FY 2016 Annual Report
Financial Statements and Federal Single Audit
Report
City of Port Orchard
Kitsap County
For the period January 1, 2016 through December 31, 2016
Published September 14, 2017
Report No. 1019802
Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 Pat.McCarthy@sao.wa.gov
September 14, 2017
Mayor and City Council
City of Port Orchard
Port Orchard, Washington
Report on Financial Statements and Federal Single Audit
Please find attached our report on the City of Port Orchard’s financial statements and compliance
with federal laws and regulations.
We are issuing this report in order to provide information on the City’s financial condition.
Sincerely,
Pat McCarthy
State Auditor
Olympia, WA
Office of the Washington State Auditor
Pat McCarthy
TABLE OF CONTENTS
Schedule Of Findings And Questioned Costs ................................................................................. 4
Schedule Of Federal Award Findings And Questioned Costs ........................................................ 6
Independent Auditor’s Report On Internal Control Over Financial Reporting And On
Compliance And Other Matters Based On An Audit Of Financial Statements Performed In
Accordance With Government Auditing Standards ....................................................................... 9
Independent Auditor’s Report On Compliance For Each Major Federal Program And Report
On Internal Control Over Compliance In Accordance With The Uniform Guidance .................. 11
Independent Auditor’s Report On Financial Statements .............................................................. 14
Financial Section ........................................................................................................................... 17
Corrective Action Plan For Findings Reported Under Uniform Guidance .................................. 94
About The State Auditor’s Office ................................................................................................. 95
Washington State Auditor's Office
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SCHEDULE OF FINDINGS AND QUESTIONED COSTS
City of Port Orchard
Kitsap County
January 1, 2016 through December 31, 2016
SECTION I – SUMMARY OF AUDITOR’S RESULTS
The results of our audit of the City of Port Orchard are summarized below in accordance with
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements,
Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).
Financial Statements
We issued an unmodified opinion on the fair presentation of the financial statements of the
governmental activities, the business-type activities, each major fund and the aggregate
remaining fund information in accordance with accounting principles generally accepted in the
United States of America (GAAP).
Internal Control over Financial Reporting:
Significant Deficiencies: We reported no deficiencies in the design or operation of
internal control over financial reporting that we consider to be significant deficiencies.
Material Weaknesses: We identified no deficiencies that we consider to be material
weaknesses.
We noted no instances of noncompliance that were material to the financial statements of the
City.
Federal Awards
Internal Control over Major Programs:
Significant Deficiencies: We identified deficiencies in the design or operation of internal
control over major federal programs that we consider to be significant deficiencies.
Material Weaknesses: We identified no deficiencies that we consider to be material
weaknesses.
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We issued an unmodified opinion on the City’s compliance with requirements applicable to its
major federal program.
We reported findings that are required to be disclosed in accordance with 2 CFR 200.516(a).
Identification of Major Federal Programs:
The following program was selected as a major program in our audit of compliance in
accordance with the Uniform Guidance.
CFDA No. Program or Cluster Title
20.205 Highway Planning and Construction
The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by
the Uniform Guidance, was $750,000.
The City qualified as a low-risk auditee under the Uniform Guidance.
SECTION II – FINANCIAL STATEMENT FINDINGS
None reported.
SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED
COSTS
See finding 2016-001.
Washington State Auditor's Office
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SCHEDULE OF FEDERAL AWARD FINDINGS AND
QUESTIONED COSTS
City of Port Orchard
Kitsap County
January 1, 2016 through December 31, 2016
2016-001 The City did not have proper internal controls in place to ensure
compliance with federal procurement requirements.
CFDA Number and Title: 20.205 Highway Planning and
Construction
Federal Grantor Name: Department of Transportation Federal
Highway Administration
Federal Award/Contract Number: NA
Pass-through Entity Name: Washington State Department of
Transportation
Pass-through Award/Contract
Number:
LA-5855/6165
STPH-6610(004)/0166(008)
Questioned Cost Amount: $0.00
Description of Condition
The City spent $764,911 in Highway Planning and Construction funds in 2016 for
the Bay Street Pedestrian Path and Tremont Street Widening projects.
Federal grant regulations require recipients to follow the more restrictive of state
or federal bid laws. Federal procurement requirements are more restrictive and
require either sealed bids or a competitive proposals process be used for personal
service contracts (e.g. consultants) over the simplified acquisition threshold,
which was $100,000 when these funds were spent.
The Public Works Department invited four companies from the Municipal
Research and Services Center of Washington’s website to submit proposals for
the personal service contract but did not publicize a request for proposals. In
addition, the City did not consider price when evaluating the proposals. The City
awarded a personal service contract totaling $207,461 in 2013, of which $53,142
was paid in 2016.
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The City did not have a process in place to ensure personal services were
procured properly. We consider this deficiency in internal controls to be a
significant deficiency.
This issue was not identified or reported in the prior audit.
Cause of Condition
City staff did not understand federal requirements regarding procurement of
personal services.
Effect of Condition and Questioned Costs
Without adhering to the requirements for competitive procurement, the City
cannot be sure it selected the most qualified firm, allowed for full and open
competition or solicited the best price. However, because the expenditures for the
services were allowable under the federal program, we are not questioning these
costs.
Recommendation
We recommend the City strengthen its internal controls to ensure contracts
awarded with federal funds meet federal procurement requirements.
City’s Response
Port Orchard wishes to thank the State Auditor’s Office for the opportunity to
respond to the finding that the City did not have proper internal controls in place
to ensure compliance with federal procurement requirements. The City recognizes
the seriousness of the finding and pledges its utmost efforts and resources in
correcting the condition.
The City is an active participant in federal grant applications and when
successful receives federal grants proceeds for transportation, law enforcement,
water sewer and storm drainage utilities, and other worthwhile public benefits.
The City awarded a service contract in 2013 under guidelines that resulted in
federal grant expenditures identified as problematic.
The City began corrective action to improve procurement processes in December
2016 with the adoption of Ordinance No. 86-16 setting forth standards of conduct
and written procedures in accordance with the Code of Federal Regulations.
Based upon language in Ordinance No. 86-16 the City conducted a 90 day
multidepartment review and study of procurement requirements. Recognizing
that former processes were deficient staff recommended changes to procurement
policies and procedures to meet federal and state procurement regulations. The
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City Council was presented and adopted Procurement Policies and Procedures
dated March 31, 2017 superseding the City’s incorrect 2013 procurement
guidelines.
The new policies established guidelines to assure meeting Federal Code
procurement requirements and the Revised Code of Washington. The policy
identifies a procurement officer to ensure products and services are within bid
specifications consistent with City policy, federal regulations, and state law.
Corrective action include written policy and procedures; continuing education
and staff training; and the assignment of an employee as procurement officer with
strong department support.
Auditor’s Remarks
We appreciate the steps the City is taking to resolve this issue. We will review
the condition during our next audit.
Applicable Laws and Regulations
U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States
and Local Governments, and Nonprofit Organizations, Subpart C, Section 300,
was the requirement at the time of the procurement that established the auditees
responsibility for its federal awards, including maintaining internal control to
ensure compliance with laws, regulations, and the provisions of contracts or grant
agreements.
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative
Requirements, Cost Principles, and Audit Requirements for Federal Awards
(Uniform Guidance), section 516, Audit findings, establishes reporting
requirements for audit findings.
U.S. Office of Management and Budget Circular A-102, Uniform Administrative
Requirements for Grants and Cooperative Agreements with State and Local
Governments, Section .36 was the requirement at the time of the procurement that
established the auditees responsibilities for procuring personal service contracts,
including publicizing and using price as a factor for non-A&E services.
The American Institute of Certified Public Accountants defines significant
deficiencies and material weaknesses in its Codification of Statements on
Auditing Standards, section 935, Compliance Audits, paragraph 11.
Washington State Auditor's Office
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INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING AND ON COMPLIANCE AND
OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL
STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS
City of Port Orchard
Kitsap County
January 1, 2016 through December 31, 2016
Mayor and City Council
City of Port Orchard
Port Orchard, Washington
We have audited, in accordance with auditing standards generally accepted in the United States
of America and the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States, the financial statements of the
governmental activities, the business-type activities, each major fund and the aggregate
remaining fund information of the City of Port Orchard, Kitsap County, Washington, as of and
for the year ended December 31, 2016, and the related notes to the financial statements, which
collectively comprise the City’s basic financial statements, and have issued our report thereon
dated September 6, 2017.
INTERNAL CONTROL OVER FINANCIAL REPORTING
In planning and performing our audit of the financial statements, we considered the City’s
internal control over financial reporting (internal control) to determine the audit procedures that
are appropriate in the circumstances for the purpose of expressing our opinions on the financial
statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s
internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s
internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent, or detect and correct, misstatements on a timely basis. A material weakness is a
deficiency, or a combination of deficiencies, in internal control such that there is a reasonable
possibility that a material misstatement of the City's financial statements will not be prevented,
or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a
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combination of deficiencies, in internal control that is less severe than a material weakness, yet
important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph
of this section and was not designed to identify all deficiencies in internal control that might be
material weaknesses or significant deficiencies. Given these limitations, during our audit we did
not identify any deficiencies in internal control that we consider to be material weaknesses.
However, material weaknesses may exist that have not been identified.
COMPLIANCE AND OTHER MATTERS
As part of obtaining reasonable assurance about whether the City’s financial statements are free
from material misstatement, we performed tests of the City’s compliance with certain provisions
of laws, regulations, contracts and grant agreements, noncompliance with which could have a
direct and material effect on the determination of financial statement amounts. However,
providing an opinion on compliance with those provisions was not an objective of our audit, and
accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance or other matters that are
required to be reported under Government Auditing Standards.
PURPOSE OF THIS REPORT
The purpose of this report is solely to describe the scope of our testing of internal control and
compliance and the results of that testing, and not to provide an opinion on the effectiveness of
the City’s internal control or on compliance. This report is an integral part of an audit performed
in accordance with Government Auditing Standards in considering the City’s internal control and
compliance. Accordingly, this communication is not suitable for any other purpose. However,
this report is a matter of public record and its distribution is not limited. It also serves to
disseminate information to the public as a reporting tool to help citizens assess government
operations.
Pat McCarthy
State Auditor
Olympia, WA
September 6, 2017
Washington State Auditor's Office
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INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR
EACH MAJOR FEDERAL PROGRAM AND REPORT ON
INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE
WITH THE UNIFORM GUIDANCE
City of Port Orchard
Kitsap County
January 1, 2016 through December 31, 2016
Mayor and City Council
City of Port Orchard
Port Orchard, Washington
REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL
PROGRAM
We have audited the compliance of the City of Port Orchard, Kitsap County, Washington, with
the types of compliance requirements described in the U.S. Office of Management and Budget
(OMB) Compliance Supplement that could have a direct and material effect on each of the City’s
major federal programs for the year ended December 31, 2016. The City’s major federal
programs are identified in the accompanying Schedule of Findings and Questioned Costs.
Management’s Responsibility
Management is responsible for compliance with federal statutes, regulations, and the terms and
conditions of its federal awards applicable to its federal programs.
Auditor’s Responsibility
Our responsibility is to express an opinion on compliance for each of the City’s major federal
programs based on our audit of the types of compliance requirements referred to above. We
conducted our audit of compliance in accordance with auditing standards generally accepted in
the United States of America; the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States; and the
audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative
Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform
Guidance). Those standards and the Uniform Guidance require that we plan and perform the
audit to obtain reasonable assurance about whether noncompliance with the types of compliance
requirements referred to above that could have a direct and material effect on a major federal
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program occurred. An audit includes examining, on a test basis, evidence about the City’s
compliance with those requirements and performing such other procedures as we considered
necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each
major federal program. Our audit does not provide a legal determination on the City’s
compliance.
Opinion on Each Major Federal Program
In our opinion, the City complied, in all material respects, with the types of compliance
requirements referred to above that could have a direct and material effect on each of its major
federal programs for the year ended December 31, 2016.
REPORT ON INTERNAL CONTROL OVER COMPLIANCE
Management of the City is responsible for establishing and maintaining effective internal control
over compliance with the types of compliance requirements referred to above. In planning and
performing our audit of compliance, we considered the City’s internal control over compliance
with the types of requirements that could have a direct and material effect on each major federal
program in order to determine the auditing procedures that are appropriate in the circumstances
for the purpose of expressing an opinion on compliance for each major federal program and to
test and report on internal control over compliance in accordance with the Uniform Guidance,
but not for the purpose of expressing an opinion on the effectiveness of internal control over
compliance. Accordingly, we do not express an opinion on the effectiveness of the City's
internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control
over compliance does not allow management or employees, in the normal course of performing
their assigned functions, to prevent, or detect and correct, noncompliance with a type of
compliance requirement of a federal program on a timely basis. A material weakness in internal
control over compliance is a deficiency, or combination of deficiencies, in internal control over
compliance, such that there is a reasonable possibility that material noncompliance with a type of
compliance requirement of a federal program will not be prevented, or detected and corrected, on
a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a
combination of deficiencies, in internal control over compliance with a type of compliance
requirement of a federal program that is less severe than a material weakness in internal control
over compliance, yet important enough to merit attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in
the first paragraph of this section and was not designed to identify all deficiencies in internal
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control over compliance that might be material weaknesses or significant deficiencies and
therefore, material weaknesses or significant deficiencies may exist that were not identified. We
did not identify any deficiencies in internal control over compliance that we consider to be
material weaknesses. However, we identified certain deficiencies in internal control over
compliance, as described in the accompanying Schedule of Federal Award Findings and
Questioned Costs as Finding 2016-001 that we consider to be a significant deficiency.
City’s Response to Findings
The City's response to the internal control over compliance findings identified in our audit is
described in the accompanying Schedule of Federal Award Findings and Questioned Costs. The
City's response was not subjected to the auditing procedures applied in the audit of compliance
and, accordingly, we express no opinion on the response.
Purpose of this Report
The purpose of this report on internal control over compliance is solely to describe the scope of
our testing of internal control over compliance and the results of that testing based on the
requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other
purpose. However, this report is a matter of public record and its distribution is not limited. It
also serves to disseminate information to the public as a reporting tool to help citizens assess
government operations.
Pat McCarthy
State Auditor
Olympia, WA
September 6, 2017
Washington State Auditor's Office
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INDEPENDENT AUDITOR’S REPORT ON
FINANCIAL STATEMENTS
City of Port Orchard
Kitsap County
January 1, 2016 through December 31, 2016
Mayor and City Council
City of Port Orchard
Port Orchard, Washington
REPORT ON THE FINANCIAL STATEMENTS
We have audited the accompanying financial statements of the governmental activities, the
business-type activities, each major fund and the aggregate remaining fund information of the
City of Port Orchard, Kitsap County, Washington, as of and for the year ended December 31,
2016, and the related notes to the financial statements, which collectively comprise the City’s
basic financial statements as listed on page 17.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with accounting principles generally accepted in the United States of America; this
includes the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
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statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the City’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the City’s internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinions.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects,
the respective financial position of the governmental activities, the business-type activities, each
major fund and the aggregate remaining fund information of the City of Port Orchard, as of
December 31, 2016, and the respective changes in financial position and, where applicable, cash
flows thereof, and the budgetary comparison for the General fund, for the year then ended in
accordance with accounting principles generally accepted in the United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
management’s discussion and analysis on pages 19 through 27, information on postemployment
benefits other than pensions on page 80 and pension plan information on pages 81 through 89 be
presented to supplement the basic financial statements. Such information, although not a part of
the basic financial statements, is required by the Governmental Accounting Standards Board who
considers it to be an essential part of financial reporting for placing the basic financial statements
in an appropriate operational, economic or historical context. We have applied certain limited
procedures to the required supplementary information in accordance with auditing standards
generally accepted in the United States of America, which consisted of inquiries of management
about the methods of preparing the information and comparing the information for consistency
with management’s responses to our inquiries, the basic financial statements, and other
knowledge we obtained during our audit of the basic financial statements. We do not express an
opinion or provide any assurance on the information because the limited procedures do not
provide us with sufficient evidence to express an opinion or provide any assurance.
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Supplementary and Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that
collectively comprise the City’s basic financial statements. The accompanying Schedule of
Expenditures of Federal Awards is presented for purposes of additional analysis as required by
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements,
Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). This
schedule is not a required part of the basic financial statements. Such information is the
responsibility of management and was derived from and relates directly to the underlying
accounting and other records used to prepare the basic financial statements. The information has
been subjected to the auditing procedures applied in the audit of the basic financial statements
and certain additional procedures, including comparing and reconciling such information directly
to the underlying accounting and other records used to prepare the basic financial statements or
to the basic financial statements themselves, and other additional procedures in accordance with
auditing standards generally accepted in the United States of America. In our opinion, the
information is fairly stated, in all material respects, in relation to the basic financial statements
taken as a whole.
OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING
STANDARDS
In accordance with Government Auditing Standards, we have also issued our report dated
September 6, 2017 on our consideration of the City’s internal control over financial reporting
and on our tests of its compliance with certain provisions of laws, regulations, contracts and
grant agreements and other matters. The purpose of that report is to describe the scope of our
testing of internal control over financial reporting and compliance and the results of that testing,
and not to provide an opinion on internal control over financial reporting or on compliance. That
report is an integral part of an audit performed in accordance with Government Auditing
Standards in considering the City’s internal control over financial reporting and compliance.
Pat McCarthy
State Auditor
Olympia, WA
September 6, 2017
Washington State Auditor's Office
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FINANCIAL SECTION
City of Port Orchard
Kitsap County
January 1, 2016 through December 31, 2016
REQUIRED SUPPLEMENTARY INFORMATION
Management’s Discussion and Analysis – 2016
BASIC FINANCIAL STATEMENTS
Statement of Net Position – 2016
Statement of Activities – 2016
Balance Sheet – Governmental Funds – 2016
Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental
Funds – 2016
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance
of Governmental Funds to the Statement of Activities – 2016
Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and
Actual – General Fund – 2016
Statement of Net Position – Proprietary Funds – 2016
Statement of Revenues, Expenses and Changes in Fund Net Position – Proprietary Funds
– 2016
Statement of Cash Flows – Proprietary Funds – 2016
Statement of Fiduciary Net Position – Fiduciary Funds – 2016
Notes to Financial Statements – 2016
REQUIRED SUPPLEMENTARY INFORMATION
LEOFF 1 Retiree Medical Benefits Schedule of Funding Progress – 2016
Schedule of Proportionate Share of the Net Pension Liability PERS 1 – 2016
Schedule of Proportionate Share of the Net Pension Liability PERS 2/3 – 2016
Schedule of Proportionate Share of the Net Pension Liability LEOFF 1 – 2016
Schedule of Proportionate Share of the Net Pension Liability LEOFF 2 – 2016
Schedule of Employer Contributions PERS 1 – 2016
Schedule of Employer Contributions PERS 2/3 – 2016
Schedule of Employer Contributions LEOFF 1 – 2016
Schedule of Employer Contributions LEOFF 2 – 2016
Notes to Required Supplemental Information – Pension – 2016
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SUPPLEMENTARY AND OTHER INFORMATION
Schedule of Expenditures of Federal Awards – 2016
Notes to the Schedule of Expenditures of Federal Awards – 2016
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MANAGEMENT’S DISCUSSION AND ANALYSIS
The City of Port Orchard's discussion and analysis is a narrative overview of the City's financial activities for the fiscal year ended December 31, 2016. The information presented here should be read
in conjunction with the financial statements and notes to the financial statements that follow.
