The URL can be used to link to this page

Home My WebLink AboutAudit Memo and attachments, updated CAFR Commission Memorandum REPORT TO: Honorable Mayor and City Commission FROM: Brian LaMeres, City Controller Anna Rosenberry, Director of Finance Chris Kukulski, City Manager (to be presented by Merrilee Glover of J.C.C.S.) SUBJECT: Comprehensive Annual Financial Report (CAFR) for Fiscal Year 2010-2011 MEETING DATE: December 19, 2011 BACKGROUND: Section 2-7-503 MCA requires that a financial report be prepared for every fiscal year. This statute also requires a biannual audit of this report – including the accounts, financial records, and transactions of all administrative departments of the City – by independent certified public accountants selected by the City Commission. The City Commission and City Administration have historically believed that an annual audit provides a higher level of financial assurance and fiscal integrity than a biannual audit, and this intention is expressed in Section 5.09 of the City Charter. This policy, along with the State legal reporting requirement, has been followed for fiscal year 2011, and the clean unqualified opinion expressed by the audit firm of Junkermeir, Clark, Campanella & Stevens, PC (J.C.C.S.) has been included in the accompanying CAFR report. The City’s Audit Committee has reviewed and accepted the CAFR and the accompanying letter to management. RECOMMENDATION: The City Commission accepts the CAFR and accompanying reports. FISCAL EFFECTS: A clean unqualified audit opinion on the City’s financial statements is viewed favorably by investment analysts and strengthens the City’s ability to issue bonds or other debt at a lower interest cost. ALTERNATIVES: As suggested by the City Commission. Attachments: CAFR Comprehensive Annual Financial Report - also posted online at: http://www.bozeman.net/Business/Budgets-and-Financials Auditor’s Letter to Management Building Inspection Codes Agreed-Upon Procedures Report Report compiled on December 15, 2011 December 15, 2011 To the Honorable Mayor, City Commissioners, City Manager, and Audit Committee City of Bozeman, Montana: 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 Bozeman, Montana as of June 30, 2011 and for the year then ended. Professional standards require that we provide you with the following information related to our audit. Our Responsibilities under U.S. Generally Accepted Auditing Standards and Governmental Auditing Standards As stated in our engagement letter dated June 1, 2011, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement. Our audit of the financial statements does not relieve you or management of your responsibilities. As part of our audit, we considered the internal control of the City of Bozeman. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of the City of Bozeman’s compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to you in our meeting about planning matters on June 1, 2011. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City of Bozeman are described in Note 1 to the financial statements. The application of existing policies was not changed during the year ended June 30, 2011. The City implemented GASB 54 – Fund Balance Reporting and Governmental Fund Types – during the fiscal year ended June 30, 2011. We noted no transactions entered by the governmental unit during the year for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. Junkermier Clark Campanella Stevens P.C. Certified Public Accountants Business Advisors 220 West Lamme, Suite 3A P.O. Box 1965 Bozeman, MT 59771-1965 Ph. (406) 587-1277 Fx. (406) 587-8794 www.jccscpa.com Bozeman Great Falls Hamilton Helena Kalispell Missoula Whitefish City of Bozeman, Montana Audit Communication Letter Page 2 Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimate affecting the financial statements was Management’s estimate of the capital assets balances as the useful lives, potential impairments, and depreciation are estimates. We evaluated the key factors and assumptions used to develop the estimates in determining that the capital asset balance is reasonable in relation to the financial statements taken as a whole. The disclosures in the financial statements are neutral, consistent and clear. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were the Note 15 Post-Employment Benefits Other than Pensions and Note 24 Pollution Remediation Obligations. Difficulties Encountered in Performing the Audit We are pleased to report that we encountered no difficulties with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. All adjusting journal entries proposed by us were subsequently recorded by management. Refer to the attachment to this letter for a detailed listing of the adjusting journal entries. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated December 15, 2011. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and audit standards, with management each year prior to retention as the governmental unit’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principal to the City’s financial statements or, a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant check with us to determine that the consultant has all the relevant facts. There were no such consultations with other accountants. City of Bozeman, Montana Audit Communication Letter Page 3 We will be pleased to respond to any questions you have about the foregoing. We appreciate the opportunity to continue to be of service to the City. This report is intended solely for the information and use of the Mayor, Members of the City Commission, City Manager, the Audit Committee, the City’s management, and the Montana Department of Administration and is not intended to be used and should not be used by anyone other than the specified parties. Sincerely, Junkermier, Clark, Campanella, Stevens, P.C. Certified Public Accountants CITY OF BOZEMAN STATEMENT OF NET ASSETS - CONVERSION WORKSHEET JUNE 30, 2011 Total Total Governmental Dr. (Cr) Dr. (Cr) Governmental Funds Adjustments Reclassifications Activities ASSETS Cash and investments 20,512,577 459,251 (1) 20,971,828 Restricted cash and investments 8,894,569 8,894,569 Receivables, net 11,556,777 14,360 (1) 11,571,137 Notes receivable 551,162 551,162 Accrued interest 40,232 40,232 Inventories - - Prepaid expenses 446,250 - (1) 446,250 Deferred charges - 150,141 (12) 150,141 Internal balances - - (1) - (A)- Capital assets (Note 1): Land and construction in progress - 10,489,902 (2) 10,489,902 Other capital assets, net of depreciation - 1,305,522 (1) 92,683,875 - (13) - (14) 92,240,102 (2) 7,334,113 (2) - (8,195,862) (8) Total assets 42,001,567 145,799,096 LIABILITIES Accounts payable and accrued expenses 1,987,552 (24,199) (1) 2,011,751 Fiduciary fund payable - - (A)- Compensated absences payable - (1,080,000) (C)1,080,000 Deferred revenue 8,817,886 601,635 (4) 859,696 551,162 (5) 5,301,728 (6) 1,808,864 (7) (305,199) (15) Current portion capital leases (162,819) (B)162,819 Current portion long-term debt - (991,285) (B)991,285 Current portion opeb Long-term liabilities (Note 2) Capital lease - (291,237) (10 162,819 (B)51,197 77,221 (10) Compensated absences - (12,854) (1) 352,248 (1,332,975) (3) 1,080,000 (C) (86,419) (11) Due in more than one year - (15,640,071) (3) 991,285 (B)13,114,920 1,533,866 (10) - (10) Other post-employment health benefits (1,283,553) (14) 1,293,668 (10,115) (1) Pollution remediation obligations (16,874) (15) 16,874 Unamortized bond premium 436 (10) (9,588) (10 - 9,152 Total liabilities 10,805,438 19,943,610 NET ASSETS Invested in capital assets, net of related debt - (88,844,404) (F) 88,844,404 Restricted for impact capital projects 19,962,574 18,715,775 (F) 1,246,799 Restricted for debt service - (5,437,698) (F) 5,437,698 Restricted for capital projects - (302,191) (F) 302,191 Restricted for general government - (392,437) (F) 392,437 Restricted for public safety - (97) (F) 97 Restricted for public service - (12,520,373) (F) 12,520,373 Restricted for public welfare - (62,979) (F) 62,979 Committed 3,278,422 742,888 2,535,534 Assigned 6,049,807 6,049,807 Nonspendable - cemetery care 553,214 553,214 Nonspendable - prepaid items 446,250 446,250 Unassigned 905,862 (94,659,357) 88,101,516 (F) 7,463,703 Total net assets 31,196,129 125,855,486 Total liabilities and net assets 42,001,567 145,799,096 CITY OF BOZEMAN STATEMENT OF ACTIVITIES - CONVERSION WORKSHEET JUNE 30, 2011 Total Total Governmental Dr. (Cr) Dr. (Cr) Governmental Funds Adjustments Reclassifications Activities REVENUES Taxes 16,634,924$ 292,871 (4) 16,342,053 Special assessments 1,866,272 1,034,972 (E) - 831,300 (6) Licenses and permits 1,308,378 1,308,378 (E) - Intergovernmental 8,299,803 (130,395) (9) 8,430,198 (G)- Grants and cont - unrestricted (6,782,383) (G)6,782,383 Operating grants and cont (1,114,835) (G)1,114,835 Capital grants and cont (7,334,113) (2) (532,980) (G)7,867,093 Charges for services 6,629,507 (3,832,112) (E) 10,461,619 Fines and forfeitures 1,441,383 (47,379) (7) 1,488,762 (E) - Interest on investments 300,516 (908) # 301,424 Loan repayment 193,302 193,302 (5) - Other 1,556,790 1,556,790 Total revenues 38,230,875 44,426,197 EXPENDITURES Current General government 5,939,771 415,489 # 6,122,190 1,379 (11) (258,098) (9) 23,649 (14) Public safety 12,137,616 622,014 (8) 12,859,702 55,178 (11) 44,894 (14) (12) Public service 3,002,021 6,096,641 (8) 9,190,515 12,767 (11) 11,313 (12) 98,301 (13) 2,310 (14) (32,838) # - (15) Public welfare 6,435,916 (43,263) (5) 7,500,727 17,095 (11) 29,261 (14) 1,061,718 (8) Other - - Capital outlay 3,299,017 (3,299,017) (2) - Debt service Principal payments 1,611,087 (1,533,866) (10) - (77,221) (10) Interest and fiscal fees 680,088 (436) (10) 679,652 Total expenditures 33,105,516 36,352,786 OTHER FINANCING SOURCES (USES) Operating transfers in 6,985,734 (787,021) (9) 7,255,505 (D)517,250 Operating transfers out (7,255,505) - (9) (7,255,505) (D)- Proceeds of long-term debt - - (10) - - (10) Transfers of capital assets - - (2) - Premium on bonds - - (10) - Sale of fixed assets 10,555 18,723 (2) (8,168) Total other financing sources (u (259,216) 509,082 Net change in fund balances 4,866,143 8,582,493 FUND BALANCE - beginning of year 26,329,986 (90,943,007) 117,272,993 - (14) - - (13) - FUND BALANCE - end of year 31,196,129$ 125,855,486$ CITY OF BOZEMAN ADJUSTING JOURNAL ENTRIES JUNE 30, 2011 Adjusting Entry Number Account Debit Credit (1) Cash and investments 459,251 Receivables, net 14,360 Prepaid expenses - Internal balances - Capital assets, net of depreciation 1,305,522 Accounts payable and accrued expenses 24,199 Long-term compensated absences 12,854 Other post-employment health benefits - implicit rate subsidy 10,115 Net assets - beginning (Invested in capital assets, net)1,305,522 Net assets - beginning (426,443) To record the effect on assets and liabilities of the internal service amounts allocated to governmental activities. (2) Land and construction in progress 10,489,902 Other capital assets, net of depreciation 92,240,102 Other capital assets, net of depreciation 7,334,113 Donated capital assets 7,334,113 Capital asset expenditures 3,299,017 Net assets - beginning 99,430,987 Capital assets transferred from enterprise funds - Net assets - beginning - Sale of fixed assets 18,723 Net assets - beginning 18,723 To record capital assets and to capitalize capital asset expenditures. (3) Net assets - beginning 16,973,046 Long-term debt - Due in more than one year 15,640,071 Long-term compensated absences 1,332,975 To record beginning balance in long-term liabilities. (4) Deferred revenue 601,635 Net assets - beginning 894,506 Property tax revenue (292,871) . To adjust revenue based on modified accrual accounting in the fund financial statements to the accrual basis for the government-wide financial statements for property taxes. (5) Deferred revenue 551,162 Loan repayment revenue 193,302 Public welfare expenditure 43,263 Net assets -beginning 701,201 To adjust revenue based on modified accrual accounting in the fund financial statements to the accrual basis for the government-wide financial statements for community loans. (6) Deferred revenue 5,301,728 Special assessment revenue 831,300 Net assets - beginning 6,133,028 To adjust revenue based on modified accrual accounting in the fund financial statements to the accrual basis for the government-wide financial statements for SID's. (7) Deferred revenue 1,808,864 Fine and forfeitures revenue 47,379 Net assets - beginning 1,761,485 To adjust revenue based on modified accrual accounting in the fund financial statements to the accrual basis for the government-wide financial statements for Municipal Court fine receivable. (8) General government expenditure 415,489 Public safety expenditure 622,014 Public services expenditure 6,096,641 Public welfare expenditure 1,061,718 Other capital assets, net 8,195,862 To record depreciation expense and allocate to governmental activities. (9) Other - Nondepartmental expenditures (258,098) Transfers in 787,021 Public service expenditures (32,838) Investment earnings 908 Intergovernmental revenue 130,395 Net assets - beginning (1,209,260) To record the effects on revenues, expenditures, and other changes in net assets of the internal service amounts allocated to governmental activities. (10) Debt service - principal expenditure 1,533,866 Long-term liabilities more than one year 1,533,866 Capital lease 291,237 Net assets - beginning 300,825 Long-term liabilities more than one year - Proceeds from debt issuance - Capital lease 77,221 Debt service - principal expenditure 77,221 Unamortized bond premium 9,588 Unamortized bond premium 436 Debt service - interest and fees 436 To adjust debt related other financing source and uses to zero and to adjust effect on long-tem liabilities. (11) General Government Expenditures 1,379 Public Safety Expenditures 55,178 Public Service Expenditures 12,767 Public Welfare Expenditures 17,095 Long-term compensated absences 86,419 To adjust for change in compensated absences in current year. (12) Deferred Charges - Bond Issuance Costs 161,454 Net assets - beginning 161,454 Public Service Expenditures 11,313 Deferred Charges - Bond Issuance Costs 11,313 To adjust bond issuance costs off the statement of activities and record one year of amortization. (13) Net assets - beginning 206,898 Deferred revenues 305,199 Public service expenditures (98,301) To recognize impact fee credits using the full accrual method of accounting (14) General government expenditure 23,649 Public safety expenditure 44,894 Public services expenditure 2,310 Public welfare expenditure 29,261 Other post-employment health benefits 100,114 Net assets - beginning 1,183,439 Other post-employment health benefits 1,183,439 To recognize retire health insurance post-employment obligation (15) Public services expenditure - Net assets - beginning 16,874 Pollution Remediation Obligations 16,874 To recognize pollution remediation obligations CITY OF BOZEMAN RECLASSIFICATION JOURNAL ENTRIES JUNE 30, 2011 Reclassification Entry Account Debit Credit (A) Internal balances - Fiduciary fund payable - To reclassify for reporting purposes. (B) Long-term debt 991,285 Current portion of long-term debt 991,285 Capital leases 162,819 Current portion of capital leases payable 162,819 To reclass current portion of long-term debt and capital leases. (C) Long-term compensated absences payable 1,080,000 Compensated absences payable 1,080,000 To reclass current portion of long-term compensated absences payable. (D) Transfers in 7,255,505 Transfers out 7,255,505 To offset transfers and correct internal service transfers. (E) Fines and forfeitures revenues 1,488,762 Licenses and permits revenues 1,308,378 Special assessment revenues 1,034,972 Charges for services revenues 3,832,112 Reclass certain revenues into charges for services for reporting purposes. (F) Invested in capital assets, net 1,305,522 Invested in capital assets, net 87,538,882 Unrestricted net assets 88,844,404 Restricted for impact capital projects 302,191 Restricted for debt service 5,437,698 Restricted for general government 392,437 Restricted for public safety 97 Restricted for public service 12,520,373 Restricted for public welfare 62,979 Restricted - uncategorized 18,715,775 Committed 742,888 Assigned - Unrestricted net assets 742,888 To reclass to proper net asset categories. (G) Intergovernmental revenues 8,430,198 Unrestricted grants and contributions 6,782,383 Capital grants and contributions 532,980 Operating grants and contributions 1,114,835 To reclass grants to those restricted for operations and capital purchases. CITY OF BOZEMAN, MONTANA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2011 Prepared by the City of Bozeman Finance Department CITY OF BOZEMAN, MONTANA COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2011 TABLE OF CONTENTS I. INTRODUCTORY SECTION Letter of Transmittal ........................................................................................................................................................................................................ 1-14 Governmental Financial Officers’ Association Certificate of Achievement ...................................................................................................................... 15 Organizational Chart ........................................................................................................................................................................................................... 16 City Elected Officials and Officers ................................................................................................................................................................................ 17-18 II. FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT ..................................................................................................................................................................... 19-20 A. MANAGEMENT’S DISCUSSION AND ANALYSIS ................................................................................................................................................ 21-30 B. BASIC FINANCIAL STATEMENTS Government Wide Financial Statements Statement of Net Assets ............................................................................................................................................................................................... 31 Statement of Activities ................................................................................................................................................................................................. 32 Fund Financial Statements Governmental Fund Financial Statements Balance Sheet – Governmental Funds .............................................................................................................................................................. 33-34 Reconciliation of the Balance Sheet to the Statement of Net Assets – Governmental Funds ............................................................................... 35 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds ........................................................................... 36 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities – Governmental Funds ............................................................................................................................................... 37 Proprietary Fund Financial Statements Statement of Net Assets – Proprietary Funds ................................................................................................................................................... 38-39 Statement of Revenues, Expenses, and Changes in Fund Net Assets – Proprietary Funds ................................................................................... 40 Statement of Cash Flows – Proprietary Funds .................................................................................................................................................. 41-42 Fiduciary Fund Financial Statements Statement of Fiduciary Net Assets – Fiduciary Funds ........................................................................................................................................... 43 Notes to Financial Statements ........................................................................................................................................................................................ 44-90 CITY OF BOZEMAN, MONTANA COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2011 TABLE OF CONTENTS (CONTINUED) C. REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT DISCUSSION AND ANALYSIS Schedule of Funding Progress – Other Post-Employment Health Care Benefits ............................................................................................................... 91 Schedules of Revenues, Expenditures, and Changes in Fund Balances - Budget to Actual – General and Special Revenue Major Funds General Fund ................................................................................................................................................................................................................ 92 Street and Fire Impact Fees Fund ................................................................................................................................................................................. 93 Notes to Required Supplementary Information Other Than Management Discussion and Analysis .......................................................................... 94 D. SUPPLEMENTAL INFORMATION Combining and Individual Fund Statements and Schedules Combining Balance Sheet – Non-Major Governmental Funds ............................................................................................................................. 95-100 Combining Statement of Revenue, Expenditures, and Changes in Fund Balance – Nonmajor Governmental Funds ....................................... 101-105 Budget-to-Actual Schedules – Other Major Funds Schedules of Revenues, Expenditures, and Changes in Fund Balances - Budget to Actual - Other Major Funds SID Sinking Fund ....................................................................................................................................................................................................... 106 Capital Projects Fund ................................................................................................................................................................................................. 107 Note to Budget-to-Actual Statements – Other Major Funds ...................................................................................................................................... 108 Budget-to-Actual Schedules- Nonmajor Funds Schedules of Revenues, Expenditures, and Changes in Fund Balances - Budget to Actual – Nonmajor Governmental Funds Non-Major Governmental Funds ........................................................................................................................................................................ 109-122 Internal Service Funds Statements Combining Statement of Net Assets – Internal Service Funds .................................................................................................................................. 123 Combining Statement of Revenues, Expenses, and Changes in Fund Net Assets – Internal Service Funds ............................................................. 124 Combining Statement of Cash Flows .................................................................................................................................................................. 125-126 Agency Funds Combining Statement of Fiduciary Net Assets .......................................................................................................................................................... 127 Combining Statement of Changes in Assets and Liabilities – Agency Funds ........................................................................................................... 128 CITY OF BOZEMAN, MONTANA COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2011 TABLE OF CONTENTS (CONTINUED) III. STATISTICAL SECTION Financial Trends Section Net Assets by Component .......................................................................................................................................................................................... 129 Changes in Net Assets ......................................................................................................................................................................................... 130-131 Fund Balances of Governmental Funds ..................................................................................................................................................................... 132 Changes in Fund Balances, Governmental Funds ...................................................................................................................................................... 133 Revenue Capacity Section Assessed value of Taxable Property ........................................................................................................................................................................... 134 Direct and Overlapping Property Tax Rates .............................................................................................................................................................. 135 Principal Property Tax Payers .................................................................................................................................................................................... 136 Property Tax Levies and Collections ......................................................................................................................................................................... 137 Water Sold by Type of Customer ............................................................................................................................................................................... 138 Water and Sewer Rates ............................................................................................................................................................................................... 139 Debt Capacity Section Ratios of Outstanding Debt by Type .......................................................................................................................................................................... 140 Ratios of General Bonded Debt Outstanding ............................................................................................................................................................. 141 Direct and Overlapping General Bonded Debt Outstanding ...................................................................................................................................... 142 Legal Debt Margin Information ................................................................................................................................................................................. 143 Pledged Revenue Coverage ........................................................................................................................................................................................ 144 Demographics and Economic Section Demographic and Economic Statistics ....................................................................................................................................................................... 145 Principal Employers ................................................................................................................................................................................................... 146 Operating Section Full-time Equivalent City Government Employees by Function/Program ................................................................................................................ 147 Operating Indicators by Function/Program ................................................................................................................................................................ 148 Capital Assets Statistics by Function/Program ........................................................................................................................................................... 149 CITY OF BOZEMAN, MONTANA COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2011 TABLE OF CONTENTS (CONTINUED) IV. REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS AND SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AS REQUIRED BY OMB CIRCULAR A-133 Schedule of Expenditures of Federal Awards ............................................................................................................................................................ 150-151 Notes to Schedule of Expenditures of Federal Awards .................................................................................................................................................... 152 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 ......................................................................................................................................................................... 153-154 Independent Auditor’s Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133........................................................................................................................................................................................... 155-156 Schedule of Findings and Questioned Costs ..................................................................................................................................................................... 157 Current Status of Prior Year Recommendations ............................................................................................................................................................... 158 PART I INTRODUCTORY SECTION 1 CITY OF BOZEMAN, MONTANA December 15, 2011 To the Citizens of the City of Bozeman, Montana The Comprehensive Annual Financial Report of the CITY OF BOZEMAN, MONTANA for the fiscal year ended June 30, 2011 is hereby submitted. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data are accurate in all material respects and are reported in a manner designed to present fairly the financial position and results of operations of the various funds of the City. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included. The City is required to undergo an annual single audit in conformity with the provisions of the Single Audit Act of 1984 and the Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Information related to the single audit, including the Schedule of Expenditures of Federal Awards and the Auditor’s Reports on Basic Financial Statements and Supplementary Schedule of Expenditures of Federal Awards, Internal Control over Financial Reporting and Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards, and Compliance with Requirements Applicable to Each Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133, are included in the single audit section of this report. Management’s Discussion and Analysis (MD&A), starting on page 21, is a narrative introduction, overview and analysis written to accompany the basic financial statements and should be read in conjunction with the transmittal letter. 2 CITY OF BOZEMAN, MONTANA CITY OF BOZEMAN PROFILE The City of Bozeman was incorporated in April of 1883 with a city council form of government, and later in January 1922 transitioned to its current city manager/city commission form of government. Bozeman encompasses an area over 18 square miles and is located on the eastern slope of the Rocky Mountains. The 2010 census put Bozeman's population at 37,280 making it the fourth largest city in the state. Bozeman is the county seat of Gallatin County and is the home to Montana State University – Bozeman, and the fighting Bobcats. Bozeman was elected an All-America City in 2001 by the National Civic League. The government provides a full range of services. These services include police and fire protection; sanitation services; water and waste water utilities; the construction and maintenance of streets and infrastructure; recreational activities; cultural events; planning and zoning; and general administrative services. The City, as a primary government, is supported or works closely with certain entities to provide these services to the citizens of the City of Bozeman. Of these entities, the Bozeman Public Library Board of Trustees, the City Planning Board, and Parking Commission are presented as blended component units. The Senior Advisory Council is excluded from presentation in these financial statements, since their relationship with the City is strictly advisory in nature at this time. BUDGET DEVELOPMENT PROCESS The City of Bozeman budget serves several purposes. For the citizens of the City of Bozeman, it presents a picture of the City government operations and intentions for the year. For the City Commission, it serves as a policy tool and as an expression of goals and objectives. For City Management, it is used as an operating guide and a control mechanism. The City Manager’s Recommended Budget serves as the preliminary budget and is normally adopted as such in June following six months of development and analysis by staff and the City Commission. After submitting the City Manager's Recommended Budget to the City Commission, public work sessions may be held by the Commissioners at which time the City Manager, Finance Director, and department staff explain the budget recommendations and underlying justification for the re-quests. The Commission also reviews departmental requests which could not be funded, as an indication of un-met needs. During or following the work sessions, the Commissioners may make adjustments to the proposed budget. Following any adjustments to the City Manager's budget recommendation, a tentative appropriation ordinance is prepared and a public hearing is held. The Commission may again make adjustments to the budget following the public hearing, after which time, the Commission passes the appropriation ordinance in final form. The overall goal of the City’s financial policies is to establish and maintain effective management of the City’s financial resources. 3 CITY OF BOZEMAN, MONTANA ECONOMIC CONDITION AND OUTLOOK The Bureau of Business and Economic Research (BBER) is the research and public service branch of the University of Montana’s School of Business Administration. The Bureau is regularly involved in a wide variety of activities, including economic analysis and forecasting. Excerpts from the Bureau’s forecasts contained in the spring 2011 issue of the Montana Business Quarterly relating to Gallatin County and City of Bozeman are stated below. Despite the sharp declines in 2008 and 2009, the Bozeman area economy should emerge from the recession relatively unscathed. Construction and real estate plummeted and nonresident travel (which accounts for 13 percent of the local economic base) decreased sharply in response to the national recession. But Bozeman’s high-tech industries (which suffered greatly during the 2001 recession) continue to expand. Employees of Montana State University will see their wages increase only slightly. The roughly 3.5 percent annual growth projected for 2010 to 2014 may appear buoyant compared to the recession years, but it is a full percentage point lower than the prerecession average of 4.4 percent per year. 4 CITY OF BOZEMAN, MONTANA For the Year Changes, Initiatives & Priorities ongoing, undertaken or completed during the year include: Building Activity: Local building activity has many impacts on the operations and finances of the City; from the workload and revenues in the Planning and Building Inspection Divisions to the amount of funding available for Impact Fee programs and increases in Property Tax dollars due to new construction. As with the rest of the nation, credit and other economic factors began affecting the amount of subdivision and construction activity we were seeing come through the doors of our Planning and Building Inspection Divisions in early 2008. This trend continued through FY09. During FY10 & FY11, Planning and Building activities continued at levels below FY09; however, we continued to see moderate building activity in our City. During FY11, the Kohl’s and Safeway projects provided noticeable increases in planning and building activity. Building and planning activity related to the June 30, 2010 hail storm also boosted activity in these departments. However, we don’t anticipate a number of similar projects or weather events in the coming year. For that reason, our FY12 estimates for Building and Planning revenues mirror the FY10 actual receipts. We continue to monitor the revenue and workload status of the Building Inspection and Planning Departments on a monthly basis, and report to the Commission on a quarterly basis. Property Tax Revenues from New Construction: The City’s certified taxable value for the previous year shows that our local tax base grew 3.2% from January 1, 2010 to December 30, 2010. This is the lowest increase in taxable value that the City has seen since 2001. It is markedly below the average of 6.9% we had seen each year over the past 5 years. For the coming year, we are estimating that the local tax base will grow by 2%. Actual certified taxable values will be received in early August from the Montana Department of Revenue. State Entitlement Share: During the 2011 State Legislative session, which ended in early May, the State eliminated the statutory growth factor for our Entitlement Share dollars for FY12. Under the prior statute, the City would have seen approximately $150,000 in increased revenue in the General Fund. Instead, FY12 will see no growth in Entitlement Share in the general fund, and a 10% decrease (-$3,100) for the Downtown Tax Increment District. 2010 Census Information: The 2010 Census information for the City of Bozeman shows that we are now the 4th most populous city in the state; increasing from our rank of 5th in the 2000 census. Our actual 2010 census population of 37,280 is lower than the census estimate of 2009 by 5.1%, but shows a 32.7% increase over our 2000 census population. Gallatin College Funding: In January 2011 the Commission committed to assist with funding the start-up of new Gallatin College programs at Montana State University. They committed the equivalent of 1.5 mills (estimated $123,600) in each of FY11, FY12, and FY13. We have budgeted for this expenditure in the Economic Development section of our Community Development budget. Economic Development & Public Relations Director: In concert with Commission Goals, the Economic Development & Public Relations position is now a director-level position, has been moved out of the City Manager’s department, and moved to its own division in the Community Development department of the budget. This position is leading the City’s Economic Development Team to “assist in diversifying our local economy by creating sustainable, high paying jobs without sacrificing Bozeman’s quality of life.” Solvent Site Active Remediation: The City is awaiting the issuance of the Record of Decision from the Montana Department of Environmental Quality regarding the clean-up of the Bozeman Solvent Site. A decades-long effort, we anticipate the Decision being issued within the next few months. This budget contains approximately $700,000 in planned expenditures in the Wastewater Fund for active remediation of the Site. This multi-year remediation project is being undertaken with CVS Pharmacy. 