder that the interest the n ba nnil continue to be, exch"lable from gross• ineo e .'.�"Jia`lAJ 111 `Jl S3:.1 L11CC:. SSC:.1 ::v. �..-..Y�..-- L. --..�.------__ _� 1J_-__ 7 G•i� for federal income tax purposes. The City has covenanted to comply with all applicable requirements. Failure to comply with certain of such covenants may cause interest on the Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. The City has designated the Bonds as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Code. City of Yakima Seattle -Northwest Securities Corporation , 2007 Page 3 Except as expressly stated above, we express no opinion regarding any other federal or state income tax consequences of acquiring, carrying, owning or disposing of the Bonds. Owners of the Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Bonds, which may include original issue discount, original issue premium, purchase at a market discount or at a premium, taxation upon sale, redemption or other disposition, and various withholding requirements. The opinions above are qualified to the extent that the enforcement of the rights and remedies of the owners of the Bonds may be limited by laws relating to bankruptcy, reorganization, insolvency, moratorium or other similar laws of general application affecting the rights of creditors, by the application of equitable principles and the exercise of judicial discretion. This opinion is given as of the date hereof, and we assume no obligation to update, revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Very truly yours, K&L PRESTON GATES ELLIS LLP By Nancy M. Neraas K:\25739\00079\NMN\NMN L31 SX (This Page Intentionally Left Blank) Appendix B Book -Entry Transfer System (This Page Intentionally Left Blank) THE DEPOSITORY TRUST COMPANY SAMPLE OFFERING DOCUMENT LANGUAGE DESCRIBING BOOK -ENTRY -ONLY ISSUANCE (Prepared by DTC— bracketed material may be applicable only to certain issues) 1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the securities (the "Securities"). The Securities will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered Security certificate will be issued for [each issue of] the Securities, [each] in the aggregate principal amount of such issue, and will be deposited with DTC. [If, however, the aggregate principal amount of [any] issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.] 2. DTC, the world's largest securities depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facil- itates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clear- ing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book -entry system for the Securities is discontinued. 4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will b0 govern0d 1J arrangements among them, subject to .any statutory or regulatory requirements as may be in effect from time to time. [Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.] [6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.] 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities i mess al +horizeµl by a Direct Participant in accordance with DTC --s Procedures. Under itc usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption edeSp6SOn pdVleed5, distributions, and dividend payments to Cede & Co, (or such other nominee nee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, dis- bursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. [9. A Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to [Tender/Remarketing] Agent, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Participant's interest in the Securities, on DTC's records, to [Tender/Remarketing] Agent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC's records and followed by a book -entry credit of tendered Securities to [Tender/Remarketing] Agent's DTC account.] 10. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a _ ai._e 7_._e__� r+_____._L_ ___.._L•__t__ __._ _.____ire to L_ printed and delivered, 5i.ti. i:i;S;iVi il�I7'vou i3% io Leve vVtuifi lYii, Security iti.x stn aa.eee...:� are required to iv p:i.a... �,.,_._ �:s z...,..,,...,ab t'cs.. e..., 11. Issuer may decide to discontinue use of the system of book -entry -only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. 12. The information in this section concerning DTC and DTC's book -entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof. [3/04] Appendix C 2005 Annual Financial Report (This Page Intentionally Left Blank) MANAGEMENT'S DISCUSSION AND ANALYSIS The City of Yakima's discussion and analysis offers readers of the City's financial statements a narrative overview and analysis of the City's financial activities for the fiscal year ended December 31, 2005. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, and in the financial statements and notes to the financial statements (which immediately follow this discussion). I. FINANCIAL HIGHLIGHTS • The total assets of the City of Yakima exceeded its liabilities at December 31, 2005 by $181 million dollars. Net assets invested in capital (net of depreciation and related debt) account for 83% of this amount, with a value of about $150 million. Of the remaining net assets, $23.5 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 $9.7 million. Over $6 million was the result of capital grants and donations. • As of December 31, 2005 the City of Yakima's governmental activities reported combined ending net assets of over $77.2 million, an increase of $3.9 million in comparison with the prior year. Of that amount, $65.5 million was invested in capital assets, almost $5 million was legally restricted for specific projects or programs, and almost $9 million was available for spending at the government's discretion. • Unreserved fund balance for the General Fund was $8.7 million dollars at December 31, 2005. This balance represents 22.4% of total General Fund expenditures. • The City of Yakima's total long-term debt at December 31, 2005 was nearly $69.3 million (about $32.2 million in Governmental Activities, and $37.1 million in Business -Type Activities), with a remaining capacity for non -voted General Obligation debt at $44 million. Total debt decreased by $1.1 million during the current fiscal year because total debt service payments exceeded the issuance of councilmanic General Obligation bonds for Parks Capital projects ($750,000). 1I. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City of Yakima'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. Comprehensive Annual Financial Report (C.A.F.R.) — 3 A. GOVERNMENT -WIDE FINANCIAL STATEMENTS There are two government -wide financial statements, the statement of net assets and the statement of activities, which are designed to provide readers with a broad overview of the City of Yakima's finances in a manner similar to a private -sector business. Both of the government -wide financial statements distinguish functions of the City of Yakima that are principally supported by taxes and intergovernmental revenues (referred to as "governmental activities") from functions that are intended to recover all or a signification portion of their costs through user fees and charges (referred to as "business -type activities"). The governmental activities of the City of Yakima include a full range of local governmental services provided to the public, such as public safety (police, municipal court, fire, and building); public improvements (streets, traffic signals); parks and recreation; community development, and general administrative services. The business -type activities of the City of Yakima include sanitation (solid waste disposal and wastewater treatment); potable and irrigation water systems; and transit. THE STATEMENT OF NET ASSETS presents information on all of the City of Yakima's assets and liabilities, with the difference between the two reported as net assets. This statement serves a purpose similar to that of the balance sheet of a private -sector business. Over time, increases or decreases in net assets may serve as a useful indicator of changes in the City's financial position. However, this is just one indicator of financial health of the City. Other indicators include the condition of the City's infrastructure systems (roads, drainage systems, bridges, etc.), changes in property tax base, and general economic conditions within the City. THE STATEMENT OF ACTIVITIES presents information showing how the government's net assets changed during 2005. Because it separates program revenue (revenue generated by specific programs through charges for services, grants, and contributions) from general revenue (revenue provided by taxes and other sources not tied to a particular program), it shows to what extent each program has to rely on taxes for funding. All changes in net assets are reported using the accrual basis of accounting which requires that revenue be reported when earned and expenses be reported when the goods and services are received, regardless of the timing of the cash flow. Items such as uncollected taxes, unpaid vendor invoices for items received in 2005, and earned but unused vacation leave, will be included in the statement of activities as revenue and expense, even though the cash associated with these items will not be received or distributed in 2005. B. FUND FINANCIAL STATEMENTS A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Yakima, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. All of the funds of the City of Yakima can be divided into three categories: Governmental Funds, Proprietary Funds, and Fiduciary Funds. Governmental Funds are used to account for most, if not all, of a government's tax - supported activities. Proprietary Funds are used to account for a government's business type activities, where all or part of the costs of activities are supported by fees and charges that are paid directly by those who benefit from the activities. Fiduciary Funds are used 4—Comprehensive Annual Financial Report (C.A.F.R.) to account for resources that are held by the government as a trustee or agent for parties outside of the government. The resources of fiduciary funds cannot be used to support the government's own programs. 1. GOVERNMENTAL FUNDS The Governmental Fund 3alance Sheet and the Governmental Fund Statement of Revenues, Expenditures, :tnd Changes in Fund Balances present separate columns of financial data for the Gen>-ral Fund, the Community Development Fund, Parks and Recreation, and Streets Find, all of which are considered to be major funds, based on criteria established by GASB Statement #34. Data from the remaining governmental funds are combined into a single, aggregated presentation. The governmental fund financial statements can be found immediately following the government -wide financial statements. Individual fund data for each of the non -major governmental funds is provided in the firm of combining statements, outside of the basic financial statements. Governmental funds are used to account for Essentially the same functions reported as governmental activities in the government -wide financial statements. However, unlike government -wide financial statements which use accrual accounting, governmental fund financial statements :acus on near-term :inflows and outflows of spendable resources and on balances of spendable resources available at the end of the fiscal year. Such information is useful in evaluating a government's near-term financing requirements in comparison to near-term resources available. Because the focus of governmental fund financial statements is narrower than that of government -wide financial statements, it is useful to compare information presented for governmental funds with similar information presented for governmental activities in the government -wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide reconciliation to the governmental activities column in the government -wide statements, in order to facilitate this comparison. The City maintains budge Lary controls over its operating funds. The objective of budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget. Budgets for governmental funds are established in accordance with state law, and are adopted on a fund level. Capital outlays are approved on an item -by -item basis or project basis. A budgetary comparison statement is provided for the General Fund and all Epecial revenue funds to demonstrate compliance with the budget. 2. PROPRIETARY FUNDS There are two types of proprietary funds; Enterprise and Internal Service. Enterprise Funds are used to report' the same functions presented as business -type activities in the government -wide financial statements. The City uses enterprise funds to account for Comprehensive Annual Financial Report (C.A.F.R.) —5 its Solid Waste (Refuse); Wastewater; DOME stic Water; Irrigation; and Transit functions. Internal Service Funds (the second type of proprietary funds) accumulate and allocate costs internally among the City's various functions. The revenues and expenses of the internal service funds that are duplicated in other funds through allocations are eliminated in the government -wide statements, with the remaining balances included in. the governmental activities column. Proprietary fund statements follow the governmental fund statements in this report. They provide the same type of information as the government -wide :financial statements, only in more detail, since both apply the accrual basis of accounting. In comparing the Proprietary Fund Statement of Net Assets to the business -type column on the Government -Wide Statement of Net Assets, you will notice that the total net assets agree, and therefore need no reconciliation. In comparing the total assets and total liabilities between the two statements, you will notice slightly different amounts. This is because the "internal balances" line on the government -wide statement combines the "due from other funds" (asset) and the "due to other funds" (liabilities) from the proprietary fund statement in a single line in the asset section of the government -wide statement. Individual fund data for each of the non -major proprietary funds is provided in the form of combining statements. The proprietary fund combining statements follow the governmental fund combining statements .n this report. 3. FIDUCIARY FUNDS Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government -wide financial statement because the resources of those finds are not available to support the City of Yakima's own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The City of Yakima has one fiduciary fund for Firefighter pensions. The basic fiduciary fund financial statements can be found following the proprietary fund financial statements, pages 40-41. C. NOTES TO THE FINANCIAL STATEMENTS The notes provide additional information that is essential to a 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 i.n this report. 6 — Comprehensive Annual Financial Report (C.A.F.R.) III. GOVERNMENT -WIDE FINANCIAL ANALYSIS A. STATEMENT OF NET ASSETS As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. The City of Yakima's net assets total $181 million at December 31, 2005. The following table reflects the condensed Government -Wide Statement of Net Assets with comparative totals for 2004. Assets: Current and Other Assets Capital Assets Total Assets THE CITY OF YAKIMA'S NET ASSETS GOVERNMENTAL BUSINESS -TYPE ACTIVITIES ACTIVITIES TOTAL 2005 2004 2005 2004 2005 2004 $39,485,030 837,857,295 84,304,653 82,727,162 8123,789,683 $120,589,457 Liabilities: Payables and Other Liabilities $14,383,752 Long-term Liabilities Outstanding 32,149,342 Total Liabilities $46,533,094 Net Assets: Inv in Cap Assets, Net of Rel Debt $63513,417 Restricted 4,792,290 Unrestricted 8,950,932 Total Net Assets $77,256589 $39,588,094 840,372,017 107,515,191 101,490,479 $147,103,285 $141,862,496 $14,994,156 $6,049,615 55,564,282 32,257,618 37,130,960 38,156,138 $4Z251,774 543,180575 $43,720,420 560,440,803 $86,609,490 $84,227,180 4,831,870 2,700,600 2,665,164 8,060,010 14,612,620 11,249,732 $73,332,683 $103,922,710 $98,142,076 $79,073,124 $78,229,312 191,819,844 184,217,641 $270,892,968 $262,446,953 $20,433,367 $20,558,438 69,280,302 70,413,756 $89,713,699 $90,972,194 $150,122,907 7,492,840 23,563,552 8181,179,299 0144,667,983 7,497,034 19,309,742 $171,474,759 The City of Yakima's total assets stand at almost $271 million as of December 31, 2005. Of this amount, almost $192 million is accounted for by capital assets, which indudes some infrastructure and construction in progress. Prior to 2003, infrastructure (roads, bridges, drainage systems, etc.) was not included in capital asset reporting for governmental activities. The new GASB Statement #34, implemented with the City's 12/31/03 Financial Statements, requires that all capital assets, including infrastructure, be reported. Out of $84 million in capital assets reported in Governmental activities at December 31, 2005, $40 million (48%) is accounted for by infrastructure acquisitions (inducting the right-of-way land associated with these projects). It should be noted that this represents a partial implementation of accounting for infrastructure; only historical cost of street projects for the last 20 years is included. GASB 434 allows for a delayed implementation of infrastructure reporting, and the City intends to fully report all infrastructure within the guidelines and time lines set forth by the pronouncement. Of the remaining City assets, approximately $59.9 million were accounted for in cash, cash equivalents, and investments, $12.1 million in accounts receivable, $62 million in notes receivable, and $.8 million spread among miscellaneous assets. Comprehensive Annual Financial Report (C.A.F.R.) — 7 At December 31, 2005 the City had outstanding liabilities of $89.7 million, with slightly over $69 million in long term liabilities. Of the long term liabilities, $4.5 million was due within a year, with the remainder due over an extended period of time. Refer to the notes to the financial statements (Note 7) for a more in depth discussion of long term debt. Included in "Payables and Other Liabilities", for total Governmental and Business -Type activities, in the table on the previous page, are $6.8 million in deferred revenue, $8.7 million in accounts payable, and $4.8 million in accrued liabilities. The largest portion of the City's net assets (82.9%) reflects its investment in capital, less any outstanding related debt used to acquire those assets. The City's capital assets, which are used to provide services to citizens, are investments in capital and are not available for future spending. Although the City's investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Approximately 4.1% of the City's net assets are subject to external restrictions on how they may be used (restricted by the Revised Code of the State of Washington or by contractual agreements with parties outside of the primary government). The remaining balance of $23.5 million (unrestricted net assets), represents the amount that may be used to meet the City's ongoing obligations. At December 31, 2005 the City of Yakima reports positive balances in all three categories of net assets, for the government as a whole, as well as for governmental activities and Business -type activities. B. STATEMENT OF CHANGES IN NET ASSETS The City of Yakima's total net assets increased by $9.7 million in 2005. Net assets for governmental activities increased by $3.9 million while business -type activities increased by $5.8 million. Total revenues for the City of Yakima were $93.9 million in 2005. Governmental activities provided $57.7 million (61%), while business -type activities added about $36.2 million (39%). Expenses for the year totaled almost $84.2 million, with Governmental Activities accounting for about $57 million or 67% and Business -type activities accounting for $27.2 million or 33% Key elements in changes in net assets are shown in the table on the following page: 8 — Comprehensive Annual Financial Report (C.A.F.R.) THE CITY OF YAKIMA CHANGES IN NET ASSETS (2005) REVENUES: Program Revenues Charges for Services Operating Grants & Contributions Capital Grants & Contributions General Revenues Property Tax Sales Tax Other Taxes State Entitlements Other Total Revenues EXPENSES: General Government Security of Persons and Property Physical Environment Transportation Economic Environment Mental & Physical Health Cultural & Rec. Environment Interest on Long Term Debt Transit Refuse Wastewater Water Irrigation Total Expenses Increases in Net Assets before Non-operating Sources (uses) Gain/loss on Sale of Capital Assets Transfers Debt Issue Cost Acc. Loss on G.O.D. Refunding Change in Net Assets Net Assets - Beginning Net Assets - Ending GOVERNMENTAL ACTIVITIES BUSINESS -TYPE ACTIVITIES TOTAL 2005 2004 2005 2004 2003 2004 55,268,866 $5,388,971 $25,899,080 926,1335,468 $31,167,946 $31,524,439 5,133,664 4,541,545 3,102,508 1,802,791 8,236,172 6,344,336 3,921,071 9,310,853 2,386,711 2,053,301 6307,782 11,364,154 12,435,395 12,198,959 0 0 12,435,395 12,198,959 15,689,755 14,055,337 4,234,263 4,138,316 19,924,018 18,193,653 11,515,534 10,375,521 0 0 11,515,534 10375,521 2,953,049 2,774,032 0 0 2,953,049 2,774,032 792,858 457,204 559,834 268,933 1,352,692 726,137 $57,710,192 $59,102,422 $36,182,396 $34,398,809 $93,892,588 $93,501,231 97,380,940 $7,147,489 $0 $0 $7,380,940 $7,147,489 30,221,979 28,391,022 0 0 30,221,979 28,391,022 1,231,940 1,175,668 0 0 1,231,940 1,175,668 5,962,249 5,589,654 0 0 5,962,249 5,584,654 3,746,850 3,422,182 0 0 3,746,850 3,422,182 43,278 16,952 0 0 43,278 16,952 7,600,877 7,065,685 0 0 7,600,877 7365,685 809,068 849,837 0 0 809,068 849,837 0 0 6,282,080 5,526,118 6,282,080 5,526,118 0 0 3,154,231 2,751,448 3,154,231 2,751,448 0 0 11,172,540 11,564,592 11,172,540 11,564,592 0 0 4,921,257 4,586,339 4,921,257 4,586,339 0 0 1,644,801 1,219,919 1,644,801 1,219,919 836,997,181 $53,653,489 927,174909 $25,648,416 $84,172,090 979,301,905 $713,011 $5,448,933 $9,007,487 $8,750,393 59,720,498 $14,199,326 256,750 (1,012,474) (55,673) 7,799 201,077 (1,004,675) 2,949,900 2,797,066 (3,171,182) (2,989,781) (221,282) (192,715) 4,247 0 0 0 4,247 0 0 (474,146) 0 0 0 (471,146) 93,923,908 $6,759,379 $5,780,632 $5,768,411 $9,704,540 912,5227,790 973,332,683 966573,304 $98,142,076 $92,373,665 $171,474,759 9158946,969 977,256,591 $73,332,683 $103,922,708 $98,142,076 $181,179,299 $171,474,759 Comprehensive Annual Financial Report (C.A.F.R.) - 9 I. GOVERNMENTAL ACTIVITIES Within governmental activities, tax revenue accounted for 68% of total revenue sources, with grants and contributions accounting for 16%. The remaining 16% of revenue was provided by charges for services, interest income, and miscellaneous revenues. (Note: the revenue indicators in the following chi -ts do not include one-time only financing sources, such as proceeds from new debt or the sale of assets.) Governmental activities increased net assets by $3.9 million or 5%. Significant fluctua tio.ns in revenue are as follows: • Sales tax increased $1.6 million or 10% during the year. About tf of this increase can be attributed to a new County -wide sales tax for criminal justice purposes approved by voters in November 2004, which was imposed April 1, 2005. A large portion of the remaining increase was generated by new construction and sales of durable goods, which were precipitated by the low interest rate environment; recent annexation:5 that are experiencing infill; and the City's designation as a Federal Renewal Community, witch provides tax benefits for capital improvement for job creation. • Other Taxes experienced an increase of $1.1 million or 11% from 2004 to 2005. About 1/3 of this increase was the result of a s:rong real estate market and related excise tax. Another 1/3 was an increase in utility taxes, caused by a residential annexation effective in the fall of 2005; a rate increase in natural gas also in the fall of 2005; and usage fluctuations caused by weather conditions. The remaining third was the result of new taxes --Cable Television tax was •'aised 1% early in 2005 to support the city - owned Capitol Theatre maintenance, and a Tourist Promotion Area was formed late in 2004 at the request of area lodging establishments, with a full year collected in 2005. The largest program expenses consist of Security of persons and property (public safety), general government and cultural and recreational environment, respectively. These programs accounted for 79% of total governmental expenses. For the most part, changes in expenses corresponded with inflation. Security of Persoms and Property demonstrated an inc-ease of $1.8 million or 6.4% because of the implementation of programmatic costs related to the new criminal justice sales tax (mentioned above). Transportation increased by $37Z000 or 6.8% to meet new service demands in a new annexation area. Following are graphs which illustrate revenue by source and expenditures by program for governmental funds in 2005. 