FINANCIAL HIGHLIGHTS
• City of Port Orchard assets exceeded its liabilities at December 31, 2016 by $92.4 million.
• Net investment in capital assets account for about 75 percent of this amount, with a value of
$69.0 million.
• Of the remaining net position, $19.4 million may be used to meet the government's ongoing
obligations to citizens and creditors, without legal restriction while $4.0 million is restricted.
• The government’s total net position shows an increase of $5,100,095. The increase is due to
reserve funds set aside per the City’s financial policy and increases in proprietary funds charges for services.
• As of December 31, 2016, City of Port Orchard’s governmental funds reported combined ending
fund balances of 8.2 million. Approximately 29.2% of this amount is available for spending at
the government's discretion. Unassigned fund balance is $2,376,884, assigned fund balance is $1,426,989, committed fund balance $779,822 and restricted fund balance $3,573,007.
• City of Port Orchard’s total bonded debt decreased by $195,714 during the fiscal year. At
December 31, 2016 the total outstanding bonded debt was $631,789.
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis provides an introduction and overview to the City of Port Orchard’s basic
financial statements. This information will assist users in interpreting the basic statements. We will also
provide other supplementary information in addition to the basic financial statements. This financial
discussion and analysis should assist the reader in understanding the City’s financial condition. 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. The financial section
of this report also contains required supplementary information, in addition to the basic financial statements.
Government Wide Financial Statements
Government-wide financial statements provide readers with a broad overview of the City’s finances in a
manner similar to a private-sector business, distinguishing functions that are principally supported by taxes and intergovernmental revenues (referred to as "governmental activities") from functions that are
intended to recover all or a significant portion of their costs through user fees and charges (referred to as
"business-type activities"). The governmental activities of the City include a full range of local
government services provided to the public, such as law enforcement and public safety; road
construction and maintenance; community planning and development; parks and recreation facilities; and other community services. In addition, other general government services are provided, such as, tax
collection, and the issuance of permits and licenses. The business-type activities of the City include
water, sewer and storm utility management and operation.
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The Statement of Net Position presents information on all of the City’s assets, deferred outflows, liabilities and deferred inflows, with the difference between them reported as net position. This
statement serves a purpose similar to that of the balance sheet of a private-sector business. Over time,
increases or decreases in net position may serve as one indicator of whether the financial position of the
City is improving or deteriorating. 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 position changed
during 2016. This statement 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). This shows the extent each program relies on taxes
for funding. All changes in net position are reported using the accrual basis of accounting, which
requires that revenues be reported when they are earned and expenses are reported when the goods and
services are received. Items such as uncollected taxes, unpaid vendor invoices for items received in
2016, 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 was not received or distributed in 2016.
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, like other state and local governments, uses fund accounting for compliance with finance-related legal requirements. All of the funds of the City fall
into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds
account for most, if not all, of a government's tax-supported activities. Proprietary funds 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 account for resources that are held by the government as an agent for parties outside of the government. The
resources of fiduciary funds cannot be used to support the government's own programs.
Governmental Funds
The governmental funds balance sheet and the governmental funds statement of revenues, expenditures, and changes in fund balances present separate columns of financial data for the General Fund, and the
Street Capital Projects Fund. These are considered major funds. Data from the remaining governmental
funds are combined into a single, aggregated presentation. Governmental funds are used to account for
essentially the same functions reported as governmental activities in the government-wide financial
statements. Governmental funds financial statements focus 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 funds financial statements is narrower than that of government-wide financial statements accrual basis focus, it is useful to compare information presented for governmental
funds with similar information presented for governmental activities in the government-wide financial
statements. This gives readers a better understanding of the long-term impact of the government's
near-term financing decisions. Both the Governmental Funds Balance Sheet and the Governmental
Funds Statement of Revenues, Expenditures, and Changes in Fund Balances provide reconciliation to the Governmental Activities column in the Government-Wide statements, facilitating this comparison.
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The City maintains budgetary controls over its operating funds. Budgetary controls ensure compliance
with legal provisions embodied in the annual appropriated budget. Governmental funds budgets are
established in accordance with state law, and are adopted on a fund level. Personnel services are
budgeted by position and by prorating the costs based on time allocation to the various funds.
Budgetary variances are discussed later in this section.
Proprietary Funds
The City has two proprietary funds also known as enterprise funds. Enterprise funds are used to report
the same functions presented as business-type activities in the government-wide financial statements.
The City uses one enterprise fund to account for its water and sewer utilities operation. The City also has a Storm Drainage Utility Fund. Proprietary fund statements 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 position to the business-type column on
the government-wide statement of net position, the total net position agree, and therefore need no
reconciliation.
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 funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds.
Notes to the Financial Statements
The notes provide additional information that is essential to a full understanding of the data provided,
and are an integral part of the government-wide and fund financial statements.
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GOVERNMENT-WIDE FINANCIAL ANALYSIS
Statement of Net Position
As noted earlier, changes in net position may serve as a useful indicator of a government's financial
position. The City of Port Orchard's net position total $92,423,849 at December 31, 2016. The following is a condensed version of the government-wide statement of net position.
Governmental Governmental Business-Type Business-Type Total Total
Activities Activities Activities Activities Activities Activities
2016 2015 2016 2015 2016 2015
Current and other assets $10,090,456 $9,751,963 $18,941,917 $17,107,333 $29,032,373 $26,859,296
Capital assets 28,833,605 26,191,593 41,949,377 41,074,030 70,782,982 67,265,623
Total assets 38,924,061 35,943,556 60,891,294 58,181,363 99,815,355 94,124,919
Deferred Outflows related to Pension 654,269 337,598 229,760 126,489 884,029 464,087
Total deferred outflows of resources 654,269 337,598 229,760 126,489 884,029 464,087
Long-Term liabilities 3,974,559 3,575,915 2,652,735 2,202,389 6,627,294 5,778,304
Liabilities Payable from Restricted Assets 211,092 42,896 211,092 42,896
Other liabilities 662,277 371,407 710,515 418,802 1,372,792 790,209
Total liabilities 4,847,928 3,990,218 3,363,250 2,621,191 8,211,178 6,611,409
Deferred Inflows related to Pension 38,567 486,833 22,088 154,688 60,655 641,521
Deferred Amount on Refunding 3,274 4,540 428 593 3,702 5,133
Total deferred inflows of resources 41,841 491,373 22,516 155,281 64,357 646,654
Net Position
Invested in capital assets net of related debt 28,369,122 25,582,972 40,664,855 40,010,762 69,033,977 65,593,734
Restricted 4,003,873 3,898,692 0 0 4,003,873 3,898,692
Unrestricted 2,315,566 2,317,899 17,070,433 15,513,429 19,385,999 17,831,328
Total net position $34,688,561 $31,799,563 $57,735,288 $55,524,191 $92,423,849 $87,323,755
The largest portion of the City’s net position (74.7 percent) reflects its investment in capital, less any
related debt used to acquire those assets that is still outstanding. The City's capital assets are used to provide services to citizens. Consequently the value of these assets are not available for future spending. Of the remaining balance, 4,003,873 is restricted and $19,385,999 (unrestricted net position) represents
the amount that may be used to meet the City’s ongoing obligations.
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At December 31, 2016, the City of Port Orchard reports positive balances in the three categories of net position, for the government as a whole, as well as for separate governmental and business-type
activities.
Statement of Activities
In 2016, the City’s total net position increased by $5,100,094. The governmental net position increased $2,888,998 and business-type activities increased $2,211,096.
The following is a condensed version of the statement of activities for the City. The full statement is a
tabular depiction of the relationship of revenues and expenses for the City’s governmental activities and
proprietary funds.
Governmental
Activities
Business-type
Activities
Total Primary
Government Revenues: 2016 2015 2016 2015 2016 2015
Program revenues:
Charges for services $1,587,381 $1,627,597 $7,846,400 $6,633,891 $9,433,781 $8,261,488
Operating grants & contributions 768,998 685,457 0 0 768,998 685,457
Capital grants & contributions 2,463,124 549,371 1,166,173 2,819,342 3,629,297 3,368,713
General revenues:
Property taxes 2,434,074 2,322,213 0 0 2,434,074 2,322,213
Sales taxes 4,845,731 4,414,271 0 0 4,845,731 4,414,271
Other taxes 2,494,952 2,412,655 0 0 2,494,952 2,412,655
Interest income 19,039 17,834 35,108 21,546 54,147 39,380
Gain on sale of capital assets 15,967 12,036 15,967 12,036
Other revenues 0 0 0 155 0 155
Total Revenues 14,629,266 12,041,434 9,047,681 9,474,934 23,676,947 21,516,368
Expenses: General government 2,084,703 1,870,390 0 0 2,084,703 1,870,390
Judicial 534,256 534,814 0 0 534,256 534,814
Public safety 5,223,526 4,776,780 0 0 5,223,526 4,776,780
Transportation 2,626,628 2,483,703 0 0 2,626,628 2,483,703
Social services 14,499 11,744 0 0 14,499 11,744
Economic development 724,681 601,980 0 0 724,681 601,980
Culture and recreation 510,384 451,587 0 0 510,384 451,587
Water - Sewer 0 0 5,695,362 5,491,666 5,695,362 5,491,666
Storm Drainage 0 0 1,141,223 949,537 1,141,223 949,537
Interest on long-term debt 21,591 26,328 0 0 21,591 26,328
Total Expense 11,740,268 10,757,326 6,836,585 6,441,203 18,576,853 17,198,529
Change in net position 2,888,998 1,284,108 2,211,096 3,033,731 5,100,094 4,317,839
Net Position Beginning 31,799,563 32,007,923 55,524,192 53,622,965 87,323,755 85,630,888
Changes in Accounting Principles 0 (1,492,468) 0 (1,132,505) 0 (2,624,973)
Net Position Ending $34,688,561 $31,799,563 $57,735,288 $55,524,191 $92,423,849 $87,323,755
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Governmental Activity Analysis
Total revenues in governmental activities increased by 21%. The City’s tax revenues increased by
$625,618, 9% in 2016. The main sources of revenue came from retail sales and use tax and property
taxes. Sales tax increased from the prior year by $431,460, 10%. Property taxes experienced an
increase of $111,861, 6%. Charges for services decreased by $40,216, -2%. Operating grants and contributions increased by $83,541, 12%. Capital grants and contributions increased by $1,913,753 due
to infrastructure that was donated in 2016 as well as several grants received.
Total expenses in governmental activities increased by 9%. The City incurred increases in the following
functions: General Government $214,313, Public Safety $446,746, Transportation $142,925 and Economic Development $122,701, Culture and Recreation $58,797, Social Services $2,755. While
Judicial decreased by ($558). Transportation had an increase in expenses for paving overlay project.
Public Safety had an increase due to jail costs, and Economic development had an increase due to
additional personnel costs. The net position associated with governmental activities increased by
2,888,988 due to capital grants & contributions.
Business-Type Activities Analysis
The Water-Sewer Utility experienced an increase in 2016 operating revenues of 11.8%, and a 3.7%
increase in operating expenses. The Utility ended the year with an increase in net position of 1.7%.
This was largely due to increased charges for services. The Storm Drainage Utility had an increase in operating revenues of 12.6%, and an increase in operating expenses of 20.4%. There was an overall
increase in storm drainage net position of 13.7%. The Storm Drainage Utility’s operating revenues
increase significantly due to a rate increase for the utility as well as a grant. This contributed to the
increase in net position also.
FINANCIAL ANALYSIS OF CITY FUNDS
Governmental Funds Analysis
The City uses fund accounting to ensure compliance with legal requirements and to assist in the
budgeting and operations of the different activities of the City. The City has ten governmental funds
that are categorized into four fund types. Each type has its unique purpose. The City Street Fund and Stabilization Fund are managerial funds and are reported in the General Fund. Two funds are classified
as major funds for the purposes of this report, based on GASB criteria. They are the General Fund and
the Street Capital Projects Fund.
The General Fund’s fund balance increased by $288,470. Revenues are higher and expenditures lower. The largest source of revenue is sales and use tax representing 43% of total revenues. The largest
expenditure category is public safety, representing 45% of the General Fund activity.
The Capital Projects Fund had an increase in fund balance of 172,392. This was due to transfers from
other funds for projects.
The Street Capital Projects Fund had a decrease in fund balance of ($92,632). This was due to increased
project costs.
The change in total governmental funds’ fund balance was an overall increase of $177,525.
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Business-Type Fund Analysis
Proprietary funds are those funds that account for government operations where the intent is for the costs
to be primarily paid for by user charges. Enterprise funds are those funds that provide services primarily
to external users.
The Water-Sewer Fund had a total net position at year-end of $45.9 million. This fund had operating
income of $166,282. The Water-Sewer fund had an increase in total net position of $786,572 or 1.7%.
This was largely due to increased charges for services. The Storm Drainage Utility Fund had an
operating increase of $499,237. The total net position at year-end was $11.8 million. This was an
increase in net position of 13.7% or $1,424,524. The increase was due to a rate increase and also a grant.
2016 Capital Projects for Water-Sewer included the Well 9 and Well 10 projects and the purchase of
equipment. Storm Drainage Utility completed construction of the Decant Facility.
GENERAL FUND BUDGETARY HIGHLIGHTS
The Budget vs. Actual statement for the General Fund is required to be presented at the level adopted by the City. This results in not including the City Street and Stabilization Funds within this statement because these funds are have their own adopted budgets. The City appropriates funds through an annual
budget process while state law allows additional funds to be expended if authorized by an ordinance
amending the original budget. Revenues ended the year ahead of the budget 4.7%. Sales taxes
increased by $319,618 and other taxes increased by $30,637. Expenditures were 93% of the amended budget.
The final budget, when compared to the original budget, showed increases (decreases) in: General
Government $89,738, Public Safety $183,993, Economic Development $15,000, and Capital
Expenditures $56,512.
CAPITAL ASSET AND DEBT ADMINISTRATION
Capital Assets
The City of Port Orchard’s investment in capital assets, including construction in progress, for its
governmental and business type activities as of December 31, 2016, amounts to $70,782,982, (net of
accumulated depreciation). This investment in capital assets includes land, intangible assets, construction in progress, buildings, equipment, and infrastructure.
Governmental Activities Business Activities Government Wide
1/1/2016 12/31/2016 1/1/2016 12/31/2016 1/1/2016 12/31/2016
Land $1,850,097 $2,196,485 $1,071,823 $983,923 $2,921,920 $3,180,408
Intangible
Assets 3,102,090 3,747,291 1,164,706 1,157,425 4,266,796 4,904,716 Construction in
Progress 1,874,090 3,060,642 2,424,441 2,772,768 4,298,531 5,833,410
Buildings 5,110,915 5,722,863 3,471,994 4,432,285 8,582,909 10,155,148
Equipment 898,955 1,105,457 1,723,224 1,659,754 2,622,179 2,765,212
Infrastructure 13,355,447 13,000,866 31,217,842 30,943,222 44,573,289 43,944,087
$26,191,594 $28,833,605 $41,074,030 $41,949,377 $67,265,624 $70,782,982
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In governmental activities, Land increased due to a property purchase, Intangible Assets and Construction in Progress also increased due to developer donations, on-going projects and new projects.
Buildings & Structures increased due to the completion of the Dekalb Pier. Machinery & Equipment
increased in 2016 due to vehicle and equipment purchases in multiple departments and Other
Improvements decreased due to depreciation.
In business activities Machinery & Equipment, Other Improvements and Intangible Assets all decreased
due to depreciation. Land is reduced due to the sale of properties. Well 9 And Well 10 construction
projects increased Construction in Progress. Buildings & Structures increased due to the completion of
the Decant Facility
Additional information on the City of Port Orchard’s capital assets can be found in Note 5 (capital
assets) of this report.
Long-Term Debt
At December 31, 2016 the City of Port Orchard had total long-term debt outstanding of $1,745,303. Of this amount, $631,789 is general obligation bonds, $168,250 is a note made with a private party,
$945,264 is Governmental Loans.
During 2016, the City of Port Orchard’s net total long term debt increased by $77,954. The Increase
included a Drinking Water State Revolving Fund Loan, a Clean Water State Revolving Fund Loan, annual payments on the outstanding debt.
Additional information on the City’s long-term debt can be found in Note 9, Long-Term Debt and Note
11, Changes in Long-Term Liabilities of the notes to the financial statement in this report.
Economic Factors
The state of Washington does not have a state personal income tax and therefore the state operates
primarily using sales and use tax, ad valorem, and motor vehicle excise tax. The City relies on sales and
use tax, property tax, and utility taxes and a limited array of permitted taxes, fees, and state and federal
grants to support its governmental activities. The City does not impose a business and occupation tax.
City General Fund revenue collection experienced a 5.4% year-over-year increase. Sales and use tax
represents a major revenue source for governmental funds and provides an economic measurement of
the local economy. City sales and use tax collection increased year-over-year by 9.6%. The City views
these increases as indicators of increased local economic activity, at an upwardly pace. The military and its federal employees continue to be a steady source of economic fuel for the economy with over 15,000
active military and nearly 18,000 civilians based in Kitsap County. In addition, over 500 prime and sub-
contractors add to the benefits seen by this federal presence. The Puget Sound Naval Shipyard (PSNS)
and Intermediate Maintenance Facility, located directly across Sinclair Islet and accessible by foot ferry,
continues to increase its work force with an additional 926 employees in various shipyard trades. The increase at PSNS is considered a positive influence on the local economy.
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Construction activity slowed down slightly in 2016 though this was related to a shortage of ready to build residential lots. The City saw 54 new housing starts in 2016, but more importantly saw 4 final
plats recorded in 2016 and in the first part of 2017 to resupply the City's home builders. The city
expects record or near record single family construction in the coming 18 months. In 2016, the city saw
3 commercial developments and has several more in the pipeline including a new (to replace the old)
Ford Dealership. The City expects to see strong construction related growth for the foreseeable future.
The Office of Financial Management (OFM) reported Port Orchard’s estimated 2016 population at
13,810. The City ranks 66 by population size of the 285 listed Washington municipalities.
The Washington State Economic and Revenue Council expects sales tax revenue and Real Estate Excise Tax collections to increase for Washington economies. The City Council continues to be proactive with
other agencies lobbying the State to provide additional funding sources for City and area services.
The level of taxes, fees, and charges for services will have a bearing on the City’s competitive ability to
encourage retail, office, residential, and industrial development. The City places significant emphasis on encouraging economic development to attract family wage paying jobs, and as an incentive does not
assess a business and occupation tax (B & O).
Requests for Information
This financial report is designed to provide a general overview of the City of Port Orchard’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 the City
Treasurer, City of Port Orchard, 216 Prospect Street, Port Orchard, WA, 98366.