5 CITY OF BOZEMAN, MONTANA Mandeville Farm Judgment: In December 2009, the Montana Supreme Court ruled against the City in our appeal of Delaney v. City of Bozeman. At issue was the City’s purchase of the Mandeville Farm property in 2003. Delaney was awarded $3 Million. The City and MMIA are working towards a judicial determination as to whether the City or the MMIA is responsible for the payment. Currently the MMIA has paid the judgment, subject to a non-waiver provision that could require the City to reimburse the MMIA, if a court finds the City is obligated. The costs associated with this legal process are estimated to be $20,000 for FY12 and are included in the Attorney’s Budget. We anticipate a judicial determination sometime during FY12. Sewer Plant Construction: Substantial completion of this $54 million project is estimated to occur in October 2011. During the past 3 years, we have fully budgeted for the plant construction, and will utilize carry-over budget authority to complete the project in FY12. (No additional budgeted expenditures in FY12.) Water Plant Construction: The slowdown in community growth gave us a bit of headway in our existing water capacity. As a result, we delayed bid of the Water Plant project for approximately 12 months. We are set to open the bids on June 7, 2011. This budget includes $15 million in construction spending on the project, which is expected to cost $40.1 Million and span 3 fiscal years. Additional Debt: We anticipate borrowing $1.3 Million for the Reconstruction of South 8th Avenue, and approximately $150,000 for the related Special Improvement District bonds for adjacent property owners. While the new Water Treatment Plant will require substantial borrowing through completion (estimated $20M total), we don’t anticipate needing to borrow funds in FY12. We will complete loan documents in FY12 and likely begin borrowing in FY13. This borrowing will be secured by water-system rate-payers. For the Future New Policy Initiatives & Planning Processes The City plans for the long-term needs of our community through a number of efforts and studies. These documents are usually developed by consultants and staff, with numerous public hearings and advisory board meetings prior to their formal adoption by the Commission. Once adopted, we work diligently to implement the recommendations and changes outlined in the plans. Here is the status of our primary long-range planning documents: Plans for Service Provision, Facility Expansion & Maintenance: 1. Bozeman Community Plan—Adopted 2010. 2. Bozeman Area Transportation Plan—Adopted 2010. 3. Police Services Facility & Staffing Plan—adopted 2007, implementing. 4. Fire Services Master Plan— adopted 2006, implementing. 5. Wastewater Facility Plan—adopted 2006, implementing. 6. Water Facility Plan—adopted 2006, implementing. 7. Storm water Facility Plan—presented February 2008, adoption pending. 8. Parks, Recreation, Open Space, and Trails Plan—Adopted 2007, implementing. 9. Municipal Climate Action Plan—Adopted 2008, implementing. 10. Economic Development Plan—Adopted 2010, implementing. 11. Downtown Improvement Plan—Adopted 2010, implementing. Water Reclamation Facility & Bridger Mountains 6 CITY OF BOZEMAN, MONTANA Plans for Facility Maintenance: 1. Aquatics Facility Survey for Swim Center & Bogert Park Pool—July 2008. 2. City Facility Assessments—2008. Financial Plans: 1. Annual Budget—Adopted each August. 2. Capital Improvements Plan - Updated & adopted each year; most recently Jan. 2011 3. Water Rate Study (5 Years) – Updated for FY12-FY16, adoption pending. 4. Wastewater Rate Study (5 Years) – Updated for FY12-FY16, adoption pending. 5. Impact Fee Studies (Water, Sewer, Streets, Fire) - 2007, updates to be completed in FY12. 6. Solid Waste Rate Study – Underway, to be completed in FY12. Develop a plan to address deferred infrastructure maintenance.  Water Distribution System – the facility plan identifies 54,506 lineal feet (LF) of existing water mains that are undersized and need to be replaced at a cost of $11,768,253 and 53,661 LF of undersized water mains that need to be upgraded to meet fire flows on a max day at a cost of $11,659,652.  Sewer Collection System - improvements were identified in the 1998 Facility Plan. The 2005 Plan recommended lines be TV inspected to determine the greatest need. The projects identified in the 1998 Plan continue to be completed, but as annual televising continues, other more urgent projects may be identified and completed.  Street System - there are currently 27 miles of city streets which are in need of overlay treatments and 25 miles of streets which are in need of chip sealing. At our current rate of investment it would take us approximately 18 years to overlay the streets which need treatments if no further deterioration of the remaining streets took place. The street system includes the curbs and street related storm water.  Sidewalks. §12.20.035 BMC requires abutting owners to repair sidewalks, which Engineering Dept oversees. §12.20.060 BMC provides City Commission can order a sidewalk or curb to be constructed.  Facilities. Implement recommendations contained within Facility Condition Index Plans.  Police Station & Municipal Courts - Develop a plan to replace our municipal courts and police station 1. Build a new police and municipal court facility: Select and purchase a site; Select architect and complete design; Educate the community on the need for bond approval; Award bids for the construction. Other  Develop a long term plan for the Streamline bus system.  Impact Fee Studies (Water, Sewer, Streets, Fire) updates began this year.  Reconstruct Kagy Boulevard (South 19th to Willson Avenue) and College Street from 11th Street west to Main Street: upgrade to urban arterials.  Storm water Facility Plan—presented February 2008, adoption pending.  Explore sources of funding for Park Maintenance and operations. Bogert Swimming Pool 7 CITY OF BOZEMAN, MONTANA FINANCIAL POLICIES The overall goal of the City's financial policies is to establish and maintain effective management of the City's financial resources. Formal policy statements and major objectives provide the foundation for achieving this goal. Accordingly, this section outlines the policies used in guiding the preparation and management of the City's overall budget and the major objectives to be accomplished. In addition, the rationale which led to the establishment of the fiscal policy statements is also identified. Budget Development & Administration 1. A comprehensive annual budget will be prepared for all funds expended by the City. State law provides that "no money shall be drawn from the treasury of the municipality nor shall any obligation for the expenditure of money be incurred except pursuant to the appropriation made by the commission." Inclusion of all funds in the budget enables the commission, the administration, and the public to consider all financial aspects of city government when preparing, modifying, and monitoring the budget, rather than deal with the City's finances on a "piece meal" basis. 2. The budget will be prepared in such a manner as to facilitate its understanding by citizens and elected officials. One of the stated purposes of the budget is to present a picture of the City government operations and intentions for the year to the citizens of Bozeman. Presenting a budget document that is understandable to the citizens furthers the goal of effectively communicating local government finance issues to both elected officials and the public. 3. Budgetary emphasis will focus on providing those basic municipal services which provide the maximum level of services, to the most citizens, in the most cost effective manner, with due consideration being given to all costs--economic, fiscal, and social. Adherence to this basic philosophy provides the citizens of Bozeman assurance that its government and elected officials are responsive to the basic needs of the citizens and that its government is operated in an economical and efficient manner. 4. The budget will provide for adequate maintenance of capital, plant, and equipment and for their orderly replacement. All governments experience prosperous times as well as periods of economic decline. In periods of economic decline, proper maintenance and replacement of capital, plant, and equipment is generally postponed or eliminated as a first means of balancing the budget. Recognition of the need for adequate maintenance and replacement of capital, plant, and equipment, regardless of the economic conditions, will assist in maintaining the government's equipment and infrastructure in good operating condition. 5. The City will avoid budgetary practices that balance current expenditures at the expense of meeting future years' expenses. Budgetary practices such as postponing capital expenditures, accruing future years' revenues, or rolling over short-term debt are budgetary practices which can solve short-term financial problems; however, they can create much larger financial problems for future administrations and commissions. Avoidance of these budgetary practices will assure citizens that current problems are not simply being delayed to a future year. 8 CITY OF BOZEMAN, MONTANA 6. The City will give highest priority in the use of one-time revenues to the funding of capital assets or other non-recurring expenditures. Utilizing one-time revenues to fund on-going expenditures results in incurring annual expenditure obligations which may be unfunded in future years. Using one-time revenues to fund capital assets or other non-recurring expenditures better enables future administrations and commissions to cope with the financial problems when these revenue sources are discontinued, since these types of expenditures can more easily be eliminated. 7. The City will maintain a budgetary control system to help it adhere to the established budget. The budget passed by the commission establishes the legal spending limits for the City. A budgetary control system is essential in order to insure legal compliance with the City's budget. 8. The City will exercise budgetary control (maximum spending authority) through City Commission approval of appropriation authority for each appropriated budget unit. Exercising budgetary control for each appropriated budget unit satisfies requirements of state law. It also assists the commission in monitoring current year operations and acts as an early warning mechanism when departments deviate in any substantive way from the original budget. 9. Reports comparing actual revenues and expenditures to budgeted amounts will be prepared monthly. The City's budget is ineffective without a system to regularly monitor actual spending and revenue collections with those anticipated at the beginning of the year. Monthly reports comparing actual revenues and expenditures to budget amounts provide the mechanism for the Commission and the administration to regularly monitor compliance with the adopted budget. Revenue Collection 1. The City will seek to maintain a diversified and stable revenue base. A city dependent upon a few volatile revenue sources is frequently forced to suddenly adjust tax rates or alter expenditure levels to coincide with revenue collections. Establishment of a diversified and stable revenue base, however, serves to protect the City from short-term fluctuations in any one major revenue source. 2. The City will estimate revenues in a realistic and conservative manner. Aggressive revenue estimates significantly increase the chances of budgetary shortfalls occurring during the year--resulting in either deficit spending or required spending reductions. Realistic and conservative revenue estimates, on the other hand, will serve to minimize the adverse impact of revenue shortfalls and will also reduce the need for mid-year spending reductions. 3. The City will pursue an aggressive policy of collecting revenues. An aggressive policy of collecting revenues will help to insure the City's revenue estimates are met, all taxpayers are treated fairly and consistently, and delinquencies are kept to a minimum. 9 CITY OF BOZEMAN, MONTANA 4. The City will aggressively pursue opportunities for Federal or State grant funding. An aggressive policy of pursuing opportunities for Federal or State grant funding provides citizens assurance that the City is striving to obtain all state and federal funds to which it is entitled--thereby reducing dependence upon local taxpayers for the support of local public services. 5. User fees and charges will be used, as opposed to general taxes, when distinct beneficiary populations or interest groups can be identified. User fees and charges are preferable to general taxes because user charges can provide clear demand signals which assist in determining what services to offer, their quantity, and their quality. User charges are also more equitable, since only those who use the service must pay--thereby eliminating the subsidy provided by nonusers to users, which is inherent in general tax financing. 6. User fees will be collected only if it is cost-effective and administratively feasible to do so. User fees are often times costly to administer. Prior to establishing user fees, the costs to establish and administer the fees will be considered in order to provide assurance that the City's collection mechanisms are being operated in an efficient manner. Expenditures and Payments 1. On-going expenditures will be limited to levels which can be supported by current revenues. Utilization of reserves to fund on-going expenditures will produce a balanced budget, however, this practice will eventually cause severe financial problems. Once reserve levels are depleted, the City would face elimination of on-going costs in order to balance the budget. Therefore, the funding of on-going expenditures will be limited to current revenues. 2. Minor capital projects or recurring capital projects, which primarily benefit current residents, will be financed from current revenues. Minor capital projects or recurring capital projects represent relatively small costs of an on-going nature, and therefore, should be financed with current revenues rather than utilizing debt financing. This policy also reflects the view that those who benefit from a capital project should pay for the project. 3. Major capital projects, which benefit future as well as current residents, will be financed with current revenues as well as other financing sources (e.g. debt financing). This policy reflects the view that those who benefit from a capital project should pay for the project. 4. Major capital projects, which benefit future residents, will be financed with other financing sources (e.g. debt financing). Major capital projects represent large expenditures of a non-recurring nature which primarily benefit future residents. Debt financing provides a means of generating sufficient funds to pay for the costs of major projects. Debt financing also enables the costs of the project to be supported by those who benefit from the project, since debt service payments will be funded through charges to future residents. 10 CITY OF BOZEMAN, MONTANA 5. Construction projects and capital purchases of $10,000 or more will be included in the Capital Improvement Plan (CIP); minor capital outlays of less than $10,000 will be included in the regular operating budget. The Capital Improvement Plan (CIP) differentiates the financing of high cost long-lived physical improvements from low cost "consumable" equipment items contained in the operating budget. CIP items may be funded through debt financing or current revenues while operating budget items are annual or routine in nature and should only be financed from current revenues. 6. Spending Policy: The City will spend its resources in the following order. Resources will be categorized according to Generally Accepted Accounting Principles (GAAP) for state and local governments, with the following general definitions:  Restricted -- Amounts constrained to specific purposes by their providers (such as grantors, bondholders, and higher levels of government) through constitutional provisions or by enabling legislation.  Committed -- Amounts constrained to specific purposes by the City Commission; to be reported as committed, amounts cannot be used for any other purpose unless the City Commission takes action to remove or change the constraint.  Assigned -- Amounts the City intends to use for a specific purpose; intent can be expressed by the Commission or by an official or body to which the Commission delegates the authority. The City Commission delegates this authority to the City Manager.  Unassigned -- Amounts that are available for any purpose; these amounts are reported only in the General Fund. When both restricted and unrestricted resources are available, spending will occur in the following order for the identified fund types: Fund Type Order of Spending General Fund 1. Restricted 2. Committed 3. Assigned 4. Unassigned The City Commission and the City Manager, individually, have the authority to express assignments in the General Fund. Special Revenue Funds 1. Restricted 2. Committed 3. Assigned The City Commission and the City Manager, individually, have the authority to express assignments in Special Revenue Funds. Debt Service Funds 1. Assigned 2. Committed 3. Restricted The City Commission and the City Manager, individually, have the authority to express assignments in Debt Service Funds. 11 CITY OF BOZEMAN, MONTANA Capital Project Funds 1. Restricted 2. Committed 3. Assigned The City Commission and the City Manager, individually, have the authority to express assignments in Capital Project Funds. Debt Administration 1. The City will limit long-term debt to capital improvements which cannot be financed from current revenues. Incurring long-term debt serves to obligate future taxpayers. Excess reliance on long-term debt can cause debt levels to reach or exceed the government's ability to pay. Therefore, conscientious use of long-term debt will provide assurance that future residents will be able service the debt obligations left by former residents. 2. The City will repay borrowed funds, used for capital projects, within a period not to exceed the expected useful life of the project. This policy reflects the view that those residents who benefit from a project should pay for the project. Adherence to this policy will also help prevent the government from over-extending itself with regard to the incurrence of future debt. 3. The City will not use long-term debt for financing current operations. This policy reflects the view that those residents who benefit from a service should pay for the service. Utilization of long-term debt to support current operations would result in future residents supporting services provided to current residents. 4. The City of Bozeman will adhere to a policy of full public disclosure with regard to the issuance of debt. Full public disclosure with regard to the issuance of debt provides assurance that the incurrence of debt, for which the public is responsible, is based upon a genuine need and is consistent with underwriters guidelines. Reserves and Fund Balances 1. Reserves and Fund Balances will be properly designated into the following categories:  Nonspendable fund balance -- Amounts that are not in a spendable form (such as inventory) or are required to be maintained intact (such as the corpus of an endowment fund).  Restricted fund balance -- Amounts constrained to specific purposes by their providers (such as grantors, bondholders, and higher levels of government) through constitutional provisions or by enabling legislation.  Committed fund balance -- Amounts constrained to specific purposes by the City Commission; to be reported as committed, amounts cannot be used for any other purpose unless the City Commission takes action to remove or change the constraint.  Assigned fund balance -- Amounts the City intends to use for a specific purpose; intent can be expressed by the Commission or by an official or body to which the Commission delegates the authority.  Unassigned fund balance -- Amounts that are available for any purpose; these amounts are reported only in the General Fund. 12 CITY OF BOZEMAN, MONTANA 2 . A minimum level of general fund reserve equal to 16.67% of annual revenues will be maintained by the City. This reserve is committed to be used for: cash flow purposes, accrued employee payroll benefits which are not shown as a liability, unanticipated equipment acquisition and replacement, and to enable the City to meet unexpected expenditure demands or revenue shortfalls. Property taxes represent the City's primary source of general fund revenue. Property taxes are collected in November and May of each fiscal year. Since the City's fiscal year begins on July 1st, the City must maintain an adequate cash balance in order to meet its expenditure obligations between July 1st and the commencement of the collection of property taxes in November. Accrued employee payroll benefits represent a bona fide obligation of the City. The City will maintain sufficient reserves to meet its annual expenditure obligations. The City recognizes the need to maintain adequate equipment in order to carry out required public services. Equipment acquisition and replacement represent on-going costs of a relatively minor nature, as compared to major capital purchases. We plan for equipment replacement within our Capital Improvement Program. However, unforeseen equipment problems will arise. The reserve will provide resources for the immediate, unanticipated replacement of critical equipment. The City is subject to revenue shortfalls and unexpected expenditure demands during the fiscal year. An undesignated general fund reserve will be maintained to be able to offset these revenue shortfalls or meet unexpected demands occurring during the year, without suddenly adjusting tax rates or reducing expenditures. This year’s ending General Fund balance of $6,897,249 is 31.6% of revenues and therefore fully complies with the City’s Financial Policy and with the Government Finance Officers’ Association’s recommended level of minimum fund balance. Financial Reporting & Accounting 1. The City will manage and account for its financial activity in accordance with Generally Accepted Accounting Principles (GAAP), as set forth by the Governmental Accounting Standards Board (GASB). GASB is recognized as the authority with respect to governmental accounting. Managing the City's finances in accordance with GAAP and in accordance with the rules set forth by GASB, provides the Bozeman citizens assurance that their public funds are being accounted for in a proper manner. 2. The City will maintain its accounting records for general governmental operations on a modified accrual basis, with revenues recorded when available and measurable, and expenditures recorded when services or goods are received and liabilities incurred. Accounting records for proprietary fund types and similar trust funds will be maintained on an accrual basis, with all revenues recorded when earned and expenses recorded at the time liabilities are incurred, without regard to receipt or payment of cash. Adherence to this policy will enable the City to prepare its financial statements in accordance with Generally Accepted Accounting Principles as set forth by the Governmental Accounting Standards Board. 13 CITY OF BOZEMAN, MONTANA 3. The City of Bozeman will prepare a Comprehensive Annual Financial Report (CAFR) in conformity with Generally Accepted Accounting Principles (GAAP). The report will be made available to the general public. The CAFR shall be prepared in accordance with the standards established by the GFOA for the Certificate of Achievement for Excellence in Financial Reporting Program The Certificate of Achievement represents a significant accomplishment for a government and its financial management. The program encourages governments to prepare and publish an easily readable and understandable comprehensive annual financial report covering all funds and financial transactions of the government during the year. The CAFR provides users with a wide variety of information useful in evaluating the financial condition of a government. The program also encourages continued improvement in the City's financial reporting practices. 4. The City will ensure the conduct of timely, effective, and annual audit coverage of all financial records in compliance the Local, State, and Federal law. Audits of the City's financial records provide the public assurance that its funds are being expended in accordance with Local, State, and Federal law and in accordance with Generally Accepted Accounting Principles. Audits also provide management and the Commission with suggestions for improvement in its financial operations from independent experts in the accounting field. 5. The City of Bozeman will maintain a policy of full and open public disclosure of all financial activity. Full and open public disclosure of all financial activity provides the public with assurance that its elected officials and administrators communicate fully all financial matters affecting the public. 6. The modified accrual basis of accounting and budgeting is used for the Governmental Funds. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual, i.e., both measurable and available. Available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Expenditures are recorded when the related liability is incurred. Employee compensated absences and principal and interest on long-term debt expenditures are recorded when due in the current period. The accrual basis of accounting is used for Proprietary Funds. Under this method, revenues are recorded when earned and expenses are recorded when the related liability is incurred. For Budget preparation and presentation, the Proprietary Funds’ expenses are converted to expenditures and follow the same budget format as the Government Fund types. Capital outlays in the Enterprise Funds are presented as expenses for budget basis, but are recorded as assets along with associated depreciation expense on the GAAP basis. Debt service principal payments in the Enterprise Funds are accounted for as expenses for budget purposes, but are reported as reduction of long-term debt liability on the GAAP basis. Recording capital outlays as expenditures and principal payments on long-term debt for budget purposes, presents a clearer picture of the City’s financial operations, is easier to administer for cash flow purposes, and is easier for the lay person to understand. 15 CITY OF BOZEMAN, MONTANA GOVERNMENT FINANCE OFFICERS’ ASSOCIATION CERTIFICATE 16 CITY OF BOZEMAN, MONTANA ORGANIZATIONAL CHART CITY CLERK Stacy Ulmen CITY COMMISSION PARKING COMMISSION MUNICIPAL JUDGES Karl Seel & Matthew Monforton LIBRARY BOARD OF TRUSTEES LIBRARY DIRECTOR Vacant CITY MANAGER Chris Kukulski EXECUTIVE ASSISTANT Vacant DIRECTOR OF ECONOMIC DEVELOPMENT Brit FontenotPARKING MANAGER Paul Burns ASSISTANT CITY MANAGER Chuck Winn FACILITIES James Goehrung PUBLIC SAFETY FIRE Jason Shrauger PUBLIC SERVICE Debbie Arkell PARKS & RECREATION Ron Dingman HUMAN RESOURCES Vacant PLANNING & COMMUNITY DEVELOPMENT Tim McHarg LEGAL Greg Sullivan FINANCE Anna Rosenberry INFORMATION TECHNOLOGY Brendan Steele PUBLIC SAFETY POLICE Ron Price CITIZENS OF BOZEMAN 17 CITY OF BOZEMAN, MONTANA CITY ELECTED OFFICIALS AND OFFICERS ELECTED OFFICIALS Legislative Jeffrey Krauss Mayor Sean Becker Deputy Mayor Christopher Mehl Commissioner Cynthia Andrus Commissioner Carson Taylor Commissioner Judicial Karl Seel Matthew Monforton Municipal Judge Municipal Judge OFFICERS Executive Chris Kukulski Chuck Winn Stacey Ulmen City Manager Assistant City Manager City Clerk Department of Law Gregory Sullivan City Attorney Susan Wordal Assistant City Attorney Timothy A. Cooper Assistant City Attorney Kyla Murray Assistant City Attorney Department of Finance Anna Rosenberry, CPA Director of Finance Brian LaMeres, CPA Controller Laurae Clark Treasurer 18 CITY OF BOZEMAN, MONTANA CITY ELECTED OFFICIALS AND OFFICERS (CONTINUED) OFFICERS (CONTINUED) Department of Public Safety Ronald Price Director of Public Safety - Police Marty Kent Assistant Director of Public Safety-Police Patrol Jason Shrauger Director of Public Safety-Fire Greg Megaard Assistant Director of Public Safety-Fire Inspections Department of Public Service Debra H. Arkell Director of Public Service Rick Hixson City Engineer John Alston Superintendent of Water and Waste Water Operations John Van Delinder Superintendent of Street Operations Vacant Superintendent of Sanitation Operations Rick Moroney Superintendent of Water Treatment Plant Thomas Adams Superintendent of Waste Water Plant James Goehrung Superintendent of Facilities Department of Public Welfare Ron Dingman Thomas White Vacant Director of Parks & Recreation Superintendent of Parks & Cemetery Superintendent of Recreation Operations Timothy McHarg Director of Planning & Community Development Vacant Director of Library PART II FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT Honorable Mayor, City Commissioners, and City Manager of the City of Bozeman, Montana: 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 Bozeman, Montana (the City), as of and for the year ended June 30, 2011, which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Bozeman's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Bozeman, Montana, as of June 30, 2011, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2011 on our consideration of the City of Bozeman's internal control over financial reporting and 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Audit Standards and should be considered in assessing the results of our audit. Junkermier ClarkCampanella Stevens P.C.220 West Lamme, Suite 3AP.O. Box 1965Bozeman, MT 59771-1965Ph. (406) 587-1277Fx. (406) 587-8794www.jccscpa.comBozeman Great Falls Hamilton Helena Kalispell Missoula WhitefishCertified Public Accountants Business Advisors 20 The accompanying Management’s Discussion and Analysis, Actuarial Valuation of Post-Employment Benefits, and Budgetary Comparison Information, as listed on the table of contents, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Bozeman, Montana’s basic financial statements. The combining and individual non-major fund financial statements and other schedules, listed in the table of contents as supplementary information, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, Audit of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The accompanying introductory and statistical sections, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. This information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. Junkermier Clark Campanella & Stevens P.C. Bozeman, Montana December 15, 2011 A. MANAGEMENT’S DISCUSSION AND ANALYSIS 21 MANAGEMENT’S DISCUSSION AND ANALYSIS Our discussion and analysis of the City of Bozeman’s financial performance provides an overview of the City’s financial activities for the fiscal year ended June 30, 2011. Please read it in conjunction with the transmittal letter on page 1 and the City’s financial statements, which begin on page 31. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The Statement of Net Assets and the Statement of Activities (on pages 31 and 32) provide information about the activities of the City as a whole and present a longer-term view of the City’s finances. Fund financial statements start on page 33. For governmental activities, these statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the City’s operations in more detail than the government-wide statements by providing information about the City’s most significant funds. The remaining statements provide financial information about activities for which the City acts solely as a trustee or agent for the benefit of those outside of the government. Reporting the City as a Whole The Statement of Net Assets and the Statement of Activities Our analysis of the City as a whole begins on page 23. One of the most important questions asked about the City’s finances is, “Is the City as a whole better off or worse off as a result of the year’s activities?” The Statement of Net Assets and the Statement of Activities report information about the City as a whole and about its activities in a way that helps answer this question. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the City’s net assets and changes in them. You can think of the City’s net assets, the difference between assets, what the citizens own, and liabilities, what the citizens owe, as one way to measure the City’s financial health, or financial position. Over time, increases or decreases in the City’s net assets are one indicator of whether its financial health is improving or deteriorating. You will need to consider other nonfinancial factors, however, such as changes in the City’s property tax base, income tax base, and the condition of the City’s capital assets (roads, buildings, water and sewer lines) to assess the overall health of the City. In the Statement of Net Assets and the Statement of Activities, we divide the City into two kinds of activities:  Governmental activities—Most of the City’s basic services are reported here, including police, fire, public works, parks, and general administration. Property taxes, state shared revenues, court fines, and recreation fees finance most of these activities.  Business-type activities—The City charges a fee to customers to help it cover all or most of the cost of certain services it provides. The City’s water, sewer, solid waste, and parking systems are reported here. 22 MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED) Reporting the City’s Most Significant Funds Fund Financial Statements Our analysis of the City’s funds begins on page 27. The fund financial statements begin on page 33 and provide detailed information about the most significant funds, not the City as a whole. Some funds are required to be established by State law and by bond covenants. However, the City Commission establishes many other funds to help it control and manage money for particular purposes (like Street Maintenance District Funds) or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money (like grants received from the Environmental Protection Agency). The City’s two kinds of funds, governmental and proprietary, use different accounting approaches. Governmental funds--Most of the City’s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City’s general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. We describe the relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds in reconciliation on pages 35 and 37 of the fund financial statements. Proprietary funds--When the City charges customers for the services it provides, whether to outside customers or to other units of the City, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Assets and the Statement of Activities. In fact, the City’s enterprise funds (a component of the proprietary funds) are the same as the business-type activities we report in the government-wide statements but provide more detail and additional information, such as cash flows, for proprietary funds. We use internal service funds (the other component of proprietary funds) to report activities that provide supplies and services for the City’s other programs and activities, such as the Vehicle Maintenance Fund and Health Insurance Fund. Internal service fund activity is reported as governmental activity in the government-wide statements since this activity, the financing of goods and services for other funds of the government, is more governmental than business-type in nature. The City as Trustee Reporting the City’s Fiduciary Responsibilities The City is the trustee, or fiduciary, for other funds, including the Municipal Court Fund and the Montana Arts Council funds for the Montana Ballet, the Bozeman Symphony Orchestra and the Big Sky Association for the Arts. It is also responsible for other assets that, because of a trust arrangement, can be used only for the trust beneficiaries. The guidelines for the administration of these funds are contained in applicable financial agreements and/or City ordinances. These documents contain the rules governing the receipt, expenditure, and management of the City’s fiduciary funds. All of the City’s fiduciary activities are reported in the Statement of Fiduciary Net Assets on page 43 and in the Combining Statement of Changes in Assets and Liabilities-Agency Funds on page 128. As the statements reflect, the financial activity during the year for these funds is nominal. We exclude these activities from the City’s other financial statements because the City cannot use these assets to finance its operations. The City is responsible for ensuring that the assets reported in these funds are used for their intended purposes. 23 MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED) THE CITY AS A WHOLE The City’s combined net assets increased by $6.8 million this year as compared to a $300 thousand increase last year. The primary reason for this is a substantial increase in revenues (primarily developer-contributed infrastructure) yet no significant change in expenses. The specific contributing factors are outlined in the following discussion. Our analysis focuses on the net assets (Table 1) and changes in net assets (Table 2) of the City’s governmental and business-type activities. Net assets of the City’s governmental activities actually increased by 7.3% ($125.8 million compared to $117.2 million). Unrestricted net assets of governmental activities, the part of net assets that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation or other legal requirements, decreased to $16.5 million. Similarly, the net assets of the City’s business-type activities decreased slightly by .9% ($213.3 million compared to $215.2 million in 2010). These net assets cannot be used to make up for deficits reported by governmental activities in the event any such deficits were reported. The City generally can only use the net assets of business-type activities to finance the continuing operations of the water, sewer solid waste, and parking operations. 201120102011201020112010Current and Other Assets 42.6$ 38.1$ 31.5$ 31.4$ 74.1$ 69.5$ Capital Assets 103.2 100.1 212.2 197.9 315.4 298.0 Total Assets 145.8$ 138.2$ 243.7$ 229.3$ 389.5$ 367.5$ Long-term Debt Outstanding (14.8) (16.4)$ (27.5) (11.5)$ (42.3) (27.9) Other Liabilities (5.1) (4.5) (3.0) (2.7) (8.1) (7.2) Total Liabilities (19.9)$ (20.9)$ (30.5)$ (14.2)$ (50.4)$ (35.0)$ Net Assets:Invested in Capital Assets, net of related debt 88.8$ 84.1$ 188.2$ 190.0$ 277.0$ 274.1 Restricted for impact capital projects 1.2 7.5 10.9 8.1 12.1 15.6 Restricted for debt service 5.4 - 1.7 0.9 7.2 0.9 Restricted for capital projects 0.3 - 0.1 0.1 0.4 0.1 Restricted for other purposes 13.0 - - - 13.0 - Nonspendable 1.0 0.5 - - 1.0 0.5 Unrestricted 16.0 25.1 12.4 16.1 28.4 41.1 Total Net Assets 125.8$ 117.2$ 213.3$ 215.2$ 339.1$ 332.3$ Activities Activities Primary GovernmentTable 1Net Assets(in Millions)Governmental Business-type Total 24 MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED) The City’s total revenues (excluding special items) increased by 13.6% ($8.2 million), driven primarily by a significant increase in developer-contributed infrastructure, which is reported as revenue. The total cost of all programs and services increased by $1 million, or 1.6%. The increase in revenues overshadowed the increase in costs, and once again the City was again able to cover the year’s costs in both governmental activities and business-type activities. Our analysis below separately considers the operations of governmental and business-type activities. 