10- Comprehensive Annual Financial Report (C.A.F.R.) 1S,000,000 REVENUES BY SOURCE – GOVERNMENTAL ACTIVITIES Other Revenues 20% EXPENSES AND PROGRAM REVENUES - GOVERNMENTAL ACTIVITIES ElE.pemm Wren -rare Revenues ts,000Aop Iopoe,000 15,00000 l0000,aoo General savoy (Penins Phyamnl Ttanspmmlion Ernnomm enalk Physical cult talk Warm ton Long. Government and open), Environment Environment He. Recreational Term Debt Environment 2. BUSINESS -TYPE ACTIVITIES Of the $36.2 million in business -type revenues, 72% was provided by charges for services, with the remaining amount provided by grants, contributions, transit sales tax and interest income. Business type revenues and expenses experienced the following fluctuations: • Charges for Services decreased by $236,000 or 0.9%, because in 2004, wastewater collected cumulative payments resolving one time in -arrears billings. Major customers also implemented operational changes to reduce their total water/ wastewater costs. • Operating Grants increased $1.3 million or 72%. Most of this increase resulted from additional grants received by Transit for clean air/commute trip reduction purposes. • Transit demonstrated an increase of $750,000 or 13.7% because of the additional services provided relative to the operating grants mentioned above, and a major increase in the cost of diesel fuel. • Refuse increased $400,000 or 14.6% because of expansion of services related to annexations along with the cost of diesel fuel. • Wastewater experienced a decrease in expenses of $392,000 or 3.3% that can be correlated to the decrease in charges for services (i.e. reduction in state taxes), along with a reduction in depreciation expense—a function of timing of historical major purchases. • Water increased $335,000 or 7.3%, mainly due to the addition of depreciation on recently completed improvements at the water treatment plant. • Irrigation increased $425,000 or 35%, because 2005 was the first year of interest expense on a revenue bond issued for a major rebuild of the irrigation system. Of the $27.2 million in business -type expenses, 41% are associated with the wastewater program and 23% with transit; domestic water programs represent about 18%, refuse 12% and irrigation 6%. The following charts depict the expenses and program revenues, with a breakdown of revenues by source for the business -type activities: Comprehensive Annual Financial Report (C.A.F.R.) –11 12 — Comprehensive Annual Financial Report (C.A.F.R.) 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 - 8,000,000 6,000,000 4,000,000 2,000,000 REVENUES BY SOURCE — BUSINIhSS-TYPE ACTIVITIES ChugeskrServk, 71%, EXPENSES AND PROGRAM REVENUES •- BUSINESS -TYPE ACTIVITIES ®Expenses El Program Revenues Transit Refuse Sev,,.r Water Irrigation Charges for services represent the majority (72%) of revenue in these funds. The only fund that does not rely heavily on charges for service is the Transit fund, which is subsidized by a voter -approved local option sales tax of 0.3%. FY. FINANCIAL ANALYSIS OF THE CITY'S FUNDS As noted earlier, the City of Yakima uses fund accounting to ensure and demonstrate corrnpliance with finance -related :legal and regulatory requirements. Following is a financial analysis of the City's governmental and proprietary funds. Comprehensive Annual Financial Report (C.A.F.R.) —13 A. GOVERNMENTAL FUNDS ANALYSIS The General Fund, Community Development (which administers the City's Community Development Block Grants), Parks and Recreation Operations, and Streets and Traffic Operations Funds are :he City's major funds (as defined in GASB #34) in 2005. Together these funds account for 63% of total governmental fund assets and 52% of total governmental fund balances. The focus of the City of Yakima's governmental funds is to provide information on near- term inflows, outflows, and balances of spendable resources. 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 December 31, 2005, the City's governmental funds reported combined fund balances of about $21.7 million. Of this total amount, about $16.9 million (78%) is unreserved and available for spending within these funds. Reserved fund balance of $4.8 million is not available for new spending because it was previously committed to; 1) Liquidate contracts and purchase orders of the prior period ($3.35 million), 2) pay debt service ($.75 million), 3) generate income to pay for the perpetual care of the municipal cemetery (5.54 million), and for a variety of other restricted purposes (5.15 million). The General Fund is the chief operating fund of the City of Yakima. At the end of the 2005 fiscal year, unreserved fund balance of the General Fund was $8.7 million, while total fund balance is about $9 million. Unreserved fund balance is about 21% of total general fund expenditures (which represents about a 2.5 mcnth reserve). Total assets in the General Fund amounted to $12.5 million, accounting for 36% of total governmental fund assets. The fund balance of the City of Yakima's General Fund increased by $100,000 during the current fiscal year, virtually "breaking even" Inflationary increases in insurance rates, including medical and property/liability; equipment; utilities and fuel were offset by growth in sales and utility taxes (as described above). The General Fund accounts for 64% of all governrnental fund revenue and 61% of all expenditures. The Community Development, Parks and Recl eation, and Streets funds all performed as expected, each showing a slight gain in fund balance in 2005. Other governmental funds ended with a net increase in fund balances of 51.6 million. This was primarily due to the issuance of a Councilmanic General Obligation bond of 5750,000 for Parks capital projects. Additionally, the strong performance of real estate excise tax and timing of capital projects resulted in an increased fund balance in transportation capital funds. B. ENTERPRISE FUNDS ANALYSIS All of the enterprise funds of the City of Yakin.a, including Transit, Wastewater, Domestic (potable) Water, Irrigation Water and Refuse are considered major funds in the City's 2005 (GASB 34) Financial Statements. These business -type activities demonstrated an increase in net assets from $98.1 million to $103.9 million, for a difference of 55.8 million, due primarily to capital grants/donations of about $2.4 million. 24— Comprehensive Annual Financial Report (C.A.F.R.) As of December 31, 2005, the City's enterprise funds reported combined net assets of $103.9 million, with $45.4 million or approximately 44% being contributed by the Wastewater fund. Of the $103.9 million, over $86.6 million (83%) of net assets is accounted for by investment in capital assets, net of related debt, $2.7 million is restricted for debt service and $14.6 million is unrestricted. The Notes to the Financial Statements (Note 9) present segment information that is grouped according to revenue bond requirements for these business -type activities. V. GENERAL FUND BUDGETARY HIGHLIGHTS A. GENERAL FUND CHANGES IN BUDGET The following table shows the 2005 General Fund Adopted (original) Budget, the amended (final) Budget, Actual revenue and expenditure amounts and the variance of Actuals compared to the Final budget. VARIANCE WITH FINAL BUDGET - --- BUDGETED AMOUNTS --- ACTUAL POSITIVE REVENUES ORIGINAL FINAL AMOUNTS (NEGATIVE) Taxes and Special Assessments $30,557,769 $30,557769 $32,066,945 $1,509,176 Licenses and Permits 561,500 584,500 690,783 106,283 Intergovernmental Revenues 1,636,541 1,685,541 1,763,988 78,447 Charges for Services 4,209,710 4,228,710 4,290,541 61,831 Fines and Forfeits 1,462,200 1,462,200 1,190,300 (271,900) Interest 550,000 550,000 735,857 185,857 Other Revenues 48,500 48,500 57,001 8,501 TOTAL REVENUES 939,026,220 $39,117,220 $40,795,415 $1,678,195 EXPENDITURES Current General Government $10,121,944 910,211,216 $9,852,233 $358,983 Security of Persons and Property 24,827,540 25,314,608 25,098,721 215,887 Physical Environment 1,310,117 1,353,917 1,328,608 25,309 Economic Environment 548,747 680,165 607,358 72,807 Mental & Physical Health 17,180 17,180 18,255 (1,075) Cultural & Recreational Envmt. 1,420,440 1,420,440 1,419,440 1,000 Capital Outlay General Government 110,000 198,000 56,685 141,315 Security of Persons and Property 5,000 5,000 0 5,000 Economic Environment 0 0 8,115 (8,115) Debt Service Principal Retirement 337,969 337,969 314,736 23,233 Interest 80,823 80,823 78,406 2,417 TOTAL EXPENDITURES $38,779,760 $39,619,318 $38,782,557 $836,761 Excess (Deficiency) of Revenues Over (Under) Expenditures $246,460 ($502,098) $2,012,858 $2514,956 OTHER FINANCING SOURCES (USES) Transfers In $110,000 $110,000 $90,000 ($20,000) Transfers (Out) (1,974,000) (1,974,000) (1,994,240) (20,240) Sale of Capital Assets 100,000 100,000 0 (100,000) Comp. for Loss of Gen. Capital Assets 1,000 1,000 322 (678) Total Other Financing Sources (Uses) ($1,763,000) ($1,763,000) ($1,903,918) ($140,918) NET CHANGE IN FUND BALANCE ($1,516,540) ($2,265,098) $108,940 $2,374,038 Comprehensive Annual Financial Report (C.A.F.R.) -15 During the year, the 2005 General Fund budget was increased from $40.7 million to $41.6 million, or by $840,000. (For the purposes of this discussion, the General Fund budget includes both expenditures and transfers out) The increases in appropriations are summarized as follows: • $137,000 in outstanding encumbrances/commitments which were re -budgeted from the prior year. • $36,400 for a new Associate Planner position eh year) to be funded by annexation resources. • $461,400 for Public Safety overtime precipitated primarily by vacancies, extended illnesses/injuries, and response to unanticipated "events" • $95,000 to cover the increased volume/complexity of cases before the Hearings Examiner. • $43,500 for fuel increases precipitated by a rapid increase in fuel costs in early 2005. • $42,000 to provide temporary help in Engineering to assist with increased volume of work. • $24,000 to facilitate the merging of the city's Probation division into Yakima County The increases related to the newly annexed area were funded by a corresponding increase in property taxes related to this area; while the balance of adjustments were to be funded from the General Fund reserves and/or current year revenue growth. B. GENERAL FUND BUDGET TO ACTUAL Total General Fund revenues were budgeted at about $39.1 million. Actual revenue of $40.8 million resulted in a positive variance of $1.7 million, a gain of 4.3% over the amended budget. Sales tax contributed about $.65 million to this variance - fueled by new construction and durable goods sales precipitated by the low interest rate environment, and the designation of the City as a Federal Renewal Community, which provides tax incentives for "Commercial Revitalization" projects. (Another $.11 million was gained in the related area of Licenses and Permits.) Utility tax revenue was about $.3 million greater than budget, the result of usage fluctuations and/or rate adjustments. An upturn in interest earnings added $.2 million. General Fund expenditures, including transfers out, totaled $40.8 compared to the final budget of $41.6 - resulting in a positive variance of $.8 or 2%. Most of this variance is in the area of General Government, and is the result of the timing of project expenses in Information Systems. The General Fund budget is built assuming positive variances in both revenue and expenditures. Revenue is conservatively estimated, while expenditure estimates utilize highest probable costs. Historically, actual amounts have been close to "break even'; and 2005 is not an exception, with a net increase in fund balance of $109,000 (about .3% of the total General Fund budget). 16 - Comprehensive Annual Financial Report (C.A.F.R.) VI. CAPITAL ASSET AND DEBT ADMINISTRATION A. CAPITAL ASSETS The City of Yakima's total investment in capital assets, including construction in progress, tor its governmental and business type activities as of December 31, 2005, amounts to over $191.8 million (net of accumulated depreciation). This investment in capital assets includes land, buildings, system improvements, machinery and equipment, park facilities, infrastructure, and construction in progress on buildings and systems. Major capital asset events during the 2005 fiscal year included the following: • A variety of projects for street expansion/repair were ongoing during the year. $3.3 million was spent on Infrastructure projects in 2005, while the 2006 budget includes over $16 million in planned prcjects, funded primarily by state and federal grants. The major projects in 2005 and continuing into 2006 include the widening and improvement of the major arterial that runs parallel to the airport, and a railroad grade separation project. • The City has obtained State and Federal grants of 57.6 million for pedestrian safety and lighting improvements in the downtown corridor, in conjunction with the city's economic development emphasis. The total project is estimated to cost $9.6 million, with $.5 million funded from existing resources, and $1.5 million by a future Councilmanic LTGO bond issue. About 6360,000 was spent on this project in 2005. • Vehicles, street equipment buses, and trucks were added to the fleet as either additional equipment or replacements during the year, at a cost of $1.9 million. • In the area of Public Safety, major capital projects undertaken include an update of the mobile wireless data network ($200,000) and the purchase of a Fire engine ($195,000). • Wastewater capital improvements include $3.1 million for new interceptor and trunk line extensions and $2.6 million in treatment plant projects. The 2006 budget includes about $5.6 million to continue upgrades at the plant, which will be funded by revenue bonds issued earlier; and about 53.9 million for interceptor and trunk line extensions funded by reserves and current capital transfers from the operating fund. • The Domestic Water Treatment plant is continuing a capital program, and about 512 million was spent in 2005. '2unding was provided by a State Revolving Fund loan of about $.7 million and other capital reserves. The 2006 budget includes about $1.1 million, to be funded by capital rates and reserves. • In 2003, the City Council approved the re -build of the irrigation delivery system, which was estimated to cost approximately $14 million and be completed over an eight-year period. The City issued revenue bonds for approximately $5.2 million to accomplish the first phase of this project, and $1.4 million was spent in 2005. Comprehensive Annual Financial Report (C.A.F.R.) —17 GOVERNMENTAI. BUSINESS -TYPE ACTIVITIES ACTIVITIES TOTAL 2005 2004 2005 2004 2005 2004 CAPITAL ASSETS (Net of Depreciation) Land 08,764,562 58,76.562 Building 35,615,829 27,431,439 Improvements Other Than Buildings 6,045,737 9,500,880 Machinery and Equipment 6,424,933 6,25.3,194 Infrastructure 18,405,297 21,182,907 Intangibles 0 0 Construction in Progress 9,048,295 9,586,100 TOTAL 084,304,653 082,727,162 $2,181,516 27,629,801 47,826,172 11,959,393 51,186,700 2'3,235523 47,873,144 10,361,427 0 0 115,659 115,659 17,802,700 11,718,026 $107,515,191 5101,490,479 $10,946,078 63,245,630 53,371,909 18,384,276 18,405,297 115,659 26,350,995 5191,319,849 510,951,202 56,669,9E2 57,379,024 16,614,621 21,182,9E7 115,6E9 21,304,126 $184,217,69 t Additional information on the City of Yakima's capital assets can be found in Note 4E of this report. B. LONG-TERM DEBT On December 31, 2005, the City of Yakima had total bonded debt outstanding of almost 547.5 million. GE this amount, 519.4 million is classified as governmental activity and backed by the full faith and credit of the City. The remairirtg 528.1 million, represents bonds secured solely by specific revenue sources (i.e. revenue bonds). The City of Yakima's total bonded debt had a net decrease of $1.1 million during 2005. Significant debt activity in 2005 included a new issue of $.75 million for Parks capital improvements. The City participates in a loan program administered by the State's Department of Community Development, which are included as Intergovernmental loans in the long term debt schedules. Infrastructure improvements, such as street, bridge, water, or sewage projects, are eligible to compete for loan awards. This type of funding is preferred because the interest rates for new loans range from 0.5% to L5% based on the percentage of local match available for the project. (i.e. the higher :he match, the lower the interest rate). In 2005, the City borrowed $.6 million for Wastewater projects utilizing this State program. The City's remaining capacity for non -voted debt on December 31, 2005 was approximately $44 million in comparison to the total legal limit of $62.5 million The City has a general guideline of retaining 50% of its non -voted capacity for emergencies. The City of Yakima maintains an 'A3" rating from Moody's and an " rating from Standard & Poor's for general obligation debt. A summary of the City's bonded debt follows. Additional information on the City's long-term debt can be found in Note 7 Flans for future bond issues include a Councilmanic LTGO targeted for the spring of 2007 Eased on current project estimates, the following is a summary cf the proposed amounts, uses and planned revenue source for debt service: 18 — Comprehensive Annual Financial Report (C A .F.R.) PROJECT DESCRIPTION River Road - Expansion, signalization, and utility upgrade of an arterial street Complete Downtown Pedestrian Safety and Lighting Improvements Fire Station upgrade TOTAL SOURCE OF DEBT SERVICE Gas Tax AMOUNT OF ISSUE()) $1.7 Million Real Estate Excise Tax 1.5 Million Property Tax .61 Million 3.81 Million (1) These issue amounts are based on the current estimated project costs and may be modified when actual bids are analyzed. OUTSTANDING DEBT Governmental Activities: General Obligation Bonds Revenue Bonds Intergovernmental Loans Special Assessment Debt Unfunded Pension Liability Compensated Absences Other Debt TOTAL VII. ECONOMIC FACTORS GOVERNMENTAL BUSINESS -TYPE ACTIVITIES ACTIVITIES TOTAL 2005 2004 2005 2004 2005 2004 $19,365,097 $19,830,097 $0 $0 $19,365,097 $19,830,097 0 0 28,095,000 29,675,000 28,095,000 29,675,000 2,526,127 2,915,009 9,029,301 8,527,816 11,555,428 11,442,825 261,700 53,000 0 0 261,700 53,000 3,795,872 3,367,806 0 0 3,795,872 3,367,806 4,992,721 4,673,399 0 0 4,992,721 4,673,399 1,207,825 1,418,307 6,659 0 1,214,484 1,418,307 332,149,342 932,257,618 $37,130,960 $38,202,816 $69,280,302 $70,460,434 There are a number of factors that have a fiscal impact on various revenues of the City, induding