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Primary Government
Governmental
Activities
Business-type
Activities Total
ASSETS
Cash and Cash Equivalents 5,233,616$ 8,831,064$ 14,064,680$
Recievables (Net of Allowance for Uncollectable)
Taxes Recievable 82,539 - 82,539
Accounts Receivable 473,571 1,228,267 1,701,838
Due from Other Governmental Units 1,514 270,315 271,829
Restricted Assets:
Cash and Cash Equivalents 3,544,163 - 3,544,163
Receivables 35,751 - 35,751
Due from Other Governmental Units 288,436 - 288,436
Investment in Joint Venture - 8,612,271 8,612,271
Net Pension Asset 430,866 430,866
Capital Assets not being depreciated 8,957,259 4,842,557 13,799,816
Capital Assets (Net of Accumulated Depreciation)19,876,346 37,106,820 56,983,166
Total Assets 38,924,061 60,891,294 99,815,355
DEFERRED OUTFLOWS of RESOURCES
Deferred Outflows related to Pensions 654,269 229,760 884,029
Total DeferredOutflows of Resources 654,269 229,760 884,029
LIABILITIES
Accounts Payable 515,585 477,184 992,769
Contracts Payable - 114,301 114,301
Deposits 250 5,550 5,800
Unearned Revenue 41,567 61,364 102,931
Other Accrued Liabilities 104,875 52,116 156,991
Liabilities Payable from Restricted Assets 211,092 - 211,092
Noncurrent Liabilities:
Due within One Year 658,433 120,037 778,470
Due in More than One Year 1,076,674 1,250,147 2,326,821
Net Pension Liability 2,239,452 1,282,551 3,522,003
Total Liabilities 4,847,928 3,363,250 8,211,178
DEFERRED INFLOWS of RESOURCES
Deferred Amount on Refunding 3,274 428 3,702
Deferred Inflows related to Pensions 38,567 22,088 60,655
Total Deferred Inflows of Resources 41,841 22,516 64,357
NET POSITION
Net Investment in Capital Assets 28,369,122 40,664,855 69,033,977
Restricted for:
Criminal Justice 469,915 - 469,915
Law Enforcement Investigative Funds 63,548 - 63,548
Tourism Promotion 84,574 - 84,574
Parks 235,584 - 235,584
McCormick Woods Park 39,110 - 39,110
Paths & Trails 5,663 - 5,663
Pensions 430,866 - 430,866
Vacation abutting water 7,500 - 7,500
Transportation 1,331,999 - 1,331,999
Capital (REET)1,335,114 - 1,335,114
Unrestricted 2,315,566 17,070,433 19,385,999
Total Net Position 34,688,561$ 57,735,288$ 92,423,849$
The notes to the financial statements are an integral part of this statement
CITY OF PORT ORCHARD
Statement of Net Position
December 31, 2016
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Functions/Programs Expenses
Charges for
Services
Operating
Grants and
Contributions
Capital Grants
and
Contributions
Governmental
Activities
Business-type
Activities Total
PRIMARY GOVERNMENT
Governmental Activities:
General Government 2,084,703$ 268,472$ 164,209$ -$ (1,652,022)$ -$ (1,652,022)$
Judicial 534,256 226,807 15,477 - (291,972) - (291,972)
Public Safety 5,223,526 301,686 276,837 - (4,645,003) - (4,645,003)
Transportation 2,626,628 314,042 305,425 1,700,521 (306,640) - (306,640)
Social Services 14,499 - - - (14,499) - (14,499)
Economic Development 724,681 398,067 - - (326,614) - (326,614)
Culture and Recreation 510,384 78,307 7,050 762,603 337,576 - 337,576
Interest on Long-Term Debt 21,591 - - - (21,591) - (21,591)
TOTAL GOVERNMENTAL
ACTIVITIES 11,740,268 1,587,381 768,998 2,463,124 (6,920,765) - (6,920,765)
Business-Type Activities:
Water - Sewer 5,695,362 6,162,907 - 288,790 - 756,335 756,335
Storm Drainage 1,141,223 1,683,493 - 877,383 - 1,419,653 1,419,653 TOTAL BUSINESS-TYPE
ACTIVITIES 6,836,585 7,846,400 - 1,166,173 - 2,175,988 2,175,988
Total Primary Government 18,576,853$ 9,433,781$ 768,998$ 3,629,296$ (6,920,765) 2,175,988 (4,744,777)
General Revenues:
Taxes:
Property Taxes Levied for General Purposes 2,434,074 - 2,434,074
Other Taxes 810,297 - 810,297
Sales and Use Taxes 4,845,731 - 4,845,731 Business and Occupation Taxes 1,684,655 - 1,684,655 Gain on Sale of Capital Assets 15,967 - 15,967
Unrestricted Investment Earnings 19,039 35,108 54,147
Total General Revenues 9,809,763 35,108 9,844,871
Change in Net Position 2,888,998 2,211,096 5,100,094
Net Position - Beginning 31,799,563 55,524,192 87,323,755
Net Position - Ending 34,688,561$ 57,735,288$ 92,423,849$
The notes to the financial statements are an integral part of this statement.
CITY OF PORT ORCHARD
Statement of Activities
Year Ended December 31, 2016
Program Revenues
Net (Expense) Revenue and Changes in Net
Position Washington State Auditor's Office___________________________________________________________________________________________________________________ Page 29
General Fund
Capital
Construction
Fund
Street Capital
Projects Fund
Other
Governmental
Funds
Total
Governmental
Funds
Assets:
Cash and Cash Equivalents 4,586,849$ 261,985$ 455,457$ 3,473,488$ 8,777,779$
Property Taxes Receivables (net)82,539 - - - 82,539
Accounts Receivable 473,571 - - 35,751 509,322
1,514 48,500 239,936 - 289,950
Total Assets 5,144,473 310,485 695,393 3,509,239 9,659,590
Liabilities:
Accounts Payable 442,537 75,184 177,044 31,912 726,677
Deposits Payable 250 - - - 250
Other Accrued Liabilities 101,320 - - 2,136 103,456
Unearned Revenue 41,567 - - - 41,567
Total Liabilities 585,674 75,184 177,044 34,048 871,950
Deferred Inflows of Resources
Unavailable Revenue-Property Taxes 76,806 - - - 76,806
Unavailable Revenue-Court 421,416 - - 35,751 457,167
Unavailable Revenue-Miscellaneous 34,465 48,500 - - 82,965
Grants Received in Advance 14,000 - - - 14,000
Total Deferred Inflows of Resources 546,687 48,500 - 35,751 630,938
Fund Balances:
Restricted for:
Criminal Justice - - - 469,915 469,915
Law Enforcement - - - 63,548 63,548
Tourism - - - 84,574 84,574
Parks - - - 235,584 235,584
McWds Parks - - - 39,110 39,110
Paths & Trails - - - 5,663 5,663
Vacation abutting water 7,500 - - - 7,500
Transportation - - 518,349 813,650 1,331,999
Capital Projects - - - 1,335,114 1,335,114
Commited to:
Recreation 110,053 - - - 110,053
Stabilization 669,769 - - - 669,769
Assigned to:
Parks 71,616 - - - 71,616
City Hall 9,649 - - - 9,649
Street 766,641 - - - 766,641
Capital Projects - 186,801 - - 186,801
Capital Equipment Replacement - - - 392,282 392,282
Unassigned 2,376,884 - - - 2,376,884
Total Fund Balances 4,012,112 186,801 518,349 3,439,440 8,156,702$
5,144,473$ 310,485$ 695,393$ 3,509,239$
Balance Sheet
December 31, 2016
Liabilities, Deferred Inflows of Resources, and
Fund Balances:
CITY OF PORT ORCHARD
Governmental Funds
Total Liabilities, Deferred Inflows of
Resources, and Fund Balances
Due from Other Governmental Units
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28,833,605
630,938
(3,979,252)
430,866
Deferred Outflow related to Pensions 654,269
Deferred Inflow related to Pensions (38,567)
Net position of governmental activities 34,688,561$
.
The notes to the financial statements are an integral part of this statement
Net Pension Asset
Long-term liabilities that are not due and payable in the
current period and are not reported in the funds
Capital assets used in governmental activities are not
financial resources and therefore are not reported in the
funds
Unavailable revenue to pay currrent year expenditures
Amounts reported for governmental activities in the statement of net position are different because (See Note 2 also):
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General Fund
Capital
Construction
Fund
Street Capital
Projects Fund
Other
Governmental
Funds
Total
Governmental
Funds
Revenues:
Property Taxes 2,439,988$ -$ -$ -$ 2,439,988$
Retail Sales and Use Taxes 4,536,118 - - 309,613 4,845,731
Other Taxes 1,794,037 - - 700,915 2,494,952
License and Permits 316,288 - - - 316,288
Intergovernmental 549,433 746,350 815,607 128,587 2,239,977
Charges for Services 496,105 - - - 496,105
Fines and Forfeits 220,199 - - 4,730 224,929
Interest Earnings 45,142 711 2,263 22,412 70,528
Rents and Royalties 158,634 - 4,633 - 163,267
Planning & Development Contributors - - - 307,653 307,653
Contributions/Donations 2,807 - - - 2,807
Miscellaneous 9,723 - - 691 10,414
Total Revenues 10,568,474 747,061 822,503 1,474,601 13,612,639
Expenditures:
Current
General Government 1,962,901 - - - 1,962,901
Judicial 534,256 - - - 534,256
Public Safety 4,677,280 - - 249,051 4,926,331
Transportation 1,851,914 - - 33,799 1,885,713
Economic Development 724,681 - - - 724,681
Social Services 14,499 - - - 14,499
Culture and Recreation 327,286 - - 78,141 405,427
Capitalized Expenditures 206,632 1,342,091 1,046,084 238,110 2,832,917
Debt Service
Principal Retirement - - - 142,350 142,350
Interest/Fiscal Charges - - - 22,006 22,006
Total Expenditures 10,299,449 1,342,091 1,046,084 763,457 13,451,081
Excess (Deficiency) of Revenues
Over (Under) Expenditures 269,025 (595,030) (223,581) 711,144 161,558
Other Financing Sources (Uses)
Sale of Capital Assets 6,968 - - - 6,968
Compensation for Loss/Impair Capital Assets 8,999 - - - 8,999
Transfers In 457,000 767,422 130,949 352,741 1,708,112
Transfers Out (453,522) - - (1,254,590) (1,708,112)
Total Other Financing Sources and Uses 19,445 767,422 130,949 (901,849) 15,967
Net Change in Fund Balances 288,470 172,392 (92,632) (190,705) 177,525
Fund Balance at Beginning of Year 3,723,642 14,409 610,981 3,630,145 7,979,177
Fund Balance at End of Year 4,012,112$ 186,801$ 518,349$ 3,439,440$ 8,156,702$
The notes to the financial statements are an integral part of this statement
Governmental Funds
Statement of Revenues, Expenditures and Changes in Fund Balances
For the year ended December 31, 2016
CITY OF PORT ORCHARD
Washington State Auditor's Office
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Net changes in fund balances - total governmental funds:177,525$
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 expenses. This is the amount by
which capital outlays exceeded depreciation in the current period.1,742,540
The net effect of various miscellaneous transactions involving capital assets
( i.e., sales, trade-ins, and donations) to decrease net position.899,471
Revenues in the statement of activities that do not provide current financial
resources are not reported as revenues in the funds.69,359
The issuance of long-term debt provides current financial resources to
governmental funds, while the repayment of the principal of long-term debt
consumes the current financial resources of governmental funds. Neither
transaction, however, has any effect on net position. Also, governmental
funds report the effect of issuance costs, premiums, discounts and similar
items when debt is first issued, whereas these amounts are deferred and
amortized in the statement of activities. This amount is the net effect of these
differences in the treatment of long-term debt and related items.142,350
Some expenses reported in the statement of activities do not require the use of
current financial resources and, therefore, are not reported as expenditures in
governmental funds.(142,247)
Changes in Net Position (governmental activities)2,888,998$
The notes to the financial statements are an integral part of this statement
Amounts reported for governmental activities in the statement of activities are
different because:
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance
of Governmental Funds to the Statement of ActivitiesYear Ended December 31, 2016
CITY OF PORT ORCHARD
Washington State Auditor's Office
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Statement of Revenues, Expenditures and Changes in Fund Balances
Budget (GAAP Basis) and Actual
Original Final
Actual
Amount
Variance with
Final Budget
Revenues:
Property Taxes 1,205,377$ 1,205,377$ 1,205,336$ (41)$
Sales and Use Taxes 4,216,500 4,216,500 4,536,118 319,618
Other Taxes 1,763,400 1,763,400 1,794,037 30,637
License and Permits 336,800 336,800 313,718 (23,082)
Intergovernmental 244,500 256,654 273,579 16,925
Charges for Services 462,100 462,100 482,517 20,417
Fines and Forfeits 207,000 207,000 220,171 13,171
Interest Earnings 28,900 28,900 37,953 9,053
Rents and Royalties 140,000 140,000 149,707 9,707
Contributions/Donations 1,500 1,500 2,307 807
Miscellaneous - - 9,485 9,485
Total Revenues 8,606,077 8,618,231 9,024,928 406,697
Expenditures:
Current
General Government 2,059,951 2,149,689 1,962,901 (186,788)
Judicial 595,000 595,000 534,256 (60,744)
Public Safety 4,793,777 4,977,777 4,677,280 (300,497)
Economic Development 768,893 783,893 724,681 (59,212)
Social Services 14,443 14,443 14,499 56
Culture and Recreation 391,382 391,382 327,286 (64,096)
Capitalized Expenditures 15,000 71,512 100,995 29,483
Intergovernmental Payments - - - -
Total Expenditures 8,638,446 8,983,696 8,341,898 (641,798)
Excess (Deficiency) of Revenues
Over (Under) Expenditures (32,369) (365,465) 683,030 1,048,495
Other Financing Sources (Uses):
Sale of Capital Assets - - 5,765 5,765
Compensation for Loss/Impair Capital Assets - - 8,999 8,999
Transfers In 8,000 8,000 - (8,000)
Insurance Recoveries - - - -
Transfers Out (427,300) (490,800) (440,522) 50,278
Total Other Financing Sources and Uses (419,300) (482,800) (425,758) 57,042
Net Change in Fund Balance (451,669) (848,265) 257,272 1,105,537
Fund Balances at Beginning of Year 1,744,010 1,744,010 2,310,930 566,920
Fund Balances at End of Year 1,292,341$ 895,745$ 2,568,202$ 1,672,457$
Adjustment to generally accepted accounting
principles (GAAP) basis:
City Street Fund 774,141
Stabilization Fund 669,769
Fund Balance - GAAP basis 4,012,112$
The notes to the financial statements are an integral part of this statement
Budgeted Amounts
CITY OF PORT ORCHARD
General Fund
For the Fiscal Year Ended December 31, 2016
Washington State Auditor's Office
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Assets:
Current Assets:
Cash and Cash Equivalents 7,402,127$ 1,428,937$ 8,831,064$
Receivables (net)
Accounts 942,807 285,460 1,228,267
Due from Other Governmental Units - 270,315 270,315
Total Current Assets 8,344,934 1,984,712 10,329,646
Non Current Assets:
Investment in Joint Venture 8,612,271 - 8,612,271
Property, Plant and Equipment (Net)31,438,223 10,511,154 41,949,377
Total Non Current Assets 40,050,494 10,511,154 50,561,648
Total Assets 48,395,428 12,495,866 60,891,294
Deferred Outflows of Resources
Deferred Outflows related to Pension 154,553 75,207 229,760
Total Deferred Outflows of Resources 154,553 75,207 229,760
Liabilities
Current Liabilities:Accounts Payable 355,182 122,002 477,184 Contracts Payable 114,301 - 114,301 Other Accrued Liabilities 21,931 11,593 33,524 Deposits 5,550 - 5,550
Accrued Interest Payable 18,377 215 18,592
Accrued Employee Benefits 42,174 22,321 64,495 Bonds, Notes, Loans Payable 55,542 - 55,542
Total Current Liabilities 613,057 156,131 769,188
Non Current Liabilities:
Bonds, Notes and Loan Payable (Net)1,065,944 162,608 1,228,552
Accrued Employee Benefits 14,121 7,474 21,595
Net Pension Liability 862,732 419,819 1,282,551
Unearned Revenues 61,364 - 61,364
Total Non Current Liabilities 2,004,161 589,901 2,594,062
Total Liabilities 2,617,218 746,032 3,363,250
Deferred Inflows of Resources
Deferred Inflows related to Pensions 14,858 7,230 22,088
Deferred Amounts on Refunding 428 - 428
Total Deferred Inflows of Resources 15,286 7,230 22,516
Net Position
Net Invested in Capital Assets 30,316,309 10,348,546 40,664,855
Unrestricted 15,601,168 1,469,265 17,070,433
Total Net Position 45,917,477$ 11,817,811$ 57,735,288$
The notes to the financial statements are an integral part of this statement
CITY OF PORT ORCHARD
Proprietary Funds
Statement of Net Position
December 31, 2016
Major Enterprise
Fund
Water-Sewer
Major Enterprise
Fund
Storm Drainage
Total Business
Activities
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Operating Revenues
Charge for Services 5,842,673$ 1,640,245$ 7,482,918$
Total Operating Revenues 5,842,673 1,640,245 7,482,918
Operating Expenses
Operations
General Operations 3,367,776 409,639 3,777,415
Water Purchased for Resale 150,213 - 150,213
Customer Service and Marketing 184,698 82,792 267,490
General Administration 920,146 364,221 1,284,367
Taxes 438,673 109,181 547,854
Depreciation, Amortization, Depletion 614,885 175,175 790,060
Total Operating Expenses 5,676,391 1,141,008 6,817,399
Operating Income (loss)166,282 499,237 665,519
Nonoperating Revenues (Expenses)
Interest Earnings 30,237 4,871 35,108
Interest and Fiscal Charges (18,971) (215) (19,186)
Gain (Loss) on Disposal of Assets (84,778) - (84,778)
Net Income (Loss) of Joint Ventures 240,292 - 240,292
Fines & Penalties 86,038 33,590 119,628
Miscellaneous Revenue (Expense)78,682 9,658 88,340
Total Nonoperating Revenues (Expenses)331,500 47,904 379,404
Income (Loss) before Contributions 497,782 547,141 1,044,923
Capital Contributions 288,790 877,383 1,166,173
Increase (Decrease) in Net Position 786,572 1,424,524 2,211,096
Total Net Position at Beginning of Year 45,130,905 10,393,287 55,524,192
Total Net Position at End of Year 45,917,477$ 11,817,811$ 57,735,288$
The notes to the financial statements are an integral part of this statement
CITY OF PORT ORCHARD
Proprietary Funds
Statement of Revenues, Expenses and Changes in Fund Net Position
For the Fiscal Year Ended December 31, 2016
Major Enterprise
Fund
Water-Sewer
Major Enterprise
Fund
Storm Drainage
Total Business
Activities
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Cash Flows from Operating Activities:
Cash Received from Customers 5,761,984$ 1,613,231$ 7,375,215$
Cash Payments to Suppliers (3,142,255) (143,138) (3,285,393)
Cash Payments to Employees (1,359,830) (613,515) (1,973,345)
Cash Payments to other Governments (Taxes)(438,673) (109,181) (547,854)
Cash Payments for other Non-Operating Activities 164,720 43,248 207,968
Net Cash Provided (Used) by Operating Activities 985,946 790,645 1,776,591
Cash Flows from Capital and Related Financing Activities:
Acquisition and Construction of Capital Assets (497,720) (1,039,864) (1,537,584)
Principal Paid on GO Bond (52,650) - (52,650)
Interest Paid on Revenue Bonds and Other Long-Term Debt (8,139) - (8,139)
Proceeds from Capital Debt 111,060 162,608 273,668
Receipt of Capital Contributions 227,839 487,824 715,663
Proceeds from Sale of Property 8,824 - 8,824
Net Cash Provided (Used) for Capital and Related Financing Ac (210,786) (389,432) (600,218)
Cash Flows from Investing Activities:
Interest on Investments 30,237 4,871 35,108
Net Cash Provided (Used) by Investing Activities 30,237 4,871 35,108
Net Increase (Decrease) in Cash and Cash Equivalents 805,397 406,084 1,211,481
Cash and Cash Equivalents at Beginning of Year 6,596,730 1,022,853 7,619,583
Cash and Cash Equivalents at End of Year 7,402,127 1,428,937 8,831,064
Cash and Cash Equivalents 7,402,127 1,428,937 8,831,064
Restricted Cash and Cash Equivalents - - -
Total Cash and Cash Equivalents 7,402,127$ 1,428,937$ 8,831,064$
The notes to the financial statements are an integral part of this statement
CITY OF PORT ORCHARD
Proprietary Funds
Statement of Cash Flows
For the Fiscal Year Ended December 31, 2016
Major Enterprise
Fund
Water-Sewer
Major Enterprise
Fund
Storm Drainage
Total Business
Activities
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Reconciliation of Operating Income (Loss) to Net
Cash Used by Operating Activities:
Net Operating Income (Loss)166,282$ 499,237$ 665,519$
Adjustments to Reconcile Net
Operating Income (Loss) to Net
Cash Provided by Operations:
Depreciation Expense 614,885 175,175 790,060
(Increase) Decrease in Receivables (85,482) (27,014) (112,496)
Increase (Decrease) in Current Payables 147,015 68,304 215,319
Increase (Decrease) in Other Current Payables 6,941 4,840 11,781
Increase (Decrease) in Accrued Employee Benefits 4,088 (2,663) 1,425
Increase (Decrease) in Customer Deposits 5,550 - 5,550
Increase (Decrease) in Unearned Revenues (758) - (758)
(Increase) Decrease in Pension Liability Expense (37,295) 29,518 (7,777)
Receipt of Non Operating Revenues 164,720 43,248 207,968
Total Adjustments 819,664 291,408 1,111,072
Net Cash Provided (Used) by Operating Activities 985,946$ 790,645$ 1,776,591$
Noncash Investing, Financing and Capital Activities
Capital Assets - Donated /Grants Received 60,951 119,244 180,195
Gain / (Loss) on Joint Venture 240,292 - 240,292
Total Noncash Investing, Financing and Capital Activities 301,243$ 119,244$ 420,487$
The notes to the financial statements are an integral part of this statement
CITY OF PORT ORCHARD
Statement of Cash Flows
Proprietary Funds
For the Fiscal Year Ended December 31, 2015
Major Enterprise
Fund
Water-Sewer
Major Enterprise
Fund
Storm Drainage
Total Business
Activities
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Fiduciary Funds
Agency
Funds
Assets:
Current Assets:Cash and Cash Equivalents 2,419,819$
Total Assets 2,419,819
Liabilities
Accounts Payable 14,164
Custodial Accounts 2,405,655
Total Liabilities 2,419,819$
The notes to the financial statements are an integral part of this statement
CITY OF PORT ORCHARD
Statement of Fiduciary Net Position
December 31, 2016
Washington State Auditor's Office
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the City of Port Orchard have been prepared in conformity with
Generally Accepted Accounting Principles (GAAP) as applied to governmental units. The Governmental Accounting and Standards Board (GASB) is the accepted standard setting body
for establishing governmental accounting and financial reporting principles. The significant
accounting policies are described below.