201120102011201020112010RevenuesProgram revenues:Charges for Services 10.5$ 9.3$ 17.0$ 16.5$ 27.4$ 25.9$ Restricted Grants & Contributions 9.0 6.0 6.6 3.6 15.6 9.6 General RevenuesProperty Taxes 16.3 15.5 - - 16.3 15.5 Unrestricted Grants & Contributions 6.8 6.3 0.4 0.3 7.2 6.6 Other General Revenues 1.9 2.6 - - 1.9 2.6 Total Revenues 44.4 39.7 24.0 20.4 68.4 60.2 Program ExpensesGeneral Government 6.1 6.3 - - 6.1 6.3 Public Safety 12.9 12.4 - - 12.9 12.4 Public Service 9.2 9.7 - - 9.2 9.7 Public Welfare 7.5 6.9 - - 7.5 6.9 Interest and Fiscal Fees 0.7 0.7 - - 0.7 0.7 Water - - 11.6 12.0 11.6 12.0 Waste Water - - 10.1 9.1 10.1 9.1 Solid Waste - - 2.6 2.6 2.6 2.6 Parking - - 1.0 1.0 1.0 1.0 Total Expenses 36.4 36.0 25.3 24.7 61.7 60.7 Excess (deficiency) beforespecial items and transfers 8.1 3.7 (1.3) (4.3) 6.7 (0.5) Extraordinary items - - - - - - Sale of Capital Assets (0.0) 0.8 - - (0.0) 0.8 Transfers 0.5 0.5 (0.5) (0.5) - - Increase (decrease) in net assets8.6$ 5.0$ (1.9)$ (4.8)$ 6.7$ 0.3$ Activities Activities Primary GovernmentTable 2Changes in Net Assets(in Millions)Governmental Business-type Total 25 MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED) Governmental Activities Revenues for the year from governmental activities increased by 11.8% ($4.7 million), and total expenses increased by .9% ($400 thousand). Since the increase in revenues significantly exceeded the slight increase in expenses, the total net assets for governmental activities increased by $3.6 million. It is important to emphasize that the primary driver for this significant increase in revenues was not increased taxes or increased City fees, but instead developer-provided street infrastructure. This and the other revenue categories contributing to the increase in net assets are explained below: Restricted Grants and Contributions increased by $3 million, or 50%, from $6 million last year to $9 million this year. This was mainly due to developer-contributed street infrastructure - recorded as revenue – increased by $3.2 million, or 78%, from $4.1 million last year to $7.3 million this year. Property Tax collections increased by $840,737, or 5.4%, from $15,501,316 last year to $16,342,053 this year. This is due to additional collections from the Public Safety mill levy plus a slight increase in the City’s taxable value. The City’s certified taxable value for the previous year shows that our local tax base grew 3.2% over the past year. This is the lowest increase in taxable value that the city has seen since 2001. It is markedly below the average of 6.9% we had seen each year over the past 5 years. Yet it was still an increase, not a decrease, and there was a slight increase in revenues due to some new construction and also due to the last property value reappraisal conducted by the State of Montana. But, similar to last year, the positive revenue trend this year was mainly due to the Public Safety Mill Levy and to the City’s mill value increasing by a modest 2% from $78,290 last year to $80,783 this year. Intergovernmental revenues increased by $399,627 (or 5%), from $7,900,176 last year to $8,299,803 this year. This increase was due primarily to new grant revenues this year for the Fire Department Opticom traffic signal controllers, the College Street to Huffine pathway, and the F&H Building erected on the downtown natural gas explosion site. Interest on Investments decreased by $50,954, or 14.5%, from $352,378 last year to $301,424 this year. This represents a 55% decrease from the $671,859 reported two years ago. This sustained decrease is attributable to a substantial decrease in interest rates; interest rates on investment income have declined from 4.1% three years ago to less than 1% by the end of this year. The cost of all governmental activities this year was $36.4 million compared to $36.0 million last year. However, as shown in the Statement of Activities on page 32, the amount that our taxpayers ultimately financed for these activities through City taxes was only $16,909,239 because some of the cost was paid by those who directly benefited from the programs ($10,461,619) or by other governments and organizations that subsidized certain programs with operating and capital grants and contributions ($1,114,835 + $7,867,093 = $8,981,928). Overall, the City’s revenues from governmental activities, including intergovernmental revenues and charges for services increased in 2011 from $39.7 to $44.4 million. Charges for services increased by $1.13 million, or 12%, from $9.33 to $10.46 million, due to increases in street impact fee revenue and street and tree maintenance assessment revenue. Overall expenses increased by $400,000 to $36.4 million this year. General government and Public service expenses actually decreased by $178,000 and $513,000, respectively, for a combined total decrease of $691,000 or 4.3%. Conversely, Public Safety and Public Welfare expenses increased by $478,000 and $585,000 respectively, for a combined total increase of $1.1 million, or 5.5%. These increases were due to increased Police personnel costs with the hiring of more patrol officers under the Public Safety mill levy and increased expenditures on repair & maintenance of the Recreation facilities. However, as stated, overall revenues increased substantially, and the excess of revenues over expenses resulted in net assets for governmental activities showing an overall increase of $8.6 million. Table 3 presents the cost of each of the City’s six largest programs—Police, Fire, Public Service, Library, Parks and Recreation—as well as each program’s net cost (total cost less revenues generated by the activities). The net cost shows the financial burden that was placed on the City’s taxpayers by each of these functions. 26 MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED) 2011201020112010Police 6.9$ 6.5$ 5.3$ 4.7$ Fire 5.7 4.9 4.5 4.2 Public Service 9.2 9.7 5.9 5.8 Library 2.4 2.1 1.8 1.5 Parks 1.2 1.4 1.2 1.3 Recreation 1.3 1.0 0.9 0.6 All Others 9.7 10.4 (2.8) 2.5 Totals 36.4$ 36.0$ 16.9$ 20.6$ Table 3Governmental Activities(in Millions)Total Cost Net Costof Services of Services Business-type Activities Revenues of the City’s business-type activities (see Table 2) increased 18% ($24 million in 2011 compared to $20.4 million in 2010) and expenses increased by 2.7% ($25.3 million in 2011 compared to $24.7 million in 2010. The specific factors driving these results include:  The City’s water system operating revenues (charges for services) have steadily increased over the past decade as a result of an increase in the customer base and as a result of regular rate changes, including a 3.2% increase in each of the past two years. However, due to declining construction activity around the City, our customer-base growth is estimated at 0% for upcoming year. This rate is markedly lower than the 5% trend of 2005-2008. In updating our rate study for slower customer growth, decreased Impact Fee collections and new estimates of Water Plant costs, we estimate needing a 3.2% water rate increase for each of the next three years in order to fund plant construction and other scheduled operations and maintenance costs. An update of that study has been done, suggesting a 3% increase in each of the next 5 years. Nonetheless, despite the stagnant growth in customer base, operating revenues this year increased modestly by 2.6% from $5,860,144 last year to $6,013,211 this year. Water impact fee revenues declined by $31,170, or 4.2% while cash-in-lieu of water rights revenue increase by $64,500. Operating expenses decreased this year by $365,140 to $11,648,569 this year compared to $12,013,709 last year. Major projects undertaken during the year include $2,715,450 spent on design and construction of the new Water Treatment Plant and $40,000 in Capital Improvement Program water line repairs on Lamme Street. Furthermore, the City acquired an additional $502,000 in water rights.  Revenues in the Wastewater system have, in general, been increasing over the past 10 years, and are estimated at $6.2 Million for upcoming year. As with the Water system, we estimate our customer-base to grow by 0% next year due to the significant decline in new construction in town, down from 5% over the past 5 years. An update of our existing rate study has been done, suggesting a 5% increase in each of the next 5 years. The City’s wastewater system revenues have been increasing due to rate increases established to fund remediation the Solvent Site groundwater contamination. Accordingly, a 10.2% rate increase was implemented in each of the past two years. As a result, operating revenues for the year increased as expected by 10.2% from $5,389,070 last year to $5,939,996 this year. Wastewater operating expenses increased by 7.8% from $8,804,538 last year to $9,488,693 this year. 27 MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED) This significant increase was mainly attributable to a $557,000 million expense recorded as an adjustment to better reflect the most recent analysis of the Solvent Site remediation liability. Major projects during the year included construction costs of $17.8 million spent towards the nearly-completed conversion of the existing Wastewater Treatment Plant into a state-of-the-art Water Reclamation Facility.  The City’s solid waste collection and disposal system revenues had been declining steadily over the past few years due to the closure of the landfill in 2007. The Solid Waste Collection Division continues to operate residential and commercial collection, and in FY09 we began to provide curb-side recycling collection services. This year rates increased 5%, to cover fuel costs, employee salary and benefit increases, and the assumption of costs that were once shared with the Landfill division. The slowdown in local construction activity has continued to decrease demand for “roll-off” containers and the associated hauling and tipping services. Operating revenues continued to decline this year, decreasing by $131,000, or 5.2%, from $2,661,553 last year to $2,530,562 this year. Operating expenses increased slightly by $16,985, or .7% from $2,561,124 last year to $2,578,109 this year.  The City’s parking revenues for the year increased substantially by $105,604 from $305,195 last year to $410,799 this year due to a combination of increasing the fine amount of parking tickets, stepped-up enforcement and collection processes, and increasing the rates for using the City Parking Garage. Despite the sizeable increase in revenues, operating expenses only increased by 3.7% from $955,759 last year to $991,276 this year. THE CITY’S FUNDS As the City completed the year, its governmental funds (as presented in the balance sheet on pages 33-34) reported a combined fund balance of $31,196,129. Included in this year’s total change in fund balance is a positive General Fund balance of $6,897,250. This represents 31.6% of revenues and therefore fully complies with the City’s Financial Policy and with the Government Finance Officers’ Association’s recommended level of minimum fund balance. The primary reasons for the General Fund’s surplus are highlighted below, along with an analysis of each major fund. General fund The City’s general fund balance increased substantially from $5,119,400 in fiscal year 2010 to $6,897,250 this year. This represents a $1,784,020 or 34.7%, increase in fund balance. While property tax revenues did contribute to this increase - mainly due to the Public Safety Mill Levy and to the City’s mill value increasing by 3.2% from $78,290 last year to $80,783 this year - there were also some other significant factors resulting in the large ending fund balance. These include $821,588 assigned for carryover capital projects (budgeted this year but not yet completed by year-end), $638,000 in Police vacancy savings which will help fund a tax cut next year, $325,722 assigned for future general fund capital improvement items, $382,000 assigned for Bogert Swimming Pool rehabilitation, and $3.8 million maintained as the reserve level required by ordinance under the Bozeman City Charter. Also contributing to the increased General Fund balance is the utilization of conservative budgetary practices. Conservative, yet realistic, revenue estimates, combined with departments operating within their original budgets, naturally has a favorable effect on the bottom line. Maintaining adequate reserves has several internal and external benefits. Internally, reserves can provide for cash flow needs until property tax revenues are received, reducing or eliminating the need for cash flow borrowing; provide funds to leverage state or federal grants; and provide for the unexpected. Externally, reserves tend to be viewed favorably by investors, rating agencies, and local banks with which we do business, thus benefiting rating and the potential need for lines of credit. The City’s General Fund balance was the primary focus during the bond rating for the 2003 refinancing of the City’s General Obligation Transportation Bonds and the remaining bonds issued in 2003 for the new Library. It was also the focus of the pooled 2005 Special Improvement District (SID) bonds for Valley Center Road and North 19th Avenue. In each of these instances, bond analysts looked favorably on the amount and trend of the City's General Fund balance in determining the City’s bond rating. Variances in the General Fund between the original budget and the final budget appropriations amounted to $1,540,604. The Public Safety budget was amended by $141,150 for the State’s share of Police and Firefighter retirement. The Debt Service budget was amended by $208,000 to provide for an accelerated repayment of the Fire Station #3 Intercap loan (taking advantage of an opportunity to reduce future interest costs), and the Transfers budget was amended by $257,000 mainly to provide for a transfer from the Library budget into a Library Depreciation Capital Fund provided for under State law. 28 MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED) Street and Fire Impact Fees Special Revenue Fund balance increased 6.5% from $7,556,287 last year to $8,049,347 this year. Increased revenues and a constant expenditure level were the reason for this increase; revenues increased by $423,849 from $1,073,895 last year to $1,497,744 this year. SID Sinking Debt Service Fund balance increased 4.8% from $2,096,424 last year to $2,196,830 this year. This was simply due to debt service assessment revenues being greater than principal and interest expenditures. This is due to a substantial amount of Special Improvement District Bonds being called and paid in prior years with money borrowed from the SID Revolving Fund. Therefore there are much fewer bonds to be repaid now, so expenditures have decreased. Once all the SID assessment revenues have been collected from properties within the district and the SID has been closed out, the Revolving fund will be repaid by closing out the SID funds and transferring all residual balances to the Revolving Fund. This practice benefits the City by reducing the overall amount of interest paid on these bonds. Transfers-in and Transfers-out were significant, but by coincidence they almost offset each other, thus having a negligible effect on fund balance. Transfers-out were old residual fund balances being closed into the SID Revolving Fund. Transfers-in are explained next. Capital Projects Fund balance decreased substantially by over 83% from $1,793,287 last year to $302,191 this year due to transfers-out to the SID Sinking Debt Service Fund. Three large SID construction projects ended with positive fund balances and therefore the residual amounts totaling $1,919,827 were transferred to the respective SID Sinking Debt Service funds to accelerate repayment of the SID Bonds outstanding, thus reducing future interest costs to the property owners inside each District. Capital outlays only amounted to $110,347 this year in the General Government Capital Projects Fund. However these smaller projects are listed on page 29, along with the City’s other larger Enterprise Fund projects. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets As shown in Table 4, at the end of 2011 the City had $315.4 million invested in a broad range of capital assets, including police and fire equipment, buildings, park facilities, roads, and water and sewer lines. This amount represents a net increase (including additions and deductions) of roughly $17.6 million, or 5.9% over last year. Refer to capital assets disclosure Note 7 beginning on page 56 for more detailed information on capital asset activity. 201120102011201020112010Land10.5$ 10.3$ 4.9$ 4.9$ 15.4$ 15.2$ Water Rights- - 2.1 1.6 2.1 1.6 Buildings30.5 29.7 70.8 50.2 101.3 79.9 Other Structures and Improvements1.2 1.2 31.7 31.6 32.9 32.9 Machinery & Equipment9.2 8.7 6.2 6.0 15.4 14.7 Property under Capital Lease 0.6 0.6 - - 0.6 0.6 Vehicle3.2 2.9 1.8 2.1 5.0 4.9 Infrastructure127.2 118.1 250.0 243.1 377.2 361.2 Subt ot al182.4 171.5 367.5 339.5 549.9 511.0 Accumulated Depreciation(79.2) (71.4) (155.3) (141.8) (234.5) (213.2) Total Capital Assets 103.2$ 100.1$ 212.2$ 197.7$ 315.4$ 297.8$ Table 4Capital Assets at Year-end(in Millions)GovernmentalBusiness-typeActivitiesActivitiesTotals 29 MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED) This year’s major additions and projects underway include: Waste Water Treatment Plant (WWTP) upgrade/conversion to Water Reclamation Facility (WRF) 17,318,028$ Streets & other Street Infrastructure - contributed by Developers 4,116,333 Water Lines & other Water Infrastructure - contributed by Developers 2,365,634 CMC Asbestos Bozeman CECRA Facility voluntary cleanup under CALA (see Footnote 20) 1,183,332 Wastewater Lines & other Wastewater Infrastructure - contributed by Developers 1,152,686 Water Distribution Line Rehabilitation and Upgrades 739,069 Water Plant Upgrade and Rehabilitation - Design & Engineering 554,493 Impact Fee credits cash payment to Town & Country Foods Inc. for S.11th & Kagy Intersection 496,220 Jewel / State of MT v. City of Bozeman: Solvent Site Superfund cleanup (see Footnote 20) 437,331 Lyman Creek Water supply infrastructure improvements 400,427 Gas Tax Street Improvements 388,322 Solid Waste Division Office Building expansion and remodel 327,544 Waste Water Main Line Rehabilitation and Upgrades 289,390 Fire Station #3 construction 200,122 Fire Truck / Fire Engine #3 for use at Station #3 - final payment of $539,651 total cost 172,211 TOTAL 30,141,142$ Debt At year-end, the City had $38.3 million in bonds and notes outstanding versus $23.9 million last year – a substantial increase of 60.4% – as shown in Table 5. This was due to $16 million of new debt being issued for the construction of the new Waste Water Reclamation Facility which is reported under Business-Type Activities. General obligation debt, which is reported under Governmental Activities, consists of $1,195,000 in refinanced 1995 Transportation Project bonds and $2,515,000 in Library Project bonds for a total of $4.3 million. The City’s general obligation bonds continue to maintain a rating of A2 from Moody’s Investor Service. According to Moody’s, the A2 rating reflects the City's stable tax base and local economy, healthy financial operations, and manageable debt burden. Moody's expects the City to maintain a healthy financial position, given the City's historical performance and management's commitment to maintaining satisfactory reserve levels. As expressed in the fiscal year 2012 budget document, City officials expect to end next fiscal year with general fund reserves totaling $3.9 million, or 16.67% of operating revenues. This level meets the minimum recommendations of GFOA. Property taxes are the City's primary general revenue source (43.5%), followed by intergovernmental revenues (21.7%), charges for services (17.3%), and special assessments (4.9%). Moody's expects the City to maintain a moderate debt position given current moderate debt burdens, above average principal payout, and expected tax base growth. More detailed information about the City’s long-term liabilities is presented in Note 9 to the financial statements. 30 MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED) 201120102011201020112010General obligationbonds (backed by the City) 3.7$ 4.3$ -$ -$ 3.7$ 4.3$ Tax Increment FinancingDistrict (TIFD) bonds 5.5 5.7 - - 5.5 5.7 Special ImprovementDistrict Debt 4.4 4.8 - - 4.4 4.8 Notes Payable 0.5 0.9 - - 0.5 0.9 Lease Payable 0.2 0.3 - - 0.2 0.3 .Water Revenue Bonds(backed by specific fee revenues) - - 24.0 7.9 24.0 7.9 Totals14.3$ 16.0$ 24.0$ 7.9$ 38.3$ 23.9$ Table 5Outstanding Debt, at Year-end(in Millions)Governmental Business-typeActivities Activities Totals ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The City’s elected and appointed officials considered many factors when setting the fiscal year 2011-2012 budget, tax rates, and fees that will be charged for the business-type activities. Some of these factors includes: capital improvements identified in the City’s Capital Improvement Program; inflation rates, the City’s collective bargaining units, the local economy, and the citizen’s ability to pay. For the year, inflation rates continued to remain at relatively low yet increasing levels. The Bureau of Labor Statistics of the U.S. Department of Labor reported that over the year, the index for all items less food and energy increased 2.0 percent. This continuing trend could adversely impact the cost of future City capital projects. CONTACTING THE CITY’S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City’s finances and to show the City’s accountability for the money it receives. If you have questions about this report or need additional information, contact the City’s Finance Director or Controller, at the City of Bozeman, 121 North Rouse Avenue, Bozeman, Montana 59715. B. BASIC FINANCIAL STATEMENTS GOVERNMENT - WIDE FINANCIAL STATEMENTS 31Governmental Activities Business-type ActivitiesTotalASSETSCash and investments20,971,828$ 16,807,482$ 37,779,310$ Restricted cash and investments8,894,569 13,302,201 22,196,770 Accrued interest40,232 95,020 135,252 Receivables, net11,571,137 1,210,200 12,781,337 Notes receivable551,162 67,882 619,044 Prepaid expenses446,250 - 446,250 Deferred charges150,141 - 150,141 Capital assetsNon-depreciable land10,489,902 4,934,794 15,424,696 Other capital assets, net of depreciation92,683,875 207,263,175 299,947,050 Total capital assets103,173,777 212,197,969 315,371,746 Total assets145,799,096$ 243,680,754$ 389,479,850$ LIABILITIESAccounts payable and accrued expenses2,011,751$ 1,700,453$ 3,712,204$ Internal balances- - - Unearned revenue859,696 - 859,696 Current portion of long-term liabilitiesCompensated absences payable1,080,000 297,300 1,377,300 Capital leases162,819 - 162,819 Closure and post-closure care costs- 80,000 80,000 Bonds and notes991,285 883,000 1,874,285 Long-term liabilities, due in more than one yearCompensated absences352,248 123,957 476,205 Capital leases51,197 - 51,197 Closure and post-closure care costs- 1,580,877 1,580,877 Pollution remediation obligations16,874 2,343,044 2,359,918 Other post-employment health benefits - implicit rate subsi1,293,668 314,670 1,608,338 Bonds and notes 13,124,072 23,134,080 36,258,152 Total liabilities 19,943,610$ 30,457,381$ 50,400,991$ NET ASSETSInvested in capital assets, net of related debt88,844,404$ 188,180,889$ 277,025,293$ Restricted:Restricted for impact capital projects1,246,799 10,860,148 12,106,947 Restricted for debt service5,437,698 1,727,351 7,165,049 Restricted for capital projects302,191 72,967 375,158 Restricted for other purposes12,975,886 - 12,975,886 Nonspendable999,464 - 999,464 Unrestricted16,049,044 12,382,018 28,431,062 Total net assets125,855,486$ 213,223,373$ 339,078,859$ CITY OF BOZEMAN, MONTANASTATEMENT OF NET ASSETSJune 30, 2011The Notes to Financial Statements are an integral part of the financial statements. 32Net (Expense) Revenue and Changes in Net AssetsOperating CapitalCharges for Grants and Grants and Governmental Business-typeExpenses Services Contributions Contributions Activities Activities TotalPrimary Government:Governmental activities:General government 6,122,190$ 2,870,443$ -$ -$ (3,251,747)$ (3,251,747)$ Public safety 12,859,702 2,684,724 341,522 193,206 (9,640,250) (9,640,250) Public service 9,190,515 4,454,492 - 7,638,693 2,902,670 2,902,670 Public welfare 7,500,727 451,960 773,313 35,194 (6,240,260) (6,240,260) Interest and fiscal fees 679,652 - - - (679,652) (679,652) Total governmental activities 36,352,786 10,461,619 1,114,835 7,867,093 (16,909,239) (16,909,239) Business-type activities:Water 11,649,639 7,064,571 - 3,021,326 (1,563,742)$ (1,563,742) Waste water 10,128,397 6,930,036 - 3,568,128 369,767 369,767 Solid waste 2,578,109 2,569,607 - - (8,502) (8,502) 991,712 417,114 - 158 (574,440) (574,440) Total business-type activities 25,347,857 16,981,328 - 6,589,612 (1,776,917) (1,776,917) Total primary government 61,700,643$ 27,442,947$ 1,114,835$ 14,456,705$ (16,909,239) (1,776,917) (18,686,156) General revenues:Property taxes 16,342,053 - 16,342,053 Unrestricted grants and contributions 6,782,383 438,475 7,220,858 Investment earnings 301,424 - 301,424 Miscellaneous 1,556,790 - 1,556,790 Sale of capital assets (8,168) - (8,168) Transfers 517,250 (517,251) (1) Total general revenues and transfers 25,491,732 (78,776) 25,412,956 Change in net assets 8,582,493 (1,855,693) 6,726,800 Net assets, beginning of the year 117,272,993 215,079,066 332,352,059 Net assets, end of the year 125,855,486$ 213,223,373$ 339,078,859$ ParkingCITY OF BOZEMAN, MONTANASTATEMENT OF ACTIVITIESYear Ended June 30, 2011Functions/ProgramsPrimary GovernmentProgram RevenuesThe Notes to Financial Statements are an integral part of the financial statements. FUND FINANCIAL STATEMENTS GOVERNMENTAL FUND FINANCIAL STATEMENTS MAJOR GOVERNMENTAL FUNDS General Fund – this fund accounts for the financial operations of the City which are not accounted for in any other fund. Principal sources of revenue are property taxes, state and local shared revenues, licenses and permits, and charges for services provided to other funds. Principal expenditures in the general fund are made for police and fire protection, public works, and general government. Street and Fire Impact Fees Special Revenue Fund – this fund accounts for the collection and expenditures associated with the fire and street impact fees. SID Sinking Debt Service Fund – this fund accounts for the accumulation of resources and payment of special assessment bond principal and interest related to general improvement, sidewalk, and curb construction projects. General Improvements Capital Projects Fund – this fund accounts for the construction of general improvement projects financed by special assessments other than those financed by proprietary funds. 33GOVERNMENTAL FUNDSStreet and Fire SID Other TotalGeneral Impact Fees Sinking Capital Governmental GovernmentalFund Special Revenue Debt Service Projects Funds FundsASSETSCash and investments 5,539,953$ -$ 2,172,467$ 339,888$ 12,460,269$ 20,512,577$ Receivables:Property taxes 2,101,526 - - - 637,868 2,739,394 Accrued interest 7,690 19,904 - 3,348 9,290 40,232 Customers, net 1,989,101 - - - 8,712 1,997,813 Special assessments 520 - 5,352,934 - 419,483 5,772,937 Other governments 214,729 - - - 356,869 571,598 Others - - - - 475,035 475,035 Prepaid expenditures - - - - 446,250 446,250 Due from other City funds 566,288 - - - - 566,288 Notes receivable - - - - 551,162 551,162 Restricted cash and investments - 8,210,205 54 - 684,310 8,894,569 Total assets 10,419,807$ 8,230,109$ 7,525,455$ 343,236$ 16,049,248$ 42,567,855$ (continued)CITY OF BOZEMAN, MONTANABALANCE SHEETJune 30, 2011The Notes to Financial Statements are an integral part of the financial statements. 34CITY OF BOZEMAN, MONTANABALANCE SHEETGOVERNMENTAL FUNDS (CONTINUED)June 30, 2011Street and Fire SID Other TotalGeneral Impact Fees Sinking Capital Governmental GovernmentalFund Special Revenue Debt Service Projects Funds FundsLIABILITIES AND FUND BALANCESLiabilities:Accounts payable 859,164$ 180,762$ 26,897$ 41,045$ 551,694$ 1,659,562$ Accrued employee benefits 220,212 - - - 36,897 257,109 Deferred revenue 2,410,629 - 5,301,728 - 1,105,529 8,817,886 Escheat property payable 32,552 - - - 38,329 70,881 Due to other City funds - - - - 566,288 566,288 Total liabilities 3,522,557 180,762 5,328,625 41,045 2,298,737 11,371,726 Fund balances:Reserved for:Nonspendable - - - - 999,464 999,464 Restricted - 8,049,347 2,196,830 243,772 9,472,625 19,962,574 Committed - - - - 3,278,422 3,278,422 Assigned 5,991,388 - - 58,419 - 6,049,807 Unassigned 905,862 - - - - 905,862 Total fund balances 6,897,250 8,049,347 2,196,830 302,191 13,750,511 31,196,129 Total liabilities andfund balances 10,419,807$ 8,230,109$ 7,525,455$ 343,236$ 16,049,248$ 42,567,855$ The Notes to Financial Statements are an integral part of the financial statements. 35CITY OF BOZEMAN, MONTANARECONCILIATION OF THE BALANCE SHEETTO THE STATEMENT OF NET ASSETS - GOVERNMENTAL FUNDSAs of June 30, 2011Fund balances - total governmental funds31,196,129$ Amounts reported for governmental activitiesin the statement of net assets are different because:Capital assets used in governmental activities are not financial resources and therefore are not reportedin the governmental funds.Governmental capital assets182,403,269$ Less: accumulated depreciation(79,229,492) 103,173,777 Internal service funds are used by management to charge the costs of certain activities to individualfunds.The assets and liabilities of the internal service funds that are reported in thegovernmental activities:Net assets1,731,965 Less: capital assets included in governmental activities(1,521,095) Plus: accumulated depreciation included in governmental activities215,573 Plus: other post-employment benefits included in governmental activities10,115 Plus: compensated absences included in governmental activities12,854 449,412 Deferred revenue in the governmental funds are reported on the full accrual method in the government-wide financial statements.8,263,389 Bond issuance costs are expensed in the governmental funds. They are deferred charges for thegovernment-wide financial statements and amortized over the life of the issuance.Bond issuance costs219,314 Less: amortization(69,173) 150,141 Bond premiums are other financing source revenue in the governmental funds. They are a liabilityfor the government-wide financial statements and amortized over the life of the issuance.Bond premium(10,460) Less: amortization1,308 (9,152) Impact fee credits do not affect current financial resources and therefore are not reported in thegovernmental funds.(305,199) Capital lease obligations not recorded in the governmental funds are reported in the entity-wide(214,016) statements.Long-term liabilities, are not due and payable in the current period and therefore are not reportedin the governmental funds.Bonds and notes payable(14,106,205) Pollution remediation obligations(16,874) Post-employment health benefits(1,293,668) Compensated absences(1,432,248) (16,848,995) Net assets of governmental activities125,855,486$ The Notes to Financial Statements are an integral part of the financial statements. 36Street and Fire SIDOther TotalImpact Fees SinkingCapital Governmental GovernmentalGeneralSpecial Revenue Debt ServiceProjects Funds FundsREVENUESTaxes 11,764,146$ -$ -$ -$ 4,870,778$ 16,634,924$ Special assessments 38 - 1,134,049 - 732,185 1,866,272 Licenses and permits 300,571 - - - 1,007,807 1,308,378 Intergovernmental 6,046,956 - - - 2,252,847 8,299,803 Charges for services 2,382,714 1,398,428 - - 2,848,365 6,629,507 Fines and forfeitures 1,305,490 - - - 135,893 1,441,383 Interest on investments 33,399 99,316 16,090 22,547 129,164 300,516 Loan repayment - - - - 193,302 193,302 Other 17,757 - - 27,962 1,511,071 1,556,790 Total revenues 21,851,071 1,497,744 1,150,139 50,509 13,681,412 38,230,875 EXPENDITURESCurrentGeneral government 5,169,311 - - - 770,460 5,939,771 Public safety 11,022,971 - - - 1,114,645 12,137,616 Public service 415,396 - - - 2,586,625 3,002,021 Public welfare 4,007,511 - - - 2,428,405 6,435,916 Capital outlay 536,457 657,958 - 110,347 1,994,255 3,299,017 Debt servicePrincipal payments 341,800 - 467,500 - 801,787 1,611,087 Interest and fiscal fees 15,781 - 211,204 - 453,103 680,088 Total expenditures 21,509,227 657,958 678,704 110,347 10,149,280 33,105,516 Revenues over (under) expenditures 341,844 839,786 471,435 (59,838) 3,532,132 5,125,359 OTHER FINANCING SOURCES (USES)Transfers in 2,256,965 - 1,548,798 243,722 2,936,249 6,985,734 Transfers out (818,956) (346,726) (1,919,827) (1,674,980) (2,495,016) (7,255,505) Sale of capital assets 4,167 - - - 6,388 10,555 Total other financing sources (uses) 1,442,176 (346,726) (371,029) (1,431,258) 447,621 (259,216) Net change in fund balances 1,784,020 493,060 100,406 (1,491,096) 3,979,753 4,866,143 FUND BALANCE, beginning of year 5,113,230 7,556,287 2,096,424 1,793,287 9,770,758 26,329,986 FUND BALANCE, end of year 6,897,250$ 8,049,347$ 2,196,830$ 302,191$ 13,750,511$ 31,196,129$ CITY OF BOZEMAN, MONTANASTATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCESGOVERNMENTAL FUNDSFor the Year Ended June 30, 2011The Notes to Financial Statements are an integral part of the financial statements. 37CITY OF BOZEMAN, MONTANARECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES - GOVERNMENTAL FUNDSYear Ended June 30, 2011Net change in fund balances - total governmental funds4,866,143$ Amounts reported for governmental activitiesin the statement of activities are different because:Governmental funds report capital outlays as expenditures. In the statement of activities, the cost ofthese assets is depreciated over the assets' useful lives.Expenditures for capital assets3,299,017$ Less: current year depreciation(8,195,862) (4,896,845) Governmental funds report asset disposals as sale of fixed assets for the cash received. In the statementof activities, those gains and losses must be adjusted by the assets basis, net of any depreciation.(18,723) Bond proceeds provide current financial resources in the governmental funds, but issuing debt increaseslong-term liabilities in the statement of net assets. Repayment of principal is an expenditure in thegovernmental funds, but this repayment reduces long-term liabilities in the statement of activities.Amortization of bond issuance costs(11,313) Amortization of bond premium436 Principal payments on bonds and notes1,533,866 Principal payments on capital leases77,221 1,600,210 Deferred revenue in the governmental funds are reported on the full accrual method in the government-wide financial statements.Property taxes(292,871) Notes receivable(150,039) Special assessments(831,300) Fines 47,379 (1,226,831) Governmental funds do not report a liability for compensated absences. The change in the liability is acurrent period expense.(77,909) Governmental funds do not report a liability for other post-employment health benefits.(108,624) Governmental funds do not report impact fee credits. The change in these credits during the year arecharged to the statement of activities.(98,301) Governmental funds do not report donated assets which are reported as assets and revenue in the statements of activities and net assets.7,334,113 Internal service funds are used by management to charge the costs of certain activities to individual funds.The net revenue (expense) of the internal service funds is reported in the governmental activities.Net revenue 1,159,954 Current year depreciation expense included in governmental activities46,544 Change in compensated absences included in governmental activities2,762 1,209,260 Change in net assets of governmental activities8,582,493$ The Notes to Financial Statements are an integral part of the financial statements. PROPRIETARY FUND FINANCIAL STATEMENTS PROPRIETARY FUNDS These funds are used to account for the financing, acquisition, operation and maintenance of water, sewer, and solid waste facilities, which are supported by user charges. Enterprise Funds – Water Fund – Accounts for the City’s water utility operations and to collect and administer water impact fees. Waste Water Fund – Accounts for the City’s sewer utility operations and to collect and administer waste water impact fees. Solid Waste Fund – Accounts for the City’s garbage service operations. Parking Fund – Accounts for the City’s parking garage and services. Internal Service Funds – used to account for the goods and services provided by one department to other departments of the City on a cost-reimbursement basis. 38GovernmentalActivitiesWaste Solid Parking InternalWater Fund Water Fund Waste Fund Fund Total Service FundsASSETS Current assetsCash and investments 10,750,645$ 5,074,478$ 966,385$ 15,974$ 16,807,482$ 459,251$ ReceivablesAccrued interest 51,321 37,305 6,394 - 95,020 - Customers, net 451,856 500,344 217,968 38,262 1,208,430 14,360 Special assessments 179 80 1,511 - 1,770 - Total current assets 11,254,001 5,612,207 1,192,258 54,236 18,112,702 473,611 Non current assetsOther assetsNotes receivable - - - 67,882 67,882 - Restricted cash and investments 9,038,472 2,529,885 1,660,877 72,967 13,302,201 - Total other assets 9,038,472 2,529,885 1,660,877 140,849 13,370,083 - Property, plant and equipment Nondepreciable:Land 162,518 754,263 3,714,577 303,436 4,934,794 - Depreciable:Water rights 2,065,142 - - - 2,065,142 - Buildings 7,014,300 51,217,548 854,159 11,742,190 70,828,197 - Other structures and improvements 14,779,796 14,763,061 2,155,300 - 31,698,157 1,315,617 Machinery and equipment 1,129,798 2,156,765 2,771,745 91,958 6,150,266 135,166 Vehicles 478,919 647,068 684,197 16,857 1,827,041 70,312 Infrastructure 152,985,004 96,921,749 78,531 - 249,985,284 - Accumulated depreciation and amortization (89,931,632) (58,294,714) (5,275,506) (1,789,060) (155,290,912) (215,573) Net property, plant and equipment 88,683,845 108,165,740 4,983,003 10,365,381 212,197,969 1,305,522 Total non current assets 97,722,317 110,695,625 6,643,880 10,506,230 225,568,052 1,305,522 Total assets 108,976,318$ 116,307,832$ 7,836,138$ 10,560,466$ 243,680,754$ 1,779,133$ Business-type ActivitiesEnterprise FundsCITY OF BOZEMAN, MONTANASTATEMENT OF NET ASSETSPROPRIETARY FUNDSJune 30, 2011The Notes to Financial Statements are an integral part of the financial statements. (continued) 39GovernmentalActivitiesWaste Solid Parking InternalWater Fund Water Fund Waste Fund Fund Total Service FundsLIABILITIESCurrent liabilities:Accounts payable and accrued expenses 415,789$ 1,123,766$ 134,155$ 26,743$ 1,700,453$ 24,199$ Compensated absences payable 113,200 114,800 64,000 5,300 297,300 12,854 Closure and post-closure care costs, current portion - - 80,000 - 80,000 - Bonds, notes, and loans payable - 883,000 - - 883,000 - Total current liabilities 528,989 2,121,566 278,155 32,043 2,960,753 37,053 Noncurrent liabilitiesClosure and post-closure care costs - - 1,580,877 - 1,580,877 - Revenue bonds due after one year - 23,134,080 - - 23,134,080 - Compensated absences payable 77,266 18,000 28,274 417 123,957 - Other post-employment health benefits - implicit rate subsidy 137,759 86,790 68,216 21,905 314,670 10,115 Solvent site remediation liability - 2,343,044 - - 2,343,044 - Total noncurrent liabilities 215,025 25,581,914 1,677,367 22,322 27,496,628 10,115 Total liabilities 744,014 27,703,480 1,955,522 54,365 30,457,381 47,168 NET ASSETSInvested in capital assets, net of related debt 88,683,845 84,148,660 4,983,003 10,365,381 188,180,889 1,305,522 Restricted for impact capital projects 8,521,870 677,401 1,660,877 - 10,860,148 - Restricted for parking capital projects - - - 72,967 72,967 - Restricted for debt service - 1,727,351 - - 1,727,351 - Unrestricted 11,026,589 2,050,940 (763,264) 67,753 12,382,018 426,443 Total net assets 108,232,304 88,604,352 5,880,616 10,506,101 213,223,373 1,731,965 Total liabilities and net assets 108,976,318$ 116,307,832$ 7,836,138$ 10,560,466$ 243,680,754$ 1,779,133$ Enterprise FundsBusiness-type ActivitiesCITY OF BOZEMAN, MONTANASTATEMENT OF NET ASSETS (CONTINUED)PROPRIETARY FUNDSJune 30, 2011The Notes to Financial Statements are an integral part of the financial statements. 40GovernmentalActivitiesWaste Solid Parking InternalWater Fund Water Fund Waste Fund Fund Totals Service FundsOPERATING REVENUES Charges for services 6,013,211$ 5,939,996$ 2,530,562$ 410,799$ 14,894,568$ 4,220,949$ OPERATING EXPENSESSalaries and benefits1,828,903 1,534,638 1,022,495 194,484 4,580,520 246,082 Materials and supplies601,989 217,858 218,055 23,110 1,061,012 425,243 Repairs and maintenance84,737 87,707 126,190 19,774 318,408 4,284 Utilities174,887 329,741 424,488 33,588 962,704 4,628 Administrative charges727,244 635,906 250,346 42,552 1,656,048 34,271 Insurance claims- - - - - 3,133,905 Other expenses451,288 1,377,746 174,244 79,115 2,082,393 77,825 Depreciation and amortization7,779,521 5,305,097 362,291 598,653 14,045,562 46,544 Total operating expenses11,648,569 9,488,693 2,578,109 991,276 24,706,647 3,972,782 Operating income (loss)(5,635,358) (3,548,697) (47,547) (580,477) (9,812,079) 248,167 NONOPERATING REVENUES (EXPENSES)Interest income244 687177 86130 569-453 117908Enterprise FundsBusiness-type ActivitiesCITY OF BOZEMAN, MONTANASTATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS - PROPRIETARY FUNDSYear Ended June 30, 2011Interest income244,687 177,861 30,569 - 453,117 908 Interest expense (1,070) (639,704) - (436) (641,210) (6,537) Other income 92,742 176,462 16,416 6,315 291,935 130,395 Grant income 1,466 437,725 750 158 440,099 - Impact fees 713,388 636,878 - - 1,350,266 - Gain (loss) on disposal of assets 543 (1,161) (7,940) - (8,558) - Total nonoperating revenues (expenses) 1,051,756 788,061 39,795 6,037 1,885,649 124,766 Income (loss) before contributions and transfers (4,583,602) (2,760,636) (7,752) (574,440) (7,926,430) 372,933 Contributions of infrastructure - developers 3,019,860 3,568,128 - - 6,587,988 - Transfers in 86,590 86,590 - 10,000 183,180 787,021 Transfers out (350,215) (350,216) - - (700,431) - Change in net assets (1,827,367) 543,866 (7,752) (564,440) (1,855,693) 1,159,954 NET ASSETS, beginning of year110,059,671 88,060,486 5,888,368 11,070,541 215,079,066 572,011 NET ASSETS, end of year108,232,304$ 88,604,352$ 5,880,616$ 10,506,101$ 213,223,373$ 1,731,965$ The Notes to Financial Statements are an integral part of the financial statements. 