FY 2017 Annual Report
Financial Statements and Federal Single Audit
Report
City of Port Orchard
For the period January 1, 2017 through December 31, 2017
Published September 24, 2018
Report No. 1022138
Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 Pat.McCarthy@sao.wa.gov
Office of the Washington State Auditor
Pat McCarthy
September 24, 2018
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
Washington State Auditor’s Office Page 3
TABLE OF CONTENTS
Schedule of Findings and Questioned Costs ................................................................................... 4
Summary Schedule of Prior Audit Findings ................................................................................... 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..................................................................................................... 8
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 Audtor’s Report on Financial Statements ................................................................ 14
Financial Section ........................................................................................................................... 17
About the State Auditor’s Office .................................................................................................. 91
Washington State Auditor’s Office Page 4
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
City of Port Orchard
January 1, 2017 through December 31, 2017
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 basic 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 reported no 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.
Washington State Auditor’s Office Page 5
We issued an unmodified opinion on the City’s compliance with requirements applicable to its
major federal program.
We reported no 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 Cluster – 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 did not qualify as a low-risk auditee under the Uniform Guidance.
SECTION II – FINANCIAL STATEMENT FINDINGS
None reported.
SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED
COSTS
None reported.
Washington State Auditor’s Office Page 6
CITY OF PORT ORCHARD
Finance Department
216 Prospect Street, Port Orchard, WA 98366
Voice: (360) 876-7017 Fax: (360) 895-9029
finance@cityofportorchard.us
www.cityofportorchard.us
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS
City of Port Orchard
January 1, 2017 through December 31, 2017
This schedule presents the status of federal findings reported in prior audit periods.
Audit Period:
January 1, 2016 through
December 31, 2016
Report Ref. No.:
1019802
Finding Ref. No.:
2016-001
CFDA Number(s):
20.205
Federal Program Name and Granting Agency:
Department of Transportation Federal Highway
Administration
Pass-Through Agency Name:
Washington State Department of
Transportation
Finding Caption:
The City did not have proper internal controls in place to ensure compliance with federal
procurement requirements.
Background:
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
evaluation the proposals. The City awarded a personal service contract totaling $207,461 in
2013 of which $53,142 was paid in 2016.
Status of Corrective Action: (check one)
☒ Fully
Corrected
☐ Partially
Corrected ☐ Not Corrected ☐ Finding is considered no
longer valid
Washington State Auditor’s Office Page 7
Corrective Action Taken:
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
City Council was presented and adopted Procurement Policies and Procedures updated
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 includes written policy and procedures;
continuing education and staff training, and the assignment of an employee as procurement
officer with strong department support.
Washington State Auditor’s Office Page 8
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
January 1, 2017 through December 31, 2017
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, as of and for the year ended December 31, 2017, 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 17, 2018.
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 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.
Washington State Auditor’s Office Page 9
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.
In addition, we noted certain matters that we have reported to the management of the City in a
separate letter dated September 17, 2018.
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,
Washington State Auditor’s Office Page 10
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 17, 2018
Washington State Auditor’s Office Page 11
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
January 1, 2017 through December 31, 2017
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, 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, 2017. 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
Washington State Auditor’s Office Page 12
referred to above that could have a direct and material effect on a major federal 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, 2017.
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.
Washington State Auditor’s Office Page 13
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 control
that might be material weaknesses or significant deficiencies. We did not identify any deficiencies
in internal control over compliance that we consider to be material weaknesses. However, material
weaknesses may exist that have not been identified.
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 17, 2018
Washington State Auditor’s Office Page 14
INDEPENDENT AUDITOR’S REPORT ON
FINANCIAL STATEMENTS
City of Port Orchard
January 1, 2017 through December 31, 2017
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, as of and for the year ended December 31, 2017, 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 statements, whether
Washington State Auditor’s Office Page 15
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, 2017, 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 and required supplementary information listed on page 17
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.
Washington State Auditor’s Office Page 16
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 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 17, 2018 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 17, 2018
Washington State Auditor’s Office Page 17
FINANCIAL SECTION
City of Port Orchard
January 1, 2017 through December 31, 2017
REQUIRED SUPPLEMENTARY INFORMATION
Management’s Discussion and Analysis – 2017
BASIC FINANCIAL STATEMENTS
Statement of Net Position – 2017
Statement of Activities – 2017
Balance Sheet – Governmental Funds – 2017
Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental
Funds – 2017
Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balance of
Governmental Funds to the Statement of Activities – 2017
Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and
Actual – General Fund – 2017
Statement of Net Position – Proprietary Funds – 2017
Statement of Revenues, Expenses and Changes in Fund Net Position – Proprietary Funds
– 2017
Statement of Cash Flows – Proprietary Funds – 2017
Statement of Fiduciary Net Position – Fiduciary Funds – 2017
Notes to the Financial Statements – 2017
REQUIRED SUPPLEMENTARY INFORMATION
Schedule of Funding Progress – LEOFF 1 Retiree Medical Progress – 2017
Schedule of Proportionate Share of Net Pension Liability – PERS/LEOFF – 2017
Schedule of Employer Contributions – PERS/LEOFF – 2017
Notes to Required Supplemental Information – Pension – 2017
SUPPLEMENTARY AND OTHER INFORMATION
Schedule of Expenditures of Federal Awards – 2017
Notes to the Schedule of Expenditures of Federal Awards – 2017
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, 2017. 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, 2017, by $106.2 million.
• Net investment in capital assets account for about 71 percent of this amount, with a value of $75.0 million.
• Of the remaining net position, $25.8 million may be used to meet the government's ongoing
obligations to citizens and creditors, without legal restriction while $5.4 million is restricted.
• The government’s total net position shows an increase of $12,740,672. The increase is due to reserve funds set aside per the City’s financial policy, capital grants, and increases in proprietary funds charges for services.
• As of December 31, 2017, City of Port Orchard’s governmental funds reported combined ending fund balances of $13.8 million. Unassigned Fund Balance, approximately 23% of total fund balance is available for spending at the government's discretion. Of the remaining fund balance, $2,610,804 is assigned, $1,005,235 is committed fund balance and $7,156,232 is restricted fund
balance, restricted by laws, regulations or contracts external to the City.
• City of Port Orchard’s total bonded debt had a net increase of $5,659,286 during the fiscal year. The City issued $5,865,000 in general obligation debt during the year. At December 31, 2017 the total outstanding bonded debt, including bond premiums, was $6,291,075. 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,
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and the issuance of permits and licenses. The business-type activities of the City include water, sewer and storm utility management and operation.
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 2017. 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 2017, 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 2017. 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, Capital Construction Fund, and 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
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Statement of Revenues, Expenditures, and Changes in Fund Balances provide reconciliation to the Governmental Activities column in the Government-Wide statements, facilitating this comparison.
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 $106,176,066 at December 31, 2017. 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
2017 2016 2017 2016 2017 2016
Current and other assets $16,994,667 $10,090,456 $23,340,285 $18,941,917 $40,334,952 $29,032,373
Capital assets 35,681,026 28,833,605 44,220,986 41,949,377 79,902,012 70,782,982
Total assets 52,675,693 38,924,061 67,561,271 60,891,294 120,236,964 99,815,355
Deferred Outflows related to Pension 502,412 654,269 194,700 229,760 697,112 884,029
Total deferred outflows of resource 502,412 654,269 194,700 229,760 697,112 884,029
Long-Term liabilities 7,425,339 3,974,559 4,628,647 2,652,735 12,053,986 6,627,294
870,050 211,092 0 870,050 211,092
Other liabilities 579,554 662,277 474,256 710,515 1,053,810 1,372,792
Total liabilities 8,874,943 4,847,928 5,102,903 3,363,250 13,977,846 8,211,178
Deferred Inflows related to Pension 620,398 38,567 157,496 22,088 777,894 60,655
Deferred Amount on Refunding 2,008 3,274 262 428 2,270 3,702
Total deferred inflows of resources 622,406 41,841 157,758 22,516 780,164 64,357
Net Position
net of related debt 34,357,698 28,369,122 40,640,707 40,664,855 74,998,405 69,033,977
Restricted 5,415,285 4,003,873 0 0 5,415,285 4,003,873
Unrestricted 3,907,773 2,315,566 21,854,603 17,070,433 25,762,376 19,385,999
Total net position $43,680,756 $34,688,561 $62,495,310 $57,735,288 $106,176,066 $92,423,850
Liabilities Payable from Restricted Assets
Net Investment in Capital Assets
The largest portion of the City’s net position (70.6 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, $5,415,285 is restricted and $25,762,376 (unrestricted net position) represents
the amount that may be used to meet the City’s ongoing obligations. At December 31, 2017, 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 2017, the City’s total net position increased by $13,752,217. The governmental net position increased $8,992,195 and business-type activities increased $4,760,022.
Page 21
The following is a condensed version of the statement of activities for the City. The full statement is a tabular depiction of the relationship of revenues and expenses for the City’s governmental activities and
proprietary funds.