A. REPORTING ENTITY
The City of Port Orchard, Washington was incorporated on September 1, 1890 and operates under the laws of the state of Washington applicable to non-charter code cities (second-class city) with a Mayor/Council form of government. As required by the Generally Accepted
Accounting Principles the financial statements represent the City of Port Orchard. In 2015, the
City Council passed Ordinance No. 027-15 creating a Transportation Benefit District (TBD) for
Port Orchard. The TBD is a blended component unit. It is a separate legal entity governed by the City Council and the City is operationally responsible for the TBD activities and transactions. There were no financial transactions associated with the TBD in 2016.
B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS
The government-wide financial statements (i.e., the statement of net position and the statement
of activities) report information on all 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 segments are offset by program revenues. Direct expenses are those that are clearly
identifiable with a specific function or segment. Program revenues include 1) charges to
customers or applicants who purchase, use or directly benefit from goods, services or privileges
provided by a given function or segment and 2) 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. 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
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.
Governmental fund financial statements are reported using the current financial resources
measurement focus and the modified accrual basis of accounting. Revenues are recognized as
soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the city considers revenues to be available if they are collected
within 60 days of the end of the current fiscal period. The city considers property taxes as
available if they are collected with 60 days after year end. Expenditures generally are recorded
when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.
Property taxes, licenses and interest associated within the current fiscal period are all considered
to be susceptible to accrual and so have been recognized as revenues of the current fiscal period.
Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the City.
The City reports the following major governmental funds:
The general (or current expense) fund is the city’s operating fund. It accounts for all
financial resources of the general government, except those required or elected to be accounted for in another fund. Included and reported in the General Fund are two managerial funds one of those is the City Street fund which accounts for a percentage of the revenue
from state motor vehicle fuel taxes and expenditures for street construction, maintenance and
repair. This fund accounts for transportation activities that the City Council wants to review
separately from other activities. The other fund included in the General fund is the Stabilization fund.
The Capital Construction fund is used for the acquisition or construction of major capital
facilities (other than those financed by proprietary funds and trust funds). This fund accounts
for grant funding and transfers from other funds (i.e. REET funds) which provide the funding
to complete the projects. The Street Capital Projects fund is used for the receipt and expenditure of a percentage of the
state levied motor vehicle fuel taxes distributed to the City. The City utilizes these revenues
as matching funds for grants specified for arterial street purposes. These are restricted
revenue sources. Projects that use this tax are reflected on the six-year transportation improvement program as passed annually by Council.
The government reports the following major proprietary funds:
The Water Sewer fund accounts for the activity of the City’s utilities. Its revenues are
received from the sales of water and sewer services. Expenses are for the maintenance and extensions of water and sewer service facilities, operating a water supply system, maintaining a sewer treatment plant and lift stations.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 The Storm Drainage Fund monitors and maintains the City’s storm and surface water drainage. Revenues are based on fees received from properties within City limits that have
impervious surfaces. Expenses are for operation, maintenance and improvement of the
City’s storm and surface water drainage system.
Fiduciary funds represent assets held in a trustee or agency capacity for others and do not report results of operation.
The City has two fiduciary funds. The Wastewater Treatment Facility Fund receives
money from the joint venture to repay the Public Works Trust Fund loans. Also deposited
into this fund are the Wastewater Treatment Facility Fees component of the Sewer Capital
Facility Charge and interest earnings on such funds. These dollars are held in trust to mitigate the debt and future construction costs for the Wastewater Treatment Facility. The Agency Fund collects fees which the Treasurer, acting as an intermediary depository, shall
distribute to the proper agencies on a regular and timely basis. Examples of these fees
include but are not limited to state court fines, county crime victim fines, state building
code fees, state concealed pistol licenses and background checks.
Additionally, the government reports the following fund types:
Special revenue funds are used to account for and report the proceeds of specific revenue
sources that are restricted or committed to expenditure for specified purposes other than
debt service or capital projects.
Debt service funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest.
Capital project funds are used to account for and report for financial resources that are
restricted, committed, or assigned to expenditure for capital outlays, including the
acquisition or construction of capital facilities and other capital assets.
As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the government’s water, sewer and storm 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 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. General
revenues include all taxes, except those that are credited to their appropriate restricted fund.
Proprietary funds distinguish operating revenues and expenses from nonoperating items.
Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the enterprise funds are charges to customers for sales and
services. Operating expenses for enterprise funds include the cost of sales and services,
administrative expenses, and depreciation on capital assets. All revenues and expenses not
meeting this definition are reported as nonoperating revenues and expenses.
When both restricted and unrestricted resources are available for use, it is the government’s policy to use restricted resources first, and then unrestricted resources as they are needed.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 D. BUDGETARY INFORMATION
1. Scope of Budget
Annual appropriated budgets are adopted for the general fund, special revenue funds, debt
service funds, and capital project funds on the modified accrual basis of accounting. Beginning
for fiscal year 2017 the City adopts budgets on a biennial basis. Budgets for debt service and capital project funds are adopted at the level of the individual debt issue or project and for fiscal periods that correspond to the lives of debt issues or projects. The budgetary basis of accounting
differs from generally accepted accounting principles. The City budgets the City Street activity
and Stabilization activity as if they were special revenue funds. However, GAAP requires these
activities to be reported with the General Fund, as they do not have significant streams of restricted resources. From a budgetary perspective, the City budgets for City Street activity and Stabilization activity separate from the General Fund. The budgetary comparison for the General
Fund does not include the managerial funds.
Proprietary funds are budgeted on the full accrual basis for management control purposes only.
Appropriations lapse at year-end.
2. Amending the Budget
The City Treasurer is authorized to transfer budgeted amounts between departments within any
fund; however any revisions that alter the total expenditures of a fund or that affect the number
of authorized employee positions, salary ranges, hours, 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 appropriations for a particular fund, it may do so by ordinance approved by one more than
the majority after holding public hearing(s).
The budget amounts shown in the financial statements are the final authorized amounts as revised during the year.
The financial statements contain the original and final budget information. The original budget
is the first complete appropriated budget. The final budget is the original budget adjusted by all reserves, transfers, allocations, supplemental appropriations, and other legally authorized changes applicable for the fiscal year.
E. ASSETS, LIABILITIES, FUND BALANCE, NET POSITION
1. Cash & Cash Equivalents
It is the city’s policy to invest all temporary cash surpluses. At December 31, 2016, the treasurer was holding $18,704,187 in short-term, residual investments of surplus cash. This amount is classified on the balance sheet as cash and cash equivalents in various funds. The interest on
these investments is prorated to the various funds.
The amounts reported as cash and cash equivalents also include compensating balances maintained with certain banks in lieu of payments for services rendered. The average compensating balances maintained during 2016 were approximately $1,453,984.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 For purposes of the statement of cash flows, the city considers all highly liquid investments (including restricted assets) with a maturity of three months or less when purchased to be cash
equivalents. Investments in the State Investment Pool and the Kitsap County Investment Pool are
classified as cash equivalents on the financial statements.
Certain Investments for the City are reported at fair value in accordance with GASB statement No. 72, Fair Value Measurement and Application. Accordingly, the change in fair
value of investments is recognized as an increase or decrease to investment assets and investment
income. Likewise, some investments are reported at amortized costs
2. Investments See Note 3. Deposits and Investments
3. Receivables
Property tax revenues are recognized when cash is collected. The amount of taxes receivable at
year-end that would be collected soon enough to be available to pay the liabilities of the current
period is immaterial. The Kitsap County Treasurer acts as an agent to collect property taxes levied in the county for all
taxing authorities. Taxes are levied annually before December 15, and become a lien as of
January 1, on property value listed as of the prior May 31. Assessed values are established by
the County assessor at 100 percent of fair market value. A physical inspection of all property is required at least every six years with annual review and update based on sales analysis.
Taxes are due in two equal installments on April 30 and October 31. The county treasurer remits
collections monthly to the appropriate district. Taxes receivable consists of property taxes and
related interest and penalties. (See Note 4) Special assessments are recorded when levied. Special assessments receivable consists of
current and delinquent assessments and related interest and penalties. Assessments consist of
unbilled special assessments that are liens against the property benefited. There were no
outstanding special assessments receivables at December 31, 2016. Customer accounts receivable consist of amounts owed from private individuals or organizations
for goods and services including amounts owed for which billings have not been prepared.
Notes and contracts receivable consist of amounts owed on open accounts from private
individuals or organizations for goods and services rendered. 4. Amounts Due to and from Other Funds and Governments, Interfund Loans and Advances
Receivable
Activities between funds that are representative of lending/borrowing arrangements outstanding
at the end of the fiscal year are referred to as either interfund loans receivable/payable or advances to/from other funds. All other outstanding balances between funds are reported as due to/from other funds. Any residual balances outstanding between the governmental activities and
business-type activities are reported in the government-wide financial statements as internal
balances. In 2016, there were no interfund loans receivable and payable.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 5. Inventories
Inventories in governmental and proprietary funds consist of expendable supplies held for
consumption. The cost is recorded as an expenditure at the time individual items are purchased.
6. Restricted Assets and Liabilities
These accounts contain resources for programs, construction, and impact fees. The current
portion of related liabilities is shown as Payables from Current Restricted Assets. Specific debt
service reserve requirements are described in Note 9, Long-Term Debt.
7. Capital Assets See Note 5, Capital Assets
Capital assets, which include property, intangible assets, plant, equipment, and infrastructure
assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable
governmental or business-type activities columns in the government-wide financial statements.
Capital assets are defined by the City as assets with an initial, individual cost of more than $4,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are valued
with estimated acquisition value at the date of donation.
Costs for additions or improvements to capital assets are capitalized when they increase the effectiveness or efficiency of the asset.
The costs of normal maintenance and repairs are not capitalized.
Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is
included as part of the capitalized value of the assets constructed.
Property, plant and equipment are depreciated using the straight-line method over the following
estimated useful lives:
Asset Category Useful Life
Buildings 50
Infrastructure 10-40
Intangible Assets 6-10
Utility Improvements 10-100
Mowers/Public Works Equipment 6-12
Vehicles 5
The City has acquired certain assets with funding provided by federal financial assistance
programs. Depending on the terms of the agreements involved, the federal government could retain an equity interest in these assets. However, the City has sufficient legal interest to
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 accomplish the purposes for which the assets were acquired, and has included such assets within the applicable column in the statement of net position.
8. Deferred Outflows/Inflows of Resources
Governmental funds report deferred inflows of resources in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period.
The deferred inflow of resources recognized in the government-wide financial statements is a
deferred amount on refunding of debt that will be amortized over the life of the refunding bond
issue.
9. Compensated Absences
Compensated absences are absences for which employees will be paid, such as vacation and
compensated time. In governmental funds, compensated absences that are expected to be liquidated with expendable available financial resources are reported as an expenditure. In prior years the General Fund has typically been used to liquidate compensated absences. In
proprietary funds, compensated absences are recorded as an expense and liability of the fund that
will pay for them.
For all employees except LEOFF II employees, vacation pay, which may be accumulated up to 30 days at December 31, is payable upon resignation, retirement or death (upon termination, pay
is limited to 240 hours). There is no cap on the amount of payment for accrued vacation for
LEOFF II employees (excluding management) upon termination. LEOFF II employees
(excluding management) earn 120 hours holiday leave annually and may carry over 96 hours at December 31. There is no cap on the holiday leave payable upon resignation, retirement or death. Sick leave may be accumulated up to 960 hours and is not payable upon resignation,
retirement or death for all employees except LEOFF II (excluding management). LEOFF II
employees (excluding management) can accumulate more than 960 hours during the year, but
may only carry over 960 hours from one year to the next. Effective October 1, 2014 all LEOFF II employees (excluding management) may elect to cash out up to 400 hours of accrued but unused sick leave, upon permanent separation from the City due to the employee’s death,
disability or voluntary termination. Any such sick leave cash out payments shall be made directly
to respective employees medical health retirement/voluntary employee’s beneficiary association
account (HRA/VEBA). The remainder shall be forfeited without compensation. 10. Pensions
For purposes of measuring the net pension liability (asset), deferred outflows of resources
and deferred inflows of resources related to pensions, and pension expense, information about
the fiduciary net position of all state sponsored pension plans and additions to/deductions from those plans’ fiduciary net position have been determined on the same basis as they are reported by the Washington State Department of Retirement Systems. For this purpose, benefit payments
(including refunds of employee contributions) are recognized when due and payable in
accordance with the benefit terms. Investments are reported at fair value.
11. Other Accrued Liabilities
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 These accounts consist of accrued wages, accrued taxes, accrued employee benefits, and accrued interest payable.
12. Long-Term Debt See Note 9, Long Term Debt
In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities or proprietary fund type statement of
net position. Bond premiums (discounts) are amortized over the life of the bonds. Bonds
payable are reported net of the applicable bond premium (discount).
In the fund financial statements, governmental fund types recognize bond premium (discounts) during the current period. The face amount of debt issued is reported as other financing sources
while discounts on debt issuances are reported as other financing uses.
13. Unearned Revenue
Governmental funds also defer revenue recognition in connection with resources that have been received, but have not yet been earned.
Unearned
South Kitsap School District-School
Resource Officer Program
$41,567
Total $41,567
14. Fund Balance Classification
The City presents fund balance classifications as follows:
• Restricted fund balance: includes amounts that can be spent only for the specific purposes
stipulated by external resource providers (for example, grant providers), constitutionally, or
through enabling legislation (that is, legislation that creates a new revenue source and
restricts it use). Effectively, restrictions may be changed or lifted only with the consent of
resource providers.
• Committed fund balance: includes amounts that can be used only for specific purposes
determined by formal action of the government’s highest level of decision-making
authority. The City Council enacts ordinances and resolutions that may impose, modify or
rescind fund balance commitments. Commitments may be changed or lifted only by the government taking the same formal action that imposed the constraint originally.
• Assigned fund balance: comprises amounts intended to be used by the government for
specific purposes. Intent can be by City Council action or by the City Treasurer per
Ordinance No. 022-11. In governmental funds other than the general fund, assigned fund balance represents the amount that is not restricted or committed. This indicates that resources in other governmental funds are, at a minimum, intended to be used for the
purpose of that fund.
• Unassigned fund balance, is the residual classification for the general fund and includes all amounts not contained in the other classifications. Unassigned amounts are technically available for any purpose. If another governmental fund has a fund balance deficit, then it
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 will be reported as a negative amount in the unassigned classification in that fund. Positive unassigned amounts will be reported only in the general fund.
• When both restricted and unrestricted resources are available, the City’s policy is to use
restricted resources first, and then unrestricted resources, as they are needed. When
committed, assigned or unassigned amounts are available, the City’s policy is to use committed resources first, assigned secondly and finally unassigned resources.
14. Fund Balance Details
Reserve Policies
The City will maintain the reserves, contingencies, and ending fund balances of the various operating funds at levels sufficient to protect the City’s credit as well as its financial position
from emergencies.
General Fund Reserves
The City recognizes that reserves need to be acquired over multiple budget years, and require
discipline and a strong commitment to maintain them.
Reserves are a necessary component of the overall finance management strategy of the City.