41GovernmentalActivitiesWaste Solid Parking InternalWater Fund Water Fund Waste Fund Fund Total Service FundsCash Flows from Operating ActivitiesReceipts from customers 6,018,406$ 5,907,720$ 2,511,211$ 406,372$ 14,843,709$ 4,228,320$ Receipts from others 92,742 176,462 16,416 6,315 291,935 130,395 Operating loans from other funds - - - - - 768,966 Payments to suppliers (1,109,647) (1,979,895) (1,017,359) (148,754) (4,255,655) (589,716) Payments to employees (1,802,579) (1,517,990) (1,016,114) (193,792) (4,530,475) (3,375,622) Payments to internal service funds and administrative fees (727,244) (635,906) (250,346) (65,191) (1,678,687) (34,271) Net Cash Flows From Operating Activities 2,471,678 1,950,391 243,808 4,950 4,670,827 1,128,072 Cash Flows from Noncapital Financing Activities:Transfers in 86,590 86,590 - 10,000 183,180 - Transfers out(350,215) (350,216) - - (700,431) - Net Cash Flows from Noncapital Financing Activities (263,625) (263,626) - 10,000 (517,251) - Cash Flows from Capital and Related Financing ActivitiesAcquisition of capital assets (3,375,572) (18,239,429) (153,334) - (21,768,335) (700,432) Principal paid on bonds, interfund loans, loans and leases (28,992) (606,000) - - (634,992) - Receipts from grants 1,466 437,725 750 158 440,099 - Interest paid on bonds, interfund loans, loans and leases (1,070) (639,704) - (436) (641,210) (6,537) Proceeds from issuance of long-term debt - 16,720,953 - - 16,720,953 - Impact fees received 713,388 636,878 - - 1,350,266 - Proceeds from sale of property, plant and equipment 543 - - - 543 - Net Cash Flows from Capital and Related Financing Activities (2,690,237) (1,689,577) (152,584) (278) (4,532,676) (706,969) Cash Flows from Investing ActivitiesCollections on notes - - - 7,702 7,702 - Interest on investments 243,796 197,223 29,769 - 470,788 908 Net Cash Flows from Investing Activities 243,796 197,223 29,769 7,702 478,490 908 Net Increase (Decrease) in Cash and investments (238,388) 194,411 120,993 22,374 99,390 422,011 Cash and investments, beginning of year 20,027,505 7,409,952 2,506,269 66,567 30,010,293 37,240 Cash and investments, end of year 19,789,117$ 7,604,363$ 2,627,262$ 88,941$ 30,109,683$ 459,251$ Classified as:Cash and investments 10,750,645$ 5,074,478$ 966,385$ 15,974$ 16,807,482$ 459,251$ Restricted cash and investments 9,038,472 2,529,885 1,660,877 72,967 13,302,201 - Totals 19,789,117$ 7,604,363$ 2,627,262$ 88,941$ 30,109,683$ 459,251$ Noncash transactions: donated infrastructure 3,019,860$ 3,568,128$ -$ -$ 6,587,988$ CITY OF BOZEMAN, MONTANASTATEMENT OF CASH FLOWS - PROPRIETARY FUNDSYear Ended June 30, 2011Enterprise FundsBusiness-type ActivitiesThe Notes to Financial Statements are an integral part of the financial statements. 42GovernmentalActivitiesWaste Solid Parking InternalWater Fund Water Fund Waste Fund Fund Total Service FundsOperating income (loss) (5,635,358)$ (3,548,697)$ (47,547)$ (580,477)$ (9,812,079)$ 248,167$ Adjustments to reconcile operating income (loss)to net cash provided (used) by operating activitiesDepreciation and amortization 7,779,521 5,305,097 362,291 598,653 14,045,562 46,544 Change in estimated closureand post-closure care costs - - (92,891) - (92,891) - Change in solvent site remediation obligation- 557,044 - - 557,044 - Other income 92,742 176,462 16,416 6,315 291,935 130,395 Change in Assets and Liabilities: (Increase) Decrease in:Accounts receivable 5,195 (32,276) (19,351) (4,427) (50,859) 7,371 Other governments receivable - - - - - - Other City funds - - - (22,639) (22,639) - Increase (Decrease) in:Accounts payable 203,254 (523,887) 18,509 6,833 (295,291) (77,736) Accrued employee benefits payable 26,324 16,648 6,381 692 50,045 4,365 Total adjustments 8,107,036 5,499,088 291,355 585,427 14,482,906 879,905 Net cash provided (used) byoperating activities 2,471,678$ 1,950,391$ 243,808$ 4,950$ 4,670,827$ 1,128,072$ Enterprise FundsBusiness-type ActivitiesCITY OF BOZEMAN, MONTANASTATEMENT OF CASH FLOWS - PROPRIETARY FUNDS (CONTINUED)Year Ended June 30, 2011The Notes to Financial Statements are an integral part of the financial statements. FIDUCIARY FUND FINANCIAL STATEMENTS FIDUCIARY FUNDS AGENCY FUNDS Agency funds are used to account for assets held by the City as an agent for individuals, private organizations, other governments and/or other funds. Montana Arts Council – Accounts for pass-through grant monies given for use by the Montana Arts Council for various programs. Municipal Court – Accounts for monies held for appearance bonds and restitution. 43AgencyFundsASSETSCash and cash equivalents 218,595$ Customer receivables 1,725 Total assets 220,320 LIABILITIESAccounts payable 220,320 Total liabilities 220,320$ CITY OF BOZEMAN, MONTANASTATEMENT OF FIDUCIARY NET ASSETSFIDUCIARY FUNDSJune 30, 2011The Notes to Financial Statements are an integral part of the financial statements. NOTES TO FINANCIAL STATEMENTS 44 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Bozeman of Gallatin County, Montana (the City) was incorporated as a municipal corporation in 1883. The present City Code of Ordinances was adopted November 22, 1982. Under the charter, the City is governed by a mayor and commission members who comprise the City Commission. The day-to-day affairs of the City are conducted under the supervision of the City Manager, who is appointed by and serves at the pleasure of a majority of the City Commission. The accompanying financial statements of the City have been prepared in conformity with generally accepted accounting principles (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB), the accepted standard-setting body for establishing governmental accounting and financial reporting principles. In June 1999 the GASB issued Statement 34 Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local Governments (GASB 34). This Statement establishes new financial reporting requirements for state and local governments throughout the United States. It requires new information and restructures much of the information that governments have presented in the past. Comparability with reports issued in prior years is affected. The City adopted the provisions of GASB 34 for its fiscal year ended June 30, 2002. With the implementation of GASB 34, the City has prepared required supplementary information titled Management’s Discussion and Analysis which precedes the basic financial statements. Other GASB statements are required to be implemented in conjunction with GASB Statement 34. Therefore, the City implemented the following GASB statements in the year ended June 30, 2002: Statement 33 Accounting and Financial Reporting for Nonexchange Transactions, Statement 36 Recipient Reporting for Certain Shared Nonexchange Revenues, Statement 37 Basic Financials Statements-and Management’s Discussion and Analysis-for State and Local Governments: Omnibus, and Statement 38 Certain Financial Statement Note Disclosures. The City adopted the provisions of GASB Statement 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions for its fiscal year ended June 30, 2009. In addition to pensions, many state and local governmental employers provide other postemployment benefits (OPEB) as part of the total compensation offered to attract and retain the services of qualified employees. This Statement establishes standards for the measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information (RSI) in the financial reports of state and local governmental employers. The City adopted the provisions of GASB Statement 49 Accounting and Financial Reporting for Pollution Remediation Obligations for its fiscal year ended June 30, 2009. This Statement will enhance comparability of financial statements among governments by requiring all governments to account for pollution remediation obligations in the same manner, including required reporting of pollution remediation obligations that previously may not have been reported. The GASB has issued Statement 51 Accounting and Financial Reporting for Intangible Assets effective for periods beginning after June 15, 2009. This Statement establishes accounting and financial reporting requirements for intangible assets including easements, water rights, timber rights, patents, trademarks, and computer software. The GASB has issued Statement No 53 Accounting and Financial Reporting for Derivative Instruments effective for periods beginning after June 15, 2009. This Statement establishes accounting and financial reporting requirements for derivative instruments entered into by state and local governments. This statement did not have a material impact on the City’s financial statements. 45 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) For the year ended June 30, 2011, the City implemented the provisions GASB Statement 54 Fund Balance Reporting and Governmental Fund Type Definitions. The objective of Statement 54 is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. This Statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is found to observe constraints imposed upon the use of resources reported in governmental funds. The clarifications of the governmental fund type definitions should reduce uncertainty about which resources can or should be reported in the respective fund types. These new classifications include nonspendable and spendable, which is further reported as restricted, committed, assigned and unassigned. The new fund balance classifications and the minimum fund balance disclosure provided in Statement 54 are discussed in further detail later in Note 1. The accompanying financial statements present the financial position of the City and the various funds and fund types, the results of operations of the City and the various funds and fund types, and the cash flows of the proprietary funds. The financial statements are presented as of June 30, 2011, and for the year then ended. The more significant accounting policies of the City are described below. Reporting Entity The City has considered all potential component units for which it is financially accountable and other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City’s financial statements to be misleading or incomplete. The Governmental Accounting Standards Board has set forth criteria to be considered in determining financial accountability in Statement 14 The Financial Reporting Entity and Statement 39, Determining Whether Certain Organizations are Component Units, an amendment to Statement 14. These criteria include appointing a voting majority of an organization's governing body and (1) the ability of the City to impose its will on that organization or (2) the potential for the organization to provide specific financial benefits to, or impose specific financial burdens on the City. Although the following entities meet the requirements of Statement 14 and Statement 39, they are strictly advisory in nature. Therefore, the government-wide financial statements do not include the financial information of the following entities and their omission does not cause the City’s financial statements to be misleading or incomplete. Should there develop a financial element at some point in the future, the City shall include these entities on its government-wide financial statements. Senior Center Advisory Council - This council is advisory in nature on senior issues and on how to run the City-owned Senior Center building. The City is responsible for the maintenance and operation of the building. Blended Component Units The following have been presented as blended component units since their governing bodies are substantially the same as the primary government’s government body and because their services are provided entirely or almost entirely to the primary government. Parking Commission - The City Commission appoints the governing board of the Parking Commission, which was created by ordinance. The City owns the parking lots, collects the rents and assigns the lots to the individuals. . 46 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Reporting Entity (Continued) Library Board of Trustees - The City Commission appoints all five trustees of the Library Board of Trustees. The Library is not a legally separate entity. City Planning Board - The agreement forming the City Planning Board holds that it will submit its budget to the City Commission for approval and the City provides all accounting functions and is responsible for the issuance of debt. It is presented with the Special Revenue Funds. Basis of Accounting/Measurement Focus The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Government-Wide Financial Statements The Government-Wide Financial Statements (the Statement of Net Assets and the Statement of Activities) present information of all the non-fiduciary activities of the primary government and its component units. These statements present summaries of Governmental and Business-Type Activities for the City accompanied by a total column. These statements are presented on an “economic resources” measurement focus and the accrual basis of accounting. Accordingly, all of the City’s assets and liabilities, including capital assets and long-term liabilities, are included in the accompanying Statement of Net Assets. The City has retroactively included infrastructure in its assets. The Statement of Activities presents changes in net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. The types of transactions reported as program revenues for the City are reported in three categories: 1) charges for services, 2) operating grants and contributions, and 3) capital grants and contributions. Certain eliminations have been made as prescribed by GASB 34 in regards to inter-fund activities, payables and receivables. All internal balances in the Statement of Net Assets have been eliminated except those representing balances between the governmental activities and the business-type activities, which are presented as internal balances and eliminated in the total primary government column. In the Statement of Activities, internal service fund transactions have been eliminated; however, those transactions between governmental and business-type activities have not been eliminated. The City applies all applicable GASB pronouncements (including all National Council on Governmental Accounting Statements and Interpretations currently in effect) as well as the following pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements: Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board (APB) Opinions, and Accounting Research Bulletins (ARB) of the Committee on Accounting Procedure. In addition, the City applies all applicable FASB Statements and Interpretations issued after November 30, 1989, except those that conflict with or contradict GASB pronouncements to its business-type activities. 47 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Accounting/Measurement Focus (Continued) Governmental Fund Financial Statements Governmental Fund Financial Statements include a Balance Sheet and a Statement of Revenues, Expenditures, and Changes in Fund Balances for all major governmental funds and nonmajor funds aggregated. An accompanying schedule is presented to reconcile and explain the differences in fund balances and changes in fund balances as presented in these statements to the net assets and changes in net assets presented in the Government-Wide Financial Statements. The City has presented all major funds that met those qualifications. All governmental funds are accounted for on a spending or “current financial resources” measurement focus and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the Balance Sheets. The Statement of Revenues, Expenditures, and Changes in Fund Balances present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. Accordingly, revenues are recorded when received in cash, except that revenues subject to accrual (generally 60 days after year-end) are recognized when due. The primary revenue sources which have been treated as susceptible to accrual by the City are property taxes, intergovernmental revenues, and other taxes. Expenditures are recorded in the accounting period in which the related fund liability is incurred. The City has elected to apply the early recognition option of recognizing debt services expenditures provided by GASB Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements. Under this option, an expenditure and a liability are recorded in debt service funds in the current year for amounts due early in the following year, for which resources have been provided during the current year. Proprietary Fund Financial Statements Proprietary Fund Financial Statements include a Statement of Net Assets, a Statement of Revenues, Expenses and Changes in Net Assets, and a Statement of Cash Flows for each major proprietary fund. The City has no nonmajor proprietary funds. A column representing internal service funds is also presented with the Proprietary Fund Financial Statements. Internal service balances and activities, however, have been combined with the governmental activities in the Government-Wide Financial Statements. Proprietary funds are accounted for using the “economic resources” measurement focus and the accrual basis of accounting. Accordingly, all assets and liabilities (whether current or noncurrent) are included on the Statement of Net Assets. The Statement of Revenues, Expenses and Changes in Net Assets present increases (revenues) and decreases (expenses) in total net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. Operating revenues in the proprietary funds are those revenues that are generated from the primary operations of the fund. All other revenues are reported as non-operating revenues. Operating expenses are those expenses that are essential to the primary operations of the fund. All other expenses are reported as non-operating expenses. 48 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Accounting/Measurement Focus (Continued) Fiduciary Fund Financial Statements Fiduciary Fund Financial Statements include a Statement of Net Assets. The City’s Fiduciary Funds represent Agency Funds, which are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Therefore, Agency Funds do not have a measurement focus. These funds are accounted for using the accrual basis of accounting. The following Agency Funds are included in the Fiduciary Fund financial statements: Montana Arts Council – Accounts for pass-through monies received from the State of Montana to fund local chapters of cultural enhancement activities such as the Bozeman Symphony Orchestra, Montana Ballet, Mandolin Society, Intermountain Opera Association, and the Emerson Cultural Center. Municipal Court – Accounts for monies held for appearance bonds and restitution related to criminal arrests and reimbursement for damage caused. Internal Service Funds Internal Service Funds are used to account for goods and services provided by one department to other departments of the City on a cost-reimbursement basis. These direct costs and certain indirect costs are included as part of the program expense reported for the individual functions and activities of these other departments. The following Internal Service Funds are included in the Proprietary Fund Financial Statements: Vehicle Maintenance Shop – Accounts for the maintenance and repair of vehicles used in the operation of City services. Medical Health Insurance – Accounts for insurance premium revenues received from the various City departments and retirees, and the related costs of health, vision, and dental claims incurred by City employees and retirees which are in-turn paid to the City’s insurance program coordinator. Funds As mentioned, the Governmental Fund Financial Statements include a Balance Sheet and a Statement of Revenues, Expenditures, and Changes in Fund Balances for all major governmental funds and nonmajor funds aggregated. The following major funds are presented in separate columns on the Governmental Funds Financial Statements, and the Proprietary Funds Financial Statements, respectively: Governmental Funds General Fund – this fund accounts for the financial operations of the City which are not accounted for in any other fund. Principal sources of revenue are property taxes, state and local shared revenues, licenses and permits, and charges for services provided to other funds. Principal expenditures in the General Fund are made for police and fire protection, public works, and general government. Street and Fire Impact Fees Special Revenue Fund – on January 22, 1996, the City Commission adopted fire, street, water, and waste impact fees in Ordinance Number 1414. This fund accounts for the collection and expenditures associated with the fire and street impact fees. SID Sinking Debt Service Fund – Accounts for the accumulation of resources and payment of special assessment bond principal and interest related to general improvement, sidewalk, and curb construction projects. General Improvements Capital Projects Fund – Accounts for the construction of general improvement projects financed by special assessments other than those financed by proprietary funds. 49 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Funds (Continued) Proprietary Funds Water Fund - Accounts for the City's water utility operations and to collect and administer water impact fees. Waste Water Fund - Accounts for the City's sewer utility operations and to collect and administer waste water impact fees. Solid Waste Fund - Accounts for the City's garbage service operations. Parking Fund - Accounts for the City's parking garage and services. Use of Restricted/Unrestricted Net Assets When an expense is incurred for purposes for which both restricted and unrestricted net assets are available, the City’s policy is to apply restricted net assets first. Cash and Investments Cash and investments are under the management of the City's Treasurer and consist primarily of investments in U.S. Government Bonds. Interest income earned as a result of pooling of City deposits is distributed to the appropriate funds utilizing a formula based on the average balance of cash and investments of each fund. Montana State statutes authorize the City to invest in interest-bearing savings accounts, certificates of deposits, and time deposits insured up to $250,000 by the Federal Deposit Insurance Corporation or fully collateralized, U.S. government and U.S. agency obligations and repurchase agreements where there is a master repurchase agreement and collateral held by a third party. For the year ended June 30, 2005, the City implemented a new accounting standard issued by GASB, Statement No. 40, Deposit and Investment Risk Disclosures. Statement No. 40 amends Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements. Statement No. 40 revises the existing requirements regarding disclosure regarding credit risk, concentration of credit risk, interest rate risk, and foreign currency risk. Restricted Cash and Investments Certain proceeds of enterprise fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. Impact fees collected and line-oversizing fees are restricted for applicable use. Payments in lieu of parking are restricted by code for future parking related capital projects. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Eliminations and Reclassifications In the process of aggregating data for the Statement of Net Assets and the Statement of Activities, some amounts reported as inter-fund activity and balances in the funds have been eliminated or reclassified. Internal service fund activity has also been eliminated in the Statement of Activities to remove the “doubling-up” effect. 50 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Capital Assets The City’s assets are capitalized at historical cost or estimated historical cost. City policy has set the capitalization threshold for reporting capital assets at $5,000. Gifts or contributions of capital assets are recorded at fair market value when received. Depreciable capital assets are reported on the Statement of Net Assets, net of applicable accumulated depreciation. Capital assets which are not depreciable, such as land, and construction in progress are reported separately. Depreciation expense is reported in Statement of Activities and is calculated using the straight-line method based on the assets estimated useful life. Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows: In June 1999, GASB issued Statement No. 34 (GASB 34) which requires the inclusion of infrastructure capital assets in local governments’ basic financial statements. According to GASB 34, the City must record infrastructure assets prospectively from the date of implementation and has included infrastructure acquired prior to implementation within the four-year required period. The City defines infrastructure as the basic physical assets that allow the City to function. The assets to be recorded will include the street system, water purification and distribution system, sewer collection treatment system; park and recreation lands and improvement system, storm water conveyance system, and buildings combined with the site amenities such as parking and landscaped areas; and streets, sidewalks, curbs, and street lights. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Improvements are capitalized and depreciated over the remaining useful lives of the related capital assets, as applicable. Compensated Absences Payable Earned but unpaid vacation and sick pay is included as a liability in the proprietary fund types and Government-Wide Financial Statements. The portion relating to the governmental fund types not expected to be paid with expendable and available resources is not reported in the governmental fund statements unless the liability has matured (i.e., unused reimbursable leave still outstanding following an employee's resignation or retirement). Inter-fund Receivables and Payables During the course of operations, numerous transactions occur between individual funds that may result in amounts owed between funds. Those short-term loans related to goods and services type transactions are classified as “due to and from other funds”. Long-term inter-fund loans (noncurrent portion) are reported as “advances to and from other funds”. Inter-fund receivables and payables between funds are eliminated in the Statement of Net Assets. Vehicles 5 yearsMachinery and equipment 5 to 30 yearsBuildings 20 to 50 yearsOther structures and improvements 10 to 25 yearsInfrastructure 25 to 50 years 51 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) On-Behalf Payments for Fringe Benefits On-behalf payments for fringe benefits are direct payments made by one entity to a third-party recipient for the employees of another legally separate entity. On-behalf payments include pension plan contributions. The State's pension contribution is recorded as intergovernmental revenue with an offsetting public safety or general government expenditures in the Pension Special Revenue Fund. (See Note 14) Budgets Each year, the City Manager must submit to the City Commission a proposed operating budget for all budget units within the City for the fiscal year commencing July 1. This operating budget includes proposed expenditures and the means of financing them. Public hearings are conducted to obtain citizen comments on the proposed budget. The budget is then legally adopted through passage of the appropriation resolution by the City Commission, but not before the second Monday in August. Budgets are legally required for all governmental fund types. These budgets are prepared on the same basis and using the same accounting practices as are used to account and prepare financial reports for the funds. Budgets presented in this report for comparison to actual amounts are presented in accordance with generally accepted accounting principles. Annual appropriated budgets are adopted for all funds and all appropriations lapse at year end. The level of budgetary control (that is the level at which expenditures cannot legally exceed the appropriated amount) is established at the fund type level. The City Commission may amend the budget during the course of the fiscal year, within each fund type. Any accruing revenue of the municipality not appropriated and any balance at any time remaining after the purpose of an appropriation has been satisfied or abandoned may from time to time be appropriated to other uses that do not conflict with any uses for which specifically the revenue was accrued. A public hearing is required for an overall increase in appropriation authority, except in the case of an emergency. The City Commission delegated in its annual appropriation resolution, budget amendment authority to the City Manager, for the expenditure of funds from any or all of the following: debt service funds, enterprise funds, internal service funds, trust funds, federal and state grants accepted and approved by the governing body, special assessments, and donations. In all other funds, the City Manager may, without approval from the City Commission, make budget amendments as long as the total appropriation for the fund group is not exceeded. Spending control is established by the total amount of expenditures budgeted for the fund type, but management may exercise control at budgetary line items. Fund Balance As discussed above in Note 1, the City has implemented Governmental Accounting Standards Board Statement 54. As a result, the classifications for fund balance now used for governmental fund are reported in two general classifications, nonspendable and spendable. Nonspendable represents the portion of fund balance that is not in spendable form such as inventories, and, in the general fund, long term notes and loans receivable. Spendable fund balance is further categorized as restricted, committed, assigned, and unassigned. The restricted fund balance category contains balances that can be spent only for the specific purposes stipulated by external parties or through enabling legislation. External parties include grantors, debt covenants, votes, and laws and regulations of other governments. 52 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Balance (Continued) The committed fund balance category includes amounts that can be used only for the specific purposes determined by a formal action of the government’s highest level of decision-making authority, the City Council. Amounts in the assigned fund balance classification are intended to be used by the government for specific purposes but do not meet the criteria to be classified as restricted or committed. Assignments of fund balance are created by an official who the governing body has delegated the authority to assign amounts to be used for specific purposes. The City Commission and the City Manager individually have the authority to express assignments. In governmental funds other than the general fund, assigned fund balance also represents the remaining amount that is not restricted or committed. Also included in the assigned fund balance for the general fund are assignments for the portion of the current general fund balance that is projected to b e used to fund expenditures and other cash outflows in excess of the expected revenues and other cash inflows in the next fiscal year. Unassigned fund balance is the residual classification for the government’s general fund and includes all spendable amounts not contained in the other classifications. In other funds, the unassigned classification should be used only to report a deficit balance resulting from overspending for specific purposes for which amounts had been restricted, committed, or assigned. When both restricted and unrestricted resources are available, spending will occur in the following order, for the identified fund types: General Fund: Restricted, Committed, Assigned, Unassigned Special Revenue Funds: Restricted, Committed, Assigned Debt Service Funds: Assigned, Committed, Restricted Capital Projects Funds: Restricted, Committed, Assigned Minimum General Fund – Fund Balance The City does not maintain a stabilization fund. However, the City’s Charter requires an established minimum level of General Fund Unreserved Fund Balance, in accordance with the Government Finance Officers’ Association (GFOA) Best Practices. The GFOA significantly changed their Best Practice Recommendation in October 2009. As a result, in May 2010, the Commission increased the required minimum from 12% to 16 2/3%. 53 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Net Assets In funds other than governmental, net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt, consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction, or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through enabling legislation or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. NOTE 2. CASH AND INVESTMENTS At June 30, 2011, the carrying amount of the City's deposits in local banks and investments is $60,194,675 and the bank balance is $60,953,424. Beginning December 31, 2010, the balances of all non-interest bearing accounts were fully insured by the FDIC. Of the remaining balances, $250,000 was covered by federal depository insurance and up to $32,606,663 was covered by collateral held by the pledging bank's agent in the City's name. The City’s cash and investments are reported as follows: UnrestrictedRestrictedTotalGovernmental activities20,971,828$ 8,894,569$ 29,866,397$ Business-type activities16,807,482 13,302,201 30,109,683 Fiduciary funds218,595 - 218,595 37,997,905$ 22,196,770$ 60,194,675$ Custodial credit risk for deposits is the risk that in the event of a financial institution failure, the City’s deposits may not be returned or the City will not be able to recover the collateral securities in the possession of the outside party. The City minimizes custodial credit risk by restrictions set forth in City policy and state law. The City’s policy requires deposits to be 102 percent secured by collateral valued at market value. The City Treasurer maintains a listing of financial institutions, which are approved for investment purposes. Types of securities that may be pledged as collateral are detailed in Section 17-6-103 of the Montana Code Annotated (MCA). City policy requires that specific safeguards against risk of loss be evidenced when the City does not physically hold the securities. 54 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 2. CASH AND INVESTMENTS (Continued) On June 30, 2011, the book value approximated the fair value of the investments, therefore no unrealized gain or loss was recorded for the year. The following table provides information about the interest rate risks associated with the City’s deposits and investments. InvestmentMaturitiesCredit Risk RatingFair ValueU.S. Government bonds Jul 2011 - Jun 2012 AAA 5,181,031$ U.S. Government bonds Jul 2012 - Jun 2013 AAA - U.S. Government bonds Jul 2013 - Jun 2014 AAA 6,000,000 U.S. Government bonds Jul 2014 - Jun 2015 AAA 8,000,000 U.S. Government bonds Jul 2015 - Jun 2016 AAA 22,998,000 U.S. Bank Municipal Investor Account N/A N/A 14,152,582 Non-negotiable repurchase agreements N/A N/A - Demand deposits N/A N/A 3,856,265 Petty cash N/A N/A 6,797 60,194,675$ Credit risk is defined as the risk that an issuer or other counterpart to an investments will not fulfill its obligation. The above credit risk rating indicates the probability that the issuer may default in making timely principal and interest payments. The credit ratings presented in the previous tables are provided by Standard and Poor’s Corporation (S&P). The City’s investment policy is to hold investments to maturity with the contractual understanding that these investments are low risk, locked in to a guaranteed rate of return, are therefore not impacted significantly by changes in short term interest rates. The City has no formal policy relating to interest risk. 55 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 3. PROPERTY TAX CALENDAR Real property taxes are assessed and collected each fiscal year according to the following property tax calendar: Lien Date December 1 for the 1st installment and June 1 for the 2nd installment Levy Date November 1 Due Dates November 30 for the 1st installment and May 31 for the 2nd installment Personal property taxes are assessed on January 1 of each year and billed in May and November, with payment due within thirty days. Gallatin County collects all property taxes on behalf of the City and remits collections, including penalties and interest, on a monthly basis. The County assesses a delinquency penalty of 2%. If taxes become delinquent the County tax collector may sell the property to collect taxes due plus .83% per month interest. In the fund financial statements, the City accrues as receivable all property taxes received during the first sixty (60) days of the new fiscal year from Gallatin County, in accordance with the modified accrual basis. In the government-wide financial statements, all taxes billed, but not yet collected are accrued in accordance with the full accrual basis of accounting, as described in Note 1. NOTE 4. SPECIAL ASSESSMENTS RECEIVABLE/DEFERRED REVENUES Special assessments receivable represent the uncollected amounts levied against benefited property for the cost of local improvements. Assessments are payable over a period of 18 to 20 years and bear interest of 2.5% to 5.75% per annum. Recognition of the revenues from these assessments has been deferred until both measurable and available in governmental funds. In the Government-Wide Financial Statements, however, these amounts are reported as revenues in the period they are levied. Once received, the monies will be used to meet the annual debt service requirements on related bonds. Deferred revenues in the General Fund represent outstanding general property taxes at June 30, 2011. Again, these amounts are reported as revenue in the Government-Wide Financial Statements in the period in which they are levied. Deferred revenues in Special Revenue Funds represent either revenues received but not considered earned or amounts to be received in the future that are recorded as receivables but not yet earned. The deferred revenues in Debt Service Funds represent future assessments to be received to meet the related debt obligation. NOTE 5. PREPAID RENT (OPERATING LEASE) On October 22, 1992, the City signed a memorandum of understanding with Gallatin County, Montana, in which the City agreed to lease space from the County's Law and Justice Center for the City Police Department and Municipal Court. The City paid to the County $765,000 during the renovation of the building which started 1993. The $765,000 constitutes rent for four rental terms of ten years each. During the term of the lease and renewal of the lease, the principal balance of $765,000 will be decreased by equal annual rental payments in the amount of $19,125. If the City and County mutually agree to terminate the lease after the second ten year term, the County will refund $382,500, to the City for the unused portion of the rent. The lease began when renovations were complete on November 1, 1994. For the year ended June 30, 2011, rent expenditure was $19,125 regarding this lease. 