Revenues:2017 2016 2017 2016 2017 2016
Program revenues:
Charges for services 1,852,581$ 1,587,381$ 8,948,202$ 7,846,400$ 10,800,783$ 9,433,781$
Operating grants & contributions 722,801 768,998 25,000 - 747,801 768,998
Capital grants & contributions 6,289,739 2,463,124 2,651,027 1,166,173 8,940,766 3,629,297
General revenues:
Property taxes 2,670,848 2,434,074 - - 2,670,848 2,434,074
Sales taxes 5,125,256 4,845,731 - - 5,125,256 4,845,731
Other taxes 3,050,720 2,494,952 - - 3,050,720 2,494,952
Interest income 36,406 19,039 99,823 35,108 136,229 54,147
Gain on sale of capital assets 53,873 15,967 53,873 15,967
Total Revenues 19,802,224 14,629,266 11,724,052 9,047,681 31,526,276 23,676,947
Expenses:
General government 2,200,407 2,084,703 - - 2,200,407 2,084,703
Judicial 555,095 534,256 - - 555,095 534,256
Public safety 5,124,250 5,223,526 - - 5,124,250 5,223,526
Transportation 2,322,364 2,626,628 - - 2,322,364 2,626,628
Social services 16,474 14,499 - - 16,474 14,499
Economic development 871,569 724,681 - - 871,569 724,681
Culture and recreation 574,568 510,384 - - 574,568 510,384
Water - Sewer - - 5,872,160 5,695,362 5,872,160 5,695,362
Storm Drainage - - 1,091,870 1,141,223 1,091,870 1,141,223
Interest on long-term debt 82,871 21,591 - - 82,871 21,591
Total Expense 11,747,598 11,740,268 6,964,030 6,836,585 18,711,628 18,576,853
Change in net position 8,054,626 2,888,998 4,760,022 2,211,096 12,814,648 5,100,094
Net Position Beginning 34,688,561 31,799,563 57,735,288 55,524,192 92,423,849 87,323,755
Prior Period Adjustments 937,569 937,569 -
Net Position Ending 43,680,756$ 34,688,561$ 62,495,310$ 57,735,288$ 106,176,066$ 92,423,850$
Governmental
Activities
Business-type
Activities
Total Primary
Government
Governmental Activity Analysis Total revenues in governmental activities increased by 35%. The City’s tax revenues increased by $1,072,067 14% in 2017. The main sources of revenue came from retail sales and use tax and property
taxes, as well as transportation benefit district vehicle fees. Sales tax increased from the prior year by $279,525, 6%. Property taxes experienced an increase of $236,774, 11%. Transportation benefit district fees were collected in 2017 for the first time in the amount of $199,503. Charges for services increased by $265,200, 17%. Revenue within the City is increasing inline with an increase in construction activity
within the City. The building activity increases sales tax, property tax, and the number of building permits
and development reviews within the City. Operating grants and contributions decreased by $49,146, 6%. Capital grants and contributions increased by $3,826,615 due to infrastructure that was donated in 2017 as well as grants received for Tremont Street and Bay Street Pedestrian Pathway.
Page 22
Total expenses in governmental activities remained almost unchanged year-over-year, with only a marginal, 0.06% increase. The City incurred increases in the following functions: General Government
$115,704, Judicial $20,839, and Economic Development $146,888, Culture and Recreation $64,184,
Social Services $1,975. While Public Safety decreased by $99,276 and Transportation decreased by $304,264. Culture & recreation had an increase due to additional professional services and event costs, and Economic development had an increase due to additional personnel costs and professional services costs related to development increases within the City. Transportation had a decrease due to higher than
normal expenses in the prior year for paving overlay projects. The net position associated with
governmental activities increased by $8,992,195 due to capital grants & contributions for Tremont Street and Bay Street Pedestrian Pathway. Business-Type Activities Analysis
The Water-Sewer Utility experienced an increase in 2017 operating revenues of 13.5%, and a 3.1%
increase in operating expenses. The Water-Sewer Utility ended the year with an increase in net position of 7.9%. This was largely due to increased charges for services related to a rate increase. The Storm Drainage Utility had an increase in operating revenues of 1.2%, and a decrease in operating expenses of 8.0%. There was an overall increase in storm drainage net position of 9.7%. The Storm Drainage Utility’s
operating expenses decreased mainly due to less personnel costs within the Public Works Department.
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. Three funds are classified as major funds for the purposes of this report. They are the General Fund and the Street Capital Projects Fund.
The General Fund’s fund balance increased by $1,095,161. Revenues are higher and expenditures lower.
The largest source of revenue is sales and use tax representing 42% of total revenues. The largest expenditure category is public safety, representing 47% of the General Fund activity. The Capital Projects Fund had an increase in fund balance of $50,499. This was due to transfers from
other funds for projects and grants.
The Street Capital Projects Fund had an increase in fund balance of $3,654,047. This was mainly due to the construction of Tremont Widening Project.
The change in total governmental funds’ fund balance was an overall increase of $5,828,900.
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 $49.5 million. This fund had operating income of $775,976. The Water-Sewer fund had an increase in total net position of $3,615,482 or 7.8%. This was largely due to increased charges for services related to a rate increase on water and sewer charges.
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The Storm Drainage Utility Fund had an operating income of $609,278. The total net position at year-end was $13 million. This was an increase in net position of 9.7% or $1,144,540. The increase was due
to project funding for the Storm Drainage portion of Tremont Widening. 2017 Capital Projects for Water-Sewer included the Tremont Sewer Improvements and the Well 13 Project which is a new well the City is constructing.
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 have their own adopted budgets. The City appropriates funds through a biennial budget
process; state law allows additional funds to be expended if authorized by an ordinance amending the original budget. The City is in the first year of the biennial period which includes 2017 and 2018. Revenues ended the year at 52% of the biennial budget. Sales taxes was at 53% of the biennial budget while other taxes were at 49% of the biennial budget. Expenditures were 45% of the amended biennial
budget.
The final budget, when compared to the original budget, showed increases (decreases) in: General Government $12,000 for Community Development building expenses, Public Safety $7,200 for the community service contract increase, and Economic Development ($40,000) due to an expense being
budgeted in the wrong fund.
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, 2017, amounts to $79,902,012 (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
1/1/2017 12/31/2017 1/1/2017 12/31/2017 1/1/2017 12/31/2017
Land $2,196,485 $2,469,070 $983,923 $977,923 $3,180,408 $3,446,993
Intangible Assets 3,747,291 6,298,071 1,157,425 1,326,975 4,904,716 7,625,046 Construction in Progress 3,060,642 6,664,022 2,772,768 3,724,817 5,833,410 10,388,839
Buildings 5,722,864 6,049,606 4,432,285 4,351,745 10,155,148 10,401,351
Equipment 1,105,457 1,007,002 1,659,754 1,840,106 2,765,212 2,847,109
Infrastructure 13,000,866 13,193,255 30,943,222 31,999,420 43,944,089 45,192,674
$28,833,605 $35,681,026 $41,949,377 $44,220,986 $70,782,982 $79,902,012
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 &
Page 24
Structures increased due to the completion of 720 Prospect building. Machinery & Equipment decreased in 2017 due to reoccurring depreciation and retirements. Finally, Other Improvements increased due to
developer donations.
In business activities Machinery & Equipment, Other Improvements and Intangible Assets increased due to developer donations. Land is decreased due to the sale of property. Wells 9 and 13, Tremont Sewer and Storm Drainage construction projects increased Construction in Progress. Buildings & Structures
decreased due to depreciation.
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, 2017 the City of Port Orchard had total long-term debt outstanding of $7,691,006. Of this amount, $6,291,075 is general obligation bonds, $146,550 is a note made with a private party, $1,253,381 is Governmental Loans.
During 2017, the City of Port Orchard’s net total long term debt increased by $5,945,703. The increase
was mainly due to the City issuing general obligations bonds in the amount of $5,865,000. It also included increases to the Drinking Water State Revolving Fund Loan, and Clean Water State Revolving Fund Loan and annual payments on the outstanding debt.
Additional information on the City’s long-term debt can be found in Note 9 and Note 11 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 9.2% 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 5.7%. 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.
Construction activity has picked up in 2017 and the first part of 2018 due to the recording of several final
plats creating a large supply of ready to build residential lots. The City saw 77 new housing starts in 2017, but more importantly saw 4 final plats recorded in 2017 and 2 more in the first part of 2018 to resupply the City's home builders. The city expects that in excess of 150 new single-family homes will be started in the next 18 months. In 2017, the City also permitted a 38 unit apartment complex which should be
Page 25
completed in the summer of 2018. In 2017, the city saw several commercial developments started including a new (to replace the old) Ford Dealership, a new big box retailer (Bi-Mart), and several smaller
retail and service businesses constructed (a new Les Schwab store, automatic carwash, and self-storage
facility). These projects are or should be completed in 2018, with several others in the pipeline for 2019. In addition, in 2018, two of the City’s census tracts were designed as Opportunity Zones under the 2017 Tax Cuts and Jobs Act. This development incentive combined with other City development incentives and strong population growth is likely to ensure strong construction related growth for the
foreseeable future.
The Office of Financial Management (OFM) reported Port Orchard’s estimated 2017 population at 13,990. The City ranks 66 by population size of the 281 listed Washington Cities.
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.