Reserves serve a variety of purposes; 1) Ensuring adequate resources for cash flow, 2)
Mitigating short-term effects of revenue shortages, 3) Leveraging beneficial opportunities, 4)
Providing the ability to exercise flexible financial planning, and 5) To address unforeseen emergencies or changes in conditions.
The City will strive to maintain a two tier reserve structure.
• Assigned Ending Fund Balance designated as working capital in the general fund
• Stabilization Arrangement reported as restricted or committed in the general fund
Working Capital
The City’s goal shall be to maintain an undesignated General Fund ending fund balance of at
least five percent of budgeted General Fund operating revenues. Ending fund balance may be
used to cover cash flow needs caused by the ad valorem tax cycle which results in the traditional
“W” cash flow sequence. Ending fund balance reserve is considered working capital of the
General Fund.
F. OTHER
1. Stabilization Arrangement
A City Stabilization Arrangement in an amount of two months of its five year arithmetic mean of
General Fund expenditure budget may be maintained annually as resources allow. Funding may
come from one time revenues, monthly budgeted amounts from general revenues, and transfers
from ending fund balance as authorized by Council resolution.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 Stabilization reserves shall be used if all efforts have been exhausted to fund a qualifying event
and no reasonable budget adjustments are available to continue to provide essential services to
the public. The City Treasurer must quantify, document and present the significance of the
qualifying event. Authorization for spending stabilization reserves requires a simple majority
vote of the City Council.
Qualifying Events:
• The state of Washington or Federal government formally declares a disaster or
emergency.
• A natural or urgent event that jeopardizes public safety, impedes commerce, or threatens
additional damage to City infrastructure.
• Unforeseen events or situation outside of the scope of contingency, planning or planned
normal course of government operations.
• An act of war, terrorism, or declaration of Martial law.
NOTE 2. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL
STATEMENTS
A. EXPLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUNDS BALANCE
SHEET AND THE GOVERNMENT-WIDE STATEMENT OF NET POSITION
The governmental funds’ balance sheet includes reconciliation between fund balance—total governmental funds and net position—governmental activities as reported in the government-
wide statement of net position.
One element of that reconciliation explains that “long-term liabilities, including bonds payable,
are not due and payable in the current period and therefore are not reported in the funds.” The
details of this difference are as follows:
Bonds Payable $459,900
Plus: Deferred charge on refunding (to be amortized as
interest expense) 3,274
Plus: Issuance premium (to be amortized as interest
expense) 1,309
Accrued interest payable 1,419
Other post employment benefits 701,091
Pension Liability 2,239,452
Compensated absences 572,807
Net adjustment to reduce fund balance-total governmental funds to arrive at net position-governmental activities
$3,979,252
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016
B. EXPLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUNDS STATEMENT
OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES AND THE GOVERNMENT-
WIDE STATEMENT OF ACTIVITIES
The governmental funds’ statement of revenues, expenditures and changes in fund balances includes reconciliation between net changes in fund balances—total governmental funds and changes in net position of governmental activities as reported in the government-wide statement
of activities.
One element of that reconciliation explains, “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 difference are as follows:
Current Year Capital outlay $2,832,917
Current Year Depreciation expense (1,090,377)
Net adjustment to decrease net changes in fund balances- total governmental funds to arrive at change in net position of governmental activities
$1,742,540
Another element of that reconciliation is the net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins, and donations) to increase net position. The details
of this are as follows:
Donated Capital Assets $929,512
Sale of Capital Assets $(6,968)
Insurance Reimbursements $(8,999)
Gain (Loss) on Sale of Capital Assets (14,074)
Increase in Net Position $899,471
Another element of that reconciliation states that “revenues in the statement of activities that do
not provide current financial resources are not reported as revenues in the funds.” The details of
this are as follows:
Municipal Court & Non-major fund revenues $(34,860)
Tax revenues - unavailable (5,914)
Due from Other Governments 48,500
Jail Medical -
Grant received in Advance (1,000)
Special Funding Situation-LEOFF 1 62,633
Net adjustment to increase net changes in fund balances- total governmental funds to arrive at
changes in net position of governmental activities
$69,359
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 Another element of that reconciliation states “some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as
expenditures in governmental funds.” The details of this are as follows:
Accrued interest $416
Employee benefits accrual (30,530)
Amortization of deferred amount on refunding 1,266
Amortization of bond premiums 522
OPEB (125,395)
Pension Expense Adjustment 11,474
Net adjustment to decrease net changes in fund balances- total governmental funds to arrive at changes in net position of governmental activities
$(142,247)
NOTE 3. DEPOSITS AND INVESTMENTS
As of December 31, 2016, the City cash, cash equivalents, and investments as reported on the Statement of Net Position are as follows:
Cash & Cash Equivalents City Fiduciary Total
Cash on hand $3,750
$3,750
Cash deposits in bank accounts 1,305,904 14,821 1,320,725
Washington State Local Government Investment
Pool 6,172,249 6,172,249
Kitsap County Investment Pool 7,178,848 924,621 8,103,469
Kitsap Bank Money Market 2,948,092 1,480,377 4,428,469
Total Cash and Cash Equivalents
$17,608,843 $2,419,819
$20,028,662
The City as of December 31, 2016 had investments of $6,172,249 in the Washington State Local
Government Investment Pool and $8,103,469 in the Kitsap County Investment Pool, which are classified as cash equivalents. Additional cash & cash equivalents consist of $4,428,469 held in
interest bearing bank accounts.
A. DEPOSITS
Custodial risk for deposits is the risk that, in the event of a bank failure, the government’s deposits may not be returned. The City’s deposits and certificates of deposit are entirely covered
by the Federal Deposit Insurance Corporation (FDIC) or by collateral held in a multiple financial
institution collateral pool administered by the Washington Public Deposit Protection
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 Commission (PDPC). In the event of a bank failure, claims for the City’s deposits would be satisfied by the FDIC or from the sale of collateral held in the PDPC pool.
B. INVESTMENTS
Statutes authorize the City to invest in obligations of the U.S. Treasury, U.S. Agencies, and instrumentality’s, banker’s acceptances, repurchase agreements, county investment pool and the state treasurer’s investment pool. The City is also authorized to enter into reverse repurchase
agreements, but did not participate in these investments during 2016.
The City is currently invested in two public funds investment pools, Washington State Local
Government Investment Pool (LGIP), which is reported at amortized cost, and the Kitsap County Investment Pool (KCIP), reported at fair value.
The LGIP and KCIP operate in accordance with appropriate state laws and regulations. The
LGIP transacts with its participants at a stable net asset value per share and meets the portfolio
maturity, quality, diversification, liquidity and shadow pricing requirements that allows it to
report at amortized costs. Further, The LGIP is classified as an unrated 2a-7 investment pool per the Securities and Exchange Commission
Kitsap County investment pool is not SEC-registered. Authority to manage the Pool is derived
from the Revised Code of Washington (RCW) in RCW 36.29.022. The fair value of the position
in the pool is the same as the value of the pool shares.
The weighted average maturities of the LGIP and KCIP are less than three (3) months and approximately one (1) year, respectively, with cash available to the City on demand. The on demand availability of these funds defines them as cash equivalent liquid investments. Cash
investments are not subject to interest rate risk or any market value reporting requirements. All
LGIP investments are either obligations of the United States government, government-sponsored
enterprises, or insured demand deposit accounts and certificates of deposits, meaning credit risk is very limited. The investments are either fully insured or fully held by a third party custody provider in the name of the LGIP or KCIP. The LGIP is audited by the Washington State
Auditor’s Office and regulated by Washington RCWs and the LGIP Advisory Committee. The
KCIP is under the direct authority of the elected Kitsap County Treasurer and the Kitsap County
Finance Committee must approve the Investment Policy. The pool is audited annually by the Washington State Auditor’s Office and regulated by Washington RCW’s.
Investments Measured at Amortized Cost
As of December 31, 2016, the City had the following investments at amortized cost.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016
Investment Maturities City's own investments
Investment held by City as an agent
for other local
governments, individuals or private organizations Total
Washington State Local Government Investment Pool N/A $6,172,249 $ - $6,172,249
Total
$6,172,249 $ -
$6,172,249
These are reported at amortized cost because the State Pool has elected to measure in this manner. The only restriction on withdrawals from the State Investment Pool is when a deposit is
received by ACH. In this case, a five day waiting period exists.
Investments Measured at Fair Value
The City measures and records its investments within the fair value hierarchy established by
generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. These guidelines recognize a three-tiered fair value hierarchy,
as follows:
• Level 1: Quoted prices in active markets for identical assets or liabilities; • Level 2: Quoted market prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other than quoted prices that are not observable • Level 3: Unobservable inputs for an asset or liability, to the extent observable inputs are not available
As of December 31, 2016, the City had the following recurring fair value measurements.
Investments by fair value
level Total
Quoted Process in
Active
Markets
for Identical Assets
(Level 1)
Signific
ant Other Observable Inputs
(Level 2)
Significan
t Unobservable Inputs (Level
3)
Kitsap County Investment
Pool
$8,103,469
$784,416
$7,319,053 $ -
Total
$8,103,469
$784,416
$7,319,053 $ -
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 The investment in the LGIP and the KCIP are not subject to foreign currency risk, interest rate risk or credit risk, as the City can withdraw its participation for same or next day settlement
in both of these pools.
NOTE 4. PROPERTY TAX
The Kitsap County Treasurer acts as an agent to collect property taxes levied in the County for
all taxing authorities.
Property Tax Calendar
January 1 Taxes are levied and become an enforceable lien against properties.
February 14 Tax bills are mailed.
April 30 First of two equal installment payments is due.
May 31 Assessed value of property established for next year’s levy at 100 percent of market value.
July 31 New construction valued as of July 31st of the assessment year.
October 31 Second Installment is due.
Property taxes revenues are recognized when cash is collected. The amount of taxes
receivable at year-end that would be collected soon enough to be available to pay liabilities of
the current period is immaterial. The balance at year-end is recorded as taxes receivable.
The City is permitted by law to levy up to $3.60 per $1,000 of assessed valuation for general governmental services. The City is annexed to South Kitsap Fire and Rescue and Kitsap Regional Library. South Kitsap Fire may levy up to $1.50, Kitsap Regional Library may levy up
to $0.50; the difference of South Kitsap Fire’s levy and Kitsap Regional Library’s levy, and
$3.60 is the City’s capacity.
The City’s regular levy for 2016 was $1.749276 per $1,000 on an assessed valuation of $1,405,166,175 for a total regular levy of $2,458,008.
Special levies approved by the voters are not subject to the limitations listed above.
Washington State Constitution and Washington State Law, RCW 84.55.010 limit the rate.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 NOTE 5. CAPITAL ASSETS
A. CAPITAL ASSETS
A summary of capital asset activity for the year ended December 31, 2016 was as follows:
Beginning Bal. 01/01/16 Increases Decreases Ending Bal. 12/31/16
Governmental activities:
Capital assets, not being depreciated
Land and other improvements $1,850,097 $346,388 $- $2,196,485
Intangible Assets 3,079,522 620,610 - 3,700,132
Construction in progress 1,824,090 2,058,040 871,488 3,060,642
Total capital assets, not being depreciated 6,803,709 3,025,037 871,488 8,957,259
Capital assets, being depreciated/depleted:
Buildings 7,439,058 871,488 114,080 8,196,466
Equipment 3,055,416 416,756 102,234 3,369,938
Infrastructure 30,010,158 292,650 - 30,302,808
Intangible Assets 90,138 27,986 - 118,124
Total capital assets being depreciated 40,594,770 1,608,879 216,314 41,987,336
Less accumulated depreciation for:
Buildings 2,328,143 145,459 - 2,473,602
Equipment 2,156,461 210,253 102,234 2,264,480
Infrastructure 16,654,711 731,270 84,039 17,301,942
Intangible Assets 67,570 3,395 - 70,965
Total accumulated depreciation 21,206,885 1,090,377 186,273 22,110,990
Total capital assets, being depreciated, net 19,387,885 518,502 30,041 19,876,346
Governmental activities capital assets, net $26,191,594 $3,543,540 $901,529 $28,833,605
Depreciation expense was charged to functions/programs of the primary government as follows:
Governmental activities: General government 142,467
Security of persons and property 127,277
Transportation 745,718
Physical environment -
Culture and recreation 74,915
Total depreciation expense—governmental activities 1,090,377
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016
Beginning Bal.
01/01/16 Increases Decreases
Ending Bal.
12/31/16
Business-type Activities:
Capital assets, not being depreciated
Land and other improvements $1,071,823 - $87,900 $983,923
Intangible Assets 1,085,866 - - 1,085,866
Construction in progress 2,424,441 348,627 300 2,772,768
Total capital assets, not being depreciated 4,582,130 348,627 88,200 4,842,557
Capital assets, being depreciated/depleted:
Buildings 4,640,429 1,053,062 - 5,693,491
Equipment 5,254,425 173,746 21,961 5,406,210
Infrastructure 38,621,494 180,195 6,018 38,795,671
Intangible Assets 137,482 3,680 0 141,162
Total capital assets being depreciated 48,653,830 1,410,684 27,979 50,036,534
Less accumulated depreciation for:
Buildings 1,168,435 92,772 - 1,261,207
Equipment 3,531,201 237,215 21,961 3,746,455
Infrastructure 7,403,652 449,112 315 7,852,449
Intangible Assets 58,642 10,961 0 69,603
Total accumulated depreciation 12,161,930 790,060 22,277 12,929,714
Total capital assets, being depreciated, net 36,491,899 620,623 5,702 37,106,820
Business-type activities capital assets, net 41,074,029 969,250 93,902 41,949,377
Depreciation expense was charged to functions/programs of the primary government as follows:
Business-type activities: Water-Sewer $614,885
Storm Drainage 175,175
Total depreciation expense-business-type activities $790,060
NOTE 6. CONSTRUCTION AND OTHER SIGNIFICANT COMMITMENTS
A. Construction Commitments
The City of Port Orchard has active construction projects as of December 31, 2016.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 At year-end the city’s commitments with contractors are as follows:
2016 Governmental Construction in Progress Activity:
Project Spent to Date Remaining Commitment
720 Prospect Street $212,033 0
Bay Street Pedestrian Path 750,339 $124,678
McCormick Park Phase II 222,153 0
Old Clifton Anderson Hill Intersection 118,923 0
Tremont Street Widening 1,757,194 27,034
Total $3,060,642 $151,711
2016 Business-type Construction in Progress Activity:
Project Spent to Date
Remaining
Commitment
Marina Pump Station $48,118 $-
Tremont Widening Water Mains 29,656 -
Tremont Widening Sewer Mains 29,656 -
Water Rights & 2nd Wa Rights 157,702 -
Well #9 1,302,713 -
Well #10 668,145 815,153
Well #11 536,778 -
Total $ 2,772,768 $ 815,153
NOTE 7. PENSION PLANS
The following table represents the aggregate pension amounts for all plans subject to the requirements of
the GASB Statement 68, Accounting and Financial Reporting for Pensions for the year 2016:
Pension liabilities 3,522,003$
Pension assets 430,866$
Deferred outflows of resources 884,029$
Deferred inflows of resources 60,655$
Pension expense/expenditures 491,586$
Aggregate Pension Amounts - All Plans
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 State Sponsored 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 benefit and defined contribution retirement plans. The state Legislature establishes, and amends, laws pertaining to the creation and administration of all public retirement systems.
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 98540-8380
Or the DRS CAFR may be downloaded from the DRS website at www.drs.wa.gov.
Public Employees’ Retirement System (PERS)
PERS members include elected officials; state employees; employees of the Supreme, Appeals and
Superior Courts; employees of the legislature; employees of district and municipal courts; employees of
local governments; and higher education employees not participating in higher education retirement programs. PERS is comprised of three separate pension plans for membership purposes. PERS plans 1
and 2 are defined benefit plans, and PERS plan 3 is a defined benefit plan with a defined contribution
component.
PERS Plan 1 provides retirement, disability and death benefits. Retirement benefits are determined as
two percent of the member’s average final compensation (AFC) times the member’s years of service. The AFC is the average of the member’s 24 highest consecutive service months. Members are eligible
for retirement from active status at any age with at least 30 years of service, at age 55 with at least 25 years of service, or at age 60 with at least five years of service. Members retiring from active status prior to the age of 65 may receive actuarially reduced benefits. Retirement benefits are actuarially reduced to
reflect the choice of a survivor benefit. Other benefits include duty and non-duty disability payments, an optional cost-of-living adjustment (COLA), and a one-time duty-related death benefit, if found eligible by
the Department of Labor and Industries. PERS 1 members were vested after the completion of five years
of eligible service. The plan was closed to new entrants on September 30, 1977.
Contributions
The PERS Plan 1 member contribution rate is established by State statute at 6 percent. The employer
contribution rate is developed by the Office of the State Actuary and includes an administrative expense
component that is currently set at 0.18 percent. Each biennium, the state Pension Funding Council adopts Plan 1 employer contribution rates. The PERS Plan 1 required contribution rates (expressed as a
percentage of covered payroll) for 2016 were as follows:
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016
PERS Plan 1
Actual Contribution Rates: Employer Employee*
PERS Plan 1 6.23% 6.00%
PERS Plan 1 UAAL 4.77%
Administrative Fee 0.18%
Total 11.18% 6.00%
* For employees participating in JBM, the contribution rate was 12.26%.
PERS Plan 2/3 provides retirement, disability and death benefits. Retirement benefits are determined as two percent of the member’s average final compensation (AFC) times the member’s years of service for
Plan 2 and 1 percent of AFC for Plan 3. The AFC is the average of the member’s 60 highest-paid consecutive service months. There is no cap on years of service credit. Members are eligible for retirement with a full benefit at 65 with at least five years of service credit. Retirement before age 65 is
considered an early retirement. PERS Plan 2/3 members who have at least 20 years of service credit and are 55 years of age or older, are eligible for early retirement with a benefit that is reduced by a factor that varies according to age for each year before age 65. PERS Plan 2/3 members who have 30 or more years
of service credit and are at least 55 years old can retire under one of two provisions:
• With a benefit that is reduced by three percent for each year before age 65; or
• With a benefit that has a smaller (or no) reduction (depending on age) that imposes stricter return-
to-work rules.
PERS Plan 2/3 members hired on or after May 1, 2013 have the option to retire early by accepting a reduction of five percent for each year of retirement before age 65. This option is available only to those who are age 55 or older and have at least 30 years of service credit. PERS Plan 2/3 retirement benefits
are also actuarially reduced to reflect the choice of a survivor benefit. Other PERS Plan 2/3 benefits include duty and non-duty disability payments, a cost-of-living allowance (based on the CPI), capped at
three percent annually and a one-time duty related death benefit, if found eligible by the Department of
Labor and Industries. PERS 2 members are vested after completing five years of eligible service. Plan 3 members are vested in the defined benefit portion of their plan after ten years of service; or after five years of service if 12 months of that service are earned after age 44.