voter approved initiatives over the last few years, as well as changes in State and Federal regulations. Following is a List of significant factors, which have an impact on the City's revenues. The City is committed to the continued application of sound fiscal management practices to ensure balanced budgets are maintained and critical core services are provided to our citizens. • In 2001 voters approved Initiative 747, which capped property tax growth each year at a maximum of 1%, plus any additions for annexations and new construction. I-747 was required to be fully implemented beginning with 2002. In the economic environment of low inflation rates that existed in the first few years I-747 was effective, this restriction was not as severe as it is becoming now that inflation rates have started to climb at a higher level. • Since the closure of the Yakima Mall in 2003, the Downtown Merchants Association, the mall owner and the City have been researching different uses/businesses for the downtown area as it transitions from a retail center to a central business district. The City is actively participating in several projects to upgrade the downtown as follows: - The City was recently awarded State and Federal grants of about $7.6 million for infrastructure improvements in the downtown core, with construction that began in mid 2005. Comprehensive Annual Financial Report (C.A.F.R.) —19 - The City owned Capitol Theatre, located in the center of the downtown area, used a state grant of $.5 million to make improvements to the HVAC system and expand/upgrade restroom accommodations in 2004. Another $.5 million grant has been secured for additional improvements in 2006. - Additionally, the section 108 loan awarded by the City in 2005 was slated to be used to improve a section of the former mall to include a new hotel and related retail facilities, which opened in the spring of 2006. • The non-agricultural unemployment rate (6.8% as of May, 2006) in the County continues to be higher than the State average. The County's predominant industry is agriculture and food related. This industry has a history of high unemployment rates and seasonal employment. However, local economy has remained relatively stable in recent years. This unemployment rate is 0.2% better than May of the prior year. • In 2004 voters in Yakima County approved a 3/10 percent increase in the sales tax rate; proceeds from which are dedicated to support Criminal Justice. The new tax was implemented on April 1, 2005. Distribution is based on a formula whereby the county receives 60%, and the balance is shared among the cities in the County on a per capita basis. The City of Yakima expects to receive about $1.4 million annually from this increase and is utilizing this revenue to hire an additional 12.75 FTE's in the areas of Police, Municipal Court, Legal and Animal Control, and provide additional capital and technical support for Criminal Justice operations. • In 2006, City voters approved annexing into the Yakima County Rural Library District. Currently, the City receives property taxes and contracts for Library services. In 2007, related taxes will be levied directly by the Library, and the contract expense will be eliminated. • The City is continuing to annex property within the Urban Growth Boundary that is being sewered. In 2005, a residential area with assessed value (AV) of $173 million and a population of 1,942 was annexed in late summer. Another residential area with an AV of $62 million and population of 1,153 was effective early 2006. In both cases, utility taxes were effective at the time of annexation, but City property taxes will be levied in the 2007 tax year. The 2006 budget is balanced for all funds, within guidelines established by city management, to accomplish municipal service levels and priorities set by City Council. To date, overall budget results are performing as expected. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City of Yakima'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: City of Yakima - Finance Director, 129 North Second Street, Yakima, WA 98901. 20 — Comprehensive Annual Financial Report (C.A.F.R.) BASIC FINANCIAL STATEMENTS The basic financial statements and note disclosures comprise the minimum acceptable fair presentation in conformity with General Accepted Accounting Principles (GAAP). Basic financial statements are designed to be "liftable" from the Financial Section of the Comprehensive Annual Financial Report (CAFR) for widespread distribution to users requiring less detailed information than is contained in the full CAFR. Basic Financial Statements include: GOVERNMENT -WIDE FINANCIAL STATEMENTS 1) Government -wide Statement of Net Assets - presents information on all City governmental and business -type assets and liabilities, with the difference reported as net assets. 2) Government -wide Statement of Activities -presents information on all City governmental and business -type revenues and expenses, with the difference reported as change in net assets. FUND FINANCIAL STATEMENTS 3) Balance Sheet - Governmental Funds - presents the balance sheets for major funds and aggregated amounts for all other governmental funds. 4) Reconciliation of the Balance Sheet to the Government -wide Statement of Net Assets 5) Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds - presents information for each major fund and aggregated information for all other governmental funds. 6) Reconciliation of the State:nent of Revenues, Expenditures, and Changes in Fund Balances to the Government -wide Statement c,.f Activities Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget (GAAP Basis) and Actual -presents budget information, along with actual results, on a separate statement for each major fund which .nas a legally adopted budget. Departmental information is included for the General Fund, in accordance with the City's legally adopted budget. 3) Statement of Net Assets - Proprietary Funds -- presents information on all assets and liabilities, with the difference reported as change in net assets for each of the enterprise funds, as well as a separate column of information for the internal service funds. 9) Statement of Revenues, Expenses, and Changes in Net Assets - Proprietary Funds - presents information for each of the enterprise funds, as well as a separate column for aggregated information for internal service funds. 10) Statement of Cash Flows - presents information on the sources and uses of cash for each of the enterprise funds and aggregated inform ation for internal service funds. 11) Statement of Fiduciary Net Assets - presents information on the pension trust, fund assets and liabilities, withthe difference reported as net assets. 12) Statement of Changes in Fiduciary Net Assets - presents information on additions to and deductions from the pension trust, with the difference reported as change in net assets. 13) Notes to Financial Statements - presents disclosure and further detail information to assist the reader in a be Iter understanding of the financial statements and the data presented within them. Comprehensive Annual Financial Report (C.A.F.R.) - 21 CITY OF Yibi[gi STATEMENT OF NET ASSETS December 31, 2008 With comparative totals for December 31, 2004 ASSETS Cash end Cash Equivalents Investments at Amortized Cost Receivables (Net) Due from Other Government Units Notes Receivable Inventories Unamortized Debt Issue Cost Restricted Assets: Casts and Cash Equivalents Fiscal Agent Investments at Amortized Cost Capital Assets (Net of Accumulated Depreciation): Land Buildings Improvements other Than Buildings Machinery & Equipment Construction in 'recess Intangibles Infrastructure Total Capital Assets Total Assets LIABILITIES Accounts payable and other current liabilities Accrued Liabilities Due to Other Government Units Deferred revenue Noncurrent liab.lities Due within one year Due in more than one year Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Debt service Cap,iat projects Other purposes Unrestricted Total net assets GOVERNMEN1AL ACTIVITIES Page 1 of BUSINESS -TYPE ..--TOTAL ACTIVITIES 2005 2004 $15,732/ 69 $12,255,250 $27,987,719 525,133,388 9,361,287 19,823,438 29,135,225 31,647,9116 5,860,. 79 2,735,797 8,595,976 8,259,951 2,103;,30 1,458,181 3,561,911 3,267,144 6,228,804 5,374 6,234,178 6,615,890 189,996 447,375 637,371 458,511 0 158,999 158,999 170,203 0 1,000,600 1,000,600 2,665,114 8,065 3,080 11,145 11,145 0 1,700,000 1,700,000 0 8,764562 2,181,516 10,916,078 10,951,262 35,615,829 27,529,801 63,215,630 62,797,151 6,045,737 47,826,172 53,871,909 51,251,825 6,424,9 33 11,959,343 18,334,276 16,614,611 9,048,295 17,802,700 26,850,995 21,304,116 0 115,659 115,659 115,619 18,405,297 0 18,405,297 21,182,937 84,304,553 107,515,191 191,819,844 184,217,611 1123,789,983 $147,103,285 8270,892,968 $262,446233 $5,648,688 $3,094,102 $8,742,790 88,787,141 1,886,634 2,955,513 4,842,147 4,706,697 63,607 0 63,607 57,570 6,784,923 0 6,734,823 77,007,01,0 2,123,639 2,392,854 4,516,493 4,389,723 30,025,703 34,738,106 64,743,809 66,024,033 $46,533,094 $43,180,575 $89,713,669 $90„972,1;4 563,513, 417 $86,609,490 $150,122,907 $144,667,963 $753,266 $2,700,600 53,453,866 $3,434,210 929,202 0 929,202 474,319 3,109, 72 0 3,139,772 3,588,405 8,950,932 14,612,620 23,563,552 19,309,712 $77256,589 $103,922,710 $181,179,299 8171.474,759 The notes to the Imanttal statements are an integral part of this statement. 22 - Comprehensive Annual Financial Report (C.A.F.R.) CITY OF YK[iu2 _ STATEMENT OF ACTIVITIES Page 1 of 1 For the Year Ended December3l, 2005 With comparative totals for December 31, 2004 FUNCTIONS/PROGRAMS Governmental Activities: General Government Security of Persons and Property Physical Environment Transportation Economic Environment PROGRAM REVENUES CHARGES OPERATING CAPITAL FOR EXPENSES SERVICES $7,380,940 30,221979 1,231,940 5,962,249 3,746,850 Mental & Physical Health 43,278 Cultural & Recreational Environment 7,600,877 Interest on Long•Term Debt 809,068 Total Governmental Activities $56,997,181 Business Type Activities: Transit Refuse Wastewater Water Irrigation Total Business Type Activities Total NET (EXPENSE) REVENUE AND CHANGES IN NET ASSETS BUSINESS GRANTS 8 GRANTS 8 GOV'T TYPE CONT'S CONT'S ACTIVITIES ACTIVITIES 5155,653 00 90 (97,225,287) 1,561,227 2,903,094 173,401 (25,584,257) 875,347 0 31,281 (325,312) 84,461 35,086 3393,368 (2,449,334) 1,059,285 2,129,498 0 (558,067) 0 0 0 (43,278) 1,532,893 65,986 323,021 (5,678,977) 0 0 0 (809,068) $5,268,866 $5,133,664 53,921,071 ($42,673,580) 6,282,080 450,192 3,154,231 3,507,782 11,172,540 14,124,862 4,921,257 5,380,995 1,644,801 2,435,249 27,174,909 525,899,080 2,717,577 0 0 0 384,931 1,938,801 0 447910 0 0 53,102,508 $2,386,711 $84,172,090 $31,167946 58,236,172 56,307,782 (542,673,580) 54,213,390 ($38,460,190) (5,30,068,976) TOTAL 2005 2004 50 (57,225,287) 0 (25,584,257) 0 (325,312) 0 (2,449,334) 0 (558,067) 0 (43,278) 0 (5,678977) 0 (809,068) 50 (942,673,580) (56,951,237) (23,435,615) (487,033) (741,822) (760,791) (16,952) (1,168,833) (849,837) ($34,412,120) $0 (3,114,311) (3,114,311) (3,762,583) 0 353,551 353,551 583,932 0 5,276,054 5,276,054 4,278,376 0 907,648 900648 1,945,823 0 790,448 790,448 1,297,596 0 04,213,390 $4,213,390 $4,343,144 GENERAL REVENUES: Taxes: Property Taxes Sales and Use Taxes Franchise and Utility Taxes Excise Taxes Penalties and Interest State Entitlements Unrestricted Investment Earnings Miscellaneous Gain/Loss on Sale of Capital Assets Transfers Debt Issue Cost Accounting Gain/Loss on General Obligation Refunding Total general revenues, transfers, special item, and prior period adjustments Change in net assets Net assets -beginning Net assets -ending The notes to the Lnancial statements are an integral part of this statement. 512,435395 50 512,435,395 512,198,959 15,689,755 4,234,263 19,924,018 18,193,653 8,301,905 0 8,301905 7,763,357 3,212,905 0 3,212,905 2,612,164 724 0 724 1,839 2,953,049 0 2,953,049 2,774,032 735,857 559,834 1,295,691 683,780 50001 0 57,001 40,518 256,750 (55,673) 201,077 (1,004,675) 2,949,900 (3,171,182) (221,282) (192,715) 4,247 0 4,247 0 0 0 0 (474,146) 546597,488 51,567,242 548,164,730 542,596,766 03,923,908 55,780,632 $9,704,540 $12,520790 73,332,676 98,142,076 171,474,752 158,946,969 $70256,584 $103,922,708 9181,179,292 $171,474,759 Comprehensive Annual Financial Report (C.A.F.R.) - 23 BALANCE SHEET GOVERNMENTAL FUNDS December 31, 2005 With comparative totals for December 31, 2004 ASSETS Cash Sr equity in pooled investments Deposits w/ fiscal agent/trustee Receivables: Taxes Accounts Special Assessments LID Assessments -Delinquent LID Assessments - Deferred Notes/Contracts Interest/Penalties Other Receivables Due from Other Funds Due from Other Government Units Inventories Investments, et Amortized Cost Total Assets LIABILITIES AND FUND BALANCES Liabilities: Warrants/Accounts Payable Wages/Benefits Payable Contracts Payable Due to Other Funds Due to Other Government Units Deposits Payable Deferred Revenue Total Liabilities CITY OF Yr t//2 Page 1 of 2 #000 #124 #13I #141 OTHER -----TOTAL GENERAL COMMUNITY PARKS AND GOVERNMENTAL GOVERNMENTAL FUNDS FUND DEVELOPMENT RECREATION STREETS FUNDS 2005 2004 92,880,717 9236,706 9688,781 9954,882 98,572222 513333,308 $10,571,232 0 0 100 0 0 100 100 4,201,726 0 0 0 297,007 4,498,733 3,890,806 113,498 2,202 8,413 861 142,451 267425 346,569 o o 0 0 2,697 2,697 2,060 0 0 0 0 1,732 1,732 965 0 0 0 0 365,622 365,622 171,807 0 6,196,175 0 0 32,629 6,228,804 6,610,516 131,653 0 0 8,278 21,505 161,436 89,137 0 0 0 0 75,302 75,302 290751 511,606 0 0 0 0 511,606 242,101 38,210 273,037 6,864 207,366 1,578,253 2,103,730 1,933,893 48,671 0 0 0 0 48,671 44,150 4,616,693 0 0 499,787 1,804,549 6,921,029 8,692,174 512,542,774 56,708,120 $704,158 $1671,174 512893,969 534,520,195 $32,893,261 $448,896 080,400 2918,085 73,501 0 0 0 0 46,513 0 58,511 250 106,774 6,198,377 $3,578,779 $6352,528 The notes to the financial statements are an integral part of this statement $60,863 597,202 9920,644 $1,608,005 92,217,838 145,987 222,332 297,122 3,657,027 3,330,238 0 9,738 78,332 88,070 221,306 0 0 511,606 511,606 61,041 42 0 17,052 63,607 57,570 2,503 0 54,864 116,128 111,520 15,277 861 463,534 6,784,823 7,007,060 9224,672 $330,133 92,343,154 512,829,266 013,006,573 24 - Comprehensive Annual Financial Report (C.A.F.R.) CITY OF r rNCur'eG BALANCE SHEET GOVERNMENTAL FUNDS December 31, 2005 With comparative totals for December 31, 2,104 Fund 3alances: Reserved Fon Inventory Encumbrances Continuing Appropriations Debt Service Endowment Parking and Business Improvement Probation Center Unreserved: General Fund Special Revenue Funds Capital Projects Funds Total Fund Balances Page 2 of 2 #000 #124 #131 #141 OTHER TOTAL GENERAL COMMUNITY PARKS AND GOVERNMENTAL GOVERNMENTAL FUNDS FUND DEVELOPMENT RECREATION STREETS FUNDS 200S 2004 $48,671 $0 50 00 00 548,671 544,150 228,889 1,016,320 „000 108,233 1,068517 2,422,964 2,672,933 0 0 0 929,202 929,202 474,389 0 0 0 753,266 753,266 769,076 0 0 0 0 535,080 535,080 523,210 0 0 0 0 103,057 103,057 145,919 0 0 0 0 202,193 8,686,130 0 0 0 0 8,686,430 8666,952 0 (660,728) 470,486 1,232,808 3,874,034 4,924,600 4,110,456 0 0 0 0 3,287,659 3,287,659 2,477910 58,963,995 $355,592 5979,486 51,341,041 010,550,815 521,690,929 519,886,688 Total Liabilities and Fund Balances 012,542,779 56,708,120 5704,158 $1,671,174 $12,893,969 Amounts reported for governmental activities in tie statement of net assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. Other long-term assets are not available to pay lir current -period expenditures and, therefore, are deferred in the funds. Intemal service funds are used by management o charge the costs of service to individual funds. The assets and liabilities of the internal service funds are included in government activities in the statement of net assets. Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported n the funds. Accrued interest payable on General Obligation .Debt Net assets of governmental activities The notes to the financial statements are an integral part of this statement. 581,493,835 080,225,595 0 6,305,353 5,566,067 (32,149,342) (32,257,618) (84,193) (38,056) 077,256,582 573,332,676 Comprehensive Annual Financial Report (C.A.F.R.) -.25 CITY OF T,"16' STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL. FUNDS For the Year Ended December 31, 2005 With comparative totals for December 3'1, 2004 REVENUES Taxes and Special Assessments Licenses and Permits Intergovernmental Revenues Charges for Services Fines and Forfeits Interest Other Revenues Total Revenues EXPENDITURES Current General Government Security of Persons and Property Physical Environment Transportation Economic Environment Mental & Physical Health Cultural & Recre tional Envmt Capital Outlay General Government Security of Persons and Property Physical Environment Transportation Economic Environment Cultural &Recreational Envmt Debt Service Principal retirement Interest Total Expenditures Excess (deficiency) of revenues over(under) expenditures OTHER FINANCING SOURCES (USES) Proceeds from Capital Lease Financing Proceeds from L.T..Debt-G.O. Bonds Proceeds from Intergovernmental Loans Other Note Proceeds Transfers In Transfers (Out) Intergovernmental Agreements Sale of Capital Assets Comp. for Loss of Caen. Capital Assets Total Other Financ:ng,Sources (Uses) Net Change m Fund Balances 0000 GENERAL FUND #124 #131 COMMUNITY PARKS 6 DEV REC 532,066,945 690,783 1,763988 4,290,541 1,190,300 735,857 57,001 540,795,915 59,852,233 25,098,721 1,328,608 0 #141 OTHER GOVT STREETS FUNDS $0 01,841985 0 0 2,113,178 85,492 325,894 708,162 0 0 50,360 0 1,470 174,264 52,990902 $2,809,903 $0 $00 0 0 0 0 0 607,358 2,442,755 932,542 18,255 0 0 1,419,440 0 3,127,919 56,665 0 0 0 0 0 0 0 8,115 0 0 0 314,736 78406 538,782,557 0 0 52,442,755 2,012,858 48,147 $0 S0 0 0 0 0 0 0 90,000 0 (1,994,240) 0 0 0 0 0 322 0 ($1903918) $0 0108,940 $48,147 Fund Balances -January 1 $8,850,534 $307,445 Change in Resere for Inventory 4,521 0 Fund Balances- December 3l 58,963,995 5355,592 The note, to the financial statements are. ,ntegml part of th,s statement. Page 7of a TOTAL GOVERNMENTAL FUNDS 2000 2004 $3,326,997 85,321,498 0 0 1,2.19,850 6,656,281 67,751 203,434 0 0 9,236 74,255 5,938 1,001,268 54,629,772 513,256,736 998,694 $139,296 0 3,585518 32,716 337,311 4,355,170 245,464 0 197,955 0 25,023 3,153 2,349,144 0 0 18,577 0 0 578,628 0 0 873,666 0 5,870 3,322,440 0 0 359,386 0 0 109,743 0 0 53,560,461 (750,558) 0 1,815,639 0 734,525 04,495,553 014,692,315 $42,557625 $39,489,628 690,783 529,767 11,838,789 12,797,048 5,595,782 5,845,816 1,190,300 1,363,565 869,708 553,500 1,239,941 1,201,880 963,982,728 $61,781,209 $10,090,173 $9,905,374 28,684,239 26,958,702 1,698,635 1,707,162 4,500,634 4,203,596 3,680,610 3,380,184 43,278 16,952 6,899,656 6,452,453 75,262 377,541 578,628 1,503,516 873,666 29,658 3,328,310 5,629,506 367,501 155,959 109,743 1,791,821 2,130,375 812,931 563,973,641 1,931,782 849,837 $64,893,993 134,219 (1,435,579) 9,087 (3,112,789) 50 $0 50 0 0 759,597 0 148,286 0 371,075 0 2,824,583 (247,183) (1,347711) 0 0 963,710 (256,000) 0 7,410 42,641 9757,761 57,203 5472,283 0 0479,486 26 -Comprehensive Annual Financial Report (C.A.F.R.) 0 0 0 309,572 118,572 0 (5128,611) 03,065,402 $5,608 51,629,823 50 5472,669 759,597 7,262 148,286 0 371,075 0 3,878,293 3,693,203 (3,845,134) (3,954,109) 0 0 316,982 130,716 161,535 53,837 $1,790,634 5603578 $1,799,721 ($2,509,211) $1,335,433 $8,920,992 $19,886,687 $22,379,682 0 0 4,521 16,217 91,341,041 010,550,815 521,690,929 819,886,688 CITY OF YKcirl2 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, 2005 With comparative totals for December 31, 2004 Net change in fund balances as shown on Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balance: 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 capital outlays exceeded depreciation in the current period. In the statement of activities, only the gain on the sale of fund assets is reported, whereas in the governmental funds, the proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balance by the cost of the fund assets. Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net assets. Repayments of the bond principal is an expenditure in the governmental funds, but the repayment reduces the long-term liabilities in the statement of net assets. This is the amount by which proceeds exceeded repayments. Some expenditures reported in the statement of activities do not require the use of current financial resources and therefore not reported as expenditures in governmental funds (compensated absences, inventory). Internal service funds are used by management to charge the costs of services to individual funds. The net revenue (expenses) of certain internal service funds is reported with governmental activities. Change in net assets, as reflected on the Statement of Activities The notes to the financial statements are an integral part of this statement. 