Page 26
Primary Government
Governmental
Activities
Business-type
Activities Total
ASSETS
Cash and Cash Equivalents 5,254,727$ 11,484,770$ 16,739,497$
Recievables (Net of Allowance for Uncollectable)
Taxes Recievable 63,490 - 63,490
Accounts Receivable 474,436 1,294,656 1,769,092
Due from Other Governmental Units 970,242 - 970,242
Restricted Assets:
Cash and Cash Equivalents 8,045,774 1,502,445 9,548,219
Receivables 32,235 - 32,235
Due from Other Governmental Units 1,105,041 - 1,105,041
Investment in Joint Venture - 9,058,414 9,058,414
Net Pension Asset 1,048,722 1,048,722
Capital Assets not being depreciated 15,390,045 5,962,238 21,352,283
Capital Assets (Net of Accumulated Depreciation)20,290,981 38,258,748 58,549,729
Total Assets 52,675,693 67,561,271 120,236,964
DEFERRED OUTFLOWS of RESOURCES
Deferred Outflows related to Pensions 502,412 194,700 697,112
Total DeferredOutflows of Resources 502,412 194,700 697,112
LIABILITIES
Accounts Payable 371,932 218,450 590,382
Contracts Payable - 114,301 114,301
Deposits - 2,400 2,400
Custodial Accounts 7,136 - 7,136
Unearned Revenue 43,493 60,606 104,099
Other Accrued Liabilities 156,993 78,499 235,492
Liabilities Payable from Restricted Assets 870,050 - 870,050
Noncurrent Liabilities:
Due within One Year 884,446 245,525 1,129,971
Due in More than One Year 4,579,282 3,407,454 7,986,736
Net Pension Liability 1,961,611 975,668 2,937,279
Total Liabilities 8,874,943 5,102,903 13,977,846
DEFERRED INFLOWS of RESOURCES
Deferred Amount on Refunding 2,008 262 2,270
Deferred Inflows related to Pensions 620,398 157,496 777,894
Total Deferred Inflows of Resources 622,406 157,758 780,164
NET POSITION
Net Investment in Capital Assets 34,357,698 40,640,707 74,998,405
Restricted for:
Criminal Justice 505,822 - 505,822
Law Enforcement Investigative Funds 70,717 - 70,717
Tourism Promotion 125,151 - 125,151
Parks 320,410 - 320,410
McCormick Woods Park 39,509 - 39,509
Paths & Trails 7,219 - 7,219
Pensions 1,048,722 - 1,048,722
Transportation 1,513,433 - 1,513,433
Capital (REET)1,784,302 - 1,784,302
Unrestricted 3,907,773 21,854,603 25,762,376
Total Net Position 43,680,756$ 62,495,310$ 106,176,066$
The notes to the financial statements are an integral part of this statement
CITY OF PORT ORCHARD
Statement of Net PositionDecember 31, 2017
Page 27
Functions/Programs Expenses
Charges for
Services
Operating
Grants and
Contributions
Capital Grants
and
Contributions
Governmental
Activities
Business-type
Activities TotalPRIMARY GOVERNMENTGovernmental Activities:General Government 2,200,407$ 297,535$ 168,766$ -$ (1,734,106)$ -$ (1,734,106)$
Judicial 555,095 151,886 14,236 - (388,973) - (388,973) Public Safety 5,124,250 265,894 215,630 - (4,642,726) - (4,642,726) Transportation 2,322,364 522,944 315,780 6,152,984 4,669,344 - 4,669,344 Social Services 16,474 - - - (16,474) - (16,474) Economic Development 871,569 573,219 - - (298,350) - (298,350) Culture and Recreation 574,568 41,103 8,389 136,755 (388,321) - (388,321) Interest on Long-Term Debt 82,871 - - - (82,871) - (82,871)
TOTAL GOVERNMENTAL
ACTIVITIES 11,747,598 1,852,581 722,801 6,289,739 (2,882,477) - (2,882,477)
Business-Type Activities:
Water - Sewer 5,872,160 7,229,665 - 2,184,608 - 3,542,113 3,542,113 Storm Drainage 1,091,870 1,718,537 25,000 466,419 - 1,118,086 1,118,086 TOTAL BUSINESS-TYPE
ACTIVITIES 6,964,030 8,948,202 25,000 2,651,027 - 4,660,199 4,660,199 Total Primary Government 18,711,628$ 10,800,783$ 747,801$ 8,940,765$ (2,882,477) 4,660,199 1,777,722
General Revenues:Taxes:Property Taxes Levied for General Purposes 2,670,848 - 2,670,848 Other Taxes 1,223,245 - 1,223,245 Sales and Use Taxes 5,125,256 - 5,125,256 Business and Occupation Taxes 1,781,657 - 1,781,657 Excise Taxes 45,818 - 45,818 Unrestricted Investment Earnings 36,406 99,823 136,229 Gain on Sale of Capital Assets 53,873 - 53,873
Total General Revenues 10,937,103 99,823 11,036,926 Change in Net Position 8,054,626 4,760,022 12,814,648
Net Position - Beginning 34,688,561 57,735,288 92,423,849 Prior Period Adjustment 937,569 - 937,569 Net Position - Ending 43,680,756$ 62,495,310$ 106,176,066$
The notes to the financial statements are an integral part of this statement.
CITY OF PORT ORCHARD
Statement of Activities
Year Ended December 31, 2017
Program Revenues Net (Expense) Revenue and Changes in Net Position
Page 28
General Fund
Capital
Construction
Fund
Street Capital
Projects Fund
Other Non-
Major
Governmental
Funds
Total
Governmental
Funds
Assets:
Cash and Cash Equivalents 4,561,720$ 248,210$ 4,047,801$ 4,442,770$ 13,300,501$ Property Taxes Receivables (net)63,490 - - - 63,490 Accounts Receivable 474,436 - - 32,235 506,671
970,242 - 1,046,027 59,014 2,075,283 Total Assets 6,069,888 248,210 5,093,828 4,534,019 15,945,945
Liabilities:Accounts Payable 363,445 10,910 836,899 30,728 1,241,982 Deposits Payable 7,136 - - - 7,136 Other Accrued Liabilities 127,705 - - 2,423 130,128 Unearned Revenue 43,493 - - - 43,493 Total Liabilities 541,779 10,910 836,899 33,151 1,422,739
Deferred Inflows of ResourcesUnavailable Revenue-Property Taxes 51,514 - - - 51,514 Unavailable Revenue-Court 357,516 - - 32,235 389,751
Unavailable Revenue-Miscellaneous 11,806 - 84,533 - 96,339
Total Deferred Inflows of Resources 420,836 - 84,533 32,235 537,604
Fund Balances:Restricted for:Criminal Justice - - - 505,822 505,822 Law Enforcement - - - 70,717 70,717 Tourism - - - 125,151 125,151 Parks - - - 320,410 320,410 McWds Parks - - - 39,509 39,509
Paths & Trails - - - 7,219 7,219
Transportation - - 342,727 1,170,706 1,513,433 Capital Projects - - 2,789,669 1,784,302 4,573,971 Commited to:Recreation 159,031 - - - 159,031 Stabilization 846,204 - - - 846,204 Assigned to:Parks - - - - - City Hall 9,649 - - - 9,649 Street 879,058 - - - 879,058 Street Capital Projects - - 1,040,000 - 1,040,000 Capital Projects - 237,300 - - 237,300
Capital Equipment Replacement - - - 444,797 444,797
Unassigned 3,213,331 - - - 3,213,331 p Total Fund Balances 5,107,273 237,300 4,172,396 4,468,633 13,985,602$
6,069,888$ 248,210$ 5,093,828$ 4,534,019$
Balance Sheet
December 31, 2017
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
Page 29
35,681,026
537,604
(7,454,212)
1,048,722
Deferred Outflow related to Pensions 502,412
Deferred Inflow related to Pensions (620,398)
Net position of governmental activities 43,680,756$
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):
Page 30
General Fund
Capital
Construction
Fund
Street Capital
Projects Fund
Other Non-
Major
Governmental
Funds
Total
Governmental
Funds
Revenues:
Property Taxes 2,696,140$ -$ -$ -$ 2,696,140$
Retail Sales and Use Taxes 4,795,199 - - 330,057 5,125,256
Other Taxes 2,081,958 - - 968,762 3,050,720 License and Permits 445,721 - - - 445,721 Intergovernmental 553,506 48,500 2,706,153 74,217 3,382,376 Charges for Services 521,303 - - - 521,303 Fines and Forfeits 181,615 - - 5,626 187,241 Interest Earnings 59,483 2,128 24,655 42,330 128,596 Rents and Royalties 167,285 - 1,002 - 168,287 Planning & Development Contributors - - - 469,365 469,365 Contributions/Donations 6,524 - - - 6,524
Miscellaneous 27,188 - - 1,016 28,204 Total Revenues 11,535,922 50,628 2,731,810 1,891,373 16,209,733
Expenditures:CurrentGeneral Government 2,042,025 - - - 2,042,025 Judicial 555,095 - - - 555,095
Public Safety 4,840,776 - - 155,997 4,996,773
Transportation 1,517,820 - - 11,843 1,529,663
Economic Development 871,569 - - - 871,569
Social Services 16,474 - - - 16,474 Culture and Recreation 367,878 - - 88,808 456,686 Capitalized Expenditures 13,493 330,680 4,012,330 140,364 4,496,867 Debt ServicePrincipal Retirement - - - 149,650 149,650 Interest/Fiscal Charges - - 40,401 17,024 57,425 Total Expenditures 10,225,130 330,680 4,052,731 563,686 15,172,227
Excess (Deficiency) of RevenuesOver (Under) Expenditures 1,310,792 (280,052) (1,320,921) 1,327,687 1,037,506
Other Financing Sources (Uses)
Sale of Capital Assets 46,475 - - 437 46,912 Compensation for Loss/Impair Capital Assets 6,961 - - - 6,961 Transfers In - 330,551 1,172,710 214,674 1,717,935 Transfers Out (1,151,500) - - (566,435) (1,717,935)
Debt Issued 3,799,952 3,799,952
Total Other Financing Sources and Uses (1,098,064) 330,551 4,972,662 (351,324) 3,853,825
Net Change in Fund Balances 212,728 50,499 3,651,741 976,363 4,891,331
Fund Balance at Beginning of Year 4,012,112 186,801 518,349 3,439,440 8,156,702
Prior Period Adjustments 882,433 - 2,306 52,830 937,569 Fund Balance at End of Year 5,107,273$ 237,300$ 4,172,396$ 4,468,633$ 13,985,602$
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, 2017
CITY OF PORT ORCHARD
Page 31
Net changes in fund balances - total governmental funds:4,891,331$
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.3,328,136
The net effect of various miscellaneous transactions involving capital assets
( i.e., sales, trade-ins, and donations) to decrease net position.3,519,285
Revenues in the statement of activities that do not provide current financial
resources are not reported as revenues in the funds.(23,127)
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.149,650
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.(10,697)
Debt Issuance (3,799,952)
Changes in Net Position (governmental activities)8,054,626$
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, 2017
CITY OF PORT ORCHARD
Page 32
Statement of Revenues, Expenditures and Changes in Fund Balances
Budget (GAAP Basis) and Actual
Original Final
Actual
Amount
Variance with
Final BudgetRevenues:
Property Taxes 3,310,000$ 3,310,000$ 1,744,987$ (1,565,013)$ Sales and Use Taxes 9,167,000 9,167,000 4,795,199 (4,371,801) Other Taxes 3,879,035 3,879,035 1,882,454 (1,996,581)
License and Permits 671,800 671,800 442,596 (229,204) Intergovernmental 513,500 513,500 263,891 (249,609) Charges for Services 1,048,350 1,048,350 517,634 (530,716)
Fines and Forfeits 444,000 444,000 181,587 (262,413) Interest Earnings 65,539 65,539 44,579 (20,960) Rents and Royalties 293,000 293,000 158,262 (134,738)
Contributions/Donations - - 2,568 2,568 Miscellaneous - - 22,591 22,591
Total Revenues 19,392,224 19,392,224 10,056,348 (9,335,876)
Expenditures:
CurrentGeneral Government 4,477,855 4,489,855 2,042,025 (2,447,830) Judicial 1,249,808 1,249,808 555,095 (694,713)
Public Safety 10,579,338 10,586,538 4,840,776 (5,745,762) Economic Development 1,906,762 1,866,762 871,569 (995,193)
Social Services 32,624 32,624 16,474 (16,150) Culture and Recreation 900,627 900,627 367,878 (532,749) Capitalized Expenditures 67,500 67,500 6,041 (61,459)
Intergovernmental Payments - - - - Total Expenditures 19,214,514 19,193,714 8,699,858 (10,493,856)
Excess (Deficiency) of Revenues
Over (Under) Expenditures 177,710 198,510 1,356,490 1,157,980
Other Financing Sources (Uses):
Sale of Capital Assets - - 2,612 2,612 Compensation for Loss/Impair Capital Assets - - 5,548 5,548 Transfers Out (1,011,000) (1,486,000) (1,391,000) 95,000
Total Other Financing Sources and Uses (1,011,000) (1,486,000) (1,382,840) 103,160
Net Change in Fund Balance (833,290) (1,287,490) (26,350) 1,261,140
Fund Balances at Beginning of Year 1,806,400 2,416,050 2,568,202 152,152
Prior Period adjustments - - 840,159 Fund Balances at End of Year 973,110$ 1,128,560$ 3,382,011$ 1,413,292$
Adjustment to generally accepted accountingprinciples (GAAP) basis:
City Street Fund 879,058
Stabilization Fund 846,204 Fund Balance - GAAP basis 5,107,273$
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, 2017
Page 33
Assets:Current Assets:
Cash and Cash Equivalents 8,956,444$ 2,528,326$ 11,484,770$ Receivables (net)Accounts 1,025,608 269,048 1,294,656 Restricted Assets:Cash and Cash Equivalents - 1,502,445 1,502,445 Total Current Assets 9,982,052 4,299,819 14,281,871
Non Current Assets:Investment in Joint Venture 9,058,414 - 9,058,414
Property, Plant and Equipment (Net)32,882,681 11,338,305 44,220,986
Total Non Current Assets 41,941,095 11,338,305 53,279,400
Total Assets 51,923,147 15,638,124 67,561,271
Deferred Outflows of ResourcesDeferred Outflows related to Pension 134,844 59,856 194,700
Total Deferred Outflows of Resources 134,844 59,856 194,700
LiabilitiesCurrent Liabilities:Accounts Payable 198,536 19,914 218,450 Contracts Payable 114,301 - 114,301 Other Accrued Liabilities 21,251 7,858 29,109 Deposits 2,400 - 2,400
Accrued Interest Payable 31,941 17,449 49,390
Accrued Employee Benefits 44,486 18,651 63,137 Bonds, Notes, Loans Payable 56,892 125,496 182,388 Total Current Liabilities 469,807 189,368 659,175
Non Current Liabilities:Bonds, Notes and Loan Payable (Net)1,202,636 2,194,993 3,397,629 Accrued Employee Benefits 6,923 2,902 9,825 Net Pension Liability 675,721 299,947 975,668 Unearned Revenues 60,606 - 60,606 Total Non Current Liabilities 1,945,886 2,497,842 4,443,728 Total Liabilities 2,415,693 2,687,210 5,102,903
Deferred Inflows of Resources
Deferred Inflows related to Pensions 109,077 48,419 157,496
Deferred Amounts on Refunding 262 - 262
Total Deferred Inflows of Resources 109,339 48,419 157,758
Net PositionNet Investment in Capital Assets 31,622,891 10,520,261 40,640,707 Unrestricted 17,910,068 2,442,090 21,854,603 Total Net Position 49,532,959$ 12,962,351$ 62,495,310$
The notes to the financial statements are an integral part of this statement
CITY OF PORT ORCHARDProprietary Funds
Statement of Net Position
December 31, 2017
Water-Sewer Storm Drainage
Total Business
Activities
Page 34
Operating Revenues
Charge for Services 6,628,635$ 1,659,432$ 8,288,067$
Total Operating Revenues 6,628,635 1,659,432 8,288,067
Operating ExpensesOperationsGeneral Operations 3,065,320 410,696 3,476,016
Water Purchased for Resale 465,393 - 465,393
Customer Service and Marketing 197,449 94,115 291,564 General Administration 1,032,708 242,997 1,275,705 Taxes 500,550 111,639 612,189 Depreciation, Amortization, Depletion 591,239 190,707 781,946 Total Operating Expenses 5,852,659 1,050,154 6,902,813
Operating Income (loss)775,976 609,278 1,385,254
Nonoperating Revenues (Expenses)Interest Earnings 73,369 26,454 99,823 State and Federal Grants - 25,000 25,000 Interest and Fiscal Charges (19,501) (41,716) (61,217)
Gain (Loss) on Disposal of Assets (3,789) - (3,789)
Net Income (Loss) of Joint Ventures 446,143 - 446,143
Fines & Penalties 84,558 35,021 119,579
Miscellaneous Revenue (Expense)74,118 24,084 98,202
Total Nonoperating Revenues (Expenses)654,898 68,843 723,741
Income (Loss) before Contributions 1,430,874 678,121 2,108,995
Capital Contributions 2,184,608 466,419 2,651,027
Increase (Decrease) in Net Position 3,615,482 1,144,540 4,760,022
Total Net Position at Beginning of Year 45,917,477 11,817,811 57,735,288 Total Net Position at End of Year 49,532,959$ 12,962,351$ 62,495,310$
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, 2017
Major Enterprise
Fund
Water-Sewer
Major Enterprise
Fund
Storm Drainage
Total Business
Activities
Page 35
Cash Flows from Operating Activities:
Cash Received from Customers 6,541,927$ 1,675,842$ 8,217,769$ Cash Payments to Suppliers (3,612,561) (273,775) (3,886,336)
Cash Payments to Employees (1,383,604) (609,732) (1,993,336) Cash Payments to other Governments (Taxes)(500,550) (111,639) (612,189)
Cash Payments for other Non-Operating Activities 158,677 59,105 217,782 Net Cash Provided (Used) by Operating Activities 1,203,889 739,801 1,943,690
Cash Flows from Noncapital Financing Activities:Receipt of Grant Funds - 25,000 25,000 Net Cash Provided (Used) by Noncapital Financing Activities - 25,000 25,000
Cash Flows from Capital and Related Financing Activities:Acquisition and Construction of Capital Assets (440,355) (593,135) (1,033,490) Principal Paid on GO Bond (55,350) - (55,350) Principal Paid on Other Long-Term Obligations (21,700) - (21,700) Interest Paid on Revenue Bonds and Other Long-Term Debt (6,296) (24,482) (30,778) Proceeds from Capital Debt 215,284 92,833 308,117 Proceeds from GO Bond Issuance - 2,065,048 2,065,048 Receipt of Capital Contributions 574,265 270,315 844,580 Proceeds fromDisposal of Capital Assets 11,211 - 11,211 Net Cash Provided (Used) for Capital and Related Financing Ac 277,059 1,810,579 2,087,638
Cash Flows from Investing Activities:
Interest on Investments 73,369 26,454 99,823 Net Cash Provided (Used) by Investing Activities 73,369 26,454 99,823
Net Increase (Decrease) in Cash and Cash Equivalents 1,554,317 2,601,834 4,156,151
Cash and Cash Equivalents at Beginning of Year 7,402,127 1,428,937 8,831,064 Cash and Cash Equivalents at End of Year 8,956,444 4,030,771 12,987,215
Cash and Cash Equivalents 8,956,444 2,528,326 11,484,770 Restricted Cash and Cash Equivalents - 1,502,445 1,502,445 Total Cash and Cash Equivalents 8,956,444$ 4,030,771$ 12,987,215$
The notes to the financial statements are an integral part of this statement
CITY OF PORT ORCHARD
Proprietary FundsStatement of Cash FlowsFor the Fiscal Year Ended December 31, 2017
Major Enterprise
Fund
Water-Sewer
Major Enterprise
Fund
Storm Drainage
Total Business
Activities
Page 36
Reconciliation of Operating Income (Loss) to NetCash Used by Operating Activities:Net Operating Income (Loss)775,976$ 609,278$ 1,385,254$
Adjustments to Reconcile Net Operating Income (Loss) to Net Cash Provided by Operations:
Depreciation Expense 591,240 190,707 781,947 (Increase) Decrease in Receivables (82,801) 16,410 (66,391)
Increase (Decrease) in Current Payables (156,646) (60,392) (217,038)
Increase (Decrease) in Other Current Payables (680) (3,735) (4,415) Increase (Decrease) in Accrued Employee Benefits (4,886) (8,242) (13,128)
Increase (Decrease) in Customer Deposits (3,150) - (3,150) Increase (Decrease) in Unearned Revenues (758) - (758) (Increase) Decrease in Pension Liability Expense (73,083) (63,332) (136,415)
Receipt of Non Operating Revenues 158,677 59,105 217,782 Total Adjustments 427,913 130,521 558,434 Net Cash Provided (Used) by Operating Activities 1,203,889$ 739,799$ 1,943,688$
Noncash Investing, Financing and Capital Activities
Capital Assets - Donated /Grants Received 1,610,343 466,419 2,076,762 Financed through Payable Liabilities 41,695 41,695 Gain / (Loss) on Joint Venture 446,143 - 446,143 Total Noncash Investing, Financing and Capital Activities 2,056,486$ 508,114$ 2,564,600$
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, 2017
Major Enterprise
Fund
Water-Sewer
Major Enterprise
Fund
Storm Drainage
Total Business
Activities
Page 37
Fiduciary Funds
AgencyFundsAssets:Current Assets:Cash and Cash Equivalents 2,412,583$
Total Assets 2,412,583
Liabilities Accounts Payable 13,596 Custodial Accounts 2,398,987 Total Liabilities 2,412,583$
The notes to the financial statements are an integral part of this statement
CITY OF PORT ORCHARD
Statement of Fiduciary Net Position
December 31, 2017
Page 38
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017
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 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. Ordinance No. 020-17 assuming the rights, powers, functions, immunities, and obligations of the Port Orchard Transportation Benefit District was passed in 2017.