PERS Plan 3 defined contribution benefits are totally dependent on employee contributions and
investment earnings on those contributions. PERS Plan 3 members choose their contribution rate upon
joining membership and have a chance to change rates upon changing employers. As established by statute, Plan 3 required defined contribution rates are set at a minimum of 5 percent and escalate to 15
percent with a choice of six options. Employers do not contribute to the defined contribution benefits.
PERS Plan 3 members are immediately vested in the defined contribution portion of their plan.
Contributions
The PERS Plan 2/3 employer and employee contribution rates are developed by the Office of the State
Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. The Plan 2/3 employer rates include a component to address the PERS Plan 1 UAAL and an administrative expense that is currently set at 0.18 percent. Each biennium, the state Pension Funding Council adopts Plan 2 employer and
employee contribution rates and Plan 3 contribution rates. The PERS Plan 2/3 required contribution rates (expressed as a percentage of covered payroll) for 2016 were as follows:
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 PERS Plan 2/3
Actual Contribution Rates: Employer 2/3 Employee 2*
PERS Plan 2/3 6.23% 6.12%
PERS Plan 1 UAAL 4.77%
Administrative Fee 0.18%
Employee PERS Plan 3 varies Total 11.18% 6.12%
* For employees participating in JBM, the contribution rate was 15.30%.
The City’s actual PERS plan contributions were $184,777 to PERS Plan 1 and $225,930 to PERS Plan 2/3 for the year ended December 31, 2016.
Law Enforcement Officers’ and Fire Fighters’ Retirement System (LEOFF)
LEOFF membership includes all full-time, fully compensated, local law enforcement commissioned officers, firefighters, and as of July 24, 2005, emergency medical technicians. LEOFF is comprised of two separate defined benefit plans.
LEOFF Plan 1 provides retirement, disability and death benefits. Retirement benefits are determined per year of service calculated as a percent of final average salary (FAS) as follows:
• 20+ years of service – 2.0% of FAS
• 10-19 years of service – 1.5% of FAS
• 5-9 years of service – 1% of FAS
The FAS is the basic monthly salary received at the time of retirement, provided a member has held the
same position or rank for 12 months preceding the date of retirement. Otherwise, it is the average of the highest consecutive 24 months’ salary within the last ten years of service. Members are eligible for
retirement with five years of service at the age of 50. Other benefits include duty and non-duty disability
payments, a cost-of living adjustment (COLA), and a one-time duty-related death benefit, if found eligible by the Department of Labor and Industries. LEOFF 1 members were vested after the completion
of five years of eligible service. The plan was closed to new entrants on September 30, 1977.
Contributions
Starting on July 1, 2000, LEOFF Plan 1 employers and employees contribute zero percent, as long as the plan remains fully funded. The LEOFF Plan I had no required employer or employee contributions for
fiscal year 2016. Employers paid only the administrative expense of 0.18 percent of covered payroll. LEOFF Plan 2 provides retirement, disability and death benefits. Retirement benefits are determined as
two percent of the final average salary (FAS) per year of service (the FAS is based on the highest consecutive 60 months). Members are eligible for retirement with a full benefit at 53 with at least five
years of service credit. Members who retire prior to the age of 53 receive reduced benefits. If the
member has at least 20 years of service and is age 50, the reduction is three percent for each year prior to age 53. Otherwise, the benefits are actuarially reduced for each year prior to age 53. LEOFF 2 retirement
benefits are also actuarially reduced to reflect the choice of a survivor benefit. Other benefits include
duty and non-duty disability payments, a cost-of-living allowance (based on the CPI), capped at three
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December 31, 2016 percent annually and a one-time duty-related death benefit, if found eligible by the Department of Labor and Industries. LEOFF 2 members are vested after the completion of five years of eligible service.
Contributions
The LEOFF Plan 2 employer and employee contribution rates are developed by the Office of the State Actuary to fully fund Plan 2. The employer rate included an administrative expense component set at
0.18 percent. Plan 2 employers and employees are required to pay at the level adopted by the LEOFF Plan 2 Retirement Board. The LEOFF Plan 2 required contribution rates (expressed as a percentage of
covered payroll) for 2016 were as follows:
LEOFF Plan 2
Actual Contribution Rates: Employer Employee
State and local governments 5.05% 8.41%
Administrative Fee 0.18%
Total 5.23% 8.41%
Ports and Universities 8.41% 8.41%
Administrative Fee 0.18%
Total 8.59% 8.41%
The City’s actual contributions to the plan were $100,129 for the year ended December 31, 2016.
The Legislature, by means of a special funding arrangement, appropriates money from the state General
Fund to supplement the current service liability and fund the prior service costs of Plan 2 in accordance with the recommendations of the Pension Funding Council and the LEOFF Plan 2 Retirement Board.
This special funding situation is not mandated by the state constitution and could be changed by statute.
For the state fiscal year ending June 30, 2016, the state contributed $60,375,158 to LEOFF Plan 2. The amount recognized by the City as its proportionate share of this amount is $62,633.
Actuarial Assumptions
The total pension liability (TPL) for each of the DRS plans was determined using the most recent actuarial valuation completed in 2016 with a valuation date of June 30, 2015. The actuarial assumptions used in the valuation were based on the results of the Office of the State Actuary’s (OSA) 2007-2012
Experience Study.
Additional assumptions for subsequent events and law changes are current as of the 2015 actuarial
valuation report. The TPL was calculated as of the valuation date and rolled forward to the measurement date of June 30, 2016. Plan liabilities were rolled forward from June 30, 2015, to June 30, 2016,
reflecting each plan’s normal cost (using the entry-age cost method), assumed interest and actual benefit
payments.
• Inflation: 3.0% total economic inflation; 3.75% salary inflation
• Salary increases: In addition to the base 3.75% salary inflation assumption, salaries are also
expected to grow by promotions and longevity.
• Investment rate of return: 7.5%
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 Mortality rates were based on the RP-2000 report’s Combined Healthy Table and Combined Disabled Table, published by the Society of Actuaries. The OSA applied offsets to the base table and recognized
future improvements in mortality by projecting the mortality rates using 100 percent Scale BB. Mortality rates are applied on a generational basis; meaning, each member is assumed to receive additional mortality improvements in each future year throughout his or her lifetime.
There were minor changes in methods and assumptions since the last valuation.
• For all systems, except LEOFF Plan 2, the assumed valuation interest rate was lowered from
7.8% to 7.7%. Assumed administrative factors were updated.
• Valuation software was corrected on how the nonduty disability benefits for LEOFF Plan 2 active
members is calculated.
• New LEOFF Plan 2 benefit definitions were added within the OSA valuation software to model
legislation signed into law during the 2015 legislative session.
Discount Rate
The discount rate used to measure the total pension liability for all DRS plans was 7.5 percent.
To determine that rate, an asset sufficiency test included an assumed 7.7 percent long-term discount rate
to determine funding liabilities for calculating future contribution rate requirements. (All plans use 7.7 percent except LEOFF 2, which has assumed 7.5 percent). Consistent with the long-term expected rate of
return, a 7.5 percent future investment rate of return on invested assets was assumed for the test.
Contributions from plan members and employers are assumed to continue being made at contractually required rates (including PERS 2/3, PSERS 2, SERS 2/3, and TRS 2/3 employers, whose rates include a
component for the PERS 1, and TRS 1 plan liabilities). Based on these assumptions, the pension plans’ fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return of 7.5 percent was used to
determine the total liability.
Long-Term Expected Rate of Return
The long-term expected rate of return on the DRS pension plan investments of 7.5 percent was
determined using a building-block-method. The Washington State Investment Board (WSIB) used a best
estimate of expected future rates of return (expected returns, net of pension plan investment expense, including inflation) to develop each major asset class. Those expected returns make up one component of
WSIB’s capital market assumptions. The WSIB uses the capital market assumptions and their target asset
allocation to simulate future investment returns at various future times. The long-term expected rate of return of 7.5 percent approximately equals the median of the simulated investment returns over a 50-year
time horizon.
Estimated Rates of Return by Asset Class
Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of June 30, 2016, are summarized in the table below. The inflation component
used to create the table is 2.2 percent and represents the WSIB’s most recent long-term estimate of broad economic inflation.
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December 31, 2016
Asset Class Target Allocation
% Long-Term Expected Real Rate of Return Arithmetic
Fixed Income 20% 1.70%
Tangible Assets 5% 4.40%
Real Estate 15% 5.80%
Global Equity 37% 6.60%
Private Equity 23% 9.60%
100%
Sensitivity of the Net Pension Liability/ (Asset)
The table below presents the City’s proportionate share of the net pension liability calculated using the
discount rate of 7.5 percent, as well as what the City’s proportionate share of the net pension liability
would be if it were calculated using a discount rate that is 1-percentage point lower (6.5 percent) or 1-percentage point higher (8.5 percent) than the current rate.
Pension Plan Fiduciary Net Position
Detailed information about the State’s pension plans’ fiduciary net position is available in the separately issued DRS financial report.
Pension Liabilities (Assets), Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions
At June 30, 2016, the City reported a total pension liability of $3,522,003 for its proportionate share of the net pension liabilities and $430,866 for its share of net pension assets as follows:
The amount of the asset reported above for LEOFF Plans 1 and 2 reflects a reduction for State pension support provided to the City. The amount recognized by the City as its proportionate share of the net
1% Decrease Current Rate 1% Increase
6.50% 7.50% 8.50%
PERS 1 2,031,469 1,684,609 1,386,115
PERS 2/3 3,382,972 1,837,394 (956,469)
LEOFF 1 (38,974) (65,609) (88,375)
LEOFF 2 1,024,284 (365,258) (1,412,569)
Plan Liability or Asset
PERS 1 1,684,609
PERS 2/3 1,837,394
LEOFF 1 (65,609)
LEOFF 2 (365,258)
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 pension asset, the related State support, and the total portion of the net pension asset that was associated with the City were as follows:
At June 30, the City’s proportionate share of the collective net pension liabilities was as follows:
Employer contribution transmittals received and processed by the DRS for the fiscal year ended June 30
are used as the basis for determining each employer’s proportionate share of the collective pension amounts reported by the DRS in the Schedules of Employer and Nonemployer Allocations for all plans
except LEOFF 1. LEOFF Plan 1 allocation percentages are based on the total historical employer contributions to LEOFF 1
from 1971 through 2000 and the retirement benefit payments in fiscal year 2016. Historical data was obtained from a 2011 study by the Office of the State Actuary (OSA). In fiscal year 2016, the state of Washington contributed 87.12 percent of LEOFF 1 employer contributions and all other employers
contributed the remaining 12.88 percent of employer contributions. LEOFF 1 is fully funded and no further employer contributions have been required since June 2000. If the plan becomes underfunded,
funding of the remaining liability will require new legislation. The allocation method the plan chose
reflects the projected long-term contribution effort based on historical data.
In fiscal year 2016, the state of Washington contributed 39.46 percent of LEOFF 2 employer
contributions pursuant to RCW 41.26.725 and all other employers contributed the remaining 60.54 percent of employer contributions.
The collective net pension liability (asset) was measured as of June 30, 2016, and the actuarial valuation date on which the total pension liability (asset) is based was as of June 30, 2015, with update procedures
used to roll forward the total pension liability to the measurement date. Pension Expense
For the year ended December 31, 2016, the City recognized pension expense as follows:
LEOFF 1 Asset LEOFF 2 Asset
LEOFF - employer's proportionate
share (65,609) (365,258)
LEOFF - State's proportionate
share of the net pension asset
associated with the employer (443,775)(238,122)
TOTAL (509,384) (603,379)
Proportionate Proportionate Change in
Share 6/30/15 Share 6/30/16 Proportion
PERS 1 0.03132% 0.03137% 0.00005%
PERS 2/3 0.03555% 0.03649% 0.00095%
LEOFF 1 0.00630% 0.00637% 0.00007%
LEOFF 2 0.06423% 0.06280% -0.00143%
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016
Deferred Outflows of Resources and Deferred Inflows of Resources
At December 31, 2016, the City reported deferred outflows of resources and deferred inflows of resources
related to pensions from the following:
Pension Expense
PERS 1 99,131
PERS 2/3 276,554
LEOFF 1 (9,167)
LEOFF 2 125,068
TOTAL 491,586
PERS 1 Deferred Outflows of
Resources
Deferred Inflows of
Resources
Net difference between projected and actual investment
earnings on pension plan investments 42,416 -
Contributions subsequent to the measurement date 93,673 -
TOTAL $ 136,089 $ -
PERS 2/3 Deferred Outflows of
Resources
Deferred Inflows of
Resources
Differences between expected and actual experience $ 97,840 $ (60,655)
Net difference between projected and actual investment
earnings on pension plan investments 224,844 -
Changes of assumptions 18,991 -
Changes in proportion and differences between
contributions and proportionate share of contributions 36,454 -
Contributions subsequent to the measurement date 116,724
TOTAL $ 494,852 $ (60,655)
LEOFF 1 Deferred Outflows of
Resources
Deferred Inflows of
Resources
Differences between expected and actual experience $ - $ -
Net difference between projected and actual investment
earnings on pension plan investments 6,669 -
TOTAL $ 6,669 $ -
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016
Deferred outflows of resources related to pensions resulting from the City’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended
December 31, 2017. Other amounts reported as deferred outflows and deferred inflows of resources
related to pensions will be recognized in pension expense as follows:
NOTE 8. RISK MANAGEMENT
The City of Port Orchard is a member of the Association of Washington Cities Risk
Management Service Agency (AWC RMSA). Chapter 48.62 RCW authorizes the governing body of any one or more governmental entities to form together into or join a pool or
organization for the joint purchasing of insurance, and/or joint self-insuring, and/or joint hiring
or contracting for risk management services to the same extent that they may individually
purchase insurance, self-insure, or hire or contract for risk management services. An agreement
to form a pooling arrangement was made pursuant to the provisions of Chapter 39.34 RCW, the Interlocal Cooperation Act. The AWC RMSA was formed on January 1, 1989 when 32
municipalities in the State of Washington joined by signing an Interlocal Governmental
Agreement to pool their self-insured losses and jointly purchase insurance and administrative
services. As of December 31, 2016, 98 municipalities/entities participate in the AWC RMSA
pool.
LEOFF 2 Deferred Outflows of
Resources
Deferred Inflows of
Resources
Differences between expected and actual experience $ 50,050 $ -
Net difference between projected and actual investment
earnings on pension plan investments 131,252 -
Changes of assumptions 1,377 -
Changes in proportion and differences between
contributions and proportionate share of contributions 11,706 -
Contributions subsequent to the measurement date 52,033 -
TOTAL $ 246,418 $ -
Year ended
December 31:PERS 1 PERS 2/3 LEOFF 1 LEOFF 2
2017 (10,444) 13,342 (1,378) 638
2018 (10,444) 13,342 (1,378) 638
2019 38,954 182,356 5,776 110,872
2020 24,349 108,432 3,650 77,088
2021 - - - 5,150
Thereafter - - - -
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 The AWC RMSA allows members to establish a program of joint insurance and provides risk management services to all members. All coverages are on an occurrence basis. The AWC
RMSA provides all risk property, comprehensive crime, general liability, automobile liability,
police liability, public officials’ liability, employee fidelity and faithful performance, and
equipment breakdown insurance coverage. Equipment breakdown is included with the property insurance carrier and fidelity (crime) coverage is a stand-alone policy, which the AWC RMSA procures for its members. The AWC RMSA also allows members with airports to group
purchase airport liability coverage.
Members pay an annual assessment to the AWC RMSA. The AWC RMSA is responsible for payment of all covered causes of loss against the jurisdiction above the stated retention. All members in the AWC RMSA have $15 million in both per occurrence and aggregate liability
limits. For the first $1 million in liability limits, AWC RMSA is self-insured for its Self-Insured
Retention (SIR) of $250,000, per occurrence, and is reinsured by Berkley Public Entity for the
additional $750,000. The $9 million in excess liability coverage limits, an excess liability policy is purchased from Argonaut Insurance Company. The $5 million in excess liability coverage limits above the first layer of excess coverage is purchased from Allied World National
Assurance Company. The excess property coverage is purchased through Lexington Insurance
Company using the Pool’s broker, Arthur J. Gallagher Risk Management Services. In 2016,
AWC RMSA carried a retention of $100,000 and limits up to $250 million. Since AWC RMSA is a cooperative program, there is joint liability among the participating members.
Members contract to remain in the AWC RMSA pool for a minimum of one year and must
give a one-year notice before terminating participation. Even after termination, a member is still
responsible for contributions to the Pool for any unresolved, unreported, and in-process claims for the period they were signatory to the Interlocal Governmental Agreement.
The AWC RMSA establishes a loss fund for both reported and unreported insured events,
which includes estimates of both future payments of losses and related claim adjustment
expenses. In accordance with WAC 200.100.02023, the AWC RMSA is governed by a board of
directors, which is comprised of elected officials of participating members.
There have been no settlements in the past three years that exceeded the city’s insurance coverage.
NOTE 9. LONG-TERM DEBT
A. LONG-TERM DEBT
The City issues general obligation bonds to provide funds for the acquisition and construction of
major capital facilities. The City has $630,000 in general obligation bonds outstanding on
December 31, 2016 for the construction of city hall.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 General obligation bonds are direct obligations and pledge the full faith and credit of the government. These bonds generally are issued as 20-year serial bonds with equal amounts of
principal maturing each year. General obligation bonds are either created by 3/5 majority vote of
the people and, therefore, financed by a special tax levy; or created by ordinance, adopted by the
City Council, and normally financed from general revenues (councilmanic bonds). General obligation bonds currently outstanding are as follows:
Name of Issuance Purpose
Maturity
Date
Interest
Rate
Original
Amount
Debt
Outstanding
2003 LTGO Bond
Bus. Type &
Govt'l. Activities 12/1/2019 2%-3.8%
$3,000,000 $630,000
Total General Obligation Bonds
$630,000
The City provides for cash to fund current debt service requirements as a part of the budgeting
process. Annual debt service requirements to maturity for general obligation bonds are as follows:
Governmental Activities
Business-Type Activities
Principal Interest
Total
Requirements
Principal Interest
Total
Requirements
2017 149,650 17,024 166,674
55,350 6,296 61,646
2018 153,300 11,636 164,936
56,700 4,304 61,004
2019 156,950 5,964 162,914
58,050 2,206 60,256
$459,900
$34,624 $494,524
$170,100
$12,806 $182,906
All bond issues comply with arbitrage regulations.
B. DUE TO OTHER GOVERNMENTS
On April 8,2014 the City approved Contract No. 043-14 authorizing the Mayor to Execute a
Loan Contract with the Department of Commerce in the amount of $6,060,000 for the Well
No.10 project. The loan is funded from the Drinking Water State Revolving Fund (DWSRF)
which is a federal infrastructure loan program designed to assist Municipal and other drinking water systems with low-interest construction loan funding, The City’s interest rate is 1.5% and the loan term is 24 years.
On November 10, 2015, the City approved Resolution No. 019-15 authorizing the Mayor to
enter into a loan agreement with Department of Ecology in the amount of $253,750. The city will
receive a total award of $1,015,000 for the Regional Decant Facility Retrofit of this amount $761,250 is a grant and the remaining $253,750 is a loan. The City’s interest rate is 2.4%.