2005 Page 1 of 1 2004 $1,799,721 ($2,509,211) 1,490,007 (221,767) 6,738,076 2,302,973 855,664 977,697 (739,004) (1,336,547) 739,286 586,384 $3,923,907 $6,759,372 Comprehensive Annual Financial Report (C.A.F.R.) - 27 CITY GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For the Year Ended December 31, 2005 REVENUES Taxes and Special Assessments Licenses and Permits Intergovernmental Revenues Charges for Services Fines and Forfeits Interest Other Revenues Total Revenues EXPENDITURES Current General Government Security of Persons and Property Physical Environment Economic Environment Mental & Physical Health Cultural Si Recreational Envmt Capital Outlay General Government Security of Persons and Property Economic Environment Debt Service Principal Retirement Interest Total expenditures Excess (deficiency) of revenues over (under) expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers (Out) Sale of Capital Assets Comp. for Loss of Gen. Capital Assets Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances -January 1 Change in Reserve for Inventory Fund Balances -December 31 --- BUDGETED AMOUNTS --- ORIGINAL FINAL ACTUAL AMOUNTS $30,557,769 561,500 1,636,541 4,209,710 1,462,200 550,000 48,500 $39,026,220 Page 1 of 1 VARIANCE WITH FINAL BUDGET - POSITIVE (NEGATIVE) $30,557,769 $32,066,945 1,509,176 584,500 690,783 106,283 1,685,541 1,763,988 78,447 4,228,710 4,290,541 61,831 1,462,200 1,190,300 (271,900) 550,000 735,857 185,857 48,500 57,001 8,501 $39,117,220 $40,795,415 $1,678,195 $10,121,944 $10,211,216 $9,852,233 $358,983 24,827,540 25,314,608 25,098,721 215,887 1,310,117 1,353,917 1,328,608 25,309 548,747 680,165 607,358 72,807 17,180 17,180 18,255 (1,075) 1,420,440 1,420,440 1,419,440 1,000 110,000 198,000 56,685 141,315 5,000 5,000 0 5,000 0 0 8,115 (8,115) 337,969 80,823 $38,779,760 337,969 314,736 23,233 80,823 78,406 2,417 $39,619,318 $38,782,557 $836,761 $246,460 (8502,098) $2,012,858 $2,514,956 $110,000 (1,974,000) 100,000 1,000 ($1,763,000) $110,000 $90,000 ($20,000) (1,974,000) (1,994,240) (20,240) 100,000 0 (100,000) 1,000 322 (678) ($1,763,000) ($1,903,918) ($140,918) ($1,516,540) ($2,265,098) $108,940 $2,374,038 $4,676,281 0 $3,159,741 The notes to the financial statements are an integral part of this statement $4,676,281 98,850534 $4,174,253 0 4,521 4,521 $2,411,183 $8,963,995 $6,552,812 28 - Comprehensive Annual Financial Report (C.A.F.R.) tITY OF /!C/CL,5(Z CITY OF /;(ibtf!L COMMUNITY DEVELOPMENT FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For the Year Ended December 31, 2005 Page 1 of 3 PARKS AND RECREATION FUND STATEMENT OF REVENUES, EXPENDITURES AND CHAPIGES IN FUND BALANCES BUDGET AND ACTUAL For the Year Ended December 31, 2005 Page 2of3 VARIANCE WITH VARIANCE WITH FINAL BUDGET - FINAL BUDGET --- BUDGETED AMOUNTS --- POSITIVE »-- BUDGETED AMOUNTS --- POSITIVE ORIGINAL FINAL ACTUAL AMOUNTS (NEGATIVE) ORIGINAL FINAL ACTUAL AMOUNTS (NEGATIVE) REVENUES REVENUES Taxes and Special Assessments $1,841,985 $1,841,985 61,841,985 $0 Intergovernmental Revenues $2,110,000 83,230,421 $2,113,178 ($1,117,243) Intergovernmental Revenues 51,506 51,506 85,492 33,986 Charges for Services 262,500 262,500 325,894 63,394 Charges for Services 825,520 825,520 708,162 (117,358) Interest 36,566 36,566 50,360 13,794 Interest 1,000 1,000 0 (1,000) Other Revenues 1,000 _ 1,000 1,470 _470 Other Revenues 129,700 129,700 174,264 44,564 Total Revenues $2,410,066 93,530,487 52,490,902 ($1,039,585) Total Revenues 52,849,711 $2,849,711 62,809,903 ($39,808) EXPENDITURES Current Economic Environment $2,412,788 $3533,209 52,442,755 51,090,454 Capital Outlay Economic environment 2,500 _ 2,500 0 2,500 Total Expenditures $2,415,288 53,535,709 52,442,755 51,092,954 Excess (Deficiency) of Revenues Over (Under) Expenditures ($5,222) (55,222) 548,147 $53,369 Net Change in Fund Balances ($5,222) ($5,222) $48,147 $53,369 Fund Balances -January l 586,052 586,052 307,445 (278,607) Fund Balances - December 31 $580,830 $580,830 $355592 ($225,2' EXPENDITURES Cu.nent Economic Environment $441,059 $441,059 $432,542 $8,517 Mental & Physical Health 0 0 0 Cultural & Recreational Envmt 3,207,556 3,217,966 3,127,919 90,047 Capital Outlay Cultural & Recreational Env. 6,500 6,097 0 8,097 Total Expenditures 53,655,115 $3,667,122 63,560,461 8106,o61 Excess (Deficiency) of Revenues Over (Under) Expenditures (5805,404) (5817,111) (5750,558) 566,053 OTHER FINANCING SOURCES (USES) Transfers In $900,000 $900,000 $963,710 $63,710 Transfers (Out) (256,000) (256,000) (256,000) 0 Sale of Capital Assets 0 0 7,410 7,410 Comp. for Loss of Gen. Capital Assets 50,000 50,000 42,641 (7,359) Total other financing sources (uses) $694,000 $694,000 $757,761 $63,761 Net change in font balances ($111,404) ($123,411) 557,203 $130,614 Fund balances -January 1 422,812 422,812 472,283 49,471 Fund balances - December 31 5311,408 5299,401 5479,486 5180,085 The notes to the financial statements are an integr d part of ttus statement. Thy noses to the Sna ctal statements axe an Integral pare of this statement. Comprehensive Annual Financial Report (C.A.F.R.) - 29 30 - Comprehensive Annual Financial Report (C.A.F.R.) CITY OF /di/ a STREETS FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL For the Year Ended December 31, 2005 REVENUES Taxes and Special Assessments Intergovernmental Revenues Charges for Services Interest Other Revenues Total Revenues EXPENDITURES Current General Government Physical Environment Transportation Cultural & Recreational Envmt Capital Outlay Transportation Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES) Transfers (Out) Comp. for Loss of Gen. Capital Assets Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - January 1 Fund Balances - December 31 Page 3 of 3 VARIANCE WITH FINAL BUDGET - --- BUDGETED AMOUNTS --- POSITIVE ORIGINAL FINAL ACTUAL AMOUNTS (NEGATIVE) $3,249,357 $3,441,055 $3,326,997 (114,058) 1,138500 1,173,586 1,219,850 46,264 5Z000 57,000 67,751 10,751 20,000 20,000 9,236 (10,764) 50 50 5,938 5,888 $4,464,907 $4,691,691 $4,629,772 ($61,919) 9109,338 $109,338 $98,644 $10,694 37,500 37,500 32,716 4,784 4,330,498 4,852,296 4,355,170 497,126 4,398 4,398 3,153 1,245 22,500 22,500 5,870 16,630 94504,234 $5,026,032 84,495553 $530,479 ($39,327) ($334,341) $134,219 9468560 (5205542) ($247,542) ($247,183) 5359 0 0 118,572 118,572 ($205,542) (8247,542) ($128,611) 5118,931 ($244,869) (9581,883) $5,608 $587,491 726,394 726,394 1,335,433 609,039 $481,525 $144,511 51,341041 $1,196,530 The notes to the financial statements are an integral part of this statement. Comprehensive Annual Financial Report (C.A.F.R.) - 31 CITY OF / G>r,�% Washington NOTES TO THE FINANCIAL STATEMENTS Contents of the Notes NOTE I - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 44 Reporting Entity ... 44 Government -Wide and Fund Financial Accounting ... 46 Measurement Focus, Basis of Accounting, and Financial Statement Presentation 46 Assets, Liabilities and Equities 49 NOTE 2 - RECONCILIATION OF GOVERNMENT -WIDE AND FUND FINANCIAL STATEMENTS 52 Explanation of Certain Differences Between the Governmental Fund Balance Sheet 52 Explanation of Certain Differences Between the Governmental Fund Statements 53 NOTE 3 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY 54 Budgets and Budgetary Accounting 54 Deficit Fund Equity 56 NOTE 4 - DETAILED NOTES ON ALL FUNDS 57 Deposits and Investments. 57 Property Taxes. 59 Receivables ... ... 60 Interfund Receivables, Payables and Transfers. ... .61 Capital Assets 62 Commitments 64 NOTE 5 - PENSION PLANS 64 Public Employees' Retirement System (PERS) 65 Law Enforcement Officers' and Firefighters' Retirement System (LEOFF) 67 Other Retirement Systems - Volunteer Firefighters Relief and Pension Fund. 69 Firemen's Pension. 69 Police Pension ... 70 42 - Comprehensive Annual Financial Report (C.A.F.R.) NOTE 6 — SELF-INSURANCE FUNDS 71 Unemployment Compensation 71 Self -Insured Medical/Dental Program. ... 72 Workers' Compensation Program 72 Risk Management Program. 73 NOTE 7 — LONG-TERM DEBT AND CAPITAL LEASES 74 General Obligation Debt 75 Revenue Bonds .76 bitergovernmental Loans and Contractual Agreements .76 Special Assessment Debt with governmental Commitment 79 Lease Purchase Agreements. 79 Unfunded Pension Liabilities. 80 NOTE 8 — CONTINGENCIES 80 Section 108 Loan Program 80 Potential Litigation. 81 NOTE 9 — SEGMENT INFORMATION 81 NOTE 10 — JOINT VENTURES 82 NOTE I I — POST RETIREMENT BENEFITS OTHER THAN PENSION BENEFIT 84 NOTE 12 — OTHER DISCLOSURES 84 Subsequent Events 84 CITY OF / 6f:i Washington NOTES TO THE FINANCIAL STATEMENTS Year ended December :31, 2005 NOTE I — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the City of Yakima, Washington, conform to Generally Accepted Accounting Principles (GAAP) as applicable to governmental units. The City has adopted the pronouncements of the Governmental Accounting Standards Board (GASB) which is the accepted sl,andard-setting body for establishing governmental accounting and financial reporting principles nationally. The following is a summary of the more significant policies. The policies should be reviewed as an integral part of the financial statements and are presented to assist the reader in interpreting the financial statements and other data in this report. A. RIEPORTING ENTITY The City of Yakima was incorporated in 1886, End operates under a Council / Manager form of government with a full-time City Manager. The City of Yakima provides a full range of municipal services, which include: pa ice, fire, engineering, parks, cemetery, street, and administrative services. Included in the City's Enterprise Fund financial reports are - water, irrigation, sanitary wastewater, solid waste, and transit. The Yakima Air Terminal is operated under a joint venture agreement with Yakima County, see Note #10. The City's financial statements include all func.s, agencies and boards which are financially accountable to the City. Financial accountability is manifest wher: the primary government appoints the majority of an organization's governing body and is able to impose its will on that organ;zation or there is a potential for the organization to provide specific financial burdens on the primary government. The primary government may be financially accountable if an organization is fiscally dependent on the primary government regardless o1 whether the organization has a separately elected governing board, a governing board appointed by a higher level of government, or a jointly appointed board. An organization is fiscally dependent if it is unable to determine its budget without another government having the substantive authority to approve or modify the budget, to levy taxes or set rates Comprehensive Annual Financial Report (C.A.F.R.) — 43 44— Comprehensive Annual Financial Report (C A.F.R.) or charges without substantive approval by another government, or to issue bonded debt without substantive approval by another government. Applying these criteria, the combined financial statements do not include the financial position or results of operations of: YAKIMA SCHOOL DISTRICT NO. 7: WEST VALLEY SCHOOL DISTRICT NO. 208; UNION GAP SCHOOL DISTRICT NO. 2 These school districts are municipal corporations empowered by the state to educate the children of the City of Yakima. These school districts have independently elected boards of directors, adopt and control their own budgets and have their own taxing authority. YAKIMA COUNTY The County of Yakima was incorporated in 1865 under the authority of the Revised Code of Washington. The County has an elected board of commissioners, adopts and controls its own budget, and has its own taxing authority. The City has no legal interest in or responsibility for the assets or liabilities of the County. YAKIMA VALLEY REGIONAL LIBRARY The Yakima Valley Regional Library is a separate county -wide municipal corporation with its own taxing authority. It provides library services, under contract, for the City of Yakima, Yakima County and its other cities. The City has no legal interest in or responsibility for the assets or liabilities of the Library. YAKIMA HEALTH DISTRICT The Yakima Health District has its own board of directors, and adopts and controls its own budget. The City has no legal interest in or responsibility for the assets or liabilities of the Yakima Health District. YAKIMA CONFERENCE OF GOVERNMENTS The Yakima Conference of Governments is an agency comprised of the County, cities, and other boards which assists in long range planning for the member entities. The City has no legal interest in or responsibility for its assets or liabilities. RELATED ORGANIZATION The City's officials are also responsible for appointing the members of the boards of another organization, but the City's accountability for this organization does not extend beyond making the appointments. YAKIMA HOUSING AUTHORITY The Yakima Housing Authority was created by Resolution No. D-1575, in 1971, and, under certain conditions, can be dissolved by the City. Yet, it is an independent entity with distinct governmental character and organization. The City of Yakima created the Housing Authority per Washington State Revised Code Chapter 35.82 which provides that liabilities incurred by the Housing Authority will be satisfied from its assets, and that no person shall have any right of action against the City on account of its debts, obligations, and liabilities. YAKIMA REGIONAL PUBLIC FACILITIES DISTRICT Although a separate legal entity, the City has elected to account for the operations of the Public Facilities District in a Non -major Special Revenue Fund. The cities of Yakima, Selah and Union Gap formed a Public Facilities District (PFD) for the purpose of expanding the Yakima Convention Center. The City appoints a majority of the board members, and must approve the annual budget. The financial Comprehensive Annual Financial Report (C.A.F.R.) — 45 agreement stipulates that all revenue derived by the PFD (primarily a state sales tax credit) be transferred to the City and the City will use these funds for Center debt service and operations, and reimbursement of administrative costs of the PFD. B. GOVERNMENT -WIDE AND FUND FINANCIAL STATEMENTS The government -wide financial statements consist of the statement of net assets and the statement of activities. These statements report information on all of the nonfiduciary 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 are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. The City's policy is to allocate indirect costs to individual functions, if they are non tax supported. 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) grants 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, proprietary funds, and fiduciary funds, even though the latter are excluded from the government -wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND 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 and fiduciary fund financial statements. Under this measurement focus, 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. All 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 46 — Comprehensive Annual Financial Report (C.A.F.R.) thereafter to pay liabilities of tae current period. For this purpose, the City considers revenues to be available if they are collected within sixty days of the end of the current fiscal period. 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. Certain charges for service, sales based taxes, and interest associated within the current period are considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Orly 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. Grants are considered .measurable and available to the extent that expenditures have been made. Other intergovernmental revenues are considered measurable and available when earned. Other revenues such as state shared revenue, licenses, fines and fees are not considered susceptible to accrual since they are not generally measurable until received. Expenditures are generally recognized when the related fund liability is incurred, as under accrual accounting. All other revenue items are considered to be measurable and available only when cash is received by the City. The City of Yakima reports the following major governmental funds: The General Fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Community Development Fund accounts for the Office of Neighborhood Development, which is the focus of the City's effort to improve economic opportunities and housing conditions in Yakima. Federal Housing and Urban Development grants are the major revenue source for this program. The Parks and Recreation Fund accounts for park maintenance and recreation programs primarily supported by tax levies and pool anct golf fees. The Street Fund is required to be a separate fund for the purpose of accounting for the disbursement of the Motor Vehicle Fuel Tax revenues paid by the State of Washington to the City. Primarily, the fund is used for maintenance of existing City streets and traffic signalization, and is also tax supported. The City reports all enterprise funds as major funds: The Transit Fund accounts for the operation of the City Transit System, funded primarily by 0.03% sales tax, federal grants and fares. The Refuse Fund accounts far the provision of garbage collection and disposal service of the City. The Water and Wastewater lands account for the provision of water and wastewater ser- vices to the residents of the City and other outside utility agreements. Comprehensive Annual Financial Report (C.A.F.R.) — 47 tt The Irrigation Utility Fund is responsible for the operation, maintenance and reconstruction of the existing irrigation system. Additionally, the government reports the following fund types: • Internal Service Funds account for fleet management services, liability insurance, employee benefit reserves, and public works administration services provided to other departments or agencies of the government, or to other governments, on a cost: reimbursement basis. • Pension Trust Funds are used to account for' :he operations of trust established for employee retirement benefits. They are accounted for in essentially the same manner as proprietary funds because of the need for determining the periodic income of the trust. Private -sector standards of accounting and financial reporting issued prior to December. 1, 1989, generally are followed in both the govern Hent -wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Boards. Governments also have the option of the following subsequent private -sector guic ance for their business -type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent: private -sector guidance. As a general rule the effect of interfund activity has been eliminated from the government - wide financial statements. Exceptions to this general rule are charges between the City's utility functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include: 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, 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 proprietary fund's principal ongoing operations. Tae principal operating revenues of the water, wastewater, refuse and irrigation enterprise funds, and of the government's internal service: funds are charges to customers for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative exper.ses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. When bots' restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed. 48 - Comprehensive Annual Financial Report (C.A.F.R.) D. ASSETS, LIABILITIES AND EQUITIES L CASH AND INVESTMENTS Cash and investments are managed under the guidance of the City's Investment Policy adopted by Resolution No. R98-07 of the City Council. The policy was based on the Model Investment Policy prepared by the Municipal Treasurers' Association of the United States and Canada and applies to all financial assets of the City of Yakima. Investments are made using the "prudent person" standard with primary objectives being safety of principal, liquidity enabling the City to meet all operating requirements and a return on investment objective of attaining a market rate of return through budgetary and economic cycles. • Investments of City funds except those of the Firemen's Relief and Pension Fund are limited to: 1) Investment deposits, including certificates of deposit with qualified public depositories as defined in Chapter 39.58 Revised Code of Washington. 2) Certificates, notes or bonds of the United States, or other obligations of the United States, or its agencies, or of any corporation wholly owned by the government of the United States (such as the Government National Mortgage Association). 3) Obligations of government-sponsored corporations which are eligible as collateral for advances to member banks as determined by the Board of Governors of the Federal Reserve System. (These include but are not limited to Federal Home Loan Bank notes and bonds, Federal Farm Credit Bank consolidated notes and bonds, Federal National Mortgage Association notes, debentures, and guaranteed certificates of participation). 4) Bankers Acceptances and Commercial Paper purchased on the secondary market 5) Washington State Local Government Investment Pool. 6) General obligation bonds of any state or local government in the United States and revenue bonds from jurisdictions in Washington state having a long-term credit rating of no less than A3 as rated by Moody's or A- by Standard and Poor's. • Repurchase and reverse repurchase agreements are excluded as eligible investments. • Resources of the Firemen's Relief and Pension Fund may be invested in high quality corporate bonds in addition to instruments listed above. • The City purchases investments from SEC registered security broker- dealers and banks having offices within Washington State. Comprehensive Annual Financial Report (C.A.F.R.) — 49 The City's Treasury Services Officer, under the direction of the Director of Finance and Budget, invests or deposits all temporary cash. These investments and time deposits do not result in reductions to the cash balances of the various funds and are considered to be cash equivalents to the funds under the definition promulgated in GASB Statement #9, which states that investments purchased within ninety days of maturity are considered to be cash equivalents. These amounts are reported on the Combined Balance Sheet as part of "Cash and Cash Equivalents." 