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 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
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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.
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.
Page 40
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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 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.
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
Page 41
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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, 2017, the treasurer was holding $27,196,185 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 2017 were approximately $1,824,808.
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.
Page 42
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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, 2017. 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 2017, there were no interfund loans receivable and payable. 5. 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.
Page 43
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 6. 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 5-10
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 accomplish the
purposes for which the assets were acquired, and has included such assets within the applicable column in the statement of net position. 7. 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.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 8. 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
employee’s medical health retirement/voluntary employee’s beneficiary association account (HRA/VEBA). The remainder shall be forfeited without compensation. 9. 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.
10. Other Accrued Liabilities
These accounts consist of accrued wages, accrued taxes, accrued employee benefits, and accrued interest payable.
11. 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).
Page 45
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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.
12. 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
43,493$
Total 43,493$ 13. 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 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
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
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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.
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.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017
• 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 4,110,202$
Plus: Deferred charge on refunding (to be amortized as
interest expense)
2,008
Plus: Issuance premium (to be amortized as interest
expense)
787
Accrued interest payable 26,865
Other post employment benefits 817,573
Pension Liability 1,961,611
Compensated absences 535,166
7,454,212$ Net adjustment to reduce fund balance-total
governmental funds to arrive at net position-
governmental activities
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:
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017
Current Year Capital outlay 4,496,867$
Current Year Depreciation expense (1,168,731)
3,328,136$ Net adjustment to decrease net changes in fund
balances- total governmental funds to arrive at change
in net position of governmental activities 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 $ 3,559,957
Sale of Capital Assets (46,912)
Insurance Reimbursements (6,961)
Gain (Loss) on Sale of Capital Assets 13,201
Increase in Net Position $ 3,519,285
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 (67,416)$
Tax revenues - unavailable (25,292)
Due From Other Governments 36,033
Jail Medical (22,659)
Grant received in Advance (14,000)
Special Funding Situation-LEOFF 1 70,207
(23,127)$ Net adjustment to increase net changes in fund balances-
total governmental funds to arrive at changes in net
position of governmental activities
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 $ (25,446)
Employee benefits accrual 37,641
Amortization of deferred amount on refunding 1,266
Amortization of bond premiums 522
OPEB (116,482)
Pension Adjustment 91,802
(10,697)$ Net adjustment to decrease net changes in fund
balances- total governmental funds to arrive at changes
in net position of governmental activities
Page 49
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 NOTE 3. DEPOSITS AND INVESTMENTS
As of December 31, 2017, 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 1,486,174 14,190 1,500,364
Washington State Local Government Investment Pool 15,864,537 1,387,933 17,252,470
Kitsap County Investment Pool 8,907,949 1,010,322 9,918,271
Kitsap Bank Money Market 25,306 138 25,444
Total Cash and Cash Equivalents 26,287,716$ 2,412,583$ 28,700,299$
The City as of December 31, 2017, had investments of $17,252,470 in the Washington State Local Government Investment Pool and $9,918,271 in the Kitsap County Investment Pool, which are classified as cash equivalents. Additional cash & cash equivalents consist of $25,444 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 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 2017.
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.
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
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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, 2017, the City had the following investments at amortized cost.
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 15,864,537$ 1,387,933$ 17,252,470$
Total 15,864,537$ 1,387,933$ 17,252,470$
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 of Port Orchard is a participant in the Kitsap County Investment Pool (KCIP), an external investment pool. The county reports its investment in the Pool at the fair value amount, which is the same as the value of the Pool per share. Fair value is determined using quoted market
prices from the county’s safekeeping agent, Wells Fargo, and with Bloomberg, an online financial
services system.
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
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017
As of December 31, 2017, 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)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservabl
e Inputs
(Level 3)
Kitsap County Investment Pool 9,918,271$ 753,810$ 9,164,461$ -$
Total 9,918,271$ 753,810$ 9,164,461$ -$
The KCIP was established in 1987 pursuant to RCW 36.29, which authorizes the County Treasurer to invest the funds of participants. The Pool operates in accordance with Kitsap County
Investment Policy which was established by the Kitsap County Finance Committee (KCFC). The KCFC consists of the County Treasurer, County Auditor and Chair of the Board of County Commissioners.
The KCIP is not registered with the Securities and Exchange Committee (SEC) as an investment company. KCFC performs oversight of the Pool’s performance. There are no legally
binding guarantees for the KCIP. Authorized investments for the KCIP are the same as investments held outside the Pool and are defined in the Kitsap County Treasurer’s Office Investment Policy.
The KCIP external investment pool does not have a credit rating and had a weighted average maturity of 0.82 years as of December 31, 2017.
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.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017
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 2017 was $1.761085 per $1,000 on an assessed valuation of $1,532,610,083 for a total regular levy of $2,699,058.
Special levies approved by the voters are not subject to the limitations listed above.
Washington State Constitution and Washington State Law, RCW 84.55.010 limit the rate.
Page 53
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 NOTE 5. CAPITAL ASSETS
A. CAPITAL ASSETS
A summary of capital asset activity for the year ended December 31, 2017, was as follows:
Beginning
Bal. 01/01/17 Increases Decreases
Ending Bal.
12/31/17
Governmental activities:
Capital assets, not being depreciated
Land and other improvements 2,196,485$ 272,585$ -$ 2,469,070$
Intangible Assets 3,700,132 2,556,821 - 6,256,953
Construction in progress 3,060,642 4,306,500 703,120 6,664,022
Total capital assets, not being depreciated 8,957,259 7,135,906 703,120 15,390,045
Capital assets, being depreciated/depleted:
Buildings 8,196,466 493,929 - 8,690,395
Equipment 3,369,938 153,857 175,530 3,348,265
Infrastructure 30,302,808 967,251 31,672 31,238,387
Intangible Assets 118,124 - - 118,124
Total capital assets being depreciated 41,987,336 1,615,037 207,202 43,395,171
Less accumulated depreciation for:
Buildings 2,473,602 167,187 - 2,640,789
Equipment 2,264,480 252,313 175,530 2,341,263
Infrastructure 17,301,942 743,190 - 18,045,132
Intangible Assets 70,965 6,041 - 77,006
Total accumulated depreciation 22,110,989 1,168,731 175,530 23,104,190
Total capital assets, being depreciated, net 19,876,347 446,306 31,672 20,290,981
28,833,606$ 7,582,212$ 734,792$ 35,681,026$ Governmental activities capital assets, net
Depreciation expense was charged to functions/programs of the primary government as follows:
Governmental activities:
General government $ 156,668
Security of persons and property 144,240
Transportation 790,613
Culture and recreation 77,210
Total depreciation expense—governmental activities $ 1,168,731
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017
Beginning
Bal. 01/01/17 Increases Decreases
Ending Bal.