Total debt outstanding as of December 31, 2016 is as follows:
Name Original Amount Purpose Issuance Date Maturity Date Interest Rate Debt Outstanding
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016
Bus.-Type Activities
Drinking Water State Revolving Fund
(DWSKR) $- Capital 4/8/2014 10/1/2038 1.50% $782,656
Clean Water State Revolving Fund Loan $- Capital 11/10/2015 1/2/2037 2.40% $162,608
Bus.-Type Total
945,264
Total Due to other Governments
$945,264
Business Type Activities
Principal Interest Total Requirements
2017 - - -
2018 8,130 195 8,326
2019 47,263 782 48,045
2020 47,263 782 48,045
2021 47,263 782 48,045
2022-2026 236,316 3,911 240,227
2027-2031 236,316 3,911 240,227
2032-2036 236,316 3,911 240,227
2037-2038 86,396 1,369 87,765
$945,264
$15,642 $960,907
C. GOVERNMENT NOTE
Government note in business activity outstanding at year-end is as follows:
Name
Original
Amount Purpose
Issuance
Date
Maturity
Date
Interest
Rate
Debt
Outstanding
Bus.-Type Activities
McCormick Note $441,250 Capital 11/23/1998 N/A 0.00% $168,250
Bus.-Type Total
168,250
Total Note
$168,250
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016
The promissory note that was entered into for the purchase of the McCormick Water Company is being repaid with new McCormick water connection fees as the revenue source. There is $700
paid on each of the first 550 connections and $225 paid on the 551st through the 800th
connection. Payments are made no less frequent than quarterly. This type of note does not have
a repayment schedule.
D. REFUNDED DEBT
In prior years, the City has defeased various bond issues by creating separate irrevocable trust
funds. New debt has been issued and the proceeds have been used to purchase US Government
securities that were placed in the trust funds. The investments and fixed earnings from the investments are sufficient to fully service the defeased debt until the debt is called or matures. For financial reporting purposes, the debt has been removed as a liability from the governmental
activities column of the statement of net position. At December 31, 2016, $5,000 of bonds
outstanding are considered defeased.
NOTE 10. LEASES
Operating Leases
The City is obligated under certain leases accounted for as operating leases. These represent
lease of copiers, a postage machine, lease for a police substation and an aquatic lands lease. The lease for the police substation expired April, 2016. The City signed an aquatic lands lease June 4, 2012, with Washington State Department of Natural Resources. The second four year period
the lease payment amount is $18,602.49 (with an inflation adjustment annually.) In 2016,
$18,602.49 was paid to DNR for this lease. At the end of each four year period, the state will re-
value the annual rent.
The following is a schedule by years of future minimum rental payments required under
operating leases that have initial or remaining non-cancelable lease terms in excess of one year
as of December 31, 2016:
Year Ending December 31 Total
2017 37,178.13
2018 26,085.31
2019 18,602.49
Total minimum payments required $81,865.93
Total rent expense for the year ended December 31, 2016 was $37,778.13.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 NOTE 11. CHANGES IN LONG-TERM LIABILITIES
The following is a summary of long-term debt changes of the City for the year ended December
31, 2016:
Beginning Ending Due Within
Governmental Activities Balance Additions Reductions Balance One Year
Bonds payable: General obligation bonds $602,250 $- $142,350 $459,900 $149,650
Premiums 1,831 - 522 1,309 522
Total bonds payable 604,081 - 142,872 461,209 150,172
Net Pension Liability* 1,853,861 385,591 - 2,239,452 -
OPEB obligations 575,696 165,729 40,334 701,091 -
Compensated absences 542,277 30,530 - 572,807 508,261
Governmental activity long-term
liabilities $3,575,915 $581,850 $183,206 $3,974,559 $658,433
Business-type activities Bonds payable:
General obligation bonds $222,750 $- $52,650 $170,100 $55,350
Premiums 672 - 192 480 192
Total bonds payable 223,422 - 52,842 170,580 55,542
Drinking Water State Revolving Fund Loan 671,596 111,060 - 782,656 -
Water Quality Loan - 162,608
162,608 -
Private note 168,250 - - 168,250 -
Net Pension Liability* 1,054,457 228,094 - 1,282,551 -
Compensated absences 84,665 1,425 - 86,090 64,495
Business-type activities long-term liabilities $2,202,390 $503,187 $52,842 $2,652,735 $120,037
NOTE 12. CONTINGENCIES AND LITIGATION
The City of Port Orchard has situations which are not yet resolved, but based on available information, in the opinion of management, the City of Port Orchard’s insurance policies and/or
reserves are adequate to pay all known or pending claims.
As discussed in Note 9. Long Term Debt, the City is contingently liable for repayment of
refunded debt.
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 request for
reimbursement to grantor agencies for expenditures disallowed under the terms of the grants.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 (Other than the instances described above,) City management believes that such disallowances, if any, will be immaterial.
NOTE 13. RESTRICTED COMPONENT OF NET POSITION
The government-wide statement of net position reports $4,003,873 of restricted component of
net position, all of which is restricted by enabling legislation.
NOTE 14. INTERFUND TRANSFERS
A. INTERFUND TRANSFERS
Interfund transfers are the flow of assets without a reciprocal return of assets, goods or services.
These are transfers to support other funds without a requirement for repayment. Transfers included General Fund receiving $457,000 for paving street paving and improvements from the Real Estate Excise Tax fund and the Street Capital Projects fund. Capital Projects fund received
$250,000 for Dekalb Pier and other projects, and $10,137 for 720 Prospect Street from the
General Fund. It also received $241,500 for 720 Prospect St and $128,286 for Dekalb Pier from
the Real Estate Excise Tax Fund and $137,500 for McCormick Woods Park from Impact Fee Fund. Street Capital Projects fund received $118,923 for the Old Clifton/Anderson intersection from the Impact Fee Fund and $7,026 for the Rockwell Trailhead from Real Estate Excise Tax
fund and $5,000 from the General Fund for Tremont Street. The bond debt service fund received
$164,356 from the Real Estate Excise tax fund for debt service for City Hall. The Cumulative
reserve for municipal equipment received $188,385 for various vehicle purchases from the General Fund. The interfund transfer activity for 2016 is as follows:
Transfer From Transfer To
General
Fund
Street Capital
Projects
Water
Sewer
Storm
Drainage
Nonmajor
Gov't Funds Total
General Fund $457,000 $457,000
Capital Projects Fund $260,137
$507,286 $767,422
Street Capital Projects 5,000
125,949 130,949
Nonmajor Governmental Funds 188,385
164,356 352,741
Total $453,522 $- $- $- $1,254,590 $1,708,112
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 NOTE 15. RECEIVABLES BALANCES
A. RECEIVABLES
Receivables at December 31, 2016 were as follows:
Governmental Activities: Due from Other Gvts Taxes Other Total
General Fund taxes $- $82,539 $- $82,539
General Fund miscellaneous receivables
52,155 52,155
General Fund municipal court receivables
421,416 421,416
General Fund due from other governments 1,514
1,514
Special Investigative Unit court receivables
35,751 35,751
Impact Mitigation Fee Fund bayside receivable
-
Capital Construction due from other governments 48,500
48,500
Street Capital Projects miscellaneous receivables
-
Street Capital Projects due from other gov/misc rec 239,936
239,936
Total Governmental Activities $289,950 $82,539 $509,322 $881,811
Business Type Activities: Water-Sewer accounts receivables $- $- $825,406 $825,406
Water-Sewer soil clean-up receivable
117,401 117,401
Storm Drainage accounts receivable 285,460 285,460
Storm Drainage due from other governments 270,315
270,315
Total Business Type Activities $270,315 $- $1,228,267 $1,498,582
NOTE 16. JOINT VENTURES
In 1983, the City of Port Orchard and West Sound Utility District (previously the Karcher Creek Sewer District) amended an intergovernmental agreement relating to the construction and
management of the secondary wastewater treatment facility. In April of 2014 the City and
District signed an interlocal agreement for the management and operation of the joint wastewater
treatment facility for an additional term of 25 years. This joint venture establishes a Sewer Advisory Committee (SAC) consisting of three representatives from each entity who prepare and monitor the Facility’s budget. The District and the City share 50% ownership in the facility’s
total assets. In accordance with the generally accepted accounting principles, the proportional
shares of the joint venture’s results of operations are presented as a single operating account on
the City’s proprietary fund’s operating statement – Investment in Joint Venture. In 2016, the change in the City’s equity in the joint venture was a increase of $240,292. This amount was effected by the implementation of GASB 68. The City of Port Orchard’s equity interest in the
secondary Wastewater Treatment Facility as of December 31, 2016 was $8,612,271.
Washington State Auditor's Office
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 The Utility District is responsible for the daily operation of the facility. The participants pay their share of the expenses based on their portion of flow into the facility. The City and the
District pay the joint venture an amount determined during the budget process to cover
maintenance, operation, capital improvements and debt monthly. The current cost sharing is
49% City and 51% District.
The City was the lead agency on the wastewater treatment plant expansion project, and is the signatory on two Public Works Trust Fund Loans for the Facility’s expansion. Revenues of the
facility are used to make debt service payments on the two loans. Annually, the facility makes a
payment to the City to cover the debt service on these loans. The SAC recommended and the
City Council and the District Commissioners approved using a portion of Wastewater Treatment Facility Fees collected by each jurisdiction to help make the annual debt payments. This cost sharing formula is 50% and in 2016 each entity paid $250,000.
Name of Issuance Purpose
Total Amount of Loan
First Draw Date Maturity Date Interest Rate Debt Outstanding
Public Works Trust
Fund Loan 1 Capital $10,000,000 2/29/2004 7/1/2022 0.50% $3,315,570
Loan 2 Capital $6,800,000 6/30/2005 7/1/2024 0.50% 2,880,000
Joint Venture Total
6,195,570
Total Loans
$6,195,570
West Sound Utility District maintains separate accounting records and prepares separate
financial statements for the operations of the Joint Wastewater Treatment Facility. Complete
financial statements for the Facility can be obtained from West Sound Utility District at 2924 SE
Lund Ave, Port Orchard, WA 98366.
NOTE 17. OTHER POST EMPLOYMENT BENEFITS (OPEB) PLANS
A. PLAN DESCRIPTION – DEFINED BENEFIT – SINGLE EMPLOYER PLAN (LEOFF 1 OPEB)
As required by the Revised Code of Washington (RCW) Chapter 41.26, the City provides lifetime medical care for members of the Law Enforcement Officers and Firefighters (LEOFF)
retirement system hired before October 1, 1977. The members necessary hospital, medical and
nursing care expenses, not payable by worker’s compensation, social security, insurance
provided by another employer, other pension plan or any other similar source are covered. Most
medical coverage for eligible retirees is provided by one of the City’s employee medical insurance programs. As of December 31, 2016 the City has four members in this group.
This OPEB plan does not issue a stand-alone financial report nor is it included in the report of
another entity.
Funding Policy
Washington State Auditor's Office
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 Funding for LEOFF retiree healthcare costs is provided entirely by the City as required by RCW. The plan is not currently funded. The City finances it on a pay-as-you-go-basis.
Actuarial Methods and Assumptions
The City used the alternative measurement method permitted under GASB Statement No. 45. A
single retirement age of 56.24 was assumed for all active members for the purpose of determining the actuarial accrued liability (AAL) and normal cost. Retirement, disablement, termination and mortality rates were assumed to follow the LEOFF 1 rates used in the June 30,
2011 actuarial valuation report issued by the Office of the State Actuary (OSA). Healthcare
costs and trends were determined by Milliman and used by OSA in the state-wide LEOFF1
medical study performed in 2013. The results were based on grouped data with four active groupings and four inactive groupings. The actuarial cost method used to determine the AAL was Projected Unit Credit. The AAL and NOO are amortized on an open basis as a level dollar
over 15 years. These assumptions are individually and collectively reasonable for the purposes
of this valuation.
Annual OPEB Cost and Net OPEB Obligation
The City was required to contribute $194,480, but only contributed $40,334 at December 31, 2016. This $40,334 contributed differs from the Annual Required Contribution (ARC) because
the plan is financed on a pay-as-you-go basis. The difference between the OPEB Costs and the
required contribution is called the Net OPEB Obligation (NOO). This amount of $701,091 is the
actuarial accrued liability recognized on the government wide statement of net position.
The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation is as follows:
Fiscal
Year Ended
Annual
OPEB Costs
Percentage of
Annual OPEB Costs Contributed Net OPEB Obligation
2016 $165,729 24% $701,091
2015 $179,412 33% $575,696
2014 $148,976 42% $454,600
Actuarial Valuation
Date
Actuarial Value of
Assets
Actuarial Accrued Liability Projected
Unit Credit
Unfunded Actuarial Accrued
Liabilities (UAAL)
Funded
Ratio
Covered
Payroll
UAAL as a Percentage of
Covered Payroll
12/31/2016 0 2,162,300 2,162,300 0% 0 N/A
12/31/2015 0 2,247,199 2,247,199 0% 0 N/A
12/31/2014 0 1,860,814 1,860,814 0% 0 N/A
The Annual Required Contribution (ARC) represents a level of funding that, if paid on an
ongoing basis, is projected to cover the normal cost each year and amortize any unfunded
actuarial liabilities over a period of twenty five years using closed group contribution rates, and
annual budget growth of 29.00%, with a +or- 5.0% medical inflation sensitivity performed as of
December 31, 2016. The following table shows the components of the City’s annual OPEB cost
Washington State Auditor's Office
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 for the year, the amount actually contributed to the plan, and changes in the net OPEB Obligation. The net OPEB obligation of $701,091 is included as a non-current liability in the
statement of net position.
2016
Determination of Annual Required Contribution
Normal Cost at beginning of year $-
Amortization of UAAL* 194,480
Annual Required Contribution (ARC) at year-end 194,480
Determination of Net OPEB Obligation
Actuarial Required Contribution (ARC 12/31/15) 194,480
Interest on Net OPEB Obligation (NOO) 23,028
Adjustment to NOO (51,779)
Annual OPEB Cost 165,729
Employer Contributions (40,334)
Increase (Decrease) in NOO 125,395
Net OPEB Obligation January 1,2015 575,696
Net OPEB Obligation December 31, 2015 $701,091
The City’s percentage of annual OPEB cost contributed to the plan for 2016 is 24%.
The required schedule of funding progress is immediately following the notes to the financial
statements.
B. OTHER RETIREES - AWC (OTHER THAN LEOFF1)
The City is a Participating Employer in the Association of Washington Cities Employee Benefit Trust (“Trust”), a cost-sharing multiple-employer welfare benefit plan administered by the
Association of Washington Cities. The Trust provides medical benefits to certain eligible retired
employees of Participating Employers and their eligible family members. Under Article VII of
the Trust document, the Trustees have the authority and power to amend the amount and nature of the medical and other benefit provided by the Trust. The Trust issues a publicly available financial report that includes financial statements and required supplementary information for the
Trust. That report, along with a copy of the document, may be obtained by writing to the Trust
at 1076 Franklin Street SE, Olympia WA 98501-1346 or by calling 1-800-562-8981.
Funding Policy The Trust provides that contribution requirements of participating employers and of participating
employees, retirees and other beneficiaries, if any, are established and may be amended by the
Board of Trustees of the Trust. Retirees of the City receiving medical benefits from the Trust
contribute the following monthly amounts:
Washington State Auditor's Office
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016
Retirees receiving medical benefits from the trust 2016
Monthly Contributions: Healthfirst R- 1000 Healthfirst R- 2500
Non-Medicare enrolled retiree coverage $734.37 $641.21
Non-Medicare enrolled spouse coverage $740.78 $645.87
Participating employers are not contractually required to contribute an assessed rate each year by
the Trust for the non-LEOFF1 retirees. The retiree pays for 100% of the premium.
NOTE 18. HEALTH & WELFARE
The City of Port Orchard is a member of the Association of Washington Cities Employee
Benefit Trust Health Care Program (AWC Trust HCP). Chapter 48.62 RCW provides that two or
more local government entities may, by Interlocal agreement under Chapter 39.34 RCW, form
together or join a pool or organization for the joint purchasing of insurance, and/or joint self-insurance, to the same extent that they may individually purchase insurance, or self-insure.
An agreement to form a pooling arrangement was made pursuant to the provisions of Chapter
39.34 RCW, the Interlocal Cooperation Act. The AWC Trust HCP was formed on January 1,
2014 when participating cities, towns, and non-city entities of the AWC Employee Benefit Trust in the State of Washington joined together by signing an Interlocal Governmental Agreement to
jointly self-insure certain health benefit plans and programs for participating employees, their
covered dependents and other beneficiaries through a designated account within the Trust.
As of December 31, 2016, 258 cities/towns/non-city entities participate in the AWC Trust HCP.
The AWC Trust HCP allows members to establish a program of joint insurance and provides
health and welfare services to all participating members. The AWC Trust HCP pools claims
without regard to individual member experience. The pool is actuarially rated each year with the assumption of projected claims run-out for all current members. The AWC Trust HCP includes
medical, dental and vision insurance through the following carriers: Group Health
Cooperative/Group Health Options, Inc., Regence BlueShield, Asuris Northwest Health, Delta
Dental of Washington, and Vision Service Plan. Eligible members are cities and towns within the
state of Washington. Non-City Entities (public agency, public corporation, intergovernmental agency, or political subdivision within the state of Washington) are eligible to apply for coverage
into the AWC Trust HCP, submitting application to the Board of Trustees for review as required
in the Trust Agreement.
Participating employers pay monthly premiums to the AWC Trust HCP. The AWC Trust HCP is responsible for payment of all covered claims. In 2016, the AWC Trust HCP purchased
stop loss insurance for Regence/Asuris plans at an Individual Stop Loss (ISL) of $1.5 million
through Life Map, and Group Health ISL at $750,000 through Sun Life. The aggregate policy is
for 200% of expected medical claims.
Washington State Auditor's Office
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 Participating employers contract to remain in the AWC HCP for a minimum of three years.
Participating employers with over 250 employees must provide written notice of termination of
all coverage a minimum of 12 months in advance of the termination date, and participating
employers with under 250 employees must provide written notice of termination of all coverage a minimum of 6 months in advance of termination date. When all coverage is being terminated, termination will only occur on December 31. Participating employers terminating a group or line
of coverage must notify the HCP a minimum of 60 days prior to termination. A participating
employer’s termination will not obligate that member to past debts, or further contributions to
the HCP. Similarly, the terminating member forfeits all rights and interest to the HCP Account. The operations of the Health Care Program are managed by the Board of Trustees or its
delegates. The Board of Trustees is comprised of four regionally elected officials from Trust
member cities or towns, the Employee Benefit Advisory Committee Chair and Vice Chair, and
two appointed individuals from the AWC Board of Directors, who are from Trust member cities or towns. The Trustees or its appointed delegates review and analyze Health Care Program related matters and make operational decisions regarding premium contributions, reserves, plan
options and benefits in compliance with Chapter 48.62 RCW.
The Board of Trustees has decision authority consistent with the Trust Agreement, Health Care Program policies, Chapter 48.62 RCW and Chapter 200-110-WAC.