2. RECEIVABLES Taxes receivable consist of property and other taxes including related interest and penalties (See Note #4C). Accrued interest receivable consists of amounts earned on investments, notes, and contracts as of year- end. Special assessments are recorded when levied. Special assessments receivable consists of current and delinquent assessments. Deferred assessments consist of unbilled special assessments that are liens against the property benefited. As of December 31, 2005, $1,732 of special assessments receivables were delinquent. Customer accounts receivable consist of amounts due from private individuals or organizations for goods and services. Notes and contracts receivable consist of amounts owed on open account from private individuals or organizations for goods and services rendered. The major component of the notes receivable category is in the Community Development fund, and represents a revolving home ownership assistance program. 3. AMOUNTS DUE TO AND FROM OTHER FUNDS; INTERFUND LOANS AND ADVANCES RECEIVABLE These accounts include all interfund receivables and payables. A separate schedule of interfund loans receivable and payable is furnished in Note #4D. Long-term interfund loans are separately identified as 'Advances"— at December 31, 2005 there were no interfund advances. 4. AMOUNTS DUE TO AND FROM OTHER GOVERNMENTAL UNITS These accounts include amounts due to or from other governments for grants, entitlements, temporary loans, taxes and charges for services, except amounts billed for utility usage which is included in customer receivables. 5. INVENTORIES Inventories in governmental funds consist of expendable supplies held for consumption. The cost is recorded as an expenditure at the time individual inventory items are purchased. The reserve for inventory is equal to the ending amount of inventory to indi- cate that a portion of the fund balance is not available for future expenditure. Inventories in the General Fund, Enterprise Funds and Internal Service Funds are valued at cost on a moving average method. 6. RESTRICTED ASSETS AND LIABILITIES These accounts contain resources for debt service reserve/redemption in the enterprise funds. The current portion of related liabilities is shown as Payables from Restricted Assets. Specific debt service reserve requirements are described in Note #7 50 - Comprehensive Annual Financial Report (C.A.F.R.) The restricted assets of the enterprise funds are composed of the following: Cash- Debt Service Investment at Amortized Cost - Debt Service Total 81,000,600 1,700,000 52 700,600 7. CAPITAL ASSETS (SEE NOTE 4E) Capital assets, which include property, plant, equipment, and infrastructure assets (i.e., roads, bridges, sidewalks, and similar items), a.re reported in the applicable governmental or business -type columns :n the government -wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased cat constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Infrastructure assets are long-lived assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets. Examples of infrastructure include roads, bridges, drainage systems, water and wastewater systems, and lighting systems. When capital assets are purchased, they are capitalized and depreciated in the government -wide financial statements and the proprietary fund statements. Capital assets are recorded as expenditures of the current period in the governmental fund financial statements. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of the capital assets of business -type activities is induded as part of the capitalized value of the assets constructed. Property, plant, and equipment of the City is depreciated using the straight-line method over the following estimated useful lives: ESTIMATES SERVICE LIFE Buildings Improvements Other than Buildings Utility Plant Equipment Intangibles (Organization Costs and Goodw2i Infrastructure 25 -40 Years 7-50 Years 33 - 50 Years 2-25 Years 75 -100 Years 15 -50 Years B. CUSTODIAL ACCOUNTS These accounts reflect the iability for net monetary assets being held by the City in its trustee or agency capacity Comprehensive Annual Financial Report (C.A.F.R.) — 52 9. ACCRUED LIABILITIES Other accrued liabilities include primarily i nterest payable on long-term debt, Public Works Trust Loans and small miscellaneous payables not classified in other categories in Enterprise Funds. 10. DEFERRED REVENUES This account includes amounts recognized ar receivables but not: as revenue in governmental funds because the revenue recognition criteria has not been met. (See Note #1C) I I. NONCURRENT LIABILITIES The contracts with employees calls for the accumulation of vacation and sick leave. At termination of employment, employees mat' receive cash payment for all accumulated vacation up to a certain number of hours and a percentage of sick leave, depending on employee group. The payment is based on current wage at termination. The amounts of unpaid vacation and sick le ave accumulated by City employees are accrued as expenses when incurred in proprietary funds, which use the accrual basis of accounting. In the governmental funds, only the amounts that normally would be liquidated with expendable available financial resources are accrued as current -year expenditures. The City uses the last -in, first -out method of recognizing the hours used of compensated absences. Employees are charged for the last day of vacation or sick leave earned when the leave is used. Thus, unless it is anticipated that compensated absences will be used in excess of a normal year's accumulation, no additional expenditures are accrued. Therefore, the entire unpaid liability for the governmental funds is a reconciling item between the fund and government -wide presentations. For additional information on long-term debt see Note 7 LL FUND EQUITY Fund equity is recognized as fund balance in governmental fund types, and as net assets in proprietary fund types. Certain fund equity may be reserved for a specific future use, or to denote unavailability for current operations. Designations of fund balance represent tentative management plans that are subject to change. Unless otherwise noted, :and balances and retained earnings (deficits) are unreserved and undesignated. NOTE 2 — RECONCILIATION OF GOVERNMENT -WIDE AND FUND FINANCIAL STATEMENTS A. E)PLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUND BALANCE SHEET AND THE GOVERNMENT -WIDE STATEMENT OF NET ASSETS. T.he governmental fund balance sheet includes a reconciliation between fund balance -total government funds and net assets -governmental activities as reported in the government -wide statement of net assets. One element of that reconciliation explains that "long-term liabilities, including bonds payable, are not due and payaole in the current period and therefore are not reported in the funds." The details of this $32,149,342 difference are as follows: 52 — Comprehensive Annual Financial Report (C.A.F.R.) Bonds Payable Intergovernmental Loans Contractual Agreements—Yakima County Special Assessments—Notes Lease Purchase Agreements Unfunded Pension Liability Compensated Absences $19,365,097 2,526,127 568,167 261,700 639,658 3,795,872 4,992,721 Net adjustment to reduce fund balance -total governmental funds to arrive at net assets —governmental activities $32,149,342 B. EXPLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES AND THE GOVERNMENT -WIDE STATEMENT OF ACTIVITIES. The governmental fund statement of revenues, expenditures, and changes in fund balances includes a reconciliation between net changes in fund balances -total governmental funds and changes in net assets of governmental activities as reported in the government -wide statement of activities. One element of that reconciliation explains that "Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense." The details of this $1,490,007 difference are as follows: Capital Outlay $5,333,110 Depreciation Expense (3,843,103) Net adjustment to increase net changes in fund balances -total governmental funds to arrive at changes in net assets of governmental activities $1,490,007 Another element of that reconciliation states that "The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins, and donations) is to increase net assets." The details of this ($221,767) difference are as follows: In the statement of activities, only the gain on the sale of capital assets is reported. However, in the governmental funds, the proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balance by the cost of the capital assets sold/disposed Net adjustment to increase/(decrease) net changes in fiord balances -total governmental funds to arrive at flanges in net assets of governmental activities (8221,767) Another element of that reconciliation states that "the issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first Comprehensive Annual Financial Report (C.A.F.R.) — 53 issued, whereas these amounts are deferred and amortized in the statement of activities." The details of this $855,664 difference are as follows: Debt Issued or Incurred: Issuance of General Obligation Bonds Intergovernmental Loan Contractual Agreement- Yakima County Special Assessment Notes Principal repayments: General obligation debt Intergovernmental loans Contractual agreement—Yakima County Special assessment notes Lease purchase agreements Net adjustment to decrease net changes in fund balances -total governmental funds to arrive at changes in net assets of governmental activities ($755,000) (48,286) (100,000) (371,075) 1,220,000 437,168 128,274 162,375 182,208 $855,664 Another element of that reconciliation states that "Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not re- ported as expenditures in governmental funds." The details of this ($739,004) difference are as follows: Compensated Absences Change in Unfunded Pension Liability Change in Reserve for Inventory Accrued Interest Payable Net adjustment to decrease net changes in fund balances — total governmental funds to arrive at changes in net assets of governnnental activities NOTE 3 — STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. BUDGETS AND BUDGETARY ACCOUNTING ($319,322) (428,066) 4,521 3,863 ($739,004) I. SCOPE OF BUDGET The City Council annually approves the City's operating budget. The operating budget is designed to allocate annually available resources among the City's services and pro- grams and to provide for associated financing decisions. Annual appropriated budgets are adopted on the modified accrual basis of accounting. For governmental funds, there are no differences between budgetary basis and gener- ally accepted accounting principles. Budgetary accounts are integrated in fund ledgers for all budgeted funds, but the financial statements include budgetary comparisons for the General Fund and Special Revenue Funds only. Budgets for debt service and capi- 54 Comprehensive Annual Financial Report (C.A.F.R.) tal projects are adopted at he level of the individual debt issue or project and for fiscal periods that correspond to the lines of debt issues or projects. Budgetary comparisons for proprietary funds, although not legally required, may be requested from the Department of Finance and Budget. Annual appropriated budgets are adopted at the fund level. Subsidiary revenue and expenditure ledgers are used to compare the budgeted amounts with actual revenues and expenditures. As a management control device, the subsidiary ledgers monitor ex- penditures for individual functions and activities by object class. Appropriations for general and special revenue funds lapse at year-end. 2. PROCEDURES FOR ADOPTING THE ORIGINAL BUDGET The City's budget procedures are mandated by Washington State Law. The steps in the budget process are as follows: a. Prior to November 1, the City Manager 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 proceeding months, and balanced with revenue estimates. b. The Council conducts public hearings on the proposed budget in November to obtain taxpayer comments. c. During mid-December, the budget is legally enacted through passage of an ordinance. 3. AMENDING THE BUDGET The City Manager is authorized to transfer budgeted appropriations between departments within any fund; however, any revisions that alter the total expenditures of a fund, or that affect the number of permanently authorized employee positions, salary ranges, or other conditions of employment 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 an ordinance approved by a one more than simple majority of those present after holding two public hearings. The budget amounts shown in the financial statements represent the original adopted budget and all supplemental appropriations. City-wide, supplemental appropriations totaled $13.6 million. The principal four amendments were to reappropriate 2004 outstanding encumbrances in the amount of $2.9 million; the reappropriation of non -lapsing appropriations in capital project funds in the amount of $.5 million; the appropriation for Downtown Futures project initiatives - renovation for public walkways in the amount of $4.8 million; and the appropriation for 96th Avenue interceptor - $.65 million. Comprehensive Annual. Financial Report (C.A.F.R.) —.55 4. ENCUMBRANCES Encumbrance accounting, under which purchase orders, contracts, and other commiments for the expenditure of funds are recorded in order to reserve that portion of the applicable appropriation, is employed as an extension of formal budgetary integration in the governmental funds. Encumbrances are reported as reservations of fund balances since they do not constitute expenditures or liabilities. The City reappropriates outstanding encumbrances .n the subsequent year. B. DEFICIT FUND/EQUITY I. DEFICIT FUND EQUITIES Temporary deficits of the Local Improvement Construction Fund arise because long-term financing has not been issued. During the construction phase, the Local Improvement District issues warrants, which accrue interest and are held a:, an investment internally, shown on the balance sheet as Warrants Payable, resulting in a deficit fund balance. When the LID is completed, bonds or notes are issued and the Warrants Outstanding are redeemed eliminating the deficit. The Refuse enterprise fund had a deficit fund balance of $9,711 at December 31, 2005. A 5% increase for refuse rates had been approved by Council to cover operating cost increases in the 2006 budget. The Risk Management Reserve Internal Service fund had a deficit fund balance of $351,468 at December 31, 2005. Even though the fund has approximately $1 million in assets, the claims manager's estimate of outstanding claims and judgments payable is over $1.3 million. The interfund contribution charged to operating funds was increased by 15% in the 2006 budget to begin to eliminate this deficit and build reserves. 2. DESIGNATED FUND BALANCES This category is used to set aside governmental fund balances when city management has plans or tentative commitments to expend resources for certain purposes in future periods. Further legal action will be required to authorize the actual expenditures. Special Revenue Funds have a designated fund balance of $925,208 for the Capitol Theatre Reserve Fund for replacement of the Capitol Theatre. The Capital Project Funds have a designated fund balance of $1,210,4E8 for replacement of equipment and other capital improvements. 3. RESERVED FUND BALANCE IN PERMANENT FUNDS The reserve of $535,080 in the Cemetery Trost Fund represents a portion of the amounts paid for cemetery plots. Provisions of these sales reciuire $120 of the sales price be held in trust and that the income cn the investment of these amounts be used to maintain the plots. The Reserve for Endowments represents an endowment for cemetery beautification. The provisions of the endowment stipulate that income from the endowment be used only for grounds imp' ovements. 56 - Comprehensive Annual Financial Report (C.A.F.R.) The $545,829 Reserve for Employees' Retirement System is the Firemen's Relief and Pension Fund balance which represents the accumulated contributions made by the government through property taxes (see Note #4) plus interest earnings and state fire insurance premium tax proceeds. NOTE 4 — DETAILED NOTES ON ALL FUNDS A. DEPOSITS AND INVESTMENTS In its 2005 Notes to the Financial Statements, the City of Yakima implemented GASB Statement No. 40, Deposit and Investment Risk Disclosures — an amendment of GASB Statement No. 3, issued in March 2003. The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2004. This statement addresses common deposit and investment risks related to credit risk, concentration of credit risk, interest rate risk, and foreign currency risk. As an element of interest rate risk, this Statement requires certain disclosures of investments that have fair values that are highly sensitive to changes in interest rates. The City holds no such investments as of the Statement of Net Assets Date. As required by state law, all deposits and investments of the City's funds are direct or indirect obligations of the U.S. Government, high quality Municipal Bonds, Bankers' Acceptances, high quality Commercial Paper or deposits with Washington State banks and savings and loan institutions. Investments of trust funds are not subject to the preceding limitations. I. DEPOSITS The City of Yakima maintains deposit relationships with several Washington State commercial banks and savings and loan institutions. The Public Deposit Protection Commission of the State of Washington (PDPC) covers all deposits not covered by the Federal Depository Insurance Corporation (FDIC). The PDPC is a statutory authority established under RCW 39.58. It constitutes a multiple financial institution collateral pool that insures public deposits. In such a pool, a group of financial institutions holding public funds pledge collateral to a common pool. The PDPC provides protection by maintaining strict standards as to the amount of public deposits financial institutions can accept, and by monitoring the financial condition of all public depositaries and optimizing collateralization requirements. The City's agent in the name of the City holds all deposits. The City of Yakima had the following bank balances on hand on December 31, 2005: Banks and Savings and Loan Institutions Petty Cash and other Imprest Funds Local Government Investment Pool (L.G.I.P.) Total $1,597,978 19,035 28,982,945 $30,599,958 Comprehensive Annual Financial Report (C.A.F.R.) — 57 Custodial credit risk: deposits — The custodial credit risk for deposits is the risk that, in the event of a depository financial institution failure, the City's deposits with banks and savings and loan associations may not be recovered. Because of the PDPC, the City's deposits are not subject to this risk. The LGIP is an un -rated 2a-7 like pool, as defined by GASB 31. Accordingly, participants' balances in the LGIP are not subject to interest rate risk, as the weighted average maturity of the portfolio will not exceed 90 days. Per GASB 40 guidelines, the balances are also not subject to custodial credit risk. The credit risk of the LGIP is limited as most investments are either obligations of the US government, government sponsored enterprises, or insured demand deposit accounts and certificates of deposit. Investments or deposits held by the LGIP are all classified as category 1 risk level investments. They are either insured or held by a third -party custody provider in the LGIP's name. Foreign currency risk: deposits — Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit. The City of Yakima does not participate in making deposits or investments that are exposed to this type of risk. 2. INVESTMENTS As of December 31, 2005 The City of Yakima had the following investments: INVESTMENT TYPES Federal Agency Coupon Securities Federal Agency Callable Securities Treasury Securities Municipal Securities Total Portfolio Weighted Average Maturity CARRYING/ FAIR/ WEIGHTED AVERAGE VALUE VALUE MATURITY (YEARS) 0) 52530,397 52,519999 .765 25,286,265 25,033,288 .802 1,000,886 984,045 L081 2,067,677 2,055,595 .515 $30 885,225 $30 592,927 (1) Macaualy modified duration, which approximates Weighted Average Maturity, is used for this purpose. .780 Note: Investments are reported at Carrying Value on the Statement of Net Assets as the Weighted Average Maturity of the portfolio is less than one year and the difference between Carrying Value and Fair Value is considered immaterial. 3. INTEREST RATE RISK In accordance with its adopted investment policy, the City manages its exposure to declines in fair value due to rising interest rates by limiting the weighted average maturity of the portfolio as a whole to not more than 2.5 years, and has a five-year maximum investment limitation. Additionally, the City does not use derivatives, pass through obligations or other extremely interest rate sensitive instruments in its portfolio. Weighted average maturity on callable securities is calculated using the final maturity date rather than the call date for conservatism. 58 — Comprehensive Annual Financial Report (C.A.F.R.) INVESTMENT TYPES Federal Agency Coupon Securities Federal Agency Callable Securities Treasury Securities Municipal Securities Total Portfolio FAIR/ CARRYING/ LESS THAN I -:t VALUE VALUE 1 YEAR YEARS $2,519,999 $2,530,397 $1,998,075 6532,322 25,033,283 25,286,265 15,500,000 9,786,265 984,04!5 1,000,886 1,000,886 0 2,055,597 2,067,677 1,805,696 261,98111 530,592,929 $30,885,225 520,304,657 $10,580,568 (1) Represents 10.year LID Notes the Cr y is holding. All other investments in this category are under two-year final maturity. 