12/31/17
Business-type Activities:
Capital assets, not being depreciated
Land and other improvements 983,923$ 9,000$ 15,000$ 977,923$
Intangible Assets 1,085,866 173,632 - 1,259,498
Construction in progress 2,772,768 952,049 - 3,724,817
Total capital assets, not being depreciated 4,842,557 1,134,681 15,000 5,962,238
Capital assets, being depreciated/depleted:
Buildings 5,693,491 12,620 - 5,706,111
Equipment 5,406,209 377,168 28,395 5,754,982
Infrastructure 38,795,672 1,536,452 - 40,332,123
Intangible Assets 141,162 7,635 - 148,797
Total capital assets being depreciated 50,036,534 1,933,875 28,395 51,942,013
Less accumulated depreciation for:
Buildings 1,261,207 93,159 - 1,354,366
Equipment 3,746,455 196,816 28,395 3,914,876
Infrastructure 7,852,449 480,254 - 8,332,703
Intangible Assets 69,603 11,717 - 81,320
Total accumulated depreciation 12,929,714 781,946 28,395 13,683,265
Total capital assets, being depreciated, net 37,106,820 1,151,929 - 38,258,748
Business-type activities capital assets, net 41,949,377$ 2,286,610$ 15,000$ 44,220,986$
Depreciation expense was charged to functions/programs of the primary government as follows:
Business-type activities:
Water-Sewer $591,239
Storm Drainage 190,707
Total depreciation expense-business-type activities $781,946
Page 55
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 NOTE 6. CONSTRUCTION AND OTHER SIGNIFICANT COMMITMENTS
A. Construction Commitments
The City of Port Orchard has active construction projects as of December 31, 2017. At year-end the city’s commitments with contractors are as follows: 2017 Governmental Construction in Progress Activity:
Project Spent to Date Remaining Commitment
Bay Street Pedestrian Path $1,192,480 $221,931
McCormick Park Phase II 242,222 8093
Old Clifton Anderson Hill Intersection 170,826 11,528
Tremont Street Widening 5,058,494 9,397,477
Total $6,664,022 $9,639,030
2017 Business-type Construction in Progress Activity:
Project Spent to Date Remaining Commitment
Annapolis Creek Storm Drainage $ 564 $ -
Marina Pump Station $48,840 -
Tremont Widening Water Mains 29,657 -
Tremont Widening Sewer Mains 216,479 591,422
Tremont Widening Storm Drainage 549,467 1,672,603
Water Rights & 2nd Wa Rights 178,018 106,511
Well #9 1,308,698 62,299
Well #13 856,318 -
Well #11 536,776 -
Total $ 3,724,817 $ 2,432,835
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 2017:
Page 56
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017
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
Pension liabilities 2,937,279$
Pension assets 1,048,722$
Deferred outflows of resources 697,112$
Deferred inflows of resources 777,894$
Pension expense/expenditures 373,600$
Aggregate Pension Amounts - All Plans
Page 57
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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 2017 were as follows: PERS Plan 1 Actual Contribution Rates: Employer Employee
January – June 2017:
PERS Plan 1 6.23% 6.00% PERS Plan 1 UAAL 4.77% 6.00% Administrative Fee 0.18% Total 11.18% 6.00%
July – December 2017:
PERS Plan 1 7.49% 6.00%
PERS Plan 1 UAAL 5.03%
Administrative Fee 0.18% Total 12.70% 6.00%
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
Page 58
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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 2017 were as follows: PERS Plan 2/3 Actual Contribution Rates: Employer 2/3 Employee 2
January – June 2017:
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%
July – December 2017:
PERS Plan 2/3 7.49% 7.38%
PERS Plan 1 UAAL 5.03%
Administrative Fee 0.18% Employee PERS Plan 3 varies Total 12.70% 7.38% The City’s actual PERS plan contributions were $209,860 to PERS Plan 1 and $280,795 to PERS Plan
2/3 for the year ended December 31, 2017. 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
Page 59
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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 2017. 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 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 2017 were as follows: LEOFF Plan 2 Actual Contribution Rates: Employer Employee
January – June 2017:
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%
July – December 2017:
State and local governments 5.25% 8.75%
Administrative Fee 0.18% Total 5.43% 8.75% Ports and Universities 8.75% 8.75%
Administrative Fee 0.18%
Total 8.93% 8.75%
The City’s actual contributions to the plan were $111,163 for the year ended December 31, 2017. 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
Page 60
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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, 2017, the state contributed $62,155,262 to LEOFF Plan 2. The amount recognized by the City as its proportionate share of this amount is $70,207. Actuarial Assumptions The total pension liability (TPL) for each of the DRS plans was determined using the most recent actuarial valuation completed in 2017 with a valuation date of June 30, 2016. 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 and the Economic Experience Study. Additional assumptions for subsequent events and law changes are current as of the 2016 actuarial
valuation report. The TPL was calculated as of the valuation date and rolled forward to the measurement date of June 30, 2017. Plan liabilities were rolled forward from June 30, 2016, to June 30, 2017, 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% 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 plans except LEOFF Plan 1, how terminated and vested member benefits are valued was corrected.
• How the basic minimum COLA in PERS Plan 1 is valued for legal order payees was improved.
• For all plans, the average remaining service lives calculation was revised. 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
Page 61
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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. In selecting this assumption, the Office of the State Actuary (OSA) reviewed the historical experience data, considered the historical conditions that produced past annual investment returns, and considered capital market assumptions and simulated expected investment returns provided by the Washington State Investment Board (WSIB). The WSIB uses the capital market
assumptions and their target asset allocation to simulate future investment returns at various time horizons. 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, 2017, 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.
Asset Class
Target Allocation
% Long-Term
Expected Real Rate of Return Arithmetic Fixed Income 20% 1.70%
Tangible Assets 5% 4.90%
Real Estate 15% 5.80%
Global Equity 37% 6.30%
Private Equity 23% 9.30% 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.
1% Decrease Current Rate 1% Increase
6.50%7.50%8.50%
PERS 1 1,884,183 1,546,706 1,254,378
PERS 2/3 3,746,350 1,390,573 (539,636)
LEOFF 1 (72,691) (97,997) (119,730)
LEOFF 2 205,735 (950,725) (1,892,960)
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 Pension Liabilities (Assets), Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2017, the City reported a total pension liability of $2,937,279 for its proportionate share of the net pension liabilities and $1,048,722 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 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 2017. Historical data was obtained from a 2011 study by the Office of the State Actuary (OSA). In fiscal year 2017, 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
Plan Liability or Asset
PERS 1 1,546,706
PERS 2/3 1,390,573
LEOFF 1 (97,997)
LEOFF 2 (950,725)
LEOFF 1 Asset LEOFF 2 Asset
LEOFF - employer's proportionate
share (97,997) (950,725)
LEOFF - State's proportionate
share of the net pension asset
associated with the employer (662,851)(616,717)
TOTAL (760,848) (1,567,442)
Proportionate Proportionate Change in
Share 6/30/16 Share 6/30/17 Proportion
PERS 1 0.03137% 0.03260% 0.00123%
PERS 2/3 0.03649% 0.04002% 0.00353%
LEOFF 1 0.00637% 0.00646% 0.00009%
LEOFF 2 0.06280% 0.06851% 0.00571%
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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 2017, the state of Washington contributed 39.35 percent of LEOFF 2 employer contributions pursuant to RCW 41.26.725 and all other employers contributed the remaining 60.65 percent of employer contributions. The collective net pension liability (asset) was measured as of June 30, 2017, and the actuarial valuation date on which the total pension liability (asset) is based was as of June 30, 2016, with update procedures used to roll forward the total pension liability to the measurement date.