56 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 6. NOTES RECEIVABLE The City had the following loans in funds: Special Revenue Funds:Housing Revolving Loan Fund30,985$ Economic Development Loan Fund442,678$ Community Housing Fund77,499$ Enterprise FundsParking Fund67,882$ NOTE 7. CAPITAL ASSETS In accordance with GASB 34, the City has reported all capital assets, with the exception of pre-July 1, 2001 infrastructure in the Government-Wide Statement of Net Assets. The assets are reported whereby accumulated depreciation and depreciation expense have been recorded. For the year ended June 30, 2011, depreciation expense on capital assets was charged to the functions and programs as follows: Governmental Activities:General Government 415,489$ Public Safety622,014 Public Services 6,096,641 Public Welfare 1,061,718 Total depreciation expense - governmental activities8,195,862$ Business-type Activities:Water 7,779,521$ Waste Water 5,305,097 Solid Waste 362,291 Parking598,653 Total depreciation expense - business-type activities14,045,562$ 57 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 7. CAPITAL ASSETS (Continued) All capital assets of the City are depreciable with the exception of land. Capital assets activity of the City for the year ended June 30, 2011, consisted of the following: June 30, 2010Additions Disposals Transfers June 30, 2011Governmental Activities: Non-depreciableLand 10,314,825$ 175,077$ -$ -$ 10,489,902$ DepreciableBuildings 29,675,537 924,027 (134,102) - 30,465,462 Other structures and improvements 1,230,912 - - - 1,230,912 Machinery and equipment 8,694,401 989,306 (613,731) 134,471 9,204,447 Property under capital lease 616,504 - - - 616,504 Vehicles 2,857,931 106,820 (69,154) 268,923 3,164,520 Infrastructure 118,093,190 9,138,332 - - 127,231,522 Total 171,483,300 11,333,562 (816,987) 403,394 182,403,269 Accumulated depreciation (71,428,500) (8,195,862) 798,264 (403,394) (79,229,492) Total governmental activities 100,054,800$ 3,137,700$ (18,723)$ -$ 103,173,777$ Business-type Activities: Non-depreciableLand 4,934,794$ -$ -$ -$ 4,934,794$ Water rights 1,563,494 501,648 - - 2,065,142 DepreciableBuildings 50,243,610 20,584,587 - - 70,828,197 Other structures and improvements 31,641,348 56,809 - - 31,698,157 Machinery and equipment 6,049,485 317,206 (81,954) (134,471) 6,150,266 Vehicles 2,083,598 45,453 (33,087) (268,923) 1,827,041 Infrastructure 243,134,664 6,850,620 - - 249,985,284 Total 339,650,993 28,356,323 (115,041) (403,394) 367,488,881 Accumulated depreciation (141,754,685) (14,045,562) 105,941 403,394 (155,290,912) Total business-type activities 197,896,308$ 14,310,761$ (9,100)$ -$ 212,197,969$ Total capital assets 297,951,108$ 17,448,461$ (27,823)$ -$ 315,371,746$ 58 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 7. CAPITAL ASSETS (Continued) Changes in accumulated depreciation are as follows for the year ended June 30, 2011: June 30, 2010 Additions Disposals Transfers June 30, 2011Governmental Activities:Buildings (9,507,044)$ (1,230,335)$ 128,552$ -$ (10,608,827)$ Other structures and improvements (899,308) (62,303) - - (961,611) Machinery and equipment (6,476,886) (769,925) 600,558 (134,471) (6,780,724) Property under capital lease (353,468) (91,027) - - (444,495) Vehicles (2,515,485) (163,293) 69,154 (268,923) (2,878,547) Infrastructure (51,676,309) (5,878,979) - - (57,555,288) Total governmental activities (71,428,500) (8,195,862) 798,264 (403,394) (79,229,492) Business-type Activities:Buildings (7,386,738) (943,735) - - (8,330,473) Other structures and improvements (25,552,508) (542,487) - - (26,094,995) Machinery and equipment (4,946,984) (497,549) 74,015 134,471 (5,236,047) Vehicles (1,785,978) (127,482) 31,926 268,923 (1,612,611) Infrastructure (102,082,477) (11,934,309) - - (114,016,786) Total business-type activities (141,754,685) (14,045,562) 105,941 403,394 (155,290,912) Total accumulated depreciation (213,183,185)$ (22,241,424)$ 904,205$ -$ (234,520,404)$ 59 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 8. COMPENSATED ABSENCES The City’s policy relating to compensated absences is described in Note 1. As shown in the table below, the long-term portion of the debt, amounting to $352,248 for governmental activities and $123,957 for business-type activities at June 30, 2011, is expected to be paid in future years from future resources. Historically, compensated absences have been liquidated primarily by the general fund and the proprietary funds. The total amounts outstanding at June 30, 2011, were $1,432,248 for governmental activities and $421,257 for business-type activities. Balance June 30, 2010 Incurred SatisfiedBalance June 30, 2011Compensated absencesGovernmental Activities$ 1,354,339 $ 1,167,367 $ (1,089,458)$ 1,432,248 Business-type Activities 397,266 328,319 (304,328) 421,257 Total compensated absences 1,751,605$ 1,495,686$ (1,393,786)$ 1,853,505$ Due within one yearDue after one year TotalCompensated absencesGovernmental Activities$ 1,080,000 $ 352,248 $ 1,432,248 Business-type Activities 297,300 123,957 421,257 Total compensated absences 1,377,300$ 476,205$ 1,853,505$ NOTE 9. LONG-TERM DEBT Governmental Activities Long Term Debt The following is a summary of long-term debt transactions of the City’s governmental activities for the year ended June 30, 2011: Balance June 30, 2010 Issuances RepaymentsBalance June 30, 2011General obligation bonds$ 4,275,000 $ - $ (565,000)$ 3,710,000 Tax increment financing bonds 5,695,000 - (160,000)5,535,000 Special assessment debt 4,819,000 - (467,500) 4,351,500 Intercap notes payable 851,071 - (341,366) 509,705 Totals 15,640,071$ -$ (1,533,866)$ 14,106,205$ 60 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 9. LONG-TERM DEBT (Continued) Governmental Activities Long Term Debt (Continued) The above long-term debt of the City’s governmental activities is presented in the accompanying Statement of Net Assets as follows: Current Portion (Due within one year)Long-term Portion (Due after one year)Total Long Term DebtGeneral obligation bonds$ 590,000 $ 3,120,000 $ 3,710,000 Tax increment financing bonds 165,000 5,370,000 5,535,000 Special assessment debt 182,000 4,169,500 4,351,500 Intercap notes payable 54,285 455,420 509,705 991,285$ 13,114,920$ 14,106,205$ The long-term portion on page 31 Statement of Net Assets includes $9,152 unamortized bond premium. General Obligation Bonds - The City issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds are direct obligations of the City and are backed by the full faith and credit of the City. General obligation bonds currently outstanding are as follows: Interest Rate AmountDue within one yearTransportation Project Refunding Bonds, Series 2003bserial maturities through 2014 1.30%-3.75% 1,195,000$ 385,000$ Library Project Bonds, Series 2002serial maturities through 2022 3.50%-5.00% 1,435,000 115,000 Library Project Bonds, Series 2003aserial maturities through 2021 1.25%-4.40% 1,080,000 90,000 Total general obligations bonds 3,710,000$ 590,000$ 61 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 9. LONG-TERM DEBT (Continued) Governmental Activities Long Term Debt (Continued) Annual debt service requirements to maturity for general obligation bonds are as follows: Principal Interest TotalYear ending June 30,2012$ 590,000 $ 154,198 $ 744,198 2013 610,000 132,876 742,876 2014 640,000 110,028 750,028 2015 230,000 85,216 315,216 2016 245,000 75,340 320,340 2017-2021 1,395,000 201,576 1,596,576 3,710,000$ 759,234$ 4,469,234$ Tax Increment Financing Bonds - Tax Increment Financing (TIF) Bonds are not general obligations, but are special limited obligations of the City. The Series 2007 Bonds, the premium, and the interest thereon are not a charge against the general credit or taxing powers of the City. The bonds are payable solely, and equally and ratably with additional bonds if and when issued from the tax increment received by the City from its Downtown Bozeman Improvement District. If the incremental revenues are insufficient to pay the principal and interest due on the TIF bonds when due, such payment shortfall shall not constitute a default under the TIF agreement. If and when the incremental revenues are sufficient, the City shall pay the amount of any shortfall to the paying agent and registrar without any penalty interest or premium thereon. Due to the uncertainty of the future tax increment receipts, future payments on the TIF bonds may vary from the summary of debt service requirements Annual debt services requirements to maturity for the TIF bonds are as follows: Principal Interest TotalYear ending June 30,2012$ 165,000 $ 256,688 $ 421,688 2013 175,000 250,088 425,088 2014 180,000 243,088 423,088 2015 190,000 235,088 425,088 2016 195,000 228,288 423,288 2017-2021 1,105,000 1,014,672 2,119,672 2022-2026 1,375,000 743,099 2,118,099 2027-2031 1,745,000 371,262 2,116,262 Thereafter 405,000 20,250 425,250 5,535,000$ 3,362,523$ 8,897,523$ 62 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 9. LONG-TERM DEBT (Continued) Governmental Activities Long Term Debt (Continued) Special Assessment Debt - Special assessment bonds are payable from the collection of special assessments levied against benefited property owners within the special improvement district. To the extent that such special assessment collections are not sufficient to make the required debt service payments, the City is obligated to levy and collect a general property tax on all taxable property in the City to provide additional funding for the debt service payments. The cash balance in the SID Revolving Fund must equal at least 5% of the principal amount of bonds outstanding. If the cash balance is less than 5%, a levy is required to bring the cash balance to the required minimum. The City has issued various special assessment bonds with various maturities through 2025 at interest rates ranging from 2.5% to 5.75%. In addition, the City has issued three notes payable to finance special assessment projects. The following is a schedule of changes in special assessment debt: Balance June 30, 2010 Issuances RepaymentsBalance June 30, 2011Special assessment bonds 4,415,000$ -$ (445,000)$ 3,970,000$ Note Payable to Department of Natural Resources and Conservation, #WRF-05067 77,000 - (4,500) 72,500 Note Payable to Department of Natural Resources and Conservation, #SRF-05132 327,000 - (18,000) 309,000 4,819,000$ -$ (467,500)$ 4,351,500$ Annual debt service requirements to maturity for special assessment notes payable are as follows: Notes PayableYear ending June 30, PrincipalInterestTotal2012 22,000$ 14,100$ 36,100$ 2013 25,000 13,246 38,246 2014 24,000 12,319 36,319 2015 25,000 11,400 36,400 2016 28,000 10,444 38,444 2017-2021 150,000 36,120 186,120 2022-2026 107,500 7,246 114,746 381,500$ 104,875$ 486,375$ 63 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 9. LONG-TERM DEBT (Continued) Governmental Activities Long Term Debt (Continued) Annual debt service requirements to maturity for special assessment bonds are as follows: Year ending June 30, Bonds2012 160,000$ 2013 370,000 2014 370,000 2015 370,000 2016 365,000 2017-2021 1,675,000 2022-2026 660,000 3,970,000$ Substantially all special assessment bonds mature eighteen to twenty years after the date of issuance but are redeemable at the option of the City whenever cash is available in the respective funds for each issue. The City follows the policy of early redemption on these bonds. Accordingly, a schedule of future interest payments through maturity of the bonds is deemed to be not meaningful and has been excluded. The net revenues of the water fund have been pledged as collateral to secure the debt service related to SID 665. This collateral is subordinate to commitments made prior to July 12, 1993 to pledge this collateral as a guarantee of the payment of other debt. In the event that the resources available to service debt related to SID 665 are insufficient, the City shall transfer amounts from the water fund to satisfy this obligation. The District will be under no obligation to reimburse the water fund for any such transfer. At this time, the City does not anticipate the need to make any such transfers. Intercap Loans – The City entered in a loan agreement with the Montana Board of Investments to finance the construction of a new fire station. The intercap loans payable had a balance outstanding at June 30, 2011 as follows: Due within one yearDue after one year TotalNote payable to Montana Board of Investments in uneven semi-annual installments including interest at variable ratesthrough July 2019 54,285$ 455,420$ 509,705$ 64 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 9. LONG-TERM DEBT (Continued) Governmental Activities Long Term Debt (Continued) The debt service requirements for the fire station intercap loan at June 30, 2011 are as follows: Principal Interest TotalYear ending June 30,2012 54,285$ 9,715$ 64,000$ 2013 55,353 8,647 64,000 2014 56,442 7,558 64,000 2015 57,552 6,448 64,000 2016 58,685 5,315 64,000 2017-2021 227,388 9,361 236,749 $ 509,705 $ 47,044 $ 556,749 Business-type Activities Long Term Debt Revenue Bonds - The City also issues bonds where the City pledges income derived from the acquired or constructed assets to pay debt service. Water revenue bonds outstanding at June 30, 2011 are as follows: Balance June 30, 2010 Issuances RepaymentsBalance June 30, 20111991 Water Revenue bonds $ 28,992 $ - $ (28,992) $ - The revenue bond ordinance specifies that the City shall establish various restricted asset accounts and distribute the net revenues for the water fund to the restricted asset accounts and set user rates at levels which will generate minimum net revenues, as defined. The revenue bond ordinances specify that City management and/or the City Commission shall take corrective actions to bring the City into compliance with the revenue bond ordinances, if necessary, and that bondholders shall have the right to institute proceedings, judicial or otherwise, to enforce the covenants of the revenue bond ordinances. The City is in compliance with applicable covenants and the balance of the outstanding debt was paid off as of June 30, 2011. 65 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 9. LONG-TERM DEBT (Continued) Business-type Activities Long Term Debt (continued) Waste Water revenue bonds outstanding at June 30, 2011 are as follows: Balance June 30, 2010 Issuances RepaymentsBalance June 30, 2011Due in One YearState Revolving Fund - 10252 2010-B EPA $ 55,033 $ 296,967 $ (16,000) $ 336,000 16,000$ State Revolving Fund - 10230 7,745,521 1,595,479 (330,000) 9,011,000 345,000 State Revolving Fund - 10262 2010-F EPA 53,973 762,027 (28,000) 788,000 29,000 State Revolving Fund - 10251 2010-A ARRA A 1,000 389,700 - 390,700 - State Revolving Fund - 10261 2010-E ARRA A 46,600 337,400 - 384,000 - State Revolving Fund - 11291 - 880,162 (21,000) 859,162 43,000 State Revolving Fund - 11292 2010-G - 2,886,218 (66,000) 2,820,218 137,000 State Revolving Fund - 11281 2010-H - 9,573,000 (145,000) 9,428,000 313,000 $ 7,902,127 $ 16,720,953 $ (606,000) $ 24,017,080 $ 883,000 Waste water revenue bond debt service requirements to maturity are as follows: Principal Interest TotalYear ending June 30,2012 883,000$ 907,926$ 1,790,926$ 2013 931,000 874,407 1,805,407 2014 967,000 839,369 1,806,369 2015 1,003,000 862,120 1,865,120 2016 1,040,000 765,458 1,805,458 2017-2021 5,813,000 3,214,487 9,027,487 2022-2026 6,986,000 2,022,679 9,008,679 2027-2031 5,619,380 517,569 6,136,949 Thereafter 774,700 - 774,700 $ 24,017,080 $ 10,004,015 $ 34,021,095 66 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 9. LONG-TERM DEBT (Continued) Business-type Activities Long Term Debt (continued) Waste Water revenue bonds consist of the following as of June 30, 2011: Interest Rate AmountWaste Water State Revolving -10252 ARRA BSeries 2010B, serial maturities through 2030 1.75% 336,000$ Waste Water Reclamation Facility Revenue Bonds - 10230,Series 2010D, serial maturities through 2030 3.75% 9,011,000 Waste Water Reclamation Facility Revenue Bonds - 10262,Series 2010F, serial maturities through 2030 3.75% 788,000 Waste Water Reclamation Facility Revenue Bonds - 10251,Series 2010A, serial maturities through 2030 0.00% 390,700 Waste Water Reclamation Facility Revenue Bonds - 10261,Series 2010E, serial maturities through 2030 0.00% 384,000 Waste Water Reclamation Facility Revenue Bonds - 11291,Series 2010C, serial maturities through 2031 3.75% 859,162 Waste Water Reclamation Facility Revenue Bonds - 11292,Series 2010G, serial maturities through 2031 3.75% 2,820,218 Waste Water Reclamation Facility Revenue Bonds,Series 2010H, serial maturities through 2031 3.75% 9,428,000 Total revenue bonds 24,017,080$ Waste water revenue bond debt service requirements to maturity are as follows: Shown on the accompanying financial statements as:Revenue bonds due within one year 883,000$ Revenue bonds due after one year 23,134,080 24,017,080$ The revenue bond ordinance specifies that the City shall establish various restricted asset accounts and distribute the net revenues for the water fund to the restricted asset accounts and set user rates at levels which will generate minimum net revenues, as defined. The revenue bond ordinances specify that City management and/or the City Commission shall take corrective actions to bring the City into compliance with the revenue bond ordinances, if necessary, and that bondholders shall have the right to institute proceedings, judicial or otherwise, to enforce the covenants of the revenue bond ordinances. The City is in compliance with applicable covenants as of June 30, 2011. 67 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 9. LONG-TERM DEBT (Continued) Industrial Revenue and Private Activity Bonds The City issues tax exempt industrial revenue and private activity bonds to finance construction of facilities within the City which it sells on installment contracts to the facilities' users. The bonds and the interest payable thereon are not obligations of the City and do not constitute or give rise to a pecuniary liability or contingent liability of the City or a charge against the general credit or taxing power of the City. The bonds are issued under and collateralized by the indentures and are payable solely from the payments to be made pursuant to the loan agreements between the City and the facilities users. The bonds are not a lien on any of the City’s properties or revenues, other than the facilities for which they were issued. To provide financial assistance for the acquisition and improvements of the building occupied by a private elementary school, the City has issued a Private Activity Revenue Bond. This bond is secured by the property financed and is payable solely from payments received on the underlying mortgage loan. Upon repayment of the bond, ownership of the acquired facility transfer to the private-sector entity served by the bond issuance. Neither the City nor any political subdivision thereof is obligated in any manner for repayment of the bond. Accordingly, the bond is not reported as a liability in the accompanying financial statements. As of June 30, 2011, the Revenue Bond outstanding had an aggregate principal amount payable of $353,760. NOTE 10. CAPITAL LEASE OBLIGATIONS On November 14, 2007, the City entered into a lease for a Volvo Grader. The lease term is four years payable in annual installments of $24,999 with a balloon payment of $100,811 at maturity including interest at 4.715%. The total amount capitalized of $198,078 represents the present value of the future lease payments. The payments of this obligation are being recorded in the street maintenance fund. On May 6, 2008, the City entered into a lease for a Caterpillar Grader. The lease term is four years payable in monthly installments of $1,984 at 5.25%. The total amount capitalized of $86,088 represents the present value of the future lease payments. The payments for this obligation are being recorded in the street maintenance fund. On February 24, 2009, the City entered into a lease for an Elgin Street Sweeper. The lease term is five years payable in annual installments of $27,900 at 6.3%. The total amount capitalized of $143,905 represents the present value of the future lease payments. The payments for this obligation are being recorded in the street maintenance fund. On December 15, 2008, the City entered into a lease for a GMC Truck. The lease term is three years payable in annual installments of $10,000 and one of $3,441 at 12.0%. The total amount capitalized of $32,791 represents the present value of the future lease payments. The payments for this obligation are being recorded in the street maintenance fund. 68 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 10. CAPITAL LEASE OBLIGATIONS (Continued) The capital lease balance outstanding for governmental activities at June 30, 2011 is as follows: Balance June 30, 2010 Issuances RepaymentsBalance June 30, 2011Caterpillar Grader $ 41,653 - $ (24,534) $ 17,119 Volvo Grader 140,377 - (19,284) 121,093 Street Sweeper 97,535 - (21,731) 75,804 GMC Truck 11,672 - (11,672) - $ 291,237 - $ (77,221) $ 214,016 The following is a schedule, by year, of future minimum lease payments under capital lease, together with the present value of minimum lease payments at June 30, 2011: Governmental ActivitiesYear ending June 30,2012 $ 171,236 2013 27,900 2014 27,900 Less amount representing interest (13,020) Present value of future minimum lease payments 214,016$ The property under capital lease for governmental activities and the corresponding accumulated depreciation at June 30, 2011, is as follows: Governmental ActvitiesMachinery and equipment 616,504$ Less: accumulated depreciation (444,495) 172,009$ 69 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 11. CLASSIFICATION OF NET ASSETS In the Government-Wide Financial Statements, net assets are classified in the following categories: Invested in Capital Assets, Net of Related Debt – This category groups all capital assets, including infrastructure in future years, into one component of net assets. Accumulated depreciation and the outstanding balances of debt that are attributable to the acquisition, construction or improvement of these assets reduce this category. Restricted Net Assets – This category represents external restrictions imposed by creditors, grantors, contributors or laws or regulations of other governments and restrictions imposed by law through constitutional provision or enabling legislation. Net assets are presented restricted bymajor purpose. Unrestricted Net Assets – This category represents the net assets of the City which are not restricted for any project or other purpose. In the Fund Financial Statements, commitments and assignments segregate portions of fund balance that are either not available or have been earmarked for specific purposes. The various commitments and assignments are established by actions of the City Council and Management and can be increased, reduced or eliminated by similar actions. NOTE 12. DEFICIT FUND BALANCES At June 30, 2011, there were no funds with deficit fund balances. NOTE 13. DEFERRED COMPENSATION PLAN The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. In accordance with Governmental Accounting Standards Board Statements No. 32, the City has removed the balances related to the deferred compensation plan as of June 30, 1998, as these amounts represent neither assets nor liabilities to the City, and the plan is administered by an independent third party. 70 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 14. EMPLOYEE BENEFIT PLANS Plan Description and Provisions - All City of Bozeman full-time employees participate in one of three statewide cost-sharing multiple-employer retirement benefit plans administered by the Public Employees Retirement Division (PERD). Contributions to the three plans are as required by State statute. Fiscal years 2011 and 2010 total payroll and covered payroll for all retirement plans were $17,419,875 and $17,305,572, respectively. Financial information for all three plans is reported in the Public Employees' Retirement Board's published Comprehensive Annual Financial Report for the fiscal year end. It is available from the PERD at 100 North Park Avenue, Suite 220, P.O. Box 200131, Helena, MT 59620-0131. The authority to establish, amend and provide cost of living adjustments to all three plans is assigned to the State legislature. The authority to establish and amend contribution rates to all three plans is also assigned to the State legislature. Public Employees' Retirement System (PERS) All City employees, except firefighters and police officers, are provided pension benefits by this multi-employer plan. Funding is provided by participating units of government and their covered employees. Plan members are required to contribute 6.9% of their compensation. The City contributes 7.07% and the State of Montana contributes 0.1% (on behalf of the City), of members’ compensation. One hundred percent of required contributions were made for all three years. Total covered payroll for the City and total contributions to the plan by the employees and by the City for the year ended June 30, 2011 and the two previous years is presented in the following table: Year Ended Covered Employee Employer TotalJune 30 Payroll Contributions Contributions Contributions2011 11,003,546$ 759,245$ 777,951$ 1,537,196$ 2010 11,435,097 789,022 808,792 1,597,814 2009 11,430,913 788,733 792,386 1,581,119 Defined Benefit Retirement Plan (DBRP) - Participants become eligible for benefits after age 60 and 5 years of service, after age 65 regardless of service, or 30 years of service regardless of age. The benefit is 1/56 of the final compensation for each year of credited service, paid as a modified cash refund annuity. A participant is eligible for early retirement benefits after age 50 and 5 years of service or after 25 years of service regardless of age. Rights become vested after 5 years of service. Defined Contribution Retirement Plan (DCRP) – Participants may elect the defined contribution plan, in which the contributions into the plan are known, but the benefit is not. The retirement benefit received is based upon account balance, which is determined by contributions made plus investment earnings, or losses, less administrative costs. The total number of participating employees in both the defined benefit and defined contribution plans at the City at June 30, 2011 is 224. 71 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 14. EMPLOYEE BENEFIT PLANS Firefighters' Unified Retirement System (FURS) Funding is provided by units of local government, their covered employees and the State of Montana. Plan members are required to contribute 10.7% of monthly compensation, since all employees have elected to be covered under the guaranteed annual benefit adjustment (GABA). The City contributes 14.36% and the State of Montana contributes 32.61% of members' compensation. One hundred percent of required contributions were made for all three years. Total covered payroll for the City and total contributions to the plan by the employees and by the City for the year ended June 30, 2011 and the two previous years is presented in the following table: Year Ended Covered Employee Employer TotalJune 30 Payroll Contributions Contributions Contributions2011 2,884,700$ 308,663$ 414,243$ 722,906$ 2010 2,747,949 294,031 394,606 688,637 2009 2,441,975 261,291 350,668 611,959 Participants are eligible for benefits after 5 years of service and age 50. The benefit for participants hired prior to July 1, 1981 who have attained 50 years of age and 20 years of service is 50% of the monthly salary last received by the participant. Also, an additional 1% for each year of service in excess of 20 years, not to exceed a maximum of 60% of the recipient's latest monthly salary. A participant hired on or after July 1, 1981, or who retires prior to completion of 20 years of service, receives a benefit equal to 2.5% of average salary for each year of service, not to exceed 60%. Salary is averaged over the last 36 months for those hired on or after July 1, 1981. Rights become vested after 5 years of service. The total number of participating employees at the City of Bozeman at June 30, 2011 is 40. Municipal Police Officers' Retirement System (MPORS) Funding is provided by local units of government, their covered employees, and the State of Montana. Plan members are required to contribute 9% of their compensation. The City contributes 14.41% and the State of Montana contributes 29.37% of members' compensation. One hundred percent of required contributions were made for all three years. Total covered payroll for the City and total contributions to the plan by the employees and by the City for the year ended June 30, 2011 and the two previous years is presented in the following table: Year Ended Covered Employee Employer TotalJune 30 Payroll Contributions Contributions Contributions2011 3,531,629$ 317,847$ 777,951$ 1,095,798$ 2010 3,122,526 281,027 808,792 1,089,819 2009 2,941,231 264,711 792,386 1,057,097 Participants are eligible for retirement benefits after 20 years of service and age 50. The minimum age requirement does not apply to participants first employed prior to July 1, 1975. The benefit is 1/2 of average monthly salary during the highest 36 consecutive months of earnings plus 1% of average monthly salary for each additional year of service in excess of 20 years, to a maximum of 60%. Benefits are paid as a modified cash refund annuity. Rights become vested after 5 years of service. The total number of participating employees at the City at June 30, 2011 is 60. 72 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 15. POST-EMPLOYMENT BENEFITS OTHER THAN PENSIONS In addition to providing a deferred compensation plan, the City provides other post-employment benefits (OPEB) allowing its retired employees to continue their medical, dental and vision care coverage through the City's group health plan until death (Retiree Health Plan). The plan allows retirees to participate, as a group, at a rate that does not cover all of the related costs. This results in the reporting of an implied rate subsidy in the financial statements and footnotes. The City's contract with Allegiance Benefits details the plan eligibility. MMIA is the administrator of the benefit plan which covers both active and retired members. In accordance with MCA 2-18-704, the City’s retirees may continue coverage for themselves and their covered eligible dependents if they are eligible for public employees' retirement by virtue of their employment with the City of Bozeman. The City's current labor contracts do not include any obligations for payments to retirees. The City also allows terminated employees to continue their health care coverage for 18 months past the date of termination as required by the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). OPEB is recorded on an accrual basis for all enterprise and internal service funds. OPEB is recorded on a modified accrual basis for the governmental funds. Plan contributions are recognized in the period in which the contributions are made. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Funding Policy. The plan is unfunded by the City and plan members receiving benefits contribute 100 percent of their cost of the benefits on a pay-as-you-go basis. The City plan’s administratively established retiree medical, dental and vision premiums vary between $37 and $912 per month depending on the medical plan selected, family coverage, and Medicare eligibility. The plan provides different coinsurance amounts depending on whether members use preferred, non-preferred, or other hospitals. For a single individual, after an annual deductible of $300 for most non-Medicare-eligible retirees, the plan reimburses 70% for the first $500 medical claims and 100% thereafter. For a family, after an annual deductible of $600 for most non-Medicare-eligible retirees, the plan reimburses 70% for the first $1,000 medical claims and 100% thereafter. For fiscal year ended June 30, 2011, the City has 38 retired members receiving benefits. Annual OPEB Cost and Net OPEB Obligation. The City’s annual other post-employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC). The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities (or funding excess) over a closed amortization period not to exceed thirty years. The following table shows the components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s net OPEB obligation to the Retiree Health Plan: Annual required contribution263,074$ Interest on net OPEB obligation58,882 Adjustment to annual required contribution(85,130) Annual OPEB cost (expense)236,826 Contributions made(100,543) Increase in net OPEB obligation136,283 Net OPEB obligation - beginning of year1,472,055 Net OPEB obligation - end of year1,608,338$ 73 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 15. POST-EMPLOYMENT BENEFITS OTHER THAN PENSIONS (Continued) The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation for fiscal year ended June 30, 2011 and the two preceding fiscal years were as follows: Percentage ofFiscal Year Annual Annual OPEB Cost Net OPEB Ended OPEB Cost Contributed ObligationJune 30, 2009 808,096$ 6.32% 757,020$ June 30, 2010 794,598$ 10.01% 1,472,055$ June 30, 2011 236,826$ 42.45% 1,608,338$ The June 30, 2011 year end OPEB obligation is reported in the City’s funds as follows: ExpensesPrimary Government:Governmental activities:General government 268,020$ Public safety 528,260 Public service 149,976 Public welfare 347,412 Total governmental activities 1,293,668 Business-type activities:Water 137,759 Waste water 86,789 Solid waste 68,217 21,905 Total business-type activities 314,670 Total primary government 1,608,338$ Functions/ProgramsParking 74 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 15. POST-EMPLOYMENT BENEFITS OTHER THAN PENSIONS (Continued) Funded Status and Funding Progress. The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. The City has elected not to fund this liability. Actuarial Methods and Assumptions. As of July 1, 2010, the most recent valuation date, the City’s actuarially accrued liability (AAL) for benefits was $2,203,253. The AAL by status breakdown is shown below: Actives 1,459,180$ Retirees, Dependents and Surviving Spouses 744,073 Total AAL 2,203,253$ Normal Cost 130,444$ Impact on Statement of Activities Annual OPEB Cost 236,826$ Impact on Statement of Net Assets Assumed Contributions 100,543$ Net OPEB Obligation at June 30 1,608,338$ Participant Information Actives 266 Retirees, Dependents and Surviving Spouses 68 Total 334 75 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 15. POST-EMPLOYMENT BENEFITS OTHER THAN PENSIONS (Continued) The following key assumptions were chosen by the City: 1. Discount Rate: 4.0% 2. Expected Long Term Rate of Return on Assets: 4.0% 3. Healthcare Cost Increases: 8.5% for 2012, 8.0% for 2013, 7.5% for 2014, 7.0% for 2015, 6.5% for 2016, 6.0% for 2017, 5.5% for 2018, 5.0% for 2019 and thereafter. 4. Average Salary Increase: 4.0% 5. Retirement Rates: Based upon the separate rates used to value the pension obligations for Police Officers, Firefighters, and all other employees, respectively. 6. Retiree Participation Rate: 30% 7. Marital Assumption: For future retirees, 60% of participants are assumed to be married, with husbands 3 years older than wives. The Projected Unit Credit Actuarial Cost Method was used to determine the annual required contribution. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Examples, as detailed above, include assumptions about future employment, mortality, and the healthcare cost trend. Actuarially determined amounts are subject to continual revisions as actual results are compared with past expectations, and new estimates are made about the future. Actuarial calculations reflect a long-term perspective. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, is designed to present multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial liabilities for benefits. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. This report constitutes the only analysis and presentation of the City’s post-employment benefit plan. There is no separate, audited GAAP-basis post-employment benefit plan report. 76 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 16. JOINT VENTURE AGREEMENTS Joint ventures are legal entities or other organizations that result in a contractual arrangement, and that are owned, operated, or governed by two or more participants. Each participant retains both an ongoing financial interest and an ongoing financial responsibility. Joint ventures are legal entities or other organizations that result in a contractual arrangement, and that are owned, operated, or governed by two or more participants. Each participant retains both an ongoing financial interest and an ongoing financial responsibility. As of June 30, 2011, the City has entered into joint venture contractual arrangements, as described below. 911 Communication Center The City and Gallatin County, Montana (the County) have entered into an inter-local agreement for the purposes of establishment of the operation and financing of a 911 communication services division (the Division) for dispatch and records services, to define the relationship of the Administrative Board with the City and County, and to establish the line of authority for personnel furnishing the communication services to the City and County and others who may contract for the services. Though the City has no equity interest in the Division, the City has indirect access to the joint venture’s resources, as the Division’s purpose is of direct interest to the City, and the City has the ability to influence the management of the Division. In addition, the City and County have agreed to pay 45% and 55% of the Division expenditures, respectively. The agreement expired December 19, 2005, and automatically renewed until terminated by either party. Financial information regarding the Division can be obtained by contacting Shelley Vance, Gallatin County, Clerk and Records Office, 311 West Main, Bozeman, MT 59715. City-County Drug Forfeitures The City and Gallatin County, Montana (the County) have entered into an inter-local agreement for the purposes of establishment of a joint drug forfeiture account funded from drug related forfeitures, seizures and prosecutions of City and County law enforcement cases and to establish an equitable means of distributing those funds to continue drug interdiction activities. The goal of the agreement is to make the City and County Drug Enforcement operations less reliant on the general and public safety fund monies of the City and County. The original term of the agreement was for a period of one year, beginning September 20, 2004 and automatically renews for a period of one year until terminated by either party with written notice of intent to terminate. Financial information regarding the joint drug forfeiture account can be obtained by contacting the City of Bozeman Department of Finance, 411 East Main Street, Bozeman, MT 59715. 77 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 17. RESTRICTED ASSETS At June 30, 2011, the balances of restricted asset accounts for business-type activities are as follows: Water FundWaste Water FundSolid WasteFund Parking Fund TotalRestricted by revenue bond covenantsFor debt service-$ -$ -$ -$ -$ For bond reserve- 1,727,351 - - 1,727,351 For operations- - - - - Restricted by ordinanceCash in lieu of parking- - - 72,967 72,967 Impact fees8,521,870 677,401 1,660,877 - 10,860,148 8,521,870$ 2,404,752$ 1,660,877$ 72,967$ 12,660,466$ Business-Type Activities NOTE 18. INTERFUND TRANSFERS AND ASSETS/LIABILITIES A summary of interfund transfers reported in the fund financial statements for the year ended June 30, 2011 follows: Transfers From General Fund Impact Fees SID Sinking Capital Projects Nonmajor Governmental Water Waste Water Total General Fund -$ 346,726$ -$ 126,182$ 1,784,057$ -$ -$ 2,256,965$ Impact Fees- - - - - - - - SID Sinking- - - 1,548,798 - - - 1,548,798 Capital Projects243,722 - - - - - - 243,722 Nonmajor Governmental575,234 - 1,919,827 - 441,188 - - 2,936,249 Water Enterprise- - - - 86,590 - - 86,590 Wastewater Enterprise- - - - 86,590 - - 86,590 Parking Enterprise- - - - 10,000 - - 10,000 Vehicle Internal Service- - - - 86,590 350,215 350,216 787,021 Health Insurance Internal Service- - - - - - - - Total818,956$ 346,726$ 1,919,827$ 1,674,980$ 2,495,015$ 350,215$ 350,216$ 7,955,935$ Governmental FundsProprietary FundsTransfers To 78 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 18. INTERFUND TRANSFERS AND ASSETS/LIABILITIES (Continued) Transfers are used to (1) move revenues from the fund that statute or budgets requires to collect them to the fund that statute or budgets require to expend them, (2) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations, and (3) to transfer non-restricted interest income from the permanent fund to the general fund. A summary of due from/to other funds at June 30, 2011, is as follows: Due From Due ToMajor Funds:General Fund 566,288$ -$ Nonmajor Funds:Special Revenue FundsDepartmental Special Revenues - 509,676 Street Lighting- 33,924 Debt Service FundsGO Bonds - 22,688 566,288$ 566,288$ Interfund balances reported as due from or due to other funds are a result of transfers for reporting purposes to cover negative cash balances within a fund. These transfers are reversed as cash becomes available in a fund where cash previously had been in a deficit. 