4. CREDIT RISK State law under, RCW sectons 35.39 and 39.59,limits investments that a Washington class 1 City may hold to Direct and Indirect obligations of the US Government, high quality Municipal Bonds of the State or Cities and Towns within the State, high quality General Obligation bonds of another State or City and by administrative allowance not in the RCW's, Bankers Acceptances and high quality Commercial Paper, holding one of the 2 highest Credit ratings issued by Moody' and Standard and Poor's and the State Treasurer's Local Government Investment Pool (L.G.I.P.). The LGIP is a 2(a)7 like pool and investments in the pool are reported at the share price of 100% of dollars invested. The City's own adopted Investment Policy adheres to the RCW's and also allows for investment in high quality Commercial Paper, Banker's Acceptances and the LGIP (see Deposit Note for information on the LGIP) 5. CUSTODIAL CREDIT RISK The City's investment Policy does not include Repurchase, Reverse -Repurchase agreements or securities lending as allowable investment activity, therefore no custodial credit risk exists. All investments are held in the City's name by a third party custodian through a Trust Agreement, and are considered Category 1 investments, with the exception of the LGIP, (see Deposit Note 4A.1, above, for custodial risk details). B. PROPERTY TAXES The County Treasurer acts as an agent to collect property taxes levied within the county for all taxing authorities. Collections are distributed after the end of each month, on the tenth day of the following month. January 1 February 14 April 30 May 31 October 31 PROPERTY TAX CALENDAR Taxes are .evied and become an enforceable lien against properties. Tax bills are mailed. First of tyro equal installment payments is due. Assessed ✓clue of property is established for next year's levy at 100 -percent of market value. Second installment is due. Comprehensive Annual Financial Report (C.A.F.R.) - 59 During the year, property tax revenues are recognized when cash is collected. At year-end, property tax revenues are recognized for colle:tions in the hands of the County Treasurer at December 31st. No allowance for uncollectible taxes is established because delinquent taxes a re considered fully collectable. The City is permitted by law to levy up to $3.60 per $1,000 of assessed valuation for general government services. This amount may be reduced for any of the following reasons: (a) The Washington State Constitution limits total regular property tax levies to one -percent of assessed valuation or $10 per $1,000 of value. If the tax Ievies of all districts exceed this amount, each is proportionately reduced until the total is at or below the one -percent limit. (b) Washington State law, RCW 84.55.010 limits the total dollar amount of regular property taxes that may be levied annually to 101% of the highest levy in the three previous years (excluding new construction and state assessed property.) Special levies approved by the voters are not subject to the above limitations. For 2005, the City's regular tax levy was $3.4195 per $1,000 on a total assessed valuation of $3,971,667,847 for a total regular levy of $13,660,632. Included in the City's regular levy is an authorization to levy for the Firemen's Relief and Pension Fund (see Note 85). This levy is subject to the same limitations as the levy fo- general government services. The Firernens Relief and Pension portion of the regular tax levy for 2005 was 5.3540 per $1,000, or $1,405,779. P,dditiora';.ly, special levies for G.O. Bond obligations totaled $300,000. C. RECEIVABLES Receivables as of year-end for the City's individual major funds, non -major, internal service and agency funds in the aggregate, ir.cluding applicable allowance for u ncollectible accounts are as follows: INTEREST SPECIAL DUE FROM & TAXES ACCOUNTS AOMTS OTHER GVTS PENALTIES OTHER TOTAL General Fund $4,201,726 $113,498 $0 $38,210 $131,653 50 $4,485,087 Community Development 0 6,198,377 0 273,037 0 0 6,471,419 Parks & Recreation 0 8,413 0 6,864 0 0 15,275' Streets 0 861 0 207,366 8,278 0 216,505 Non -major Governmental 297,007 175,080 377,051 1,578,253 21,505 75,302 2,517,198 Transit 768,546 0 0 1,458,181 5,666 0 2,232,395 R> --fuse 0 212,698 0 0 0 0 212,696 'Wastewater 0 1,198,630 0 0 13,487 9,750 1,221,867 Water 0 101,773 0 0 9,028 0 110,801 Irrigation 0 208,305 0 0 27,500 0 235,805 Internal Service Funds 0 640,300 0 0 32,719 0 673,019 Total $5,267,279 08,857935 8379051 $3,561,911 $249,836 $85,052 518,392,064. 60 - Comprehensive Annual Financial Report (C.A.F.R.) Revenues of the Water, Wastewater, Refuse and Irrigation are reported net of uncollectible amounts. Total uncollectible amounts related to revenues of the current period of approximately 1% of billed revenue are as follows: Refuse Wastewater Water Irrigation Total D. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS 1. CLASSIFICATION OF INTERFUND TRANSACTIONS Interfund transactions are classified as follows: $35,047 128,547 53,488 24,333 $241,415 a. Transactions that would be treated as revenues, expenditures or expenses if they involved external organizations, such as buying goods and services, are similarly treated when they involve other funds of the City. b. Transfers to support the operations of other funds are recorded as "Transfers" and classified with "Other Financing Sources or Uses." c. Contributions to the capital of enterprise or internal service funds, (transfers between those funds and the general capital assets account group,) transfers to establish or reduce working capital in other funds, and transfers of remaining balances when funds are closed are classified as transfers and reported as non-operating revenues. d. Loans between funds are classified as interfund loans receivable and payable or as advances to and from other funds on the combined balance sheet depending on the time period for which the loan was made. Interfund loans do not affect total fund equity, but advances to other funds are offset by a reservation of fund equity. 2. INTERFUND LOANS AND RECEIVABLES The following table depicts the temporary cash overdrafts in individual funds as of December 31, 2005 - caused either by timing of cash flow or short-term over allocation of investments: DUE FROM DUE TO OTHER FUNDS OTHER FUNDS General Fund $511,606 $0 Special Revenue Funds: Arterial Street 0 309,919 Tourist Promotion Fund 0 41,732 Capitol Theatre Reserve 0 93,446 Capital Project Funds: Cumulative Reserve 0 66,509 Total $511,606 $511,606 Comprehensive Annual Financial Report (C.A.F.R.) - 61 3. INTERFUND TRANSFERS Interfund transfers represent subsidies and contributions provided to other funds with no corresponding debt or promise to repay. General Fund transfers are primarily used to 1) allocate the portion of utility taxes that are designated to support Parks and Recreation and Law and Justice Capital programs; 2) Support the dispatch operation with a portion of the telephone tax; and 3) contribute to the Contingency Fund. The Internal Service transfer in represents capital contributions from other fund to purchase new vehicle additions to the rolling stock fleet. Other transfers generally represent debt service and capital project funding. The following table depicts interfund operating transfer activity during 2005: TRANSFER IN GENERAL PARKS NON -MAJOR WASTE- INTERNAL TRANSFER OUT FUND & REC GOV'T WATER SERVICE TOTAL General Fund $0 $948,710 $1,045,530 $0 $0 $1,994,240 Parks and Recreation 0 0 256,000 0 0 256,000 Streets 0 0 247,183 0 0 247,183 Non -major Government 90,000 15,000 1,095,547 0 147,164 1,347,711 Wastewater 0 0 67,516 0 74,117 141,633 Water Operating Fund 0 0 64,058 32,939 0 96,997 Irrigation 0 0 48,750 0 0 48750 Total $90,000 3963,710 $2,824,584 $32,939 $221,281 $4,132,514 E. CAPITAL ASSETS CAPITAL ASSET ACTIVITY FOR THE YEAR ENDED DECEMBER 31, 2005 GOVERNMENTAL ACTIVITIES Capital Assets, Not Being Depreciated: Land Construction in Progress Total Capital Assets, Not Being Depreciated Capital Assets, Being Depreciated: Buildings & Structures Other Improvements Equipment & Machinery Infrastructures Capitalized Leases Total Capital Assets, Being Depreciated Less Accumulated Depreciation fon Buildings & Structures Other Improvements Equipment & Machinery Infrastructures Capitalized Leases Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net BALANCE BALANCE I/1/05 ADDITIONS ADJUSTMENTS DELETIONS 12/31/05 88,764562 $0 $0 $0 $8,764,562 9,586,100 4,637,312 (5,175,117) 0 9,048,295 918,350,662 $4,637,312 ($5,175,117) $0 $17,812,857 $44,717,209 $48,307 $3,061,426 ($119,211) $47,707,731 6,250,465 46,622 3,185,649 (350,837) 9,131,899 7,737,159 442,245 14,882 (979,542) 7,214,744 41,251,375 0 (1,086,840) 0 40,164,535 1,633,849 158,624 0 (471,604) 1,320,869 $101,590,057 $695,798 $5,175,117 ($1,921,194) 8105,539,778 ($11,176,123) ($1,022,671) $0 $86,280 ($12,112,514) (2,871,784) (525,872) 0 307,497 (3,090,159) (4,786,902) (467,458) 0 834,046 (4,420,314) (20,068,388) (1,690,850) 0 0 (21,759,238) (811,927) (136,252 0 471,604 (476,575) ($39,715,124) ($3,843,103) $0 $1,699,427 ($41,858,800) $61,874,933 ($3,147,305) $5,175,117 ($221,767) $63,680,978 Governmental Activities Capital Assets, Net $80,225595 $1,490,007 $0 ($221,767) $81,493,835 62 - Comprehensive Annual Financial Report (C.A.F.R.) CAPITAL ASSET ACTIVITY FOR THE YEAR ENDED DECEMBER 31, 2005 (CONTINUED) BALANCE BALANCE 1/1/05 ADDITIONS ADJUSTMENTS DELETIONS 12/31105 INTERNAL SERVICE FUNDS - GOV'T ACTIVITIIES Capital Assets, Being Depreciated: Buildings 520,552 $60 $0 $0 $20„612 Other Improvements 0 3,997 0 0 3,997 Machinery 5599,177 753,048 0 0 6,352,225 Total Capital Assets Being Depreciated $5,619,729 $757105 $0 $0 56,376,834 Less Accumulated Depreciation fon Other Improvements $0 ($295) $0 $0 ($295) Machinery (3,118,162) 571,637) 513 123,565 (3,565,72)) Total Accumulated Depreciation (53,118,162) ($571,932) $513 5123,565 ($3,566,016) Total Capital Assets, Being Depreciated Net 52,501,567 5184,573 5513 $123,565 $2,810,218 Total Capital Assets- Governmental Activities $82,727,162 $167"580 $513 ($98,202) $84,304,653 BUSINESS -TYPE ACTIVITIES Capital Assets, Not Being Depreciated: Land 52,186,700 50 50 ($5,184) 52,181,516 Construction in Progress 11,718,026 8,440,003 (2,338,223) (17,106) 17,802,700 Total Capital Assets, Not Being Depreciated 513,904 726 58,440,003 ($2,338,223) (522,290) $19`_984,216 CAPITAL ASSETS, BEING DEPRECIATED: Buildings & Structures $64,491,228 699,779 $149,195 50 564,740,202 Other Improvements 76,023,709 1,261,030 452,780 0 77,737,519 Equipment & Machinery 12,414,491 467,767 1,736,248 (649,078) 13,969,428 Completed Construction - Not Classified 2,232,245 0 0 0 2,232,245 Intangibles 221,830 0 0 0 221,830 Total Capital Assets, Being Depreciated $155,383,503 51,328,576 52,338,223 ($649,078) 5158,901,224 Less Accumulated Depreciation for: Buildings&Structures ($35,272,550) ($1,954,637) 50 50 ($37,127,187) Other Improvements (29,813,537) (1,719,672) 0 400 (31,532,809) Equipment&Machinery (6,316,856) (630,022) 0 502,989 (6,443,989) Completed Construction -Not Classified (569,273) (44,302) 0 0 (613,575) Intangibles (106,171) 0 0 0 (106,171) Total Accumulated Depreciation (572,078,387) (54,248,633) 0 5503,389 (575,823,631) Total Capital Assets, Being Depreciated, Net $83,305,116 (52,420,057) $2,338,233 (5145,689) 583,077,593 Business -Type Activities Capital Assets, Net $97,209,842 56,019,946 $0 (5167,979) $103,061,809 INTERNAL SERVICE FUNDS - BUSINESS -TYPE ACTIVITIES Capital Assets, Being Depreciated: Buildings 516,845 (560) 50 $0 516,785 Other Improvements 0 3,254 0 0 3,254 Machinery 9,552,960 522,139 0 0 10,075,099 Total Capital Assets - Being Depreciated 59,569,805 5525,333 50 50 510,095,138 Less Accumulated Depreciation for: Other Improvements 50 ($462) 00 $0 ($462) Machinery (5,289,168) (465,261) 12,036 101,099 (5,641,294) Total Accumulated Depreciation (55,289,168) ($965,723) 512,036 5101,099 (55,641,756) Total Capital Assets, Being Depreciated, Net 54,280,637 $59,610 512,036 $101,099 $4,453,382 Total Capital Assets- Business -Type Activities $101,490,479 $6,079,556 512,036 (566,880) 5107,515,191 The City is still in the process of summarizing, categorizing, and costing Us infrastructure The balance presented for infrastructure represents historical cost for major street projects from 1980 tbrough2005. The 2005 adjustment column represents construction in progress that are completed and re -categorized as building improvements other than building or infrastructure. This column also incudes a transfer of 51,705550 erroneously classified as infrastructure which should have been classified as building. Comprehensive Annual Financial Report (C.A.F.R.) - 63 Depreciation expense was charged to functions/programs as follows, GOVERNMENTAL ACTIVITIES General Government Security of Persons and Property Physical Environment Transportation Economic Environment Cultural and Recreational Environment Capital assets held by the City's internal service funds are charged to the various functions based on their usage of the assets Total Depreciation -Governmental Activities BUSINESS -TYPE ACTIVITIES 188,917 811,983 11,718 1,716,708 87,239 1,025,538 571,932 $49191.5,035 Transit 5592,872 Wastewater 2,673,195 Water 903,386 Irriganoa 79,179 Capital assets held by the City's internal service funds are charged to the various functions based on their usage of the assets 465,723 Total Depreciation- Business Type Activities $4,714,355 F. COMMITMENTS 1. CONSTRUCTION COMMITMENTS The City has active construction projects an of December 31, 2005. The projects include widening and construction of existing streets and Wastewater facility improvement and collection system. CONTRACT PROJECT AMOUNT Street Construction/Signalization 52,181,813 Wastewater Treatment Plant/Col. System 4,758,000 Total 86,939,813 REMAINING SPENT TO DATE COMMITMENT $119,116 52,062,697 3,582,698 1��75 3302 $3,701,814 53,237,999 Stree, constructions are being financed by gas tax and federal, state or local grants. Wastewater is being financed by revenue bonds and wastewater utility revenues. NOTE 5 - PENSION PLANS 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 64 - Comprehensive Annual Financial Report (C,A.F.R.) benefit and defined contribution 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 The following disdosures are made pursuant to GASB Statement 27, Accounting for Pensions by State and Local Government Employers. A. PUBLIC EMPLOYEES' RETIREMENT SYSTEM (PERS) PLANS I, 2 & 3 PLAN DESCRIPTION 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 combination defined benefit/defined contribution plan. Membership in the system includes: elected officials; state employees; employees of the Supreme, Appeals, and Superior courts (other than judges in a judicial retirement system); employees of legislative committees; community and technical colleges, college and university employees (not in national higher education retirement programs); judges of district and municipal courts; and employees of local governments. PERS participants who joined the system by September 30, 1977, are Plan I 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 exercise an option to transfer their membership to Plan 3. PERS participants 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 option of choosing membership in either PERS Plan 2 or PERS Plan 3. The option must be exercised within ninety days of employment. An employee is reported in Plan 2 until a choice is made. Employees who fail to choose within ninety days default to PERS Plan 3. PERS defined benefit retirement benefits are financed from a combination of investment earnings and employer and employee contributions. PERS retirement benefit provisions are established in state statute and may be amended only by the State Legislature. Plan 1 retirement benefits are vested after an employee completes five years of eligible service. Plan 1 members are eligible for retirement at any age after thirty years of service, or at the age of sixty with five years of service, or at age of 55 with 25 years of service. The annual pension is two -percent of the average final compensation per year of service, capped at sixty -percent. The average final compensation is based on the greatest compensation during any 24 eligible consecutive compensation months. If qualified, after reaching the age of 66 a cost -of -living allowance is granted based on years of service credit and is capped at three -percent annually. Comprehensive Annual Financial Report (C.A.F.R.) — 65 Plan 2 retirement benefits are vested after an employee completes five years of eligible service. Plan 2 members may retire at the age of 65 with five years of service, or at age 55 with twenty -years of service, with an allowance of two -percent of the average final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive sixty -month period. Plan 2 retirements prior to the age of 65 receive reduced benefits. If retirement is at age 55 or older with at least thirty - years of service, a three -percent per year reduction applies; otherwise an actuarial reduction will apply. There is no cap on years of service credit; and a cost -of -living allowance is granted (indexed to the Seattle Consumer Price Index), capped at three -percent annually. 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 benefit calculated at one -percent of the average final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive sixty -month period. Plan 3 members become eligible for retirement if they have: at least ten years of service; or five years including twelve months that were earned after age 54; or five service credit years earned in PERS Plan 2 prior to June 1, 2003. Plan 3 retirements prior to the age of 65 receive reduced benefits. If retirement is at age 55 or older with at least thirty -years of service, a three -percent per year reduction applies; otherwise an actuarial reduction will apply. There is no cap on years of service credit; and Plan 3 provides the same cost -of -living allowance as Plan 2. 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 Employee Retirement Benefits Board. There are 1169 participating employers in PERS. Membership in PERS consisted of the following as of the latest actuarial valuation date for the plans of September 30, 2004: Retirees and Beneficiaries Receiving Benefits Terminated Plan Members Entitled to But Not Yet Receiving Benefits Active Plan Members Vested Active Plan Members Nonvested Total 66,846 21,031 103,039 53,217 244,133 FUNDING POLICY Each biennium, the state Pension Funding Council adopts Plan 1 employer contribution rates, Plan 2 employer and employee contribution rates; and Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are established by statute at six -percent and do not vary from year to year. 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. PERS Plan 3 defined contribution is a non-contributing plan for employers. Employees who participate in the defined contribution portion of PERS Plan 3 do not contribute to the defined benefit portion of PERS Plan 3. The Employee Retirement Benefits Board sets Plan 3 employee contribution rates. Six rate options are available ranging from five to 15 percent; two of the options are graduated 66 — Comprehensive Annual Financial Report (C.A.F.R.) rates dependent on the employee's age. The methods used to determine the contribution requirements are established under state statute in accordance with Chapters 41.40 and 4:1.45 RCW The required contribution rate; expressed as a percentage of current -year covered payroll, as of December 31, 2005, were as follows: Employer* Employee PERS PLAN I 2.44% 6.00% PERS PLAN 2 2.44% 1.18% PERS PLAN 3 244%" • The employer rates include the employer administrative expense fee currently set at 0.19%. " Plan 3 defined benefitporson only. ". Venable from 5.0%minimum to 15.0% maximum based on rate selected by the PERS 3 member. Both the City and the employees made the required contributions. The City's required contributions for the years ended December 31 were as follows: 2005 2004 2003 PERS PLAN I 857,336 44,564 48,335 B. LAW ENFORCEMENT OFFICERS' .IND FIRE FIGHTERS' RETIREMENT SYSTEM (LEOFF) PI.ANS I AND 2 PERS PLAN 2 $345,207 235,935 231,087 PERS PLAN 3 $48,343 32,255 22,198 PLAN DESCRIPTION LEOFF is a cost-sharing multiple -employer retirement system comprised of two separate defined benefit plans. Membership in the system includes all full-time, fully compensated, local law enforcement officers and firefighters. LEOFF is comprised primarily of non -state employees, with the exception of the Department of Fish and Wildlife enforcement officers, who were first included prospectively effective July 27, 2003. LEOFF participants 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. Elective July 1, 2003, I:he LEOFF Plan 2 Retirement Board was established to provide governance of LEOFF Plan 2. The Board's duties include adopting contribution rates and recomm ending policy changes to the Legislature for the LEOFF I'Ian 2 retirement plan. Effective January 1, 2003 firefighter emergency medical technicians (EMTs) may transfer PERS Plan 1 or Plan 2 service credit to LEOFF Plan 2 if while employed for the City the EMT's job was relocated to a fire department from another city, town, county or district. LEOFF defined benefits are financed from a combination of investment earnings, employer and employee contrlautions, and a special funding situation in which the state pays the remainder through state legislative appropriations. LEOFF retirement benefit provisions are established in state statute and may be amended only by the State Legislature I'lan I retirement benefits are vested after an employee completes five years of eligible service. Plan 1 members are ell gible for retirement with five years of service at age fifty. The benefit per year of service calculated as a percent of final average salary is as follows: Comprehensive Annual Financial Report (C.A.F. R.) — 67 TERM OF SERVICE Twenty or More Years Ten years, less than twenty years Five years, less than ten years