Pension Expense
For the year ended December 31, 2017, the City recognized pension expense as follows:
Deferred Outflows of Resources and Deferred Inflows of Resources At December 31, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following:
Pension Expense
PERS 1 151,345
PERS 2/3 212,864
LEOFF 1 (16,613)
LEOFF 2 26,005
TOTAL 373,600
PERS 1 Deferred Outflows of
Resources
Deferred Inflows of
Resources
Net difference between projected and actual investment
earnings on pension plan investments $ - $ (57,719)
Contributions subsequent to the measurement date 114,419 -
TOTAL $ 114,419 $ (57,719)
PERS 2/3 Deferred Outflows of
Resources
Deferred Inflows of
Resources
Differences between expected and actual experience $ 140,898 $ (45,734)
Net difference between projected and actual investment
earnings on pension plan investments - (370,693)
Changes of assumptions 14,771 -
Changes in proportion and differences between
contributions and proportionate share of contributions 154,270 -
Contributions subsequent to the measurement date 161,796
TOTAL $ 471,735 $ (416,427)
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017
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, 2018. 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
LEOFF 1 Deferred Outflows of
Resources
Deferred Inflows of
Resources
Net difference between projected and actual investment
earnings on pension plan investments - (9,106)
TOTAL $ - $ (9,106)
LEOFF 2 Deferred Outflows of
Resources
Deferred Inflows of
Resources
Differences between expected and actual experience $ 41,786 $ (36,053)
Net difference between projected and actual investment
earnings on pension plan investments - (213,444)
Changes of assumptions 1,145 -
Changes in proportion and differences between
contributions and proportionate share of contributions 9,286 (45,145)
Contributions subsequent to the measurement date 58,741 -
TOTAL $ 110,958 $ (294,642)
TOTAL ALL PLANS Deferred Outflows of
Resources
Deferred Inflows of
Resources
Differences between expected and actual experience $ 182,684 $ (81,787)
Net difference between projected and actual investment
earnings on pension plan investments - (650,962)
Changes of assumptions 15,916 -
Changes in proportion and differences between
contributions and proportionate share of contributions 163,556 (45,145)
Contributions subsequent to the measurement date 334,956 -
TOTAL $ 697,112 $ (777,894)
Year ended December 31: PERS 1 PERS 2/3 LEOFF 1 LEOFF 2
2018 (39,014) (115,011)(5,715) (100,922)
2019 12,317 70,505 1,541 19,341
2020 (2,860) (9,740) (615) (17,515)
2021 (28,162) (128,477) (4,317) (95,963)
2022 33,145 (8,548)
Therafter 43,090 (38,908)
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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,
2017, 99 municipalities/entities participate in the AWC RMSA pool. The AWC RMSA allows members to establish a program of joint insurance and provides risk management services to all members. All coverages, with the exception of pollution liability, 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, pollution liability, and equipment breakdown insurance coverage. Equipment breakdown is included with the property insurance carrier and fidelity (crime) and pollution liability coverages are stand-alone policies, 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 is provided through an excess liability policy 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. Since AWC RMSA is a cooperative program, there is joint liability among the participating members. The excess property coverage is purchased through Lexington Insurance Company and in 2017, AWC RMSA carried a retention of $100,000 and limits up to $250 million. All commercial policies have been purchased through the Pool’s Broker of Record,
Aon.
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.
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CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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 $6,290,000 in general obligation bonds outstanding on December 31, 2017, for the construction of city hall and Tremont widening project.
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. 12/1/2019 2%-3.8% $ 3,000,000 $ 425,000
2017 LTGO Bond
Bus. Type
& Govt'l.
Activities 8/1/2032 2.09% $ 5,865,000 $ 5,865,000
Total General Obligation Bonds 6,290,000$ 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:
Principal Interest
Total
Requirements Principal Interest
Total
Requirements
2018
367,800 89,320 457,120 172,200 46,134 218,334
2019 381,200 419,527 800,727 178,800 42,694 221,494
2020 227,500 70,506 298,006 122,500 37,964 160,464
2021 234,000 65,752 299,752 126,000 35,404 161,404
2022 237,250 60,861 298,111 127,750 32,772 160,522
2023-2027 1,267,500 227,618 1,495,118 682,500 122,564 805,064
2028-2032 1,394,952 89,390 1,484,342 770,048 48,132 818,180
4,110,202$ 1,022,974$ 5,133,176$ 2,179,798$ 365,664$ 2,545,462$
Governmental Activities Business-Type Activities
All bond issues comply with arbitrage regulations.
Page 67
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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.10/13
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. The city received 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 total loan amount is $255,441 including issuance costs. The City’s interest
rate is 2.4%.
Total debt outstanding as of December 31, 2017, is as follows:
Name
Original
Amount Purpose
Issuance
Date
Maturity
Date
Interest
Rate
Debt
Outstanding
Bus.-Type Activities
Drinking Water State
Revolving Fund
(DWSKR) -$ Capital 4/8/2014 10/1/2038 1.50% $ 997,940
Water Quality Loan 255,441$ Capital 11/10/2015 1/2/2037 2.40% $ 255,441
Total Due to other Governments 1,253,381$
Principal Interest
Total
Requirements
2018 9,996 6,529 16,525
2019 60,566 6,604 67,170
2020 60,825 6,345 67,170
2021 61,090 6,080 67,170
2022 61,362 5,809 67,171
2023-2027 311,120 24,734 335,854
2028-2032 318,970 16,884 335,854
2033-2037 319,555 8,036 327,591
2038 49,897 748 50,645
1,253,381$ 81,772$ 1,335,154$
Business Type Activities
C. GOVERNMENT NOTE
Page 68
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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% $ 146,550
Total Note 146,550$ 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.
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 storage and an aquatic lands lease. 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 $18,855 (with an inflation
adjustment annually.) In 2017, $18,855.48 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, 2017:
Year Ending December 31 Total
2018 44,065
2019 23,907
2020 21,477
Total minimum payments required 89,449 Total rent expense for the year ended December 31, 2017, was $47,394.
Page 69
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017
NOTE 11. CHANGES IN LONG-TERM LIABILITIES
The following is a summary of long-term debt changes of the City for the year ended December
31, 2017:
Beginning Ending Due Within
Governmental Activities Balance Additions Reductions Balance One Year
Bonds payable:
General obligation bonds 459,900$ 3,799,952$ 149,650$ 4,110,202$ 367,800$
Premiums 1,309 - 522 787 522
Total bonds payable 461,209 3,799,952 150,172 4,110,989 368,322
Net Pension Liability 2,239,452 - 277,841 1,961,611 -
OPEB obligations 701,091 165,361 48,879 817,573 -
Compensated absences 572,807 - 37,641 535,166 516,124
3,974,559$ 3,965,313$ 514,533$ 7,425,339$ 884,446$
Business-type activities
Bonds payable:
General obligation bonds 170,100$ 2,065,048$ 55,350$ 2,179,798$ 172,200$
Premiums 480 - 192 288 192
Total bonds payable 170,580 2,065,048 55,542 2,180,086 172,392
Drinking Water State Revolving Fund Loan 782,656 215,284 - 997,940 -
Water Quality Loan 162,608 92,833 255,441 9,996
Private note 168,250 - 21,700 146,550 -
Net Pension Liability 1,282,551 - 306,883 975,668 -
Compensated absences 86,090 - 13,128 72,962 63,137
2,652,735$ 2,373,165$ 397,253$ 4,628,647$ 245,525$
Governmental activity long-term
liabilities
Business-type activities long-term
liabilities
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.
Page 70
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 (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 $5,415,285 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 the Capital Construction fund receiving $56,000 from the general fund for capital projects and $274,551 from Real Estate Excise Tax fund for construction of the Permit Center. Street Capital
Projects Fund received 1,047,500 from the general fund for cash flow for Capital Projects including Tremont Street, $96,448 from Real Estate Excise Tax fund for the purchase of property for the Rockell Park, and $28,762 from the Impact Fee Fund for the Old Clifton/Anderson Hill intersection project. The Cumulative Reserve for Capital Equipment received $48,000 from the general fund for capital equipment, the bond debt service fund received $166,674 from the Real
Estate Excise tax fund for debt service for City Hall. The interfund transfer activity for 2017 is as follows:
General Fund
Nonmajor
Gov't Funds Total
Capital Construction Fund $56,000 $274,551 $330,551
Street Capital Projects 1,047,500 125,210 1,172,710
Nonmajor Governmental Funds 48,000 166,674 214,674
Total $1,151,500 $566,435 $1,717,935Transfer ToTransfer From
Page 71
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017
NOTE 15. RECEIVABLES BALANCES
A. RECEIVABLES
Receivables at December 31, 2017, were as follows:
Governmental Activities:
Due from
Other Gvts Taxes Other Total
General Fund taxes 1,033,224$ -$ 1,033,224$
General Fund miscellaneous receivables - - 116,920 116,920
General Fund municipal court receivables - - 357,516 357,516
General Fund due from other governments 508 - - 508
Special Investigative Unit court receivables - - 32,235 32,235
Criminal Justice fund due from other governm - 40,548 - 40,548
Paths & Trails fund due from other government 210 210
Community events fund due from other gover - 18,256 - 18,256
Street Capital Projects due from other gov 1,043,609 2,418 - 1,046,027
Total Governmental Activities 1,044,117$ 1,094,656$ 506,671$ 2,645,444$
Business Type Activities:
Water-Sewer accounts receivables -$ -$ 908,207$ 908,207$
Water-Sewer soil clean-up receivable - - 117,401 117,401
Storm Drainage accounts receivable - - 269,049 269,049
Total Business Type Activities -$ -$ 1,294,657$ 1,294,657$
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 2017, the change in the City’s equity in the joint venture was a increase of $446,143. 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, 2017 was $9,058,414.
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
Page 72
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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 2017 each entity paid $200,000.
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% $2,762,975
Loan 2 Capital $6,800,000 6/30/2005 7/1/2024 0.50% 2,520,000
Joint Venture Total 5,282,975
Total Loans $5,282,975
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, 2017, 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
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
Page 73
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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 $200,375, but only contributed $48,879 at December 31, 2017. This $48,879 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 $817,573 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
2017 $165,361 30%$817,573
2016 $165,729 24%$701,091
2015 $179,412 33%$575,696
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
12/31/2017 0 2,227,844 2,227,844 0% 0 N/A
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 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 3.00%, with a +or- 5.0% medical inflation sensitivity performed as of December 31, 2017. The following table shows the components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the net OPEB Obligation. The net OPEB
obligation of $817,573 is included as a non-current liability in the statement of net position.