79 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 19. RISK MANAGEMENT The City faces a considerable number of risks of loss, including a) damage to and loss of property and contents, b) employee torts, c) professional liability (i.e. errors and omissions), d) environmental damage, e) workers' compensation (i.e. employee injuries), and f) medical insurance cost of employees. A variety of methods are used to provide insurance for these risks. Commercial policies, transferring all risks of loss except for small deductible amounts, are purchased for property and content damage and professional liabilities. The City participates in two state-wide public risk pools operated by the Montana Municipal Interlocal Authority, for workers' compensation and for tort liability. Employee medical insurance is provided through a privately-administered, partially self-insured plan. Given the lack of coverage available, the City has no coverage for potential losses from environmental damages. Commercial Policies Coverage limits and the deductibles on the commercial policies have stayed relatively constant for the last several years. The premiums for the policies are allocated between the City's Enterprise Funds and the General Fund. Premiums are subsidized through a special purpose property tax levy, based on total appropriations. Settled claims resulting from these risks did not exceed commercial insurance coverage during the three years ended June 30, 2011, 2010, and 2009. Public Entity Risk Pools In 1986, the City joined together with other Montana cities to form the Montana Municipal Interlocal Authority which established a workers' compensation plan, and a tort liability plan. Both public entity risk pools currently operate as common risk management and insurance programs for the member governments. The liability limits for damages in tort action are $750,000 per claim and $1.5 million per occurrence, and $12.5 million per occurrence for any claim that is not subject to the limitations on governmental liability, as described in Montana Code Annotated Section 2-9-108 (the Statute) or any successor statute, either as matter of law, by operation of the Statute, or by a judicial determination that the Statute is inapplicable or is otherwise invalid, with $11,250 deductible per occurrence. State tort law limits the City's liability to $1.5 million. The City pays premiums for its employee injury insurance coverage, which is allocated to the employer funds based on total salaries and wages. The agreements for formation of the pools provide that they will be self-sustaining through member premiums. The tort liability plan and workers' compensation program issued debt of $4.41 million and $6.155 million, respectively, to immediately finance the necessary insurance reserves. All members signed a contingent note for a pro rata share of this liability in case operating revenues were insufficient to cover the debt service; the debt was retired in 2011. The City also owns a policy with MMIA for loss or damage to property. This is an all risk policy, essentially all property owned by the City being insured for 100% of replacement cost, subject to a $5,000 deductible per occurrence. MMIA reinsures their property insurance with a national municipal pool, Public Entities’ Property Insurance. 80 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 19. RISK MANAGEMENT (Continued) Self- Insurance Starting in 1992, the City has provided medical insurance coverage for its employees via a partially self-insured plan administered by Blue Cross/Blue Shield. It provides medical, dental, and vision benefits and is operated as an Internal Service Fund. Rates are determined in consultation with Blue Cross/Blue Shield based on past claim experience for the coming year plus an administrative fee. The rates include a premium for a commercial "stop-loss" policy for when individual claim exceeds $75,000 in covered charges during a year. A reconciliation of claims payable follows: June 30, 2011 June 30, 2010Claims payable, beginning of year -$ -$ Claims incurred during year 3,133,905 3,227,963 Claims paid during year (3,133,850) (3,227,963) Claims payable, end of year 55$ -$ On July 1, 2006 the City began purchasing employee health insurance from the Montana Municipal Interlocal Authority’s Employee Health Benefits program; as of that date the City was no longer self-funded for health insurance claims. The fiscal year ending June 30, 2006 was the last year that the City was self-funded for employee health insurance claims. Over the course of the next months, the City paid claims that had been incurred but not reported as of June 30, 2006. On May 22, 2007, the City’s self-funded program administrator informed the City that they were closing out administration of Bozeman’s FY06 Self-Insured Health Benefits fund. The fund was closed because all incurred claims under the self-funded plan had been reported and paid. Going forward, as a purchaser of health insurance coverage, the City will have not “incurred but not reported” liabilities. NOTE 20. CONTINGENCIES Delaney & Company v. City of Bozeman On December 23, 2009, the Montana Supreme Court upheld a jury verdict in Delaney and Co. v. City of Bozeman in favor of the plaintiff for $3,000,000. As the named defendant, this judgment is a legal obligation of the City of Bozeman. The City asserts coverage exists under the Memorandum of Liability Coverage with the MMIA; however, the MMIA disputes coverage for the judgment. Nevertheless, following the decision by the Montana Supreme Court, the MMIA and the City agreed the MMIA would pay the judgment. The agreement conditioned the MMIA’s payment that should a court of record finally determine the MMIA is obligated to provide coverage for all or a portion of the judgment the City would be obligated to reimburse the MMIA for only that portion of the judgment for which a court determines no coverage exists. 81 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 20. CONTINGENCIES (Continued) City of Bozeman v. Montana Municipal Interlocal Authority This litigation is a civil claim asserted by the City of Bozeman for the purposes of determining insurance coverage for a $3 million judgment in Delaney v. City of Bozeman. At this time, issues which are central to determining the obligation of MMIA and its reinsurer to indemnify the City of Bozeman for the judgment have been briefed, argued and await ruling by Judge Seeley in the First Judicial District Court for the State of Montana, County of Lewis & Clark. The City is litigating the claim aggressively, but pursuit of an out-of-court settlement has been discussed and may be a possibility in the future. The likelihood of an unfavorable outcome is difficult to measure in the context of a claim for insurance coverage, given the complexity of the issues involved; however, there is a possibility that MMIA could succeed in its coverage defenses. The range of potential loss is $1 million to $3 million. City of Bozeman v. Moore, O’Connel & Refling This litigation is a civil claim asserted by the City of Bozeman for the purposes of preserving the City’s claims against its former counsel in the Delaney v. City of Bozeman litigation. This case has only been filed and has not yet been served. Depending on the outcome in the City of Bozeman v. Montana Municipal Interlocal Authority, this claim may or may not be pursued at some undetermined point in the future. As such, there has been no activity with reference to the case and the likelihood of an unfavorable outcome cannot be projected. Baxter Meadows Development v. City of Bozeman (Baxter I) Baxter Meadows started as a subdivision of approximately 460 acres in northwest Bozeman. In September of 2002, the developer sold 100 acres to Gallatin County for a regional park. The sales price was $200,000 less than the appraised value at the time, and Baxter Meadows sought to have the City of Bozeman ("City") give it credit toward parkland requirements for the subdivision, based on the reduction in the sales price, improvements Baxter Meadows is constructing in the regional park, and the proposed transfer of five acres in Baxter Meadows to the YMCA. The City declined to do that, and Baxter Meadows filed a lawsuit asking the court to order the City to grant the credit. Because the lawsuit is what is referred to as a mandamus action, if the plaintiff prevails it could recover its costs and attorney's fees from the City. Baxter Meadows has also asked the court to award it money damages from the City. In the spring of 2010, we were advised by the plaintiff’s attorney that the real estate in question was being placed for sale by the developer, and both parties agreed to suspend progress of the lawsuit until a later date. Although the court had established deadlines for certain activity in the case, the parties agreed to vacate those deadlines. In late 2010, the City was advised that the property in question had been transferred to a creditor of the developer. The City recently confirmed that much, if not all, of the land in question is now owned by First Interstate Bank of Bozeman. On or about November 10, 2011, the court set a status conference in this case for January 10, 2012. First Interstate Bank applied to the City of Bozeman for final plat approval of a portion of the property which is the subject of this litigation. The final plan was approved on consent by the Commission on December 12, 2011. The City intends to pursue whether the change in ownership of the property will provide a basis to have this lawsuit dismissed by the court. The likelihood of an unfavorable outcome in this case is low. However, in the event the plaintiff prevails in this case, the potential loss for the City of Bozeman would almost certainly be in excess of $10,000, and could exceed $300,000. 82 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 20. CONTINGENCIES (Continued) Baxter Meadows Development v. City of Bozeman (Baxter II) The Baxter Meadows project was most recently being developed in phases, with several phases having reached final plat approval. Three phases of the project had reached preliminary plat approval. Those three phases are the subject of this litigation, and the preliminary plat approval was granted on February 2, 2004. That approval was for the maximum time allowed by law, three years. In early 2007, Baxter Meadows sought a one-year extension of that preliminary plat approval, and the City granted that extension on February 2, 2007. Baxter then sought a second one-year extension, which the City granted, with conditions, in January of2008. Baxter objected to some of the conditions imposed by the City, and filed this lawsuit. As with the case mentioned above, Baxter is asking for a writ of mandamus, requiring the City to grant further extension of the preliminary plat approval. As with the first Baxter Meadows case, the parties have agreed to vacate scheduling deadlines set by the court, and suspend this litigation for an indefinite period. Out comments above, with respect to new ownership of the property, possible final plat approval of one phase of the project, and a possible motion to dismiss the case, all apply to this litigation. Additionally, as mentioned above, a status conference for this case will be held on January 10, 2012. If we are unable to have the case dismissed, and the case is reactivated, we will vigorously defend the City’s position. We feel there is ample evidence that the City acted fairly and appropriately, and in conformance with state and local law. We do not see a strong need for an out-of-court settlement of this case. We believe that the likelihood of an unfavorable outcome in this case is low. However, if the plaintiff were to prevail at trial, damages for lost property value, delay in developing the subdivision, and attorney's fees, could be substantial. Such an award of damages would certainly exceed $10,000, and could exceed $500,000. Red Mountain Retail Group, Inc., and Bozeman Shopping Center, LLC v. City of Bozeman The plaintiffs in this case own and operate what is commonly known as the Hastings Shopping Center on Main Street in Bozeman. This lawsuit arose from a dispute over an improvements agreement entered into between Bozeman Shopping Center and the City of Bozeman, in October of 2005. In May of this year, the plaintiffs filed a complaint in the Gallatin County District Court, claiming that in August of 2008, the City had wrongly issued a notice of violation against Bozeman Shopping Center, and that the notice of violation interfered with the plaintiffs' ability to operate the shopping center. The complaint also claims that the plaintiffs had a prospective tenant for one portion of the shopping center, and that city staff had told the prospective tenant that it could not make improvements to or occupy the shopping center until the plaintiffs made certain improvements to the exterior of the structure. The complaint requests that the court declare the City's actions to be unlawful and void, to award money damages to the plaintiffs and to further award the plaintiffs their attorney's fees and costs. In July, the City filed an answer to the complaint, and in early November, the court issued a scheduling order setting deadlines in the case. The parties are presently in the process of obtaining information about each other's claims and defenses. The City of Bozeman will defend this case on its merits. Over the last four years, the City has attempted to work with the developer to meet the needs of both parties. We believe that the City has acted fairly and reasonably, and in full compliance with state law and the City's Unified Development Ordinance. In 2011, this case proceeded through the discovery process, depositions were taken, and the parties agreed to non-binding mediation. Mediation was held on August 9, 2011, and the parties reached agreement for settlement of the case. The settlement required that the City withdraw a notice of violation that had been recorded against the real estate in question, and the developer agreed to dismiss this litigation and comply with all city ordinances and regulations for further improvements or redevelopment. Each party paid its own costs and attorney’s fees, and no additional consideration was exchanged. On September 29, 2011, the litigation was dismissed with prejudice. 83 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 20. CONTINGENCIES (Continued) Cascade Development, Inc. v. City of Bozeman This litigation arises from a dispute between the developer, Cascade Development, Inc. (“Cascade”) and the City of Bozeman over a proposed real estate development in Bozeman. The dispute involves roads in a neighboring subdivision, as well as conditions imposed by the City involving affordable housing requirements and other matters. Cascade filed its complaint against the City on December 7, 2007. A summons was issued at that time, but Cascade did not attempt service upon the City until December of 2010. On December 2, the summons and complaint were served upon an Assistant City Attorney. The City objected to the manner of service by Cascade, since an Assistant City Attorney is not a person specifically authorized to accept service on behalf of a municipality. Furthermore, the City asked that the case be dismissed, since Montana law requires that a summons be properly served within three years after it is issued. On July 29, 2011, the District Court issued an order granting the City’s motions and dismissing the case. Thereafter, Cascade filed a notice of appeal with the Montana Supreme Court, and the matter is now proceeding through the appellate process. The City of Bozeman will defend this case vigorously. The City believes that the District Court’s decision to dismiss the case is based upon solid legal reasoning, and that there is a very good chance that the Montana Supreme Court will affirm the District Court’s decision. The City does not intend to seek an out-of-court settlement. We do not believe that an unfavorable outcome is likely in this case. If the plaintiff succeeds in having the District Court’s decision reversed, and ultimately prevails on its claims, the potential loss would certainly exceed $10,000 and could exceed $100,000. The City is involved with numerous other lawsuits which arise out of the normal course of operations by the City. Management of the City intends to vigorously defend each claim and believes no material losses will be incurred on such claims. The following is list of pending litigation where an unfavorable outcome is possible but not likely: Possible Adverse Verdict Josephs v. City of Bozeman $100,000 - $200,000 Verdi v. City of Bozeman $150,000 - $200,000 Montana Fair Housing v. City of Bozeman $ 50,000 - $100,000 Hanson v. City of Bozeman $ 0 - $ 5,000 Semerau v. City of Bozeman $ 60,000 - $ 90,000 NOTE 21. SOLID WASTE LANDFILL CLOSURE AND POST-CLOSURE CARE COSTS State and Federal laws and regulations require the City to place a final cover on its landfill site when it stops accepting waste and to perform certain maintenance and monitoring functions at the site for 30 years after final closure. The $1,660,877 reported as landfill closure and post-closure care liability at June 30, 2011, represents the cumulative amount reported to date based on the use of 95% of the total capacity of the landfill. This amount represents a $92,891 decrease from the $1,753,768 liability reported in 2010 due actual closure and post-closure costs incurred during the year. The City stopped accepting waste effective June 30, 2008. The final capping of the cells is still pending. In 2011, the City budgeted for, and funded, landfill closure and post-closure care liability through normal operations and is in compliance with EPA requirements. 84 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 22. SEGMENT INFORMATION FOR WATER ENTERPRISE FUND The City’s Water Fund accounts for the City’s water utility operations and collection and administration of water impact fees. Segment information for the utility operations, excluding impact fees, is as follows: Condensed Statement of Net AssetsCurrent assets 11,663,341$ Capital assets 87,728,056 Other assets - Total assets 99,391,397$ Current liabilities 695,440$ Noncurrent liabilities - Total liabilities 695,440 Invested in capital assets, net of related debt 87,728,056 Restricted for debt service - Unrestricted 10,967,901 Total net assets 98,695,957 Total liabilities and net assets 99,391,397$ 85 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 22. SEGMENT INFORMATION FOR ENTERPRISE FUND (Continued) Condensed Statement of Revenues, Expenses and Changes in Net AssetsOPERATING REVENUES AND EXPENSESOperating revenues 6,013,211$ Operating expensesDepreciation 7,721,446 Other operating 3,830,779 Total operating expenses 11,552,225 Operating loss(5,539,014) NONOPERATING REVENUES (EXPENSES)Interest income 146,133 Interest expense (1,070) Grant income 1,466 Gain on sale of assets 543 Contributions of infrastructure 3,019,860 Other income 92,743 Transfers (350,215) Total nonoperating revenues 2,909,460 Change in net assets (2,629,554) NET ASSETS, beginning of year101,325,511 NET ASSETS, end of year98,695,957$ Condensed Statement of Cash FlowsNet cash provided by operating activities 2,404,139$ Net cash flows from capital and related financing activities (30,062) Net cash flows from noncapital and financing activities (256,006) Net cash flows from investing activities (3,173,172) Net increase (decrease) in cash flows (1,055,101) Beginning cash and equivalents 12,235,758 Ending cash and equivalents 11,180,657$ 86 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 23. IMPACT FEES On January 22, 1996, the City Commission adopted fire, water, waste water and street impact fees in Ordinance number 1414. The impact fees were first effective on March 23, 1996. Impact fees were set at a percentage of the cost of the impact, as follows: Original, as of March 23, 1996Change as of May 10, 1998Change as of January 15, 1999Change as of July 15, 1999Fire impact fee 90% 90% 90% 90%Water impact fee 35% 50% 90% 90%Waste water impact fee 35% 50% 90% 90%Street impact fee 10% 10% 75% 90% An applicant may obtain an Impact Fee Credit by dedication of non-site-related land or construction of non-site-related improvements. Credits must be made before the beginning of improvement construction, must comply with the City’s Capital Improvements Program, and must be approved by the City Commission. Credits may be used only for like-type impact fees. The full provisions for impact fee credits are contained in Chapter 3.24 of the Bozeman Municipal Code. For proprietary type funds, the City records a liability for the impact fee credit and capitalizes the underlying asset. For governmental type funds the credits are only disclosed in the footnotes. For government-wide financial reporting the outstanding credits are reported as unearned revenue. The Water Impact Fee Fund, Street Impact Fee Fund, and Wastewater Impact Fee Fund have recorded impact fee credits amounting to $33,232, $305,200, and $208,454, respectively, as of June 30, 2011. The Fire Impact Fee Fund does not have any outstanding credits. The following impact fee revenues were collected and expensed/expended during fiscal year 2011: Beginning balances Impact fees Other incomeExpenses, expenditures and transfers Ending balancesFire 298,089$ 190,293$ 4,432$ (346,726)$ 146,088$ Water 8,734,160 713,388 98,554 (85,120) 9,460,982 Waste water 287,471 636,878 31,844 (25,234) 930,959 Streets 7,258,195 1,208,135 94,886 (657,958) 7,903,258 Total 16,577,915$ 2,748,694$ 229,716$ (1,115,038)$ 18,441,287$ 87 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 24. POLLUTION REMEDIATION OBLIGATIONS Jewel v. City of Bozeman / State of Montana v. City of Bozeman This action was filed in the United States District Court for the District of Montana. The multi-count complaint reduced itself to a cost recovery action under the Federal Superfund (CERCLA) and State Superfund (CECRA). On July 8, 1999, the City, Jewel Food Stores, Inc. and the other parties reached a final settlement agreement in this action. The settlement, in part, required Jewel Food Stores, Inc. to pay the City of Bozeman $1,200,000, the City and Jewel to extend alternative water supply to businesses and residents in the North 19th Avenue area of the City; and Jewel and the City to share specified remediation costs on an equal basis (50% each) up to a cumulative amount of $4,000,000, and for eligible costs in excess of that amount, to be shared 70% by Jewel and 30% by the City. The City is reimbursed by insurers for 23% of the City’s expenditures for these purposes. The Montana Department of Environmental Quality (MDEQ) issued the Record of Decision (ROD) for the Bozeman Solvent Site in August 2011. The City is now in the process of approving and executing the Administrative Order of Consent (AOC) along with CVS Pharmacy and MDEQ. The AOC serves as the legal mechanism for the implementation of the selected remedies identified in the ROD. The City Commission approved the AOC on December 5, 2011. Following the execution of the AOC by all parties, final remediation may begin at the Bozeman Solvent Site. Though remediation may be completed relatively quickly, monitoring of the site will continue for a period of up to 30 years. The present worth value of the selected remedy as estimated in the ROD is $5,876,259. Using the expected cash flow technique, the liability is recorded at current value in the Waste Water Fund at $2,343,044 (City’s share is 40%). CMC Asbestos Bozeman CECRA Facility In 2001, the City purchased the former CMC Heartland Partners property, the main portion of the CMC Asbestos Bozeman CECRA Facility (“Facility”), in order to build a new public library. The City submitted a Voluntary Cleanup Plan (“VCP”) pursuant to Montana statutes, to the Department of Environmental Quality (“DEQ”) in order to remediate contamination within the Facility. The DEQ approved the City’s VCP on December 20, 2002. The City implemented the VCP and its addendums and submitted a Voluntary Cleanup Completion Report for the CMC East Main Depot Site in August 2004. In 2003, at the commencement of the remedial activity, the City of Bozeman petitioned the DEQ for an allocation of liability at the facility. Montana statutes provide a voluntary process (CALA) that allows potentially liable parties to petition for an allocation of liability as an alternative to the strict, joint and several liability scheme included in state law. CALA involves negotiations designed to allocate liability among persons involved at the facility, including bankrupt or defunct persons, referred to as the “orphan shares.” CALA also provides the funding for the orphan share of the cost of remediation. An agreement was reached that allocates 79% liability to the orphan shares. The allocation agreement requires the City to complete remedial actions at the facility. The City retained the services of an environmental engineering firm, Tetra Tech, to prepare a Supplemental Investigation (SI) Work Plan. The plan was approved by the DEQ and implemented from December 2007 through June 2008. Tetra Tech’s Final SI Report was submitted to DEQ on June 20, 2008. This report describes the contaminated soils remaining at the Facility and provides recommendations for corrective actions. The recommendation for corrective action involves a DEQ-approved Addendum to the City’s original Voluntary Cleanup Plan. 88 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 24. POLLUTION REMEDIATION OBLIGATIONS (Continued) CMC Asbestos Bozeman CECRA Facility (Continued) At the City’s request, the DEQ made a hardship determination for the City on August 8, 2007, pursuant to state statute. This hardship determination means that the City is eligible to have all of its ongoing actual documented remedial action costs reimbursed, subject to eligibility, as soon as the City expends the money. In the first phase of remediation the City spent approximately $2.4 million. State statute limits reimbursement from the orphan share fund to “eligible” remedial action costs incurred after the date of the CALA petition. DEQ determined that $2.1 million of the City’s costs were eligible. The 79% proportional share that the City may be reimbursed is approximately $1,663,718. The statute also provides that costs may not be reimbursed until all remedial actions are complete. However, DEQ agreed to reimburse a portion of the past cleanup costs in recognition of the City’s commitment and good faith efforts to keep moving forward with completion of the cleanup. Last year the DEQ paid the City $831,859. The City submitted its construction completion report/petition for closure in September 2009. DEQ is reviewing the report and will provide comments The DEQ is still reviewing various invoices and the documentation of certain remaining costs. The remaining reimbursement amount owed by DEQ to the City can be estimated by determining the appropriate allocation of that total amount to the orphan share. By the end of the cleanup project, the City expects to receive 79% of the estimated total eligible costs of $4,449,092, which amounts to $3,514,782. To date, all payments from DEQ have been received, leaving no estimated remaining reimbursement amount. As of June 30, 2011, the City has accrued $16,874 on the entity-wide financials for governmental activities, which is the potential remediation liability net of projected recoveries. 89 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 25. MAJOR PURPOSE PRESENTATION The table presented below displays the City’s fund balances by major purpose as displayed on page 34 of the governmental funds balance sheet. Statement 54 requires the disclosure of the purpose of each Major Fund. Street andFire ImpactNonmajor TotalGeneralFees SID SinkingCapital Governmental GovernmentalFund Special Revenue Debt Service Projects FundsFundsNonspendablePrepaids-$ -$ -$ -$ 446,250$ 446,250$ Cemetery perpetual care- - - - 553,214 553,214 Total nonspendable- - - - 999,464 999,464 RestrictedGeneral government- - - - 392,437 392,437 Public safety- - - - 378,908 378,908 Public service- 8,049,347 - - 4,471,026 12,520,373 Public welfare- - - - 989,386 989,386 Capital projects- - - 243,772 - 243,772 Debt service- - 2,196,830 - 3,240,868 5,437,698 Total restricted- 8,049,347 2,196,830 243,772 9,472,625 19,962,574 CommittedPublic safety- - - - 777,390 777,390 Public service- - - - 22,136 22,136 Public welfare- - - - 2,478,896 2,478,896 Total committed- - - - 3,278,422 3,278,422 AssignedPublic safety638,000 - - - - 638,000 Culture and recreation382,000 - - - - 382,000 Capital projects1,147,310 - - 58,419 - 1,205,729 Budget ordinance minimum 16.67% 3,824,078 - - - - 3,824,078 Total assigned5,991,388 - - 58,419 - 6,049,807 Unassigned905,862 - - - - 905,862 Total fund balances6,897,250$ 8,049,347$ 2,196,830$ 302,191$ 13,750,511$ 31,196,129$ 90 CITY OF BOZEMAN, MONTANA NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2011 NOTE 26. SUBSEQUENT EVENTS Management has evaluated subsequent events through December 15, 2011, the date on which the financial statements were available to be issued. C. REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT DISCUSSION AND ANALYSIS 91Net OPEB Obligation757,020$ 1,472,055$ 1,608,338$ The funded status of the plan was as follows:2,203,253$ - 2,203,253$ 0.0%Not availableNot availableActuarial Valuation DateActuarial Value of Assets (a)Actuarial Accrued Liability (AAL) (b)Unfunded AAL (UAAL) (b-a)Funded Ratio (a/b)Covered Payroll(c) UAAL as a Percentage of Covered Payroll ((b - a) / c)7/1/2008 -$ 4,899,179$ 4,899,179$ 0%Not available Not available7/1/2010 -$ 2,203,253$ 2,203,253$ 0%12,788,780$ 17.2%SCHEDULE OF FUNDING PROGRESSRetiree Medical Plan(c) Covered payrollYear Ended6/30/2009Annual OPEB Cost808,096$ Percentage of OPEB Cost 6.32%FUNDED STATUSUnfunded actuarial accrued liability (funding excess) as a percentage of covered payroll ({(a) - (b)} / (c))(a) Actuarial accrued liability (AAL)(b) Actuarial value of plan assets (UAAL)Unfunded actuarial accrued liability (funding excess) [(a) - (b)]Funded ratio (b) / (a)CITY OF BOZEMAN, MONTANASCHEDULE OF FUNDING PROGRESS - OTHER POST-EMPLOYMENT HEALTHCARE BENEFITSFor the Year Ended June 30, 2011ANNUAL OPEB COSTRetiree Health PlanThe annual OPEB costs, the percentage of OPEB cost contributed to the plan, and the net OPEB obligation for June 30, 2011 for the Retiree Health Plan are as follows: 6/30/2011 236,826$ 42.45%6/30/2010 794,598$ 10.01% 92Variance withActual Final BudgetOriginal Final Amounts Positive (Negative)Budgetary fund balance, July 1 5,113,230$ 5,113,230$ 5,113,230$ -$ Resources (inflows):Taxes 9,873,973 11,248,092 11,764,146 516,054 Special assessments - - 38 38 Licenses and permits 267,300 267,300 300,571 33,271 Intergovernmental 5,220,946 5,621,037 6,046,956 425,919 Charges for services 2,284,040 2,284,040 2,382,714 98,674 Fines and forfeitures 1,238,500 1,238,500 1,305,490 66,990 Sale of assets - - 4,167 4,167 Interest on investments 70,000 70,000 33,399 (36,601) Transfers from other funds 4,009,399 2,209,399 2,256,965 47,566 Other 28,500 28,500 17,757 (10,743) Amounts available for appropriation 28,105,888 28,080,098 29,225,433 1,145,335 Charges to appropriations (outflows):CurrentGeneral government 5,490,414 5,503,620 5,169,311 334,309 Public safety 11,634,092 11,775,242 11,022,971 752,271 Public service 448,624 448,624 415,396 33,228 Public welfare 4,259,650 4,153,650 4,007,511 146,139 Capital outlay 799,800 810,280 536,457 273,823 Debt service 150,000 358,000 357,581 419 Transfers to other funds 562,371 819,371 818,956 415 Total charges to appropriations 23,344,951 23,868,787 22,328,183 1,540,604 Budgetary fund balance, June 30 4,760,937$ 4,211,311$ 6,897,250$ 2,685,939$ Budgeted AmountsCITY OF BOZEMAN, MONTANASCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUALGENERAL FUNDFor the Year Ended June 30, 2011 93Variance withActual Amounts Final BudgetOriginal Final Budgetary Basis Positive (Negative)Budgetary fund balance, July 1 7,556,287$ 7,556,287$ 7,556,287$ -$ Resources (inflows):Charges for services 750,000 750,000 1,398,428 648,428 Interest on investments 100,000 100,000 99,316 (684) Other- - - - Proceeds from long-term debt - - - - Amounts available for appropriation 8,406,287 8,406,287 9,054,031 647,744 Charges to appropriations (outflows):CurrentPublic safety 17,500 - - - Public service - - - - Capital outlay 350,000 658,000 657,958 42 Transfers to other funds150,000 347,500 346,726 774 Total charges to appropriations 517,500 1,005,500 1,004,684 816 Budgetary fund balance, June 30 7,888,787$ 7,400,787$ 8,049,347$ 648,560$ Budgeted AmountsCITY OF BOZEMAN, MONTANASCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES- BUDGET TO ACTUALSTREET AND FIRE IMPACT FEE SPECIAL REVENUE FUNDYear Ended June 30, 2011 94General ImpactFund FeesSources/inflows of resourcesActual amounts (budgetary basis) "available for appropriation" from the budgetarycomparison schedule29,225,433$ 9,054,031$ Differences - budget to GAAP:The fund balance at the beginning of the year is a budgetary resource but isnot a current-year revenue for financial reporting purposes. (5,113,230) (7,556,287) Transfers from other funds are inflows of budgetary resources but are notrevenues for financial reporting purposes. (2,256,965) - The proceeds from the sale of assets are budgetary resources but are regardedas a special item, rather than revenue, for financial reporting purposes (4,167) - Total revenues as reported on the statement of revenues, expenditures, andchanges in fund balances - governmental funds 21,851,071$ 1,497,744$ Uses/outflows of resourcesActual amounts (budgetary basis) "total charges to appropriations" from thebudgetary comparison schedule 22,328,183$ 1,004,684$ Differences - budget to GAAP:Transfers to other funds are outflows of budgetary resources but are notexpenditures for financial reporting purposes. (818,956) (346,726) Total expenditures as reported on the statement of revenues, expenditures, andchanges in fund balances - governmental funds 21,509,227$ 657,958$ CITY OF BOZEMAN, MONTANANOTES TO REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT DISCUSSION AND ANALYSISYear Ended June 30, 2011 D. SUPPLEMENTAL INFORMATION COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Departmental Special Revenues – Accounts for monies received and expended for projects relating to various City departments. City Planning Board – Accounts for monies received from various sources including property taxes, fees, and County revenues. Expenditures are for short-term and long-term planning of City and adjacent County zones. Section 76-1-102 MCA provides that the purpose of City planning is to encourage local governments to improve the present health, safety, convenience, and welfare of the citizens. Insurance – Accounts for property tax revenues received and transferred to the general fund for premiums and deductibles on group insurance coverage for City employees and City’s property and liability insurance other than for proprietary funds. (The accounting for self insurance activities is captured in the Internal Service Funds.) Gas Tax Apportionment – Accounts for revenues from State gasoline taxes apportioned from the State of Montana Department of Highways. Drug Forfeitures – Accounts for monies received from fines and forfeitures of drug-related criminal prosecution, to be expended on drug law enforcement and education. City-County Drug Forfeitures – Accounts for monies received from fines and forfeitures of drug-related criminal prosecution, from an inter-local agreement with Gallatin County, to be expended on drug law enforcement and education. Beautification of Bozeman– Accounts for monies for special beautification projects throughout Bozeman. Street and Tree Maintenance – Accounts for special assessment revenues levied, received, and expended for street and tree maintenance provided to specific property owners. Law and Justice Center – Accounts for the receipt and expenditure of monies earmarked by the City Commission for the City’s share of the Law and Justice Center renovation. Special Projects – Accounts for the receipt and expenditure of Valley Unit Special Improvement District funds which are in excess of the amounts required to retire the outstanding SID indebtedness. Community Transportation – Accounts for federal funding for highways, mass transit, and alternative transportation programs as defined by the Intermodal Surface Transportation Efficiency Act (ISTEA). Money is distributed on a per-capita basis. Building Inspection – This fund was established to account for all activity of enforcing the building regulations adopted by the City. It includes all the money and staff associated with executing any aspect of the code enforcement program. Section 50-60-101 MCA established the code enforcement program requirement. Highway Safety Improvement Projects – Accounts for grants, other revenues, and expenditure related to the U. S. Department of Transportation funded program to reduce number and severity of traffic accidents. Economic Development Revolving Loan Fund – Accounts for revenues received and expended relative to loans made in accordance with the Community Development Block Grant Program, for economic development purposes. Housing Revolving Loan Fund – Accounts for revenues received and expended relative to loans made in accordance with the Community Development Block Grant Program, for housing development purposes. Community Housing – Accounts for money set aside by the City Commission and related expenditure for the establishment of safe, decent and affordable housing for low and moderate-income citizens. Downtown Improvement District – In November 1995, the City adopted an Urban Renewal Plan for the downtown area. This fund accounts for the revenue and expenditures associated with the district. Street Lighting – Accounts for special assessment revenues levied, received and expended for street and public highway lighting provided to specific property owners. Park Land – Accounts for monies donated for the purpose of acquiring and developing City Parks. Municipal Court Restitution – Accounts for checks that were canceled on the restitution checking account, per MCA 46-18-250. DEBT SERVICE FUNDS Special Improvement District (SID) Revolving – Accounts for property tax revenues received and expended for the payment of special improvement district bond principal and interest. General Obligation Bonds Debt Service Fund – Accounts for the debt service payments associated with the Library and Transportation general obligation bonds. Tax Increment Financing Bonds Debt Service Fund – Accounts for the debt service payments associated with the Tax Increment Urban Renewal Revenue Bonds issued as partial funding for the construction of a Downtown Intermodal Parking Facility. PERMANENT FUNDS Perpetual Cemetery Care- Accounts for 15% maintenance fee received from the sale of City cemetery plots which is to be used for perpetual care. The interest income from the trust is transferred to the general fund for use in maintaining the City’s cemetery. 