PERCENT OF FINAL AVERAGE 2.0% 1.5% 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 h:ghest consecutive 24 months' salary within the last ten years of service. If membership was established in LEOFF after February 18, 1974, the service retirement benefit is capped at sixty -percent of final average salary A cost -of living allowance is granted (indexed to the Seattle Consumer Price Index). Plan 2 retirement benefits are vested after an employee completes five years of eligible service. Plan 2 members may retire at the age of fifty with twenty years of service, or at the age of 53 with five years of service, with an allowance of two -percent of the final average salary per year of service. The final average salary is based on the highest consecutive sixty -months. Plan 2 retirements prior to the age of 53 are reduced three -percent for each year that the benefit commences prior to age 53. There is no cap on years of service credit; and a cost -of -living allowance is granted (indexed to the Seattle Consumer Price Index), capped at three -percent annually. There are 369 participating employers in LEOF'3 Membership in LEOFF consisted of the following as of the latest actuarial valuation dare for the plans of September 30, 2004: Retirees and Beneficiaries Receiving Benefits Terminated Plan Members Entitled to But Not Yet Receiving Benefits Active Plan Members Vested Active Plan Members Nonvested Total 8,542 528 12,079 3,523 24,672 FUNDING POLICY Starting on July 1, 2000, Plan 1 employers and employees will 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. Plan 2 employers and employees are required to pay at the level adopted by the Department of Retirement Systems in accordance with 41.45 RCW All employers are :equired to contribute at the level required by state law. The Legislature, by means of a special funding arrangement, appropriated money frorn the state General Fund to supplement the current service liability and fund the prior service costs of Plan 1 in accordance with the requirements of the Pension Funding Council. However, this special funding situation is not mandated by the state constitution and this funding requirement could be returned to the employer:. by a change of statute. The methods used to determine the contribution rates are established under state statute in accordance with chapters 4126 and 41.45 RCW 68 — Comprehensive Annual Financial Report (C. A.F.R.) The required contribution rates expressed as a percentage of current -year covered payroll, as of December 31, 2004, were as follows: Employer' Employee State LEOFF PLAN 1 0.19% 0.00% N/A LEOFF PLAN II 4.39%"' 6.99% 2/9% ' The employer rates include the employer administrative expense fee currently set at 0.19%. "The employer rate for ports and universities is 528%. Both the City and the employees made the required contributions. The City's required con- tributions for the years ending December 31 were as follows: 2005 2004 2003 LEOFF PLAN 1 $1,594 1,692 1,915 LEOFF PLAN II 9528,585 411,645 354,120 C. OTHER RETIREMENT SYSTEMS — VOLUNTEER FIRE FIGHTERS' RELIEF AND PENSION FUND The Volunteer Fire Fighters' Relief and Pension Fund System is a cost-sharing multiple - employer retirement system which was created by the Legislature in 1945 under Chapter 41.16 RCW. It provides pension, disability and survivor benefits. Membership in the system requires service with a fire department of an electing municipality of Washington State except those covered by LEOFF. The system is funded through member contributions of $30 per year; employer contributions of $30 per year; and forty -percent of the Fire Insurance Premium Tax; and earnings from the investment of moneys by the Washington State Investment Board. However, members may elect to withdraw their contribution upon termination. D. FIREMEN'S PENSION The City has a single employer, defined benefit pension plan for Firefighters employed prior to March 1, 1970 and governed by Washington State Law RCW 41.26. Under the terms of the governing law, the pension member is entitled to payment from the City's pension plan for those benefits in excess of those calculated under the LEOFF plan. The City's Firemen's Pension Fund is a closed group. No new members are permitted. Employees attaining the age of fifty who have completed 25 or more years of service are entitled to annual benefits of fifty -percent of their salary plus an additional two -percent for each year of service in excess of 25 years — up to a maximum of sixty -percent of salary. The pension plan also provides death and disability pension benefits plus sick benefits for eligible active and retired employees. If the employee terminates his employment with the Fire Department and is not eligible for any other benefit under the Firemen's Pension, the employee is entitled to the following: • Return of accumulated contributions less any benefits paid. • When a Firefighter would have had 25 -years of service, two -percent of salary for each year of service. Comprehensive Annual Financial Report (C.A.F.R.) — 69 Firefighters are no longer required to contribute to the Firemen's Pension. The City is required to contribute the amount necessary to fund the Firemen's Pension, using the aggregate projected benefit method. Under state law, partial funding of the Firemen's Pension Fund may be provided by an annual tax levy of up to $.45 per $1,000 of assessed valuation of all taxable property of the City. The Firemen's Pension Fund also receives a proportionate share of the 25 percent of the tax on fire insurance premiums set aside by the state for all paid firemen in the state. Additional funding is provided by investment interest earnings. During the year ended December 31, 2005, there were no plan amendments. CONTRIBUTIONS REQUIRED AND CONTRIBUTIONS MADE The City's funding policy is to provide for periodic employer contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are designed to accumulate sufficient assets to pay benefits when due. The required contributions are determined using an aggregate projected benefit funding method with the annual cost increasing six -percent per year over the period ending December 31, 2012. Under this method, the normal cost is a portion of the actuarial present value of benefits allocated to a valuation year. The actuarial accrued liability is equal to the actuarial value of assets. (Thus, there is no unfunded actuarial accrued liability under this method.) Significant actuarial assumptions used to compute contribution requirements were the same as those used to compute the standardized measure of the pension benefit obligation. E. POLICE PENSION The City has a single employer, defined benefit pension plan for Police Officers employed prior to March 1, 1970 and governed by Washington State Law RCW 41.20 and 4126. Under the governing law, the pension member is entitled to payment from the City's pension plan for those benefits in excess of those calculated under the LEOFF plan. The City also covers four members who were ineligible under the State Law Enforcement Officers and Fire Fighters (LEOFF) Program. The City's Police Pension Fund is a closed group. No new members are permitted. Employees who have completed 25 years or more of service are entitled to annual benefits of 50% of their salary plus an additional 2% for each year of service in excess of 25 years — up to a maximum of 60% of salary. The plan provides death and disability pension benefits plus sick benefits for eligible active and retired employees. If the employee terminates his employment with the Police Department and is not eligible for any other benefit under the Police Pension, the employee is entitled to the following: • Return of 75% of contributions made after June 8, 1955, less any benefits paid. • When Police Officer would have had 25 years of service, 2% of salary for each year of service. 70 - Comprehensive Annual Financial Report (C.A.F.R.) Plan members are no longer required to contribute to the Police Pension. The City is operating on a pay-as-you-go basis. During the year ended December 31, 2005, there were no plan amendments. CONTRIBUTIONS REQUIRED AND CONTRIBUTIONS MADE The Police Pension is a department within the General Fund. The City engaged Millimart U.S.A., Consultant ie Actuaries, to pert:orm the pension's actuarial study They issued a valuation dated Janu. ary 1, 2003. The valuation provided actuarially determined rates to accumulate sufficient assets to pay benefits when due rather than the current pay-as-you-go basis. The required contributions are determined using an aggregate projected benefit method with the annual cost increasing six -percent per year over the period ending December 31, 2012. Fire Pension Fbhce Pension SUMMARY OF FIREMEN'S PENSION AND POLICE PENSION SCHEDULE OF FUNDING PROGRESS DECEMBER 31, 2005 UNFUNDED ,ACTUARIAL UAAL AS A ACTUARIAL ACTUARIAL ACCRUED PERCENTAGE VALUATION VALUE ACCRUED LIABILITIES FUNDED COVERED COVERED DATE OF ASSETS LIABILITIES (UAAL) RATIO PAYROLL PAYROLL 1/1/98 '169,599 $10,445,000 810,375,401 0.67% $270,000 3842.749, 1/1/03 557,889 8,520,000 7,862,111 77.729, 0 0.00% 1/1/98 0 8,277,000 8,277000 0.00% 264,000 3135.2:1 1/1/03 0 8,154,000 8,154,000 0.00% 0 0.00% NOTE 6 — SELF-INSURANCE FUNDS The City maintains Reserve Fund;: to provide for self-insurance coverage in the areas of Unemployment Compensation, Medical/Dental coverage, and Workers' Compensation. In addition, the City maintains a Risk. Management Fund to provide for property, liability, and other coverage. A. UNEMPLOYMENT COMPENSATION I.n 1978, the City of Yakima established an Unemployment Compensation Reserve Fund to provide unemployment compensation coverage for its employees, and thereby elected to participate with the State of Washington in a cost -reimbursement instead of monthly premium program. In doing so, the City retained its right to appeal awards and determin- ations made by the State Department of Employment Security. The City has contracted with Talx Corporation UC'eXpress to represent the City in appeal hearings, and to provide audit) of state awards. The State of Washington invoices the City on a quarterly basis for reimbursement of claims which represent payment of unemployment compensation and related administrative costs. Resources accrue to the Unemployment Compensation Reserve Fund through Comprehensive Annual Financial Report (C.A.F..R.) — 71 monthly charges made to each Operating Fund based on employee earnings. Normal accrual rates have been between .5 and .75 percent of gross payroll, while costs under the monthly premium program would have been approximately three -percent of payroll. The City has achieved considerable savings. Interfund premium;; are based primarily upon the ir.sured funds claims experience and are reported as quasi-exte mal interfund transactions, a total for 2005 of $167,628. Incurred but not reported claims of $31,142 have been accrued as a liability. B. SELF-INSURED MEDICAL/DENTAL PROGRAM The City, in August, 1979, self-insured its medical and dental programs for all employees other than temporary employees, employees hired to work less than half-time. The City's Human Resources Office administers the self-insured program and claims payment services are provided by Health Care Management Administration, Inc. Each Operating Fund is charged an accrual amount per covered employee which would otherwise have been paid to an insurance carrier These amounts are determined by the City based upon recommendations made by Fisher Consulting. Factors considered by Fisher Consulting include the amount of claims paid the previous year, increases over prior years, claims administration costs, projected insurance industry inflation rates and the status of the Fund's Reserve. Interfund premiums to the Employee Health Benefit Reserve Fund for 2005 were $6,308,651. Incurred but not reported claims of $1,041,979 have been accrued as a liability. In order to avoid catastrophic losses, the City "reinsures" the program by purchasing insurance known as "stop -loss insurance' Two types of "stcp-loss" insurance are purchased: 1) individual stop -loss; and, 2) aggregate stop -loss, with both provided through Sunlife Insurance Co. Under the individual stop -loss insurance, the City pays the first $150,000 of claims for an individual employee or dependent. Any charges accrued by an individual in excess of $150,000 in a calendar year are thereafter reimbursed by Sunlife, up to a lifetime maximum benefit of $1 million per person. The aggregate stop -loss is designed to protect the City from multiple large claims which may not reach the individual stop -loss attachment point ($150,000). The aggregate stop -loss atl:achment point is calculated by determining the projected amount of claims for the year and adding an additional 25% of that amount (125% of projected claims.) C. WORKERS' COMPENSATION PROGRAM The City self-insured its workers' compensation program for all employees except those covered by the LEOFF I Retirement System in July, 1984. This workers' compensation program provides coverage identical to the state administered workers' compensation pro- gram; however, the City pays only the direct inury-related costs and certain administrative fees. The program is administered by the City's Human Resources Office with claims admin- isi:ration and safety services provided by Ward North America. Each Operating Fund is charged an appropriate accrual amount, per employee, based on rate requirements prescribed by the State of Washing) on. Each year the Reserve Fund is reviewed to determine a contribution rate which provides for an appropriate reserve. Interfund premiums to the Workers' Compensation Fund for 2005 were $1,137,268. Based on the claims manager's estimate, the City has accrued incurred but not reported claims of $576,207 at December 31, 2005. 72 — Comprehensive Annual Financial Report (C. A.F.R.) In order to avoid catastrophic losses, the City "reinsures" the program by purchasing insurance known as "stop -loss" insurance. This insurance is provided through Acordia NW, Inc under a policy purchased from Employers Reinsurance Corporation. Under the individual stop -loss coverage, the City pays the first $500,000 of a claim and the insurance company pays (a) the balance up to $1 million for an individual claim or (b) the balance up to a maximum of $25 million for multiple claims arising from a single incident. D. RISK MANAGEMENT PROGRAM The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. The Risk Management Fund was established in 1986 to account for its risk management program. Resources accrue to the fund through interfund premiums to operating funds for appropriate insurance coverage and the replenishment and building of reserves for potential liability claims. City contributions to the Risk Management Reserve Fund for 2005 were $1,827,012. The fund provides for administration, legal services, and claims adjustment; and for the purchase of property, general liability, and other insurance coverage. Liabilities of the fund are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNRs). The result of the process to estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation, changes in legal doctrines, and damage awards. Accordingly, claims are reevaluated periodically to consider recent claim settlement trends, inflation, and other economic or social factors. The estimate of the claims liability also includes amounts for incremental daim adjustment expenses related to specific claims. Estimated recoveries, for example from subrogation, are another component of the claims liability estimate. Based on these factors, the claims manager's estimate of claims liability at December 31, 2005 is $1,200,000. For many years, the City has been self insured for general liability claims and has purchased excess liability insurance coverage. In 2005 this coverage was provided by Genesis Underwriter Management Company; the coverage was $8 million with a $1 million retention. In late 2005, the City joined an insurance pool and now maintains general liability coverage of $15 million, insured by St. Paul Travelers with a $100,000 deductible. The City also joined the Washington State Transit Insurance Pool (WSTIP) in September 2005. The deductible for the Transit division for this program is $5,000 with $12 million general liability coverage. Changes in the balance of claims liability during 2005 follows: Unpaid Claims, January I Incurred Claims (including IBNRs) Claim Payments (including direct legal costs) Unpaid Claims, December 31 2005 2004 $1,200,000 $1,240,000 1,119,622 1,035,000 (1,119,622) (1,075,000) $1,200,000 $1,200,000 Comprehensive Annual Financial Report (C.A.F.R.) — 73 NOTE 7 — LONG-TERM DEBT AND CAPITAL LEASES The State law provides that debt cannot be incurred in excess of the following percentages of the value of the taxable property of the City. I. General Purpose Without a Vote (includes capital leases) With a Vote II. Utilities Purpose 1I1. Open Space and Parks Facilities Total Legal Limit LIMIT BY SECTION 1.50 1.00% 250% 2.50 2.50 7.50 CUMULATIVE LIMIT 2.505 5.00 7.50 The basic percentages for Section I are the maximum levels of indebtedness those sections may incur. However, utility or parks indebtedness may each exceed 2.50% and reduce the general indebtedness margin. The percentages are applied to the taxable assessed value (regular levies) of $4,169,739,611 resulting in the debt limits, as of December 31, 2005, for the City as follows: Legal Limit Net Outstanding Indebtedness" Margin Available --- WITHOUT A VOTE -- GENERAL GENERAL PURPOSE 1.5% PURPOSE 2.5% WITH A VOTE UTILITIES OPEN SPACE 5.0% & PARKS 7.5% $62546,094 18,464,916 $44,081,178 $104,243,490 20,492,496 $83,750,994 $208,486,980 20,492,496 $187,994,484 • Indebtedness is the outstanding debt less cash, investments, and tax receivables available to redeem debt. $312,730,470 20,492,496 $292,237,974 There have been no material violations of finance -related legal or contractual provisions in any of the funds of the City. All bonded debt of the City is tax-exempt. We believe the City to be in compliance with applicable IRS & SEC regulations. The accompanying schedule of long-term debt provides a listing of the outstanding debt of the City and summarizes the City's debt transactions for 2005. GOVERNMENTAL ACTIVITIES General Obligation Debt: Line of Credit Bonds Total General Obligation Debt Intergovernmental Loans Contractual Agreement -Yakima Co. Special Assessments -Notes Lease Purchase Agreements Unfunded Pension Liability Vacation/Sick Leave Accrual Total Gen. Long -Term Debt Payable LONG-TERM DEBT BALANCE PAYMENTS/ BALANCE AMOUNTS DUE 01/01/2005 ADDITIONS RETIREMENTS 12/31/2005 WITHIN I YEAR $84,569 $0 $20,000 $64,569 $20,000 19,745,528 755,000 1,200,000 19,300,528 1,305,000 19,830,097 755,000 1,220,000 19,365,097 1,325,000 2,915,009 48,286 437,168 2,526,127 438,198 596,441 100,000 128,274 568,167 153,757 53,000 371,075 162,375 261,700 15,982 821,866 0 182,208 639,658 190,702 3,367,806 428,066 0 3,795,872 0 4,673,399 319,322 0 4,992,721 0 $32,257,618 $2,021,749 $2,130,025 $32,149,342 $2,123,639 74 — Comprehensive Annual Financial Report (C.A.F.R.) BALANCE PAYMENTS/ BALANCE AMOUNTS DUE 01/81/2005 ADDITIONS RETIREMENTS 12/31/2005 WITHIN 1 YEAR BUSINESS -TYPE ACTIVITIES Revenue Debt Payable Revenue Bonds $29,675,000 $0 $1,580,000 $28,095,000 $1,645,000 Intergovernmental Loans 8,527,816 1,244,883 743,398 9,029,301 743,398 SLED Loans -Yakima County 0 25,000 0 25,000 4,456 Unamortized Debt Issue Cost/ Premium/Discount/Deferred Amount (46,679) 0 (28,338) (18,341) 0 Total Revenue Debt Payable $38,156_137 $1,269,883 42,295,060 $37,130,960 $2,392,854 TOTAL LONG TERM DEBT $70:113,755 $3 291 632 $4,425,085 $69,280,302 54516,493 A. GENERAL OBLIGATION DEBT General obligation bonds consisr of serial and term bonds, to be retired through the fiscal year ending December 31, 2026. The City levies a special property tax; collects motel/hotel taxes, Business License fees, utility taxes, and receives State sales tax credits for the principal and interest payments due within a fiscal year and provides the amounts in the respective Debt Service Fund. In December 2005, the City issued $755,000; a ten year General obligation Bond with interest rates of 4% for the first 7 years and 4.5% for the last 3 years of the life of the bond. This bond is issued to fund various projects for Parks and Recreation (Kiwanis skate park, aquatic spray toys and a 4th Kiwanis ballfield.) AVERAGE DATE OF OUT- ANNUAL FINAL INTEREST ORIGINAL STANDING DEBT MATURITY RATE ISSUE 12/31/2005 SERVICE Special Property Tax Levy: 2004 Fire Imp. Bonds Ref. 1995 12/01/14 2.0% - 3.5% 2,300,000 $2,235,000 $291,299 IReg. Prop. Tax Levy: G.O. Line of Credit -Paving Pkg. Lot 12/19/08 Variable 104,569 64,569 21,000 2005 Parks Capital Projects 12/01/15 4.0% -4.5% 755,000 755,000 94,313 Total Reg. Prop. Tax Levy 859,569 819,569 Reg. Property Tax Levy/Real Ex. Tax: 1998 Street Overlay Program Bonds 6/01/08 4.0% - 4.5% 1,430,000 500,000 178,015 Motel/Hotel Tax: 1996 Convention Center Exp. Bonds 11/01/07 5.29'7, 6,000,000 455,000 246,475 2004 Conv. Ctr. Exp. Bonds Ref.1996 11/01/19 2.0%-4.2'/ 4,175,000 4,070,000 387,957 Total Motel/Hotel Tax 10,175,000 4,525,000 l'ub. Fac. Dis. (State Sales Tax Credit): 2002 Convention Center Addition 6/01/26 3.0% -5.0% 6,735,000 6,210,000 470,555 Bus. Lic. & Real Estate Excise Tax: 2003 Sundome Expansion 12/01/23 2.34%-4.72% 1,430,528 1,430,528 139,984at Utility Tax 2003 Criminal Justice/I-82 Ref 1994 12/01/13 4.35%-5.25% 4,155,000 3,645,000 $514,889 027,085,097 $19,365,097 CO Beginning in 2007. Comprehensive Annual Financial Report (C.A.F.R.) - 75 B. REVENUE BONDS 'Water/Wastewater/Irrigation revenue bonds consist of serial and term