Page 74
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017
2017
$ -
200,375
200,375
200,375
28,043
(63,057)
165,361
(48,879)
116,482
701,091
$ 817,573
Determination of Annual Required Contribution
Net OPEB Obligation January 1, 2016
Net OPEB Obligation December 31, 2016
Determination of Net OPEB Obligation
Annual OPEB Cost
Adjustment to NOO
Interest on Net OPEB Obligation (NOO)
Actuarial Required Contribution (ARC 12/31/16)
Annual Required Contribution (ARC) at year-end
Amortization of UAAL*
Normal Cost at beginning of year
Employer Contributions
Increase (Decrease) in NOO
The City’s percentage of annual OPEB cost contributed to the plan for 2017 is 30%.
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:
Retirees receiving medical benefits from the trust 2017
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.
Page 75
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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, 2017, 261 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: Kaiser Foundation Health Plan of Washington, Kaiser Foundation Health Plan of Washington 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 2017, 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 Kaiser ISL at $1 million with Companion Life through ASG Risk Management. The aggregate policy is for 200% of expected medical claims.
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
Page 76
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 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. OTHER DISCLOSURES
The Port Orchard Transportation Benefit District was established by Ordinance No. 027-15 in 2015. The district imposed a $20 vehicle registration fee within the district boundaries which are the same as the corporate limits of the City. The district received its first revenue in 2017. The
TBD had no activity in prior years. Subsequently, Ordinance No. 020-17 was passed pursuant to
RCW 36.74 assuming all the rights, powers, functions, immunities, obligations of the Port Orchard TBD. All funds, credits, or other assets held in connection with the powers, duties, and functions of the Port Orchard TBD were transferred and assigned to the City in 2017. TBD revenues and expenditures are reported in the General Fund in the city’s financial statements.
NOTE 20. TAX ABATEMENT
The City enters into property tax abatement agreements with local businesses under the Multifamily Tax Exemption Program, which is authorized under Washington State RCW 84.14
and codified in Chapter 3.48 of the City Municipal code. Under the RCW, the City may grant property tax abatements of up to an approved period of eight, ten or twelve years for the approved value of newly constructed or rehabbed residential units. The purpose of this tax-exempt program is to increase residential opportunities, including affordable housing, in designated urban centers.
Tax abatement eligibility is as follows:
• An eight-year exemption is available for market-rate projects with an approved
development agreement.
• Two tax exemption options are available for housing projects with an affordability
component:
o 8-year exemption for multifamily projects
o 12-year exemption for multifamily projects with 20% of units designated as affordable housing
Page 77
CITY OF PORT ORCHARD Notes to Financial Statements
December 31, 2017 For projects approved under this program, the owner has three years from the agreement being approved by council to obtain an occupancy permit. A Certificate of Tax Exemption is obtained
by the property owner, which details the total exemption. The duration of the tax exemption is
measured beginning January 1 of the year immediately following the calendar year after issuance of the Final Certificate of Tax Exemption. The new residential improvements are not added to the tax rolls until the exemption expires. However, land and other non-residential improvements are subject to property taxes.
All approved tax exemption projects are reviewed annually to ensure compliance with the program. If it is determined that the property owner is not complying with the terms of the agreement, the tax exemption will be canceled. This can occur in conjunction with the annual review or at any other time when the non-compliance has been determined. Additionally, owners
of tax exemption projects are required to submit annual information to the City.
As of December 31, 2017, one agreement under this program have been approved by Council. This project is in the construction phase and no tax has been abated at this time.
NOTE 21. 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 22. PRIOR PERIOD ADJUSTMENTS
Adjustments related to prior periods were a result of corrections made to the following funds that were considered to be of a material value:
Fund
No. Fund Description Amount Reason
001 General Fund 882,433$ Correction for revenue recognition in the 60 day
availability period
103 Criminal Justice Fund 37,156 Correction for revenue recognition in the 60 day
availability period
107 Community Events Fund 15,474 Correction for revenue recognition in the 60 day
availability period
108 Paths & Trails Fund 200 Correction for revenue recognition in the 60 day
availability period
304 Street Capital Projects 2,306 Correction for revenue recognition in the 60 day
availability period
937,569$
Page 78
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
12/31/2015 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
12/31/2017 0 $2,247,199 $2,247,199 0% 0 N/A
Page 79
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
2017 0.032596%$1,549,706 $3,862,158 40.13%61.24%
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
Last Four Fiscal Years
Page 80
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
2017 0.004002%$1,390,573 $3,783,688 36.75%90.97%
2016 0.036493%1,837,394 3,422,548 53.68%85.82%
2015 0.035545%1,270,043 3,153,865 40.27%89.20%
2014 0.035257%712,671 3,017,268 23.62%93.29%
City of Port Orchard
Schedule of Proportionate Share of the Net Pension Liability
PERS 2/3
As of June 30
Last Four Fiscal Years
Page 81
REQUIRED SUPPLEMENTARY INFORMATION - State Sponsored Plans
Year
Ended
June 30,
Employer's
proportion of the
net pension
liability (asset)
Employer's
proportionate
share of the net
pension liability
State's proportionate
share of the net
pension liability
(asset) associated
with the employer TOTAL
Employer's
covered
employee
payroll
Employer's proportionate
share of the net pension
liability as a percentage of
covered employee payroll
Plan fiduciary net
position as a
percentage of the
total pension liability
2017 0.006459%$(97,997) $(662,851) $(760,848) N/A N/A 135.96%
2016 0.006368%(65,609) (443,775) (509,384) N/A N/A 123.74%
2015 0.064232%(75,929) (513,582) (589,511) N/A N/A 127.36%
2014 0.062480%(75,775) (512,540) (588,315) N/A N/A 126.91%
City of Port Orchard
Schedule of Proportionate Share of the Net Pension Liability
LEOFF 1
As of June 30
Last Four Fiscal Years
Page 82
REQUIRED SUPPLEMENTARY INFORMATION - State Sponsored Plans
Year
Ended
June 30,
Employer's
proportion of the
net pension
liability (asset)
Employer's
proportionate
share of the net
pension liability
State's proportionate
share of the net
pension liability
(asset) associated
with the employer TOTAL
Employer's
covered
employee
payroll
Employer's proportionate
share of the net pension
liability as a percentage of
covered employee payroll
Plan fiduciary net
position as a
percentage of the
total pension liability
2017 0.068512%$(950,725) $(616,717) $(1,567,442) $2,068,408 -45.96%113.36%
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
Last Four Fiscal Years
Page 83
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
2017 $209,860 $(209,860)$- $4,165,073 5.04%
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
Last Four Calendar Years
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
2017 $280,795 $(280,795)$- $4,083,102 6.88%
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
Last Four Calendar Years
Page 85
REQUIRED SUPPLEMENTARY INFORMATION - State Sponsored Plans
Year Ended
December 31,
Statutorily or
contractually
required
contributions
relation to the
statutorily or
contractually required
contributions
Contribution
deficiency (excess)
Covered
employer
payroll
Contributions as a
percentage of
covered employee
payroll
2017 $- $- $- $N/A N/A
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
Last Four Calendar Years
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
contributions
Contribution
deficiency
(excess)
Covered
employer
payroll
Contributions as a
percentage of
covered employee
payroll
2017 $111,163 $(111,163)$- $2,128,665 5.22%
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
Last Four Calendar Years
Page 87
Note 1:Information Provided
Note 2:Significant Factors
Note 3: LEOFF 1
Note 4: Covered payroll
Note 5: Change in contribution rate
The employer contribution rates for both PERS 1 and PERS 2/3 plans increased from 11.18%
to 12.70% for pay periods beginning July 2017.
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 Four Calendar Years
GASB 68 was implemented for the year ended December 31, 2015, therefore there is no data
available for years prior to 2014. Eventually, ten years of data will be presented.
Covered payroll has been presented in accordance with GASB 82, Pension Issues. Covered
payroll includes all payroll on which a contribution is based.
Page 88
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
737,380 -737,380 -
Federal Highway Administration
(fhwa), Department Of
Transportation (via WA State
Dept of Transportation)
Highway Planning and
Construction
20.205 STPE-0166
(008) / LA-6165
379,274 -379,274 -
Total Highway Planning and Construction Cluster: 1,116,654 -1,116,654 -
Highway Safety Cluster
NATIONAL HIGHWAY TRAFFIC
SAFETY ADMINISTRATION,
TRANSPORTATION,
DEPARTMENT OF (via WA
Traffic Safety Commission)
State and Community
Highway Safety
20.600 n/a 3,601 -3,601 -
National Highway Traffic Safety
Administration (nhtsa),
Department Of Transportation
(via WA Traffic Safety
Commission)
National Priority Safety
Programs
20.616 n/a 488 -488 -
Total Highway Safety Cluster: 4,089 -4,089 -
United States Coast Guard
(uscg), Department Of Homeland
Security (via WA State Parks &
Recreation Commission)
Boating Safety Financial
Assistance
97.012 n/a 11,699 -11,699 -
Total Federal Awards Expended:1,132,443 -1,132,443 -
City of Port Orchard
Schedule of Expenditures of Federal Awards
For the Year Ended December 31, 2017
The accompanying notes are an integral part of this schedule.Page 89
CITY OF PORT ORCHARD
Notes to Schedule of Expenditures of Federal Awards
January 1, 2017 through December 31, 2017
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. – 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; roundabouts 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.
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.
Page 90
Washington State Auditor’s Office Page 91
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 Office
Public Records requests PublicRecords@sao.wa.gov
Main telephone (360) 902-0370
Toll-free Citizen Hotline (866) 902-3900
Website www.sao.wa.gov