The accounting records of the Trust HCP are maintained in accordance with methods
prescribed by the State Auditor’s office under the authority of Chapter 43.09 RCW. The Trust
HCP also follows applicable accounting standards established by the Governmental Accounting Standards Board (“GASB”). Year-end financial reporting is done on an accrual basis and submitted to the Office of the State Auditor as required by Chapter 200-110 WAC. The audit
report for the AWC Trust HCP is available from the Washington State Auditor’s office.
NOTE 19. TERMINATION BENEFITS
The funding policy for any termination benefits is based upon pay-as-you-go. These termination
benefits are handled on a case by case basis.
NOTE 20. SUBSEQUENT EVENT
The City executed preliminary engagement letters with S&P Global Ratings and D.A. Davidson
& Co. with the reasonable expectation to issue $7,915,000* City of Port Orchard, Washington Limited General Obligation Bonds, 2017. The proceeds of the Bonds will be used to (1) pay for
a portion of the costs related to the Tremont Widening Project, including making certain
improvements to Tremont Street and related public infrastructure; and (2) pay costs related to the
issuance and sale of the Bonds. It is anticipated the City Council will adopt a Bond Ordinance
authorizing the issuance of the Bonds at its regularly scheduled June 27, 2017 meeting. *Preliminary, subject to change.
Washington State Auditor's Office
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2016 The City is negotiating a Developer Extension Agreement for Water Utility System
Improvements with McCormick Communities LLC. The developer will construct water resource
infrastructure, well development and system piping for the delivery of potable water, and
sanitary sewer rehabilitation and upgrades to an existing sewer pump station. The City may reimburse the developer approximately $13 million pursuant to RCW 36.70b.170.
Washington State Auditor's Office
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Required Supplementary Information LEOFF 1 Retiree Medical Benefits
Schedule of Funding Progress
Actuarial
Valuation Date
Actuarial
Value of Assets
Actuarial Accrued Liability
Projected Unit Credit
Unfunded Actuarial Accrued
Liabilities (UAAL) Funded Ratio Covered Payroll
UAAL as a Percentage of
Covered Payroll
12/31/2014 0 $1,860,814 $1,860,814 0% 0 N/A
12/31/2015 0 $2,247,199 $2,247,199 0% 0 N/A
12/31/2016 0 $2,162,300 $2,162,300 0% 0 N/A
Washington State Auditor's Office
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REQUIRED SUPPLEMENTARY INFORMATION - State Sponsored Plans
Year
Ended
June 30,
Employer's
proportion of the
net pension
liability (asset)
Employer's
proportionate
share of the net
pension liability
Employer's
covered
employee
payroll
Employer's proportionate
share of the net pension
liability as a percentage of
covered employee payroll
Plan fiduciary net
position as a
percentage of the
total pension liability
2016 0.031368%$1,684,609 $3,569,404 47.20%57.03%
2015 0.031319%1,638,275 3,347,457 48.94%59.10%
2014 0.031858%1,604,862 3,238,306 49.56%61.19%
City of Port Orchard
Schedule of Proportionate Share of the Net Pension Liability
PERS 1
As of June 30, 2016
Last 3 Fiscal Years Washington State Auditor's Office___________________________________________________________________________________________________________________ Page 81
REQUIRED SUPPLEMENTARY INFORMATION - State Sponsored Plans
Year
Ended
June 30,
Employer's
proportion of the
net pension
liability (asset)
Employer's
proportionate
share of the net
pension liability
Employer's
covered
employee
payroll
Employer's proportionate
share of the net pension
liability as a percentage of
covered employee payroll
Plan fiduciary net
position as a
percentage of the
total pension liability
2016 0.036493%$1,837,394 $3,422,548 53.68%85.82%
2015 0.035545%1,270,043 3,153,865 40.27%89.20%
2014 0.035257%712,671 3,017,268 23.62%93.29%
City of Port Orchard
Schedule of Proportionate Share of the Net Pension Liability
PERS 2/3
As of June 30, 2016
Last 3 Fiscal Years Washington State Auditor's Office___________________________________________________________________________________________________________________ Page 82
REQUIRED SUPPLEMENTARY INFORMATION - State Sponsored Plans
Year
Ended
June 30,
Employer's
proportion of the
net pension
liability (asset)
Employer's
proportionate
share of the net
pension liability
State's proportionate
share of the net
pension liability
(asset) associated
with the employer TOTAL
Employer's
covered
employee
payroll
Employer's proportionate
share of the net pension
liability as a percentage of
covered employee payroll
Plan fiduciary net
position as a
percentage of the
total pension liability
2016 0.006368%$(65,609) $(443,775) $(509,384)N/A N/A 123.74%
2015 0.006300%(75,929) (513,582) (589,511)N/A N/A 127.36%
2014 0.006248%(75,775) (512,540) (588,315)N/A N/A 126.91%
City of Port Orchard
Schedule of Proportionate Share of the Net Pension Liability
LEOFF 1
As of June 30, 2016
Last 3 Fiscal Years Washington State Auditor's Office___________________________________________________________________________________________________________________ Page 83
REQUIRED SUPPLEMENTARY INFORMATION - State Sponsored Plans
Year
Ended
June 30,
Employer's
proportion of the
net pension
liability (asset)
Employer's
proportionate
share of the net
pension liability
State's proportionate
share of the net
pension liability
(asset) associated
with the employer TOTAL
Employer's
covered
employee
payroll
Employer's proportionate
share of the net pension
liability as a percentage of
covered employee payroll
Plan fiduciary net
position as a
percentage of the total
pension liability
2016 0.062799%$(365,258) $(238,122) $(603,379)$1,903,317 -19.19%106.04%
2015 0.064232%(660,176) (436,507) (1,096,683)1,864,263 -35.41%111.67%
2014 0.064715%(858,796) (580,703) (1,439,499)1,800,946 -47.69%116.75%
City of Port Orchard
Schedule of Proportionate Share of the Net Pension Liability
LEOFF 2
As of June 30, 2016
Last 3 Fiscal Years Washington State Auditor's Office___________________________________________________________________________________________________________________ Page 84
REQUIRED SUPPLEMENTARY INFORMATION - State Sponsored Plans
Year Ended
December
31,
Statutorily or
contractually
required
contributions
Contributions in relation
to the statutorily or
contractually required
contributions
Contribution
deficiency
(excess)
Covered
employer
payroll
Contributions as a
percentage of
covered employee
payroll
2016 $184,777 $(184,777)$- $3,733,709 4.95%
2015 165,452 (165,452)- 3,572,533 4.63%
2014 144,556 (144,556)- 3,290,044 4.39%
City of Port Orchard
Schedule of Employer Contributions
PERS 1
As of December 31, 2016
Last 3 Fiscal Years Washington State Auditor's Office___________________________________________________________________________________________________________________ Page 85
REQUIRED SUPPLEMENTARY INFORMATION - State Sponsored Plans
Year Ended
December 31,
Statutorily or
contractually
required
contributions
Contributions in relation
to the statutorily or
contractually required
contributions
Contribution
deficiency
(excess)
Covered
employer
payroll
Contributions as a
percentage of
covered employee
payroll
2016 $225,930 $(225,930)$- $3,626,497 6.23%
2015 197,481 (197,481)- 3,411,864 5.79%
2014 153,212 (153,212)- 3,062,326 5.00%
City of Port Orchard
Schedule of Employer Contributions
PERS 2/3
As of December 31, 2016
Last 3 Fiscal Years Washington State Auditor's Office___________________________________________________________________________________________________________________ Page 86
REQUIRED SUPPLEMENTARY INFORMATION - State Sponsored Plans
Year Ended
December 31,
Statutorily or
contractually
required
contributions
Contributions in
relation to the
statutorily or
contractually required
Contribution
deficiency (excess)
Covered
employer
payroll
Contributions as a
percentage of
covered employee
payroll
2016 $- $- $- $N/A N/A
2015 - - - N/A N/A
2014 - - - N/A N/A
City of Port Orchard
Schedule of Employer Contributions
LEOFF 1
As of December 31, 2016
Last 3 Fiscal Years Washington State Auditor's Office___________________________________________________________________________________________________________________ Page 87
REQUIRED SUPPLEMENTARY INFORMATION - State Sponsored Plans
Year Ended
December 31,
Statutorily or
contractually
required
contributions
Contributions in relation
to the statutorily or
contractually required
contributions
Contribution
deficiency
(excess)
Covered
employer
payroll
Contributions as a
percentage of
covered employee
payroll
2016 $100,129 $(100,129)$- $1,982,752 5.05%
2015 102,563 (102,563)- 1,961,041 5.23%
2014 96,584 (96,584)- 1,846,733 5.23%
City of Port Orchard
Schedule of Employer Contributions
LEOFF 2
As of December 31, 2016
Last 3 Fiscal Years Washington State Auditor's Office___________________________________________________________________________________________________________________ Page 88
Note 1:Information Provided
Note 2:Significant Factors
Note 3: LEOFF 1
Note 4: Covered payroll
Covered payroll has been retrospectively presented in accordance with GASB 82, Pension
Issues. Covered payroll now includes all payroll on which a contribution is based. In prior
reports, Plan 1 UAAL covered payroll was included for plans other than PERS 1.
For LEOFF 1, there is a net pension asset; however, there are no active employees
participating in the plan, and no required contributions because the plan is fully funded.
Therefore, covered payroll and contributions as a percent of covered payroll are displayed as
N/A.
There were no changes of benefit terms, significant changes in the employees covered under
the benefit terms or in the use of different assumptions.
City of Port Orchard
Notes to Required Supplemental Information - Pension
As of December 31
Last Three Fiscal Years
GASB 68 was implemented for the year ended December 31, 2015, therefore there is no data
available for years prior to 2014.
Washington State Auditor's Office
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Federal Agency
(Pass-Through Agency)Federal Program
CFDA
Number
Other Award
Number
Expenditures
Passed through
to
Subrecipients Note
From Pass-
Through
Awards
From Direct
Awards Total
Highway Planning and Construction Cluster
Federal Highway Administration
(fhwa), Department Of
Transportation (via WA State
Dept of Transportation)
Highway Planning and
Construction
20.205 STPH-6610
(004) / LA-5855
243,095 - 243,095 -
Federal Highway Administration
(fhwa), Department Of
Transportation (via WA State
Dept of Transportation)
Highway Planning and
Construction
20.205 STPE-0166
(008) / LA-6165
521,816 - 521,816 -
Total Highway Planning and Construction Cluster: 764,911 -764,911 -
US Dept of Transportation-
National Highway Traffic Safety
Admin (via WA Traffic Safety
Commission)
State & Community
Highway Safety
20.6 n/a 2,128 -2,128 -
Highway Safety Cluster
National Highway Traffic Safety
Administration (nhtsa),
Department Of Transportation
(via WA Traffic Safety
Commission)
National Priority Safety
Programs
20.616 n/a 3,487 -3,487 -
Total Highway Safety Cluster: 3,487 -3,487 -
Clean Water State Revolving Fund Cluster
Office Of Water, Environmental
Protection Agency (via WA Dept
of Ecology)
Capitalization Grants for
Clean Water State
Revolving Funds
66.458 WQC-2016-
PoOrPW-00005
252,713 - 252,713 - 3
Total Clean Water State Revolving Fund Cluster: 252,713 -252,713 -
Drinking Water State Revolving Fund Cluster
City of Port Orchard
Schedule of Expenditures of Federal Awards
For the Year Ended December 31, 2016
The accompanying notes are an integral part of this schedule. Washington State Auditor's Office___________________________________________________________________________________________________________________Page 90
Federal Agency
(Pass-Through Agency)Federal Program
CFDA
Number
Other Award
Number
Expenditures
Passed through
to
Subrecipients Note
From Pass-
Through
Awards
From Direct
Awards Total
Office Of Water, Environmental
Protection Agency (via WA Dept
of Health-Office of Drinking
Water / Public Works Board / WA
Department of Commerce)
Capitalization Grants for
Drinking Water State
Revolving Funds
66.468 DM13-952-185 84,011 - 84,011 - 3
Total Drinking Water State Revolving Fund Cluster: 84,011 -84,011 -
United States Coast Guard
(uscg), Department Of Homeland
Security (via WA State Parks &
Recreation Commission)
Boating Safety Financial
Assistance
97.012 n/a 4,199 -4,199 -
Total Federal Awards Expended:1,111,449 -1,111,449 -
City of Port Orchard
Schedule of Expenditures of Federal Awards
For the Year Ended December 31, 2016
The accompanying notes are an integral part of this schedule. Washington State Auditor's Office___________________________________________________________________________________________________________________ Page 91
CITY OF PORT ORCHARD
Notes to Schedule of Expenditures of Federal Awards
January 1, 2016 through December 31 2016
NOTE 1. BASIS OF ACCOUNTING
This schedule is prepared on the same basis of accounting as the City of Port Orchard's financial
statements. The City uses the accrual basis of accounting for all funds except the governmental fund
types, expendable trust funds and agency funds, which use the modified accrual basis of accounting.
NOTE 2. PROGRAM COSTS
The amounts shown as current year expenditures represent only the federal grant portion of the
program costs. Entire program costs including the City’s portion are more than shown. Such
expenditures are recognized following, as applicable, either the cost principles in the OMB Circular
A-87, Cost Principles for State, Local, and Indian Tribal Governments, or the cost principles
contained in Title 2 U.S. Code of Federal Regulation Part 200, Uniform Administration
Requirements, Costs Principles, and Audit Requirements for Federal Awards, wherein certain types
of expenditures are not allowable or are limited as to reimbursement.
NOTE 3. FEDERAL LOANS
The City was approved by the Environmental Protection Agency (EPA) and the Publics Works Trust
Board (PWB) to receive a Drinking Water State Revolving Fund Loan totaling $117,199 to improve
its drinking water system. The amount listed is the proceeds used during the year. Of the funds used
in 2016, the Federal portion is $84,011 and State funds of $33,188. The outstanding balance is not
reported for this loan.
The City was approved by the Environmental Protection Agency (EPA) and the Washington State
Department of Commerce (COM) to receive a Clean Water State Revolving Fund Loan totaling
$252,713 to help fund construction of a regional storm water decant facility. The amount listed is the
proceeds used during the year. A State grant from the Stormwater Financial Assistance Program
administered by the Department of Commerce was also used to complete this project.
NOTE 4 – INDIRECT COST RATE
The City has not elected to use the 10-percent de minimis indirect cost rate allowed under the
Uniform Guidance.
GRANT DESCRIPTION:
US Department of Transportation / WSDOT - Tremont Street Widening Project
This WSDOT project will widen Tremont Street to provide four continuous lanes between Port
Orchard Blvd and SR 16. In addition to providing roadway widening and aesthetic improvements,
this will provide curb, gutter, and sidewalks along both sides of the road; intersection modifications;
improvements to storm drainage facilities; traffic signal and illumination upgrades; retaining walls
and bike paths.
US Department of Transportation / WSDOT - Bay Street Pedestrian Pathway
This WSDOT project constructs a 1-mile long multi-use (bike/pedestrian) pathway between Kitsap
Transits’ Downtown Foot Ferry and the Annapolis Dock Foot Ferry facilities.
US Dept of Homeland Security / Washington State Parks Boating Safety
This grant allows funding for additional Police overtime, fuel and maintenance while utilizing our
marine vessel to protect the waterfront areas that border the City.
Washington State Auditor's Office
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Page 92
CITY OF PORT ORCHARD
Notes to Schedule of Expenditures of Federal Awards
January 1, 2016 through December 31 2016
National Highway Traffic Safety Admin / WA Traffic Safety Commission
These grants were awarded to the City to offset costs of extra DUI, Speeding, and Seatbelt Emphasis
patrols.
US EPA Drinking Water State Revolving Fund Loan/ WSDOC – Well 10
Design and construct a well, including a new well house, site work, instrumentation, high efficiency
variable speed well pump, piping, telemetry, controls, stand by generator, landscaping, parking,
fencing security improvements and site restoration. This will provide a solution to declining yields
from existing City wells reduces dependency on neighboring water systems, improves water quality
and system reliability. This low interest federal loan is reimbursement based. During the initial 48
months the City may draw on the loan to design and construct the well. Construction must be
complete at the end of the 48 month period. The total cost of the well project (a maximum of six
million dollars) becomes a 20 year loan with annual principle and interest payments beginning one
year after the project completion date.
US EPA Clean Water State Revolving Fund Loan/ WSDOC- Decant Facility
The purpose of this project is to improve both local and regional water quality by the construction of
an upgraded regional Stormwater decant facility, the size and function of this facility will allow four
jurisdictions to dispose of the solid and liquid wastes from stormwater and wastewater maintenance
activities.
Washington State Auditor's Office
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CORRECTIVE ACTION PLAN FOR FINDINGS REPORTED
UNDER UNIFORM GUIDANCE
City of Port Orchard
Kitsap County
January 1, 2016 through December 31, 2016
This schedule presents the corrective action planned by the auditee for findings reported in this
report in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform
Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards
(Uniform Guidance). The information in this schedule is the representation of the City.
Finding ref number:
2016-001
Finding caption:
The City did not have proper internal controls in place to ensure
compliance with federal procurement requirements.
Name, address, and telephone of auditee contact person:
Allan Martin, Treasurer
City of Port Orchard
216 Prospect Street
Port Orchard, WA 98366
Corrective action the auditee plans to take in response to the finding:
The City began corrective action to improve procurement processes in December 2016 with the
adoption of Ordinance No. 86-16 setting forth standards of conduct and written procedures in
accordance with the Code of Federal Regulations.
Corrective action includes newly adopted updated written procurement policy and procedures
March 21, 2017.
Continuing actions consist of education and staff training; the assignment of an employee to
serve as procurement officer; and strong department head and elected official support.
Anticipated date to complete the corrective action: September 29, 2017
Washington State Auditor's Office
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ABOUT THE STATE AUDITOR’S OFFICE
The State Auditor's Office is established in the state's Constitution and is part of the executive
branch of state government. The State Auditor is elected by the citizens of Washington and
serves four-year terms.
We work with our audit clients and citizens to achieve our vision of government that works for
citizens, by helping governments work better, cost less, deliver higher value, and earn greater
public trust.
In fulfilling our mission to hold state and local governments accountable for the use of public
resources, we also hold ourselves accountable by continually improving our audit quality and
operational efficiency and developing highly engaged and committed employees.
As an elected agency, the State Auditor's Office has the independence necessary to objectively
perform audits and investigations. Our audits are designed to comply with professional standards
as well as to satisfy the requirements of federal, state, and local laws.
Our audits look at financial information and compliance with state, federal and local laws on the
part of all local governments, including schools, and all state agencies, including institutions of
higher education. In addition, we conduct performance audits of state agencies and local
governments as well as fraud, state whistleblower and citizen hotline investigations.
The results of our work are widely distributed through a variety of reports, which are available
on our website and through our free, electronic subscription service.
We take our role as partners in accountability seriously, and provide training and technical
assistance to governments, and have an extensive quality assurance program.
Contact information for the State Auditor’s Offic e
Public Records requests PublicRecords@sao.wa.gov
Main telephone (360) 902-0370
Toll-free Citizen Hotline (866) 902-3900
Website www.sao.wa.gov
Washington State Auditor's Office
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