bonds, to be retired through the fiscal year ending December 31, 2034, with the exception of the Apple Tree Bond which will mature September 1, 2041. The App.e Tree Bonds are subordinated debentures and the City shall have no obligation to make any payment into this Apple Tree Bond from any other source other than the Ahtanum coni ection charges. If I he bonds are not fully retired by 2041, the system's obligation to pay dissolves. The Apple Tree Bonds are not parity bonds. The Apple Tree Bonds do not have a lien on System Revenue beyond connection charges frcm inside the project area. The princ:.pal and interest for the water/wastewater parity revenue bonds are provided by the results of operations. AVERAGE DATE OF OUT- ANNUAL FINAL INTEREST ORIGINAL STANDING DEBT MATURITY RATE ISSUE 12/31/2005 SERVICE 1596 Water/Wastewater Revenue Bonds (Refund of 1978 Issue) 12/01/08 4.0%-5.2% 53,31.0,000 51,003,000 $368,173 1998 Water/Wastewater Revenue Bonds (Refund of 1991 Issue) 9/01/11 4.074-4.3% 4,715,000 2,840,000 547,648 1998 Water Revenue Bonds 9/01/18 4.0%-5.0% 3,195,000 2,355,000 243,047 2001 Apple Tree Bond 6/01/41 6.00% 600,000 600,000 N/A 2003 Wastewater Revenue Bonds 11/81/23 2.0%-5.0% 17,555,000 76,180,000 1,397,470 2004 Irrigation Revenue Bonds 9/01/34 2.0%-4.8% 5,215,000 5,120,000 320,256 434590,000 $28,095,000 The following Schedule sets forth revenue debt service requirements to maturity (in thousands), and depicts both bond and intergovernmental loans and contracts. REVENUE DEBT SERVICE BONDED NOTES AND DEBT INTEREST CONTRACTS INTEREST 2006 $1,645 $1,191 $743 462 2007 1,695 1,133 743 55 2008 1,750 1,073 743 413 2009 1,455 1,003 688 41 2010 1,505 952 661 35 2011-2015 6,120 3,991 2,735 96 2016-2020 6,440 2,615 1,062 31 2021-2025 4,590 1,055 483 2 2026-2030 1,155 444 0 0 2031-2035 1,140 140 0 0 $27,495 $13,597 $7,858 $37)1 At December 31, 2005, the City had $2,700,600 in reserved retained earnings for debt service for the enterprise funds. These represent reserve requirements as contained in the various indentures. C. INTERGOVERNMENTAL LOANS AND CONTRACTUAL. AGREEMENTS The City participated in a program administered by the State's Department of Community Development on behalf of the Public Works Board. The program provides financial assistance for general government activities, such as street / bridge improvements, or 76 - Comprehensive Annual Financial Report (C.A.F.R.) proprietary activities, such as water or sewage projects. The City has 21 loans through the Public Works Trust Fund as described in the chart below. REAL ESTATE TRANSFER TAX: PW -86-040 Tieton Dr, 40th Ave to 65th Ave PW -87-002 Nob Hill Overpass PW -5-89-962-0056 Resignalization and Lighting PW -5-89-962-0057 Fruitvale Canal Wasteway Piping PW -5-91-280-071 Fruitvale Canal Wasteway ARTERIAL STREET GAS TAX: PW -5-90-280-050 Tieton Drive, 5th Ave. to 16th Ave. PW -5-91-280-070 N. 1st Avenue, Yakima Ave. to "I" St, PW -5-95-791-052 Fair Avenue Improvements PW -00-691-062 Downtown Yakima Rehab Project GENERAL FUND SALES TAX: CERB Loan t1C95-107 Utilities -Madison Ave. & 8th, "J"St. &8th Sub Total - General Long -Term Debt WASTEWATER OPERATING REVENUE: PW -88-962-54 Treatment Plant Rehabilitation PW -5-92-280-046 Wastewater Collection System Impr. PW -5-93-280-054 Wastewater Facility Rehabilitation PW -5-94-784-049 Wastewater Collection System Impr, PW -5-95-791-053 Headworks/Digester Rehabilitation PW -5-95-791-054 Wastewater Impr. King St Collector PW -01-691-071 Fruitvale Neighborhood Wastewater -Water Project Phase I PW -05-691-064 Fruitvale Neighborhood Wastewater -Water Project Phase II WATER OPERATING REVENUE: PW -5-89-962-0058 Domestic Well and Pumphouse 3% PW -03-027 Naches River Water Trtmnt Plant Impr S% SRF -04-65104-037 Naches River Water Trtmnt Filter Rehab .5% Sub -Total -Revenue Debt INTEREST MATURITY MAXIMUM OUTSTANDING DATE AUTHORIZED 12/31/2005 3% 07/01/2006 $720,000 $37,895 1% 07/01/2007 213,454 20,654 1% 07/01/2009 765,000 168,602 3% 07/01/2009 174,879 25,508 3% 07/01/2011 1,188,000 364,013 3% 07/01/2010 803,157 158,780 1% 07/01/2011 1,155,000 299,826 1 07/01/2015 1,000,000 532,508 1% 06/10/2010 1,180,000 630,238 6% 07/01/2016 425,448 288,104 52,526,128 1 07/01/2008 945,000 166,737 1% 07/01/2012 1,120,000 432,117 1% 07/01/2013 3,221,708 1,364,045 1% 07/01/2014 1,481,000 368,091 1% 07/01/2015 3,030,558 1,633,744 1% 07/01/2015 209,367 116,851 5 07/01/2021 1,466,250 1,242,000 .5% 07/01/2025 2,307,000 461,400 Total Intergovernmental Loans 07/01/2009 07/01/2023 10/01/2025 495,000 2,694500 966,772 109,095 The loans have a term not to exceed twenty years and require 1/19'h of the original principal plus interest to be paid each July lst. These are subordinate to utility systems' parity debt or do not require a full -faith and credit pledge. The City entered into a contractual agreement with Yakima County for financing an agricultural trade and convention facility, the SunDome. The agreement will run over the term of County bonds issued for this purpose. The County issued bonds in the amount of $1,280,000 in 1988, and $3,000,000 in 1989. The City of Yakima is contractually responsible for the repayment of a portion of the issues plus corresponding interest and will make semi-annual payments to the County over the 20 year bond redemption schedule. In 2002, the City entered into a contractual agreement with Yakima County for a Supporting Investments in Economic Development (SIED) Loan for $44,000 to fund public infrastructure improvements related to Cascade Quality Molding. In 2003, the City entered into a contractual agreement with Yakima County for a SIED Loan for $75,000 to fund the Visitor's Center Information Project. In 2005, the City issued a contractual agreement with Yakima County for a SIED loan: $25,000 to fund an eight inch sewer main about 700 feet from Washington Avenue to the Cub Crafters facility at the Yakima Air Terminal and $100,000 to fund North Sixth Avenue improvements 30 foot wide curb and gutter, per side, and a five foot sidewalk on the east side. OUTSTANDING FUNDING SOURCE MATURITY DATE ORIGINAL ISSUE 12/31/2005 1988 Issue Business Licenses 11/1/2007 1989 Issue Real Estate Excise Taxes 11/1/2009 2001 Issue Contracted Assessment 06/1/2011 2003 Issue Hotel/Motel Tax 06/1/2010 2005 issue Contracted Assessment 06/01/2010 2005 Issue Contracted Assessment 06/01/2010 $780,000 781,518 44,000 75,000 25,000 100,000 $1,805,518 $134,062 252,010 28,523 53,571 25,000 100,000 $593,166 The following schedule sets forth the general obligation debt and intergovernmental loans and contracts, debt service requirements including interest, to maturity (in thousands): GENERAL OBLIGATION DEBT SERVICE NOTES AND BONDED DEBT INTEREST CONTRACTS INTEREST 2006 $1,305 $676 $592 $84 2007 1,418 641 566 67 2008 1,465 599 493 49 2009 1,369 576 500 36 2010 1,408 544 384 22 2011-2015 6,330 2,102 525 43 2016-2020 3,400 1,320 34 2 2021-2025 2,150 635 0 0 2026-2026 455 11 0 0 $19,300 $7,104 $3,094 $303 2,425,050 At December 31, 2005, the City had $723,611 available in debt service funds to service the General Obligation Bonds and notes. 710,170 9,029,300 $11555,428 Comprehensive Annual Financial Report (C.A.F.R.) - 77 There are a number of other limitations and restrictions contained in the various bond indentures. The City is in compliance with all significant limitations and restrictions. 78 -Comprehensive Annual Financial Report (C.A.F.R.) D. SPECIAL ASSESSMENT DEBT WITH GOVERNMENTAL COMMITMENT Debt service requirements for special assessment notes are met by assessments levied against property owners. The special assessment debt are notes, that are due as moneys become available from payments on individual assessments. Special assessment debts currently outstanding are as fellows: SPECIAL ASSESSMENT NOTES LID #1053; 02/10/07 Wast;water Alpine Court Installment Note; 9.25% Interest $6,000 LID #1054; 10/01/07 Wastewater South 70th Avenue and Lindgren Drive Installment Note; 9.25% Interest 11,000 LID #1055; 06/05/10 Wastewater North 85th Avenue Wastewater Installment Note; 13.75%Interest 26,500 LID #1056; 12/17/02 Wastewater South 7th, 810, & 9th Av:nue Installment Note, 8.75% Interest 218,200 $261,700 Debt service requirements for special assessment notes/bonds are met by assessments levied against property owners. Pursuant to RCW 35.54, tine City maintains a Local Improvement Guarantee Fund for the purpose of guaranteeing, 02 the extent of the fund, the payments of: its IID bonds. The fund balance at December 31, 2005 of the LID Guarantee Fund totaled $28,079. E. LEASE PURCHASE AGREEMENTS GENERAL CAPITAL ASSETS As part of the City's capital equipment budgeting program, selected items are obtained via lease purchase and municipal lease / deferred purchase plans. Since the leases are financing agreements which transfer ownership to the City at the end of the lease term, the City records the present value of future lease payments as a capital outlay expenditure and as an offset to other financial sources in the year that the asset is received. The present value of payments due in future periods is shown as a liability in the finan.tsal statements and the cost of the asset is recorded in the financial statements. A summary of the leased equipment is detailed below. EQUIPMENT IAS SET Police In -Car Video System Printer/Copier Mobile Wireless Data Network Printer/Copier Total $302,693 62,424 232,862 41,679 $639658 The following is a schedule of the future minimum lease payments under the above capital lease, and the present value of net minimum lease payments at December 31, 2004. FISCAL YEAR 2006 2007 2008 2009 Less: Amount Representing Interest Present Value of Net Minimum Lease Payments $209/148 209,448 209,448 46,378 (35,064) 8639,658 Comprehensive Annual Financial Report (C.A.F. R.) - 79 F. IJNFUNDED PENSION LIABILITIES The City maintains two single employer defined benefit pension plans, Firemen's Pension and Police Pension, which are closed systems covering Firemen and Police Officers hired prior to March 1, 1970. Both plans had their first annual actuarial valuation. as of March 31, 1989, and the required contributions identified to these studies were the basis for recording the unfunded pension liability since 1989. The Police Pension is a department in the General Fund, and is operating on a pay-as-you- go basis. The unfunded pension liability will be adjusted annually by comparing actual expenditures for pension benefits to the actuari ally determined contribution. The City intends to maintain this plan on a pay-as-you-go basis. The liability incurred is $428,066 in 2005, and tie outstanding balance at December 31, 2005 is 53,795,872. The Firemen's Pension is a trust fund, and has as its funding sources a portion of local property taxes, a state tax on fire insurance premiums, and interest income, This fund has an unfunded pension liability of $1,007,694 at December 31, 2005. See Note #6 for additional information on the pension funds. NOTE 8 — CONTINGENCIES The City participates in a number of federal and state assisted programs. These grants are subject to audit: by the grantors or their representatives. Such audits could result in requests for reimbursement to grantor agencies for expenditures disallowed under the terms of the grants. City management believes that such disallowances, if any, will be immaterial. A. SECTION 108 LOAN PROGRAM In 2003, the City was authorized to administer a Housing and Urban Development (HUD) Section 108 Loan program. HUD has authorized the City to lend up to a maximum of $6.945 million in two separate loan pools ($4 million in 2003, and $2.945 million in 2004). These federal loans are available for the purpose of ftnding property rehabilitation for economic development activities that will create new jobs within the target area. As of December 31, 2005, the City has approved all but $75,000 and that remainder was under negotiations. The nature of this program is the City approve.; qualified projects for the loan within HUD guidelines, and acts as a conduit for HUD funds. The loan proceeds flow directly to the ultimate Corporate Borrower. Payments flow from the Corporate Borrower to the City's Custodian and then to HUD. The loans are on ,m amortization schedule from 10 years to 25 years. The HUD contract specifically provides that the loans are not full faith and credit obligations of the City, but instead, future Community Development: Block Grant (C:DBG) allocations are pledged on these loans. The City has entered into agreements to collateralize their position within HUD underwriting guidelines. Additionally, the City has been awarded a $1 million Economic Development Initiative EDI) grant from HUD as a protec don in case of a default. As of December 31, 2005, all of the loans were current, however, one of the loans is currently in default and the City is working with the Corporate Borrowers on a resolution. (The EDI grant can be utilized for past due payments). 80 - Comprehensive Annual Financial Report (C.A.F.R.) B. POTENTIAL LITIGATION On February 15, 2005, Congdon Orchards, Inc. and Congdon Development Company, LLC (Congdon) filed a damage claim with the City alleging Congdon has been wrongfully damaged by Yakima's breaches of contract, negligence, tortuous conduct, breaches of duties, errors and omissions, and other wrongful conduct. Congdon alleged its damages exceeded $21 million and continue. The City believes that the chances of recovery are low. Because of the nature of its activities, the City is subject to certain pending legal actions which arise in the ordinary course of business. The City believes, based on the information presently known, that the ultimate liability for any such legal actions will not be material to the financial position of the City. NOTE 9 — SEGMENT INFORMATION For the purposes of revenue bond debt issuance, the water and wastewater utilities are combined in a single segment (i.e., the System). Therefore, investors in the revenue bonds rely on the revenue generated both activities for repayment. In 2004, the City issued the first $5 million of $10 million revenue bonds authorized for the Irrigation system. The balance will be issued in 2007 or 2008. Investors in these revenue bonds rely solely on the revenue generated from the irrigation utility for repayment. Summary financial information for the System and irrigation utility is presented below. CONDENSED STATEMENT OF NET ASSETS Assets: Current Assets Restricted Assets Capital Assets Total Assets Liabilities: Current Liabilities Noncurrent Liabilities Total Liabilities Net Assets: Invested in Capital Assets, Net of Related Debt Restricted Unrestricted Total Net Assets CONDENSED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Operating Revenues: Charges for Services Other Operating Revenues Total Operating Revenues Operating Expenses: Operations and Maintenance Depreciation Total Operating Expenses Operating Income (Loss) WATER I WASTEWATER IRRIGATION TOTAL $19,679,807 $7,362,931 $2Z042,738 2,665590 35,435 2,701,025 88,071,316 6,091,330 94,162,646 $110,416,713 $13,489,696 $123,906,409 $5,282,075 $477,015 $5,759,090 29,856,801 4,878,526 34,735,327 $35,138,876 55,355,541 $40,494,417 968,430,364 $4,517,567 $72,947,931 2,665,590 35,435 2,701,025 4,181,883 3,581,153 Z763,036 $75,277,837 $8,134,155 $83,411,992 519501,459 $2,433,323 $21,934,782 4,398 1,926 6,324 519505,857 $2,435,249 $21,941,106 $14,245,913 $1,303,908 915549,821 3,576,581 79,179 3,655,760 $17,822,494 $1,383,087 $19,205,581 51,683,363 $1,052,162 52,735,525 Comprehensive Annual Financial Report (C.A.F.R.) — 81 Non -Operating Revenues (Expenses) Miscellaneous Interest (Net) Other Non-operating (Net) Total Non -Operating Revenues (Expenses) Income (Loss) before contributions and Transfers Capital Contributions Transfers (Net) Change in Net Assets Total Net Assets - January I Total Net Assets -December 31 CONDENSED STATEMENT OF CASH FLOWS Net Cash Provided (Used) by: Operating Activities Capital and Related Financing Activities Investing Activities Net Increase (Decrease) Beginning Cash and Cash Equivalents Ending Cash and Cash Equivalents NOTE 10 — JOINT VENTURES WATER I WASTEWATER IRRIGATION TOTAL ($520,211) ($102,914) ($623,125) 441,619 (7,665) 433,954 (578,592) ($110,579) ($189,171) $1,604,771 5941,583 $2,546,354 $2,386,711 $0 $2,386,711 (205,691) (48,750) (254,441) $3,785,791 $892,833 $4,678,624 $71,492,046 57,241,322 578,733,368 575,277,837 $8,134,155 $83,411,992 $5,602,581 $1,151,810 56,754,391 (7,374,049) (1,759,348) (9,133,397) (604,328) (1,164,463) (1,768,791) ($2,375,796) ($1,772,001) ($4,147,797) $9,950,029 $3,634,562 $13,584,591 87574,233 $1,862,561 $9,936,794 The City and the County of Yakima entered into a joint venture for operation of the Yakima Air Terminal on July 1, 1982. The Yakima Air Terminal Board is comprised of five individuals; two appointed by the City, two by the County, and one selected by the four appointees. Annually, the governing bodies of the City and County each designate one of its members as an advisory ex -officio member of the Air Terminal Board. The City and the County contribute equally to the joint venture, share equally all profits and losses, and own jointly, in equal shares, all properties or facilities. The Yakima Air Terminal is presently self-sustaining. We have considered disdosure requirements promulgated in GASB 39 and have elected to continue to disclose the joint venture in a manner consistent with prior years. We feel the effects of the joint venture on the combined Financial statements taken as a whole is immaterial. The Air Terminal budget is approved, amended and/or supplemented by joint resolution of the City and County. Real property acquisition and sale in excess of $50,000 must be approved by both the City and County. Issuance of bonds for Airport purposes by the City or County requires both party's approval. Key financial data for the year ended December 31, 2005, is as follows: 82 — Comprehensive Annual Financial Report (C.A.F.R.) UNAUDITED STATEMENT OF NET ASSETS Assets: Current Assets Property, Plant and Equipment, Net Intangible Assets, Net Constructrm in Progress Total Assets Current Liabilities: Net Assets: Restricted Vet Assets Unrestricted Net Assets Total Net Assets $612,846 8,010,062 217,272 1,439,500 $10,279,680 $135,814 59,551,519 592,347 $10,143,866 UNAUDITED STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS: Total Operas ng Revenues Operating E;.penses: Operations/Maintenance Depreciation Total Operas ng Expenses Total Operas ng Income (Loss) Non-operating Revenues (Expenses) Miscellaneous Interest Revenue Operating Subsidies Other Total Non-cperating Revenues (Expenses) Total Net Income (Loss) Total Net Assets, January 1 Total Net A;sets, December 31 $867,434 897,147 1,268,982 82,166,129 (1,298,695) $14,638 1,153,087 161,260 1,328,985 $30,290 $10,113,575 $10,143,865 Complete financial statements for the Airport can be obtained from the Yakima Air Terminal at 2400 West Washington Avenue, Yakima, WA, 98903. Comprehensive Annual Financial Report (C.A.F.R.) — 83 NOTE II — POST RETIREMENT BENEFITS OTHER THAN PENSION BENEFIT In addition to providing pension benefits, the City provides certain health care (100% of medically necessary costs) and life insurance benefits for retired employees under the City's Firemen's and .Police Pensions as prescribed by state statutes. Current employees under these two pensions become eligible for those benefits if t:1ey reach normal retirement age while working for the City. The cost of retiree health care insurance and life insurance benefits is recognized as an expenditure as claims are paid. Both plans are being funded 100% by the City on a pay-as-you-go basis. For 2005, the costs totalec. $668,873 for the Firemen's .Pension which has a total of 82 participants currently eligible to receive benefits and $642,462 for the Police Pension which has a total of 77 participants currently eligible to receive benefits. NOTE 12 — OTHER DISCLOSURES SUBSEQUENT EVENTS In. April of 2006, citizens voted to annex the City into the Yakima County Rural Library District. This affects the way the City pays for Library services. Instead of an annual contract with the City, the Library District will receive a direct property tax allocation starting in 2007 This annexation will reduce the City's maximum tax rate of $3.60/1,000 by the Libraries actual levy, up to $.50/1,000 84 — Comprehensive Annual Financial Report (C.A.F.R.) CITY OF Required Supplementary Information POLICE AND FIRE PENSION SCHEDULE OF EMPLOYER CONTRIBUTIONS December 31, 2005 POLICE ACTUAL EMPLOYER MEDICAL BENEFIT ANNUAL FISCAL CONTRIBUTIONS PAYMENTS & REQUIRED PERCENTAGE YEAR TAXES & FIRE ADMINISTRATIVE NET EMPLOYER CONTRIBUTION OF ARC ENDING INSURANCE PREMIUMS EXPENSES CONTRIBUTION (ARC) CONTRIBUTED 12/31/99 $1,090,801 $461,309 $629,492 9671522 93.74% 12/31/00 1,147,560 513,778 633,782 671,522 94.38% 12/31/01 933,831 442,878 490,953 671,522 73.11% 12/31/02 991,009 478,769 512,240 671,522 76.28% 12/31/03 1,133,242 561,692 571,550 657,086 8698% 12/31/04 1,287,904 702,241 585,663 657,086 89.13% 12/31/05 1,204,159 644,225 559,934 657,086 85.21% FIRE ACTUAL EMPLOYER MEDICAL BENEFIT ANNUAL FISCAL CONTRIBUTIONS PAYMENTS & REQUIRED PERCENTAGE YEAR TAXES & FIRE ADMINISTRATIVE NET EMPLOYER CONTRIBUTION OF ARC ENDING INSURANCE PREMIUMS EXPENSES CONTRIBUTION (ARC) CONTRIBUTED 12/31/99 $1,221,698 $380,460 $841,238 $840,067 100.14% 12/31/00 1,256,578 445,493 811,085 840,067 96.55% 12/31/01 1,332,816 481,554 851,262 836,095 101.81% 12/31/02 1,325,372 530,732 794,640 836,095 95.04% 12/31/03 1,406,347 639,871 766,476 633,545 12098% 12/31/04 1,425,048 769,426 655,622 633,545 103.48% 12/31/05 1,960,423 706,947 753,476 633,595 118.93%0. Comprehensive Annual Financial Report (C.A.F.R.) - 85