95CITY OF BOZEMAN, MONTANACOMBINING BALANCE SHEETNONMAJOR GOVERNMENTAL FUNDSJune 30, 2011Special Revenue FundsDepartmental CitySpecial Planning Health-Medical Gas TaxRevenues Board Insurance ApportionmentASSETSCash and cash equivalents 3,786,930$ 126,445$ 159,914$ 582,936$ ReceivablesProperty taxes 111,007 27,307 345,769 - Accrued interest - - - - Customers, net 4,881 - - - Special assessments 12,490 - - - Other governments 302,177 - - - Others - - - - Due from other City funds - - - - Prepaid expenditures - - - - Notes receivable - - - - Restricted cash and cash equivalents 25,000 106,476 - - Total assets 4,242,485 260,228 505,683 582,936 LIABILITIES AND FUND BALANCESLiabilities:Accounts payable 221,807 2,081 - 23,120 Escheat property payable - - - - Accrued employee benefits payable - 9,116 - - Deferred revenue 145,285 9,427 113,246 - Due to other City funds 509,676 - - - Total liabilities 876,768 20,624 113,246 23,120 Fund balances:Nonspendable - - - - Restricted 830,183 239,604 392,437 559,816 Committed 2,535,534 - - - Assigned - - - - Unassigned - - - - Total fund balances 3,365,717 239,604 392,437 559,816 Total liabilities and fund balances 4,242,485$ 260,228$ 505,683$ 582,936$ (continued) 96CITY OF BOZEMAN, MONTANACOMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS (CONTINUED)June 30, 2011Special Revenue FundsCity-County Beauti- Street and Law andDrug Drug fication Tree JusticeForfeitures Forfeitures of Bozeman Maintenance CenterASSETSCash and cash equivalents 2,949$ 209,003$ 1,031$ 907,974$ -$ ReceivablesProperty taxes - - - - - Accrued interest - - - - - Customers, net 1,400 - - 1,872 - Special assessments - - - 315,249 - Other governments - - - - - Others - - - - - Due from other City funds - - - - - Prepaid expenditures - - - - 446,250 Notes receivable - - - - - Restricted cash and cash equivalents - - - 70 - Total assets 4,349 209,003 1,031 1,225,165 446,250 LIABILITIES AND FUND BALANCESLiabilities:Accounts payable 1,533 - - 158,615 - Escheat property payable - - - - - Accrued employee benefits payable 2,816 - - 18,106 - Deferred revenue - - - 239,515 - Due to other City funds - - - - - Total liabilities 4,349 - - 416,236 - Fund balances:Nonspendable - - - - 446,250 Restricted - - 1,031 808,929 - Committed - 209,003 - - - Assigned - - - - - Unassigned - - - - - Total fund balances - 209,003 1,031 808,929 446,250 Total liabilities and fund balances 4,349$ 209,003$ 1,031$ 1,225,165$ 446,250$ (continued) 97CITY OF BOZEMAN, MONTANACOMBINING BALANCE SHEETNONMAJOR GOVERNMENTAL FUNDS (CONTINUED)June 30, 2011Special Revenue FundsEconomic HousingSpecial Community Building Highway Development Revolving Projects Transportation Inspection Safety Revolving Loan Loan FundASSETSCash and cash equivalents 202,830$ 51,918$ 827,163$ 22,136$ -$ 61,912$ ReceivablesProperty taxes - - - - - - Accrued interest - - - - Customers, net - - - - - 109 Special assessments - - - - - - Other governments - 54,692 - - - - Others - - - - 475,035 - Due from other City funds - - - - - - Prepaid expenditures - - - - - - Notes receivable - - - - 442,678 30,985 Restricted cash and cash equivalents - - - - - - Total assets 202,830 106,610 827,163 22,136 917,713 93,006 LIABILITIES AND FUND BALANCESLiabilities:Accounts payable - 51,918 5,322 - - 73 Escheat property payable - - - - - - Accrued employee benefits payable - - 6,859 - - - Deferred revenue - - - - 442,678 30,985 Due to other City funds - - - - - - Total liabilities - 51,918 12,181 - 442,678 31,058 Fund balances:Nonspendable - - - - - - Restricted 202,830 54,692 814,982 - 475,035 61,948 Committed - - - 22,136 - - Assigned - - - - - - Unassigned - - - - - - Total fund balances 202,830 54,692 814,982 22,136 475,035 61,948 Total liabilities and fund balances 202,830$ 106,610$ 827,163$ 22,136$ 917,713$ 93,006$ (continued) 98CITY OF BOZEMAN, MONTANACOMBINING BALANCE SHEETNONMAJOR GOVERNMENTAL FUNDS (CONTINUED)June 30, 2011Special Revenue FundsDowntownCommunity Improvement Street Park Municipal CourtHousing District Lighting Land RestitutionASSETSCash and cash equivalents 358,927$ 1,214,416$ 550,167$ 192,822$ 39,426$ ReceivablesProperty taxes - 11,386 - - - Accrued interest - 3,034 - Customers, net - - - - - Special assessments - 1,279 90,465 - - Other governments - - - - - Others - - - - - Due from other City funds - - - - - Prepaid expenditures - - - - - Notes receivable 77,499 - - - - Restricted cash and cash equivalents - - - - - Total assets 436,426 1,230,115 640,632 192,822 39,426 LIABILITIES AND FUND EQUITYLiabilities:Accounts payable 40,000 19,889 26,336 - 1,000 Escheat property payable - - - - 38,329 Accrued employee benefits payable - - - - - Deferred revenue 77,499 425 - - - Due to other City funds - - 33,924 - - Total liabilities117,499 20,314 60,260 - 39,329 Fund balances:Nonspendable - - - - - Restricted - 1,209,801 580,372 - 97 Committed 318,927 - - 192,822 - Assigned - - - - - Unassigned - - - - - Total fund balances 318,927 1,209,801 580,372 192,822 97 Total liabilities and fund balances 436,426$ 1,230,115$ 640,632$ 192,822$ 39,426$ (continued) 99SpecialRevenueFundsTotalASSETSCash and cash equivalents 9,298,899$ ReceivablesProperty taxes 495,469 Accrued interest 3,034 Customers, net 8,262 Special assessments 419,483 Other governments 356,869 Others 475,035 Due from other City funds - Prepaid expenditures 446,250 Notes receivable 551,162 Restricted cash and cash equivalents 131,546 Total assets 12,186,009 LIABILITIES AND FUND BALANCESLiabilities:Accounts payable 551,694 Escheat property payable 38,329 Accrued employee benefits payable 36,897 Deferred revenue 1,059,060 Due to other City funds 543,600 Total liabilities 2,229,580 Fund balances:Nonspendable 446,250 Restricted 6,231,757 Committed 3,278,422 Assigned - Unassigned - Total fund balances 9,956,429 Total liabilities and fund balances 12,186,009$ (continued)CITY OF BOZEMAN, MONTANACOMBINING BALANCE SHEETNONMAJOR GOVERNMENTAL FUNDS (CONTINUED)June 30, 2011 100PermanentDebt Service Fund Fund TotalNonmajorSID G.O. TIF Perpetual GovernmentalRevolving Bonds Bonds Total Cemetery Care FundsASSETSCash and cash equivalents 3,160,685$ -$ 685$ 3,161,370$ -$ 12,460,269$ ReceivablesProperty taxes - 142,399 - 142,399 - 637,868 Accrued interest 6,256 6,256 - 9,290 Customers, net - - - 450 8,712 Special assessments - - - - - 419,483 Other governments - - - - - 356,869 Others - - - - - 475,035 Due from other City funds - - - - - - Prepaid expenditures - - - - - 446,250 Notes receivable - - - - - 551,162 Restricted cash and cash equivalents - - - - 552,764 684,310 Total assets 3,166,941 142,399 685 3,310,025 553,214 16,049,248 LIABILITIES AND FUND BALANCESLiabilities:Accounts payable - - - - - 551,694 Escheat property payable - - 38,329 Accrued employee benefits payable - - - - - 36,897 Deferred revenue - 46,469 - 46,469 - 1,105,529 Due to other City funds - 22,688 - 22,688 - 566,288 Total liabilities - 69,157 - 69,157 - 2,298,737 Fund balances:Nonspendable - - - - 553,214 999,464 Restricted 3,166,941 73,242 685 3,240,868 - 9,472,625 Committed - - - - - 3,278,422 Assigned - - - - - - Unassigned - - - - - - Total fund balances 3,166,941 73,242 685 3,240,868 553,214 13,750,511 Total liabilities and fund balances 3,166,941$ 142,399$ 685$ 3,310,025$ 553,214$ 16,049,248$ June 30, 2011CITY OF BOZEMAN, MONTANACOMBINING BALANCE SHEETNONMAJOR GOVERNMENTAL FUNDS (CONTINUED) 101Departmental CitySpecial Planning Health-Medical Gas TaxRevenues Board Insurance ApportionmentREVENUESTaxes 778,099$ 167,574$ 2,048,170$ -$ Special assessments 201,390 - - - Licenses and permits - - - - Intergovernmental 1,009,211 96,259 - 660,960 Charges for services 26,151 187,120 - - Fines and forfeitures 76,095 - - - Interest on investments 34,120 2,968 - 4,551 Loan repayment - - - - Other 1,152,991 20,217 - - Total revenues 3,278,057 474,138 2,048,170 665,511 EXPENDITURESCurrentGeneral government 79,319 691,141 - - Public safety 151,031 - - - Public service 5,712 - - 229,074 Public welfare 1,347,223 - - - Capital outlay 860,334 - - 409,306 Debt servicePrincipal - - - - Interest and fiscal fees - - - - Total expenditures 2,443,619 691,141 - 638,380 Revenues over (under) expenditures 834,438 (217,003) 2,048,170 27,131 OTHER FINANCING SOURCES (USES)Transfers in 217,768 257,182 - - Transfers out (274,769) - (1,777,346) - Long-term debt issued - - - - Sale of capital assets - - - - Total other financing sources and uses (57,001) 257,182 (1,777,346) - Net change in fund balance 777,437 40,179 270,824 27,131 FUND BALANCES, beginning of year 2,588,280 199,425 121,613 532,685 FUND BALANCES, end of year 3,365,717$ 239,604$ 392,437$ 559,816$ (continued)NONMAJOR GOVERNMENTAL FUNDSYear Ended June 30, 2011Special Revenue FundsCITY OF BOZEMAN, MONTANACOMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES- 102Special Revenue FundsCity-County Beauti- Street and Law andDrug Drug fication Tree JusticeForfeitures Forfeitures of Bozeman Maintenance CenterREVENUESTaxes -$ -$ -$ -$ -$ Special assessments - - - 18,484 - Licenses and permits - - - 5,250 - Intergovernmental 123,349 - - 6,661 - Charges for services - - - 2,624,436 - Fines and forfeitures 45,813 13,985 - - - Interest on investments - 2,403 14 9,394 - Loan repayment - - - - - Other 3,491 - - 5,598 - Total revenues 172,653 16,388 14 2,669,823 - EXPENDITURESCurrentGeneral government - - - - - Public safety 210,141 - - - 19,125 Public service - - - 2,024,185 - Public welfare - - 372 408,795 - Capital outlay - - - 114,956 - Debt servicePrincipal - - - 76,787 - Interest and fiscal fees - - - 15,340 - Total expenditures 210,141 - 372 2,640,063 19,125 Revenues over (under) expenditures (37,488) 16,388 (358) 29,760 (19,125) OTHER FINANCING SOURCES (USES)Transfers in 37,487 - - - - Transfers out - - - - - Long-term debt issued - - - - - Sale of capital assets - - - 6,388 - Total other financing sources and uses 37,487 - - 6,388 - Net change in fund balances (1) 16,388 (358) 36,148 (19,125) FUND BALANCES, beginning of year 1 192,615 1,389 772,781 465,375 FUND BALANCES, end of year -$ 209,003$ 1,031$ 808,929$ 446,250$ (continued)CITY OF BOZEMAN, MONTANACOMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES-NONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011 103Special Revenue FundsEconomic HousingSpecial Community Building Highway Development Revolving Projects Transportation Inspection Safety Revolving Loan Loan FundREVENUESTaxes -$ -$ -$ -$ -$ -$ Special assessments - - - - - - Licenses and permits - - 1,002,557 - - - Intergovernmental 91,365 239,069 8,663 - - - Charges for services - - 1,653 - - - Fines and forfeitures - - - - - - Interest on investments - - 6,739 259 - 787 Loan repayment - - - - 183,360 4,942 Other - 5,000 105 - 323,669 - Total revenues 91,365 244,069 1,019,717 259 507,029 5,729 EXPENDITURESCurrentGeneral government - - - - - - Public safety - - 734,348 - - - Public service - 698 - - - - Public welfare 6,486 - - - 31,994 14,400 Capital outlay 320,056 276,125 13,478 - - - Debt servicePrincipal - - - - - - Interest and fiscal fees - - - - - - Total expenditures 326,542 276,823 747,826 - 31,994 14,400 Revenues over (under) expenditures (235,177) (32,754) 271,891 259 475,035 (8,671) OTHER FINANCING SOURCES (USES)Transfers in - 37,797 - - - - Transfers out - - - - - - Long-term debt issued - - - - - - Sale of capital assets - - - - - - Total other financing sources and uses - 37,797 - - - - Net change in fund balance (235,177) 5,043 271,891 259 475,035 (8,671) FUND BALANCES, beginning of year 438,007 49,649 543,091 21,877 - 70,619 FUND BALANCES, end of year 202,830$ 54,692$ 814,982$ 22,136$ 475,035$ 61,948$ (continued)CITY OF BOZEMAN, MONTANACOMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES-NONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011 104Special Revenue FundsDowntown MunicipalCommunity Improvement Street Park CourtHousing District Lighting Land Restitution TotalsREVENUESTaxes -$ 1,047,037$ -$ -$ -$ 4,040,880$ Special assessments - 114,096 398,215 - - 732,185 Licenses and permits - - - - - 1,007,807 Intergovernmental - 17,310 - - - 2,252,847 Charges for services - - - - - 2,839,360 Fines and forfeitures - - - - - 135,893 Interest on investments 4,495 14,464 5,932 2,258 16 88,400 Loan repayment 5,000 - - - - 193,302 Other - - - - - 1,511,071 Total revenues 9,495 1,192,907 404,147 2,258 16 12,801,745 EXPENDITURESCurrentGeneral government - - - - - 770,460 Public safety - - - - - 1,114,645 Public service - - 316,050 - - 2,575,719 Public welfare 90,000 529,135 - - - 2,428,405 Capital outlay - - - - - 1,994,255 Debt servicePrincipal - - - - - 76,787 Interest and fiscal fees - - - - - 15,340 Total expenditures 90,000 529,135 316,050 - - 8,975,611 Revenues over (under) expenditures (80,505) 663,772 88,097 2,258 16 3,826,134 OTHER FINANCING SOURCES (USES)Transfers in 40,000 - - - - 590,234 Transfers out - (436,188) - - - (2,488,303) Long-term debt issued - - - - - - Sale of capital assets - - - - - 6,388 Total other financing sources and uses 40,000 (436,188) - - - (1,891,681) Net change in fund balance (40,505) 227,584 88,097 2,258 16 1,934,453 FUND BALANCES, beginning of year 359,432 982,217 492,275 190,564 81 8,021,976 FUND BALANCES, end of year 318,927$ 1,209,801$ 580,372$ 192,822$ 97$ 9,956,429$ (continued)CITY OF BOZEMAN, MONTANAYear Ended June 30, 2011NONMAJOR GOVERNMENTAL FUNDS (CONTINUED)COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES- 105Debt Service FundsPermanent FundTotalNonmajorSID G.O. TIF Cemetery Governmental Revolving Bonds Bonds Totals Perpetual Care FundsREVENUESTaxes -$ 829,898$ -$ 829,898$ -$ 4,870,778$ Special assessments - - - - - 732,185 Licenses and permits - - - - - 1,007,807 Intergovernmental - - - - - 2,252,847 Charges for services - - - - 9,005 2,848,365 Fines and forfeitures - - - - - 135,893 Interest on investments 29,823 2,959 1,269 34,051 6,713 129,164 Loan repayment - - - - - 193,302 Other - - - - - 1,511,071 Total revenues 29,823 832,857 1,269 863,949 15,718 13,681,412 EXPENDITURESCurrentGeneral government - - - - - 770,460 Public safety - - - - - 1,114,645 Public service 10,906 - - 10,906 - 2,586,625 Public welfare - - - - - 2,428,405 Capital outlay - - - - - 1,994,255 Debt servicePrincipal - 565,000 160,000 725,000 - 801,787 Interest and fiscal fees - 174,375 263,388 437,763 - 453,103 Total expenditures 10,906 739,375 423,388 1,173,669 - 10,149,280 Revenues over (under) expenditures 18,917 93,482 (422,119) (309,720) 15,718 3,532,132 OTHER FINANCING SOURCES (USES)Transfers in 1,919,827 - 426,188 2,346,015 - 2,936,249 Transfers out - - - - (6,713) (2,495,016) Long-term debt issued - - - - - - Sale of capital assets - - - - - 6,388 Total other financing sources and uses 1,919,827 - 426,188 2,346,015 (6,713) 447,621 Net change in fund balance 1,938,744 93,482 4,069 2,036,295 9,005 3,979,753 FUND BALANCES, beginning of year 1,228,197 (20,240) (3,384) 1,204,573 544,209 9,770,758 FUND BALANCES, end of year 3,166,941$ 73,242$ 685$ 3,240,868$ 553,214$ 13,750,511$ CITY OF BOZEMAN, MONTANACOMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES-NONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011 BUDGET TO ACTUAL SCHEDULES – OTHER MAJOR FUNDS 106 Variance withActual Amounts Final BudgetOriginal Final Budgetary Basis Positive (Negative)Budgetary fund balance, July 1 2,096,424$ 2,096,424$ 2,096,424$ -$ Resources (inflows):Taxes - - - - Special assessments 1,500,000 1,500,000 1,134,049 (365,951) Licenses and permits - - - - Intergovernmental - - - - Charges for services - - - - Fines and forfeitures - - - - Interest on investments - - 16,090 16,090 Transfers from other funds - - 1,548,798 1,548,798 Proceeds from long term debt - - - - Premium on bonds issued - - - - Proceeds from the sale of fixed assets - - - Other - - - - Amounts available for appropriation 3,596,424 3,596,424 4,795,361 1,198,937 Charges to appropriations (outflows):CurrentGeneral government - - - - Public safety - - - - Public service - - - - Public welfare - - - - Capital outlay - - - - Debt service 2,600,000 1,500,000 678,704 821,296 Transfers to other funds - 1,920,000 1,919,827 173 Total charges to appropriations 2,600,000 3,420,000 2,598,531 821,469 Budgetary fund balance, June 30 996,424$ 176,424$ 2,196,830$ 2,020,406$ CITY OF BOZEMAN, MONTANASCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET TO ACTUALOTHER MAJOR FUNDS - SID SINKING FUNDBudgeted AmountsYear Ended June 30, 2011 107Variance withActual Amounts Final BudgetOriginal Final Budgetary Basis Positive (Negative)Budgetary fund balance, July 1 1,793,287$ 1,793,287$ 1,793,287$ -$ Resources (inflows):Taxes - - - - Special assessments - - - - Licenses and permits - - - - Intergovernmental - - - - Charges for services - - - - Fines and forfeitures - - - - Interest on investments - - 22,547 22,547 Transfers from other funds 1,704,000 1,704,000 243,722 (1,460,278) Proceeds from long term debt - - - - Premium on bonds issued - - - - Proceeds from the sale of fixed assets - - - - Other - - 27,962 27,962 Amounts available for appropriation 3,497,287 3,497,287 2,087,518 (1,409,769) Charges to appropriations (outflows):CurrentGeneral government - - - - Public safety - - - - Public service - - - - Public welfare - - - - Capital outlay - 111,500 110,347 1,153 Bond issuance costs - - - - Transfers to other funds - 1,681,000 1,674,980 6,020 Total charges to appropriations - 1,792,500 1,785,327 7,173 Budgetary fund balance, June 30 3,497,287$ 1,704,787$ 302,191$ (1,402,596)$ CITY OF BOZEMAN, MONTANASCHEDULE OF REVENUES, REXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET TO ACTUALOTHER MAJOR FUNDS - CAPITAL PROJECTS FUNDYear Ended June 30, 2011Budgeted Amounts 108SID CapitalSinking ProjectsSources/inflows of resourcesActual amounts (budgetary basis) "available for appropriation" from the budgetarycomparison schedule 4,795,361$ 2,087,518$ Differences - budget to GAAP:The fund balance at the beginning of the year is a budgetary resource but isnot a current-year revenue for financial reporting purposes. (2,096,424) (1,793,287) Proceeds of long term debt are inflows for budgetary purposes, but are notrevenues for financial reporting purposes. - - Proceeds from the sale of fixed assets are a budgetary resource but are not a current-year revenue for financial reporting purposes. - - Transfers from other funds are inflows of budgetary purposes, but are notrevenues for financial reporting purposes.(1,548,798) (243,722) Total revenues as reported on the statement of revenues, expenditures, andchanges in fund balances - Other nonmajor governmental funds 1,150,139$ 50,509$ Uses/outflows of resourcesActual amounts (budgetary basis) "total charges to appropriations" from thebudgetary comparison schedule 2,598,531$ 1,785,327$ Differences - budget to GAAP:Bond issuance costs are outflows for budgetary purposes, but are notexpenditures for financial reporting purposes. - - Transfers to other funds are outflows of budgetary purposes, but are notexpenditures for financial reporting purposes. (1,919,827) (1,674,980) Total expenditures as reported on the statement of revenues, expenditures, andchanges in fund balances - Other nonmajor governmental funds 678,704$ 110,347$ CITY OF BOZEMAN, MONTANANOTE TO BUDGET TO ACTUAL STATEMENT - OTHER MAJOR FUNDSYear Ended June 30, 2011 BUDGET TO ACTUAL SCHEDULES – NONMAJOR FUNDS 109CITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET (GAAP BASIS) AND ACTUALYear Ended June 30, 2011Special Revenue FundsVariance VariancePositive PositiveBudget Actual (Negative) Budget Actual (Negative)REVENUESTaxes 773,315$ 778,099$ 4,784$ 161,564$ 167,574$ 6,010$ Special assessments - 201,390 (201,390) - - - Licenses and permits - - - - - - Intergovernmental 157,500 1,009,211 851,711 76,500 96,259 19,759 Charges for services 25,000 26,151 1,151 125,960 187,120 61,160 Fines and forfeitures 70,000 76,095 6,095 - - - Interest on investments 33,700 34,120 420 - 2,968 2,968 Loan repayment - - - - - - Other 14,500 1,152,991 1,138,491 33,000 20,217 (12,783) Total revenues 1,074,015 3,278,057 2,204,042 397,024 474,138 77,114 EXPENDITURES - BUDGETUNIT 3,203,460 2,443,619 759,841 730,365 691,141 39,224 Revenues over (under) expenditures (2,129,445) 834,438 2,963,883 (333,341) (217,003) 116,338 OTHER FINANCING SOURCES (USES)Transfers in 145,000 217,768 72,768 352,000 257,182 (94,818) Transfers out (275,000) (274,769) 231 - - - Long-term debt issued - - - - - - Sale of capital assets - - - - - - Total other financing sources (uses) (130,000) (57,001) 72,999 352,000 257,182 (94,818) Revenues and other sources over(under) expenditures (2,259,445)$ 777,437 3,036,882$ 18,659$ 40,179 21,520$ FUND BALANCES, beginning of year 2,588,280 199,425 FUND BALANCES, end of year 3,365,717$ 239,604$ (continued)Departmental Special Revenues City Planning BoardNONMAJOR GOVERNMENTAL FUNDS 110Variance VariancePositive PositiveBudget Actual (Negative) Budget Actual (Negative)REVENUESTaxes 1,962,219$ 2,048,170$ 85,951$ -$ -$ -$ Special assessments - - - - - - Licenses and permits - - - - - - Intergovernmental - - - 660,960 660,960 - Charges for services - - - - - - Fines and forfeitures - - - - - - Interest on investments - - - 7,500 4,551 (2,949) Loan repayment - - - - - - Other - - - - - - Total revenues 1,962,219 2,048,170 85,951 668,460 665,511 (2,949) EXPENDITURES - BUDGETUNIT - - - 638,500 638,380 120 Revenues over (under) expenditures 1,962,219 2,048,170 85,951 29,960 27,131 (2,829) OTHER FINANCING SOURCES (USES)Transfers in - - - - - - Transfers out (1,962,219) (1,777,346) 184,873 - - - Long-term debt issued - - - - - - Sale of capital assets - - - - - - Total other financing sources (uses) (1,962,219) (1,777,346) 184,873 - - - Revenues and other sources over(under) expenditures -$ 270,824 270,824$ 29,960$ 27,131 (2,829)$ FUND BALANCES, beginning of year 121,613 532,685 FUND BALANCES, end of year 392,437$ 559,816$ (continued)Gas Tax Apportionment InsuranceSpecial Revenue FundsCITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET (GAAP BASIS) AND ACTUALNONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011 111CITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET (GAAP BASIS) AND ACTUALYear Ended June 30, 2011Special Revenue FundsVariance VariancePositive PositiveBudget Actual (Negative) Budget Actual (Negative)REVENUESTaxes -$ -$ -$ -$ -$ -$ Special assessments - - - - - - Licenses and permits - - - - - - Intergovernmental 136,000 123,349 (12,651) - - - Charges for services - - - - - - Fines and forfeitures 40,000 45,813 5,813 50,000 13,985 (36,015) Interest on investments - - - 5,000 2,403 (2,597) Loan repayment - - - - - - Other 10,000 3,491 (6,509) - - - Total revenues 186,000 172,653 (13,347) 55,000 16,388 (38,612) EXPENDITURES - BUDGETUNIT 215,625 210,141 5,484 - - - Revenues over (under) expenditures (29,625) (37,488) (7,863) 55,000 16,388 (38,612) OTHER FINANCING SOURCES (USES)Transfers in 38,000 37,487 (513) - - - Transfers out - - - - - - Long-term debt issued - - - - - - Sale of capital assets - - - - - - Total other financing sources (uses) 38,000 37,487 (513) - - - Revenues and other sources over(under) expenditures 8,375$ (1) (8,376)$ 55,000$ 16,388 (38,612)$ FUND BALANCES, beginning of year 1 192,615 FUND BALANCES, end of year -$ 209,003$ (continued)Drug Forfeitures City-County Drug ForfeituresNONMAJOR GOVERNMENTAL FUNDS (CONTINUED) 112CITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET (GAAP BASIS) AND ACTUALYear Ended June 30, 2011Special Revenue FundsVariance VariancePositive PositiveBudget Actual (Negative) Budget Actual (Negative)REVENUESTaxes -$ -$ -$ -$ -$ -$ Special assessments - - - - 18,484 18,484 Licenses and permits - - - 20,000 5,250 (14,750) Intergovernmental - - - - 6,661 6,661 Charges for services - - - 2,516,000 2,624,436 108,436 Fines and forfeitures - - - - - - Interest on investments - 14 14 22,000 9,394 (12,606) Loan repayment - - - - - - Other 1,000 - (1,000) 10,000 5,598 (4,402) Total revenues 1,000 14 (986) 2,568,000 2,669,823 101,823 EXPENDITURES - BUDGETUNIT 500 372 128 2,969,730 2,640,063 329,667 Revenues over (under) expenditures 500 (358) (858) (401,730) 29,760 431,490 OTHER FINANCING SOURCES (USES)Transfers in - - - - - - Transfers out - - - - - - Long-term debt issued - - - - - - Sale of capital assets - - - - 6,388 6,388 Total other financing sources (uses) - - - - 6,388 6,388 Revenues and other sources over(under) expenditures 500$ (358) (858)$ (401,730)$ 36,148 437,878$ FUND BALANCES, beginning of year 1,389 772,781 FUND BALANCES, end of year 1,031$ 808,929$ (continued)NONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Beautification of Bozeman Street and Tree Maintenance 113CITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUALNONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011Special Revenue FundsVariance VariancePositive PositiveBudget Actual (Negative) Budget Actual (Negative)REVENUESTaxes -$ - - -$ - - Special assessments - - - - - - Licenses and permits - - - - - - Intergovernmental - - - - - - Charges for services - - - - - - Fines and forfeitures - - - - - - Interest on investments - - - - - - Loan repayment - - - - - - Other - - - - - - Total revenues - - - - - - EXPENDITURES - BUDGETUNIT - - - 20,000 19,125 875 Revenues over (under) expenditures - - - (20,000) (19,125) 875 OTHER FINANCING SOURCESTransfers in - - - - - - Transfers out (132,800) - 132,800 - - - Long-term debt issued - - - - - - Sale of capital assets - - - - - - Total other financing sources (uses) (132,800) - 132,800 - - - Revenues and other sources over(under) expenditures (132,800)$ - 132,800$ (20,000)$ (19,125) 875$ FUND BALANCES, beginning of year - 465,375 FUND BALANCES, end of year -$ 446,250$ (continued)Consolidated Parking Districts Law and Justice Center 114CITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUALNONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011Special Revenue FundsVariance VariancePositive PositiveBudget Actual (Negative) Budget Actual (Negative)REVENUESTaxes -$ - - -$ - - Special assessments - - - - - - Licenses and permits - - - - - - Intergovernmental 25,000 91,365 66,365 240,000 239,069 (931) Charges for services - - - - - - Fines and forfeitures - - - - - - Interest on investments - - - - - - Loan repayment - - - - - - Other - - - - 5,000 5,000 Total revenues 25,000 91,365 66,365 240,000 244,069 4,069 EXPENDITURES - BUDGETUNIT 329,000 326,542 2,458 287,015 276,823 10,192 Revenues over (under) expenditures (304,000) (235,177) 68,823 (47,015) (32,754) 14,261 OTHER FINANCING SOURCESTransfers in - - - 37,515 37,797 282 Transfers out - - - - - - Long-term debt issued - - - - - - Sale of capital assets - - - - - - Total other financing sources (uses) - - - 37,515 37,797 282 Revenues and other sources over(under) expenditures (304,000)$ (235,177) 68,823$ (9,500)$ 5,043 14,543$ FUND BALANCES, beginning of year 438,007 49,649 FUND BALANCES, end of year 202,830$ 54,692$ (continued)Special Projects Community Transportation 115CITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUALNONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011Special Revenue FundsVariance VariancePositive PositiveBudget Actual (Negative) Budget Actual (Negative)REVENUESTaxes -$ - - -$ - - Special assessments - - - - - - Licenses and permits 854,600 1,002,557 147,957 - - - Intergovernmental - 8,663 8,663 - - - Charges for services 4,500 1,653 (2,847) - - - Fines and forfeitures - - - - - - Interest on investments 10,000 6,739 (3,261) - 259 259 Loan repayment - - - - - - Other - 105 105 - - - Total revenues 869,100 1,019,717 150,617 - 259 259 EXPENDITURES - BUDGETUNIT 788,553 747,826 40,727 - - - Revenues over (under) expenditures 80,547 271,891 191,344 - 259 259 OTHER FINANCING SOURCESTransfers in - - - - - - Transfers out - - - - - - Long-term debt issued - - - - - - Sale of capital assets - - - - - - Total other financing sources (uses) - - - - - - Revenues and other sources over(under) expenditures 80,547$ 271,891 191,344$ -$ 259 259$ FUND BALANCES, beginning of year 543,091 21,877 FUND BALANCES, end of year 814,982$ 22,136$ (continued)Highway SafetyBuilding Inspection 116CITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUALNONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011Special Revenue FundsVariance VariancePositive PositiveBudget Actual (Negative) Budget Actual (Negative)REVENUESTaxes -$ - - -$ - - Special assessments - - - - - - Licenses and permits - - - - - - Intergovernmental - - - - - - Charges for services - - - - - - Fines and forfeitures - - - - - - Interest on investments - - - - 787 787 Loan repayment 215,000 183,360 (31,640) 8,000 4,942 (3,058) Other - 323,669 323,669 - - - Total revenues 215,000 507,029 292,029 8,000 5,729 (2,271) EXPENDITURES - BUDGETUNIT 215,000 31,994 183,006 14,400 14,400 - Revenues over (under) expenditures - 475,035 475,035 (6,400) (8,671) (2,271) OTHER FINANCING SOURCES (USES)Transfers in - - - - - - Transfers out - - - - - - Long-term debt issued - - - - - - Sale of capital assets - - - - - - Total other financing sources (uses) - - - - - - Revenues and other sources over(under) expenditures -$ 475,035 475,035$ (6,400)$ (8,671) (2,271)$ FUND BALANCES, beginning of year - 70,619 FUND BALANCES, end of year 475,035$ 61,948$ (continued)Economic Development Revolving Loan Fumd Housing Revolving Loan Fund 117Special Revenue FundsVariance VariancePositive PositiveBudget Actual (Negative) Budget Actual (Negative)REVENUESTaxes -$ - - 1,059,000$ 1,047,037 (11,963) Special assessments - - - 114,000 114,096 96 Licenses and permits - - - - - - Intergovernmental - - - 34,620 17,310 (17,310) Charges for services - - - - - - Fines and forfeitures - - - - - - Interest on investments 5,000 4,495 (505) 10,000 14,464 4,464 Loan repayment 5,000 5,000 - - - - Other - - - - - - Total revenues 10,000 9,495 (505) 1,217,620 1,192,907 (24,713) EXPENDITURES - BUDGETUNIT 90,000 90,000 - 1,114,000 529,135 584,865 Revenues over (under) expenditures (80,000) (80,505) (505) 103,620 663,772 560,152 OTHER FINANCING SOURCES (USES)Transfers in 40,000 40,000 - - - - Transfers out - - - (436,188) (436,188) - Long-term debt issued - - - - - - Sale of capital assets - - - - - - Total other financing sources (uses) 40,000 40,000 - (436,188) (436,188) - Revenues and other sources over(under) expenditures (40,000)$ (40,505) (505)$ (332,568)$ 227,584 560,152$ FUND BALANCES, beginning of year 359,432 982,217 FUND BALANCES, end of year 318,927$ 1,209,801$ (continued)CITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUALNONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011Community Housing Downtown Improvement District 118Special Revenue FundsVariance VariancePositive PositiveBudget Actual (Negative) Budget Actual (Negative)REVENUESTaxes -$ - - -$ - - Special assessments 315,000 398,215 83,215 - - - Licenses and permits - - - - - - Intergovernmental - - - - - - Charges for services - - - - - - Fines and forfeitures - - - - - - Interest on investments - 5,932 5,932 - 2,258 2,258 Loan repayment - - - - - - Other - - - - - - Total revenues 315,000 404,147 89,147 - 2,258 2,258 EXPENDITURES - BUDGETUNIT 316,500 316,050 450 - - - Revenues over (under) expenditures (1,500) 88,097 89,597 - 2,258 2,258 OTHER FINANCING SOURCES (USES)Transfers in - - - - - - Transfers out - - - - - - Long-term debt issued - - - - - - Sale of capital assets - - - - - - Total other financing sources (uses) - - - - - - Revenues and other sources over(under) expenditures (1,500)$ 88,097 89,597$ -$ 2,258 2,258$ FUND BALANCES, beginning of year 492,275 190,564 FUND BALANCES, end of year 580,372$ 192,822$ (continued)NONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011CITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUALPark LandStreet Lighting 119Special Revenue FundsVariance VariancePositive PositiveBudget Actual (Negative) Budget Actual (Negative)REVENUESTaxes -$ - - 3,956,098$ 4,040,880 84,782 Special assessments - - - 429,000 732,185 303,185 Licenses and permits - - - 874,600 1,007,807 133,207 Intergovernmental - - - 1,330,580 2,252,847 922,267 Charges for services - - - 2,671,460 2,839,360 167,900 Fines and forfeitures - - - 160,000 135,893 (24,107) Interest on investments - 16 16 93,200 88,400 (4,800) Loan repayment - - - 228,000 193,302 (34,698) Other - - - 68,500 1,511,071 1,442,571 Total revenues - 16 16 9,811,438 12,801,745 2,990,307 EXPENDITURES - BUDGETUNIT - - - 10,932,648 8,975,611 1,957,037 Revenues over (under) expenditures - 16 16 (1,121,210) 3,826,134 4,947,344 OTHER FINANCING SOURCES (USES)Transfers in - - - 612,515 590,234 (22,281) Transfers out - - - (2,806,207) (2,488,303) 317,904 Long-term debt issued - - - - - - Sale of capital assets - - - - 6,388 6,388 Total other financing sources (uses) - - - (2,193,692) (1,891,681) 302,011 Revenues and other sources over(under) expenditures -$ 16 16$ (3,314,902)$ 1,934,453 5,249,355$ FUND BALANCES, beginning of year 81 8,021,976 FUND BALANCES, end of year 97$ 9,956,429$ (continued)CITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUALNONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011Municipal Court Restitution Total 120Debt Service FundsVariance VariancePositive PositiveBudget Actual (Negative) Budget Actual (Negative)REVENUESTaxes -$ -$ -$ 790,676$ 829,898$ 39,222$ Intergovernmental- - - - - - Interest on investments 20,000 29,823 9,823 - 2,959 2,959 Total revenue 20,000 29,823 9,823 790,676 832,857 42,181 EXPENDITURESOther 11,000 10,906 94 - - - Debt servicePrincipal - - - 565,000 565,000 - Interest and fiscal fees - - - 174,376 174,375 1 Total expenditures 11,000 10,906 94 739,376 739,375 1 Revenues over (under)expenditures 9,000 18,917 9,917 51,300 93,482 42,182 OTHER FINANCING SOURCES(USES)Operating transfers in- 1,919,827 1,919,827 - - - Operating transfers out - - - - - - Total other financingsources (uses) - 1,919,827 1,919,827 - - - Revenues and other sources over(under) expenditures 9,000$ 1,938,744 1,929,744$ 51,300$ 93,482 42,182$ FUND BALANCES, beginning of year1,228,197 (20,240) FUND BALANCES, end of year3,166,941$ 73,242$ (continued)G.O. BondsCITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET (GAAP BASIS) AND ACTUALNONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011SID Revolving 121Variance VarianceFavorable PositiveBudget Actual (Unfavorable) Budget Actual (Negative)REVENUESTaxes -$ -$ -$ 790,676$ 829,898$ 39,222$ Intergovernmental- - - - - - Interest on investments- 1,269 1,269 20,000 34,051 14,051 Total revenue - 1,269 1,269 810,676 863,949 53,273 EXPENDITURESOther - - - 11,000 10,906 94 Debt servicePrincipal 160,000 160,000 - 725,000 725,000 - Interest and fiscal fees 266,188 263,388 2,800 440,564 437,763 2,801 Total expenditures 426,188 423,388 2,800 1,176,564 1,173,669 2,895 Revenues over (under)expenditures (426,188) (422,119) 4,069 (365,888) (309,720) 56,168 OTHER FINANCING SOURCES(USES)Operating transfers in426,188 426,188 - 426,188 2,346,015 1,919,827 Operating transfers out - - - - - - Total other financingsources (uses) 426,188 426,188 - 426,188 2,346,015 1,919,827 Revenues and other sources over(under) expenditures -$ 4,069 4,069$ 60,300$ 2,036,295$ 1,975,995$ FUND BALANCES, beginning of year(3,384) 1,204,573 FUND BALANCES, end of year685$ 3,240,868$ CITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET (GAAP BASIS) AND ACTUALNONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011TIF Bonds TotalDebt Service Funds 122Permanent FundVariancePositiveBudget Actual (Negative)Taxes -$ -$ -$ Licenses and permits - - - Charges for services 4,000 9,005 5,005 Fines and forfeitures - - - Interest on investments 16,000 6,713 (9,287) Loan repayment - - - Other - - - Total revenues 20,000 15,718 (4,282) EXPENDITURES - BUDGETUNIT - - - Revenues over (under) expenditures 20,000 15,718 (4,282) OTHER FINANCING SOURCES (USES)Transfers in - - - Transfers out (16,000) (6,713) 9,287 Long-term debt issued- - - Sale of capital assets - - - Total other financing sources(16,000) (6,713) 9,287 Revenues and other sources over(under) expenditures 4,000$ 9,005 5,005$ FUND BALANCES, beginning of year544,209 FUND BALANCES, end of year553,214$ Cemetery Perpetual CareCITY OF BOZEMAN, MONTANASCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET (GAAP BASIS) AND ACTUALNONMAJOR GOVERNMENTAL FUNDS (CONTINUED)Year Ended June 30, 2011 INTERNAL SERVICE FUNDS STATEMENTS INTERNAL SERVICE FUNDS Internal Service Funds are used to account for the goods or services provided by one department to other departments of the City on a cost-reimbursement basis. Vehicle Maintenance Shop – Accounts for the maintenance and repair of vehicles used in the operation of City services. Medical Health Insurance – Accounts for insurance premium revenues received from the various City departments and retirees, and the related costs of health and dental claims incurred by city employees and retirees which are in-turn paid to the City’s insurance program coordinator. 123Vehicle MedicalMaintenance HealthShop Insurance Total ASSETSCurrent assetsCash and equivalents 214,203$ 245,048$ 459,251$ Customer receivables, net - 14,360 14,360 Total current assets 214,203 259,408 473,611 Machinery and equipment 135,166 - 135,166 Vehicles 70,312 - 70,312 Buildings 1,315,617 - 1,315,617 Less: accumulated depreciation (215,573) - (215,573) Net property, plant, and equipment 1,305,522 - 1,305,522 Total assets 1,519,725 259,408 1,779,133 LIABILITIESCurrent liabilitiesAccounts payable 24,144 55 24,199 Accrued employee benefits 12,854 - 12,854 Other post-employment health benefits - implicit rate subsidy10,115 - 10,115 Due to other City funds - - - Total current liabilities 47,113 55 47,168 NET ASSETSInvested in capital assets, net of related debt 1,305,522 - 1,305,522 Unrestricted 167,090 259,353 426,443 Total net assets 1,472,612$ 259,353$ 1,731,965$ CITY OF BOZEMAN, MONTANACOMBINING STATEMENT OF NET ASSETSJune 30, 2011INTERNAL SERVICE FUNDS 124Vehicle MedicalMaintenance HealthShop Insurance TotalOPERATING REVENUESCharges for services 766,135$ 3,454,814$ 4,220,949$ OPERATING EXPENSESSalaries and benefits 246,082 - 246,082 Materials and supplies 425,228 15 425,243 Repairs and maintenance 4,284 - 4,284 Utilities 4,628 - 4,628 Administrative charges 34,271 - 34,271 Insurance claims - 3,133,905 3,133,905 Other expenses 15,029 62,796 77,825 Depreciation 46,544 - 46,544 Total operating expenses 776,066 3,196,716 3,972,782 Operating income (loss) (9,931) 258,098 248,167 NON-OPERATING REVENUES (EXPENSES)Interest income - 908 908 Interest expense (6,537) - (6,537) Other income 130,048 347 130,395 Total non-operating revenue (expenses) 123,511 1,255 124,766 Income (loss) before transfers 113,580 259,353 372,933 Transfers in 787,021 - 787,021 Transfers out - - - Change in net assets 900,601 259,353 1,159,954 NET ASSETS, beginning of year 572,011 - 572,011 NET ASSETS, end of year 1,472,612$ 259,353$ 1,731,965$ CITY OF BOZEMAN, MONTANACOMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETSINTERNAL SERVICE FUNDSYear Ended June 30, 2011 125Vehicle MedicalMaintenance HealthShop Insurance TotalCASH FLOWS FROM OPERATIONS:Receipts from customers 769,811$ 3,458,509$ 4,228,320$ Receipts from others 130,048 347 130,395 Operating loans from other City funds 787,021 (18,055) 768,966 Payments to suppliers (526,960) (62,756) (589,716) Payments to employees (241,717) (3,133,905) (3,375,622) Payments to Internal Service Funds and administrative fees (34,271) - (34,271) Net Cash Provided (Used) by Operating Activities 883,932 244,140 1,128,072 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:Additions to property, plant and equipment (700,432) - (700,432) Interest paid on bonds, interfund loans, loans and leases (6,537) - (6,537) Net Cash Flows Used by Capital and Related Financing Activities (706,969) - (706,969) CASH FLOWS FROM INVESTING ACTIVITIES:Interest on investments - 908 908 Net Increase (Decrease) in Cash and Cash Equivalents 176,963 245,048 422,011 CASH AND EQUIVALENTS, beginning of year 37,240 - 37,240 CASH AND EQUIVALENTS, end of year 214,203$ 245,048$ 459,251$ (continued)CITY OF BOZEMAN, MONTANAINTERNAL SERVICE FUNDSCOMBINING STATEMENT OF CASH FLOWSYear Ended June 30, 2011 126A reconciliation of operating loss to cash provided (used) by operating activities follows:Vehicle MedicalMaintenance HealthShop Insurance TotalOPERATING INCOME (LOSS) (9,931)$ 258,098$ 248,167$ Adjustments to reconcile operating income (loss)to net cash provided (used) by operating activitiesDepreciation 46,544 - 46,544 Other income 130,048 347 130,395 Changes in assets and liabilities:(Increase) Decrease in: Customer receivables 3,676 3,695 7,371 Prepaid expenses - - - Increase (Decrease) in: Accounts payable (77,791) 55 (77,736) Accrued employee benefits payable 4,365 - 4,365 Interfund borrowings 787,021 (18,055) 768,966 Total adjustments 893,863 (13,958) 879,905 Net cash provided (used) by operating activities 883,932$ 244,140$ 1,128,072$ CITY OF BOZEMAN, MONTANAINTERNAL SERVICE FUNDSCOMBINING STATEMENT OF CASH FLOWS (CONTINUED)Year Ended June 30, 2011 AGENCY FUNDS STATEMENTS AGENCY FUNDS Agency Funds are used to account for assets held by the City as an agent for individuals, private organizations, or other governments. Montana Arts Council – Accounts for pass-through monies granted by the State of Montana for use by the Montana Ballet Company, Bozeman Symphony Orchestra, Intermountain Opera Association, Children’s Museum of Bozeman, Emerson Cultural Center, and the Equinox Theater Company. Municipal Court – Accounts for monies held for court appearance bonds. 127TotalMontana Municipal AgencyArts Council Court FundsASSETSCash and cash equivalents -$ 218,595$ 218,595$ Customer receivables - 1,725 1,725 Total assets - 220,320 220,320 LIABILITIESAccounts payable - 220,320 220,320 Total liabilities -$ 220,320$ 220,320$ CITY OF BOZEMAN, MONTANAAGENCY FUNDSCOMBINING STATEMENT OF FIDUCIARY NET ASSETSJune 30, 2011 128MontanaArts Council Balance June 30, 2010 Additions Deletions Balance June 30, 2011 ASSETSCash and cash equivalents -$ 11,910$ (11,910)$ -$ Total assets - 11,910 (11,910) - LIABILITIESAccounts payable - 11,910 (11,910) - Total liabilities -$ 11,910$ (11,910)$ -$ Municipal Court Balance June 30, 2010 Additions Deletions Balance June 30, 2011 ASSETSCash and cash equivalents 234,634$ -$ (16,039)$ 218,595$ Customer receivables 1,115 610 - 1,725 Total assets 235,749 610 (16,039) 220,320 LIABILITIESAccounts payable 235,749 (15,429) 220,320 Total liabilities 235,749$ -$ (15,429)$ 220,320$ CITY OF BOZEMAN, MONTANAAGENCY FUNDSCOMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIESYear ended June 30, 2011 PART III STATISTICAL SECTION This part of the City of Bozeman's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financialstatements, note disclosures and required supplementary information says about the government's overall financial health. ContentsPageFinancial TrendsThese schedules contain trend information to help the reader understand how the government's financial performance and well-being have changed over time 129Revenue CapacityThese schedules contain information to help the reader assess the government's most significant local revenue source, the property tax. 134Debt CapacityThese schedules present information to help the reader assess the affordability of the government's current levels of outstanding debt and the government's abilityto issue additional debt in the future. 140Demographic and Economic InformationThese schedules offer demographic and economic indicators to help the reader understand the environment within which the government's financial activitiestake place.145Operating InformationThese schedules contain service and infrastructure data to help the reader understand how the information in the government's financial report relates to theservices the government provides and the activities it performs.147Sources: Unless otherwise noted, the information in these schedules is derived from the City of Bozeman comprehensive annual financial reports for the relevant year.Note: The City of Bozeman implemented GASB Statement 34 in Fiscal Year 2002, therefore the data for prior years are not shown; schedules presenting government-wide information include information beginning in that year. Statistical Section FINANCIAL TRENDS SECTION 1292002200320042005200620072008200920102011Governmental activitiesInvested in capital assets, net of related debt 13,675,868 (1,618,282) 5,197,117 8,409,053 22,987,166 77,734,584 80,873,924 83,707,824 84,113,904 88,844,404 Restricted5,508,776 6,890,530 10,615,720 12,343,248 5,242,903 546,916 9,254,307 7,699,511 8,082,181 20,962,038 Unrestricted7,495,002 24,396,920 17,345,961 21,077,779 25,537,959 28,481,673 23,443,921 20,871,106 25,076,908 16,049,044 Total governmental activities net assets26,679,646$ 29,669,168$ 33,158,798$ 41,830,080$ 53,768,028$ 106,763,173$ 113,572,152$ 112,278,441$ 117,272,993$ 125,855,486$ Business-type activitiesInvested in capital assets, net of related debt 13,008,835 19,960,910 25,174,352 28,124,307 28,416,015 154,227,534 177,379,168 188,077,778 189,965,189 188,180,889 Restricted7,747,249 967,939 13,357,348 11,041,147 13,462,443 17,099,866 18,322,089 19,775,588 9,044,280 12,660,466 Unrestricted10,725,406 19,412,803 9,174,747 12,284,379 12,899,363 16,550,235 17,547,218 11,936,119 16,069,597 12,382,018 Total business-type activities10,725,406$ 40,341,652$ 47,706,447$ 51,449,833$ 54,777,821$ 187,877,635$ 213,248,475$ 219,789,485$ 215,079,066$ 213,223,373$ Primary governmentInvested in capital assets, net of related debt 26,684,703 18,342,628 30,371,469 36,533,360 51,403,181 231,962,118 258,253,092 271,785,602 274,079,093 277,025,293 Restricted13,256,025 7,858,469 23,973,068 23,384,395 18,705,346 17,646,782 27,576,396 27,475,099 17,126,461 33,622,504 Unrestricted18,220,408 43,809,723 26,520,708 33,362,158 38,437,322 45,031,908 40,991,139 32,807,225 41,146,505 28,431,062 Total primary government net assets58,161,136$ 70,010,820$ 80,865,245$ 93,279,913$ 108,545,849$ 294,640,808$ 326,820,627$ 332,067,926$ 332,352,059$ 339,078,859$ CITY OF BOZEMAN, MONTANANET ASSETS BY COMPONENTPast Ten Fiscal YearsFiscal YearUnaudited statistical section 1302002200320042005200620072008200920102011ExpensesGovernmental Activities:General government4,315,506 5,095,401 4,427,676 4,986,413 5,666,069 5,733,371 6,969,181 6,629,783 6,299,831 6,122,190 Public Safety7,114,922 8,027,193 8,078,120 8,834,875 9,858,055 10,488,873 11,183,637 11,556,016 12,382,157 12,859,702 Public Service2,847,989 3,182,445 3,096,273 3,475,067 4,163,644 8,511,308 8,979,085 10,130,184 9,703,594 9,190,515 Public Welfare3,433,991 3,542,608 4,017,654 4,372,959 5,477,065 5,536,741 5,412,192 6,465,940 6,915,557 7,500,727 Interest and fiscal fees696,303 672,243 667,118 709,178 550,296 549,667 649,226 737,762 714,714 679,652 Total governmental activities expenses18,408,711$ 20,519,890$ 20,286,841$ 22,378,492$ 25,715,129$ 30,819,960$ 33,193,321$ 35,519,685$ 36,015,853$ 36,352,786$ Business-type activities:Water2,948,638 2,924,951 3,782,726 4,292,503 4,824,505 10,490,811 11,150,266 11,872,984 12,016,149 11,649,639 Wastewater2,880,228 2,556,245 3,353,567 4,246,156 4,586,959 7,376,348 8,061,412 10,293,894 9,143,077 10,128,397 Solid waste2,206,010 1,955,939 2,462,291 2,720,738 3,547,902 3,283,135 2,574,651 2,687,590 2,561,124 2,578,109 Parking766,454 967,077 991,712 Total business-type activities expenses8,034,876 7,437,135 9,598,584 11,259,397 12,959,366 21,150,294 21,786,329 25,620,922 24,687,427 25,347,857 Total primary government expenses26,443,587$ 27,957,025$ 29,885,425$ 33,637,889$ 38,674,495$ 51,970,254$ 54,979,650 61,140,607 60,703,280 61,700,643 Program RevenuesGovernmental activities: Charges for services:General government3,554,700 1,230,771 793,529 1,261,652 1,496,818 2,023,362 2,237,962 1,795,469 2,774,869 2,870,443 Public Safety1,907,548 2,586,058 2,390,179 1,898,531 1,984,642 3,712,280 3,575,133 3,500,929 2,414,893 2,684,724 Public Service3,070,566 4,084,641 3,934,801 10,302,583 9,217,198 5,361,852 4,858,444 4,790,460 3,742,856 4,454,492 Public Welfare553,842 812,909 865,910 567,471 718,162 704,790 713,342 779,841 399,280 451,960 Operating grants and contributions653,567 461,355 878,713 360,980 502,198 409,263 502,863 439,131 693,342 1,114,835 Capital grants and contributions168,480 61,675 37,538 513,034 1,380,553 18,694,375 7,153,103 8,219,791 5,307,118 7,867,093 Total governmental activities program revenues 9,908,703$ 9,237,409$ 8,900,670$ 14,904,251$ 15,299,571$ 30,905,922$ 19,040,847$ 19,525,621$ 15,332,358$ 19,443,547$ Business-type activities Charges for services:Water4,621,617 5,503,363 5,842,122 6,547,228 7,434,574 8,604,498 8,222,724 7,221,378 6,986,247 7,064,571 Wastewater5,067,571 5,626,790 5,765,594 6,074,615 6,430,206 7,052,987 6,918,132 6,052,668 6,505,119 6,930,036 Solid waste3,282,979 3,632,183 3,884,723 3,648,930 2,582,437 2,428,230 2,608,662 2,391,641 2,716,981 2,569,607 Parking- - - - - - - 467,607 326,820 417,114 Operating grants and contributions155,033 14,643 35,396 36,129 - - - - - - Capital grants and contributions:- 1,520,318 1,585,544 1,595,805 1,624,237 26,464,222 29,405,599 6,465,230 3,621,051 6,589,612 Total business-type activities program revenues 13,127,200 16,297,297 17,113,379 17,902,707 18,071,454 44,549,937 47,155,117 22,598,524 20,156,218 23,570,940 Total primary government program revenues23,035,903$ 25,534,706$ 26,014,049$ 32,806,958$ 33,371,025$ 75,455,859$ 66,195,964 42,124,145 35,488,576 43,014,487 CITY OF BOZEMAN, MONTANACHANGES IN NET ASSETSPast Ten Fiscal Years(accrual basis of accounting)Fiscal YearUnaudited statistical section 131CITY OF BOZEMAN, MONTANACHANGES IN NET ASSETSPast Ten Fiscal Years(accrual basis of accounting)2002200320042005200620072008200920102011Net (Expense) / RevenueGovernmental activities(8,500,008) (11,282,481) (11,386,171) (7,474,241) (10,415,558) 85,962 (14,152,474) (15,994,064) (20,683,495) (16,909,239) Business-type activities5,092,324 8,860,162 7,514,795 6,643,310 5,112,088 23,399,643 25,368,788 (3,022,398) (4,531,209) (1,776,917) Total primary government net expense(3,407,684)$ (2,422,319)$ (3,871,376)$ (830,931)$ (5,303,470)$ 23,485,605$ 11,216,314$ (19,016,462)$ (25,214,704)$ (18,686,156)$ General Revenues and Other Changes in Net AssetsGovernmental activities: TaxesProperty taxes7,597,346 8,028,832 9,104,945 10,437,702 11,137,006 11,836,748 12,070,765 14,629,230 15,501,316 16,342,053 Unrestricted grants and contributions4,382,091 4,732,127 4,327,489 4,910,306 5,163,288 5,375,807 5,617,243 6,125,789 6,284,467 6,782,383 Investment earnings493,348 417,156 344,013 606,120 852,222 1,093,115 1,362,790 671,859 352,378 301,424 Miscellaneous732,532 1,093,888 979,820 2,422,805 3,416,890 1,940,156 1,859,313 2,766,671 2,256,071 1,556,790 Sale of capital assets- - - - - 490,637 51,342 68,057 761,952 (8,168) Transfers of capital assets- - - - - - - (6,311,324) - - Transfers- - 150,000 - 1,784,100 489,780 - (3,249,929) 521,863 517,250 Extraordinary items- - - (2,231,410) - - - - - - Total governmental activities13,205,317$ 14,272,003$ 14,906,267$ 16,145,523$ 22,353,506$ 21,226,243$ 20,961,453$ 14,700,353$ 25,678,047$ 25,491,732$ Business-type activities: Unrestricted grants and contributions- - - - - 3,182 2,052 2,155 342,653 438,475 Transfers of capital assets- - - - - - - 6,311,324 - - Transfers- - (150,000) - (1,784,100) (489,780) - 3,249,929 (521,863) (517,251) Extraordinary items- - - (2,899,924) - - - - - - Total business-type activities- - (150,000) (2,899,924) (1,784,100) (486,598) 2,052 9,563,408 (179,210) (78,776) Total primary government13,205,317$ 14,272,003$ 14,756,267$ 13,245,599$ 20,569,406$ 20,739,645$ 20,963,505 24,263,761 25,498,837 25,412,956 Change in Net AssetsGovernmental activities4,705,309 2,989,522 3,520,096 8,671,282 11,937,948 21,312,205 6,808,979 (1,293,711) 4,994,552 8,582,493 Business-type activities5,092,324 8,860,162 7,364,795 3,743,386 3,327,988 22,913,045 25,370,840 6,541,010 (4,710,419) (1,855,693) Total primary government9,797,633$ 11,849,684$ 10,884,891$ 12,414,668$ 15,265,936$ 44,225,250$ 32,179,819$ 5,247,299$ 284,133$ 6,726,800$ Fiscal YearUnaudited statistical section 1322002200320042005200620072008200920102011General FundReserved- - - 11,687 5,725 3,000 3,000 63,000 - Unreserved3,600,359 3,083,832 3,345,541 3,996,600 3,173,374 4,367,538 4,516,814 5,301,397 5,119,400 Nonspendable- Restricted- Committed- Assigned5,991,388 Unassigned905,862 Total general fund3,600,359 3,083,832 3,345,541 4,008,287 3,179,099 4,370,538 4,519,814 5,364,397 5,119,400 6,897,250 All Other Governmental Reserved2,247,538 7,965,826 7,315,275 1,606,904 2,164,698 2,996,832 3,045,231 2,660,918 6,597,569 Unreserved, reported in:Special revenue funds 8,598,213 11,993,869 14,362,029 16,296,309 9,776,823 13,205,328 13,723,846 12,516,240 14,916,152 Capital projects funds 2,505,735 3,656,555 2,037,255 4,545,867 6,598,235 - 2,884,553 - 1,793,287 Debt service funds 1,899,540 - - - - - - - - Nonspendable999,464 Restricted19,962,574 Committed3,278,422 Assigned58,419 Unassigned- Total all other governmental funds 15,251,026 23,616,250 23,714,559 22,449,080 18,539,756 16,202,160 19,653,630 15,177,158 23,307,008 24,298,879 Note: The City of Bozeman implemented the new standards for reporting fund balance GASB Statement 54 in fiscal year 2011CITY OF BOZEMAN, MONTANAFUND BALANCE, GOVERNMENTAL FUNDSPast Ten Fiscal Years(modified accrual basis of accounting)Fiscal YearUnaudited statistical section 1332002200320042005200620072008200920102011RevenuesTaxes7,164,366 7,940,777 9,274,923 10,480,668 11,222,034 11,853,872 12,004,946 14,451,954 15,055,844 16,634,924 Special assessments1,168,813 1,234,119 1,164,151 2,478,024 1,931,261 1,866,717 1,793,813 1,633,896 1,643,500 1,866,272 Licenses and permits817,263 1,138,801 1,120,864 1,566,812 1,653,546 1,762,086 1,351,887 1,140,831 958,590 1,308,378 Intergovernmental5,204,138 5,255,157 5,243,740 5,784,320 7,046,039 6,115,697 9,642,918 7,102,049 7,900,176 8,299,803 Charges for service4,756,114 5,637,618 5,246,608 5,818,566 6,347,087 7,403,739 6,748,891 6,468,006 5,790,382 6,629,507 Fines and forfeitures1,080,546 1,305,536 1,188,706 1,443,468 1,461,398 1,746,213 1,644,767 1,597,236 1,518,481 1,441,383 Interest on investments463,199 413,212 342,979 545,805 848,909 1,068,802 1,360,914 671,859 352,378 300,516 loan repayment266,683 211,936 183,987 426,076 291,338 10,193 19,849 9,985 10,401 193,302 Other709,203 1,037,347 901,696 2,421,201 3,412,410 1,940,156 1,859,313 2,766,671 2,256,071 1,556,790 Total revenues21,630,325 24,174,503 24,667,654 30,964,940 34,214,022 33,767,475 36,427,298 35,842,487 35,485,823 38,230,875 ExpendituresGeneral government3,569,323 3,853,464 4,406,577 5,006,986 5,309,637 5,577,810 6,153,838 5,946,355 5,690,488 5,939,771 Public safety6,723,263 7,232,374 7,661,421 8,535,646 9,494,622 10,160,291 10,778,917 11,056,742 11,709,170 12,137,616 Public service2,094,552 2,028,864 2,115,856 2,363,585 2,276,802 3,060,672 3,020,855 2,976,711 2,702,510 3,002,021 Public welfare3,538,748 3,430,983 4,154,228 4,320,299 5,099,873 4,315,086 4,819,758 5,161,997 4,916,828 6,435,916 Capital outlay4,649,508 3,536,045 4,824,965 6,417,671 18,374,651 11,397,365 12,205,040 9,380,742 4,248,758 3,299,017 Debt servicePrincipal926,547 850,119 1,448,320 6,788,969 989,041 833,158 2,013,232 1,138,051 1,194,819 1,611,087 Interest696,303 672,243 667,118 709,178 550,296 549,667 649,662 738,198 715,150 680,088 Bond Issuance Costs- - - - 20,064 - - - - - Total expenditures22,198,244 21,604,092 25,278,485 34,142,334 42,114,986 35,894,049 39,641,302 36,398,796 31,177,723 33,105,516 Excess of revenuesover (under) expenditures(567,919) 2,570,411 (610,831) (3,177,394) (7,900,964) (2,126,574) (3,214,004) (556,309) 4,308,100 5,125,359 Other Financing Sources (Uses)Proceeds from borrowing3,460,602 5,271,000 - 4,804,467 1,376,869 - - - - - Transfers in1,962,695 3,012,716 3,137,517 5,497,553 17,619,744 4,565,896 4,604,100 8,394,126 10,857,332 6,985,734 Transfers out(1,962,695) (3,013,286) (2,987,517) (5,497,553) (15,835,644) (4,076,116) (4,604,100) (11,733,378) (11,033,925) (7,255,505) Issuance of debt6,554,166 177,346 890,000 - Premium on Bonds Issued10,896 - - - Sales of capital assets7,856 820,849 1,604 1,483 490,637 249,688 86,326 766,922 10,555 Total other financing sources (uses) 3,460,602 5,278,286 970,849 4,806,071 3,162,452 980,417 6,814,750 (3,075,580) 1,480,329 (259,216) Extraordinary itemsNet change in fund balances2,892,683$ 7,848,697$ 360,018$ 1,628,677$ (4,738,512)$ (1,146,157)$ 3,600,746$ (3,631,889)$ 5,788,429$ 4,866,143$ Debt service as a percentage of 9.2% 8.4% 10.3% 27.0% 6.5% 5.6% 9.7% 6.9% 7.1% 7.7%noncapital expendituresFiscal YearCITY OF BOZEMAN, MONTANACHANGES IN FUND BALANCES, GOVERNMENTAL FUNDSPast Ten Fiscal Years(modified accrual basis of accounting)Unaudited statistical section REVENUE CAPACITY SECTION 134FiscalTotalTotalYearTaxableDirectEndedResidential Commercial & AgriculturalAssessedTaxJune 30,PropertyIndustrial PropertyPropertyValueRate2002 23,772,000 16,131,000 2,547,000 42,450,000 145.21 2003 25,790,800 17,500,900 2,763,300 46,055,000 154.21 2004 27,753,040 18,832,420 2,973,540 49,559,000 163.31 2005 29,671,600 20,134,300 3,179,100 52,985,000 171.99 2006 32,515,280 22,063,940 3,483,780 58,063,000 168.26 2007 35,419,440 24,034,620 3,794,940 63,249,000 163.42 2008 38,629,360 26,212,780 4,138,860 68,981,000 154.18 2009 41,539,680 28,187,640 4,450,680 74,178,000 171.16 2010 43,842,400 29,750,200 4,697,400 78,290,000 170.19 2011 45,238,480 30,697,540 4,846,980 80,783,000 168.75 Source: Based on information provided by Gallatin County and Department of RevenueNote: Property is assessed by the State Department of Revenue every six years.CITY OF BOZEMAN, MONTANAASSESSED VALUE OF TAXABLE PROPERTYPast Ten Fiscal YearsUnaudited statistical section 135FiscalGeneralTotalYearObligationDirectBozemanEndedBasicDebtTaxSchoolGallatinState ofJune 30,RateServiceRateDistrictCountyMontana2002136.21 9.00 145.21 248.06 177.65 46.00 2003139.95 14.26 154.21 252.94 189.94 46.00 2004154.09 9.22 163.31 266.43 200.59 46.00 2005158.67 13.32 171.99 264.68 194.15 46.00 2006155.89 12.37 168.26 265.55 196.74 46.00 2007152.07 11.35 163.42 182.74 197.36 46.00 2008142.98 11.20 154.18 183.85 205.40 46.00 2009160.59 10.57 171.16 212.53 210.14 46.00 2010160.18 10.01 170.19 199.54 210.25 46.00 2011158.96 9.79 168.75 196.89 217.21 46.00 Source: Based on information provided by Gallatin County and Department of RevenueCITY OF BOZEMAN, MONTANADIRECT AND OVERLAPPING PROPERTY TAX RATESPast Ten Fiscal Years(rate per $1,000 of assessed value)Unaudited statistical section 136Percentage Percentageof Total City of Total CityTaxable Taxable Total TaxableAssessed Assessed Assessed AssessedTaxpayerValueRankValueValueRankValueNorthwestern Corp Transmission & Distribution3,102,385 13.84%2,633,735 16.20%Qwest Corporation1,117,377 21.38%Bresnan Communications1,053,442 31.30%Cellco Partnership582,609 40.72%Harry Daum - Gallatin Mall515,630 50.64%517,629 31.22%Wal-Mart Stores374,454 60.46%Stone Ridge Partners LLC362,604 70.45%277,986 40.65%Bridger Peaks Holding LLC328,509 80.41%Highgate Bozeman LLC325,730 90.40%174,933 100.41%BVI/HJSI Bozeman LLC319,807 100.40%U.S. West1,134,686 22.67%Costco Wholesale Corporation272,815 50.64%Dayton Hudson Corporation220,029 60.52%First Security Bank210,106 70.49%Arcadia Gardens Apartments193,977 80.46%TCIP Partnership175,544 90.41%Total8,082,547$ 10.01%5,811,440$ 13.69%Total City Taxable Assessed Value80,783,000$ 42,450,000$ Source: Gallatin County Treasurer20112002CITY OF BOZEMAN, MONTANAPRINCIPAL PROPERTY TAX PAYERSCurrent Year and Nine Years AgoUnaudited statistical section 137FiscalYear Taxes LeviedCollectionsEnded for thePercentagein SubsequentPercentageJune 30,Fiscal YearAmountof LevyYearsAmountof Levy20026,164,165 6,115,656 99.21%45,083 6,160,739 99.94%20037,102,142 6,691,991 94.22%399,942 7,091,934 99.86%20048,093,480 7,910,446 97.74%180,669 8,091,115 99.97%20059,112,890 8,825,662 96.85%280,788 9,106,450 99.93%20069,769,893 9,490,225 97.14%162,343 9,652,569 98.80%2007 10,336,467 10,227,386 98.94%104,456 10,331,842 99.96%2008 10,635,491 10,324,653 97.08%210,914 10,535,567 99.06%2009 12,696,306 12,493,145 98.40%128,391 12,621,536 99.41%2010 13,324,175 12,415,922 93.18%695,066 13,110,988 98.40%2011 13,632,412 13,001,537 95.37%- 13,001,537 95.37%Source: Gallatin CountyCity Manager's Final Adopted BudgetCollected within the Fiscal Year of the Levy Total Collections to DateCITY OF BOZEMAN, MONTANAPROPERTY TAX LEVIES AND COLLECTIONSPast Ten Fiscal YearsUnaudited statistical section 1382002200320042005200620072008200920102011Type of CustomerResidential 1,194,801 1,224,671 1,255,288 1,286,670 1,318,837 1,437,114 1,379,115 1,516,359 1,224,164 1,181,195Government 25,041 25,667 26,308 26,966 27,640 62,913 49,623 66,253 51,168 48,228MSU267,365 274,049 280,901 287,923 295,121 298,352 260,232 254,891 228,789 227,019Commercial644,926 661,049 677,576 694,515 711,878 659,831 626,846 670,961 571,223 568,474Total2,132,133 2,185,436 2,240,072 2,296,074 2,353,476 2,458,209 2,315,816 2,508,464 2,075,343 2,024,916Total direct rate1,544.74$ 1,653.23$ 1,790.77$ 1,753.67$ 2,055.72$ 2,190.03$ 2,478.36$ 2,495.43$ 2,679.44$ 2,787.06$ per 1,000 HCFSource: City of Bozeman Finance DepartmentFiscal YearCITY OF BOZEMAN, MONTANAWATER SOLD BY TYPE OF CUSTOMERPast Ten Fiscal Years(in hundreds of cubic feet "HCF")Unaudited statistical section 139FiscalYearMonthlyRate perMonthlyRate perEndedBase1,000Base1,000June 30,RateGallonsRateGallons20029.36$ 15.15$ 10.74$ 17.80$ 20039.92$ 16.06$ 10.74$ 17.80$ 20049.92$ 17.24$ 10.74$ 17.80$ 200510.42$ 16.83$ 8.59$ 14.20$ 200611.46$ 18.53$ 9.88$ 16.30$ 200712.60$ 19.74$ 10.87$ 18.00$ 200812.60$ 19.74$ 11.17$ 18.50$ 200912.60$ 19.74$ 12.13$ 20.10$ 201013.00$ 20.37$ 13.37$ 22.15$ 201113.42$ 21.02$ 14.73$ 24.41$ * For Residential Customers, using 5/8 inch meter size.Sources: City of Bozeman, Montana Commission Resolution 3804City of Bozeman, Montana Commission Resolution 3805City of Bozeman, Montana Commission Resolution 3929City of Bozeman, Montana Commission Resolution 3930City of Bozeman, Montana Commission Resolution 4042City of Bozeman, Montana Commission Resolution 4043City of Bozeman, Montana Commission Resolution 4184City of Bozeman, Montana Commission Resolution 4185City of Bozeman, Montana Commission Resolution 4327City of Bozeman, Montana Commission Resolution 4328WaterSewerCITY OF BOZEMAN, MONTANAWATER AND SEWER RATESPast Ten Fiscal YearsUnaudited statistical section DEBT CAPACITY SECTION 140FiscalYear GeneralSpecial Tax IncrementWater Wastewater Total PercentageEnded Obligation Notes AssessmentFinancing Revenue State of MT Primary of Personal PerJune 30,BondsPayableBondsBondsBondsRLF LoansGovernmentIncomeCapita2002 6,110,000 443,880 5,515,000 - 2,390,631 - 14,459,511 2.96%500.03$ 2003 10,960,000 377,761 5,152,000 - 1,995,578 - 18,485,339 3.47%615.81$ 2004 10,565,000 308,397 4,149,800 - 1,582,299 - 16,605,496 2.82%526.41$ 2005 6,800,000 235,628 6,065,600 - 1,150,633 - 14,251,861 2.19%428.38$ 2006 6,325,000 159,286 7,004,769 - 700,412 - 14,189,467 1.99%408.94$ 2007 5,840,000 79,198 6,736,700 - 226,460 - 12,882,358 1.63%351.32$ 2008 5,340,000 - 5,601,000 6,000,000 143,729 - 17,084,729 2.00%453.86$ 2009 4,815,000 - 5,211,000 5,850,000 56,615 - 15,932,615 1.72%408.49$ 2010 4,275,000 851,071 4,819,000 5,695,000 28,992 7,902,127 23,571,191 2.40%600.05$ 2011 3,710,000 509,705 4,351,500 5,535,000 - 24,017,080 38,123,285 4.16% 1,022.62$ Sources: City Manager's Final Adopted BudgetCity of Bozeman Finance DepartmentBusiness-Type ActivitiesGovernmental ActivitiesCITY OF BOZEMAN, MONTANARATIO OF OUTSTANDING DEBT BY TYPEPast Ten Fiscal YearsUnaudited statistical section 141Percentage ofFiscalActual Year GeneralSpecialTaxableEnded Obligation AssessmentValue of PerJune 30, BondsBondsTotalProperty Capita20026,110,000 - 11,625,000 27.4% 402.01$ 2003 10,960,000 - 16,112,000 35.0% 536.74$ 2004 10,565,000 - 14,714,800 29.7% 466.47$ 20056,800,000 - 12,865,600 24.3% 386.71$ 20066,325,000 - 13,329,769 23.0% 384.17$ 20075,840,000 - 12,576,700 19.9% 342.99$ 20085,340,000 6,000,000 11,340,000 16.4% 301.25$ 20094,815,000 5,850,000 10,665,000 14.4% 273.43$ 20104,275,000 5,695,000 9,970,000 12.7% 253.81$ 20113,710,000 5,535,000 9,245,000 11.4% 247.99$ Source: City Manager's Final Adopted BudgetGeneral Bonded Debt OutstandingCITY OF BOZEMAN, MONTANARATIOS OF GENERAL BONDED DEBT OUTSTANDINGPast Ten Fiscal YearsUnaudited statistical section 142ApplicableApplicableAs ofto City of As of to City ofJune 30, 2011 Bozeman June 30, 2010 BozemanCity of Bozeman, MontanaGeneral obligation debt3,710,000 4,275,000$ Less: Debt Service Fund balance (deficit)71,761 (20,240) Net general obligation debt3,638,239$ 100% 4,295,240$ 100%Overlapping Bonded IndebtednessGallatin County:Various issues44,740,000$ 34% 46,485,000$ 34%Bozeman School District #7:Various issues67,885,000 70% 71,685,000 70%Total overlapping bond indebtedness112,625,000$ 118,170,000$ Sources:City of Bozeman Finance DepartmentGallatin County Assessor's OfficeBozeman School District #7CITY OF BOZEMAN, MONTANARATIOS OF GENERAL BONDED DEBT OUTSTANDINGPast Two Fiscal YearsUnaudited statistical section 1432002200320042005200620072008200920102011Debt limit*17,643,745 21,560,620 23,737,036 26,559,967 29,591,000 34,755,653 54,804,000 60,185,000 66,375,000 70,675,000Total net debt applicable to limit (6,424,838) (7,747,833) (7,588,181) (3,750,411) (6,568,569) (5,595,558) (5,423,128) (4,842,905) (4,295,240)$ (3,638,239)$ Legal debt margin11,218,907$ 13,812,787$ 16,148,855$ 22,809,556$ 23,022,431$ 29,160,095$ 49,380,872$ 55,342,095$ 62,079,760$ 67,036,761$ Total net debt applicable to the limit 36.4% 35.9% 32.0% 14.1% 22.2% 16.1% 9.9% 8.0% 6.5% 5.1% as a percentage of debt limit*2.5% of total market value of taxable property of $2.827 BillionSource: City Manager's Final Adopted BudgetFiscal YearCITY OF BOZEMAN, MONTANALEGAL DEBT MARGIN INFORMATIONPast Ten Fiscal YearsUnaudited statistical section 144FiscalYear UtilityLess:SpecialEnded Service OperatingAssessmentJune 30,Charges Expenses Principal Interest CoverageCollections Principal Interest Coverage- 20023,556,447 (2,326,317) (376,978) (120,747) 732,405 979,283 (709,000) (336,405) (66,122) 20033,935,636 (2,271,120) (395,052) (103,613) 1,165,851 1,050,180 (479,000) (270,202) 300,978 20044,359,299 (2,440,762) (413,280) (85,391) 1,419,866 932,771 (997,200) (250,571) (315,000) 20054,429,294 (2,647,507) (431,666) (65,963) 1,284,158 588,887 (2,951,200) (364,814) (2,727,127) 20065,401,069 (2,866,140) (450,220) (45,317) 2,039,392 1,472,058 (437,700) (297,876) 736,482 20076,124,533 (3,114,053) (473,952) (23,391) 2,513,137 1,428,084 (268,069) (309,119) 850,896 20086,163,883 (3,769,941) (82,731) (10,231) 2,300,981 1,178,846 (1,135,700) (278,393) (235,247) 20095,938,745 (3,770,800) (87,009) (5,978) 2,074,958 1,022,641 (390,000) (241,395) 391,246 20105,860,144 (3,950,566) (27,622) (2,440) 1,879,516 989,977 (392,000) (223,763) 374,214 20116,013,211 (3,869,048) (28,992) (1,070) 2,114,101 1,134,049 (468,500) (211,204) 454,345 Water Revenue BondsSpecial Assessment BondsDebt ServiceDebt ServiceCITY OF BOZEMAN, MONTANAPLEDGED-REVENUE COVERAGEPast Ten Fiscal YearsUnaudited statistical section DEMOGRAPHICS AND ECONOMIC SECTION 145FiscalEstimatedPerResidentsYearAnnual %Capita Median with Bachelors K-12EndedChange in Personal Personal Age Degree orSchool UnemploymentJune 30,Population Population IncomeIncome (years) Higher Schooling EnrollmentRate2002 28,917 n/a488,963,336$ 16,909$ 25.649.1%5,124 3.4%200330,018 3.7% 532,959,384$ 17,755$ 25.849.2%5,101 3.3%200431,545 4.8% 588,074,287$ 18,642$ 25.949.3%5,086 3.2%200533,269 5.2% 651,224,461$ 19,575$ 26.149.4%5,198 2.8%200634,698 4.1% 713,156,262$ 20,553$ 26.349.5%5,332 2.0%200736,668 5.4% 791,328,448$ 21,581$ 26.549.5%5,356 1.5%200837,643 2.6% 852,988,317$ 22,660$ 26.749.6%5,432 3.7%200939,004 3.5% 928,019,928$ 23,793$ 26.949.7%5,463 6.6%201039,282 0.7% 981,366,084$ 24,983$ 27.049.8%5,509 7.4%201137,280 -5.4% 915,596,800$ 24,560$ 27.251.3%5,679 7.3%Sources: Bozeman Area Chamber of Commerce Bozeman Public Schools U.S. Census BureauCITY OF BOZEMAN, MONTANADEMOGRAPHIC AND ECONOMIC STATISTICSPast Ten Fiscal YearsUnaudited statistical section 146PrivateEmployerPrivateEmployerEmployersClassEmployersClassBy ClassSizeBy ClassSizeBozeman Deaconess Hospital9Bozeman Deaconess Hospital8RightNow Technologies8Capital Opportunities (Home Care Services)8Wal-Mart7Ranch & Home Supply (Murdoch's ?)7Albertson’s6Wal-Mart7Community Food Co-Op6Albertson's6Costco6Bozeman Daily Chronicle6First Security Bank6Costco6Gibson Guitar6First Security Bank6GranTree Inn6Gibson Guitar6Kenyon Noble Lumber & Hardware6GranTree Inn6Lowes6Kenyon Noble Lumber & Hardware6Martel Construction6Louisiana Pacific6McDonald's6Martel Construction6Murdoch's Ranch & Home Supply6Montana Conservation Corps6Ressler Chevrolet Cadillac & Toyota6Montana Furniture Industries6Rosauers Supermarket6Right Now Technologies6Simkins Hallin Lumber & Hardware6Simkins Hallin Lumber6Target6Target6Town & Country Foods6Video Lottery Consultants6Zoot Enterprises6Zoot Enterprises6PublicEmployerPublicEmployerEmployersClassEmployersClassBy ClassSizeBy ClassSizeMontana State University9Montana State University9School District #78School District #78City of Bozeman7Gallatin County7Gallatin County7City of Bozeman7Class 6 - 100 to 249 EmployeesClass 7 - 250 to 499 EmployeesClass 8 - 500 to 999 EmployeesClass 9 - 1,000+ EmployeesSource: Montana Department of Labor & Industry20112002CITY OF BOZEMAN, MONTANAPRINCIPAL EMPLOYERSCurrent Year and Ten Years AgoUnaudited statistical section OPERATING SECTION 14720022003200420052006200720082009 2010 2011General GovernmentCity commission4.00 4.00 4.00 4.00 2.10 2.10 2.10 2.10 2.10 2.10 City manager5.50 6.50 7.50 7.50 9.50 9.50 10.50 10.50 11.50 11.50 Municipal court5.00 5.00 6.00 6.00 6.00 6.00 7.00 7.00 7.50 8.50 City attorney6.00 6.00 6.00 6.00 6.00 6.00 7.00 6.00 11.50 7.00 Finance16.75 16.00 16.00 16.00 16.00 16.00 10.00 10.00 8.75 8.75 Information Technology (used to be in Finance)- - - - - - 6.00 6.00 5.88 5.88 Office of planning & community development11.70 12.70 12.70 12.70 12.70 12.70 15.20 13.70 12.20 12.20 Zoning- - - - - - - - - - Building maintenance0.55 0.55 1.55 2.55 2.55 2.55 3.05 3.55 3.55 3.55 Total general government49.50 50.75 53.75 54.75 54.85 54.85 60.85 58.85 62.98 59.48 Public SafetyPolice department48.25 48.25 48.25 49.75 52.75 54.75 57.75 62.75 71.75 71.75 Fire department28.75 29.75 29.75 29.25 29.25 31.25 34.25 45.25 41.75 41.75 Building inspection10.05 10.55 10.55 15.05 15.05 15.55 16.55 13.55 9.55 10.55 Parking1.75 2.75 2.75 2.75 2.75 3.75 3.75 4.75 4.75 4.75 9-1-1- - - - - - - - - - Total public safety88.80 91.30 91.30 96.80 99.80 105.30 112.30 126.30 127.80 128.80 Public ServicesPublic services administration7.15 7.15 7.15 7.15 7.15 7.15 8.15 8.15 8.15 8.15 Streets13.62 13.62 13.62 13.62 13.62 15.62 15.62 17.62 17.62 17.62 Water plant9.27 9.27 9.27 9.27 9.27 9.27 9.27 9.27 9.27 9.27 Water operations13.12 14.12 14.12 14.12 14.62 14.62 15.62 16.62 15.62 15.62 Wastewater operations6.75 7.75 7.75 7.75 9.25 9.25 10.25 11.25 10.25 10.25 Wastewater plant15.87 15.87 14.87 14.87 14.87 14.87 14.87 15.87 15.87 15.87 Solid waste collection10.74 10.74 10.74 11.74 11.74 12.74 14.74 14.74 14.74 14.74 Solid waste disposal7.66 7.66 7.66 7.66 7.66 7.66 2.00 - - - Solid waste recycling- - - - - - 1.00 1.00 1.00 1.00 Vehicle maintenance2.50 2.50 2.50 3.50 3.50 4.00 3.00 4.00 5.00 5.00 Total public services86.68 88.68 87.68 89.68 91.68 95.18 94.52 98.52 97.52 97.52 Public WelfareCemetery5.25 5.25 5.25 5.25 5.25 5.25 5.75 5.75 5.75 5.75 Parks11.95 11.95 11.95 11.95 11.95 12.95 13.45 13.45 13.45 13.45 Forestry3.60 3.60 3.60 3.60 3.60 4.60 4.60 4.60 4.60 4.60 Library19.66 19.66 19.66 19.66 19.66 19.66 20.66 21.66 21.66 21.66 Recreation14.65 14.65 14.65 14.65 14.65 14.65 14.90 15.00 15.00 15.00 Community development- 1.00 1.00 1.00 1.00 1.00 2.00 1.00 2.00 2.00 Total public welfare55.11 56.11 56.11 56.11 56.11 58.11 61.36 61.46 62.46 62.46 Total all funds280.09 286.84 288.84 297.34 302.44 313.44 329.03 345.13 350.76 348.26 Source: City Manager's Final Adopted BudgetFiscal Year Ended June 30,CITY OF BOZEMAN, MONTANAFULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION/PROGRAMPast Ten Fiscal YearsUnaudited statistical section 148200220032004200520062007200820092010 2011FinanceSID Statements9,525 9,955 10,443 10,443 11,086 11,086 14,919 15,000 15,816 16,000 Utility Bills97,627 101,303 105,720 111,463 111,463 112,775 134,460 134,000 135,000 135,000 Grants Recorded and Reported19 23 25 26 25 26 13 30 30 35 Business Licenses2,742 2,812 3,360 3,588 3,596 3,596 3,836 3,800 4,260 3,750 PoliceNumber of Officers44 39 40 42 47 45 51 52 52 Calls for Service33,514 34,000 34,797 36,842 39,790 40,758 42,728 45,145 43,385 41,490 Arrests3,709 3,800 2,400 2,106 2,299 2,524 2,581 2,853 2,338 2,198 Traffic Citation Issued **n/an/an/an/an/an/an/an/a 3,311 2,771 Traffic Stops **n/an/an/an/an/an/an/an/a 10,702 9,191 Traffic Crashes1,732 1,800 1,644 1,521 1,666 1,780 1,519 1,302 1,194 1,494 FireFires, Hazardous Conditions & Misc220 265 295 280 230 242 230 248 278 278 Emergency Medical Services1,103 1,300 1,398 1,270 1,373 1,454 1,658 1,441 1,483 1,483 Service Calls43 50 50 55 96 118 148 145 187 187 Building InspectionCommercial Permits: Number 24 30 22 37 44 50 234 284 259 494 Value (Millions)23.27 22.04 27.91 36.85 43.11 38.54 103.98 100.71 38.55 25.91 Residential Permits: Number272 440 257 927 890 764 431 705 974 2,011 Value (Millions)40.50 67.29 34.11 118.25 135.64 118.15 77.60 28.10 18 33 WaterNew Service Main Taps21 28 30 39 76 79 15 39 16 20Meter Replacement/Repair00100120844663878368650650Water Main Breaks13 1366585644WastewaterMain Line Flushing (in Miles)74 94 120 134 101 95 110 90 81 90New Infrastructure TV (in Miles)4.577610194.8111New Service Taps27 33 20 41 29 37 22 15 5 8Population Served32,500 33,800 35,150 36,560 35,700 37,300 38,900 40,500 41,800 42,600 Solid WasteResidential Customers5,239 5,549 5,551 5,800 6,310 6,608 6,779 6,957 7,092 7,130 Commercial Customers168 202 202 200 211 239 254 262 271 268 Recycling Customers- - - - - - 484 881 965 970 Yearly Tonnage Collected7,725 8,500 8,499 9,000 11,171 11,953 11,879 10,397 10,920 10,657 Vehicle MaintenanceWork Orders Processed1,156 1,261 1,275 1,300 1,068 1,070 974 870 1,005 1,435 Gallons of Oil Disposed10,825 14,382 13,500 14,500 11,384 10,000 9,350 9,350 9,175 9,445 ParksPark Reservations 425 500 330 330 340 340 360 221 280 280 Sources: City Manager's Final Adopted Budget City of Bozeman Finance Department** Not used as an operating indicator until 2010Fiscal Year Ended June 30,CITY OF BOZEMAN, MONTANAOPERATING INDICATORS BY FUNCTION/PROGRAMPast Ten Fiscal YearsUnaudited statistical section 1492002 2003 2004 2005 2006 2007 2008 2009 2010 2011PoliceStations 1 1 1 1 1 1 1 1 1 1 Patrol Units (Cars)12 13 14 15 16 17 18 19 20 20 Patrol Units (Motorcycles)2 4 4 4 4 4 4 4 4 4 FireStations2 2 2 2 2 2 2 3 3 3 Fire Trucks5 5 5 5 5 5 5 5 6 6 StreetsStreet & Alley Mileage145.364 145.364 172.817 188.694 196.773 229.905 234.736 242.650 246.951 254.565Lineal Fee of Curb Replaced160 562 275 1,330 737 750 1,526 240 00Number of Signs Installed309 310 370 649 756 652 652 732 750 220WaterWater Mains (Miles)191.95 194.30 202.22 218.87 230.15 247.23 250.16 253.73 256.32 257.51Fire Hydrants1,704 1,730 1,888 1,973 2,045 2,206 2,238 2,274 2,308 2,324 WastewaterSanitary Sewers (Miles)147.62 150.31 161.69 171.29 179.45 198.17 200.01 201.37 205.00 205.00Number of Manholes3,298 3,321 3,345 3,397 3,571 3,888 3,946 3,988 4,034 4,034 Solid WasteNumber of Collection Vehicles3344576777Number of Roll-off Trucks1111123444Number of Recycling Trucks0 `000000111ParksFormal Turf Acres218 228 250 250 258 258 265 120 120 120Natural Parkland Acres219 219 118 118 110110115205 205 205Miles of Trails22 23 25 25 45 45 50 50 51 54Sources: City Manager's Final Adopted Budget City of Bozeman Finance Department City of Bozeman GIS Department City of Bozeman Police DepartmentFiscal Year Ended June 30,CITY OF BOZEMAN, MONTANACAPITAL ASSET STATISTICS BY FUNCTION/PROGRAMPast Ten Fiscal YearsUnaudited statistical section PART IV REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS AND SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AS REQUIRED BY U.S. OFFICE OF MANAGEMENT AND BUDGET CIRCULAR A-133, SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 AUDITS OF STATE AND LOCAL GOVERNMENTS AND NON-PROFIT ORGANIZATIONS 150 CITY OF BOZEMAN, MONTANA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2011 Grant Grant FederalGrant Balance Revenue Revenue Total Awards BalanceFEDERAL GRANTORCFDA Award June 30, 2010 Received Accrued Revenue Expended June 30, 2011U.S. Department of JusticeRural Domestic Violence Assistance Program 16.589 63,786$ -$ 63,786$ -$ 63,786$ 63,786$ -$ Passed through Gallatin County:Missouri River Drug Task Force 16.579 85,708 - 85,708 - 85,708 85,708 - Automated Fingerprint ID System 2010-DJ-BX-1148 16.738 40,204 - 40,204 - 40,204 40,204 - U.S. Department of TransportationPassed through MT Dept. of Transportation:Highway Traffic SafetySTEP-Bozeman Occupant Protection: 00-03-09-02 20.600 5,621 - 5,621 5,621 5,621 - CTEP Community Transportation Enhancement ProjectsSTPE1299(22) - College Pathway 20.205 239,069 - 184,377 54,692 239,069 239,069 - Safe Routes to Schools 20.205 7,253 - 7,253 - 7,253 7,253 - U.S. Department of InteriorPassed through the Historical Society:Historic Preservation 15.904 6,000 - 6,000 - 6,000 6,000 - Federal Emergency Management AgencySAFER Firefighter Grant (Dept. of Homeland Security) 97.083 179,155 - - 179,155 179,155 179,155 - Fire FEMA Assistance to Firefighters Grant - Opticom 83.554 108,835 - 108,835 - 108,835 108,835 - U.S. Department of AgriculturePassed through MT Department of Resources & Conservation Cooperative Forestry Assistance 10.664 5,000 - 5,000 - 5,000 5,000 - U.S. Department of Energy - National Energy Tech LaboratoryEnergy Efficiency and Conservation Block Grant 81.128 54,759 - 54,759 - 54,759 54,759 - 151 CITY OF BOZEMAN, MONTANA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (CONTINUED) FOR THE YEAR ENDED JUNE 30, 2011 Grant Grant FederalGrant Balance Revenue Revenue Total Awards BalanceFEDERAL GRANTORCFDA Award June 30, 2010 Received Accrued Revenue Expended June 30, 2011U.S. Environmental Protection AgencySTAG Grant - Water Reclamation Facility Digester #3 66.709 436,500 - 436,500 - 436,500 436,500 - WRF A: Admin Bldg ARRA Forgiveness - Subordinate Lien Taxable Series 2010A Bond 66.458 390,700 - 390,700 - 390,700 390,700 - WRF B: Admin Bldg ARRA Forgiveness - Series 2010B Bond 66.458 359,300 - 359,300 - 359,300 359,300 - WRF E: Digester 2010 CAP Loan forgiveness: Subordinate Lien Taxable Series 2010E 66.458 384,000 - 384,000 - 384,000 384,000 - WRF F: Digester 2010 CAP Loan forgiveness - Series 2010F Bond forgiveness 66.458 816,000 - 816,000 - 816,000 816,000 - U.S. Department of Housing & Urban DevelopmentPassed through MT Department of Commerce:HUD EDI-SP #B-10-SP-MT-0075 14.251 714,849 - 412,672 302,177 714,849 714,849 - Total Federal Financial Assistance 3,896,738$ -$ 3,360,715$ 536,024$ 3,896,738$ 3,896,738$ -$ 152 CITY OF BOZEMAN, MONTANA NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS June 30, 2011 NOTE 1. REPORTING ENTITY The City of Bozeman’s reporting entity is defined in Note 1 of the City’s financial statements. Expenditures of federal awards received directly from federal agencies as well as federal awards passed through other government agencies are included in the accompanying schedule. NOTE 2. BASIS OF ACCOUNTING The accompanying Schedule of Expenditures of Federal Awards is presented using the modified accrual basis of accounting, which is described in Note 1 of the City’s financial statements. NOTE 3. NON-CASH TRANSACTIONS The City had no non-cash transactions in the accompanying schedule of expenditures of federal awards. INDEPENDENT AUDITORS’ 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 Honorable Mayor, City Commissioners, and City Manager of the City of Bozeman, Montana: We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Bozeman, Montana, as of and for the year ended June 30, 2011, and have issued our report thereon dated December 15, 2011. 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. Internal Control over Financial Reporting In planning and performing our audit, we considered the City of Bozeman’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over financial reporting. 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 entity’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph of the section and was not designed to identify all deficiencies in internal control over financial reporting that might e deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Junkermier ClarkCampanella Stevens P.C.220 West Lamme, Suite 3AP.O. Box 1965Bozeman, MT 59771-1965Ph. (406) 587-1277Fx. (406) 587-8794www.jccscpa.comBozeman Great Falls Hamilton Helena Kalispell Missoula WhitefishCertified Public Accountants Business Advisors 154 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Bozeman’s financial statements are free of material misstatement, we performed tests of its 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 that is required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the City of Bozeman’s management, Board of Commissioners, the Montana Department of Administration, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Junkermier, Clark, Campanella, Stevens, P.C. Bozeman, Montana December 15, 2011 INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Honorable Mayor, City Commissioners, and City Manager of the City of Bozeman, Montana: Compliance We have audited the City of Bozeman’s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the City of Bozeman’s major federal programs for the year ended June 30, 2011. The City of Bozeman’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirement of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the City of Bozeman’s management. Our responsibility is to express an opinion on the City of Bozeman’s compliance based on our audit. 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 OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City of Bozeman’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. Our audit does not provide a legal determination of the City of Bozeman’s compliance with those requirements. In our opinion, the City of Bozeman complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2011. Junkermier ClarkCampanella Stevens P.C.220 West Lamme, Suite 3AP.O. Box 1965Bozeman, MT 59771-1965Ph. (406) 587-1277Fx. (406) 587-8794www.jccscpa.comBozeman Great Falls Hamilton Helena Kalispell Missoula WhitefishCertified Public Accountants Business Advisors 156 Internal Control Over Compliance Management of the City of Bozeman is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City of Bozeman’s internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, 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 of Bozeman’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. 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 over compliance that might be deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of the City of Bozeman’s management, Board of Commissioners, the Montana Department of Administration, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Junkermier Clark Campanella & Stevens, PC Bozeman, Montana December 15, 2011 157 CITY OF BOZEMAN SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended June 30, 2011 SUMMARY OF AUDIT RESULTS Financial Statements The auditor’s report expresses an unqualified opinion. No significant deficiencies or material weaknesses related to internal control over financial reporting were identified. No instances of noncompliance material to the financial statements were noted. Federal Awards No significant deficiencies or material weaknesses related to the internal control over major programs were identified. The auditor’s report on compliance for the major federal awards programs expresses an unqualified opinion. The audit did not disclose any audit findings that are required to be reported in accordance with section 510(a) of Circular A-133. Major Programs The major programs are: Economic Development Initiative CFDA 14.251, Water Treatment Facility Improvements 66.709, and Capitalization Grants for Clean Water 66.458. The threshold for distinguishing Types A and B programs was $300,000. The City of Bozeman was determined to be a low-risk auditee. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAM AUDIT None reported. 158 CITY OF BOZEMAN CURRENT STATUS OF PRIOR YEAR RECOMMENDATIONS Year Ended June 30, 2011 There were no prior year audit findings relative to federal award programs.